Which entities may be liable for a bad faith failure to settle.
After some confusion concerning the elements necessary to present a bad faith failure to settle claim, the Missouri Supreme Court in 2014 outlined such elements when it handed down its decision in Scottsdale Ins. Co. v. Addison Ins. Co.
In reviewing and utilizing the Scottsdale decision, the Eastern District recently discussed which entities could be liable for a bad faith failure to settle claim in Clayborne v. Enterprise Leasing.
In March 2013, Carlus Parker entered into a Rental Agreement with Enterprise to rent a jeep.
At the time of the rental, Parker declined to purchase insurance coverage from Enterprise and declined to purchase supplemental liability protection which would have provided excess insurance from a third-party insurer. About a week after Parker rented the vehicle, he ran a stop sign and struck Darion Clayborne. At the time of the accident, Parker carried his own liability policy with Benchmark Ins. Co.
Following the accident, counsel for Clayborne sent a letter to Enterprise’s subsidiary, ELCO, offering to settle Clayborne’s injury claims for $25,000 representing the minimum limits of the MVFRL. Two months after this offer, Parker and Clayborne entered into an .065 agreement in which Benchmark would pay $15,000 to Clayborne and Clayborne would not pursue the personal assets of Parker other than Parker’s insurance policies. Soon after the entry of the .065 agreement, Clayborne filed his lawsuit against Parker.
After suit was filed, counsel for Clayborne informed ELCO of the suit. ELCO responded that only Benchmark and not Enterprise had a duty to defend and indemnify Parker. The case then proceeded to a bench trial and a judgment was entered against Parker for $575,000.
After the judgment became final, Clayborne filed an equitable garnishment action against Enterprise and ELCO seeking the $25,000 limit required by the MVFRL.
Parker then filed cross-claims against Enterprise and ELCO for bad faith failure to settle and breach of the contractual duty to defend. Eventually, Enterprise and ELCO tendered $25,000 to Clayborne to settle his equitable garnishment claim resulting in Clayborne dismissing his garnishment claim.
Enterprise and ELCO then moved for summary judgment on Parker’s cross-claims for breach of the duty to defend and bad faith failure to settle. Enterprise and ELCO claimed that they had no duty to defend Parker under the Rental Agreement or MVFRL and neither the Rental Agreement nor the MVFRL gave Enterprise or ELCO the exclusive right to settle claims against Parker or prohibited Parker from voluntarily assuming liability or settling claims without Enterprise’s consent.
The trial court entered judgment in favor of Enterprise and ELCO.
Eastern District Opinion
On appeal, Parker challenged the trial court’s findings that his bad faith claim could not proceed as Enterprise was not an insurance company and did not issue an insurance contract. Parker also challenged the dismissal of his breach of the duty to defend claim on the grounds that even if the Rental Agreement did not contain a duty to defend, Enterprise breached the Rental Agreement by not paying the MVFRL limits when the Clayborne offered to settle his claim for $25,000.
As to the breach of the duty to defend claim, the Eastern District looked to the Rental Agreement and determined that no provision required Enterprise or ELCO to defend Parker or to settle any claims brought against Parker by 3rd parties. Instead, Enterprise and ELCO only owed a duty under the rental agreement and MVFRL to provide $25,000 in coverage to injured parties. The Court reasoned that this duty was fulfilled when Enterprise and ELCO tendered $25,000 to Clayborne to settle his garnishment claim.
While possibly limited to the facts presented and the terms of the Rental Agreement, this portion of the decision potentially limits the involvement of entities with duties under the MVFRL, such as Enterprise, in the settlement process. In cases such as this where the court determined the Rental Agreement did not prohibit the renter from voluntarily settling claims, Enterprise and other entities may have no say in the value of the settlement.
As to the claim for bad faith refusal to settle, the Court noted that Parker declined the option of purchasing insurance coverage from Enterprise and that Parker had never paid any premiums to Enterprise for insurance coverage. In addition, the court determined that neither the rental agreement nor the MVFRL gave Enterprise or ELCO the exclusive right to contest or settle claims against Parker or prevented Parker from settling claims without Enterprises consent.
While the above was noted, the Eastern District honed in on language from Scottsdale Ins. Co. v. Addison Ins. Co. stating that, “[a]ccordingly, a bad faith refusal to settle action will lie when a liability insurer….”
The Court seemed to interpret this language to mean that for a bad faith claim, the Defendant must be an insurance carrier and the agreement between the parties must be a liability insurance policy. Based on this interpretation, the Court found that no bad faith refusal to settle claim could proceed as Enterprise and ELCO were car rental companies and the agreement between Parker and Enterprise was a rental contract, not a liability policy.
While not apparently at issue in the decision, an interesting situation would arise if Enterprise, through the Rental Agreement, had reserved the right to settle all claims or prohibited Parker from settling the claims made against him. In such a situation, it would seem there would need to be some remedy or claim to pursue against Enterprise, however it is unclear what the claim would be.
Since the implied covenant of good faith and fair dealing exists as to all contracts, including rental agreements, there may be post-accident claims handling breaches that could be actionable under traditional contract principals given additional facts. However, based on the Court’s discussion and decision that Enterprise was not a liability insurer, bad faith refusal to settle does not appear to be the proper claim.