Satisfying the Excess Judgment
Under Missouri law a judgment creditor has two avenues to collect insurance monies from an insurance carrier to satisfy a judgment. In traditional (“legal”) garnishments under R.S.Mo. §525.240 and Rule 90 the carrier is not considered a party to the proceeding and the judgment creditor is only able to reach the debtor’s property that is in the hands of the carrier. Alternatively, an equitable garnishment is considered to be a direct action against an insurer in which the creditor is attempting to satisfy a judgment with the proceeds of an insurance policy. In addition to collecting the limits of an applicable insurance policy, a claimant who has taken an assignment in a §379.200 proceeding of bad faith claims from the insured, or the insured himself, may collect extra-contractual damages by asserting claims for failure to defend and or bad faith failure to settle the underlying action.
When an insured judgment is within the policy limits, a traditional or equitable garnishment to procure the insurance proceeds is fairly straight forward. However, as the Western District Court of Appeals has declared, choosing the correct garnishment proceeding is vital to a judgment creditor’s ability to collect extra-contractual damages and satisfy the entirety of its excess judgment in a single proceeding.
Allen v. Bryers
The case arose after Franklin Allen was severely injured on the premises of the Sheridan Apartment Complex due to the discharge of a gun. The gun was owned and carried by the property manager of the complex, Wayne Bryers, and discharged during an altercation between him and Allen. As an employee of the apartment complex, Bryers was considered an insured under a CGL Policy issued by Attain Specialty Insurance Company with liability limits of $1,000,000.
Upon receiving notice of Allen’s negligence claim against Bryer’s and again upon the filing of Allen’s personal injury lawsuit, Attain issued reservation of rights letters to Bryers. In part, Attain claimed coverage for Bryers appeared to be precluded under the policy as a result of the Assault and Battery and/or the Expected or Intended Injury exclusions. Bryers rejected the qualified defense offered by Attain and entered into a R.S.Mo. §537.065 agreement with Allen.
After the execution of the §537.065 agreement, a bench trial was held and a judgment in Allen’s favor for $16,000,000 was entered by the Jackson County Circuit Court. In addition, this underlying judgment contained certain factual findings, including that Bryer’s was an employee, that he acted negligently and that the discharge of the handgun did not involve an assault, battery or other intentional conduct.
In an effort to collect on the underlying judgment, Allen filed a garnishment in aid of execution under R.S.Mo. § 525.240 and Rule 90. In addition, Allen, who was the assignee of Bryer’s claims against Attain, alleged Attain failed to defend Bryers and acted in bad faith in refusing to defend and refusing to settle the claims against Bryers.
After Attain denied any liability to pay the underlying judgment, Allen moved for and was granted summary judgment on a finding that the Attain policy provided coverage to Bryers. The Court also ordered that Attain indemnify Bryers for the entirety of the underlying judgment pursuant to Columbia Casualty v. HIAR as a result of Attain’s refusal to defend Bryers. Attain appealed both the finding of coverage and the order requiring indemnification for the entire $16,000,000.
Western District’s Opinion
The Western District quickly dispatched Attain’s claims that no coverage was provided by the policy. In doing so the Court reiterated Missouri law that a carrier is bound by the trial court’s findings on the merits of an underlying action when the carrier had the opportunity but refused to defend such action. Thus Attain was bound by the factual findings contained in the underlying judgment which established coverage.
However, the Western District reversed and vacated the circuit court’s order requiring Attain to indemnify Bryers for the entirety of the underlying judgment. In doing so the Court noted the differences between an equitable garnishment, in which breaches of duties of the insurance policy can be adjudicated, and the traditional (legal) garnishment which Allen had chosen to pursue. Notably the Western District detailed that a traditional garnishment is designed to enforce rights and obligations triggered by the underlying judgment on property in the hands of a third party, the carrier. As an ancillary in rem proceeding, claims alleging breaches of extra contractual duties are beyond the garnishment court’s jurisdiction. As such, Allen’s recovery in the traditional garnishment was limited to the Attain’s $1,000,000 policy limit.
The Court’s ruling seems to provide clear guidance to practitioners seeking to collect a judgment in excess of the limits of the insurance policy from a carrier. While Allen’s recovery in the traditional garnishment was limited to the policy limit of the Attain policy, in footnote 13 the Court went on to state, “Our ruling today is not to suggest that Allen is without any remedy to pursue independent claims of relief against Insurer/Garnishee (that Allen acquired via assignment from Bryers). In fact, in our ruling today, we have identified the nature of cumulative relief available to a judgment creditor in the position of Allen.” Thus Allen’s extra-contractual claims are still viable in an independent action as the Western District limited its decision to defining the relief available in a traditional garnishment.
While carriers may argue that recovery on an equitable garnishment claim alone is restricted to the limits of the insurance policy per Linder v. Hawkeye-Sec. Ins. Co., the judgment creditor with an assignment from the insured should be able to assert claims for bad faith or any other extra-contractual claims against the carrier as a separate count. Thus, in one action, a claimant can recover the proceeds of the insurance policy as well as Columbia Casualty or bad faith damages sufficient to satisfy any excess judgment.
Kirk Presley enjoys helping individuals and other lawyers with bad faith cases.
If you'd like to speak to him about a bad faith case, email or call him at (816) 931-4611.