Re: Scottsdale Insurance Company, et al. v. Addison Insurance Company, et al.
On December 9, 2014, the Missouri Supreme Court handed down its en banc opinion in the case of Scottsdale Insurance Company, et al. v. Addison Insurance Company, et al. In doing so, they made some significant changes in the law of “bad faith” in the State of Missouri. On the other hand, the elements of that claim, as well as what constitutes bad faith, have been more clearly defined.
The underlying case involved both a primary and excess carrier. The primary carrier, United Fire and Casualty Company, insured Wells Trucking, Inc. for an accident involving a wrongful death. It had a Million Dollar policy limit. There were numerous demands made to United Fire to settle the underlying case for its policy limit. United Fire failed to do so. Thereafter, the Plaintiff refused to accept One Million Dollars in settlement and eventually involved the excess carrier, Scottsdale Insurance Company, in a mediation.
The case was finally settled for Two Million Dollars, One Million from United Fire and One Million from Scottsdale. Wells Trucking and Scottsdale then filed suit against United Fire for bad faith refusal to settle. The theories Scottsdale presented included by assignment to Scottsdale of Wells Trucking’s bad faith claim against United Fire, conventional subrogation and equitable subrogation. There were a number of procedural issues involving a summary judgment motion filed by Wells Trucking and Scottsdale. The case was ultimately transferred to the Supreme Court of Missouri.
United Fire’s defense was that Wells Trucking and Scottsdale could not prove the bad faith refusal to settle claim because the essential elements of the claim were not met. Specifically, United Fire said that because it ultimately tendered its Million Dollar policy limit; it had not refused to settle; that Wells Trucking never demanded it settle with the primary policy limit; that Wells Trucking had not suffered an excess judgment; and the bad faith claim could not be assigned.
The Supreme Court disagreed. It found that a bad faith refusal to settle action will lie against a liability insurer if the following elements are met:
(1) The insurance carrier reserves the exclusive right to contest or settle any claim; and
(2) The carrier prohibits the insured from voluntarily assuming any liability or settling any claims without consent; and
(3) It is guilty of fraud or bad faith in refusing to settle a claim within the limits of the policy; and
As to what constitutes bad faith, the Court stated that bad faith is “the intentional disregard of the financial interests of the insured in the hope of escaping the responsibility imposed upon the insurer by its policy.”
The Court concluded that to require an excess judgment would force the insured to go to trial after its insurer wrongfully refuses to settle instead of permitting the insured to protect itself from some further liability by settling. The insurers obligation to act in good faith in settling a third party claim is part of what the insured pays for with its premiums. “When the insurer refuses to settle, the insured loses the benefit of an important obligation owed by the insurer.” For these reasons, the Court found that the absence of an excess judgment is not fatal to a bad faith refusal to settle claim.
The same is true of United Fire’s ultimate payment of its Million Dollar policy limit. The Court concluded that “an insurer may be liable over and above its policy limit if it acts in bad faith in refusing to settle the claim against its insured within its policy limits when it has a chance to do so.”
Finally, the Court found a bad faith claim in Missouri for refusal to settle may be assigned. The rational for this decision is that an action for breach of the insured’s duty to act in good faith in settling third party claims, while a tort, arises from a contract of insurance, which is not of a purely personal nature. “An action for torts may be assigned, provided they arise from wrongs causing injury to real or personal property, or from frauds, deceits or other torts by which an estate, real or personal, has been injured, diminished or damaged.”
The Court also found the following:
(1) A demand to settle the case by the insured to the insurance company for the policy limits or within policy limits is not required. (Note however, the Court would consider such demand “highly relevant” in determining bad faith in a subsequent bad faith lawsuit.)
(2) In addition, a bad faith claim may be pursued by conventional subrogation or equitable subrogation. This is true even though there is no specific monetary loss to the insured. The Court stated that an insurer’s duty to act in good faith does not disappear when a prudent insured obtains excess coverage.
Of significance in the decision is that the Court consistently refers to a bad faith refusal to settle. While that fits with the facts of this particular case, it is possible that the Court will not recognize a bad faith failure to settle because the definition of bad faith used by the Court requires “the intentional disregard of the financial interests of the insured.”