449 S.W.3d 16
Mo. Ct. App.2014Background
- Advantage Buildings was sued (construction defects) by Alsation; Advantage tendered defense to its insurer Mid-Continent under a CGL policy with $1,000,000 limits and umbrella coverage.
- Mid-Continent issued two letters (Aug 12 and Sept 2, 2008) saying it would investigate and reserving rights, then retained counsel and defended under a conditional reservation but did not clearly inform Advantage of the results of its coverage analysis.
- Mid-Continent's internal file early-on limited coverage to ~ $50,000 (interior damage) and by Oct 2009 recognized multi-million dollar uncovered exposure, but it did not advise Advantage until four days before trial in July 2010.
- During mediation/trial-prep period, Mid-Continent refused to make meaningful settlement offers (authorized only $50,000 at mediation) and failed to respond to settlement offers of $800,000 and $1,000,000 (policy limit); Advantage ultimately settled with Alsation for assignment of its claims against Mid-Continent and Alsation obtained a $4,604,000 judgment against Advantage.
- Mid-Continent sued for declaratory relief and later obtained summary judgment on coverage applying Oklahoma law (no coverage), but the trial court allowed Advantage’s Missouri bad-faith failure-to-settle tort claim to go to a jury; the jury found bad faith, awarded $3,000,000 compensatory and $2,000,000 punitive damages.
- On appeal, the court affirmed liability for compensatory damages (insurer estopped from denying coverage because reservation of rights was ineffective/timely) but reversed and remanded for a new trial on punitive-damage liability and on amounts of compensatory and punitive damages because of instructional/verdict-form error.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Advantage’s bad-faith failure-to-settle claim submissible? | Mid-Continent assumed control of defense, Advantage demanded settlement, insurer refused, and acted in bad faith by not informing insured of coverage limits and failing to settle. | Any refusal to settle was lawful because Mid-Continent was investigating and later determined there was no coverage. | Verdict submissible: substantial evidence supported bad faith; JNOV denial affirmed. |
| Did Oklahoma law govern and bar the bad-faith claim? | Advantage: Missouri law governs bad-faith tort; insurer owed duties under Missouri law and failed to reserve rights effectively. | Mid-Continent: Oklahoma law applies and its declaratory judgment of no coverage precludes bad-faith liability. | Moot as to reversal: court held Mid-Continent’s ineffective reservation estopped it from denying coverage; Missouri law applied to bad-faith tort. |
| Was the declaratory-judgment no-coverage ruling admissible at trial / should jury be instructed there was no duty to indemnify? | Advantage: the no-coverage ruling is irrelevant and prejudicial because it post-dates insurer’s conduct; would mislead jury. | Mid-Continent: the court’s finding of no coverage is directly relevant to its belief and motive—admissible and should be in instruction. | Court did not abuse discretion excluding the no-coverage ruling and refusing Instruction E; exclusion affirmed. |
| Were punitive damages instructions and the first-stage verdict form proper in a bifurcated trial? | Advantage: instruction and verdict form were adequate. | Mid-Continent: court erred by submitting an unmodified MAI punitive-damages instruction and a verdict form that did not limit the first-stage award to compensatory damages, causing prejudice. | Reversed and remanded: trial court erred; prejudicial instructional and verdict-form errors require new trial on punitive liability and amounts of compensatory and punitive damages. |
Key Cases Cited
- Rinehart v. Shelter Gen. Ins. Co., 261 S.W.3d 583 (Mo. Ct. App.) (standards for submissible case/JNOV review)
- Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64 (Mo. Ct. App.) (insurer’s duty to defend based on facts known at outset; reservation-of-rights principles)
- Kinnaman-Carson v. Westport Ins. Corp., 283 S.W.3d 761 (Mo. banc) (proper reservation of rights must be clear, timely, and fully inform the insured)
- Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62 (Mo. banc) (insurer duty of good faith; foundation of bad-faith tort against insurer)
- Zumwalt v. Utilities Ins. Co., 228 S.W.2d 750 (Mo.) (bad-faith failure-to-settle recognized; insurer liable for excess judgments when acting in bad faith)
- Shobe v. Kelly, 279 S.W.3d 203 (Mo. Ct. App.) (examples of bad faith: poor investigation, ignoring verdict-exceeding risk, refusing settlement offers, failing to inform insured)
- Mistele v. Ogle, 293 S.W.2d 330 (Mo.) (reserving rights while defending can preclude later denial absent proper reservation)
- Barnett v. La Societe Anonyme Turbomeca France, 963 S.W.2d 639 (Mo. Ct. App.) (MAI comments advisory; better practice to follow bifurcation illustration)