449 S.W.3d 16
Mo. Ct. App.2014Background
- Advantage Buildings was sued by Alsation for construction defects; Advantage tendered defense to its insurer Mid‑Continent under a CGL with $1M limits and $2M umbrella.
- Mid‑Continent sent two early reservation‑type letters promising to investigate and to “promptly” advise Advantage of coverage results, and then retained defense counsel who concluded settlement was prudent.
- Mid‑Continent never clearly or promptly communicated its coverage analysis; it concluded early that coverage was essentially limited (~$50k) but did not advise Advantage until four days before trial in July 2010.
- Mid‑Continent controlled defense and settlement negotiations for nearly two years, made minimal settlement offers (authorized only $50k at mediation), failed to respond to settlement offers within policy limits, and filed a declaratory judgment action shortly before trial.
- Advantage settled with Alsation for practical protection, Alsation obtained a $4.604M judgment against Advantage, and Advantage sued Mid‑Continent for bad‑faith failure to settle; a jury found liability and awarded $3M compensatory and $2M punitive damages.
- The trial court’s declaratory judgment later ruled no coverage under the policy; on appeal the court affirmed liability for compensatory damages (estoppel/reservation‑of‑rights failures) but reversed and remanded on punitive damages and damage amounts because of jury instruction/verdict form error.
Issues
| Issue | Plaintiff's Argument (Advantage) | Defendant's Argument (Mid‑Continent) | Held |
|---|---|---|---|
| Reservation of rights — adequacy and timeliness | Mid‑Continent failed to give a clear, timely, specific reservation and did not promptly disclose its coverage analysis; thus it is estopped from denying coverage to policy limits | The letters and conditional defense during investigation constituted a valid reservation of rights and defense was permissibly provided while investigating | Held for Advantage: letters were vague and Mid‑Continent delayed disclosure; its reservation was ineffective and insurer estopped from denying coverage to policy limits |
| Submissibility of bad‑faith failure‑to‑settle claim | Advantage presented substantial evidence on: insurer control of defense, demand to settle within limits, insurer refusal, and intentional bad faith | Mid‑Continent argued no submissible case because it properly reserved rights and ultimately there was no coverage | Held for Advantage: sufficient evidence made bad‑faith claim submissible despite later declaratory ruling because of ineffective reservation and failure to act in insured's interest |
| Admissibility of declaratory judgment (no‑coverage ruling) at bad‑faith trial | Not addressed by plaintiff as a separate contention to admit the later ruling | Mid‑Continent sought to admit the declaratory judgment to show belief of no coverage and to instruct jury Instruction E about no duty to indemnify | Exclusion affirmed: trial court did not abuse discretion; the later no‑coverage ruling post‑dates insurer’s conduct and would be misleading/prejudicial |
| Jury instructions & bifurcation — punitive damages submission and verdict form | Advantage used MAI punitive instruction and a verdict form assessing "damages" (no compensatory label); argued no reversible error or prejudice | Mid‑Continent argued first‑stage instruction and verdict form wrongly allowed award of punitive damages in stage one (statute requires amount be set in stage two) and sought corrective action/new trial | Held for Mid‑Continent on damages: court erred by instructing jury it could award punitive damages in stage one and by using an ambiguous verdict form; reversible error as prejudicial — remand for 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. 2008) (standard for making a submissible case and review of JNOV denial)
- Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64 (Mo. Ct. App. 2005) (insurer duty to defend based on facts known at outset and reservation‑of‑rights principles)
- Kinnaman‑Carson v. Westport Ins. Corp., 283 S.W.3d 761 (Mo. banc 2009) (requirements for a proper, clear, timely reservation of rights and insured acceptance)
- Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62 (Mo. banc 2000) (insurer’s duty of good faith to protect insured’s interests; tort basis for bad‑faith failure to settle)
- Zumwalt v. Utilities Ins. Co., 228 S.W.2d 750 (Mo. 1950) (recognition of insurer liability for bad faith refusal to settle within policy limits)
- Shobe v. Kelly, 279 S.W.3d 203 (Mo. Ct. App. 2009) (examples of bad faith: failing to investigate, ignoring verdict‑exceeding risks, refusing settlement offers, not keeping insured informed)
- Mistele v. Ogle, 293 S.W.2d 330 (Mo. 1956) (defending with knowledge of noncoverage without proper reservation precludes later denial)
- Barnett v. La Societe Anonyme Turbomeca France, 963 S.W.2d 639 (Mo. Ct. App. 1997) (MAI comments advisory; better practice to adapt instructions for bifurcation but not controlling on prejudice)