American Guarantee & Liability Insurance v. United States Fidelity & Guaranty Co.
668 F.3d 991
8th Cir.2012Background
- Excess insurer Zurich and primary insurer USF&G insured CF, whose tractor-trailer involvement in a fatal Missouri accident led to a large verdict against CF.
- CF carried a five-million-dollar primary policy with USF&G (fronting) and two excess layers, including Zurich's fifty-million-dollar policy.
- CF filed for bankruptcy in 2002; CF Trust later managed remaining CF assets and disputes to maximize value for creditors.
- In 2004–2005, a global mediation and subsequent settlements reduced exposure; verdicts totaled about $46.06 million, with post-trial reductions and set-offs leaving Zurich exposed to $17 million.
- Zurich sued USF&G for bad faith failure to settle within policy limits; USF&G sought dismissal/transfer; the actions were consolidated in Missouri.
- The district court applied Missouri law, granting summary judgment for USF&G, holding Missouri law barred Zurich’s direct bad-faith claim by an excess carrier and required a demand from the insured; Zurich appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What law governs the bad-faith claim? | Zurich: Washington law applies due to CF’s prior Washington connections. | USF&G: Missouri law governs under forum choice rules. | Missouri law applies. |
| Does Ganaway/ demand requirement apply to a bad-faith claim by an excess carrier? | Zurich argues Ganaway exception or other facts create a genuine dispute on demand. | CF Trust failure to demand within policy limits defeats bad-faith claim under Missouri law. | No demand within policy limits; claim fails under Missouri law. |
| Can Zurich bring a direct bad-faith claim against USF&G or rely on equitable subrogation in Missouri? | Equitable subrogation permits a direct insurer-to-insurer claim. | Missouri law does not recognize a direct duty between primary and excess insurers absent a valid demand; subrogation not reached. | Affirmed summary judgment; issue not reached because demand failure defeats the claim. |
| Did the district court properly determine the place where the relationship and contacts are centered for choice-of-law purposes? | Washington has significant ties due to CF’s former operations. | Missouri has the more significant relationship due to underlying litigation and conduct. | District court did not err; Missouri law applies. |
| Was there a genuine issue of material fact on whether the CF Trust’s participation created a demand obligation? | Disputes about whether the Trust was kept advised and had authority to demand. | Trust controlled settlement decisions and could have demanded within policy limits but did not. | No genuine issue; Trust did not demand within policy limits. |
Key Cases Cited
- Birnstill v. Home Sav. of Am., 907 F.2d 795 (8th Cir. 1990) (injury location under §145 is significant in choice-of-law)
- American Home Assurance Co. v. L & L Marine Service, Inc., 153 F.3d 616 (8th Cir. 1998) (non-party insured's home state not controlling; focus on actual parties)
- Dyer v. Gen. Am. Life Ins. Co., 541 S.W.2d 702 (Mo. Ct. App. 1976) (demand within policy limits an essential element)
- Ganaway v. Shelter Mut. Ins. Co., 795 S.W.2d 554 (Mo. Ct. App. 1990) (Ganaway exception—insurer may be excused from demand in certain conditions)
- State Farm Fire & Cas. Co. v. Metcalf (concurring), 861 S.W.2d 751 (Mo. Ct. App. 1993) (concurrence discusses exceptions to demand rule)
- Titan Energy, Inc. v. National Union Fire Ins. Co., 837 F.2d 325 (8th Cir. 1988) (bankruptcy assignment influences contract/insurance considerations)