a practitioner's guide to insurance coverage disputes in missouri

154 / Journal of the MISSOURI BAR

A Practitioner's Guide toInsurance Coverage Disputes in Missouri

BY STEPHEN R. BOUGH & M. BLAKE HEATH1

Stephen R. Bough

M. Blake Heath

The complexities of densely worded provisions in lengthy insurance policies inevitably lead to disputes as to whether a loss or injury is covered. These coverage disputes can arise among insurance companies, their insureds, and third parties who attempt to recover against an insurance company based on the insurance policy issued to the insured. Before assessing the liability of a possible tortfeasor in a personal injury claim with questionable insurance coverage or taking on an insurance company as a client, having some background on the various claims available under Missouri law to address coverage disputes is imperative.

Insurance is available for just about every action a person takes. Insurance exists to protect against losses of income, property or bodily injury. With insurance being sold to cover everything from cars to delays in construction contracts, it is no surprise that one of the first questions that goes through any attorney’s mind when a client comes to her with a loss is, “Does the other side have insurance?” In a perfect world, when a loss occurs and an insurance policy has been purchased to cover the loss, then there would be no issue with payments. Unfortunately, disputes often arise when dealing with the complex language found in insurance policies and the uncertainty for insurance companies in how the

courts will interpret those polices. Consequently, it is not uncommon for insurance companies to deny claims by arguing that the loss simply was not covered. When an insurance company denies a claim, then the only viable option may be to seek recovery in an action against the insurance company.

Claims against insurance companies can be placed into two broad categories: third-party claims, where an injured party seeks recourse against a tortfeasor’s insurance company, or first-party claims, where an insured sues his own insurance company. This article introduces the various actions against insurance companies and discusses the nuances of each theory. The key claims and the leading cases will be addressed. However, while each type of claim is worthy of a more detailed explanation, that will not be done here.

I. Third-Party Claims: Injured Party Against a Tortfeasor’s Insurance Company Third-party claims are suits by a non-party to the insurance contract to recover under the contract. This article will touch on the most frequent methods used to make these claims, including equitable garnishment actions and declaratory judgment actions.

A. Equitable Garnishment Actions Judgment creditors may pursue a judgment debtor’s insurance company provided the debtor was insured at the

May-June 2013 / 155

A Practitioner's Guide toInsurance Coverage Disputes in Missouri

time of the accident and the accident was covered by the policy. In Missouri, recovery can be obtained through an equitable garnishment action.2 While the Supreme Court of Missouri has not ruled, most courts have held that this is not an exclusive remedy for the judgment creditor.3 Judgment creditors can utilize normal garnishment actions under § 525.240, RSMo 2000, and Rule 90 as well.4 Successful defenses by garnishors, the insurance company, enable them to recover attorney’s fees in normal garnishment actions, while equitable garnishment actions provide no such award.5 Rule 90.18(b) includes attorney’s fees, while § 379.200 does not.6

Equitable garnishment actions cannot be recovered immediately, and the judgment debtor must wait to bring the claim under the 30-day rule.7 To proceed against the insurer, the judgment debtor’s insurance company, the injured party or judgment creditor only needs to have a judgment.8 An injured third party may not bring a direct action against the tortfeasor’s insurer

because the third party is not an intended beneficiary of the insurance contract, and thus cannot bring suit until judgment is imposed against the tortfeasor or, in the alternative, the insured.9 After the judgment is entered against the insured and in favor of the injured party, then the injured party must wait 30 days to file its equitable garnishment action in Missouri courts.10 During this delay, many insurance companies bring suit in federal court under declaratory judgment actions.

The 30 days begin to run the day the judgment is entered.11 The insurer owes no duty to pay the injured third party until judgment is entered

against its insured.12 The 30-day rule may not actually be a rule, though. There are no Missouri cases that say filing an equitable garnishment action before the expiration of 30 days strips a Missouri court of subject matter jurisdiction. This could be because, as Cronin v. State Farm Fire & Casualty Co. stated, an equitable garnishment action is not an exclusive, statutory remedy; rather, it “authorizes an ‘equitable’ proceeding.”13 Thus, an equitable garnishment action is one in equity, not at law – and, as this is a suit in equity, specific statutory authorization is not required.

Additionally, the 8th Circuit of the United States Court of Appeals


has interpreted Missouri’s equitable garnishment proceeding to require the injured third party to bring suit against both the insured and the insurer.14 Insurance companies are citizens of the state of the insured and the insured may be a citizen of the state.15 This makes most actions non-removable. Injured third parties may bring suit against reinsurers of the original insurer, as well.16 There, as in all equitable garnishment actions, the issue will be whether the policy of the insurer, now the reinsurer, covered the tortious actions of the insured.17

To recover in an equitable garnishment proceeding, the plaintiff must prove she has obtained a judgment against the insurance company’s insured during the policy period and the injury is covered by the policy.18 The action hinges on whether the contract between the insured and the insurer covered the type of incident at issue.19 In Hangley, the determination of liability by the insurer to a third party turned on whether late payments by the insured to the insurer rendered the contract null.20 Likewise, in Slagle v. Minich, the proceeding hinged on the contractual impact when a blind man, the insured, claims to be well-sighted in his automobile insurance application.21

As the injured third party seeks payment under the tortfeasor’s insurance policy with the insurer, the injured third party “stands in the shoes of the insured.”22 As such, the injured third party has the same rights the insured would have in an action against the insurer on the policy.23 This impacts the burden of proof, because typically the insured must demonstrate the accident is within the policy for purpose of indemnification. But, when it is an equitable garnishment action, the injured third party subrogates to the rights of the insured and takes on this burden.24 If

the insurer seeks to prove an exception to the policy making the accident fall outside of the insurance contract’s coverage, then the burden shifts to the insurer.25 Lastly, the insurer may defend in the equitable garnishment action with any defenses it could have used against the insured, including “no coverage.”26

The amount the judgment creditor can collect in the equitable garnishment proceeding is limited to the amount owed under the policy,27 and § 379.200 does not exist to allow judgment creditors to collect above the policy limit.28

B. Declaratory Judgment Actions Another manner to resolve a dispute regarding the existence of insurance coverage is through the filing of a declaratory judgment action. Rather than wait for a state court determination on the coverage issue, the insurer often will file a declaratory judgment action in federal court. This allows the insurer, facing a judgment against the insured by a third party, to anticipate the plaintiff’s equitable garnishment action. Declaratory judgment actions, in this context, focus exclusively on whether or not the policy covered the accident. Declaratory judgment actions filed in federal court potentially offer insurers strategic advantages over a declaratory judgment action in state court or a state equitable garnishment action.29

The incentives of a federal declaratory judgment not only lead to insurers filing in federal court, but also spurs opposition to the state court action, which creates a clash of forums. Principally, the analysis of declaratory judgment actions will center on whether the federal court should abstain from exercising its jurisdiction. Thus, jurisdiction becomes the issue at the heart of determining the appropriate forum to adjudicate the dispute between

the injured third party and the insurer. The 8th Circuit has stated “that district courts are ‘under no compulsion to exercise’ their jurisdiction under the Declaratory Judgment Act.”30 In fact, “a federal district court should, in the exercise of discretion, decline to exercise jurisdiction over a diversity action raising issues of state law when those same issues are being presented contemporaneously to state courts.”31

Federal declaratory judgments can provide insurers with meaningful adjudication of an unresolved issue.32 For instance, in Contract Freighters, the insurer brought suit in federal court after months of threatened action in state court.33 The U.S. District Court for the Western District in Missouri held that a declaratory judgment in such a situation is wholly appropriate for the federal court to exercise its limited jurisdiction.34

Rarely, an injured third party will bring suit in federal court for a declaratory judgment action, but the 8th Circuit has stated that their appropriate remedy is an equitable garnishment action in state court.35 Important considerations for either party are the increased costs associated with federal courts, review of decisions by the 8th Circuit that can only predict what Missouri courts might do with a state law question of interpretation, and the likelihood of a dismissal of the federal action to allow the state courts to address all of the issues at once.

Federal district courts are bound by the presumption that jurisdiction exists in a declaratory judgment action.36 In fact, if the district court decides not to exercise jurisdiction in a declaratory judgment action, then the 8th Circuit will review such a decision under a de novo standard, as opposed to an abuse of discretion standard for instances where the district court

May-June 2013 / 157

chooses to exercise jurisdiction.37 However, often the federal declaratory judgment action is filed concurrent with the state equitable garnishment action, which the 8th Circuit has interpreted as a distinct class of cases.

The 8th Circuit has said that federal courts are not compelled to exercise jurisdiction in declaratory judgment actions when there is a pending state action presenting the same issues between the same parties that is not governed by federal law.38 To convince the district court to refrain from exercising its jurisdiction, the party seeking the refrain – typically the injured party – must demonstrate to the district court that “exceptional circumstances” exist under the Colorado River/Moses H. Cone factors.39 Under the Colorado River/Moses H. Cone factor-test, the 8th Circuit has held that federal courts should “decline to exercise diversity jurisdiction over a declaratory judgment action raising issues of state law when those same issues are being presented contemporaneously to state courts.”40

The Supreme Court holdings in Colorado River Water Conservation District and Moses H. Cone Memorial Hospital created an additional type of abstention, which occurs when

a federal court declines jurisdiction when a parallel pending state court action exists.41 Colorado River and Moses H. Cone did not deal with declaratory judgment actions, but the 8th Circuit extended the test to the arena of declaratory judgments in Government Employees Insurance Co. v. Simon.42

The 8th Circuit in Murphy Oil officially utilized the Colorado River/Moses H. Cone factor-test, and since then all cases in the 8th Circuit analyze and apply six factors to determine if a sufficiently exceptional circumstance exists to deny jurisdiction in a declaratory judgment action.43 The six factors, which are non-exhaustive and not to be applied mechanically,44 are:

(1) whether there is a res over which one court has established jurisdiction, (2) the inconvenience of the federal forum, (3) whether maintaining separate actions may result in piecemeal litigation, unless the relevant law would require piecemeal litigation and the federal court issue is easily severed, (4) which case has priority — not necessarily which case was filed first

but a greater emphasis on the relative progress made in the cases, (5) whether state or federal law controls, especially favoring the exercise of jurisdiction where federal law controls, and (6) the adequacy of the state forum to protect the federal plaintiff’s rights.45

In analyzing these factors, the court needs to find the “clearest of justifications” to surrender jurisdiction.46 Each factor will be analyzed under the facts of each case. As such, the analysis provided here will be limited to the weight accorded each factor and common law principles the 8th Circuit has espoused in determining bright-line rules to define which facts demonstrate such an exceptional circumstance.

1. Whether a Court Has Jurisdiction Over a Res Generally, declaratory judgment actions to recover money from insurance companies do not deal with properties. There is no guidance here by the courts, but likely this factor will always be moot in insurance coverage disputes. Most declaratory judgment actions brought by insurance companies relate to whether


there is coverage under a policy for a particular claim or injury. Even rarer is when an insurance company will sue its own insured seeking a judgment that the insurance company does not have to even defend the insured.

2. Inconvenience of Federal Forum Again, there is no guidance here by the courts, and this factor will likely be subject to an intensive factual analysis. Additionally, there is no evidence that this issue would be dispositive.47 Obviously, federal judges are unlikely to think of their court as inconvenient.

3. Whether Piecemeal Litigation Might Result The conflict between the state equitable garnishment action and the federal declaratory judgment action is clearly embodied in this factor. Federated Rural referred to this factor as the most important and stressed determining which of the two actions was more comprehensive.48 Murphy Oil referred to this factor as having special importance and preferred the action that had jurisdiction over all of the parties.49

4. Which Case Has Priority The fourth factor is the embodiment of the general rule that “the first court in which jurisdiction attaches has priority to consider the case[,]” and the case filed second should be dismissed or stayed.50 Commonly referred to as the first-filed rule, the Supreme Court has clearly stated that first is not exclusively measured by the filing date.51 Instead, courts may analyze which of the two cases has made more progress.52 Progress alone, however, is not a dispositive factor. In BASF, the 8th Circuit found the federal court action to have made more progress than the contemporaneous state court action, and thus appear to have priority.53 Nevertheless, the 8th Circuit dismissed the federal declaratory

judgment action, noting that reliance on the fourth factor “would allow such refusals [to dismiss] to evade meaningful review.”54 Lastly, the court said reliance on the priority factor “lead[s] to absurd results.”55

Additionally, an exception to the first-filed rule applies if “compelling circumstances” exist.56 Anheuser-Busch, Inc. v. Supreme International Corp.57 identifies two factors when considering whether compelling circumstances exist. First, the insurance company, the federal plaintiff, is on notice that the injured party, the federal defendant, is about to bring suit in state court.58 Second, the federal plaintiff then brings a suit seeking declaratory relief,59 which is “more indicative of a preemptive strike than a suit for damages or equitable relief.”60 Contract Freighters factually distinguished itself from Anheuser-Busch because it allowed a federal declaratory judgment after repeated threats of state suit by the injured party with multiple un-acted-upon deadlines over a nine-month period.61 In Anheuser-Busch, a first-time five-day offer to respond or face suit in state court was met with a quick filing in federal court, which the court dismissed as demonstrative of the “race[] to the courthouse” it is trying to avoid.62 Factually, there is a large gap between a five-day deadline and a nine-month offer that features multiple deadlines that had come and gone without incident, as were the facts in Contract Freighters.

5. Federal Versus State Law Almost all cases involving insurance contracts involve state law. However, Federated Rural said that this factor favors abstention in only rare circumstances and likely should not be accorded any significant weight because the federal court proceeding can be stayed to resolve a complicated state law issue.63 The issue in Missouri is a disconnect between the 8th

Circuit and the Supreme Court of Missouri. In Rodriguez v. General Accident Insurance Co. of America, the Supreme Court of Missouri criticized an earlier 8th Circuit decision as “an example of a court creating an ambiguity in order to distort the language of an unambiguous policy.”64 Thus, the Supreme Court of Missouri rejected the 8th Circuit’s holding in Weber.65 Most coverage cases — whether a declaratory judgment action or an equitable garnishment — involve complicated facts, obscure insurance provisions, and little case law precedent. Federal trial courts should consider this issue when deciding if its decision over a state law question will actually follow the Supreme Court of Missouri.

6. Adequacy of State Forum to Protect Federal Plaintiff’s Rights Certainly, most federal plaintiffs will assert that the state forum will inadequately protect their rights, but no case has used this factor to be dispositive.66 In fact, the analysis is disparate and facially seems to only exist to support the contention the court is advocating.67 Murphy Oil, which dismissed jurisdiction, said that the state forum was adequate because nothing in the record demonstrated lack of a fair trial.68 Federated Rural, which retained jurisdiction, said the state forum was inadequate because of its competence to hear the issue.69

7. Additional Factors As the factors are not exhaustive, courts may consider other factors. Federated Rural’s prudential seventh factor looks to whether either suit was “filed as for a vexatious, reactive or tactical reason.”70 The 8th Circuit has utilized this factor to discuss venue shopping and whether federal declaratory judgment actions can be brought solely to assert affirmative defense to state actions.71 Generally, declaratory actions brought solely as affirmative defenses have been viewed

May-June 2013 / 159

as tactical maneuvers and dismissed.72 Venue shopping has not been ruled as falling within Federated Rural’s seventh factor because it looks to both state and federal actions, which means that each side is likely choosing the best forum for its interests, thereby making the analysis moot. Another factor may be that federal courts are courts of limited jurisdiction. Since declaratory judgment actions are purely diversity claims, federal judges should not expand its limited jurisdiction. Finally, the lack of binding precedent on future cases when a federal court rules on Missouri state law issues should also discourage federal court involvement.

C. Dismiss or Stay Parallel Actions Another issue faced by the federal court when a concurrent state court action is pending is whether to stay the federal proceedings or to dismiss the federal claim. Oftentimes, an insurance company may file its federal declaratory judgment action while the underlying liability case is still pending in state court in anticipation of a subsequent equitable garnishment action. In this scenario, the 8th Circuit has set clear precedent that the federal district judge must abstain from exercising jurisdiction and either dismiss or stay the federal proceedings.

According to the 8th Circuit, the district court must dismiss or stay a declaratory judgment action seeking a determination of insurance coverage when there is a parallel proceeding on the same issues and with the same parties in state court.73 In deciding a motion to stay, the overarching question is whether the matter “can better be settled in the proceeding pending in the state court.”74 Therefore, “the district court must dismiss the federal action because ‘it would be uneconomical as well as vexatious for a federal court to

proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties.’”75 Further, the 8th Circuit and U.S. District Courts of Missouri have concluded that abstention is required in numerous declaratory judgment insurance coverage cases.76

For example, in Capitol Indemnity the decedent was fatally stabbed outside the insured’s bar on July 7, 1996.77 On February 27, 1998, the insurer filed a declaratory judgment in federal court seeking a declaration that “claims arising from [the decedent’s] death were excluded from coverage by the insurance policies’ assault and battery exclusion.”78 The insureds were found liable in Missouri court, and

the Missouri court entered damages against the insured and in favor of the decedent’s family.79 The family then filed a Missouri state court petition to collect insurance.80 Nine months after the declaratory judgment action began, when “the case was nearly ready for trial,” the decedent’s family filed a federal abstention motion.81 The trial court declined to abstain because the insurer’s complaint for declaratory judgment was filed five months before the state court judgment was issued and six months prior to the decedent’s relatives “fil[ing] the Petition to Collect Insurance.”82

However, the 8th Circuit disagreed and reversed the matter with

instructions to the district court to dismiss.83 The 8th Circuit found “[b]oth actions involved the same parties, the same issue, the same insurance policies, and the same arguments.”84 The state and federal claims both involved the interpretation of an insurance policy governed by Missouri state law.85 The 8th Circuit found the district court’s failure to abstain was an abuse of its discretion, as “the state court was in the better position to adjudicate the matter, and permitting this federal action to proceed was unnecessarily duplicative and uneconomical.”86

Even in cases where the tort victim’s state tort action is filed after the insurer’s declaratory judgment action seeking a decision on whether the policy covers the tortfeasor’s

conduct, federal courts have decided to abstain.87 In American States Insurance Company v. Gates Corporation, Judge Sippel of the U.S. District Court for the Eastern District of Missouri decided to abstain in a declaratory judgment action where the insurer sought a decision on insurance coverage.88 The interpretation of an insurance policy was purely a matter of state

law with the same parties and issues in the state and federal cases.89 The state court action was filed after the declaratory judgment, but the district court recognized that this was not due to any dilatoriness on the part of the injured party, but rather necessitated by Missouri’s rule that requires the injured party to wait 30 days after a state court judgment is issued before an equitable garnishment can be filed.90 The district court noted that “[the insurer’s] race to this courthouse should be tempered with permitting state law issues to be timely resolved in state court based on the facts of this case.”91 The district court stayed the federal proceeding pending the resolution of the Missouri court garnishment case.92

“[An] issue faced by the federal court when a concurrent

state court action is pending is whether to stay the federal

proceedings or to dismissthe federal claim.”


Once the federal court decides to abstain, the court may either stay or dismiss the case. A stay is the preferable action if there are concerns the federal action will be time-barred.93 The courts have explained that

where the basis for declining to proceed is the pendency of a state proceeding, a stay will often be the preferable course, because it assures that the federal action can proceed without risk of a time bar if the state case . . . fails to resolve the matter in controversy.94

The justification for the stay, the U.S. Supreme Court says, is that such an order “does not constitute abnegation of judicial duty” but rather “is a wise and productive discharge of it” and “[t]here is only postponement of decision for its best fruition.”95

On the other hand, if the court sees “no reason for the case to return to federal court . . . dismissal rather than a stay is appropriate.”96 When the federal court is “deciding whether to dismiss the case, [it] should consider the ‘scope of the state proceedings, the possibility of delay or procedural inadequacy in the state proceedings, the possibility that another federal action will be time-barred should the instant suit be dismissed, and any other appropriate factor.’”97

II. FIrst-Party ClaIms: Insured agaInst HIs Own Insurer

First-party claims involve a party to the insurance contract (either the insurer or the insured) bringing a claim against the other. While it is very unlikely that an insurance company would sue its own insured given the fiduciary relationship,98 it does occur. This article will touch on the major claims brought in first-party suits, including declaratory

judgment action related to the duty to defend, breach of contract claims, and vexatious refusal to pay.

A. Declaratory Judgment for Duty to Defend When an insured seeks to compel its insurer to assist in providing litigation support before adjudication with the injured third party, the sole proactive approach is to file a declaratory judgment action against the insurer.99 Though there are no enumerated elements to such a claim, it can be inferred that the insurer refuses to defend. Beyond that, the declaratory judgment action focuses exclusively on whether the insurer owes the insured the duty to defend under the insurance contract.

The duty to defend is a broad duty, which can be ascertained before the trial transpires.100 The duty to defend is so broad that it covers both actual and potential claims.101 The duty to defend is verified by comparing the facts alleged in the complaint to the insurance policy itself.102 Thus, the duty to defend arises whenever there is even a possibility of liability.103 The duty to defend is not based on the probability of facts being proven at trial; it is based solely on a comparison of the alleged facts in the complaint to the coverage of the insurance contract.104 The insurance contract will be interpreted by plain language.105 For instance, courts lean toward construing the language in its most common, layman definition, unless the contract clearly specifies a technical use.106

The duty to indemnify, or the insurer’s duty to pay for the judgment entered against the insured in her action against the injured third party, is not ripe during a declaratory judgment action.107 The duty to indemnify is established through facts at trial, and as a declaratory judgment occurs before the trial, it is impossible

to say what the facts at trial are before the trial happens.108

B. Breach of Contract (Duty to Defend and/or Duty to Indemnify) Tort claims predominate the style of action when a third party is involved, but when the lawsuit is between the insured and the insurer, the law of contract, and, when appropriate, the vexatious refusal to pay statutes apply.109 Breach of the duty to defend and the duty to indemnify are the primary considerations when an insured attempts to recover under her insurance policy against her insurer. The duties have different scopes, though, and will be discussed separately.

An insurer has breached its contract with the insured when it wrongfully refuses to pay or when it wrongfully refuses to defend.110 Regardless of the duty utilized for remedy, damages for breach are limited to the loss of the benefit and the damage amount is limited to putting the insured back in the position he would have been had the contract been performed.111 Attorney’s fees are not recoverable under breach. However, the compensatory provisions of §§ 375.296 and 375.420 provide for the insured’s attorney’s fees, thereby actually making the insured whole.112 These statutes do not preempt breach of contract claims. In fact, they were intended to be supplementary to such claims.113 These statutes will be discussed in greater detail in § II-C.

The duty to defend is a broader duty than the duty to indemnify. The duty to defend is a broad duty, which can be ascertained before the trial transpires in a declaratory judgment action.114 However, the insured can demonstrate the duty to defend in a breach action by showing (1) the insurer had a duty to defend, and (2) it breached that duty when it did not defend the insured.115

(Continued on page 162)


Commentators have held that notice must be given by the insured to the insurer.116 In Stark Liquidation Company v. Florists’ Mutual Insurance Company, the Missouri Court of Appeals for the Eastern District held that insurers garner additional duties to defend when subsequent petitions are filed117 and the insurer is placed on notice of these successive petitions.118 Thus, the insured must put the insurer on notice to recover for breach of a duty to defend. This notice requirement is almost always mandated in the insurance contract.

As discussed earlier, the insurer must defend facts that are not only known but also facts that are reasonably “ascertainable through … investigation at the commencement of the” lawsuit.119 To extricate itself from the duty to defend, the insurer must demonstrate no possibility of coverage and must overcome the burden of proof if it attempts to defend on the basis of a policy exclusion.120 As it relates to exclusionary language within the policy itself, the insurer has the burden of proving clear and unambiguous intent to exclude such acts, but an insurer only needs to prove one exclusion applies and not all exclusions.121 Additionally, exceptions and limitations included in the policy are strictly construed against the insurer.122

The duty to indemnify is determined by a final judgment, such as a summary judgment or settlement, or by facts discovered at trial.123 Therefore, the insurer’s duty to indemnify or pay arises after the injured third party’s successful suit against the insured.124 Like the duty to defend, the litigation will focus on the policy’s coverage and any possible policy exclusions.125

Additionally, the insurer must indemnify if it had the duty to protect the insured from liability “provided it had the opportunity to control

and manage” the litigation.126 If the insurer refuses to defend, then the insured can “make reasonable … settlement offer[s] or compromise[s] without losing the right to recover on the policy.”127 The insured, though, may not take collusive action with the injured third party.128 “The legal effect of the insurer’s unjustified refusal to defend a claim” is the obligation to pay the insured for any settlement.129

C. Vexatious Refusal to Pay Missouri statutes §§ 375.296 and 375.420 allow the recovery of attorney’s fees and damages by the insured from the insurer.130 Litigation expenses outside of attorney’s fees are not recoverable.131 Actions brought under the two statutes are typically brought together, unless a slight difference precludes the insured from bringing that particular action. Section 375.296 allows recovery after the insurer has refused to pay and 30 days have passed. Section 375.420 does not have that requirement. The Missouri courts have not explained the difference between the two beyond stating that § 375.296 potentially applies even when the insurance company merely delays payment of a policy.132 Therefore, the commentary here will reference “vexatious refusal to pay” and neither statute specifically, because holdings often do not clarify to which statute they are referring, instead discussing generally vexatious refusal to pay.

The vexatious refusal to pay statutes are penal in nature, and thus are strictly construed.133 The statutes do not allow third parties to recover against insurers; it is solely between insured and insurer.134 The policy must require coverage in order to recover under this statute.135

An insurer that refuses to pay after discovering they have no meritorious defense embodies the typical situation subjecting the insurer to penalty for vexatious refusal to pay.136 To defeat

a claim, the insurer must present evidence demonstrating good faith and a reasonable defense, but it need not be a successful defense of why they refused to pay.137 “To show vexatious refusal to pay, claimant must show: (1) the claimant made a demand; (2) the insurer failed or refused to pay for a period of thirty days after the demand; and (3) the refusal to pay was vexatious and without reasonable cause.”138 This test is exclusive to § 375.296, but the test under § 375.420 merely omits the 30-day provision.�

The insured must show the insurer “willfully and without reasonable cause” refused to pay.140 The standard to review the reasonableness of the insurer is “as the facts … appear to a reasonable and prudent person” before trial.141 The reasonableness is a jury question, and “[t]he jury may [examine] a number of circumstances in” making that determination.142 Katz Drug Company v. Commercial Standard Insurance Company echoes the test being how the facts appeared before trial, and the reasonableness is ascertained by comparing the known facts to the allegations in the complaint, making this very similar to the duty to defend.143

Litigation has primarily focused on the definition of reasonable cause. “The adequacy of … [the] investigation is one factor that may be considered” when determining vexatious refusal to pay.144 For instance, thorough investigation by the insurer does not constitute vexatious behavior.145 Another factor is whether the insurer provided reasons for its denial. Failing to provide grounds for denial of a claim is sufficient to warrant submission to a jury of the insured’s vexatious denial claim.146 Tauvar held that an inadequate investigation and denial of liability without grounds are demonstrative of evidence of vexation.147

May-June 2013 / 163

Additionally, an insured can recover under a vexatious refusal to pay statute even if the insurer was justified in its actions. In Stark Liquidation, the presence of a “litigable issue,” an indication of reasonableness, is not dispositive if the insurer also possesses a “vexatious and recalcitrant” attitude.148 Additionally, failing to investigate the insured’s claims constitutes a vexatious and recalcitrant attitude.149 This attitude can be inferred from a lack of information provided by the insurer.150

However, insurers are not subject to penalty under vexatious refusal to pay if “there is an open question of law or fact relating to a claim under an insurance policy.”151 If insurers are uncertain about the existence of an open question of law or fact, they can insist upon a judicial determination.152

Lastly, there is question as to what types of insurers fit under the vexatious refusal to pay statutes. It encompasses sureties even though the language makes reference to polices of insurance.153 Mutual assessment insurance companies are not “insurance companies” under this statute, 154 while life insurers are.155

When defending on grounds of justification or a good faith attitude, insurers may present evidence in their defense that includes potential hearsay evidence because it is not being offered for the truth of the matter; instead, it is offered to show knowledge by the insurer as a basis for denying coverage.156 But the insured is not required to put on direct or specific evidence.157 It can demonstrate vexatious refusal to pay with a “general survey and a consideration of the whole testimony and all the facts and circumstances in connection with the case.”158

Attorney’s fees that are recoverable under the statute is a jury question, provided sufficient expert testimony has been offered to give them a guide as to the appropriate compensation.159 Russell says it is improper to submit to the jury unless evidence in the record demonstrates reasonableness of the fees.160 The fees “must be supported by pleadings and sustained by proof,”161 but that proof need not be direct or specific; it can be general.162

Conclusion In a perfect world, insureds would understand all claims covered by

their policies before any injuries or losses occur, and insurance companies would pay all valid claims. Unfortunately, this is not a perfect world for either the insurance companies or the insureds. Due to these complexities, coverage disputes between insureds and insurance companies are inevitable. Fortunately, Missouri provides several avenues for experienced insurance coverage attorneys to resolve these disputes and settle such claims.

Endotes 1 Stephen R. Bough is a graduate of UMKC Law School, where he served as the editor-in-chief of the UMKC Law Review. M. Blake Heath is also a graduate of UMKC Law School and served on the UMKC Law Review. Their practice is limited to representing plaintiffs in complex personal injury cases and insurance coverage disputes. The authors thank Scott Pummell, a law clerk at the firm, for his excellent legal research on this article. 2 Sections 379.195 and 379.200, RSMo 2000. 3 See e.g., Cronin v. State Farm Fire & Cas. Co., 958 S.W.2d 583, 585 (Mo. App. W.D. 1997). 4 M.A.B. v. Nicely, 911 S.W.2d 313 (Mo. App. W.D. 1995). 5 Id. at 316-17. 6 Johnston v. Sweany, 68 S.W.3d 398, 403-04 (Mo. banc 2002) (award of fees by successful judgment debtor defense under Rule


90.18 and § 525.240, RSMo do not apply to § 379.200, RSMo actions). 7 Sections 379.195 and 379.200, RSMo 2000. 8 Green v. Penn-America Ins. Co., 242 S.W.3d 374, 379 (Mo. App. W.D. 2007). 9 State Farm Mut. Auto. Ins. Co. v. Allen, 744 S.W.2d 782, 785-86 (Mo. banc 1988). 10 Sections 379.195 and 379.200, RSMo 2000. 11 Stedem v. Jewish Memorial Hosp. Ass’n, 187 S.W.2d 469, 470 (Mo. App. W.D. 1945). 12 Cotton v. Iowa Mut. Liab. Ins. Co., 251 S.W.2d 246, 249 (Mo. 1952). 13 958 S.W.2d at 587. 14 Prendergast v. Alliance Gen. Ins. Co., 921 F. Supp. 653, 655 (E.D. Mo. 1996) (citing Glover v. State Farm Fire & Cas. Co., 984 F.2d 259 (8th Cir. 1993)). 15 Id. 16 Homan v. Employers Reinsurance Corp., 136 S.W.2d 289, 299-300 (Mo. 1939). 17 See Green, 242 S.W.3d at 378. 18 Id. 19 See Hangley v. Am. Family Mut. Ins. Co., 872 S.W.2d 544, 548-51 (Mo. App. W.D. 1994). 20 Id. 21 523 S.W.2d 160, 164-65 (Mo. App. W.D. 1975). 22 Carroll v. Mo. Intergovernmental Risk Mgmt. Ass’n, 181 S.W.3d 123, 126 (Mo. App. W.D. 2005). 23 Id. 24 Meyers v. Smith, 375 S.W.2d 9, 15 (Mo. 1964). 25 Id. at 15. 26 Adams v. Manchester Ins. & Indem. Co., 385 S.W.2d 359, 363 (Mo. App. E.D. 1964). 27 Linder v. Hawkeye-Security Ins. Co., 472 S.W.2d 412, 414-15 (Mo. banc 1971). 28 Corder v. Morgan Roofing Co., 195 S.W.2d 441, 448 (Mo. 1946). 29 For example, the insurer might desire to litigate the matter in federal court based on the worries of possible biases in state courts and it may perceive decisions from the federal courts as being more favorable to insurance companies. Insurance companies may also prefer the rules governing discovery in federal courts, such as the initial disclosures and limited number of interrogatories or a host of other arguments. 30 U.S. Fid. & Guar. Co. v. Murphy Oil USA, Inc., 21 F.3d 259, 260 (8th Cir. 1994) (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942)). 31 Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 126 (1968). 32 See Contract Freighters, Inc. v. CRST Van Expedited, Inc., No. 04-5088-CV-SW-GAF,

2005 WL 2291222, at *4-5 (W.D. Mo. Sept. 20, 2005). 33 Id. 34 Id. 35 Glover v. State Farm Fire & Cas. Co., 984 F.2d 259, 260 (8th Cir. 1993). 36 BASF Corp. v. Symington, 50 F.3d 555, 557-58 (8th Cir. 1995). 37 Id. (explaining differing standards of review in two declaratory judgment actions in Century Indem. Co. v. McGillacuty’s, Inc., 820 F.2d 269, 270 (8th Cir. 1987) and United States Fid. & Guar. Co. v. Murphy Oil USA, Inc., 21 F.3d 259, 263 (8th Cir. 1994)). 38 Murphy Oil, 21 F.3d at 260 (citing Brillhart , 316 U.S. 491, 494-96 (1942)). 39 Id. at 263. 40 Id. at 260 (citing Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 126 (1968)). 41 Id. at 261 (citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976); Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)). 42 917 F.2d 1144 (8th Cir. 1990). 43 Murphy Oil, 21 F.3d at 263. 44 Federated Rural Elec. Ins. Corp. v. Arkansas Elec. Coops., Inc., 48 F.3d 294, 297 (8th Cir. 1995). 45 Murphy Oil, 21 F.3d at 263. 46 Federated Rural, 48 F.3d at 297. 47 Cf. BASF, 50 F.3d at 557-58 (dismissed case despite federal claim being further along, factor four, saying that such factor cannot be dispositive). 48 Federated Rural, 48 F.3d at 298 n.5. 49 Murphy Oil, 21 F.3d at 263. 50 United States Fire Ins. Co. v. Goodyear Tire & Rubber Co., 920 F.2d 487, 488 (8th Cir. 1990). 51 Moses H. Cone, 460 U.S. at 21. 52 Id. 53 BASF, 50 F.3d at 559. 54 Id. 55 Id. 56 Anheuser-Busch, Inc. v. Supreme Int’l Corp., 167 F.3d 417 (8th Cir. 1999). 57 167 F.3d 417 (8th Cir. 1999). 58 Id. 59 Id. 60 Nw. Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1007 (8th Cir. 1993). 61 2005 WL 2291222, at *4-5. 62 Anheuser-Busch, 167 F.3d at 419. 63 48 F.3d at 299 (citing Moses H. Cone, 460 U.S. at 26). 64 808 S.W.2d 379, 382-83 (Mo. 1991) (citing Weber v. Am. Family Mut. Ins. Co., 868 F.2d 286 (8th Cir. 1989)). 65 Id. at 383. 66 See Murphy Oil, 21 F.3d at 263; Federated Rural, 48 F.3d at 299.

67 See Murphy Oil, 21 F.3d at 263; Federated Rural, 48 F.3d at 299. 68 21 F.3d at 263. 69 48 F.3d at 299. 70 Id. 71 Id.; BASF, 50 F.3d at 557; Post Performance, LLC v. Renaissance Imports, Inc., 333 F.Supp.2d 834, 838 (E.D. Mo. 2004). 72 BASF, 50 F.3d at 557; Post Performance, 333 F.Supp.2d at 838. 73 See Cincinnati Indem. Co. v. A & K Constr. Co., 542 F.3d 623, 625 (8th Cir. 2008) (holding trial court erred by not abstaining sua sponte where insurer sought determination of workers’ compensation coverage while case with same parties and issues was pending in Missouri courts); see also Capitol Indem. Corp. v. Haverfield, 218 F.3d 872, 874-75 (8th Cir. 2000) (holding the trial court erred by not abstaining regardless of the fact that the declaratory judgment seeking a determination of liability insurance coverage was filed months before the state “Petition to Collect Insurance”). 74 See Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995) (holding district court acted within its discretion in abstaining from declaratory judgment action seeking determination of insurance coverage where a parallel state case, filed after the declaratory judgment action, encompassed the same coverage issues). 75 Capitol Indem. Corp., 218 F.3d at 874-75 (quoting Brillhart, 316 U.S. 491, 495 (1942)). 76 See Royal Indem. Co. v. Apex Oil Co., 511 F.3d 788, 796 (8th Cir. 2008) (finding no abuse of discretion in declining to hear a declaratory judgment action when an Illinois lawsuit also sought a determination of the responsibilities of the parties under the insurance policy); Western Heritage Ins. Co. v. Sunset Security, Inc., 63 F.App’x 865, 967 (8th Cir. 2008) (unpublished opinion) (in affirming the trial judge, who declined jurisdiction over the action, the 8th Circuit noted that “we have previously concluded that abstention was required even when the declaratory judgment action was filed months before the state-court action.”); Mid-Century Ins. Co. v. Bagnell, No. 09-1051-CV-W-ODS, 2010 WL 1930159, at *1 (W.D. Mo. May 7, 2010) (The trial judge stayed the proceedings where the insurer filed a declaratory action seeking a determination of insurance coverage and subsequently the injured party filed suit on the same issue in Missouri court); Sentry Ins. v. Haines, No. 08-00329-CV-W-FJG, 2009 WL 702032, at*3 (W.D. Mo. March 13, 2009) (ordering the declaratory judgment dismissed, as the court did “not envision the case returning to federal court” or “a ‘significant possibility of delay

May-June 2013 / 165

or other procedural inadequacy in the state [garnishment] proceedings’”). 77 Capitol Indem. Corp., 218 F.3d at 873. 78 Id. at 873-74. 79 Id. at 874. 80 Id. 81 Id. at 876. 82 Id. 83 Id. 84 Id. at 875. 85 Id. 86 Id. 87 See Am. States Ins. Co. v. Gates Corp., Nos. 4:07CV932 RWS & 4:07CV1554 RWS, 2008 WL 163588, at *1 (E.D. Mo. Jan. 17, 2008). 88 Id. 89 Id. at *5. 90 Id.; see § 379.200, RSMo. 91 Id. 92 Id. 93 Royal Indem. Co., 511 F.3d at 797. 94 Wilton v. Seven Falls Co., 515 U.S. at 288 n. 2; see also Royal Indem. Co., 511 F.3d at 797. 95 Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25, 29 (1959). 96 Capitol Indem. Corp., 218 F.3d at 875 n. 2; Haines, 2009 WL 702032, at *3. 97 Haines, 2009 WL 702032, at *3 (citing United States v. City of Las Cruces, 289 F.3d 1170, 1193 (10th Cir. 2002)). 98 Cox v. Steck, 992 S.W.2d 221, 225 (Mo. App. E.D. 1999). 99 See Penn-America Ins. Co. v. The Bar, Inc., 201 S.W.3d 91, 92 (Mo. App. W.D. 2006) (declaratory judgment suit seeks to compel insurer to provide defense for pending tortious action). 100 Id. at 96. 101 McCormack Baron Mgmt. Servs., Inc. v. Am. Guarantee & Liab. Ins. Co., 989 S.W.2d 168, 170 (Mo. banc 1999). 102 Id. 103 Id. 104 Butters v. City of Independence, 513 S.W.2d 418, 424 (Mo. banc 1974). 105 McCormack, 989 S.W.2d at 171. 106 Id. 107 McCormack, 989 S.W.2d at 173-74. 108 Id. 109 Zumwalt v. Utils. Ins. Co., 228 S.W.2d 750, 756 (Mo. 1950).

110 Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62, 67 (Mo. banc 2000). 111 Boten v. Brecklein, 452 S.W.2d 86, 93 (Mo. 1970). 112 RSMo 2000. 113 Overcast, 11 S.W.3d at 67. 114 See id. at 96. 115 Custom Hardware Eng’g & Consulting, Inc. v. Assurance Co. of Am., 295 S.W.3d 557, 559 (Mo. App. E.D. 2009). 116 16 Williston on Contracts § 49:103 (4th ed.) (citing State Farm Fire & Cas. Co. v. Metcalf, 861 S.W.2d 751 (Mo. App. S.D. 1993)). 117 243 S.W.3d 385, 398 (Mo. App. E.D. 2007). 118 Id. 119 Custom Hardware, 295 S.W.3d at 562 n.6. 120 Stark Liquidation, 243 S.W.3d at 394. 121 Id. 122 Id. 123 Id. at 399. 124 McCormack, 989 S.W.2d at 173. 125 Id. 126 Cox, 992 S.W.2d at 225. 127 Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 90 (Mo. App. W.D. 2005). 128 See Betts-Lucas v. Hartmann, 87 S.W.3d 310, 325 (Mo. App. W.D. 2002). 129 Stark Liquidation, 243 S.W.3d at 399. 130 RSMo 2000. 131 Legg v. Certain Underwriters at Lloyd’s of London, 18 S.W.3d 379, 387-88 (Mo. App. W.D. 1999). 132 Overcast, 11 S.W.3d at 66. 133 Jerry Bennett Masonry, Inc. v. Crossland Constr. Co., Inc., 171 S.W.3d 81, 97 (Mo. App. S.D. 2005). 134 Corder v. Morgan, 195 S.W.2d 441, 448 (Mo. 1946). 135 McDonough v. Liberty Mut. Ins. Co., 921 S.W.2d 90, 95 (Mo. App. E.D. 1996), abrogated on other grounds by Farmland Indus., Inc. v. Republic Ins. Co., 941 S.W.2d 505 (Mo. banc 1997). 136 Russell v. Farmers & Merchants Ins. Co., 834 S.W.2d 209, 221 (Mo. App. S.D. 1992). 137 Tauvar v. Am. Family Mut. Ins. Co., 269 S.W.3d 436, 439 (Mo. App. W.D. 2008). 138 Id. 139 Dhyne v. State Farm Fire & Cas. Co.,

188 S.W.3d 454, 457 (Mo. banc 2006) (the elements for a claim of vexatious refusal to pay are set up as (1) the insured had a policy with the insurer, (2) insurer refused payment, and (3) “refusal was without reasonable cause or excuse.”). 140 Id.; see JAM, Inc. v. Nautilus Ins. Co., 128 S.W.3d 879, 897 (Mo. App. W.D. 2004). 141 JAM, 128 S.W.3d at 897. 142 Tauvar, 269 S.W.3d at 439 (“… including insurer’s explanation [for its refusal,] and the nature of the insurer’s investigation…”). 143 647 S.W.2d 831, 839 (Mo. App. W.D. 1983). 144 Allen v. State Farm Mut. Auto. Ins. Co., 753 S.W.2d 616, 620 (Mo. App. E.D. 1988) (citation omitted). 145 Mears v. Columbia Mut. Ins. Co., 855 S.W.2d 389, 394-95 (Mo. App. W.D. 1993). 146 Allen, 753 S.W.2d at 620. 147 269 S.W.3d at 439 (citing Russell v. Farmers & Merchants Ins. Co., 834 S.W.2d 209, 221 (Mo. App. S.D. 1992)). 148 243 S.W.3d at 401 (citing DeWitt v. Am. Family Ins. Co., 667 S.W.2d 700, 710 (Mo. banc 1984)). 149 Id. 150 Id. 151 Legg, 18 S.W.3d at 387. 152 Id. 153 Howard Constr. Co. v. Teddy Woods Constr. Co., 817 S.W.2d 556, 562 (Mo. App. W.D. 1991). 154 Schmidt v. Cent. Mut. Ins. Ass’n, 153 S.W.2d 99, 105 (Mo. App. W.D. 1941). 155 Cox v. Kansas City Life Ins. Co., 135 S.W. 1013, 1016 (Mo. App. W.D. 1911). 156 See, e.g., Tauvar, 269 S.W.3d at 440 (citing Scott v. Missouri Ins. Co., 233 S.W.2d 660, 661-62 (Mo. banc 1950)). 157 JAM, Inc., 128 S.W.3d at 898 (citing DeWitt, 667 S.W.2d at 710). 158 Id. 159 Howard Constr., 817 S.W.2d at 563-54. 160 834 S.W.2d at 224. 161 Smith ex rel. Stephan v. AF & L Ins. Co., 147 S.W.3d 767, 779 (Mo. App. E.D. 2004) (citing Russell, 834 S.W.2d at 223). 162 817 S.W.2d at 562-63.

a practitioner's guide to insurance coverage disputes in missouri

Documents