The Supreme Court of Missouri handed down its much anticipated decision in the Scottsdale Insurance v. Addison Insurance case earlier in December. This decision will have a major impact on Missouri bad faith failure to settle cases for years to come.
Addison Insurance Company, a wholly owned subsidiary of United Fire & Casualty Company, was Wells Trucking’s primary insurance carrier and Scottsdale Insurance Company was the excess carrier. A Wells Trucking employee was involved in a fatal accident which was at least partly the employee’s fault. After suit was filed, the underlying case settled for the $1,000,000 primary policy limits, and $1,000,000 from Scottsdale’s excess policy. Scottsdale then filed a bad faith case against United Fire alleging (in part) that United Fire had been provided multiple opportunities to settle the death case within the primary limits which United Fire knew had a potential exposure “well in excess of the $1 million” primary limits. Wells Trucking and Scottsdale demanded that United Fire settle for up to the primary limits. The trial court entered summary judgment in favor of United Fire on all theories alleged. The Supreme Court of Missouri reversed and remanded to allow Scottsdale to pursue its bad faith claims against United Fire.
The first major impact of the Scottsdale ruling was the Court’s clarification of the required elements for this tort. The Court rejected the elements commonly accepted for nearly 40 years and did not accept the elements restated by the court of appeals before accepting transfer. The Court ruled that the cause of action arises when the liability insurer:
- Reserves the exclusive right to contest or settle any claim;
- Prohibits the insured from voluntarily assuming any liability or settling any claims without consent; and
- Is guilty of fraud or bad faith in refusing to settle a claim within the limits of the policy. (p. 12)
In a footnote the Court expressly rejected as an element the often imposed (and sometimes questioned) requirement that an insured demand settlement within the limits while noting such a demand is “highly relevant” to a finding of bad faith. (pp. 12-13, n. 5)
The Court also ruled that an excess verdict or settlement is “not required to maintain an action … for bad faith refusal to settle.” (p. 14, see also “finding” on p. 2)
A second major impact was the Court’s resolution of the question of the assignability of Missouri bad faith claims. The Court settled that issue (and split in authority) by ruling that a “bad faith refusal to settle action falls within the category of assignable torts.” (p. 17)
The third major impact was the Court agreeing that an excess insurer can pursue a bad faith failure to settle claim against a primary carrier on at least three theories: 1. assignment (from its insured); 2. equitable subrogation; or 3. contractual/conventional subrogation. The Court also ruled that a primary carrier did not have an independent, direct duty to an excess carrier to settle in good faith.
Based on those important rulings, the Court remanded to allow Scottsdale to pursue its bad faith case against Addison/United Fire. The Court’s ruling in Scottsdale was unanimous.
