Missouri has enacted legislation that prohibits a claimant, tortfeasor, or any other party from using an arbitration award against any liability insurer that did not agree to the arbitration.
The new legislation also places new parameters on “covenants not to execute” between a claimant and tortfeasor — contracts that seek, for example, to limit recovery to specified assets or insurance.
Moreover, the new legislation grants insurers an unconditional right to intervene in any action seeking personal or bodily injury damages from an insured tortfeasor, within specified circumstances, and it provides that an insurer’s exercise of rights consistent with the revised sections shall not constitute bad faith.
These changes to the Missouri Uniform Arbitration Act and to covenants not to execute under Section 537.065 should help to clarify certain rights of claimants, insured tortfeasors, and insurers going forward.
New Section 435.415 of Missouri’s Uniform Arbitration Act
To avoid personal liability, some Missouri tortfeasors have accepted claimants’ offers to waive their right to a jury trial and appeal, agreeing instead to binding arbitration, without first obtaining consent from the tortfeasor’s insurers.
Frequently, the tortfeasor fails to fully defend itself in the arbitration. Generally, courts must confirm and enter judgment on the arbitration award under Section 435.415 of the Missouri Revised Statutes. Because the arbitrations often proceed without a full and vigorous defense by the tortfeasor, the resulting award may be based on inadmissible evidence, contain baseless or improper findings, and include unreasonable and excessive amounts.
Under the new legislation, if the liability insurer did not agree in writing to the arbitration, the resulting arbitration award or judgment is not binding on the insurer, is not admissible in evidence in any lawsuit against the insurer, and does not provide the basis for any garnishment action or judgment against the insurer. The new Section 435.415 therefore provides additional safeguards against claimant’s and tortfeasor’s use of unreasonable arbitration findings and awards against insurers.
The new legislation also provides that an insurer’s refusal to participate in an arbitration proceeding is not bad faith.
New Section 537.065, Contract to Limit Recovery to Specified Assets or Insurance
Section 537.065 of the Missouri Revised Statutes permits a bodily injury or personal injury claimant to contract with a tortfeasor to limit recovery to specified assets or insurance. This allows a claimant to “covenant not to execute” a judgment against a tortfeasor’s personal assets, while preserving the claimant’s right to recover insurance policy proceeds from the tortfeasor’s liability insurer or insurers.
In practice, claimants may condition their offer of such a contract upon various concessions by the tortfeasor, such as agreeing not to contest evidence of liability or damages, waiving procedural rights to a jury trial and appeal, agreeing to binding arbitration, and/or assigning to the claimant the proceeds of a bad faith claim against the tortfeasor’s insurer or insurers.
Missouri previously amended Section 537.065 in 2017 to give insurers a right to intervene in pending lawsuits within 30 days of receipt of written notice of the execution of a contract under the section. After that amendment, some claimants effectively prevented insurers from exercising this right by dismissing their pending lawsuits without prejudice and/or agreeing to binding arbitration with the tortfeasor. When insurers sought to intervene in the refiled lawsuits or actions to confirm arbitration awards, multiple courts denied the insurers’ motions to intervene because more than 30 days had passed since the original receipt of written notice.
However, under the newly enacted legislation, a claimant may enter into a contract to limit recovery to specified assets or insurance only if the insurer declines coverage to the insured tortfeasor, or if the insurer refuses to withdraw a reservation of rights.
In light of this requirement, an insurer may issue a proper reservation of rights in the first instance, knowing that it must be given the opportunity to withdraw the reservation of rights before the insured can enter into a contract limiting the claimant’s recovery to the insurance policy proceeds.
Thus, the new Section 537.065 protects the insurers’ right to intervene by requiring a tortfeasor to provide its insurer with a copy of the executed contract to limit recovery to specified assets or insurance, and a copy of the action seeking judgment against the tortfeasor, within 30 days of the following:
- If an action is pending when the contract is signed, within 30 days of execution;
- If an action is pending when the contract is signed but thereafter dismissed, within 30 days after the action is refiled or a subsequent action is filed; or
- If no action is pending when the contract is signed, within 30 days after the tortfeasor receives notice of any subsequent action, by service of process or otherwise.
The new section prohibits any judgment from being entered against any tortfeasor until at least 30 days after the insurer receives the required notice. Any insurer receiving the required notice has an unconditional right to intervene in any pending civil action involving the claim for damages within 30 days. After intervening, the insurer has the same rights as any other defendant, including the right to conduct discovery, engage in motion practice, and have a jury trial. The insurer may assert any rights or raise any defenses available to the tortfeasor, even if the tortfeasor has already agreed to waive such rights or defenses in a contract with the claimant.
Like the 2017 version, the new Section 537.065 applies to any covenant not to execute or any contract to limit recovery to specified assets, regardless of whether the covenant or contract is referred to as a contract under the section. The section now requires all terms of the contract or covenant be in writing and signed by the parties. No unwritten term of the contract or covenant is enforceable.
Moreover, the new legislation provides that any agreement between a tortfeasor and insured, including any contract under Section 537.065, is admissible in evidence in any action asserting the insurer acted in bad faith. Additionally, the exercise of any rights under Section 537.065 shall not constitute or be construed as bad faith.
While Missouri remains a jurisdiction in which insurers must exercise caution, these upcoming changes provide clarity as to rights of claimants, tortfeasors and the tortfeasor’s insurers, including some new safeguards to protect insurers’ rights.
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