In Missouri, insurance companies owe a contractual duty to defend civil actions that allege liability of their insureds that is potentially covered under the terms of the subject insurance policy.
As part of that duty, the insurer must act in good faith in its attempt protect its insured from a judgment in excess of the insurance policy limits. This task can be made even more complicated when there are multiple parties asserting claims against the insured.
In that situation, the insurer is faced with the difficult task of determining how to distribute the proceeds available under the policy to the multiple claimants, all while attempting to adequately protect its insured’s interests. Because there is only a finite amount of available insurance proceeds, one or more claimants could be left with little or no recovery under the policy. As a result, the insured is thereby potentially exposed to a judgment against them in an amount that exceeds the available limits under their policy.
In the past, when this occurred, insureds often asserted that the excess judgment was a consequential damage flowing from the insurer’s failure to fulfill its contractual obligation to defend or settle in good faith, thereby attempting to shift obligation to pay the excess loss to the insurance company.
However, the Missouri legislature recently amended its interpleader statute, which may provide significant protection to insurance companies against such bad faith claims arising from the defense and settlement of multiple claims against the insured. Specifically, Section 507.060 now allows insurers to interplead the applicable policy limit into the court for subsequent distribution among the multiple claimants by the court.
In exchange, the insurance company is statutorily protected from a subsequent bad faith action relating to the payment of such limits, as long as the insurer continues to defend the insured against the claims in the underlying civil proceeding. In other words, the statute now provides insurers a useful tool to shift to the court the sometimes onerous task of determining which claimants are entitled to receive the finite proceeds, while simultaneously being able to protect the insured’s interests through the continued defense of the action.
Insurers in Missouri now have a useful statutory tool they may employ to eliminate the dilemmas insurers often previously faced, such as the risk of being accused of prematurely exhausting the policy limit in settling of one claim, where other remaining claims exposed the insured to significant personal liability. This also helps mitigate the risk of being accused of paying one claimant more than what others perceived to be its proportionate share of the proceeds — as many claimants undoubtedly believe their claims deserve a bigger piece of the pie. It is often difficult, if not impossible, for insurers to calculate with precision each claimant’s proportionate share in the context of pre-suit demands, where there has been no adjudication as to liability or the amount of recoverable damages.
Consequently, with the amendment of Missouri’s statute, insurers may now utilize the interpleader procedure to limit the uncertainty of how to best protect the insured’s interests, while simultaneously limiting future exposure to bad faith liability.
Daugherty is an associate attorney at Seyferth Blumenthal & Harris LLC in Kansas City, Mo. His practice focuses on commercial litigation and counseling in all stages of litigation with an emphasis on insurance-related issues, representing insurers in various coverage-related cases.
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