Idea Exchange: Missouri Court Rulings Conflict with Insurer Right to Intervene Protections

By Nick Daugherty | October 18, 2019

The Western District of the Missouri Court of Appeals recently issued opinions that effectively strip any practical effect from a Missouri amendment made to provide certain protections to insurers.

In Aguilar v. GEICO Cas. Co., the court upheld a trial court’s denial of an insurer’s motion to intervene in a proceeding to confirm an arbitration award against an insured, despite the insurer having no notice of the arbitration proceeding. The ruling relied on its previous decision in Britt v. Otto.

In Aguilar, an injured claimant instituted a lawsuit against the insured, who rejected the insurer’s offer of a defense under a reservation of rights, and instead notified the insurer that the parties were entering into an agreement under Section 537.065, RSMo. The insurer filed a motion to intervene in the lawsuit pursuant to the amended statute, which went into effect in August 2017.

However, the claimant voluntarily dismissed the lawsuit against the insured. More than 30 days after the insurer was notified of the § 537.065 agreement, the parties participated in arbitration proceedings without any notice to the insurer, which resulted in a $35 million award against the insured.

In a subsequent proceeding to confirm the arbitration award, the trial court denied the insurer’s motion to intervene. Upholding the trial court’s decision, the Aguilar court concluded that because the insurer’s motion to intervene was filed more than 30 days after receiving notice of the initial § 537.065 agreement, the insurer’s motion was untimely. Accordingly, the court affirmed the denial of the insurer’s request to intervene as a matter of right under the amended statute.

As of Aug. 28, 2017, § 537.065 was amended to provide insurers a right to intervene in actions asserted against their insureds. Previously, where an insurer refused to defend its insured, or insisted upon defending only under a reservation of rights, the insured was thereafter free to allow the plaintiff to take a judgment against them under a § 537.065 agreement.

Under such an agreement, the insured agreed not to contest the issues of liability or damages in the underlying action — often times leading to a judgment in an amount far in excess of the applicable policy limits — and the plaintiff agreed to collect the resulting judgment only from applicable insurance proceeds. In a subsequent proceeding to collect on such judgment, the insurer would be bound by determinations of liability and damages made in the underlying action.

In short, the prior version of Section 537.065 had the practical effect of abrogating an insurer’s right to defend under a reservation of rights.

The Missouri General Assembly amended Section 537.065 to address this situation and to provide certain protections to insurers. Specifically, amended Section 537.065 contains an additional subsection which provides:

Before a judgment may be entered against any tort-feasor after such tort-feasor has entered into a contract under this section, the insurer or insurers shall be provided with written notice of the execution of the contract and shall have thirty days after receipt of such notice to intervene as a matter of right in any pending lawsuit involving the claim for damages.

Thus, the statute was amended to provide the insurer written notice of any such agreement, and to allow the insurer 30 days to intervene before a judgment could be entered in the action against the insured. By intervening, the insurer thereby has the opportunity to prevent uncontested judgments from being taken against its insured, which can often be larger than contested judgments, and which might otherwise be used as a basis for later claims of extra-contractual liability against the insurer.

The Aguilar and Britt decisions effectively eviscerate the protections that the legislature intended to provide to insurers under the amended Section 537.065.

Specifically, the decisions have inadvertently created a loophole through which claimants and insureds may easily circumvent insurers’ absolute intervention rights in direct derogation of legislative intent. For example, under the decisions, claimants and insureds may now negate the amendment by simply delaying the filing of a lawsuit for more than 30 days after providing the insurer notice of the § 537.065 agreement, letting the clock “run out” before filing an action.

In other words, the parties need only wait 31 days to file the action to deprive the insurer of its statutory right to intervene in the action, and the insurer will be given no opportunity to contest issues of liability and damages before judgment is entered, despite the legislature’s clear provision of such right. Under the Aguilar court’s interpretation, if claimants simply wait 31 days to file a lawsuit, there is never a situation in which the insurer could exercise its statutory right.

The Aguilar and Britt decisions contravene well-established principles of statutory construction in Missouri.

Under Missouri law, the primary purpose of statutory interpretation is to ascertain the intent of the legislature and to give effect to that intent. In doing so, Missouri courts are required to look to the object to be accomplished and the problems to be remedied by the statute. Moreover, Missouri courts are to avoid a construction of the statute which leads to unjust, unreasonable, or absurd results.

Where the legislature amends a statute, that amendment is presumed to change the existing law. In short, courts may not construe a statute in such a way so as to defeat its purpose.

The Missouri legislature intended to provide an insurer a right to intervene in a proceeding against its insured who has entered into a § 537.065 agreement before the entry of judgment, so as to have the opportunity to guard against an uncontested determination as to liability and damages. In fact, the summary to HB 339 described the primary problem that the amendment was designed to remedy: “Supporters say that this bill is needed to allow insurance companies to have their day in court. Currently, there are judgments awarded requiring insurance companies to pay when the insured is not covered for an act and they don’t have an opportunity to have the courts hear their side.” (See HB 339 Summary available here.)

In other words, the purpose of the bill was to provide insurers an opportunity to be heard before becoming bound by a judgment entered against its insured. The court’s interpretation in Aguilar and Britt, which allows insureds to circumvent the insurer’s opportunity to participate in the action, defeats the very purpose for which the legislature adopted the amendment to Section 537.065.

These decisions also leave much of the plain language contained in the statute without effect.

Missouri courts are not to consider statutory phrases in isolation but are required to consider the provision as a whole, giving effect to all of its language. In concluding that the clock begins to run only upon notice of the § 537.065 agreement itself, without regard to whether there is a pending action against the insured, the court’s decisions improperly focus on the phrase “shall have thirty days after receipt of such notice to intervene” in isolation.

This narrow interpretation is untenable, as a consideration of the amendment as a whole requires the consideration of its reference to a “pending lawsuit” and “before a judgment is entered.” In other words, the statute itself assumes as its starting point that an action is pending at the time notice of the § 537.065 agreement is made.

Nick Daugherty

Because Missouri courts must give effect to all of a statutory provision’s language, it must be presumed that the legislature included the phrase “pending lawsuit” for a reason. The most obvious reason for including such language is the recognition that an insurer cannot exercise its intervention rights unless and until there is a pending proceeding in which to intervene.

And by specifying that an insurer shall have a right to intervene “before a judgment may be entered,” the legislature necessarily tied such right to the existence of a pending lawsuit from which such a judgment could result. The only construction which gives meaning to every aspect of the amended statute is that the 30-day time limit for intervention is not triggered until there is both notice of a § 537.065 agreement and a pending proceeding in which the insurer could seek to intervene. This is the only construction which gives effect to the legislature’s clear intent that the insurer be given an opportunity to participate in the lawsuit before becoming bound by the result of such lawsuit.

In summary, the amendment to Section 537.067 was intended to provide insurers the opportunity to intervene. However, the Aguilar and Britt decisions effectively strip insurers of any such opportunity. The Missouri Court of Appeals has effectively nullified the statutory amendment, construing it in such a way that would provide no rights for insurers at all.

Such a construction cannot reasonably govern a statute which was enacted for the very purpose of providing protection to insurers under these precise circumstances.

About Nick Daugherty

Daugherty is an associate attorney at Seyferth Blumenthal & Harris LLC in Kansas City, Mo.

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