The Missouri Supreme Court, in Scottsdale Ins. Co. v. Addison Ins. Co., No. SC93792 (Mo. banc Dec. 9, 2014) -- an action brought by an excess carrier against a primary insurer for failing to settle a wrongful death action within its policy limits -- has handed down its first decision addressing the tort of bad faith in over sixty years.
The Missouri Supreme Court's Scottsdale decision is a must-read opinion for claims professionals and lawyers handling third-party liability claims in Missouri. The decision will define the contours of Missouri bad faith law and the relationship between primary and excess insurers for years to come and emphasizes the gravamen of the tort as the insurer's intentional disregard of the insured's financial interests in favor of the insurer's interests over a formalistic view of what had been commonly considered to be the essential elements of a bad faith claim under Missouri law. The Scottsdale decision is also a resounding rejection by the Missouri Supreme Court of the Eighth Circuit's jurisprudence governing bad faith claims under Missouri law.
The Scottsdale decision answers the following important questions that had been left unresolved by the Missouri Supreme Court for years:
Is an excess judgment an essential element to a bad faith claim in Missouri?
No. Numerous prior Missouri appellate court decisions had considered an excess judgment to be an essential element of the bad faith tort.
Does an insurer's ultimate payment of its policy limits negate the insurer's earlier refusal to settle a claim within its policy limits?
No. The insurer's ultimate payment of its limits will not make the insured whole in the event of an excess judgment or excess settlement.
Is a demand by the insured to settle the claim within policy limits an essential element for bad faith?
No. The Supreme Court's decision rejects the Eighth Circuit's statement of Missouri law in Am. Guarantee & Liab. Ins. Co. v. U.S. Fid. & Guar. Co., 668 F.3d 991 (8th Cir. 2012), and the statement of the tort's essential elements in many prior Missouri appellate court decisions.
Is a bad faith claim assignable under Missouri law?
Yes. The Supreme Court's decision rejects the view of Missouri law held by the Eighth Circuit in Quick v. Nat'l Auto Credit, 65 F.3d 741 (8th Cir.1995).
May an excess carrier recover against a primary insurer based on the primary insurer's bad faith failure to settle a claim within its policy limits?
Yes. An excess insurer may bring a bad faith claim against a primary insurer under theories of assignment, conventional subrogation, and equitable decision. The Supreme Court's decision rejects the Eighth Circuit's decisions in Am. Guarantee & Liab. Ins. Co. and Reliance Ins. Co. in Liquidation v. Chitwood, 433 F.3d 660 (8th Cir. 2006).
May an excess carrier bring a direct action against a primary insurer for bad faith refusal to settle?