Insurance Law Update
January 2015
In This Issue
Case Law Updates

Missouri Supreme Court Decides its First Bad Faith Claim in Over Sixty Years

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 it 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.

Missouri Supreme Court's Scottsdale decision expands bad faith liability in Missouri in five significant ways by holding:

  • No demand by the insured that the insurer settle the claim within policy limits is required to state a bad faith claim.
  • An excess judgment is not an essential element of the tort.
  • The insurer's payment of its policy limits does not provide an absolute defense to a claim alleging bad faith claims handling.
  • Bad faith claims are assignable.
  • An excess carrier may maintain a bad-faith-failure-to-settle claim against a primary carrier.

Appraisal Provision Is Inapplicable When Coverage Is at Issue

When an insurer claims the damages sought by the insured are the result of a non-covered cause, the insured is not entitled to invoke the appraisal provision in a first-party property policy to decide the question. The Missouri Court of Appeals, in American Family Mut. Ins. Co. v. Dixon, No. ED101609 (Mo. App. E.D. Dec. 16, 2014), held that appraisal provisions are only applicable when the dispute between the parties concerns the amount of a loss, and NOT coverage. In Dixon, the insurer maintained that the insureds' claimed damages were not caused by hail but by another non-covered cause; therefore, the Court concluded the policy's appraisal provision had no application.

Pre-judgment Interest Demands Must Strictly Comply with the Statute

In Hawley v. Tseona, No. WD76358 (Mo. App. W.D. Nov. 25, 2014), the Missouri Court of Appeals reversed a $946,465.20 judgment for pre-judgment interest because the plaintiff's failure to include properly executed medical and employer authorizations with his demand made the demand defective. The Court, in so ruling, explained that Missouri's pre-judgment interest statute, Mo. Rev. Stat. 408.040.2, must be strictly construed and all elements of the statute must be satisfied before a plaintiff may recover pre-judgment interest.

Electric Utility Company Held to the Highest Degree of Care

The Missouri Court of Appeals, in Basta v. Kansas City Power & Light Co., No. WD77251 (Mo. App. W.D. Dec. 16, 2014), held that an electric utility owes a duty of the highest degree of care in the maintenance of its power lines to prevent injury to the public. The Court, in affirming the trial court's $1 million wrongful death judgment for the plaintiffs, rejected the utility's argument that in cases involving low voltage power lines that a utility should only be held to the ordinary care standard.

Medical Causation Must Be Established by Expert Medical Testimony

Where the plaintiff claimed injury because of a spider bite and mold infestation, the Missouri Court of Appeals, in Brown v. Seven Trails Investors, LLC, No. ED100593 (Mo. App. E.D. Dec. 9, 2014), held the "sudden onset" doctrine was unavailable to excuse the requirement of expert medical testimony to establish causation. The Court explained that the "sudden onset" doctrine only relieves the plaintiff of the burden to prove medical causation in very limited situations when the obvious symptoms of the injury follow the trauma immediately and the injury is of the type that is normally sustained in the kind of trauma involved. The Court, in its opinion, also provided a good discussion of medical causation generally and the nature of expert testimony necessary to establish this element of a plaintiff's claim.

Pre-Judgment Interest Due on a Contract Runs from Date of Demand

In Travelers Comm'l Cas. Co. v. Vac-It-All Servs., Inc., No. ED100802 (Mo. App. E.D., Dec. 16. 2014), the Missouri Court of Appeals held that pre-judgment interest on a judgment entered on an insured's breach of contract claim for overpaid premiums began to run when the insured filed suit, and not before, because the insured had not made a pre-suit demand for payment. In affirming the trial court's judgment, but reducing the interest award to those sums that had accrued after the insured filed its claim, the Court rejected the insurer's argument that the insured was not entitled to interest because the exact amount of the insured's damages was uncertain, explaining that an exact calculation is unnecessary for a claim to be liquidated, and that a court may consider equitable principles of fairness and justice when awarding pre-judgment interest. 

Legal Malpractice Action Requires Provable Damages

In order for a client to successfully prosecute a legal malpractice claim against the client's attorney, the client must show that actual damages were proximately caused by the lawyer's conduct in settling a negligence claim. The Missouri Court of Appeals, in Estate of Bonifer v. Kullman Klein & Dionenda, P.C., No. ED101161 (Mo. App. E.D. Nov. 18, 2014), affirmed the trial court's summary judgment for the client's lawyer because the client failed to prove any damages resulting from the lawyer's alleged malpractice and breach of fiduciary duty. The Court explained that the client failed to produce any non-speculative evidence of damages that the claim could have been settled for a sum greater than the settlement sum negotiated by the lawyer, but which the client rejected.

Expert Testing Inadmissible Absent a Showing of Substantial Similarity

In Loomis v. Wing Enterprises, Inc., No. 13-2332 (8th Cir. June 26, 2014), the United States Court of Appeals for the Eighth Circuit affirmed the district court's summary judgment for a ladder manufacturer because the compression testing performed by the plaintiff's ladder expert failed to duplicate the conditions at the time of the plaintiff's fall. The Eighth Circuit explained that an expert's testing, to be admissible, must be conducted under conditions substantially similar to the conditions at the time of the accident. Since the expert's testing was inconsistent with the plaintiff's description of her accident, the Eighth Circuit held the testing was inadmissible, and because the plaintiff had no other expert evidence supporting her product liability claim, affirmed the district court's judgment for the ladder manufacturer.

Principal Location of the Insured Risk Can Be a Jury Question

In a coverage dispute that turned on the governing law applied to the claim, the Missouri Court of Appeals, in Kaskutas v. Allstate Prop. & Cas. Ins. Co., No. ED100487 (Mo. App. E.D. Aug. 19, 2014), addressed the rare situation in which a dispute over the principal location of the insured risk, i.e., in Missouri or Illinois, was decided by the jury. The jury concluded the principal location was in Illinois, and based upon the jury's finding, the trial court applied Illinois law, which compelled a judgment for the insurer. While the appellate court's decision addressed procedural issues unrelated to the jury trial on the conflicts question, the decision highlights the possibility of trying commonsense questions of fact to a jury in declaratory judgment actions rather than having them decided by a judge in a bench trial.

Setting Aside a Default Judgment for Improper Service Requires Clear and Convincing Evidence

The Missouri Court of Appeals addressed the requirements for setting aside a default judgment on the sole basis of improper service in Morris v. Wallach, No. ED99630 (Mo. App. E.D. Aug. 12, 2014). In affirming the trial court's denial of the defendant's motion to set aside, the Court held the defendant's affidavit stating that he had not been served did not satisfy the clear and convincing evidence standard in the face of contrary evidence from the process server who testified that he had served a person who resembled a photograph of the defendant at the defendant's residence. From the Morris decision, an important lesson for defendants can be discerned. If a party wants to convince the court that the party has not been served, the presentation of live testimony is essential.

Parties Must Raise Constitutional Challenges as Affirmative Defenses at Trial Court Level or They Are Waived

In a medical malpractice case, the plaintiffs' cause of action was dismissed for failure to file the requisite statutory healthcare affidavits. The plaintiffs asserted on the appeal that the statutory affidavit requirement violated Missouri's constitutional right of open courts and trial by jury. The Missouri Supreme Court, in Mayes v. St. Luke's Hosp. of Kansas City, No. SC93012 (Mo. banc May 27, 2014), rejected the plaintiffs' constitutional challenge to the affidavit statute on waiver grounds. The Court explained that the plaintiffs had waived their constitutional arguments by failing to raise them in the trial court at the time the defendants' motions to dismiss were heard. 

Recent Trial Results

John Greffet won a huge victory for his defendant car dealer client in a Missouri Merchandising Practices Act case where the customer claimed over $100,000 in damages, attorney fees, interest, and consequential damages. The jury returned only a $1,500 verdict after a three-day trial in the City of St. Louis.

Ken Burke and Tucker Blaser won summary judgment in St. Clair County Circuit Court in a case that involved an action alleging medical malpractice and breach of contract claims against a physician and his practice group. A motion to dismiss the medical malpractice claims was filed on the grounds that the plaintiff's proffered certificate of merit was insufficient under the requirements of the Illinois Healing Arts Malpractice Act. The court granted the motion and dismissed the medical malpractice claims with prejudice. A summary judgment motion was then filed on the remaining breach of contract claim arguing that the alleged oral contract that formed the basis of the breach of contract claim lacked consideration and/or was rescinded through subsequent performance of the parties. The court granted the summary judgment motion and entered an order dismissing the breach of contract claim with prejudice effectively resolving the entire case.  

In a bench trial, Jackie Kinder obtained a judgment for her client, an automobile dealer who was sued for fraud in the sale of a classic car. In ruling for Jackie's client, the court not only ruled against the customer but also awarded damages for Jackie's client for breach of contract and consequential damages, including attorney fees, under the original sales contract that the customer had failed to honor for the vehicle's purchase.

Peter Spataro and Morgan Murphy obtained a defense verdict after a week-long medical malpractice trial in St. Louis County Circuit Court. The plaintiff alleged the defendant failed to timely diagnose and treat a DVT/pulmonary embolism (PE) following a lumbar spine surgery. The decedent had experienced symptoms suggesting a PE. When chest CT results confirmed a PE, the defendant prescribed heparin. The decedent died within an hour of the heparin order and heparin was never administered before his death. The plaintiff's expert alleged that the defendant should have prescribed heparin immediately. However, the defendant's expert emphasized the risk of bleeding if heparin were ordered without first confirming PE, and furthermore, testified that the heparin ordered would not have prevented the decedent's death three hours after the chest CT was ordered.

Phil Willman and Angela Pozzo won a unanimous defense verdict for their clients, a hospital and affiliated emergency physicians group, in a wrongful death/medical malpractice/negligent credentialing case. The case involved a 49-year-old man taken to the hospital's emergency room after complaining of chest and abdominal pain, and who died after having a heart attack in the emergency room six hours later. The decedent weighed 325 pounds, was hypertensive and smoked two packs of cigarettes daily. The plaintiffs alleged that the hospital and emergency room doctor failed to timely diagnose and intervene before the fatal cardiac arrest. Phil and Angela took the position that the hospital and physician did all they could to care for the decedent in a timely manner, and there was no relationship between the actions of the hospital's employees and this death. At trial, the plaintiffs had sought $2.37 million in damages.  

Beth VeathTucker Blaser and Ben Ford recently obtained a favorable result for a product defendant in an asbestos exposure lawsuit filed in Madison County by successfully arguing for the application of Michigan law, and its bar of secondary asbestos exposure claims. The complaint alleged that the decedent had been exposed to asbestos fibers and developed mesothelioma because she washed the clothes of her husband, who worked with asbestos-containing floor materials.

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T. Michael Ward
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Russell F. Watters
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