Missouri General Assembly Passes Fair Settlements Bill
5/8/2017 - Missouri has been on the top of the list of states whose laws have
made claims handling decisions by insurers difficult and filled with risk. A
misstep in denying coverage, providing a reservation of rights defense, or
responding to a policy limits demand in Missouri may very well result in an
ultimate exposure to an insurer far exceeding the claim's reasonable value as
well as extra-contractual liability and punitive damages. Indeed, the risks
faced by insurers responding to a complex claim involving coverage questions
may be characterized as walking on eggshells loaded with dynamite.
Relief is on the Way
On April 27, 2017, the Missouri General Assembly passed a Fair Settlements Bill, House Bill 339/714.
House Bill 339/714 addresses two problematic issues that insurers
in Missouri routinely face − the time-limited settlement
demand and the Section 537.065 agreement.
Insurers in Missouri routinely face time-limited policy limits
settlement demands before they have completed their initial investigation.
These demands often include unreasonable deadlines and, if rejected or blown,
are later used to lay the predicate for a future bad-faith-refusal-to-settle
House Bill 339/714 now offers insurers a safe harbor in Missouri.
Unreasonable time limits are no longer permitted. Under the bill, a
time-limited settlement demand must remain open for a time period not less than
90 days from the date the insurer receives the demand.
The bill further requires claimants to provide insurers with basic
information about their claim and access to relevant medical and wage
information. In conjunction with the 90-day time period, insurers may now have
sufficient time and information with which to respond to a time-limited demand.
Therefore, recourse by claimants to time-limited demands as a tool for setting
up insurers for bad faith claims or Section 537.065 agreements may be sharply
curtailed in the future.
The bill also includes a penalty provision to enforce compliance.
While the bill does not affect an insured's right to sue for bad faith based on
the insurer's refusal to accept a settlement demand, the bill penalizes those
claimants who fail to comply with the bill's requirements. If a claimant makes
a time-limited demand that does not meet the bill's requirements, the demand
will be inadmissible in any future bad faith claim.
The second component of House Bill 339/714 reforms Section
537.065. Currently, any insurer in Missouri that issues a coverage declination
or reserves its right to deny coverage, although providing its insured with a
defense, faces the risk of a Section 537.065 agreement. These agreements, as a
matter of Missouri public policy, authorize collusion between the insured and
the claimant and result in uncontested judgments that far exceed the claim's
reasonable settlement value by depriving the insurer of any right to
participate in the insured's defense.
Moreover, judgments following Section 537.065 agreements often
include findings of fact and conclusions of law that are drafted with the
objective of defeating the insurer's coverage defenses in the coverage
litigation that typically follows a judgment entered under the statute. As held
by the Missouri Supreme Court, an insurer is bound by the facts found by the
trial court and has no right to relitigate the issues of liability or damages
or those facts decided by the trial court that directly impact the insurer's
As a practical matter, Section 537.065 agreements and the
judgments that have followed these agreements have operated to deprive insurers
of any meaningful way to limit their exposure or litigate their coverage
position. The statute's chilling effect, thus, resulted in decisions by
insurers to provide coverage unconditionally for claims for which they
possessed substantial coverage defenses or for which their policies provided no
coverage at all. In the end, the insurer's retention of control over the
insured's defense provided the best means for the insurer to avoid potential
exposure for extra-contractual liability and the risks and uncertainty of
litigating the insurer's coverage defenses.
House Bill 339/714 provides some relief from the harshest effects
of Section 537.065 practice. The new bill forbids insureds and claimants from
entering into Section 537.065 agreements in those cases in which the insurer is
providing its insured an unconditional defense. No longer may claimants and
insureds resort to a Section 537.065 agreement when the insurer has rejected a
House Bill 339/714 also provides redress to insurers in those
cases in which Section 537.065 agreements are permitted. No longer may insureds
and claimants enter into these agreements without notice to the insurer. Under
the bill, 30 days' notice is required. Further, the bill gives insurers the
right to intervene in tort cases brought against their insureds in which their
insureds have rejected the insurers' reservation of rights defense. In the
past, Missouri courts were uniform in holding that insurers had no right to
House Bill 339/714 has not yet been signed by Missouri's governor.
However, it is anticipated that he will do so, and, thus, the bill will take
effect August 27, 2017. Its application will be prospective.
Insurers should be alert to the likelihood that they may face a
flood of time-limited demands this summer before the new law takes effect.
Claimants' counsel may take this last opportunity to set up insurers for bad
faith under the current law in Missouri that places no controls over
the bill may be subject to challenge by the claimants' bar. In particular, the
right of intervention may be subject to litigation. The Missouri General
Assembly provided no guidance addressing what this new right entails. Do
insurers have the right to intervene to defend the claim on the merits after
their reservation of rights defense has been rejected, to intervene to litigate
the facts necessary to establish their coverage position, or to intervene to
seek a stay of the damage action pending a determination of the insurer's
declaratory judgment action? Only the future will tell how Missouri's appellate
courts will decide these questions.