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Allen v. Bryers

Supreme Court of Missouri, En Banc

December 20, 2016


         APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY The Honorable John M. Torrence, Judge

          George W. Draper III, Judge.

         Franklin Allen (hereinafter, "Allen") obtained a $16 million personal injury award against Wayne Bryers (hereinafter, "Bryers") after Bryers' handgun discharged and severely injured him. Allen subsequently filed a Rule 90 garnishment action in aid of execution seeking proceeds from an insurance policy issued by Atain Specialty Insurance Company (hereinafter, "Insurer"), which insured the premises where the shooting occurred.[1] Insurer appeals the garnishment court's judgment and the denial of its motions to intervene and to set aside the underlying tort judgment on the basis of fraud.

         This Court holds that the garnishment court's rulings on Insurer's motions to intervene and to set aside the judgment were void. Insurer's appeal with respect to those claims is dismissed. This Court further holds that Insurer, who wrongfully refused to defend Bryers, is bound by the result of the underlying tort action, including the findings related to coverage, because it had the opportunity to control and manage the litigation but declined to so do. However, the garnishment court exceeded its authority in ordering Insurer to pay $16 million to Allen because he failed to demonstrate Insurer engaged in bad faith in refusing to defend or settle his claim. Accordingly, Allen is only entitled to receive the $1 million policy limit from Insurer. The remainder of the garnishment court's judgment is affirmed as modified.[2]

         Factual and Procedural History

         John Frank (hereinafter, "Frank") owns the Sheridan Apartments in Kansas City, Missouri. Insurer issued a commercial general liability policy to Frank d/b/a The Sheridan Apartments in 2011 with a $1 million limit for liability claims filed against an insured for personal injury. The policy's definition of "insured" included "employees" but only covered "acts within the scope of their employment by [the insured] or while performing duties related to the conduct of [the insured's] business." The policy applied to an "occurrence, " which is defined as "an accident." The policy contained several exclusions. One exclusion was for an "expected or intended injury, " which excluded coverage for "'[b]odily injury' or 'property damage' expected or intended from the standpoint of the insured … [but] does not apply to 'bodily injury' resulting from the use of reasonable force to protect persons or property." The policy also contained an exclusion for "assault and battery" by any insured, any employee of the insured, or any other person.

         On June 10, 2012, Allen was at the Sheridan Apartments when he was injured severely by the discharge of a handgun carried by Bryers, the property and security manager for the apartment complex, as Bryers was removing Allen from the premises. Allen was rendered a paraplegic from a gunshot that severed his spinal cord. Bryers cooperated with police and several witnesses were interviewed, but no criminal charges were filed against Bryers in connection with the incident.

         On August 27, 2012, Allen's attorney sent a letter to Frank advising him that Allen intended to assert a negligence claim against Frank's employee, Bryers. Shortly thereafter, Allen's attorney sent a similar letter to Insurer, informing it of the severity of Allen's injury and Allen's claim against Frank and Bryers.

         On September 12, 2012, Insurer sent a letter to Bryers that set forth a full reservation of rights. The letter stated that Insurer's investigation revealed that Bryers, acting as the Sheridan Apartments property manager, was involved in an altercation with Allen that resulted in Allen's injury due to Bryers firing a handgun. Insurer informed Bryers that it believed there may not be coverage for Bryers' action under the policy pursuant to the bodily injury provision and the exclusions for expected or intended injuries, employment-related practices, and assault and battery. Insurer explained it had a right and duty to defend Bryers, but only if the claims were covered by the policy. Insurer reserved its right to deny coverage based on the above-mentioned exclusions. Insurer informed Bryers of the $1 million policy limit and his duty to cooperate in the investigation, handling, and potential settlement of the claim. Insurer concluded the letter by stating, "[Insurer] denies any and all coverage under the policy in connection with the claim described above and furthermore denies that it has any legal obligation to indemnify you in the event a lawsuit is filed and a judgment is entered against you."

         On October 22, 2012, Insurer filed a declaratory judgment action in federal district court to determine coverage issues. Insurer maintained the policy did not provide Bryers coverage due to the assault and battery exclusion, the expected or intended injury exclusion, and that the claimed damages did not result from an "occurrence" under the policy.[3] Shortly thereafter, Allen sent Insurer a demand letter seeking the policy limit in exchange for releasing all claims against Bryers and Insurer.

         On November 8, 2012, Allen's attorney sent a letter to Insurer stating:

As a result of the filing of the declaratory judgment action, the purported defense of Bryers pursuant to a reservation of rights and the rejection of the demand to settle within policy limits, [Allen has] agreed in principle to enter into a [section] 537.065 agreement[4] with … Bryers and will have the specific agreement executed by next week.

         On December 4, 2012, Allen filed a petition for damages against Bryers, alleging "[t]his is a negligence cause of action that arises out of the unintentional and accidental discharge of a weapon that occurred" at the Sheridan Apartments while Allen "was being escorted off and/or physically removed" from the premises by Bryers, "who managed the Sheridan Apartments for the benefit and as the agent of the owner of the Sheridan Apartments … Frank …." The petition stated that Bryers did not intend to discharge the handgun nor did Bryers engage in any act that foreseeably could cause injury to Allen. To the extent Bryers used force in attempting to escort off and/or physically remove Allen from the premises, the petition claimed Bryers used only that amount of force that was reasonably necessary to protect persons and property located in or around the Sheridan Apartments. Allen's petition stated his injury was not caused or contributed to be caused by an assault, battery or an expected or intentional act. The petition further contended Bryers was acting in the scope and course of his employment, and Bryers purchased the handgun at Frank's direction. Allen contemporaneously filed a declaratory judgment action against Bryers and Insurer seeking a declaration that the policy provided coverage for Allen's injury.

         Insurer sent correspondence to Bryers on December 14, 2012, notifying Bryers that Allen had filed suit and Insurer retained counsel on Bryers' behalf "with [Insurer's] reservation of rights to deny coverage as set forth by the facts and policy provisions" outlined in its September 12, 2012 letter. Insurer informed Bryers that it filed a declaratory judgment action and it believed several exclusions were present that precluded coverage. Insurer reiterated that it was reserving its rights, reminded Bryers about the cooperation clause, and stated again that the policy may not provide coverage.

         On January 4, 2013, Insurer's retained counsel filed an answer to Allen's petition on Bryers' behalf. The answer generally denied all of Allen's claims and raised affirmative defenses that Allen's injuries were a result of his own negligence. However, Bryers refused to accept Insurer's reservation of rights defense, and Insurer's retained counsel withdrew from the case. Shortly thereafter, Bryers withdrew the answer filed by retained counsel and consented to the entry of judgment against him consistent with the section 537.065 agreement he executed with Allen.

         Insurer filed a motion to intervene on April 5, 2013, requesting intervention for the limited purpose of seeking a stay of the personal injury action until Allen's declaratory judgment action was resolved.[5] Insurer also sought intervention to litigate coverage issues and assert that an inherent conflict of interest existed between Bryers and Insurer that warranted Insurer's intervention. The circuit court overruled Insurer's motion, finding because Insurer denied any and all coverage related to Bryers, it had no authority to contest the terms of the section 537.065 agreement. Insurer did not appeal from this ruling.

         The circuit court held a bench trial on Allen's negligence claim on April 18, 2013. Allen presented evidence from an evaluating physician who provided a prognosis and testified about Allen's need for future medical care and services. Allen entered into evidence his deposition testimony and that of his girlfriend. Allen also offered into evidence Bryers' judicial admissions, which admitted the allegations set forth in Allen's petition. Bryers did not object to any of the testimony, the depositions, or the exhibits offered at the bench trial. Bryers did not conduct cross-examination or present any of his own evidence. Allen made a closing argument regarding liability and damages and requested the circuit court award $20 million in damages. The circuit court took the case under advisement, stating it wanted to research the liability issues before entering a judgment.

         The circuit court entered its judgment five days later. The circuit court's judgment stated that Frank hired Bryers to assist in managing the Sheridan Apartments. It found one of Bryers' duties included monitoring pedestrian traffic in and out of the premises to keep loitering at a minimum, which required escorting off and/or physically removing persons who Bryers determined were not on the premises properly. The judgment found Frank directed Bryers to acquire and carry a handgun to assist Bryers in performing his duties due to a series of criminal events that occurred at or near the apartment complex.

         The circuit court noted that Bryers admitted Allen was injured as a direct result of his negligence and/or improper handling of the handgun, which was discharged when Bryers escorted Allen off of the premises. The circuit court determined Bryers was acting in the course of his employment and carrying out management duties. However, the circuit court found Bryers was under the influence of alcohol at the time the handgun discharged and injured Allen. The circuit court stated that Bryers had no intent to discharge the handgun and the discharge was unintentional, accidental, negligent and/or reckless as a result of Bryers' intoxication and lack of training in the proper handling of a firearm. The circuit court ruled out that the incident involved an assault, a battery or any intentional act and held Allen did not intentionally assault, strike or batter Bryers during the incident. The circuit court determined Bryers' use of force during the course of his employment was reasonable. The circuit court held Allen suffered a permanent and disabling spinal injury and awarded him $16 million in damages.

         After the underlying tort judgment became final, Allen filed an Execution/Garnishment/Sequestration Application Order pursuant to Rule 90 and chapter 525. The garnishment action contained the same style and case number as the underlying tort judgment and was presided over by the same circuit judge. The garnishment order listed Allen as the garnishor, Bryers as the debtor, and Insurer as the garnishee. Allen propounded interrogatories to Insurer. Insurer filed its answers and denied that the policy provided indemnity to Bryers. In response, Allen filed exceptions, objections, and denials to Insurer's interrogatory answers. Allen's exceptions alleged Insurer: (1) wrongfully refused to defend Bryers; (2) acted in bad faith when it refused to settle Allen's claim against Bryers; (3) acted in bad faith when it refused to defend Bryers; (4) was bound by the terms of the section 537.065 agreement and the circuit court's underlying tort judgment; and (5) was precluded from asserting policy defenses in a garnishment action.

         Insurer denied all of Allen's allegations and raised several affirmative defenses, including: the section 537.065 agreement was a result of fraud or collusion; the underlying tort judgment was unreasonable; the policy was void or subject to rescission; several coverage defenses were present; it had no duty to defend or indemnify Bryers; Bryers violated the cooperation clause; an inherent conflict of interest existed; its due process rights were violated; the appropriateness of several issues being adjudicated as premature; and challenged any potential award of punitive damages for any finding of bad faith on its part in handling Allen's claim.

         Allen filed a motion for summary judgment on the garnishment petition, alleging there were no issues of material fact and he was entitled to judgment as a matter of law. Allen's uncontroverted facts mirrored the facts found in the underlying tort judgment. Allen also alleged Insurer engaged in bad faith in failing to perform its duty to defend, duty to settle, and duty to indemnify under the policy. In response, Insurer argued it did not have a full and fair opportunity to litigate the coverage issues in the underlying tort action, and, therefore, it could not be bound by the judicial determinations made in that proceeding. Insurer set forth what it believed to be additional controverted facts, which consisted largely of eyewitness accounts of the altercation between Bryers and Allen that contradicted the facts found in the underlying tort judgment. Insurer also contended that if Allen was entitled to any recovery, it was restricted to the $1 million policy limit because bad faith had not been proven.

         On April 25, 2014, almost a year after the underlying tort judgment became final, Insurer filed a second motion to intervene. Insurer also filed a motion to set aside the underlying tort judgment on the basis of fraud. On July 25, 2014, the garnishment court overruled Insurer's motions, entered summary judgment in Allen's favor on his garnishment petition, and ordered Insurer to pay Allen $16 million, stating that "extra-contractual" damages were appropriate because Insurer was suffering the consequences of its breach of its duty to defend and its failure to settle within the policy limit. After Insurer's motions for reconsideration were overruled, Insurer appealed.

         Motions to Intervene

         This Court first addresses Insurer's claim that the circuit court erred in overruling its motions to intervene in the underlying tort action because Insurer had an absolute right to intervene given it had an interest in the lawsuit after Bryers entered into the section 537.065 agreement and consented to judgment. Insurer contends it is so situated that the factual determinations in the underlying tort action impaired or impeded its ability to protect its interests because it was not allowed an opportunity to litigate the facts relating to coverage under the policy. The garnishment court overruled Insurer's motion, finding that because Insurer denied "any and all coverage, " it had no authority to contest the terms of the section 537.065 agreement.

         Rule 52.12(a) governs intervention as a matter of right. Insurer does not maintain that a statute confers it an unconditional right to intervene. In the absence of a statute conferring an unconditional right to intervene, Rule 52.12(a)(2) requires an entity seeking to intervene as a matter of right to file a timely motion and demonstrate: "(1) an interest relating to the property or transaction which is the subject of the action; (2) that the applicant's ability to protect the interest is impaired or impeded; and (3) that the existing parties are inadequately representing the applicant's interest." Dunivan v. State, 466 S.W.3d 514, 519 (Mo. banc 2015) (quoting State ex rel. Nixon v. Am. Tobacco Co., Inc., 34 S.W.3d 122, 127 (Mo. banc 2000)). The circuit court's judgment regarding intervention as a matter of right will be affirmed unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Johnson v. State, 366 S.W.3d 11, 20 (Mo. banc 2012). Intervention generally should "be allowed with considerable liberality." Id. (quoting In re Liquidation of Prof'l Med. Ins. Co., 92 S.W.3d 775, 778 (Mo. banc 2003)).

         Insurer filed two motions to intervene. The first motion was filed before the bench trial in the underlying tort action. The circuit court overruled Insurer's motion. Insurer asked for reconsideration of the ruling on the morning of trial, but the circuit court declined relief. Insurer had the right to appeal the circuit court's denial of its application to intervene as a matter of right when the circuit court entered its final judgment in the underlying tort action. State ex rel. Koster v. ConocoPhillips Co., 493 S.W.3d 397, 401 (Mo. banc 2016). Insurer did not seek any appellate relief from the circuit court's ruling after the judgment was entered and offers no explanation why it failed to do so. Therefore, Insurer abandoned any claim it had regarding the propriety of the circuit court's ruling on its first motion to intervene.

         Insurer's second motion to intervene was sought for the purposes of setting aside the judgment on the basis of fraud and was filed almost a year after the underlying tort judgment was entered. Rule 75.01 limits the circuit court's control over a judgment to thirty days after a judgment is entered, provided no authorized after-trial motions are filed. See Rule 81.05(a)(1). Rule 75.01 states the circuit court "retains control over judgments during the thirty-day period after entry of judgment and may, after giving the parties an opportunity to be heard and for good cause, vacate, reopen, correct, amend, or modify its judgment within that time." Id. There is no dispute the underlying tort judgment was final, none of the parties filed authorized after-trial motions, and none of the parties sought an appeal within the time frame contemplated by Rule 75.01. Hence, Insurer's second motion to intervene was filed untimely.

         Insurer also could not file an authorized after-trial motion because it was not a party to the action. "After the expiration of the 30 days provided by Rule 75.01, the trial court is divested of jurisdiction, unless a party timely files an authorized after-trial motion." Spicer v. Donald N. Spicer Revocable Living Trust, 336 S.W.3d 466, 468-69 (Mo. banc 2011). "Following divestiture, any attempt by the trial court to continue to exhibit authority over the case, whether by amending the judgment or entering subsequent judgments, is void." Id. at 469. After the underlying tort judgment became final, the circuit court no longer had the authority to rule upon Insurer's second motion to intervene. Accordingly, any ruling on Insurer's untimely, unauthorized motion was void.

         Finally, in its reply brief, Insurer raised the additional argument that it was entitled to intervene because its right to do so ripened when it was called on to indemnify Bryers and pay for the underlying tort judgment. See Ballmer v. Ballmer, 923 S.W.2d 365, 368 (Mo. App. W.D. 1996) (holding that an insurer has an interest in the underlying action for purposes of intervention "when a claim for potential indemnity becomes a demand for actual indemnity"). However, Insurer fails to address the timeliness of its filing and provide any caselaw to support its argument that filing more than a year after the underlying tort judgment became final vested the circuit court with authority to rule upon the motion. Because the circuit court had no authority to rule upon this motion and Insurer cannot appeal a void order, Williston v. Mo. Dep't of Health & Senior Servs., 461 S.W.3d 867, 870 (Mo. App. W.D. 2015), this Court dismisses the portion of Insurer's appeal addressing this issue.

         Motion to Set Aside Underlying Tort Judgment

         Relatedly, Insurer argues the garnishment court erred in overruling its motion to set aside the underlying tort judgment because it was a result of fraud, collusion, and misrepresentation due to Allen and Bryers entering into a section 537.065 agreement. Insurer claims the section 537.065 agreement required Bryers to consent to judgment, allowed Allen and Bryers to stipulate to untrue facts, and presented these stipulations to the circuit court with the intent that the circuit ...

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