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GEICO Casualty Company v. Hollandsworth

United States District Court, W.D. Missouri, Western Division

March 28, 2019



          GREG KAYS, JUDGE

         This declaratory judgment action concerns insurance coverage for an automobile collision. Plaintiff GEICO Casualty Company (“GEICO”) seeks a declaration that the policy it issued to Daniel and Deborah Clymens does not cover an accident involving a moving truck driven by Patricia Hollandsworth. Daniel Clymens helped Hollandsworth rent the truck, and while intoxicated she crashed it into a motorcycle ridden by Richard Aguilar. The Court now, on its own motion, exercises its discretion to abstain from hearing the suit and DISMISSES it in favor of a pending and parallel state proceeding.


          A GEICO automobile policy insures Daniel and Deborah Clymens. The only vehicle listed on the policy is a 2005 Toyota Sienna XLE. The policy has an “each person” bodily injury liability limit of $25, 000 and an “each occurrence” bodily injury liability limit of $50, 000. The policy extends coverage to relatives of the named insureds who reside in the insureds' household and, under certain circumstances, to insureds operating non-owned autos. It also obligates GEICO to defend the insured in any suit for damages payable under the policy.

         On July 13, 2013, Clymens and Hollandsworth rented a Ford E450 U-Haul truck so that Hollandsworth could move from the Clymens's to a new residence. The owner of the U-Haul refused to rent to Hollandsworth because she lacked a valid driver's license and was visibly intoxicated. Thus, Clymens alone signed the rental agreement. Hollandsworth, however, paid for the rental with her debit card. The next day, Hollandsworth drove the U-Haul truck while still intoxicated and hit Aguilar as he was riding his motorcycle, severely injuring him.

         Aguilar sued Hollandsworth in state court in August 2017. Hollandsworth sought indemnification from GEICO under the Clymens's policy. GEICO denied coverage and offered to defend her subject to a reservation of rights. Hollandsworth rejected GEICO's defense and, unbeknownst to GEICO, entered into an agreement with Aguilar under Mo. Rev. Stat. § 537.065 (the “537 Agreement”) (Doc. 31-1), whereby she assigned to Aguilar her rights under the GEICO policy and her claims against GEICO.

         In the 537 Agreement, Hollandsworth acknowledged fault for causing the accident, agreed not to dispute liability, and agreed to submit the issue of damages “to a judge.” She also agreed to pursue all claims against GEICO

for extra-contractual damages or bad faith and/or for [GEICO's] failure to settle and/or for negligence or breach of fiduciary duty (or however the claim may be denominated) arising out of [GEICO's] failure to earlier settle the claim brought against her.

         Hollandsworth further stated that she would “fully cooperate in any claim or cause of action” against GEICO, including being named as a party plaintiff. She assigned to Aguilar “all interests, causes of action, and rights of action” against GEICO. In exchange, Aguilar agreed to recover only from GEICO rather than from Hollandsworth's personal assets.

         On February 22, Hollandsworth informed GEICO that she was rejecting its defense under a reservation of rights. She also requested that counsel retained by GEICO withdraw from her case. The next day, GEICO replied that it was considering whether to withdraw its reservation of rights and defend her. On February 28, Hollandsworth notified GEICO that she had not been advised of GEICO's position. She gave GEICO until 5:00 p.m. that evening to withdraw its reservation and defend her unconditionally. GEICO chose not to do so.

         Hollandsworth informed GEICO of the 537 Agreement on March 3. Shortly thereafter, on March 7, GEICO moved to intervene as a matter of right in the state court lawsuit. On March 15, Aguilar dismissed without prejudice his state court action against Hollandsworth. About one hour later, GEICO filed this federal action seeking a declaratory judgment that it owed no duty to defend or indemnify Hollandsworth with respect to the 2013 collision. Aguilar and Hollandsworth filed separate motions to dismiss this case, arguing that Aguilar's dismissal of the state court action rendered the declaratory action moot. The Court denied these motions (Doc. 14).

         Defendants entered into an agreement (Doc. 21-3) on May 4 to submit their underlying dispute to binding arbitration. As part of the agreement, Hollandsworth agreed not to accept representation at the arbitration from any attorney or firm selected by GEICO, or to “file any post-arbitration motions challenging the award, any post-trial motions after the court enters judgment, or any notice of appeal.” The agreement reiterated that Aguilar would seek to recover only from the GEICO policy proceeds and any potential claim against GEICO.

         The arbitrator heard evidence on June 4, and, on July 16, issued his decision awarding Aguilar approximately $8 million in economic damages, $20 million in non-economic damages, and $7 million in punitive damages against Hollandsworth.[1] On August 8, Aguilar filed an application in state court to confirm the $35 million award. GEICO moved unsuccessfully to intervene in this proceeding, and, on October 24, the state court entered the award. GEICO appealed this decision, while Aguilar filed a separate state garnishment action against the insurance company, alleging that GEICO acted in bad faith and breached its duty to defend. In that suit Aguilar seeks garnishment of the policy proceeds, as well as compensatory and punitive damages. He argues that GEICO's actions render it liable for the entire underlying judgment.

         Defendants moved jointly to dismiss (Doc. 46) or stay (Doc. 64) this action. They requested that the Court abstain from hearing the case due to the pending state garnishment proceeding. The Court denied the motions (Doc. 74) because the parties had already conferred under Rule 16, taken several depositions, and fully briefed ...

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