W. Am. Ins. Co. v. RLI Ins. Co.

• Decision Date: 07 November 2012
• Docket Number: Nos. 11–3867,11–3869.,s. 11–3867
• Citation: 698 F.3d 1069
• Parties: WEST AMERICAN INSURANCE COMPANY, Appellee–Cross Appellant v. RLI INSURANCE COMPANY, Appellant–Cross Appellee Agency Services Corporation of Kansas, Inc., Cross–Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

698 F.3d 1069

WEST AMERICAN INSURANCE COMPANY, Appellee–Cross Appellant

v. RLI INSURANCE COMPANY, Appellant–Cross AppelleeAgency Services Corporation of Kansas, Inc., Cross–Appellee.

Nos. 11–3867, 11–3869.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 19, 2012.

Filed: Nov. 7, 2012.

Greg Keith Winslett, argued, Dallas, TX, John E. Franke, Nikki Cannezzaro, Kansas City, MO, Matthew J. Kita, Dallas, TX, on the brief, for appellant/cross-appellee.

Kenneth R. Goleaner, argued, David R. Buchanan, on the brief, Kansas City, MO, for appellee/cross-appellant West Insurance Company.

Kyle N. Roehler, argued, Scott D. Hofer, on the brief, Kansas City, MO, for appellee/cross-appellant Agency Services Corporation of Kansas, Inc.

Before WOLLMAN, BEAM, and LOKEN, Circuit Judges.

LOKEN, Circuit Judge.

While driving in Kansas City, Missouri, Kansas resident Stanley Miller negligently rear-ended a vehicle driven by Melissa Andrade, causing serious personal injuries to Andrade and her passenger, Marion O'Dell–Wilson. Miller was insured under a primary liability policy issued by West American Insurance Company (“West”) with a per-occurrence limit of $500,000 and a per-person limit of $250,000, and a separate $1,000,000 umbrella policy issued by RLI Insurance Company (“RLI”). Andrade, her husband, and O'Dell–Wilson (the “underlying claimants”) sued Miller in Missouri state court. The parties agreed to binding arbitration, the arbitrator awarded damages totaling nearly $1.35 million, and the awards were reduced to judgments by the state court.

The underlying claimants then commenced a garnishment action to recover their judgments against Miller. West and RLI satisfied those judgments. West commenced this diversity action to recover expenses incurred in defending Miller in the garnishment action, asserting tort claims under Missouri law against RLI for vexatious refusal to pay, bad faith refusal to pay, and prima facie tort, and claims of negligence and negligent misrepresentation against RLI's independent claims agent, Agency Services Corporation of Kansas, Inc. (“ASCK”). West also sought a declaration that it owed no duty to protect RLI in the underlying arbitration. RLI counterclaimed, alleging that, prior to the arbitration, West negligently and in bad faith refused to settle the underlying claims for less than its policy limits. West's response added claims for indemnification and contribution against ASCK.

In resolving the claims asserted by West, the district court first dismissed the vexatious refusal-to-pay and bad faith claims against RLI, concluding that Missouri law does not recognize such claims by a primary insurer against an excess insurer. West does not appeal those rulings. After further proceedings, the court granted summary judgment dismissing West's prima facie tort claim against RLI and West's claims against ASCK. Finally, the district court resolved RLI's counterclaim on cross-motions for summary judgment, concluding that West is not liable for negligent or bad faith refusal to settle because it fully protected Miller, its insured, by entering into a “high/low” agreement with the underlying claimants prior to the arbitration.

RLI appeals the district court's dismissal of its counterclaim. West cross appeals the district court's dismissal of its claims against ASCK, its prima facie tort claim against RLI, and its affirmative defenses to RLI's counterclaim.¹ Reviewing the district court's rulings de novo, see Van Horn v. Best Buy Stores, L.P., 526 F.3d 1144, 1148 (8th Cir.2008), we reverse the grant of summary judgment dismissing RLI's counterclaim, we decline to rule on the dismissal of West's defenses to that counterclaim, and in all other respects we affirm.

I. Background

The underlying claimants made multiple offers to settle before filing suit against Miller in 2005—for $117,000 in October 2001, and later for the $250,000 per-person policy limits in January 2003, April 2004, and August 2004. West rejected each offer. During discovery after litigation commenced, Miller disclosed that he believed he had excess insurance coverage with RLI but was unable to locate substantiating documents. In April 2005, a West claims manager contacted RLI and, at its direction, ASCK. West's records reflect that ASCK informed West there was a “gap” in Miller's excess coverage at the time of the accident. In fact, Miller's RLI policy then provided $1 million in excess liability coverage.

Some time after October 2005, West and the underlying claimants agreed to arbitrate the claimants' state court claims pursuant to a high/low agreement providing that the maximum amount the underlying claimants could recover in arbitration would be “all sums of money due and owing under any applicable policies of insurance.” After entry of judgments on the arbitrator's awards, the underlying claimants petitioned for an award of equitable garnishment, naming as defendants West, Miller, and “Unknown Insurance Companies.” SeeMo.Rev.Stat. § 379.200. West paid the limits of its policy and defended Miller in the garnishment action. RLI became aware of the proceedings and intervened as a defendant, admitting Miller had an excess policy in force but denying coverage because RLI did not receive timely notice of the underlying claims. During discovery, however, RLI learned that ASCK did receive timely notice of the claims. RLI then satisfied the underlying claimants' judgments. This lawsuit followed.

West alleges that RLI's tortious misconduct and ASCK's false statement that Miller did not have excess coverage caused West the expense of defending the garnishment suit for over a year after it paid its policy limits. In its counterclaim, RLI alleges it was equitably and contractually subrogated to Miller's bad faith refusal-to-settle claims against West, and that West's wrongful refusal of the early settlement offers caused the excess judgments that RLI paid on Miller's behalf. RLI stipulated that the high/low agreement protected Miller from personal liability.

II. RLI's Counterclaim (Appeal No. 11–3867)

A. A Threshold Choice of Law Issue. As the district court and the parties recognized, before considering the merits of RLI's counterclaim for West's allegedly bad faith or negligent refusal to settle the underlying claims, we must determine whether the counterclaim is governed by the law of Kansas, where Miller purchased the primary and excess policies, or the law of Missouri, where the accident and subsequent litigation occurred. The choice-of-law issue is significant because, under Kansas law, an insurer is liable for breach of contract if it was guilty of either negligence or bad faith in refusing to defend or settle third party claims against its insured, whereas Missouri law allows recovery in tort but only upon proof of bad faith. Compare Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502, 508 (1969), with Zumwalt v. Utilities Ins. Co., 360 Mo. 362, 228 S.W.2d 750, 753 (1950). West argues that the district court erred in applying Kansas law. We review this issue de novo, applying the choice-of-law rules of Missouri, the forum State. See Am. Guarantee & Liab. Ins. Co. v. U.S. Fid. & Guar. Co., 668 F.3d 991, 996 (8th Cir.2012).

The district court first concluded that, because Missouri law characterizes an insurer's bad faith failure to settle as a tort claim, Missouri courts would apply the “most significant relationship” test set forth in § 145 of the Restatement (Second) of Conflict of Laws in resolving this choice-of-law issue. The relevant factors under § 145 are: (1) “the place where the injury occurred”; (2) “the place where the conduct causing the injury occurred”; (3) “the domicil, residence, nationality, place of incorporation and place of business of the parties”; and (4) “the place where the relationship, if any, between the parties is centered.” Thompson v. Crawford, 833 S.W.2d 868, 870 (Mo.1992). Neither party challenges this conclusion. Applying the § 145 test, the district court then concluded that Kansas law applies:

An excess carrier that has paid the excess judgments is then subrogated to the rights of the insured to bring the bad faith failure to settle claim against the primary insurer....

Miller is a resident of Kansas. If he had not carried excess coverage, West American's alleged failure to settle within policy limits would have injured his financial interests where he resides, in Kansas.... West American allegedly improperly failed to apprise Miller, in Kansas, of any of the settlement offers or their subsequent rejections.... While the underlying lawsuit was filed in Missouri, the suit would not have been filed at all, nor would the excess judgments have been entered, if West American had settled the claims.

West American issued Miller an insurance policy in Kansas, and the policy contained provisions required by Kansas law. The insured automobile was located in Kansas. Accordingly, the relationship between Mr. Miller and West American is centered in Kansas. The state of Kansas, therefore, has a greater interest than any other state in the claim because it involves the settlement of claims asserted against a Kansas insured under a Kansas insurance policy.

On appeal, West argues the district court erred in focusing on the relationship between Miller and West when it should have analyzed the relationship between RLI and West, as Miller is not a party to this lawsuit. But RLI asserts a subrogation claim, seeking to “stand in the shoes” of Miller. The relationship between Miller and West cannot be ignored. West emphasizes that the injury to RLI occurred in Missouri, where the excess judgments were entered. But the duty West owed and allegedly breached was to its insured, Miller, a resident of Kansas, and the injury caused by West's allegedly wrongful refusal to settle was felt in Kansas, not Missouri. West further argues the conduct that caused RLI's injury was the alleged mishandling of the underlying ...