Billings Mut. Ins. v. Cameron Mut. Ins.

• Decision Date: 09 May 2007
• Docket Number: No. 27952.,27952.
• Citation: 229 S.W.3d 138
• Parties: BILLINGS MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. CAMERON MUTUAL INSURANCE COMPANY, Defendant-Respondent.
• Court: Missouri Court of Appeals

229 S.W.3d 138

BILLINGS MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. CAMERON MUTUAL INSURANCE COMPANY, Defendant-Respondent.

No. 27952.

Missouri Court of Appeals, Southern District, Division Two.

May 9, 2007.

Rehearing Denied May 31, 2007.

Application for Transfer Denied August 21, 2007.

John G. Schultz, Franke, Schultz & Mullen, P.C., Kansas City, MO, for Appellant.

Ben K. Upp, Turner, Reid, Duncan, Loomer & Patton, P.C., Springfield, MO, for Respondent.

GARY W. LYNCH, Judge.

Billings Mutual Insurance Company ("Billings") appeals the trial court judgment denying its indemnification coverage claim against Cameron Mutual Insurance Company ("Cameron") under a special business owner's insurance policy arising from a defamation claim by Henry Overcast against Billings. Finding that Billings gave Cameron late notice of the Overcast claim, which prejudiced Cameron, we affirm.

1) Factual and Procedural Background

The facts as found by the trial court, which are not challenged on appeal by Billings, are as follows. Billings issued an insurance policy insuring Overcast's home against loss by fire. After investigating Overcast's claim of a covered fire loss, Billings mailed a letter to Overcast on July 1, 1997, denying coverage under its policy because the loss resulted from an intentional act committed by Overcast or at his direction. Following receipt, Overcast asserted that the denial letter was false and defamed him. Before filing suit, Overcast offered to settle both the policy claim and the defamation claim for a total payment of $65,000, but Billings took no action on this offer. Overcast sued Billings in September of 1997, claiming damages for breach of the insurance policy for the fire loss and for defamation for the statements made by Billings in the denial letter.

In April of 1998, verdicts were rendered in Overcast's favor and against Billings in the amount of $26,900 on the insurance policy claim and in the amounts of $500,000 in actual damages and $400,000 in punitive damages on the defamation claim. Judgment in accordance with these verdicts was entered on May 1, 1998. Billings appealed the judgment, and after an opinion by this Court, the Supreme Court of Missouri granted transfer. While the case was pending before the Missouri Supreme Court, Overcast offered to settle both claims for a total payment of $150,000. Billings declined this offer. On February 8, 2000, our Supreme Court affirmed the trial court's judgment. See Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62 (Mo. banc 2000).

Seven months later, in September of 2000, Billings sent a demand letter to Cameron asserting an indemnification claim for the Overcast defamation judgment in the amount of the $500,000 policy limits under the provisions of a special business owner's insurance policy ("Policy") issued by Cameron to Billings. Cameron denied coverage on July 25, 2001, and, consequently, Billings filed the instant suit for breach of contract. Cameron asserted in its answer, among other defenses, that: (1) coverage under the Policy was excluded by the professional-pursuits exclusion contained in the Policy; and (2) Billings failed to comply with the notice provisions under the Policy, in that Billings did not notify or provide written notice to Cameron of the Overcast matter as soon as practicable.¹

The Policy was originally sold to Billings sometime before 1997 by Dallas Wayne Eustler, a Cameron agent, and was in full force and effect at all relevant times at issue. Gayle Cobb served as Billings' general manager and secretary at all relevant times until January of 1998. Charles Smith succeeded Cobb in those positions in January of 1998 and served in those capacities at all relevant times thereafter. Also, at all relevant times, Eustler, Cobb, and Smith served as members of Billings' board of directors. None of the three, nor the Billings' board of directors, nor anyone else from Billings took any overt action to notify Cameron of the Overcast occurrence, claim, or suit before the demand letter in September of 2000.

Due to the late notice, Cameron did not have the opportunity to conduct further investigation into the facts of the Overcast claim, did not have the opportunity to review expert reports or employ additional or different experts, did not have the opportunity to employ counsel of its choosing or to determine if additional counsel should be employed, and was denied the opportunity to participate in settlement negotiations.

Although the trial court made no specific finding of such, the evidence was undisputed and uncontroverted that during all relevant times Cobb also served as a member of Cameron's board of directors.

The trial court entered judgment in favor of Cameron and found that Billings was not entitled to recover indemnification from Cameron based on: (1) the professional-services exclusion of the Policy; and (2) Billings' failure to comply with the notice conditions of the Policy, which prejudiced Cameron. Billings raises two points on appeal: (1) The trial court erred in excluding coverage under the professional-services exclusion of the Policy; and (2) the trial court erred in finding that Billings failed to comply with the notice provisions of the Policy and that this failure prejudiced Cameron. Because our decision on Billings' second point is adverse to Billings and disposes of the appeal, we do not address the first point.

2) Standard of Review

In a court-tried case, we affirm the trial court judgment unless there is no substantial evidence to support it, it is against the weight of the evidence, or the trial court erroneously declared or applied the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo.1976); Knipp v. Truck Ins. Exchange, 857 S.W.2d 281, 284 (Mo.App. 1993). We defer to the trial court's factual findings, giving due regard to the trial court's opportunity to judge the credibility of witnesses. Peet v. Randolph, 157 S.W.3d 360, 363 (Mo.App.2005). We review the evidence and reasonable inferences in the light most favorable to the judgment, disregarding contrary evidence and inferences. Consumer Fin. Corp. v. Reams, 158 S.W.3d 792, 795 (Mo.App. 2005). With respect to resolution of contractual ambiguities, we are faced with a question of law, and our review is de novo. Alea London Ltd. v. Bono-Soltysiak Enterprises, 186 S.W.3d 403, 410 (Mo.App. 2006).

3) Discussion

Billings claims that the trial court erred in its finding that Billings failed to provide timely notice and that Cameron was thereby prejudiced. Missouri treats the failure of an insured to provide timely notice as an affirmative defense. Weaver v. State Farm Mut. Auto. Ins. Co., 936 S.W.2d 818, 821 (Mo. banc 1997). When an insurer attempts to deny an insured coverage based on the insured's failure to comply with the notice provisions of the policy, the insurer must show that it was prejudiced by that failure. Id. Before reaching the notice issue, however, we must address two preliminary issues raised by Billings.

a) Billings' Affirmative Avoidances of Waiver and Estoppel

Initially, Billings argues that Cameron's failure to assert the affirmative defense of late notice until eleven months after Cameron was notified of the claim by the demand letter in September of 2000, constituted a waiver of the defense, and Cameron should be estopped from asserting it now. Cameron properly pleaded the affirmative defense of late notice in its answer to the petition. Rule 55.01.² Rule 55.01 also requires that a "defense consisting of an affirmative avoidance to any matter alleged in a preceding pleading must be pleaded." Thus, once Cameron pleaded the late-notice affirmative defense in its answer, Billings was required to file a reply to that answer if it intended to seek an affirmative avoidance to Cameron's affirmative defense. Rule 55.01; Warren v. Paragon Techs. Group, Inc., 950 S.W.2d 844, 845 (Mo. banc 1997). "A reply should be filed when a plaintiff desires to avoid or attack new and affirmative matter alleged in the answer." Id. (citation omitted). An avoidance is an affirmative defense to an affirmative defense. Id. Billings did not file a reply to Cameron's answer.

Both waiver and estoppel are affirmative defenses. Rule 55.08. As such, they constitute affirmative avoidances as contemplated by Rule 55.01. Warren, 950 S.W.2d at 845. Thus, Billings' failure to file a reply waived the affirmative avoidances of waiver and estoppel unless either (1) the trial court permitted the pleadings to be amended to include the defense, which it did not, or (2) the issue was tried by implied or actual consent of the parties. See Rule 55.33; Tindall v. Holder, 892 S.W.2d 314, 328 (Mo.App.1994); Angoff v. Mersman, 917 S.W.2d 207, 211 (Mo.App. 1996). As to the latter exception, Cameron timely objected, asserting Billings' failure to file a reply raising these avoidances, both when Billings asserted the avoidances in arguing the motions for summary judgment, and when Billings attempted to offer evidence on the avoidances at trial. Such timely objections support that Cameron did not consent to the trial of these avoidances and did not waive Billings' obligation to file a reply asserting the avoidances, as required by Rule 55.01. Having failed to file and raise them in a reply to Cameron's answer, Billings waived the affirmative avoidances of estoppel and waiver as to Cameron's affirmative defense of late notice. Rule 55.01; Angoff, 917 S.W.2d at 211.

b) Alleged Ambiguity in Notice Provisions

Billings next claims that the notice provisions of the Policy in section E(2)³ and the "no-action clause" in section E(4)⁴ are ambiguous, and as such, should be construed against Cameron. Section E(2) of the Policy states, in part, that "[y]ou must see to it that we are notified as soon as practicable of an occurrence or offense that may result in a claim." Section E(4) states, in part, that "[a] person or organization may sue us to recover on an agreed settlement...