Hyatt Corp. v. Occidental Fire & Cas. Co. of N.C.

• Decision Date: 06 November 1990
• Docket Number: No. WD,WD
• Citation: 801 S.W.2d 382
• Court: Missouri Court of Appeals
• Parties: HYATT CORPORATION, Plaintiff, Crown Center Redevelopment Corporation, et al., Intervenors-Respondents, v. OCCIDENTAL FIRE & CASUALTY CO. OF N.C., et al., Defendant, Columbia Casualty Company, Appellant, The American Insurance Company, Intervenor-Respondent. 42165.

Page 382

801 S.W.2d 382

HYATT CORPORATION, Plaintiff, Crown Center Redevelopment Corporation, et al., Intervenors-Respondents, v. OCCIDENTAL FIRE & CASUALTY CO. OF N.C., et al., Defendant, Columbia Casualty Company, Appellant, The American Insurance Company, Intervenor-Respondent.

No. WD 42165.

Missouri Court of Appeals,

Western District.

Nov. 6, 1990.

Motion for Rehearing and/or Transfer

to Supreme Court Denied Jan. 2, 1991.

Application to Transfer Denied Feb. 7, 1991.

Phillip C. Rouse, Kansas City, for appellant.

William H. Sanders, Kansas City, for intervenor-respondent American Ins. Corp.

Judith Ann Whittaker, Kansas City, Norman C. Kleinberg, New York City, for intervenor-respondent Crown Center Redevelopment Corp.

Before KENNEDY, P.J., and SHANGLER and GAITAN, JJ.

GAITAN, Judge.

Columbia Casualty Company (Columbia) alleges the trial court erred: (1) by finding that Columbia must indemnify respondents for rescuer claims and defense costs from the construction defendants' fund as a consequence of the collapse of the two skywalks at the Kansas City Hyatt Regency Hotel, and (2) by declaring Columbia's policy permitted coverage for punitive damages and attorney fees in settlement of the federal class actions. We affirm.

I. Factual History

On July 17, 1981, two skywalks at the Kansas City Hyatt Regency collapsed causing a tremendous loss of life and injury. This appeal is the second between the insurers of the Hyatt Corporation, Crown Center, and Hallmark. The first case was decided in Crown Center Redevelopment Corp. v. Occidental Fire & Casualty Co., 716 S.W.2d 348 (Mo.App.1986) (herein referred to as Crown Center I ). Some background information is necessary for the disposition of this appeal.

On December 6, 1982 with the prior approval of its insurers, Accidental and Commercial Union, the insureds of the Hyatt, Crown Center, and Hallmark entered into a class action settlement agreement (the "state settlements"). These settlements received final approval by the Jackson County Circuit Court on January 6, 1983. Under the terms of the state settlements, the insureds, as the settling defendants, agreed to pay compensatory damages to all class members without litigating liability. In addition, the insureds agreed to undertake to create a class settlement fund, from which supplemental payments would be made to those class members who obtained compensatory damage verdicts, as opposed to settlements, against the settling defendants.

A. The Construction Defendants' Funds

As part of the settlement process with the victims, the insureds also entered into separate agreements with each of the construction defendants, including the general contractor, structural engineers, architects, and others--those with sole or primary responsibility for the acts leading to the collapse. The construction defendants had contractual obligations to indemnify and insure the defense of Crown Center for any liabilities resulting from their acts and to procure insurance for the insureds in connection with the hotel. Pursuant to the agreements with the construction defendants (the "construction defendants agreements"), the insurers of the construction defendants paid over to Crown Center the remaining limits of their insurance policies which provided coverage to Crown Center and/or Hallmark directly or through indemnity obligations.

In effect, the construction defendants agreements provided a mechanism to put the limited insurance coverage of the construction defendants, to which the insureds were entitled as additional insureds and indemnitees, to work for the insureds and the construction defendants. The carriers in the Occidental and Commercial Union (CU) lines (see Crown Center I, 716 S.W.2d at 351) approved the use of the constructions defendants' funds for these purposes and agreed to waive subrogation against the construction defendants.

B. The Rescuer Claims

On August 31, 1984, following consummation of the federal and state settlements, a suit was filed in Jackson County Circuit Court against Hallmark only by Moen L. Phillips, a fireman, who alleged that he suffered physical and emotional damages as a result of his rescue work in the hotel immediately after the skywalks' collapse. On October 10, 1984, Hallmark made a motion to dismiss the Phillips' complaint, principally on the grounds that the plaintiff's complaint was barred by the "fireman's rule." On May 13, 1985, the circuit court granted Hallmark's motion. Phillips appealed to this Court, which reversed the dismissal in a 2-1 decision in April, 1986.

On June 6, 1986, a class action was filed in the federal court on behalf of all rescuers involved in the skywalks' collapse who were legally permitted to recover. Thereafter, 79 similar rescuer cases on behalf of over 150 persons were filed in state court. As had the original plaintiffs who filed suit soon after the skywalks' collapse, the rescuer actions alleged that the insureds were negligent in both the operation and construction of the hotel.

On December 16, 1986, the Missouri Supreme Court unanimously reinstated the judgment of dismissal in Phillips v. Hallmark Cards, Inc., 722 S.W.2d 86 (Mo. banc 1986), thus firmly establishing a bar to rescuer claims brought by fireman and policemen. Id. at 89. Following the Supreme Court decision in Phillips, the Jacob complaint was amended to limit the proposed class to plaintiffs other than policemen and firemen. Individual rescuer suits brought in state court by policemen and firemen were also dismissed voluntarily. In March 1990, in Krause v. U.S. Truck Co., 787 S.W.2d 708, 711 (Mo. banc 1990), the Missouri Supreme Court held that other professional rescuers (such as an ambulance attendant) could recover for injuries sustained in a rescue effort. Id. at 713.

Based on experience from earlier litigation, the insureds' counsel advised settling the rescuer claims which involved the most severe injuries; those brought by Joseph Waeckerle, a physician, and Michael Allman, a jackhammer operator. A settlement of the federal class action was negotiated, and the action was settled on behalf of all rescuer plaintiffs other than firemen and policemen, including the rescuers who had filed in state court. The federal court gave final approval to the settlement agreement on December 15, 1987.

Beginning in May, 1986, the insureds promptly forwarded to Columbia and American, the insurance carriers then on line, information about potential rescuer claims; including the claims of Waeckerle and Allman. This information was filed with American and Columbia in the same manner as information on the hundreds of skywalk claims previously settled. Consistent with this practice, Columbia and American were sent a copy of the Jacob petition. American quickly approved the rescuer settlements, and tried, unsuccessfully, to secure Columbia's approval.

On July 25, 1986, Columbia denied coverage for all rescuer claims, contending that the insureds were not additional insureds under its policy and that the Columbia policy necessarily excluded the rescuer claims. At the same time, Columbia advised American, which had already approved the Waeckerle and Allman settlements, that it would not contribute to the rescuer settlements. These settlements were consummated in August, 1986. Notwithstanding its denial of coverage, Columbia was kept fully informed of the ongoing rescuer settlement process.

To date, Columbia has declined to pay any of its pro-rata share of any of the rescuer settlements, which in the aggregate total $419,830.86. American timely paid its one-third share of the initial settlements. Thereafter, given Columbia's refusal to pay, and approval from American, the insureds paid the rescuer settlements out of the construction defendants' funds. Under the terms of a previous agreement, any residue was ultimately to be distributed to American and Columbia pro-rata from that fund.

C. The September 1, 1983 Agreement

On the eve of the hearing on the motion for summary judgment, and after lengthy conferences before the trial court, Columbia, American and the insureds entered into an interim understanding governing how Columbia would fund its obligations under the October 7, 1982 order (see Crown Center I, 716 S.W.2d at 353) entered by the trial court. Columbia agreed to pay claims and judgments on the pro-rata formula of the October 7 order: In return, the insureds agreed that Columbia would not have to fund its share of skywalk settlements and judgments until after the exhaustion of certain sums advanced by the construction defendants and American. ¹ The parties' agreements were outlined in a written document reached in the presence of the trial court on September 1, 1983. Paragraph nine of that agreement further provided that the insurance carriers who last funded the settlements would receive any amounts remaining in the funds. This was only to occur, however, after, inter alia, (1) "all claims are settled and paid;" (b) "all judgments are satisfied;" (c) "all supplemental payments under the class settlement agreements have been paid;" and (d) "all costs Crown Center is obligated to pay under agreements with the construction defendants have been paid." (Emphasis added).

In addition, paragraphs 7 and 8 of the September 1 agreement provided that the insureds could use the construction defendants' funds to fund "its agreements with the construction defendants." The agreements with the construction defendants which were before the trial court provided that the insurance proceeds were "for use by Crown Center to satisfy Crown Center's obligations under the settlement agreement ... or with respect to any other arrangement for settling plaintiffs' claims arising out of the skywalks' collapse." (Emphasis added).

When the carriers in the CU and Occidental lines were no longer obligated to pay defense costs, Columbia and American agreed that the insureds were also entitled to use the...