James v. Paul, Respondent, State Farm Fire

• Decision Date: 20 June 2000
• Docket Number: WD55546
• Parties: Danny T. James, Respondent, v. Robert M. Paul, Respondent, State Farm Fire and Casualty Insurance Company, Appellant. WD55546 Missouri Court of Appeals Western District 0
• Court: Missouri Court of Appeals

Danny T. James, Respondent v Robert M. Paul, Respondent, State Farm Fire and Casualty Insurance Company, Appellant

WD55546

Missouri Court of Appeals Western District

06/20/2000

Appeal From: Circuit Court of Jackson County, Hon. Jack E. Gant

Counsel for Appellant: Phillip Grubaugh

Counsel for Respondent: Michael Blanton and Michael Manners

Opinion Summary: Circuit Court entered summary judgment in favor of James and against State Farm Insurance Company in garnishment action under homeowner's insurance policy for an assault by the purported insured against James. Paul broke into his wife's house pending a divorce proceeding and stabbed James three times in the stomach. James' petition alleged negligent acts against Paul. Circuit Court held that its findings of fact that Paul negligently injured James in the underlying tort suit, was binding on it in the garnishment action, thus, the issue of whether the injury was caused negligently or intentionally was determined and not an issue in the garnishment proceeding regarding coverage.

REVERSED.

Division holds: Insurance companies are entitled to litigate policy coverage questions in garnishment proceedings even though it refused to defend its insured in the underlying tort claim, and irrespective of whether circuit court found that the injuries were negligently caused. In light of the insured's guilty plea to a specific intent felony of assault, and the nature and circumstances of the insured's acts were such that harm was substantially certain to result, State Farm was entitled to summary judgment in its favor.

Dissenting opinion summary by Judge Joseph Ellis:

The trial court did not err in granting summary judgment in favor of Danny T. James. State Farm was notified of James' action against Paul and provided with copies of the petition. Numerous requests were made for it to defend the action. Had it done so, it could have controlled the litigation, however, its refusal was a breach of its duty to defend. Because State Farm refused to defend in the underlying tort case, it is bound by the result of the litigation and it is not free to re-litigate the issue of liability in the garnishment action.

A potential conflict of interest does not relieve an insurer of its contractual obligation to defend its insured. State Farm cannot unilaterally determine that the incident giving rise to the claim is based on conduct outside the policy's coverage when James' petition stated some grounds of liability covered by the policy.

Before: Patricia Breckenridge, Chief Judge, Harold Lowenstein, Robert Ulrich, Forest Hanna, Paul Spinden, James Smart, Joseph Ellis, Laura Stith, Edwin Smith, Victor Howard and Albert Riederer¹, Judges

1 Judge Riederer resigned from the court prior to the issuance of the opinion.

Forest W. Hanna, Judge

This case arises out of a garnishment action instituted by Danny T. James against State Farm Fire and Casualty Insurance Company, and State Farm's insured, Robert M. Paul. The garnishment action follows an uncontested tort judgment pursuant to section 537.065, RSMo 1994, obtained by plaintiff James against Paul, who has not appealed.

The factual events giving rise to the underlying tort action occurred on the evening of June 8, 1989, when Mr. Paul suspected that his estranged wife, Kayleen Paul,¹ was seeing another individual. After consuming a considerable amount of alcohol, Mr. Paul went to her residence in Independence, Missouri. He observed her through the window having sex with Danny James. Mr. Paul attempted, unsuccessfully, to break in the front door. He returned to his truck where he retrieved a knife, went through the garage where he broke the kitchen window and climbed into the house. He saw Ms. Paul in the kitchen and continued to the front room where he found Mr. James. He stabbed Mr. James three times with the knife. Both were taken to the hospital where Mr. James was treated for serious stab wounds and Mr. Paul was treated for the injuries he received from breaking the glass window.

Because of the incident, Paul was charged with first-degree assault, a class B felony pursuant to Section 565.050.² He pleaded guilty to this offense on August 8, 1989. During the course of the plea hearing, Paul told the court that he was pleading guilty "because [he was] in fact guilty." Paul was sentenced to five years imprisonment. The execution of Paul's sentence was suspended and he was placed on probation for five years. A condition of his probation included incarceration for 14 days in the Jackson County Jail.

At the time of this incident, Paul had a policy of homeowner's insurance with State Farm, which provided Paul with personal liability insurance coverage. Section II, coverage L, of the policy provided in relevant part:

If a claim is made or a suit is brought against an insured³ for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable; and

2. provide a defense at our expense by counsel of our choice.

The word "occurrence" was defined in the policy as: "[A]n accident . . . which results in . . . bodily injury . . . during the policy period." Section II of the policy also contained the following exclusions from liability coverage:

SECTION II--EXCLUSIONS

Coverage L . . . [does] not apply to:

(a) bodily injury or property damage

(1) which is either expected or intended by an insured; or

(2) to any person or property which is the result of willful and malicious acts of an insured.

Following the stabbing incident, Paul notified State Farm of the potential claim and sought liability coverage for himself for any claims made by James. Eventually, State Farm denied coverage.

On February 9, 1992, James filed a civil action in the Circuit Court of Jackson County alleging that Paul negligently stabbed James. He charged Paul with carelessly and negligently causing the injury in that he failed to knock before entering the residence while in possession of a knife, entered the residence while his ability to reason was impaired by shock, or intoxication, and failed to exercise reasonable care in handling the knife when he inflicted the stab wound on James. State Farm was not a party to the underlying tort action. Paul, through his attorney, and State Farm wrote a series of letters culminating in State Farm's denial of coverage. State Farm informed Paul that the assault was not within State Farm's coverage for an accidental "occurrence," but instead, that the occurrence was the result of Paul's willful and malicious acts, and that the injury suffered by James was the expected and intended consequence of Paul's deed.

Following State Farm's denial of coverage, Paul and James entered into a section 537.065 settlement agreement and covenant not to execute against Paul for any monies assessed in a consent judgment.⁴ The settlement agreement provided that Paul would waive a jury and not present evidence at the trial.

The case was subsequently called for hearing. Paul did not appear. A psychiatrist's written report was a part of the record. The written report noted that Paul admitted drinking almost a 12-pack of beer immediately before the incident at Ms. Paul's house, and that the alcohol contributed to the violent acts. The report further stated that Paul was unable to formulate an intent to harm James. The court concluded that Paul did not intend or expect to injure James, thereby finding that he acted negligently. Specifically, it found in part that:

At the time Plaintiff, Danny T. James, was injured, Defendant, Robert M. Paul, was not capable of appreciating or comprehending the nature or consequences of his conduct. Defendant, Robert M. Paul, did not intend or expect for Plaintiff, Danny T. James, to be injured.The Honorable Jack Gant of the Jackson County Circuit Court entered judgment for James in the amount of $285,000, plus prejudgment interest of $45,886.31 and costs.

Thereafter, James instituted a garnishment action against State Farm. State Farm contends that Paul's actions were "intentional," expected or intended and, therefore, coverage was excluded under the terms of the policy. It filed a motion for summary judgment. James filed a cross-motion for summary judgment, arguing that the garnishment court was bound by the factual findings and decision of the court in the uncontested hearing. After the court denied both motions, the parties refiled their motions for summary judgment. On the eve of trial, the court sustained James' summary judgment motion and denied State Farm's motion. The court held that the coverage question had been resolved in the underlying tort action and ordered State Farm to pay the judgment. The court's rationale for its ruling was that State Farm had a duty to defend Paul in the underlying action and its failure to defend prevented it from litigating whether Paul's actions were expected, intended, willful or malicious and thus, his actions were excluded from coverage. State Farm appealed.

State Farm contends that James' injuries were either expected or intended by Paul's actions and the findings and decision of the court in the underlying tort action are not binding on it because it was not a party to the lawsuit. Thus, State Farm argues it has a right to litigate the issue of coverage in the garnishment action. Moreover, its argument continues, the trial court's decision violates Missouri's public policy that liability insurance does not cover intentional acts. James responds that the circuit court decided that Paul's actions were negligent and that the circuit court's factual findings cannot be relitigated. James contends, therefore, that the decision in the uncontested hearing, that the injuries occurred as a result of Paul's negligence, is binding on State Farm in the garnishment proceeding.

ISSUE

The issue, therefore, is whether State...