Johnson v. Westhoff Sand Co., 88,320

• Court: Kansas Court of Appeals
• Writing for the Court: KNUDSON, J.
• Citation: Johnson v. Westhoff Sand Co., 31 Kan. App.2d 259, 62 P.3d 685 (Kan. App. 2003)
• Decision Date: 07 February 2003
• Docket Number: No. 88,320,88,320
• Parties: J. MICHELLE JOHNSON and ALAN L. JOHNSON, Appellees, v. WESTHOFF SAND COMPANY, INC., Defendant, v. MIDCONTINENT CASUALTY COMPANY, Appellant.

31 Kan.App.2d 259

62 P.3d 685

J. MICHELLE JOHNSON and ALAN L. JOHNSON, Appellees, v. WESTHOFF SAND COMPANY, INC., Defendant, v. MIDCONTINENT CASUALTY COMPANY, Appellant.

No. 88,320

Court of Appeals of Kansas

Opinion filed February 7, 2003.

James Borthwick and Brian Martin, of Blackwell Sanders Peper Martin LLP, of Kansas City, Missouri, and William Corum, of the same firm, of Overland Park, for appellant.

Rex A. Sharp, of Gunderson, Sharp & Rhein, P.C., of Prairie Village, for appellees.

Before BEIER, P.J., ELLIOTT and KNUDSON, JJ.

KNUDSON, J.:

In this garnishment proceeding Mid-Continent Casualty Company (Mid-Continent) appeals from the entry of judgment in favor of the garnishors, J. Michelle Johnson and Alan L. Johnson, who earlier had obtained a default judgment of $2,268,784.52 against Mid-Continent's insured, Westhoff Sand Company, Inc. The underlying Mid-Continent policy provided $1,000,000 in liability coverage. The district court rejected Mid-Continent's policy defenses and concluded the insurance company wrongfully refused to defend its insured. An excess judgment was entered against Mid-Continent, with attorney fees of $1,202,336.65 awarded under K.S.A. 40-256. Mid-Continent has filed a timely appeal.

Except for the amount of attorney fees awarded, we affirm the judgment of the district court. We set aside the award of attorney fees and remand to the district court for further hearing to determine an appropriate award.

Stipulation of Facts

The district court's decision was based upon the following stipulated facts agreed to by the parties:

"1. On June 14, 1992, Mr. Shultz was driving a semi and passing another truck at night in a construction zone going uphill without any signs or markings on Highway 54. Alan Johnson, driving his family in the other direction, encountered the two semis side-by-side coming at him. Alan Johnson went for his ditch, but so did Mr. Shultz. To avoid the head on collision with a semi, Alan Johnson attempted to shoot the gap between the oncoming semis resulting in a wreck injuring Alan and permanently ripping off Michelle's dominant right arm just below the elbow.

"2. On December 3, 1993, plaintiffs J. Michelle Johnson and Alan L. Johnson (`Alan and Michelle Johnson' or `the Johnsons') sued in this Court: Roger L. Shultz, a truck driver; Southwest Transportation Company, the trucking company Mr. Shultz was driving for; Great West Casualty Company, Southwest Transportation Company's insurer; J. H. Shears' Sons, Inc., the general contractor (`Contractor') for the construction job on Highway 54 where the wreck occurred; C-Hawk Construction, Incorporated, and Twin Traffic Marking Corporation, both believed to be subcontractors responsible for signage on the construction job.

"3. In early January, 1994, while the Johnsons' attorneys were still trying to serve some of the defendants with service of process, Mr. Shultz gave notice that he had filed for Chapter 7 Bankruptcy. Ultimately Mr. Shultz, due to the bankruptcy and automatic stay, had to be dismissed from the case in April, 1994, as reflected in the First Amended Petition.

"4. On January 21, 1994, Michelle Johnson filed a Statement of Monetary Damages in the amount of $5,000,000, while Alan Johnson filed a Statement of Monetary Damages in the amount of $1,000,000, under Supreme Court Rule 118.

"5. On May 13, 1994, the Johnson[s] moved to file a Second Amended Complaint to drop Twin Traffic Marking Corporation (which discovery showed had no construction duties at the time of the wreck) and to add Revelle Leasing, Inc. (owner of the semi); Russell Leasing, Inc. (co-employer of Mr. Shultz); Westhoff Brothers Paving and Sand Company (a road construction subcontractor) (`Westhoff Brothers')[;] and the Kansas Department of Transportation (KDOT), since in April, 1994, some of the defendants claimed KDOT and Westhoff Brothers Paving and Sand Company were at fault.

"6. The Johnsons were granted leave to file the Second Amended Petition, which was filed on June 3, 1994. The Johnsons then attempted to serve the additional parties with the Second Amended Petition by certified mail, but the certified letter to Westhoff Paving went unclaimed.

"7. By mid-July, 1994, Westhoff Brothers still had not been served, some of the additional defendants had not answered the Second Amended Petition, and Revelle Leasing, Inc. had given notice of Chapter 7 Bankruptcy.

"8. The Barton County Sheriff was requested on July 23, 1994 to personally serve Earl Westhoff for Westhoff Brothers, which was done on August 1, 1994. On August 1, 1994, the Johnsons' attorneys spoke with Earl C. Westhoff by telephone. Earl Westhoff stated that he was operating a company by the name of Westhoff Sand Company, Inc. and doing construction work on U.S. Highway 54 during June, 1992, in the area where the wreck occurred. The Johnsons' attorneys then contacted the Kansas Secretary of State and found that Westhoff Sand Company, Inc. had its principal place of business at 3223 Railroad Avenue, Great Bend, Kansas 67530 and its Registered Agent was Earl C. Westhoff.

"9. On August 9, 1994, the Johnsons moved for leave to file a Third Amended Petition pursuant to K.S.A. 60-215(c), substituting Westhoff Sand Company, Inc. for the incorrectly named Westhoff Brothers.

"10. On September 16, 1994, this Court granted the Johnsons leave to file a Third Amended Petition.

"11. On September 22, 1994, the Third Amended Petition was filed naming Westhoff Sand Company, Inc. (`Westhoff') as a defendant. The Johnsons alleged that Westhoff contracted with KDOT to work on the Highway 54 project and removed permanent `no passing' and other warning signs without placing temporary warning signs in the construction zone which it had a duty to do, all resulting in injury and damages to the Johnsons.

"12. On September 28, 1994, the Court orally entered the following initial scheduling order: mediation to be completed by December 31, 1994, plaintiffs identify experts by February 28, 1995, defendants identify experts by April 30, 1995, witness and exhibit lists exchanged by April 30, 1995, and discovery cutoff of June 30, 1995, with a pre-trial on July 11, 1995.

"13. The Third Amended Petition was served on Westhoff by certified mail on September 29, 1994. Westhoff's Answer was due 20 days thereafter, or on October 19, 1992.

"14. The Johnsons did not file a motion under K.S.A. 60-203 with respect to Westhoff, so the lawsuit against Westhoff was commenced upon service on September 29, 1994.

"15. The Johnsons were deposed on October 13, 1994, with other depositions scheduled for December, 1994.

"16. Westhoff failed to file an Answer by October 19, 1994.

"17. Neither Westhoff nor Earl Westhoff ever notified Mid-Continent of the June 14, 1992 accident, or the lawsuit served on Westhoff. Neither Westhoff nor Earl Westhoff ever notified Mid-Continent of the Third Amended Petition or its service.

"18. On November 3, 1994, after receiving no Answer from Westhoff, the Johnsons' attorneys determined from KDOT who insured Westhoff, and telephoned Mid-Continent. This was Mid-Continent's first oral notice of the claim and lawsuit. Mid-Continent asked the Johnsons' attorney to forward written information.

"19. On November 4, 1994, the Johnsons' attorney mailed a letter and a copy of the Third Amended Petition, and notice of the scheduled December 8, 1994 mediation direct to the insurer, Mid-Continent. See Exhibit A attached and incorporated by reference.

"20. On November 7, 1994, Mid-Continent received from the Johnsons' attorney written notice of the lawsuit, the Summons and a copy of the Third Amended Petition naming Westhoff, and notice of the December 8, 1994 mediation. See Mid-Continent adjuster's handwritten contemporaneous notes attached and incorporated by reference as Exhibit B. See also paragraph 2 of the November 22, 1994 letter of Mid-Continent attached and incorporated by reference as Exhibit C.

"21. Upon receipt of the written notice from the Johnsons' attorney, Mid-Continent attempted to locate any policy issued to Westhoff to confirm that it had insured Westhoff and to determine if that policy might provide coverage for the Johnsons' claims against Westhoff.

"22. Policy No. GL149726 (the `Policy') was issued by Mid-Continent to Westhoff and was in effect on June 14, 1992, but because it expired on January 1, 1993, it was already in off-site storage. Mid-Continent retrieved the policy from storage on November 16 or 17, 1994, and then confirmed that Westhoff was an insured at the time of the wreck under the Policy, with policy limits of $1,000,000.

"23. Mid-Continent's adjuster referenced the need to send a reservation of rights letter for delayed notice.

"24. On November 17, 1994, Mid-Continent called Thurman-Morrison & Associates, the local agent in Great Bend, Kansas, who handled the insurance policy, and received a telephone number for Westhoff Brothers (believed to be a related company), and for father, Earl Westhoff, and son, Paul Westhoff, who were believed to be principals in Westhoff. Mid-Continent also learned that Randy Hayden was the agent who handled Westhoff's account after Thurman-Morrison & Associates and received Randy Hayden's telephone number.

"25. On November 18, 1994, Mid-Continent attempted to call Earl Westhoff at his home telephone number and there was no answer, and then attempted to call Paul Westhoff at his home telephone number, which was no longer in service.

"26. On November 21, 1994, Mid-Continent again attempted to call Earl Westhoff but received no answer.

"27. On November 21, 1994, Mid-Continent then called Randy Hayden, who told Mid-Continent:

(a) Westhoff was one of his clients in 1993 (after the Mid-Continent insurance policy expired), but Westhoff went out of business and still owed Hayden's agency approximately $5,600, which amount had been turned over to a collection agency;

(b) Paul Westhoff split with his dad under bad circumstances, apparently left

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