Kinnaman-Carson v. Westport Ins. Corp.

• Decision Date: 05 May 2009
• Docket Number: No. SC 89728.,SC 89728.
• Citation: 283 S.W.3d 761
• Parties: Karri KINNAMAN-CARSON and Randy Carson, Appellants, v. WESTPORT INSURANCE CORPORATION and ABC Specialty, Inc., d/b/a ABC Tow a/k/a ABC Tow, Respondents.
• Court: Missouri Supreme Court

283 S.W.3d 761

Karri KINNAMAN-CARSON and Randy Carson, Appellants, v. WESTPORT INSURANCE CORPORATION and ABC Specialty, Inc., d/b/a ABC Tow a/k/a ABC Tow, Respondents.

No. SC 89728.

Supreme Court of Missouri, En Banc.

May 5, 2009.

Rehearing Denied June 16, 2009.

Jonathan Sternberg, Dennis Owens, Owens & Baker, Kansas City, MO, Joseph M. Backer, The Backer Law Firm, L.L.C., Independence, MO, for Appellants.

Barry McCormick, Edward M. Boyle, Kim J. Poirier, McCormick, Adam & McDonald, P.A., Overland Park, KS, for Respondents.

LAURA DENVIR STITCH, Chief Justice.

This case presents the question whether an insurer can contest coverage in a garnishment action despite its agreement to defend the underlying tort suit without a reservation of rights. The insurer claims it can because it was unaware at the time it made its agreement that judgment already had been entered in the suit it was agreeing to defend. This Court holds that, to the contrary, the insurer's agreement to defend without reservation precludes it from later asserting a coverage defense in the garnishment action. The insurer should have resolved any issues about the validity of its agreement to provide coverage without a reservation of rights in the lawsuit to which that agreement applied. Having rested on its agreement in that suit, making no attempt to appeal the judgment or have the judgment set aside or to withdraw its agreement, it now cannot get a second bite at the apple by contesting coverage in this garnishment action as if it already had not waived its right to raise coverage defenses. The trial court erred in allowing the insurer to contest coverage and in granting summary judgment on the coverage issue. Reversed and remanded.

I. FACTUAL AND PROCEDURAL BACKGROUND

Karri Kinnaman-Carson was injured in 2004 when her car was struck head on by an oncoming Honda Civic that crossed the center line of traffic. At the time of the accident, the Honda was owned by ABC Specialty, Inc., a towing company. Wallace Hopkins took the Honda from the control of ABC Tow without permission and gave it to a friend, Shannon Norton, to drive. With Mr. Hopkins in the passenger seat, Ms. Norton began driving north on Highway 7 in Blue Springs. She was very intoxicated, crossed the center line, and crashed head-on into Ms. Kinnaman-Carson's vehicle. Both Mr. Hopkins and Ms. Norton died in the accident, and Ms. Kinnaman-Carson suffered serious injuries.

On August 27, 2005, Ms. Kinnaman-Carson filed suit, alleging that Ms. Norton and ABC Tow were negligent, thereby causing her damages. Ms. Kinnaman-Carson's spouse sued for loss of consortium. On February 20, 2006, ABC Tow's insurer, Westport Insurance Corporation, through Claims Management Services, Inc., sent a one-page transmission to ABC Tow stating that coverage for the Carsons' claims would be denied. On February 28, 2006, Westport sent ABC Tow's attorney a more detailed letter denying coverage and refusing to provide a defense.

The Carsons filed an amended petition on June 12, 2006, alleging additional theories of recovery against ABC Tow, including negligent hiring, training and supervision of its employees and negligent implementation of security measures to prevent the unauthorized use of stored vehicles. ABC Tow sent the amended petition to Westport and again asked it to defend the suit and provide coverage. On August 1, 2006, not having received a response from Westport, the Carsons and ABC Tow entered into a settlement agreement pursuant to section 537.065, RSMo 2000.¹

On August 15, 2006, Westport sent ABC Tow a letter stating that it had reviewed the amended petition and "made the decision to defend our insured under a reservation of rights." The next day, August 16, 2006, ABC Tow notified Westport that it had received Westport's letter "dated some 65 days after the amended Petition was mailed to your company. Please be advised that we would respectfully reject your company's belated offer to defense under a reservation of rights."

Two weeks later, on August 29, 2006, the court heard evidence as to liability and damages. On August 31, 2006, the court entered judgment against ABC Tow and in favor of Ms. Kinnaman-Carson for $1,074,128 and in favor of Randy Carson for $300,000. The record does not show when the court's judgment was transmitted to the clerk, but it was not entered in the court's docket until September 14, 2006.²

The following week, on September 22, 2006, Westport's counsel notified ABC Tow that Westport had dropped its reservation of rights and agreed to defend the suit without reservation. Despite sending this letter, and although it had been given notice of the suit early in 2005 and offered to defend the ongoing suit with a reservation of rights in mid-August 2006, Westport apparently had not been monitoring the progress of the suit and was unaware of the judgment entry. It never entered its appearance in the suit after sending the September 22, 2006, letter agreeing to defend the suit, even though the judgment did not become final and the time for appeal did not expire until after the September 22 agreement.³

It is unclear when Westport first found out about the settlement and judgment because that notice is not in the record.⁴ What is clear is that Westport neither made an attempt to file a motion for new trial in the time remaining before the judgment became final, nor filed a timely appeal, nor sought permission to file an appeal out of time pursuant to Rule 81.07, nor filed a motion to set aside the judgment under Rule 74.06, nor attempted to withdraw its agreement to defend without a reservation of rights.

Westport instead sat silent in the underlying lawsuit and did nothing until the Carsons filed their garnishment action. That petition asserted that the Carsons had obtained a judgment against Westport's insured, ABC Tow, for $1,374,128 and that Westport had agreed to defend the suit without a reservation of rights and demanded payment.

Westport conceded in its answer to the garnishment petition that it had withdrawn its initial position that it only would defend with a reservation of rights and that it had agreed to defend ABC Tow without a reservation of rights but nonetheless denied coverage. Westport then filed a motion for summary judgment alleging that the first paragraph of Exclusion G of ABC's policy excluded coverage. The court granted Westport's motion for summary judgment in the garnishment action. The Carsons appealed. Following a decision of the court of appeals, this Court granted transfer.⁵

II. WESTPORT IS BOUND BY ITS AGREEMENT TO DEFEND WITHOUT A RESERVATION OF RIGHTS

Appellate review of the grant of summary judgment is de novo. Southers v. City of Farmington, 263 S.W.3d 603, 608 (Mo. banc 2008). The Court reviews the record in the light most favorable to the party against whom summary judgment was entered. Id. "The criteria on appeal for testing the propriety of summary judgment are no different from those which should be employed by the trial court to determine the propriety of sustaining the motion initially." ITT Commercial Finance Corp. v. Mid-America Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993) (internal quotation omitted). "Summary judgment will be upheld on appeal if: (1) there is no genuine dispute of material fact, and (2) the movant is entitled to judgment as a matter of law." Id.

Generally, "an insurance company can effect a proper reservation of rights when the company provides notice to an insured that its defense of an action should not be construed as a waiver of any policy defense and the insured accepts the defense of the action without protest and with full knowledge of the position of the insurance company of its right to assert non-liability." Atlanta Cas. Co. v. Stephens, 825 S.W.2d 330, 333 (Mo.App.1992). An insured has the right to reject a tendered defense with a reservation of rights. State Farm Mut. Auto. Ins. Co. v. Ballmer, 899 S.W.2d 523, 527 (Mo. banc 1995).

"Should the insured reject the defense, the insurer then has one of three options: (1) ... represent the insured without a reservation of rights defense; (2) ... withdraw from representing the insured altogether; or (3) ... file a declaratory judgment action to determine the scope of [the] policy's coverage." Truck Ins. Exchange v. Prairie Framing, L.L.C., 162 S.W.3d 64, 88 (Mo.App. W.D.2005).

Here, Westport chose the first option: It agreed to defend the underlying personal injury action without a reservation of rights. This foreclosed it from the option of filing a declaratory judgment action to determine coverage. It seeks in this suit to accomplish that same purpose by defending the garnishment as if it had not agreed to defend the underlying suit. It is well-settled, however, that "defending an action with knowledge of noncoverage under a policy of liability insurance without a non-waiver or reservation of rights agreement ... precludes the insurer from subsequently setting up the...