Leonberger v. Mo. United Sch. Ins. Council

• Decision Date: 24 May 2016
• Docket Number: No. ED 103669,ED 103669
• Citation: 501 S.W.3d 1
• Parties: Willie Leonberger, Plaintiff/Respondent, v. Missouri United School Insurance Council, Defendant, and United Educators, a Reciprocal Risk Retention Group, Defendant/Appellant.
• Court: Missouri Court of Appeals

501 S.W.3d 1

Willie Leonberger, Plaintiff/Respondent,

v. Missouri United School Insurance Council, Defendant,andUnited Educators, a Reciprocal Risk Retention Group, Defendant/Appellant.

No. ED 103669

Missouri Court of Appeals, Eastern District, DIVISION FOUR .

Filed: May 24, 2016

Motion for Rehearing and/or Transfer to Supreme Court Denied June 30, 2016

Application for Transfer Denied Nov. 1, 2016

James P. Frickleton, Edward D. Robertson III, 11150 Overbrook Road, Suite 200, Leawood, KS, for Plaintiff/Respondent.

Mark G. Arnold, 190 Carondelet Plaza, Suite 600, Clayton, MO, Robert P. Berry, Andrew D. Lamb, 16150 Main Circle Drive, Suite 120, Chesterfield, MO, William C. O'Neill, 1001 Pennsylvania Avenue, N.W., Washington, DC, for Defendant/Appellant.

Daniel E. Sakaguchi, Jonathan R. Shulan, Laurence R. Tucker, 7700 Forsyth Blvd., Suite 1800, Clayton, MO, for Defendant.

SHERRI B. SULLIVAN, P.J.

Introduction

United Educators, A Reciprocal Risk Retention Group (Appellant) appeals from the trial court's Order and Judgment denying Appellant's Motion to Compel Arbitration and granting Willie Leonberger's (Respondent) Motion to Stay Arbitration. We affirm.

Factual and Procedural Background

Accident

In 2011, Respondent drove a school bus for the North Callaway R–1 School District (District). The District was Respondent's employer. On January 18, 2011, Respondent was driving the bus when he accidentally struck and killed student Hunter Pitt (Pitt) after Pitt disembarked the bus.

Insurance Coverage

I. MUSIC Policy

The District was a member of and procured liability insurance for its bus drivers from the Missouri United School Insurance Council (MUSIC).¹ Arthur J. Gallagher Risk Management Services (Gallagher Services) was MUSIC'S claims administrator. The District's MUSIC policy had limits of $2,500,000 per occurrence. "Occurrence" was defined by the MUSIC policy to mean an accident. The MUSIC policy stated:

[W]e have the right and duty to investigate, defend and settle any Claim or Occurrence to which this Coverage Agreement applies.... An excess insurance policy or reinsurance contract may provide coverage to members of MUSIC once the loss exceeds a certain dollar amount. Thus, any loss is subject to the terms, language and conditions of the particular excess insurance policy or contract, if applicable.... It is this excess insurance that allows the Program to cap large losses at an affordable level, but allows MUSIC, through its claims administrators, to manage and control all losses within the self-insured retention....

II. FRA Policy

For liability claims, MUSIC entered into a "Facultative Reinsurance Agreement" (FRA) with Appellant to provide all coverage under the MUSIC policy in excess of $500,000. The FRA provides in paragraph 2 that Appellant's liability would "follow that of [MUSIC] subject in all respect to the terms, conditions, exclusions and limits of liability of [the MUSIC policy], except when otherwise specifically provided herein."

In paragraph 4 of the FRA, Appellant declares MUSIC "must notify" Appellant "as soon as practicable of any occurrence reasonably likely to involve" the FRA, so Appellant:

shall have the right and be given the opportunity:

a. to approve in advance, counsel selected by a Covered Organization² (which we will not unreasonably withhold or delay) or to require the Covered Organization to revoke that counsel's appointment....

b. to be associated at our own expense with the Covered Organization or the Covered Organizations underlying Covered Parties as defined under the Reinsured's Memorandum of Coverage, or both, in the defense and control of claims, or the trial of any suits or other legal proceedings, relative to any occurrence that in Reinsurer's opinion, may create liability for Reinsurer under the terms of this agreement, in which event the Covered Organization shall cooperate with Reinsurer in all things in the defense of that claim, suit, or other legal proceeding; or

c. at the Reinsurer's sole option, to take over the defense of any claim, suit, or legal proceeding and to exercise the DEFENSE AND SETTLEMENT rights of Reinsured that are contained in its Memorandum of Coverage.

(Emphasis in original.)

The FRA provides with regard to settlement:

[Appellant] will not settle any claim without the agreement of [MUSIC]. If [MUSIC] or any Covered Organization refuses to consent to a reasonable settlement [Appellant] recommends that is acceptable to a claimant, our liability for losses associated with that claim is limited to the amount of Damages as defined under [the MUSIC policy] for which the claim could have been settled.... In addition, [MUSIC] and [Appellant] agree that notification of any settlement demand that involves [Appellant's] limit will be given to the [Appellant] by [MUSIC] prior to consenting to any settlement.

Proceedings

On January 19, 2011, MUSIC and Gallagher Services learned of the accident. MUSIC confirmed "coverage is applicable and there are no coverage issues on this Auto Liability Claim. No exclusions apply." It also recognized liability for Respondent was probable with "90–100% fault on the bus driver." MUSIC notified Appellant of the accident. Appellant acknowledged the claim and assigned claims attorney Rhonda Hurwitz (Hurwitz). The Pitts notified MUSIC that they had retained an attorney. MUSIC retained an attorney to represent Respondent. Hurwitz asked Respondent's attorney to copy her directly on all emails and updates. Appellant requested a separate attorney represent the school district. Attorney Bob Numrich (Numrich) was retained for that purpose.

Criminal Case

On May 20, 2011, the Callaway County prosecuting attorney charged Respondent with second-degree involuntary manslaughter. MUSIC retained criminal attorney Rusty Antel (Antel) for Respondent. Antel advised Respondent to plead guilty to the prosecutor's charge. Pursuant to Antel's advice, Respondent pled guilty to the charge of second-degree involuntary manslaughter. Numrich provided MUSIC and Appellant with the details of Respondent's plea. Appellant informed MUSIC it was considering denying coverage based on Respondent's plea due to the MUSIC policy's (and hence, FRA policy's) exclusions in Section 19 (o) and (p) of coverage for criminal acts.

On December 16, 2011, MUSIC's claims adjuster wrote:

Our intention all along was to get this to mediation. Now however, it appears [Appellant] may want to issue a reservation of rights due to the alleged criminal act of [Respondent]. [Respondent] may have been charged due to pressure by the family in this matter, but he was not convicted. This 79–year–old man pled out to keep from going to prison for involuntary manslaughter. The fact of the matter is, he was still in the course and scope of his duties as a district employee when this unfortunate accident occurred. We will have a conference call shortly to try and resolve this issue.

The following day, the supervising claims adjuster noted: "Now since criminal charges were filed and the driver signed the affidavit, there is a question from excess [Appellant] if there is coverage for the driver. Anita [Khiene (Khiene), an employee of Gallagher Services] has been notified and a conference call will be set up to discuss."

The Pitt family made a formal policy limits demand. Hurwitz e-mailed Respondent's attorney and Numrich and asked them to provide her with a copy of Respondent's sentencing hearing transcript. The conference call was cancelled. The claims adjuster noted the Pitt family absolutely declined mediation, and Numrich relayed to the Pitts' attorney MUSIC was not going to tender their limits.

On January 18, 2012, the Callaway County circuit court sentenced Respondent to five years and suspended execution of sentence subject to probation and community service.

Civil Case

On February 14, 2012, the Pitts filed a wrongful death action against Respondent, the school district, the district transportation manager, and the district superintendent. A few days later, the supervising adjuster noted:

[Respondent] has pleaded guilty and now excess carrier is advising that since bus driver pleaded guilty to stay out of jail, excess say[s] now there is no coverage for bus driver. We have just been notified that suit has been filed but not served and will need to discuss further with excess carriers.

Respondent's attorney prepared a litigation plan. By this point, Appellant's involvement was so significant Respondent's attorney addressed Respondent's litigation plan directly to Hurwitz. Respondent's attorney filed an Answer on Respondent's behalf, in which Respondent admitted to having acted negligently in causing Pitt's death. That same day, the conference call finally took place. The claims adjuster described the call as follows:

Conference call was held. The plan going forward is [to] take the stance that coverage will be denied to [Respondent]. This will leave plaintiff recovery limited to the statutory cap which is now about $395K. That will give us leverage going forward to force this to mediation. We can say, either go to mediation and get realistic or coverage will be denied to [Respondent].

Hurwitz and Khiene asked for a draft reservation of rights letter. Claims adjuster Debra Walker (Walker) forwarded a draft to Hurwitz. The draft did not include exclusion 19(o). Hurwitz instructed the claims adjuster to add exclusion 19(o) to the letter. MUSIC and Appellant issued a letter to District, but not Respondent or his attorneys, reserving rights to deny coverage due to the criminal acts exclusion in sections 19 (o) and (p) of the MUSIC policy.

In July of 2012, the Pitts' attorney contacted Respondent's attorney to advise that if there was a reservation of rights, his clients would be interested in a Section 537.065³ agreement. That same day, Respondent's attorney contacted Appellant and MUSIC stating he was not aware of a reservation of rights. A week later, Respondent's attorney e-mailed MUSIC and Appellant requesting the reservation of rights...