Millers Mut. Ins. Ass'n of Illinois v. Shell Oil Co.

• Decision Date: 25 November 1997
• Docket Number: No. 71698,71698
• Citation: 959 S.W.2d 864
• Parties: MILLERS MUTUAL INSURANCE ASSOCIATION OF ILLINOIS, Plaintiff/Counterclaim Defendant-Respondent, v. SHELL OIL COMPANY, Defendant/Counterclaim Plaintiff-Appellant.
• Court: Missouri Court of Appeals

Page 864

959 S.W.2d 864

MILLERS MUTUAL INSURANCE ASSOCIATION OF ILLINOIS Plaintiff/Counterclaim Defendant-Respondent, v. SHELL OIL COMPANY, Defendant/Counterclaim Plaintiff-Appellant.

No. 71698.

Missouri Court of Appeals,

Eastern District,

Division Three.

Nov. 25, 1997.

Motion for Transfer to Supreme

Court Denied Jan. 15, 1998.

Application for Transfer Denied Feb. 24, 1998.

John S. Sandberg, Jennifer L. Hardester, Sanberg, Phoenix & von Gontard, St. Louis, for appellant.

Gary P. Paul, Brinker & Doyen, St. Louis, for respondent.

AHRENS, Presiding Judge

In this declaratory judgment action, defendant/appellant Shell Oil Company ("Shell") appeals from a judgment which determined that Millers Mutual Insurance Association of Illinois ("Millers") had no obligation to defend or indemnify Shell or the named insured, H.T. Dunn Oil Company, Inc. ("Dunn") in a tort action in which Miller paid its liability policy limits to the tort claimants and settled as to Dunn. We affirm.

Shell leased land, on which a gas station sits, to Dunn. In addition to the lease, Dunn and Shell entered into a dealer agreement, containing detailed provisions regarding the operation of the station. As lessee, Dunn agreed to maintain at all times and at Dunn's expense, insurance satisfactory to Shell of certain minimum types and limits. Millers issued an insurance policy to Dunn, naming Shell as an additional insured and providing Shell all the benefits of coverage afforded to Dunn.

The policy contained a liability limit of $500,000 for "other than 'auto' only" claims under the liability coverage section. The liability coverage section provides in part as follows:

We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies caused by an "accident" and resulting from "garage operations" other than the ownership, maintenance or use of covered "autos."

We have the right and duty to defend any "suit" asking for these damages. However, we have no duty to defend "suits" for "bodily injury" or "property damage" not covered by this Coverage Form. We may investigate and settle any claim or "suit" as we consider appropriate. Our duty to defend or settle ends when the applicable Liability Coverage Limit of Insurance--"Garage Operations"--Other Than Covered "Autos" has been exhausted by payment of judgments or settlements. ¹

(emphasis added).

In the definition section, the policy defined an "insured" as "any person or organization qualifying as an insured in the Who Is Insured provision of the applicable coverage." The policy then contained the following severability clause: "Except with respect to the Limit of Insurance, the coverage afforded applies separately to each insured who is seeking coverage or against whom a claim or 'suit' is brought."

In June, 1993, the underlying plaintiffs, J.M. and D.M., filed suit against Dunn and Shell based on negligence. Specifically In January, 1995, the underlying plaintiffs and Dunn entered into settlement negotiations. On January 11, 1995, the underlying plaintiffs made demand upon Millers to settle the underlying suit only as to Dunn for Millers' policy limit of $500,000. The underlying plaintiffs refused to consider any settlement negotiations involving Shell. The underlying plaintiffs, as well as Dunn, threatened to take action against Millers under the "bad faith" doctrine should Millers refuse to compromise their claims against Dunn.

Plaintiff J.M. alleged she was abducted at gunpoint from Dunn's premises, raped and shot in the head. Both Dunn and Shell tendered the defense of the underlying case to Millers. Millers agreed to defend both Dunn and Shell in accordance with the provisions in the insurance policy issued by Millers. Millers defended Dunn and Shell and paid all defense costs incurred by Shell from June, 1993 until March 14, 1995.

In January, 1995, Millers notified Shell of the underlying plaintiffs' demand and their refusal to consider any settlement on behalf of Shell. Shell objected to any cessation of Millers' duty to defend should a settlement be reached solely on behalf of Dunn. In February of 1995, Dunn made demand upon Millers to settle the underlying suit for Millers' policy limit. Millers again conveyed an offer of settlement to the underlying plaintiffs in exchange for a full and final release as to both Dunn and Shell. The underlying plaintiffs continued to reject any settlement and release on behalf of Shell.

On or about February 16, 1995, Millers settled the underlying suit and any other claims as to Dunn for the policy limit of $500,000.00. Millers and Shell stipulated that this settlement was reasonable under the circumstances. The settlement related only to Dunn, and not to Shell, the additional insured.

In March, 1995, Millers terminated its defense of Shell in the underlying suit. After terminating all funding of Shell's defense on the underlying case, Millers filed a declaratory judgment action seeking a declaration that its duty to defend Shell as an additional insured on the policy ceased with its settlement solely on behalf of Dunn. Shell filed a counterclaim, asking the trial court to declare Millers had an obligation to continue to defend Shell in the underlying suit.

The trial court entered judgment in favor of plaintiff Millers on its declaratory judgment action, and found in favor of Millers on Shell's counterclaim.

Shell raises two issues on appeal. In its first point, Shell argues the policy of insurance referencing Millers' duty to defend contains a latent ambiguity when applied to situations involving multiple insureds or multiple claims and must therefore be construed to afford coverage to Shell. In its second point, Shell argues Millers did not satisfy its duty to defend Shell when it paid its policy limits on behalf of another insured.

STANDARD OF REVIEW

The parties dispute the applicable standard of review. Shell contends Rule 55.27(b) mandates a motion for judgment on the pleadings shall be treated as one for summary judgment and disposed of as provided in Rule 74.04. Therefore, the applicable standard of review is essentially de novo. ITT Commercial Fin. Corp. v. Mid-America Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993).

Millers disagrees, arguing the proper standard of review is that to be applied in a declaratory judgment action when there is a stipulated record. Millers contends the appellate court is to sustain the decree or judgment unless there is no substantial evidence to support it, unless it is against the weight of the evidence, unless it erroneously declares the law, or unless it erroneously applies the law. Eaton v. State Farm Mut. Auto. Ins. Co., 849 S.W.2d 189, 191 (Mo.App.1993) (citing Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976) and Abco Tank and Mfg. Co. v. Federal Ins. Co., 550 S.W.2d 193, 197 (Mo. banc 1977)).

Here we are dealing with a matter of law, requiring de novo review. The interpretation of the meaning of an insurance policy is a question of law. Moore v. Commercial Union Ins. Co., 754 S.W.2d 16, 18 (Mo.App.1988). "No deference is due the trial court's

judgment where resolution of the controversy is a question of law." MFA Mut. Ins. Co. v. Home Mut. Ins. Co., 629 S.W.2d 447, 450 (Mo.App.1981).

POINTS ON APPEAL

Shell first argues the policy of insurance referencing Millers' duty to defend contains a latent ambiguity when applied to situations involving multiple insureds or multiple claims and must therefore be construed to afford coverage to Shell. We disagree.

Shell contends the language in the coverage clause fails to define the parameters of any payment for judgment or settlement when the policy provides coverage for more than one insured or in a situation where one insured is sued on multiple claims. Shell relies on the rule that any ambiguity or uncertainty regarding coverage in an insurance policy must be resolved in favor of the insured. Shelter Mut. Ins. Co. v. Brooks, 693 S.W.2d 810, 811 (Mo. banc 1985).

We find no patent or latent ambiguity. General Am. Life Ins. v. Barrett, 847 S.W.2d 125, 131 (Mo.App.1993). There is no duplicity, indistinctness, or uncertainty in the meaning of the words used in the contract. Krombach v. Mayflower Ins. Co., Ltd., 827 S.W.2d 208, 210 (Mo. banc 1992). The language in the policy is not reasonably open to different constructions. Id.

Shell argues the coverage clause does not state whether payment of coverage limits for judgments or settlements on behalf of one insured ends the insurer's duty to defend or settle on behalf of additional insureds. The function of the court is to interpret and enforce an insurance policy as written; not to rewrite the contract. Krombach v. Mayflower Ins. Co., Ltd., 785 S.W.2d 728, 731 (Mo.App.1990). In construing an insurance policy, the words must be given their plain meaning, consistent with the reasonable expectations, objectives and intent of the parties. Id.

Based on the rules of construction, Millers' duty to defend ended when it settled the claim for the policy limits as to the named insured, Dunn. The policy clearly stated the duty to defend ended when the applicable liability limits of coverage had been exhausted by payment of judgments or settlements. The parties agreed the payment of the liability limit on behalf of Dunn exhausted the liability limits. A literal reading of the policy language mandates that Millers duty to settle or defend ends when the applicable liability coverage limit of insurance is exhausted by payment of settlements. When Millers settled on behalf of Dunn, it exhausted the applicable policy limit of $500,000. Upon exhaustion, it had no duty to defend Dunn or Shell, an additional insured. The policy has one limit of liability and when it is exhausted by payments of judgment or settlement, the duty to defend or settle ends.

Shell cites several cases as authority for its contention that the coverage clause...