Missouri Property & Cas. Ins. Guar. Ass'n v. Pott Industries

• Decision Date: 16 June 1998
• Docket Number: No. 80516,80516
• Citation: 971 S.W.2d 302
• Parties: MISSOURI PROPERTY & CASUALTY INSURANCE GUARANTY ASSOCIATION, Respondent/Cross-Appellant, v. POTT INDUSTRIES, et al., Appellants/Cross-Respondents.
• Court: Missouri Supreme Court

Page 302

971 S.W.2d 302

MISSOURI PROPERTY & CASUALTY INSURANCE GUARANTY ASSOCIATION Respondent/Cross-Appellant, v. POTT INDUSTRIES, et al., Appellants/Cross-Respondents.

No. 80516.

Supreme Court of Missouri En Banc.

June 16, 1998.

W. Stanley Walch, Mark Sableman, Mike W. Bartolacci, Norbert Glassl, St. Louis, for Respondent61Cross-Appellant.

Adrian P. Sulser, Gerre S. Langton, Mary Anne Lindsey, St. Louis, for Appellants/Cross-Respondents.

HOLSTEIN, Judge.

Missouri Property and Casualty Insurance Guaranty Association (MIGA) and Pott Industries both appeal from a summary judgment in a declaratory judgment action and counterclaim for damages. The trial court concluded that Pott was entitled to a judgment as requested for attorney's fees incurred in defense of certain workers' compensation and liability claims. However, it denied Pott's claims to (1) prejudgment interest on amounts it expended to defend or settle the claims; (2) expenses incurred to establish MIGA's coverage of claims against Pott; and (3) damages for vexatious refusal to defend or reimburse Pott. Following opinion by the Missouri Court of Appeals, this Court granted transfer. Mo. Const. art. V, sec. 10. The judgment is affirmed in part and reversed in part.

I.

Pott was insured under various policies with Midland Insurance Company (Midland) until April 3, 1986, on which date Midland was declared insolvent. Before its insolvency, Midland was a member of MIGA, an incorporated legal entity created by the legislature to protect the public from insolvent insurers. See sec. 375.785. ¹

In early 1989, twenty-five Pott employees filed workers' compensation claims against Pott for injuries that occurred in the course of their employment with Pott. In response to those claims, Pott filed claims with Midland's liquidator. Pott also requested that MIGA provide Pott with defense and indemnification. MIGA originally assumed liability for those claims. However, it then denied any obligation to provide a defense or indemnify Pott with respect to the workers' compensation claims.

MIGA initiated the present suit, in which it sought a declaratory judgment to determine its coverage obligation with respect to the claims. However, the trial court stayed the declaratory judgment action pending a final determination of the issues in the workers' compensation proceedings. On two occasions, the workers' compensation litigation In the course of litigating Mikel I and Mikel II, Pott settled all of the original workers' compensation claims. Pott then filed a counterclaim in which it alleged eight counts against MIGA. Pott demanded that MIGA indemnify Pott under Midland's policies for the twenty-five workers' compensation claims, two more workers' compensation claims, and several liability claims. Pott also claimed that it was entitled to all attorney's fees incurred in defense of the workers' compensation claims as well as prejudgment interest on all of its expenditures involved in defending the suit and covering the claims. The respective cost of the parties regarding the claims is as follows:

reached the appellate courts. See Mikel v. Pott Industries (Mikel I), 896 S.W.2d 624 (Mo. banc 1995), and Mikel v. Pott Industries (Mikel II), 910 S.W.2d 323 (Mo.App.E.D.1995).

                                  Settlement Costs Settlement Costs Defense Costs Defense Costs
                                  Pott Incurred    MIGA Reimbursed  Pott Incurred MIGA
                                                                                  Reimbursed
                Original Workers' $138,036.80      $135,336.88      $263,360.45   $148,915.93
                Comp. Claims
                Subsequent        0                0                $2,323.50     $2,123.50
                Workers' Comp
                Additional        0                0                $2,565.52     $2,465.52
                Liability Claims
                ----------
                

Pott further claimed that it was entitled to the costs associated with establishing MIGA's liability in Mikel I and Mikel II. Finally, Pott contended that MIGA vexatiously refused to pay the workers' compensation and property damage claims. The trial court disposed of all claims through summary judgment. The court granted judgment in favor of Pott and the twenty-five claimants on MIGA's declaratory judgment action. The court granted Pott all attorney's fees Pott incurred defending all of the claims. The court denied Pott's request for prejudgment interest and for its costs incurred in establishing coverage. Finally, the court dismissed Pott's claim for vexatious refusal to pay. MIGA and Pott both appeal.

II.

MIGA argues that the trial court erred in granting Pott its attorney's fees incurred in defending the underlying workers' compensation claims. The relevant statute, sec. 375.785, provides in part:

....

3. As used in this section:

....

"Covered claim" means an unpaid claim including those for unearned premiums, ... which arise out of and is within the coverage of an insurance policy to which this section applied issued by a member insurer,....

(1) [MIGA] shall:

Be obligated to the extent of the covered claims existing prior to the date of entry of a decree or judgment pursuant to section 375.560 ... but such obligation shall include only that amount of each covered claim which is in excess of one hundred dollars and is less than fifty thousand dollars. In no event shall [MIGA] be obligated to a policyholder or claimant in an amount in excess of the face amount of the policy from which the claim arises ...

Be deemed the insurer to the extent of its obligations on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent.

MIGA does not argue that no attorney's fees can be awarded under this statute. Instead, MIGA argues that any award must be included under the $49,900 cap on "covered claims."

In interpreting this statute, this Court must first determine the intent of the legislature by considering the plain and ordinary meaning of the words used in the statute. Hadlock v. Director of Revenue, 860 Only covered claims are subject to the statutory cap. The statute defines a covered claim as an "unpaid claim ... which arise[s] out of and is within the coverage of an insurance policy to which this section applies." Here the unpaid claims are those of the injured workers and liability claimants. Mounting a defense against these claims is not an unpaid claim. Subsection .4(1)(b) places MIGA in the place of the insolvent insurer to the extent of unpaid claims and "to such extent shall have all rights, duties, and obligations of the insolvent insurer." MIGA argues that it only assumes the "rights, duties, and obligations" of the insolvent members "to such extent" of its obligations to pay covered claims. However, to give effect to the "rights, duties, and obligations" provision, the legislature must have meant something more than paying "covered claims." From the language used, the legislature intended that obligations falling outside the definition of a "covered claim" would not be subject to the statutory cap. Midland would have been obligated to defend the underlying claims if it "had not become insolvent." Therefore, MIGA assumes the obligation to defend the covered claims. Defending the claims necessarily involves the cost of employing attorneys. The duty to defend claims is not subject to the cap provided for in subsection .4(1)(a).

S.W.2d 335, 337 (Mo. banc 1993). In addition, each word, clause, sentence and section of a statute should be given meaning. Id.

MIGA relies on the phrase "to such extent" as a limitation on its "rights, duties, and obligations" to pay costs of defense. However, a more reasonable reading of the phrase is that it allows MIGA to excuse itself from any further "rights, duties, and obligations" of the insolvent insurer by either settling a covered claim within the statutory cap or paying that amount to the claimant.

MIGA argues that the legislature did not intend to create substitute insurance in order to make the insured whole. It is true that the legislature did not intend for MIGA to make every covered claimant whole because it imposed a cap on each claim. Yet the legislature distinctly provided that MIGA would assume limited liability to each claimant under the included policy and that MIGA would assume the rights, duties, and obligations of insolvent members. MIGA argues that this will result in potentially unlimited defense costs. However, the legislature placed no cost limitation on the duty to defend against covered claims. This Court will not write such a...