Schmitz v. Great Am. Assurance Co. A/K/A Great Am. Ins.

• Decision Date: 31 May 2011
• Docket Number: No. SC 91098.,SC 91098.
• Parties: Kathleen SCHMITZ and Craig Ewing, Appellants/Cross–Respondents,v.GREAT AMERICAN ASSURANCE COMPANY a/k/a Great American Insurance, Respondent/Cross–Appellant.
• Court: Missouri Supreme Court

337 S.W.3d 700

Kathleen SCHMITZ and Craig Ewing, Appellants/Cross–Respondents,
v.
GREAT AMERICAN ASSURANCE COMPANY a/k/a Great American Insurance, Respondent/Cross–Appellant.

No. SC 91098.

Supreme Court of Missouri, En Banc.

April 26, 2011.Rehearing Denied May 31, 2011.

[337 S.W.3d 703]

David J. Moen, David J. Moen PC, Jefferson City, Thomas K. Riley, Riley & Dunlap PC, Fulton, for Parents.Paul L. Wickens, Kyle N. Roehler, Foland, Wickens, Eisfelder, Roper & Hofer PC, Kansas City, for Great American.MARY R. RUSSELL, Judge.

A young woman died from injuries she sustained after falling from a portable rock climbing wall at a minor league baseball game. Her parents sued the baseball team's owner, which had both a primary insurance policy and an excess insurance policy. Both insurers refused to defend. To protect itself from potential liability, the owner entered into a section 537.065 ¹ agreement with the parents that limited collection of any judgment to the insurance policies. A bench trial was held, the trial court entered a judgment finding the owner liable, and the parents were awarded $4,580,076 in damages.

The parents brought an equitable garnishment suit against the insurers. After partial summary judgment was entered in favor of the parents, the primary insurer settled for less than its policy limit. In return, the parents entered a release for the full amount of the policy limit. The excess insurer disputed that it was required to pay because the primary insurance policy had not been exhausted and because the trial court's judgment was not reasonable. The equitable garnishment court found that the judgment was unreasonable and that the excess insurer was not required to pay because the primary insurance policy had not been exhausted.

The parents appeal, arguing that the excess insurance policy did not require the primary insurance policy to be exhausted before the excess insurer was obligated to pay. They also claim the judgment is not subject to the reasonableness test as set forth in Gulf Insurance Co. v. Noble Broadcast, 936 S.W.2d 810, 815 (Mo. banc 1997), which requires all settlements entered under section 537.065 to be reasonable.

The equitable garnishment court erred in applying the Gulf Insurance test to a judgment entered after a bench trial. Further, the terms of the excess insurance policy did not require the primary insurance policy to be exhausted in the form of a cash payment. Accordingly, this case is affirmed in part, reversed in part and remanded.²

I. Background

Christine Ewing died as a result of the injuries she sustained after falling while

[337 S.W.3d 704]

climbing a portable rock wall. The portable rock wall was owned by Marcus Floyd and operated by him during a minor league baseball game.

Christine's parents, Kathleen Schmitz and Craig Ewing, filed a wrongful death lawsuit against Floyd and Columbia Professional Baseball (CPB), the owner of the minor league baseball team. The parents settled their case against Floyd for $700,000, and the suit against CPB remained. The parents claimed that CPB was vicariously liable for Floyd's actions because it exclusively controlled and possessed the premises on which the portable rock wall was operated.

CPB was insured by Virginia Surety Company ³ and Great American Assurance Company. Virginia Surety's policy provided primary coverage of $1 million, and Great American's policy provided excess coverage of $4 million. CPB gave both insurers notice of Christine's death and of the resulting wrongful death suit. Virginia Surety denied any duty to defend or indemnify because its policy excluded coverage for injuries sustained from the use of an amusement device. Consequently, Great American denied any duty to defend or indemnify, claiming that its policy provided the same coverage as the underlying coverage from Virginia Surety.

After Virginia Surety and Great American denied any duty to defend or indemnify, the parents and CPB entered into a section 537.065 agreement. That statute provides, in relevant part:

Any person having an unliquidated claim for damages against a tort-feasor, on account of bodily injuries or death, may enter into a contract with such tort-feasor or any insurer in his behalf or both, whereby, in consideration of the payment of a specified amount, the person asserting the claim agrees that in the event of a judgment against the tort-feasor, neither he nor any person, firm or corporation claiming by or through him will levy execution, by garnishment or as otherwise provided by law, except against the specific assets listed in the contract and except against any insurer which insures the legal liability of the tort-feasor for such damage and which insurer is not excepted from execution, garnishment or other legal procedure by such contract. Execution or garnishment proceedings in aid thereof shall lie only as to assets of the tort-feasor specifically mentioned in the contract or the insurer or insurers not excluded in such contract.

Section 537.065. CPB and the parents agreed that if a judgment was entered against CPB, the parents would limit any recovery to the insurance policies. There was no agreement concerning CPB's liability or the damages. Instead, those matters would be submitted to the trial court.

At a bench trial, the parents introduced evidence regarding their damages and CPB's liability. CPB neither objected to the entry of evidence nor offered any defense. The court entered judgment finding that CPB was liable for Christine's death and found the parents' damages to be $4,580,076. There was no appeal of this judgment.

The parents filed a section 379.200 equitable garnishment lawsuit against Virginia Surety and Great American to recover the judgment from CPB's insurance policies. The parents filed a motion for summary judgment, arguing that Virginia Surety's amusement device exclusion was not applicable to a rock climbing wall. The equitable garnishment court considered Virginia Surety's argument that the exclusion applied

[337 S.W.3d 705]

but ultimately concluded that a rock climbing wall was not an amusement device.

Subsequent to the equitable garnishment court's decision, Virginia Surety and the parents entered into a settlement agreement. In exchange for $700,000, the parents agreed to release their claims against Virginia Surety to the full extent of the policy limit, $1 million. Pursuant to the settlement, the parents released their claims against Virginia Surety and filed a partial satisfaction of judgment in the sum of $1 million.

The parents proceeded with the equitable garnishment lawsuit against Great American for the remaining liability of $2,880,076.⁴ The court held a two-day evidentiary hearing to resolve three issues: (1) whether the judgment in favor of the parents stands and, if it does, whether Great American was bound to it; (2) if the judgment in favor of the parents does not stand, the amount of a reasonable judgment; and (3) whether the Great American policy covers the judgment. At the conclusion of the hearing, the equitable garnishment court entered its final order, upholding the judgment insofar that it found CPB liable. However, the court concluded that the judgment was unreasonable because it awarded $4,580,076 damages; reasonable damages, according to the court, were $2.2 million. The court further decided that the Great American policy did not cover the $2.2 million judgment. It reasoned that because the parents settled their claim against Virginia Surety for $700,000, the Virginia Surety policy was not exhausted to its limit of $1 million so that the Great American policy did not apply.

This Court granted transfer after disposition by the court of appeals. Jurisdiction is vested in this Court pursuant to article V, section 10 of the Missouri Constitution.

II. Standard of Review

This Court reviews the equitable garnishment court's decision using the standard set forth in Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976). The judgment will be affirmed unless there is no substantial evidence to support it or unless it is against the weight of the evidence, it erroneously declares the law, or it erroneously applies the law. Id. at 32. This Court will reverse the judgment as against the weight of the evidence with caution and with a firm belief that the judgment is wrong. Id.

This case also involves the interpretation of an insurance contract and a statute. Such interpretations are questions of law that are reviewed de novo. D.R. Sherry Constr., Ltd. v. Am. Family Mut. Ins. Co., 316 S.W.3d 899, 902 (Mo. banc 2010); Spradling v. SSM Health Care St. Louis, 313 S.W.3d 683, 686 (Mo. banc 2010).

III. Insurance Contract Provisions

The parents and Great American challenge two aspects of the insurance contracts. The parents claim that the Great American policy does not require exhaustion as a prerequisite to its obligation to pay. Great American argues that the amusement device exclusion in the Virginia Surety policy applies so that injuries sustained from a portable rock climbing wall are not covered.

When interpreting the terms of an insurance policy, this Court applies the

[337 S.W.3d 706]

meaning that would be understood by an ordinary person of average understanding purchasing the insurance. Seeck v. Geico Gen. Ins. Co., 212 S.W.3d 129, 132 (Mo. banc 2007). If the policy is ambiguous, it will be construed against the insurer. Id. A policy is ambiguous if “there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy.” Id. If the policy is unambiguous, the policy will be enforced according to its terms. Id.

A. Settlement as Exhaustion

The parents claim that the equitable garnishment court erred in finding that their settlement with Virginia Surety did not constitute exhaustion, as required by the Great American policy.

It has been long recognized that parties to an insurance contract are free to define when an underlying insurance policy is exhausted so...