Skandia America Reinsurance Corp. v. Financial Guardian Group, WD

• Decision Date: 04 May 1993
• Docket Number: No. WD,WD
• Citation: 857 S.W.2d 843
• Parties: SKANDIA AMERICA REINSURANCE CORPORATION, Appellant, v. FINANCIAL GUARDIAN GROUP and World American Underwriters, Respondents. 46292.
• Court: Missouri Court of Appeals

Page 843

857 S.W.2d 843

SKANDIA AMERICA REINSURANCE CORPORATION, Appellant, v. FINANCIAL GUARDIAN GROUP and World American Underwriters, Respondents.

No. WD 46292.

Missouri Court of Appeals Western District.

May 4, 1993.

Motion for Rehearing and/or Transfer to

Supreme Court Denied June 29, 1993.

Application to Transfer Denied Aug. 17, 1993.

James R. Hobbs, Kansas City, for appellant.

Robert William Cotter, Kansas City, for respondents.

Before FENNER, P.J., and TURNAGE and KENNEDY, JJ.

KENNEDY, Judge.

This is an appeal by plaintiff Skandia America Reinsurance Corporation from a summary judgment for defendants Financial Guardian Group, Inc., and World American Underwriters, Inc.

We reverse and remand for further proceedings.

Skandia's claim against the defendants--which was asserted as an alternative claim to its primary claim against Omaha Indemnity Company on a Stop Loss Agreement, as will be explained later--was for the alleged failure of Financial Guardian and World American to secure from Omaha Indemnity Company a valid and binding Stop Loss Agreement, by which Omaha Indemnity Company would indemnify Skandia for losses paid by Skandia on Skandia's contract to reinsure risks of Angelina Casualty Company for the period 1981-1983.

Under Skandia's reinsurance contract, Skandia ultimately paid $12 million in losses to Angelina Casualty Company. As the losses were paid, beginning late 1984, Skandia sought reimbursement from Omaha Indemnity on its Stop Loss Agreement. Royal American Managers, which was Omaha Indemnity's managing general agent, and which had executed the Stop Loss Agreement on Omaha Indemnity's behalf, paid Skandia $3.8 million of the losses on Omaha Indemnity's behalf through early 1986. In April, 1986, Royal American Managers ceased paying the Skandia claims and Omaha Indemnity denied liability on the Stop Loss Agreement. There remained unpaid $8.2 million which Skandia sought to recover in this lawsuit.

Skandia's claims were (in contract) that Omaha Indemnity had entered into a valid Stop Loss Agreement and was bound thereby; or (in tort), if the Stop Loss Agreement was beyond Royal American Managers authority to execute, as Omaha Indemnity claimed, then Omaha Indemnity was liable to Skandia for negligent appointment of its managing general agent, Royal American Managers, and for negligent supervision in allowing Royal American Managers to execute an unauthorized Stop Loss Agreement in Omaha Indemnity's behalf, upon which Skandia had relied to its detriment.

Omaha Indemnity, in defense, denied it was liable on the Stop Loss Agreement because (1) Royal American Managers, Inc., was not authorized to bind Omaha Indemnity by the Stop Loss Agreement; (2) the Stop Loss Agreement was not insurance, because it was the transfer of known losses from Skandia to Omaha Indemnity; and (3) that the Stop Loss Agreement was the result of actual or constructive fraud by Skandia.

In a counterclaim against Skandia, Omaha Indemnity claimed Skandia was not entitled to retain $3.8 million it had received from Royal American Managers under the Stop Loss Agreement.

Alternatively to its contract and tort claims against Omaha Indemnity, as described above, Skandia asserted that if its claims against Omaha Indemnity should fail, and if Omaha Indemnity were found not liable to Skandia on the Stop Loss Agreement or on the negligence claim, then Financial Guardian and World American were liable to Skandia in tort for negligence and misrepresentation for the amount which would otherwise be owing on the Stop Loss Agreement.

One count against World American, on another theory, was for breach of its promise to secure the Stop Loss Agreement.

Before trial, Skandia entered into a settlement agreement with Omaha Indemnity Company, and dismissed its claim against Omaha Indemnity with prejudice. Omaha Indemnity Company paid Skandia $3.2 million, and dismissed its $3.8 million counterclaim against Skandia with prejudice.

Having received from Royal American Managers $3.8 million of its $12 million claim, and $3.2 million from Omaha Indemnity Company, Skandia sought to proceed against Financial Guardian and World American for the $5 million balance.

Financial Guardian and World American, however, filed their motion for summary judgment on the ground that Skandia, in settling with Omaha Indemnity and dismissing its lawsuit against it, was foreclosed by the doctrine of election of remedies from proceeding against Financial Guardian and World American. This motion was successful. Summary judgment was entered for defendants, and Skandia has appealed.

Did Skandia, in settling with Omaha Indemnity and in dismissing its lawsuit against it, thereby foreclose its pursuit of the remainder of its loss against the present defendants? We hold it did not, and we reverse the summary judgment in favor of the defendants.

Defendants claim that Skandia, in settling with Omaha Indemnity and in dismissing its claim against it, made a binding election of remedies. Their argument is that Skandia's claim against Omaha Indemnity was premised upon its claim that the Stop Loss Agreement was a valid and binding obligation of Omaha Indemnity, while its claims against Financial Guardian and World denied that proposition. Hence, when Skandia accepted $3.2 million and dismissed its claim against Omaha Indemnity, it made a conclusive election of its allegation that the Stop Loss Agreement was valid and binding, and, in making that election, foreclosed itself from afterwards asserting that the Stop Loss Agreement was not valid and binding.

To apply the doctrine of election of remedies to foreclose Skandia from pursuing its claims against these defendants would be to extend the doctrine beyond its present boundaries in Missouri. Missouri cases have never made a mechanistic application of the election of remedies doctrine in its pristine form, without consideration to the practicalities and the equities of the case. Where a plaintiff's election of remedies has been held to defeat another inconsistent claim, there has been present in the case some element of judicial estoppel, or res judicata, or double recovery, or cause splitting, or other factor which would make inequitable plaintiff's pursuit of the inconsistent claim. ¹ We find none of those factors present in the case before us. To apply the doctrine in formulaic fashion in this case would be to give the defendants an unconscionable windfall.

Putting aside those cases which involve inconsistent claims by a plaintiff against the same defendant, ² which are not applicable to the circumstances of the case before us, we consider those Missouri cases where one defendant asserts as a defense to the plaintiff's claim, that the plaintiff is foreclosed by his election of another and inconsistent remedy against a different defendant. Twellman v. Lindell Trust Co., 534 S.W.2d 83 (Mo.App.1976), is one such case. The doctrine of election of remedies was held not applicable. "... (P)laintiff did not recover full satisfaction for his losses from Londe, as the doctrine of election of remedies seems to require ... It should be remembered that the purpose of the doctrine of election of remedies is to prevent double redress for a single wrong." Twellman, 534 S.W.2d at 94.

Like the plaintiff in Twellman, Skandia did not recover from Omaha Indemnity full satisfaction for its losses, but only partial satisfaction. The teaching of Twellman is that the doctrine of election of remedies does not foreclose a plaintiff from pursuing a remedy against a second defendant if plaintiff, pursuing an inconsistent remedy, has recovered from the first defendant less than his whole claim. ³

In United States Fidelity & Guaranty Co. v. Fidelity National Bank & Trust Co., 232 Mo.App. 412, 109 S.W.2d 47 (1937), the plaintiff had recovered from the first defendant the full amount of its claim. Here the doctrine of election of remedies was applied to prevent a plaintiff's recovering from one defendant what it had already recovered in full from another by an inconsistent remedy. The court stated the rule as follows:

To summarize: the weight of authority in this and other jurisdictions seems unquestionably to be that, where one elects to pursue one of two or more inconsistent remedies, with full knowledge of all facts, and receives full satisfaction therefrom, he can no longer assert his cause of action and his adversary may assert the election as a defense even though such adversary has suffered no detriment and may have, in fact, profited thereby. Id. at 49. (emphasis supplied).

A third case is Rister v. State Farm Mutual Auto Insurance Company, 668 S.W.2d 132 (Mo.App.1984). There the plaintiff had brought suit against a negligent motorist, whose liability insurer denied coverage but defended the motorist under a reservation of rights. Plaintiff also, in the same petition, sued his own uninsured motor vehicle carrier, on the theory that the motorist was uninsured. The uninsured motor vehicle insurance coverage was applicable, under the language of the policy, where "the (liability insurer) denies coverage." During the course of the trial, the liability...