State Farm Fire and Cas. Co. v. Finney

• Citation: 770 P.2d 460,244 Kan. 545
• Decision Date: 03 March 1989
• Docket Number: Nos. 62711,62712,s. 62711
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, An Insurance Corporation, Appellant, v. Gordon FINNEY and Dean Johnson, Appellees. Gordon FINNEY, Appellee, v. Dean JOHNSON, Defendant, v. STATE FARM FIRE AND CASUALTY COMPANY, Proposed Intervenor, Appellant.
• Court: Kansas Supreme Court

Page 460

770 P.2d 460

244 Kan. 545

STATE FARM FIRE AND CASUALTY COMPANY, An Insurance

Corporation, Appellant, v. Gordon FINNEY and Dean Johnson, Appellees.

Gordon FINNEY, Appellee, v. Dean JOHNSON, Defendant, v. STATE FARM FIRE AND CASUALTY COMPANY, Proposed Intervenor, Appellant.

Nos. 62711, 62712.

Supreme Court of Kansas.

March 3, 1989.

Syllabus by the Court

1. Where an insurance company provides an attorney to defend its insured against a pending action while reserving its policy defenses, that attorney's defense of the action does not estop the insurance company from asserting its policy defenses in a subsequent civil proceeding. Bell v. Tilton, 234 Kan. 461, 674 P.2d 468 (1983).

2. An insurer has no absolute right to maintain a declaratory judgment action to determine the issue of coverage. U.S. Fidelity & Guaranty Co. v. Continental Ins. Co., 216 Kan. 5, 531 P.2d 9 (1975).

3. Under the Kansas rule, declaratory judgment actions may not be maintained to decide key factual issues in underlying civil actions. U.S. Fidelity and Guaranty Co. v. Continental Ins. Co., 216 Kan. 5, 531 P.2d 9 (1975); and State Automobile & Casualty Underwriters v. Gardiner, 189 Kan. 544, 370 P.2d 91 (1962).

Jerome V. Bales, of Wallace, Saunders, Austin, Brown and Enochs, Chartered, Overland Park, argued the cause and Kevin Bennett, Overland Park, was with him on the briefs, for appellant.

John L. White, of Norton, White & Norton, P.C., Leavenworth, argued the cause and was on the brief, for appellee.

David P. Troup, of Weary, Davis, Henry, Struebing & Troup, Junction City, was on the amicus curiae brief for Kansas Trial Lawyers Ass'n.

LOCKETT, Justice.

State Farm Fire & Casualty Co. v. Gordon Finney and Dean Johnson, Case No. 62,711, and Gordon Finney v. Dean Johnson v. State Farm Fire and Casualty Company, Proposed Intervenor, Case No. 62,712, are consolidated for appeal. In the first action, State Farm Fire & Casualty Co. (State Farm) appeals the district court's finding that an insurer may not maintain a declaratory judgment action to determine if there is coverage for the acts of its insured if the declaratory judgment also decides key factual issues in an underlying tort suit brought against the insured. In the second action, State Farm appeals the district court's denial of its motion to intervene in the underlying tort suit to stay that action until the declaratory judgment action was decided.

On January 22, 1988, Gordon Finney brought an action in Leavenworth County District Court against Dean Johnson claiming that on July 2, 1987, Johnson shot him with a gun either (1) willfully, wantonly, maliciously, and intentionally or (2) negligently. At the time of the incident, Johnson was insured under a homeowners policy issued by appellant, State Farm. The policy provided coverage for personal liability and medical payments under "coverages L and M," but contained the following exclusion:

"1. Coverage L and Coverage M do not apply to:

a. Bodily injury or property damage which is expected or intended by an insured."

After being notified that Finney had filed suit against its insured, State Farm provided Johnson with an attorney. Pursuant to a reservation of rights, State Farm also notified Johnson that, under the policy exclusion, it was denying coverage for intentional or expected acts.

On February 24, 1988, State Farm filed a declaratory judgment action asking the district court to determine that there was no coverage under the policy for the acts alleged in the civil tort suit and, therefore, State Farm had no contractual duty to defend Johnson. At a discovery conference, counsel provided for Johnson requested that State Farm's declaratory judgment action be stayed pending the outcome of the civil tort suit. The district court requested briefs and oral argument. At a subsequent hearing, State Farm argued that the declaratory judgment action should not be stayed because, under its interpretation of our holding in Patrons Mut. Ins. Ass'n v. Harmon, 240 Kan. 707, 732 P.2d 741 (1987), it would be collaterally estopped to raise its policy defense (non-coverage for intentional acts) by a judgment in the civil tort suit.

The district court disagreed with State Farm's interpretation of Patrons and held that, under Bell v. Tilton, 234 Kan. 461, 674 P.2d 468 (1983), where an insurer provides an attorney to defend its insured in a pending action, while reserving its policy defenses, that attorney's defense of the action does not estop the insurer from asserting its policy defense in a subsequent civil proceeding. Counsel for Johnson then orally moved to dismiss the declaratory judgment action, contending that a declaratory judgment action cannot be maintained to decide key factual issues to be determined in the underlying tort suit, citing U.S. Fidelity & Guaranty Co. v. Continental Ins. Co., 216 Kan. 5, 531 P.2d 9 (1975), and State Automobile & Casualty Underwriters v. Gardiner, 189 Kan. 544, 370 P.2d 91 (1962). The district court sustained Johnson's motion and dismissed the declaratory judgment action. State Farm appealed.

State Farm then filed a motion seeking to intervene in the tort action to stay the civil action and to allow the declaratory judgment action to proceed to trial first. Noting that the declaratory judgment action had been dismissed prior to State Farm's motion to intervene and that, under Bell, a judgment in the civil tort action would not impede State Farm's right to protect its interest in a subsequent action, the district judge denied the motion. Despite the district court's favorable ruling that State Farm would not be estopped to litigate its policy defenses in the civil tort action, State Farm appeals the dismissal of the declaratory judgment and the denial of its motion to intervene in the civil tort action. Although the denial of its motion to intervene in the civil action was originally an issue on appeal, State Farm has abandoned that issue since it was neither addressed in the briefs nor at oral argument. Feldt v. Union Ins. Co., 240 Kan. 108, 112, 726 P.2d 1341 (1986).

It is State Farm's position that its declaratory judgment action is necessary because our holding in Patrons reversed Bell and precluded State Farm from having its day in court. State Farm framed its first issue as "[w]hether an insurance carrier who is defending an individual in a lawsuit pursuant to a reservation of rights is collaterally estopped to assert policy defenses in a subsequent action when such policy defenses raise essentially the same factual issues decided in the underlying litigation."

Rejecting State Farm's position, the district court held Patrons did not overrule Bell. Therefore, we must first review Bell and Patrons. In Bell, plaintiff sued for injuries suffered as a result of a gunshot wound inflicted by an insured. The defendant made a demand on his insurer to defend under his homeowners policy. The insurer provided counsel for the defendant, but informed the insured that, pursuant to a policy exclusion for intentional acts, it was reserving its rights to assert its policy defenses at a later time.

In the tort case, the jury found that the insured had negligently shot and injured the plaintiff and awarded the plaintiff money damages. At a subsequent garnishment proceeding, the insurer disclaimed liability under the policy exclusion for intentional acts of its insured. The plaintiff contended that the insurer was collaterally estopped to assert this defense in the garnishment action. The trial court ruled in favor of the insurer and we affirmed, holding that where an insurance company provides an attorney to defend its insured against a pending action, while reserving its policy defenses, that attorney's defense of the action does not estop the insurance company from asserting its policy defenses in a subsequent garnishment proceeding. Bell v. Tilton, 234 Kan. 461, Syl. p 1, 674 P.2d 468.

The facts were different in Patrons. There, a husband fatally shot his wife. A jury found that the husband had intentionally caused the death of his wife and returned a verdict of voluntary manslaughter. Meanwhile, their son filed a wrongful death action against his father, claiming that the father had negligently caused the death of the mother. The father/husband requested his insurer, Patrons, to defend him under his homeowners policy. Patrons refused to provide an attorney to defend the husband in the civil action and filed a declaratory judgment action denying coverage on three grounds, including a policy exclusion for intentional acts. Prior to a determination in the declaratory judgment action, the wrongful death action proceeded to a jury trial and the judge found as a matter of law that the shooting was negligent. Later, in the declaratory judgment action, the trial court found Patrons had failed to provide its insured an attorney to defend the civil action and to reserve its rights under its policy, and was collaterally estopped by the judgment in the civil action from relitigating the issue of its insured's intent in a subsequent action. We agreed, finding:

"Because Patrons was in privity with a party, [the insured], in the wrongful death action, it was bound by that judgment. An exception to the rule would allow Patrons, the insurer, to refuse to defend its insured in the original action and, if the insured lost, would allow the insurer to relitigate the same issue against its insured in a subsequent action." 240 Kan. at 711, 732 P.2d 741.

State Farm claims that this statement overruled Bell. This claim ignores our subsequent language in Patrons, which limited that holding to cases where the insurance company refuses to defend its insured. After observing that the interest of the insured and the insurer were adverse in Patrons, we stated:

"In Bell v. Tilton, [citation omitted], there was a conflict of interest between the insured and the insurer in a civil action. The insurance company hired...