West American Insurance Co v. RLI Insurance Company , 698 F.3d 1069 ( 2012 )

United States Court of Appeals
For the Eighth Circuit
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No. 11-3867
No. 11-3869
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West American Insurance Company
lllllllllllllllllllll Appellee - Cross Appellant
v.
RLI Insurance Company
lllllllllllllllllllll Appellant - Cross Appellee
Agency Services Corporation of Kansas, Inc.
lllllllllllllllllll Cross-Appellee
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Appeals from United States District Court
for the Western District of Missouri - Kansas City
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Submitted: September 19, 2012
Filed: November 7, 2012
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Before WOLLMAN, BEAM, and LOKEN, Circuit Judges.
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LOKEN, Circuit Judge.
While driving in Kansas City, Missouri, Kansas resident Stanley Miller
negligently rear-ended a vehicle driven by Melissa Andrade, causing serious personal
injuries to Andrade and her passenger, Marion O’Dell-Wilson. Miller was insured
under a primary liability policy issued by West American Insurance Company
(“West”) with a per-occurrence limit of $500,000 and a per-person limit of $250,000,
and a separate $1,000,000 umbrella policy issued by RLI Insurance Company
(“RLI”). Andrade, her husband, and O’Dell-Wilson (the “underlying claimants”) sued
Miller in Missouri state court. The parties agreed to binding arbitration, the arbitrator
awarded damages totaling nearly $1.35 million, and the awards were reduced to
judgments by the state court.
The underlying claimants then commenced a garnishment action to recover
their judgments against Miller. West and RLI satisfied those judgments. West
commenced this diversity action to recover expenses incurred in defending Miller in
the garnishment action, asserting tort claims under Missouri law against RLI for
vexatious refusal to pay, bad faith refusal to pay, and prima facie tort, and claims of
negligence and negligent misrepresentation against RLI’s independent claims agent,
Agency Services Corporation of Kansas, Inc. (“ASCK”). West also sought a
declaration that it owed no duty to protect RLI in the underlying arbitration. RLI
counterclaimed, alleging that, prior to the arbitration, West negligently and in bad
faith refused to settle the underlying claims for less than its policy limits. West’s
response added claims for indemnification and contribution against ASCK.
In resolving the claims asserted by West, the district court first dismissed the
vexatious refusal-to-pay and bad faith claims against RLI, concluding that Missouri
law does not recognize such claims by a primary insurer against an excess insurer.
West does not appeal those rulings. After further proceedings, the court granted
summary judgment dismissing West’s prima facie tort claim against RLI and West’s
claims against ASCK. Finally, the district court resolved RLI’s counterclaim on
cross-motions for summary judgment, concluding that West is not liable for negligent
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or bad faith refusal to settle because it fully protected Miller, its insured, by entering
into a “high/low” agreement with the underlying claimants prior to the arbitration.
RLI appeals the district court’s dismissal of its counterclaim. West cross
appeals the district court’s dismissal of its claims against ASCK, its prima facie tort
claim against RLI, and its affirmative defenses to RLI’s counterclaim.1 Reviewing the
district court’s rulings de novo, see Van Horn v. Best Buy Stores, L.P., 526 F.3d 1144,
1148 (8th Cir. 2008), we reverse the grant of summary judgment dismissing RLI’s
counterclaim, we decline to rule on the dismissal of West’s defenses to that
counterclaim, and in all other respects we affirm.
I. Background
The underlying claimants made multiple offers to settle before filing suit
against Miller in 2005 -- for $117,000 in October 2001, and later for the $250,000 per-
person policy limits in January 2003, April 2004, and August 2004. West rejected
each offer. During discovery after litigation commenced, Miller disclosed that he
believed he had excess insurance coverage with RLI but was unable to locate
substantiating documents. In April 2005, a West claims manager contacted RLI and,
1
We dismissed initial appeals for lack of jurisdiction because the district court
never disposed of West’s claim for a declaratory judgment and thus, contrary to the
parties’ representations, there was no “final decision” within the meaning of 28 U.S.C.
§ 1291. The district court then dismissed West’s declaratory judgment claim without
prejudice pursuant to the parties’ stipulation. We have repeatedly criticized the use
of dismissals without prejudice to manufacture appellate jurisdiction in circumvention
of the final decision rule. See, e.g., Fairbrook Leasing, Inc. v. Mesaba Aviation, Inc.,
519 F.3d 421, 425 n.4 (8th Cir. 2008). At oral argument, counsel for West agreed that
the dismissal can be deemed to be with prejudice. See Minn. Pet Breeders, Inc. v.
Schell & Kampeter, Inc., 41 F.3d 1242, 1245 (8th Cir. 1994). Accordingly, we have
appellate jurisdiction. But given this unnecessary waste of judicial resources, no costs
will be awarded to any prevailing party for either appeal.
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at its direction, ASCK. West’s records reflect that ASCK informed West there was
a “gap” in Miller’s excess coverage at the time of the accident. In fact, Miller’s RLI
policy then provided $1 million in excess liability coverage.
Some time after October 2005, West and the underlying claimants agreed to
arbitrate the claimants’ state court claims pursuant to a high/low agreement providing
that the maximum amount the underlying claimants could recover in arbitration would
be “all sums of money due and owing under any applicable policies of insurance.”
After entry of judgments on the arbitrator’s awards, the underlying claimants
petitioned for an award of equitable garnishment, naming as defendants West, Miller,
and “Unknown Insurance Companies.” See Mo. Rev. Stat. § 379.200. West paid the
limits of its policy and defended Miller in the garnishment action. RLI became aware
of the proceedings and intervened as a defendant, admitting Miller had an excess
policy in force but denying coverage because RLI did not receive timely notice of the
underlying claims. During discovery, however, RLI learned that ASCK did receive
timely notice of the claims. RLI then satisfied the underlying claimants’ judgments.
This lawsuit followed.
West alleges that RLI’s tortious misconduct and ASCK’s false statement that
Miller did not have excess coverage caused West the expense of defending the
garnishment suit for over a year after it paid its policy limits. In its counterclaim, RLI
alleges it was equitably and contractually subrogated to Miller’s bad faith refusal-to-
settle claims against West, and that West’s wrongful refusal of the early settlement
offers caused the excess judgments that RLI paid on Miller’s behalf. RLI stipulated
that the high/low agreement protected Miller from personal liability.
II. RLI’s Counterclaim (Appeal No. 11-3867)
A. A Threshold Choice of Law Issue. As the district court and the parties
recognized, before considering the merits of RLI’s counterclaim for West’s allegedly
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bad faith or negligent refusal to settle the underlying claims, we must determine
whether the counterclaim is governed by the law of Kansas, where Miller purchased
the primary and excess policies, or the law of Missouri, where the accident and
subsequent litigation occurred. The choice-of-law issue is significant because, under
Kansas law, an insurer is liable for breach of contract if it was guilty of either
negligence or bad faith in refusing to defend or settle third party claims against its
insured, whereas Missouri law allows recovery in tort but only upon proof of bad
faith. Compare Bollinger v. Nuss, 449 P.2d 502, 508 (Kan. 1969), with Zumwalt v.
Utilities Ins. Co., 228 S.W.2d 750, 753 (Mo. 1950). West argues that the district court
erred in applying Kansas law. We review this issue de novo, applying the choice-of-
law rules of Missouri, the forum State. See Am. Guarantee & Liab. Ins. Co. v. U.S.
Fid. & Guar. Co., 668 F.3d 991, 996 (8th Cir. 2012).
The district court first concluded that, because Missouri law characterizes an
insurer’s bad faith failure to settle as a tort claim, Missouri courts would apply the
“most significant relationship” test set forth in § 145 of the Restatement (Second) of
Conflict of Laws in resolving this choice-of-law issue. The relevant factors under
§ 145 are: (1) “the place where the injury occurred”; (2) “the place where the conduct
causing the injury occurred”; (3) “the domicil, residence, nationality, place of
incorporation and place of business of the parties”; and (4) “the place where the
relationship, if any, between the parties is centered.” Thompson v. Crawford, 833
S.W.2d 868, 870 (Mo. 1992). Neither party challenges this conclusion. Applying the
§ 145 test, the district court then concluded that Kansas law applies:
An excess carrier that has paid the excess judgments is then
subrogated to the rights of the insured to bring the bad faith failure to
settle claim against the primary insurer. . . .
Miller is a resident of Kansas. If he had not carried excess
coverage, West American’s alleged failure to settle within policy limits
would have injured his financial interests where he resides, in
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Kansas. . . . West American allegedly improperly failed to apprise
Miller, in Kansas, of any of the settlement offers or their subsequent
rejections. . . . While the underlying lawsuit was filed in Missouri, the
suit would not have been filed at all, nor would the excess judgments
have been entered, if West American had settled the claims.
West American issued Miller an insurance policy in Kansas, and
the policy contained provisions required by Kansas law. The insured
automobile was located in Kansas. Accordingly, the relationship
between Mr. Miller and West American is centered in Kansas. The state
of Kansas, therefore, has a greater interest than any other state in the
claim because it involves the settlement of claims asserted against a
Kansas insured under a Kansas insurance policy.
On appeal, West argues the district court erred in focusing on the relationship
between Miller and West when it should have analyzed the relationship between RLI
and West, as Miller is not a party to this lawsuit. But RLI asserts a subrogation claim,
seeking to “stand in the shoes” of Miller. The relationship between Miller and West
cannot be ignored. West emphasizes that the injury to RLI occurred in Missouri,
where the excess judgments were entered. But the duty West owed and allegedly
breached was to its insured, Miller, a resident of Kansas, and the injury caused by
West’s allegedly wrongful refusal to settle was felt in Kansas, not Missouri. West
further argues the conduct that caused RLI’s injury was the alleged mishandling of the
underlying claimants’ Missouri lawsuits, and that occurred in Missouri. But RLI’s
counterclaim focuses on pre-suit settlement negotiations in which West’s claims
manager in Colorado rejected settlement offers before the underlying claimants filed
suit against Miller in Missouri state court. There is no evidence that the pre-suit
settlement negotiations occurred in Missouri, and it is undisputed that West failed to
advise Miller (a Kansas resident) of the settlement offers. These factors favor
application of Kansas law.
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Finally, West argues that, all things considered, Missouri has a greater interest
in the issues presented by RLI’s counterclaim than Kansas. We disagree. Kansas has
a significant interest in protecting its residents from liabilities caused by the
negligence or bad faith of insurers controlling the defense of third party claims.
Bollinger, 449 P.2d at 508. While Missouri undoubtedly has an interest in ensuring
that parties to litigation in its courts attempt to settle in good faith, the wrongful
conduct giving rise to RLI’s counterclaim preceded the Missouri litigation and
directly impacted the economic interests of a Kansas insured. In these circumstances,
we agree with the district court that the Supreme Court of Missouri would apply
Kansas law in resolving RLI’s counterclaim.
This conclusion is consistent with our recent decision in American Guarantee,
668 F.3d at 996-1002, a precedent the parties inexplicably failed to address. In
American Guarantee, an excess insurer, invoking subrogation principles, claimed that
the primary insurer’s bad faith refusal to settle resulted in a jury verdict that exposed
$17 million of the excess insurer’s coverage. Applying Missouri’s choice-of-law test
from § 145 of the Restatement, we affirmed the district court’s decision to apply the
law of Missouri, where the accident, settlement negotiations and jury verdict occurred,
rather than the law of Washington, where the insured, a nationwide trucking company,
had operated its business before becoming insolvent. American Guarantee is
distinguishable for two critical reasons. First, the interest of the State of Kansas in
this case -- protecting an individual resident of Kansas driving an automobile licensed
and insured in Kansas from economic injury caused by the bad faith or negligent
refusal of his primary insurer to settle third party claims -- is far stronger than the
interest of the State of Washington in American Guarantee -- “resolving a bad faith
claim between two [out-of-state] insurers, arising from litigation in Missouri, simply
because a dissolved insured was once located in Washington.” 668 F.3d at 998-99.
Second, the allegedly wrongful refusal to settle in this case occurred before the
underlying claimants filed suit in Missouri, a time when West’s duty to defend and
settle claims against its Kansas insured was paramount. As we observed in American
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Guarantee, “the place where an insured feels the economic impact of an excess verdict
is the place where an injury occurs for purposes of a Section 145 choice-of-law
inquiry.” Id. at 997. Here, Miller felt the impact of West’s refusal to settle in Kansas,
where he resided.
B. The Merits. RLI’s counterclaim alleged that West wrongfully rejected
multiple settlement offers by the underlying claimants prior to the arbitration of their
state law claims. Under Kansas law, an insurer “in defending and settling claims
against its insured, owes to the insured the duty not only to act in good faith but also
to act without negligence.” Bollinger, 449 P.2d at 508. This duty arises because of
the inherent conflict of interest between an insurer, whose authority to defend third
party claims includes determining the amount it will pay to settle, and the insured,
whose interest lies in settling the claim within the insurer’s policy limits. Because the
insurer’s maximum liability is fixed by its policy limits whether or not it accepts a
settlement offer, “the insurer has a great deal less to risk from [rejecting the offer and]
going to trial than does the insured.” Id. at 510. To balance these competing interests,
the insurer in considering a settlement offer “must give at least the same consideration
to the interests of its insured as it does to its own interests.” Glenn v. Fleming, 799
P.2d 79, 85 (Kan. 1990). An insurer’s liability for breaching this duty by refusing to
settle may exceed its policy limits. Bollinger, 449 P.2d at 508.
Like most jurisdictions, Kansas has not recognized an independent duty of care
between primary and excess insurers. Thus, RLI’s counterclaim turns on whether it
may assert a refusal-to-settle claim as subrogee of Miller. Applying Kansas law, the
Tenth Circuit has held that an excess insurer is subrogated to the rights of its insured
“for the purpose of asserting [a] claim that the [primary insurer] acted in bad faith in
failing to settle within its policy limits.” Ins. Co. of N. Am. v. Med. Protective Co.,
768 F.2d 315, 321 (10th Cir. 1985). Most state courts have adopted this principle.
See Nat’l Sur. Corp. v. Hartford Cas. Ins. Co., 493 F.3d 752, 756-57 & n.2 (6th Cir.
2007) (collecting cases). Permitting the excess insurer to assert a subrogated claim
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promotes the public interest in the fair and reasonable settlement of lawsuits, a public
policy endorsed by the Supreme Court of Kansas. See Glenn, 799 P.2d at 93. Like
the Tenth Circuit, we conclude the Supreme Court of Kansas would adopt the majority
view. Cf. Md. Cas. Co. v. Am. Family Ins. Grp., 429 P.2d 931, 941 (Kan. 1967).
West argues that the high/low agreement fully protected Miller, its insured,
from the results of the arbitration, and therefore neither Miller, nor RLI as subrogee,
has a claim against West for more than the policy limits it paid. In Heinson v. Porter,
772 P.2d 778, 785 (Kan. 1989), where a third party sued to collect a large settlement
from the insurer, the Supreme Court of Kansas held that the insurer was not liable for
the amount above its policy limits because an insurer’s liability, even to an abandoned
insured, “is limited to the actual damage suffered by the insured as a result of the
insurer’s conduct.” West’s contention would prevail if Heinson was controlling
Kansas law, but the Supreme Court of Kansas revisited this issue in Glenn, 799 P.2d
at 82-84, where the insurer rejected a third party’s offer to settle for the policy limits;
the third party obtained a judgment against the insured for substantially more than the
policy limits; the third party signed a covenant not to execute the judgment against the
insured; and the insured assigned his rights under the policy to the third party, who
filed a garnishment action against the insurer. Relying on Heinson, the Kansas Court
of Appeals affirmed summary judgment for the insurer. The Supreme Court reversed,
expressly overruling “Syllabus ¶ 4” in Heinson, id. at 81, and reaffirming its prior
decision that an action against an insurer whose negligent or bad faith refusal to settle
within the policy limits results in an excess judgment against the insured “lies,
whether or not the insured has paid or can pay an excess judgment.” Id. at 92, quoting
Farmers Ins. Exch. v. Schropp, 567 P.2d 1359, 1369 (Kan. 1977) (insured’s
insolvency does not bar third party’s bad faith claim against insurer).
The district court distinguished Glenn because, unlike the insured in that case,
“Miller was not forced to bargain away his rights in order to gain protection of his
assets.” RLI cannot recover on its counterclaim, the court concluded, “if West
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American protected Miller’s assets with the high/low agreement.” The high/low
agreement protected Miller from personal exposure because it limited the underlying
claimants’ recovery to the maximum amount of insurance coverage available.
Therefore, West argues on appeal, it is irrelevant whether it acted in bad faith or was
negligent in rejecting the underlying claimants’ earlier offers to settle. Neither Miller
(its insured) nor RLI (as Miller’s subrogee) has a bad faith or negligent refusal-to-
settle claim as a matter of law.
The core of West’s contention is fundamentally inconsistent with the Supreme
Court of Kansas’s reasoning in Glenn. That the high/low agreement left Miller with
no risk of personal liability should be irrelevant under Kansas law, as the Supreme
Court of Kansas has repeatedly held that an action against an insurer whose negligent
or bad faith refusal to settle within its policy limits results in an excess judgment
against the insured “lies, whether or not the insured has paid or can pay an excess
judgment.” Glenn, 799 P.2d at 92, quoting Schropp, 567 P.2d at 1369 (insured’s
insolvency does not bar bad faith claim against insurer).
Moreover, it is sophistry to posit that West protected Miller from the risk
created by West’s earlier refusals to settle within its policy limits. Miller protected
himself against most of that risk by purchasing excess liability insurance from RLI.
If the underlying claimants had recovered $1.35 million after trial of their state law
claims, the Supreme Court of Kansas would follow nearly every other jurisdiction and
hold that RLI as subrogee could sue West for RLI’s liability as excess insurer, even
though Miller had no personal exposure because of the excess policy coverage.
Likewise, if Miller and the underlying claimants had settled for $1.35 million using
the assignment/covenant device at issue in Glenn, and if RLI had satisfied the
settlement, West if guilty of bad faith refusal-to-settle would be liable for the amount
above West’s policy limits provided that Miller’s settlement with the underlying
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claimants was “reasonable in amount and entered into in good faith.” 799 P.2d at 93.2
Again, the fact that Miller was not personally at risk because he protected himself with
excess insurance would not bar RLI as subrogee from asserting this claim.
Finally, West’s contention is inconsistent with the policy concerns animating
the Kansas Court’s decisions in Bollinger and Glenn. As RLI points out, adoption of
this principle would preclude bad faith subrogation claims by excess insurers
whenever the insured’s liability to a third party is within the coverage provided by the
excess policy. But the conflict-of-interest concerns underlying the duty of primary
insurers to exercise good faith and due care in evaluating settlement offers are not
diminished when the insured is also protected by excess insurance. See Twin City
Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175, 1179 (7th Cir. 1994). When the
primary insurer is faced with a settlement offer at or near its policy limits, it has the
same incentive to gamble with someone else’s money, either the insured’s or the
excess insurer’s. See Bollinger, 449 P.2d at 510; Nat’l Sur. Corp., 493 F.3d at 757-58.
When the primary insurer has control of defending underlying claims, permitting
subrogation claims by the excess insurer increases the likelihood of fair and efficient
settlement of lawsuits, reducing the premiums charged for excess insurance without
increasing the good faith duties of the primary insurer. See Certain Underwriters of
Lloyd’s v. Gen. Accident Ins. Co. of Am., 909 F.2d 228, 232 (7th Cir. 1990).
2
When a liability insurer has both denied coverage and refused to defend its
insured, the insured is left to defend himself against the third party’s lawsuit, and his
liability exposure may exceed the policy limits. In a device commonly employed, the
insured settles the third party’s lawsuit for an amount in excess of the policy limits in
an agreement providing that the third party may collect its judgment for the amount
of the settlement only from the insurer, using an assignment of the insured’s rights
against the insurer together with a covenant not to execute against the insured. The
insured is fully protected, but there is a risk of collusion between the insured and the
third party in setting the amount of a settlement that may only be collected from a
non-party to their agreement, the insurer. See Glenn, 799 P.2d at 92-93.
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From the standpoint of the policies underlying this doctrine, West did not fully
protect Miller from the injury caused by the alleged bad faith or negligent refusal to
settle because it did not protect Miller’s subrogee, RLI. Because the primary insurer’s
temptation to place its own interests first in refusing to settle is the same whether the
victim is the insured or an excess insurer, the excess insurer “is permitted to step into
the shoes of the [insured] and assert [his] implied contractual right against the
misbehaving insurer.” Twin City Fire Insurance Co., 23 F.3d at 1179; accord
Commercial Union Ins. Co v. Med. Protective Co., 393 N.W.2d 479, 482-83 (Mich.
1986). Here, West gambled RLI’s money, rather than Miller’s, in accepting the
underlying claimants’ demand for a high/low agreement allowing them to recover the
amount “owing under any applicable policies.” In these circumstances, we conclude
that, as in Schropp, the Supreme Court of Kansas would “see no reason why [the fact
that the insured was financially protected] should excuse the insurer from exercising
the same good faith it would be expected to exercise, were the insured fully financially
[liable].” 567 P.2d at 1369.
For these reasons, we conclude the Supreme Court of Kansas would allow
RLI’s counterclaim to proceed and therefore the district court’s grant of summary
judgment must be reversed.3 We of course express no view as to whether West was
guilty of bad faith or negligent refusal to settle; if so, whether that bad faith or
negligence caused the injury of which RLI complains (which may include the question
whether West made a reasonable effort to cure any adverse effects of its refusal to
settle); whether RLI failed to mitigate its damages; and other issues that may arise.
3
West also argues that it is entitled to summary judgment dismissing RLI’s
counterclaim because RLI wrongfully denied coverage to Miller and therefore is
bound by whatever settlement was reached. As the district court recognized, the cases
that West cites in support of this argument do not support dismissal of RLI’s
counterclaim as a matter of law. We therefore decline to affirm summary judgment
in West’s favor on this alternative ground.
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III. West’s Claims and Defenses (Appeal No. 11-3869)
A. In its cross appeal, West first argues the district court erred in dismissing its
claims against ASCK for negligence, negligent misrepresentation, and contribution
and indemnity -- claims based upon ASCK’s erroneous response to West’s April 2005
telephone inquiry.
(1) The district court dismissed West’s claims for indemnity and contribution
because ASCK’s action “could not have caused West American’s bad faith [refusal
to settle] that occurred before ASCK was contacted.” As this ruling is factually
incontestable, it is summarily affirmed.
(2) The district court dismissed West’s claim that ASCK’s negligence caused
West to incur expenses in the garnishment action on the ground that ASCK, as agent
of RLI, owed no duty of care to West. On appeal, West accuses the district court of
ignoring the fact that the agency agreement between RLI and ASCK required ASCK
to forward notice of claims to RLI. ASCK’s alleged failure to perform its contractual
duties may give rise to a claim by RLI for breach of contract, but it cannot serve as the
basis for West’s tort claim. See Hardcore Concrete, LLC v. Fortner Ins. Servs., Inc.,
220 S.W.3d 350, 358-59 (Mo. App. 2007); Jack v. City of Wichita, 933 P.2d 787,
790-91 (Kan. App. 1997). The district court also concluded that West did not suffer
reasonably foreseeable harm because of ASCK’s failure to provide notice to RLI. We
agree. Based on the summary judgment record, there is insufficient evidence for a
reasonable jury to conclude that the one call from West’s claims manager provided
ASCK with enough information to recognize that failure to forward the information
to RLI would harm West. Nor is there sufficient evidence West reasonably relied on
that phone call in negotiating the high/low agreement.
(3) The district court dismissed West’s claim of negligent misrepresentation on
the ground that West did not rely on the alleged misrepresentation. On appeal, West
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argues there is a genuine issue of material fact whether it proceeded to binding
arbitration in reliance on ASCK’s misrepresentation of no excess coverage. We agree
with the district court that West failed to create a fact dispute because its witnesses
could not identify “how West American would have acted differently . . . if it had
known there was an RLI umbrella policy in force.” In addition, to the extent West
incurred additional expense because it believed there was no excess coverage, reliance
on one phone call to ASCK as establishing that fact was unreasonable.4
For these reasons, we affirm the dismissal of West’s claims against ASCK.
B. West next argues the district court erred in granting RLI partial summary
judgment on West’s affirmative defenses to RLI’s counterclaim -- comparative fault,
estoppel, waiver, and unclean hands. This ruling was part of a pretrial order providing
that, if a jury determined the high/low agreement did not exist, RLI as Miller’s
subrogee could pursue its bad faith claim against West. When RLI subsequently
conceded that the high/low agreement existed, the court granted West summary
judgment dismissing RLI’s counterclaim. Our decision to reverse the grant of
summary judgment revives the issue of West’s affirmative defenses.
The district court reasoned that, because each of these defenses “has as its
factual predicate RLI’s misrepresentation to West American (through RLI’s agent),”
they have no relevance to the question whether Miller, and hence RLI as subrogee, can
recover for West’s refusal to settle the underlying claims long before the alleged
4
In October 2005, prior to arbitration, counsel for the underlying claimants
insisted that the maximum recovery under the high/low agreement be all applicable
insurance policies. Wary that an excess policy might exist, West’s claims manager
instructed the attorney retained to defend Miller to limit the terms of the high/low
agreement to West’s $250,000 per-person policy limits because “we can not agree to
any binding agreement for any other party th[a]n ourselves.” Miller’s attorney failed
to comply with that instruction and failed to reduce the agreement to writing.
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misrepresentation was made. The court’s ruling, as trial of RLI’s counterclaim
approached, is the kind of trial-simplifying ruling that a district court retains discretion
to reconsider until it renders a final decision. As we are remanding RLI’s
counterclaim for further proceedings, we decline to limit the court’s discretion on
remand by reviewing the issues raised in Point V of West’s Brief on this summary
judgment record.
C. Finally, West argues the district court erred in dismissing its prima facie tort
claim against RLI. The district court observed that, under Kansas law, “the claim does
not exist,” citing Mid Gulf, Inc. v. Bishop, 792 F. Supp. 1205, 1211 n.2 (D. Kan.
1992). West does not contest that ruling on appeal. Alternatively, examining the
issue under Missouri law, the district court concluded that West cannot show “actual
intent to injure,” which is an element of prima facie tort liability. Porter v. Crawford
& Co., 611 S.W.2d 265, 269 (Mo. App. 1980). We agree. If Missouri law governs
this tort claim, it requires proof of “malevolent intent,” and the Supreme Court of
Missouri has observed, “[i]t is difficult to find reported cases where a plaintiff actually
has recovered on a prima facie tort theory.” Overcast v. Billings Mut. Ins. Co., 11
S.W.3d 62, 67 n.4 (Mo. 2000) (emphasis in original). Moreover, as the district court
noted, RLI’s business interest in limiting its liability justified the initial decision to
deny coverage in the garnishment action.
IV. Conclusion
For the foregoing reasons, we reverse the grant of summary judgment
dismissing RLI’s refusal-to-settle counterclaim and remand for further proceedings
not inconsistent with this opinion. We decline to review the district court’s grant of
summary judgment dismissing West’s affirmative defenses to the counterclaim. In
all other respects, the orders and judgment of the district court are affirmed.
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