Helen Y. Smith v. Keystone Mutual Insurance Co.

In the Missouri Court of Appeals
Eastern District
DIVISION ONE
HELEN Y. SMITH, ) No. ED106603
)
Respondent, ) Appeal from the Circuit Court
) of the City of St. Louis
vs. )
) Honorable Steven R. Ohmer
KEYSTONE MUTUAL INSURANCE CO., )
)
Appellant. ) FILED: June 25, 2019
Keystone Mutual Insurance Co. (“Keystone”) appeals from the trial court’s judgment,
following a jury trial in which Keystone was the defendant insurance company in an action
brought by Helen Y. Smith, the widow of a deceased patient of Dr. Wallace Berkowitz, who had
been insured by Keystone for a time. We reverse the trial court’s judgment and remand with
instructions.
I. Background
Dr. Berkowitz, an ear, nose, and throat physician, applied for insurance with Keystone,
which focuses its business on insuring physicians in a small number of low-risk specialties, such
as ear, nose, and throat physicians. In 2009, Keystone agreed to insure him and his private
practice for 2010, and the policy was renewed in 2011. A dispute later arose between the parties,
which culminated in the parties entering into an agreement in March 2011, which, among other
things, mutually rescinded the insurance policy and waived all of Dr. Berkowitz’s and his private
practice’s claims against Keystone (the “Agreement”). The facts of this Agreement will be
discussed in greater detail during the discussion of the points below.
Helen Smith (“Smith”), widow of Johnnie Ray Smith, the deceased patient of Dr.
Wallace Berkowitz, filed a wrongful death lawsuit against Dr. Berkowitz in 2010. A jury
entered a verdict in favor of Smith in February 2013, awarding $1 million plus interest, which
was reduced later to $680,000 with taxable costs and interest. Dr. Berkowitz filed for
bankruptcy and received discharge in August 2016, which freed him from the obligation to pay
the wrongful death judgment and hindered Smith’s ability to collect from him. While Dr.
Berkowitz was still in bankruptcy, Smith filed a petition against Keystone on May 9, 2014.
Smith asserted six claims, including equitable garnishment under Section 379.200, RSMo. 1,
fraud, bad faith, civil conspiracy, vexatious refusal to pay, and punitive damages.
On May 31, 2016, Dr. Berkowitz purported to assign all claims he had against Keystone
to Smith. In return, Dr. Berkowitz received the right to 10 percent of Smith’s recovery from
Keystone. 2 On June 20, 2016, Smith moved for leave to file a First Amended Petition against
Keystone, and Dr. Berkowitz and his practice joined in. The motion was granted and the First
Amended Petition asserted five counts: Smith asserted equitable garnishment under Section
379.200, RSMo., and Smith and Dr. Berkowitz asserted the remaining claims of bad faith, fraud,
vexatious refusal to pay, and punitive damages. Keystone answered and asserted a counterclaim
with three counts: two counts requesting a declaratory judgment that Policy No. 09-056 was
void ab initio and that the insurance policy was properly rescinded under the Agreement between
Dr. Berkowitz and Keystone; and third, seeking a rescission to the extent that the policy was not
already rescinded.
1
All statutory citations are to RSMo. 2000 as updated, unless otherwise indicated.
2
This provision is not in the assignment, but both Smith’s counsel and Dr. Berkowitz acknowledge its existence.
2
The trial court entered partial summary judgment in favor of Keystone with respect to
Counts I, III, IV, and V of the First Amended Petition. The court held on Count I that “plaintiff
Smith may not maintain an equitable garnishment action” under Section 383.035.4. On Count II,
the “bad faith refusal to pay” claim, the trial court explained:
[I]t is patent from the record herein that Keystone had reasonable grounds to
believe that Berkowitz had breach[ed] the insurance contract by concealing
material information in his Application. There is nothing in the record to suggest
that Keystone’s conduct in this matter was based on any motive other than the
belief that Berkowitz had made material misrepresentations concerning his claims
history. Until the rescission agreement was signed, Keystone had supplied
counsel and was defending the Smith claim. Further, there is no evidence on this
record that Smith ever made a [settlement] demand on Berkowitz prior to the
rescission agreement. Under the circumstances, the tort claim of “bad faith
refusal to settle” is not viable.
On Count III, the trial court affirmed a prior ruling that Smith had failed to state a claim
under Section 428.024 “because Keystone is not a debtor subject to the statute.” The court also
concluded that Section 375.144 “does not provide a private right of action for Plaintiffs’ fraud
claim.”
For the vexatious refusal to pay claim, the trial court agreed that the relevant statutes are
“inapplicable to Keystone.” The court held that “the record here shows beyond dispute that
Keystone had a reasonable cause or excuse to refuse to pay the Berkowitz judgment.” That
“excuse is that Berkowitz had apparently concealed or misrepresented his claims history in the
Application, and the uncertainty of the application of Section 379.195 to Keystone meant that
Keystone had a legitimate basis to seek rescission of its policy.” In dismissing Smith’s request
for punitive damages, the court noted that Keystone’s conduct “was far from outrageous.”
The court, however, held that Count II of the First Amended Petition stated a claim for
breach of an insurance contract, agreeing with Keystone that the breach of contract claim was
governed by the five-year statute of limitations in Section 516.120. The court acknowledged that
Dr. Berkowitz was “on notice that Keystone would refuse to perform its agreement when
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presented with the rescission agreement” in March 2011, while the First Amended Petition,
reflecting the assignment, was filed on June 20, 2016, more than five years later. The court
concluded, however, that the assigned claim related back to the original petition filed by only
Smith on May 9, 2014.
After this ruling, Smith sought leave to amend again and file a new three-count petition
with new tort claims and alleging duress in connection with Dr. Berkowitz’s execution of the
settlement Agreement. The court granted this request as to Count I (breach of contract) only and
denied Smith leave to assert additional claims, stating that the only viable claim is the breach of
the duty to defend, which turns on the validity of the rescission Agreement, with no tort liability
in this action.
Keystone moved for summary judgment based on the settlement Agreement and
challenged Dr. Berkowitz’s alleged duress. On November 29, 2017, the trial court entered
partial summary judgment in favor of Keystone, holding that “the defense of duress is not viable
on this record.” Immediately before trial, Smith filed her Third Amended Petition asserting a
single count, based on Dr. Berkowitz’s assigned claim, for breach of his insurance contract.
Other than incorrectly re-alleging that Dr. Berkowitz signed the settlement Agreement under
duress, Smith asserted no other reason as to why it was not enforceable.
A five-day trial took place in January 2018, during which time Keystone moved for a
directed verdict at both the close of Smith’s evidence and at the close of all the evidence. Both
were denied. Keystone proposed jury instructions and a verdict form with respect to its
counterclaims, which were refused by the trial court and not submitted to the jury. The court
submitted a single count to the jury for breach of the insurance policy contract, over Keystone’s
objection that the issue was whether Dr. Berkowitz, not the plaintiff, was damaged. The jury
returned a verdict in favor of Smith in the amount of $870,625.23, with post-judgment interest of
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9 percent. Keystone filed post-trial motions for judgment notwithstanding the verdict, for a new
trial, and to reduce the damage award, as well as a motion for judgment on Counts I, II, and III of
its counterclaim, which had not been decided. All of Keystone’s motions were denied.
This appeal follows.
II. Discussion
Keystone raises six points on appeal. First, it alleges the trial court erred in denying
Keystone’s motion for a directed verdict because Smith, as the assignee of Dr. Berkowitz, stood
in Dr. Berkowitz’s shoes and therefore had no right to recover for breach of contract, in that Dr.
Berkowitz agreed in the settlement Agreement with Keystone that he had no coverage under the
insurance policy and knowingly waived any breach of contract claim against Keystone before he
assigned the claim to Smith.
Second, Keystone alleges the trial court erred in denying Keystone’s motion for a
directed verdict because the breach of contract claim was barred by a five-year statute of
limitations, in that the parties entered into a settlement Agreement in March 2011 but Dr.
Berkowitz never asserted the breach of contract claim before he assigned the claim to Smith in
May 2016.
Third, Keystone argues the trial court erred in denying Keystone’s motion for directed
verdict because the insurance policy was void ab initio, in that Dr. Berkowitz made material
false misrepresentations in the Application through his failure to truthfully list his claims history,
hospital suspensions, and reprimand that might reasonably influence Keystone’s decision to
accept or reject the risk or charge a different premium.
Fourth, Keystone contends the trial court erred in submitting Instruction No. 6 to the jury
and denying Keystone’s request for a new trial because Instruction No. 6 misstated the law and
confused the jury, in that the instruction told the jury to determine Smith’s damages instead of
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Dr. Berkowitz’s damages when the breach of contract claim was an assigned claim from Dr.
Berkowitz.
Fifth, Keystone alleges the jury’s award is not supported by substantial evidence because
Dr. Berkowitz never testified that his damages were $870,625.23, in that Dr. Berkowitz only
testified to damages of $97,287.59, consisting of the $122,968.20 that he paid his attorneys after
executing the settlement Agreement offset by the refund of $25,680.61 from Keystone.
Sixth and finally, Keystone alleges the jury’s award is against the weight of the evidence
because Smith’s damages are limited to $97,287.59, in that Dr. Berkowitz testified that this
amount represented his out-of-pocket loss ($122,968.20) as a result of the denial of his insurance
coverage, less the $25,680.61 in refund.
Point I: Keystone’s motion for directed verdict
A. Standard of Review
Generally, this Court reviews the “‘denial of a motion for directed verdict as a question of
law, viewed in the evidentiary light most favorable to the non-moving party, and determine[s]
whether that party has made a submissible case.’” Damon Pursell Const. Co. v. Mo. Highway &
Transp. Comm’n., 192 S.W.3d 461, 474 (Mo. App. W.D. 2006) (internal citations omitted). In
determining whether the trial court erred in overruling a motion for directed verdict, this Court
must “consider all the evidence viewed in the light most favorable to the plaintiff,” give the
plaintiff the “benefit of all favorable inferences arising therefrom,” and “disregard the
defendant’s evidence except insofar as it aids the plaintiff’s case.” Stout v. Cent. Nat’l Life Ins.
Co., 522 S.W.2d 124, 128 (Mo. App. 1975). When the claim of error on appeal is the failure to
direct a verdict because of proof of an affirmative defense, however, the moving party is only
entitled to a directed verdict if that party proved its affirmative defense as a matter of law. Wolfe
v. State ex rel. Mo. Highway & Transp. Comm’n, 910 S.W.2d 294, 300 (Mo. App. W.D. 1995).
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A “directed verdict should only have been granted if there were no factual issues remaining for
the jury to decide.” Id. Whereas Keystone is claiming that the trial court erred in failing to
direct a verdict in its favor based on its affirmative defense that Dr. Berkowitz contracted away
all claims he might have against Keystone, and therefore had nothing to assign to Smith, we
review whether Keystone proved this affirmative defense as a matter of law.
Settlement agreements are governed by principles of contract law. Neiswonger v.
Margulis, 203 S.W.3d 754, 760 (Mo. App. E.D. 2006). Matters of contract interpretation –
including whether a contract is ambiguous – are questions of law to be reviewed de novo on
appeal. Monsanto Co. v. Syngenta Seeds, Inc., 226 S.W.3d 227, 230 (Mo. App. E.D. 2007).
B. Did the Settlement Agreement Rescind All Rights of Dr. Berkowitz and his Assignee, Smith?
Smith argues that Keystone did not have the legal right to rescind Dr. Berkowitz’s
insurance contract, but we find that both Keystone and Dr. Berkowitz, together, contracted to
rescind the insurance contract.
When interpreting any contract, a court must follow the terms of the contract as written if
those terms are plain, unequivocal, and clear. Muilenburg, Inc. v. Cherokee Rose Design &
Build, L.L.C., 250 S.W.3d 848, 853-54 (Mo. App. S.D. 2008). Unless an ambiguity is present in
the contract, a court will not look outside of the four corners of the contract to determine the
intent of the parties. Eisenberg v. Redd, 38 S.W.3d 409, 411 (Mo. banc 2001). If the essential
terms of a settlement agreement are present in a contract and are sufficiently definite to enable a
court to give them exact meaning, the contract will be found to be valid and enforceable even if
some terms are missing or left to be agreed upon at a later time. Vulgamott v. Perry, 154 S.W.3d
382, 390-91 (Mo. App. W.D. 2004). "It is the most basic principle of contract law that parties
are bound by the terms of the contracts they sign and courts will enforce contracts according to
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their plain meaning, unless induced by fraud, duress, or undue influence." Nitro Distrib., Inc. v.
Dunn, 194 S.W.3d 339, 349 (Mo. banc 2006).
During his completion of the application for insurance with Keystone in late 2009, even
if Dr. Berkowitz disclosed to Keystone’s Vice President of Sales, Tony Lyons, orally, or by
writing, some or all of his past hospital suspensions, lawsuits, and reprimand from the Missouri
State Board of Registration for Healing Arts, it is undisputed that Dr. Berkowitz signed the
written application without such information being reported on the application itself and that Dr.
Berkowitz did not suggest making any changes. When asked whether he had ever been directly
or indirectly involved in “any claim, potential claim or suit arising out of the rendering or failing
to render professional services,” Dr. Berkowitz did not list numerous malpractice lawsuits that
had been filed against him. Despite being sued more than 15 times, he listed a single lawsuit,
Wilman, which resulted in a $200,000 settlement. Dr. Berkowitz did not list his hospital
suspensions or a reprimand from the Missouri State Board of Registration for the Healing Arts
that occurred in 2007, despite questions on the application asking whether he had ever been
subject to reprimand, or been investigated by any hospital committee, state licensing or
regulatory agency, or other medical review committee. Based on the answers in Dr. Berkowitz’s
application for insurance, Keystone issued a professional liability policy covering Dr. Berkowitz
and his private practice for the year 2010.
Dr. Berkowitz did not report new events as they occurred, such as the January 2010
federal indictment for Medicare fraud, even though he had answered “no” on the application
question asking if he had even been charged with, or indicted for, any crime, and Dr. Berkowitz
8
had agreed in the application to “immediately notify [Keystone] if there is any change in any of
the answers, statements or particulars.” 3
In late 2010, Dr. Berkowitz applied for renewal of his insurance for the year 2011.
Specifically, he certified that he reviewed his initial application dated November 6, 2009, and
that “there have been no facts, matters or events that change any of [his] answers provided in the
initial application.” He further certified that the answers to the initial application questions
remain correct, and that he had “no knowledge of any incident, circumstances, or potential
adverse outcome that resulted, or may result, in injury or death, or in a claim, potential claim or
suit involving [him] (even if such claim or suit may be without merit).” Keystone agreed to
renew his policy for 2011.
On March 3, 2011, Keystone’s chairman and CEO James Bowlin (“Bowlin”) sent, via
certified mail, a letter to schedule a meeting, “[c]onfirming our initial conversation of last Friday
and my follow-up of earlier this week.” The letter clearly stated, “[a]s [Bowlin] mentioned, [he]
believe[d] it would be helpful for [Dr. Berkowitz] to have [Dr. Berkowitz’s] personal counsel
with [him] . . . .” Although Dr. Berkowitz testified that he did not bring his counsel with him to
the March 7, 2011 meeting despite the letter’s advice, he later consulted with his personal
attorney, Mr. Bender or Mr. Carl Lang. Dr. Berkowitz also testified that during the March 7
meeting, Bowlin and Keystone’s attorney gave him the rescission Agreement and read it to him.
The Agreement covers both the 2010 and 2011 policies, and it mutually rescinded the insurance
policy and waived all of Dr. Berkowitz’s claims against Keystone.
The agreement provides, in part:
3
Dr. Berkowitz did report to Keystone that he had been sued for malpractice in the lawsuit Smith v. Berkowitz, the
case underlying this lawsuit here. Keystone provided a defense to Dr. Berkowitz and hired the law firm Eckenrode
Maupin to represent him until Dr. Berkowitz and Keystone agreed to rescind the insurance policy. Dr. Berkowitz
also reported to Keystone the case, Shea v. Berkowitz, for which Keystone also tendered a defense to Dr. Berkowitz
and hired the same law firm. His application also disclosed a lawsuit that had resulted in a $200,000 settlement,
Wilman v. Berkowitz.
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Notwithstanding this right to rescind, in the interest of all parties, and for good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Keystone and Berkowitz mutually agree to effect a termination of
the Keystone policies under the following terms:
1. Berkowitz to Obtain Insurance; Rescission. Within 10 days of the date of this
Agreement, Berkowitz shall obtain professional liability insurance from another
professional liability insurer, and advise Keystone when such insurance has been
obtained. In the event Berkowitz does not obtain such insurance within such
time, the parties agree that Keystone shall and will rescind the Policies effective
as of their dates of inception, e.g. December 31, 2009 as to the First Policy and
December 31, 2010 as to the Second Policy.
2. Mutual Cancellation of the Policies; Waiver of Notice. In exchange for the
agreements of Berkowitz herein, on the earlier of either the 10th day after the date
of this Agreement or the date upon which Berkowitz advises Keystone that such
insurance contemplated by Section 1 has been obtained, Keystone and Berkowitz
mutually agree that the Policies shall be cancelled effective as of the initial date of
such policies, e.g. December 31, 2009 as to the First Policy and December 31,
2010 as to the Second Policy . . . .
Additionally, the parties agreed that Keystone was not going to provide any
insurance coverage, and would not cover any portion of the Smith lawsuit. Dr. Berkowitz
said he understood that in signing the Agreement, he was “on the hook for any verdict
rendered in Smith.” Dr. Berkowitz understood that there was a mutual release by which
both he and Keystone were giving up claims against each other. A confidentiality
provision was included so that neither party would disclose any aspect of the Agreement
or matter giving rise to the Agreement without prior written consent of the other party,
which Dr. Berkowitz identified as critical to his decision to execute the Agreement.
The plain and unambiguous language of the Agreement in this case demonstrates the
intent of the parties, that Dr. Berkowitz and Keystone clearly enter into a mutual Settlement
Agreement in March 2011, at which time Dr. Berkowitz cancelled the Keystone insurance
policies “effective as of the initial date of such policies, e.g. December 31, 2009.” Berkowitz
“acknowledge[d] and agree[d] that Keystone is not, and shall not, provide any coverage for
[Smith v. Berkowitz], whether for defense thereof and/or for any damages adjudged against . . .
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Berkowitz.” Further, Dr. Berkowitz “will have sole responsibility for the cost of defense of
[Smith v. Berkowitz] and for the payment of any damages or settlements connected therewith.”
Dr. Berkowitz agreed to, and did “waive any and all rights, claims, actions and causes of action
Berkowitz may have in relation to Keystone, including, but not limited to, the right to pursue
coverage under the Policies; [and] reimbursement of costs incurred and payments made in
relation to [Smith v. Berkowitz] (whether for defense or damages).”
“We determine what the parties intended by what they said, and we cannot be concerned
with what they may have subjectively intended to say.” Promotional Consultants, Inc. v.
Logsdon, 25 S.W.3d 501, 506 (Mo. App. E.D. 2000). Although we need not look beyond the
clear language in the Agreement, even the parties’ actions here confirmed their intent as clearly
and unambiguously expressed in their Agreement. Dr. Berkowitz applied for new insurance on
March 11, and upon obtaining it and consulting with his attorney, the rescission Agreement was
signed on March 16, 2011. Dr. Berkowitz did not make any changes to the Agreement. Notably,
the Agreement states, “The parties acknowledge they’ve had legal counsel’s advice in relation to
entering into this agreement,” which did occur. Dr. Berkowitz testified that he received a check
in the amount of $25,686 for reimbursement of his premiums from Keystone, which he cashed.
Accordingly, Dr. Berkowitz had no insurance coverage for the Smith v. Berkowitz
lawsuit, and had waived all claims against Keystone. By giving up his insurance and claim for
breach of contract, he received the promise of confidentiality, avoided future litigation that might
result in a judicial rescission at a high cost and on the public record, and received a refund of
premiums. Just as the trial court ruled prior to this judgment, this was not a case of fraud, duress
or undue influence.
“The purpose of encouraging settlements would be frustrated if a party, following an
apparent settlement, could avoid the agreement by instituting and prevailing in further litigation
11
by arguing that the settlement was ineffective because his legal position was sound.” See Budget
Rent A Car of St. Louis v. Guaranty Nat’l Ins. Co., 939 S.W.2d 412, 414-15 (Mo. App. E.D.
1996). Dr. Berkowitz (and his assignee Smith) cannot now avoid this Agreement by arguing it
was ineffective because Keystone did not have the right to rescind the insurance policy at all.
Next, we find that Smith, the assignee of Dr. Berkowitz, is bound by the settlement
Agreement entered into by Dr. Berkowitz. An assignment is the transfer of a cause of action to
another, vesting legal title in the assignee, together with the right to maintain an action in his or
her own name as the real party in interest. Kroeker v. State Farm Mut. Auto. Ins. Co., 466
S.W.2d 105, 109-110 (Mo. App. 1971). “The only rights or interests an assignee acquires are
those the assignor had at the time the assignment was made.” Renaissance Leasing, LLC v.
Vermeer Mfg. Co., 322 S.W.3d 112, 128 (Mo. banc 2010) (emphasis added). “If there can be no
recovery on the part of the insured, . . . there can be no recovery on the part of his assignee, . . .
who would stand in his shoes.”
In Hellmann v. Sparks, 500 S.W.3d 252, 268 (Mo. App. E.D. 2015), an agreement to
relocate a community dock was orally rescinded before the rights under the agreement were
assigned to the plaintiffs, property owners in a residential subdivision. The Court of Appeals
stated:
The trial court’s determination that there was no agreement to relocate the
community dock was correct because the parties to the original agreement to
move the community dock had mutually rescinded that agreement prior to the
time the [plaintiffs] received their assignment of [the assignor’s] rights under
those contracts.
....
At the time the [plaintiffs] purchased the property and [the assignor] made the
assignment of his rights under the agreement to relocate the community dock, the
agreement to relocate the community dock had already been rescinded.
Consequently, it was as if the agreement had never existed, and there was nothing
to transfer to the [plaintiffs].
Id.
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We find Hellman to be instructive in that Dr. Berkowitz’s insurance policy with Keystone
had been mutually rescinded prior to the time Smith received her assignment of Dr. Berkowitz’s
rights under the insurance policy. Whereas Dr. Berkowitz had no right to Keystone’s coverage
and waived any breach of contract claim against Keystone, he could not pass coverage or claims
on to Smith. Thus, the trial court erred in refusing to enter a directed verdict in favor of
Keystone in Smith’s lawsuit. Keystone’s first point is granted and the trial court’s judgment is
reversed and remanded with instructions that the trial court enter a directed verdict for Keystone.
Because the trial court must enter a directed verdict in favor of Keystone, we need not
discuss Keystone’s remaining points on appeal.
Conclusion
We reverse the judgment and direct the trial court to enter judgment in favor of Keystone.
__________________________________
ROY L. RICHTER, Presiding Judge
Robert M. Clayton III, J., concurs.
Angela T. Quigless, J., concurs.
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