Sprint Lumber, Inc., Scott Laderoute, Jerry Downey, Sheila Higdon, Jess Reynolds, and Ray Meng v. Union Insurance Company, Continental Western Group, LLC

In the
Missouri Court of Appeals
Western District

SPRINT LUMBER, INC., SCOTT 
LADEROUTE, JERRY DOWNEY,  WD82930 Consolidated with
SHEILA HIGDON, JESS REYNOLDS,  WD82939
AND RAY MENG,
 OPINION FILED:
Appellant-Respondents, 
 April 6, 2021
v. 

UNION INSURANCE COMPANY, 
CONTINENTAL WESTERN GROUP, 
LLC., 

Respondent-Appellants. 

Appeal from the Circuit Court of Jackson County, Missouri
The Honorable James F. Kanatzar, Judge
Before Division One:
Alok Ahuja, P.J., Thomas H. Newton, and Thomas N. Chapman, JJ.
This appeal and cross-appeal arise from the judgment of the Circuit Court of Jackson
County on Sprint Lumber, Inc., its owner and president, and certain employees’ (collectively
“Sprint Lumber Parties”) claims against Union Insurance Company and Continental Western
Group LLC (collectively “Union”) for declaratory judgment, breach of contract, and breach of
fiduciary duty involving Union’s duty to defend and indemnify them under a commercial general
liability policy in a federal lawsuit brought by a competitor. The Sprint Lumber Parties raise
three points on appeal challenging the trial court’s partial summary judgment in favor of Union
on their claim for breach of fiduciary duty and the trial court’s calculation of damages. In its
cross-appeal, Union raises five points challenging the trial court’s partial summary judgment in
favor of the Sprint Lumber Parties finding Union had a duty to defend and its judgment against
Union to indemnify the Sprint Lumber Parties. The judgment is affirmed in part and reversed in
part, and the case is remanded for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
Sprint Lumber, Inc. (“Sprint Lumber”) and Porters Building Centers, Inc. (“Porters”) are
competitors in the lumber and building supplies business in Northwest Missouri and Northeast
Kansas. Scott Laderoute (“Laderoute”) is the owner of Sprint Lumber. Jerry Downey
(“Downey”), Sheila Higdon (“Higdon”), Jess Reynolds (“Reynolds”), and Ray Meng (“Meng”)
(collectively “Former Employees”) are former Porters employees who left Porters for Sprint
Lumber in 2016. Union issued a commercial general liability policy (“Policy”) to Sprint Lumber
for the period of October 1, 2015, to October 1, 2016, policy number CPA 3109148-20.1 The
Policy provided coverage for bodily injury and property damage liability and personal and
advertising injury liability.
On May 9, 2016, Porters filed suit against Sprint Lumber, Laderoute, Downey, Higdon,
Reynolds, and Meng (again collectively “Sprint Lumber Parties”) in the United States District
Court for the Western District of Missouri (“Underlying Suit”). The Underlying Suit sought
damages and injunctive relief for violation of the Computer Fraud and Abuse Act, violation of
the Missouri computer tampering statutes, violation of the Missouri Uniform Trade Secrets Act,
breach of restrictive covenants, breach of duty of loyalty, tortious interference with business
1
Continental Western Group, LLC (“CWG”) handles claims made on Union Insurance Company’s (“UIC”) policies
including the claim made on the Policy in this case.
2
expectancy, and civil conspiracy. Porters alleged that while still employed by Porters, Former
Employees conspired with Sprint Lumber and Laderoute to misappropriate, and then delete from
Porters’s systems, Porters’s proprietary information, trade secrets, and customer contact
information and lists. It further alleged that Former Employees “affirmatively undercut”
Porters’s business as they directly competed against Porters and worked to solicit Porters’s
customers for Sprint Lumber. The same day, Porters also filed a motion for temporary
restraining order and request for preliminary injunction to prevent further irreparable injury and
to maintain the status quo during the pendency of the litigation.
On May 23, 2016, Porters filed a first amended petition, which included the seven claims
from the original petition and added an antitrust claim under the Sherman Act and a trespass
claim. The antitrust claim alleged that the Sprint Lumber Parties intended to put Porters out of
business and to monopolize the industry in St. Joseph and the surrounding region.
The Sprint Lumber Parties notified Union of their claim for coverage and sent it Porters’s
original petition in the Underlying Suit on May 17, 2016. On May 18, 2016, at 10:50 a.m.,
Laura Williams (“Williams”), a CWG claims adjuster, opened a claim for the Underlying Suit.
By 2:34 p.m. that same day, Williams concluded that “no coverage is afforded under this
coverage form. Based on the above, no coverage is available under this policy.” On May 25,
2016, Union received Porters’s first amended petition. On June 13, 2016, Williams sent a
disclaimer letter to Sprint Lumber and its attorney stating that Union “will not make any defense
or indemnity payment under your policy because there is no coverage for this loss.” Specifically,
the letter stated that Porters’s allegations did not meet the definition of “personal and advertising
injury” in the Policy and that even if such coverage was triggered, exclusions in the Policy
precluded coverage. Williams’s supervisor, Brandon Fahey (“Fahey”) approved the letter.
3
On October 14, 2016, Porters filed a second amended petition, which reasserted all of the
prior claims except for breach of restrictive covenants, which was dropped. Five days later on
October 19, 2016, Porters filed a second motion for preliminary injunction. Union received
Porters’s second amended petition on November 28, 2016, and Williams reopened the claim on
December 5, 2016. Fahey reviewed the second amended petition on January 10, 2017, and
decided that there was no coverage and no duty to defend. Williams sent a second disclaimer
letter to Sprint Lumber and its attorney on January 23, 2017, again disclaiming coverage for the
claim.
On October 3, 2017, Sprint Lumber and Laderoute’s attorney sent a letter to Williams to
present additional materials relevant to demonstrating coverage under the personal and
advertising coverage of the Policy, specifically, Sprint Lumber’s motion for summary judgment
and the pleadings and exhibits on the motion from the Underlying Suit and the court’s order
denying most of the motion. The letter also notified Williams about the jury trial scheduled in
the Underlying Suit for December 4, 2017, and reiterated a demand for a defense and
indemnification. Following receipt of the October 3, 2017 letter, Williams requested an
explanation of why coverage is afforded under the Policy. On October 13, 2017, counsel for
Sprint Lumber and Laderoute sent a nine-page letter to Williams explaining that there was
coverage under the personal and advertising portion of the Policy and that none of the exclusions
in the Policy defeated coverage. Again, the letter demanded that Union provide a defense,
reimburse for attorney fees and expenses incurred, and provide coverage under the Policy for any
judgment or settlement that may be entered or reached in the Underlying Suit.
On November 2, 2017, Union’s attorney wrote to counsel for Sprint Lumber and
Laderoute extending Union’s offer to defend them in the Underlying Suit under a reservation of
4
rights. Counsel for Sprint Lumber and Laderoute responded with a letter the same day rejecting
the offer to defend under reservation of rights and demanding a defense without reservation. The
letter also indicated that Porters was willing to settle for an amount “well into the $700,000s” but
that a settlement had to be reached that day. The letter further explained that Porters was
claiming lost profit damages in the range of $1,550,000 to $2,000,000; that there was damaging
evidence of the Sprint Lumber Parties’ disparaging Porters to steer its customers away to Sprint
Lumber and providing Sprint Lumber with Porters’s confidential information; and that there was
a significant risk of a verdict exceeding $2,000,000, not including punitive damages.
Later on November 2, 2017, the Sprint Lumber Parties reached an agreement with Porters
to settle the Underlying Suit. Counsel for Sprint Lumber and Laderoute informed Union’s
attorney of the settlement that day stating, part:
As we previously explained and made clear, time was of the essence and
Porters placed a deadline on settlement discussions of today. In order to protect
our clients’ best interests and to protect from an excess judgment with a punitive
damage component that would have been devastating to your insureds, we were
forced to settle this case.
We hereby demand immediate reimbursement of all attorney fees and
expenses incurred in the defense of this matter and full indemnification for the
settlement.
Sprint Lumber and Laderoute paid Porters $775,000 to settle the Underlying Suit. Union
refused the demand for reimbursement of attorney fees and expenses incurred in defending the
Underlying Suit and for indemnification of the settlement.
On October 25, 2017, Sprint Lumber Parties filed the instant lawsuit against Union.
Their second amended petition asserted three claims. Count I sought a declaration that the
Policy’s personal and advertising injury coverage provided coverage to the Sprint Lumber
Parties and that Union wrongfully refused to provide coverage and a defense. Count II alleged
5
breach of contract for Union’s refusal to provide coverage under the Policy and sought damages
and statutory penalties and attorney fees under Missouri’s vexatious refusal statutes. Count III
alleged breach of fiduciary duty for Union’s refusal to defend the Sprint Lumber Parties in the
Underlying Suit and to pay Porters a settlement within the Policy limits and sought
compensatory and punitive damages.
The parties filed cross-motions for summary judgment addressing whether Union had a
duty to defend and indemnify the Sprint Lumber Parties in the Underlying Suit. On March 29,
2019, the trial court entered partial summary judgment in favor of the Sprint Lumber Parties on
Counts I and II (declaratory judgment and breach of contract) of their second amended petition.
It found that Union had a duty to defend the Sprint Lumber Parties in the Underlying Suit and
that Union breached that duty. It further found that the record was insufficient on the question of
Union’s duty to indemnify and damages and ordered that the case proceed to trial on those
issues. The trial court also entered partial summary judgment in favor of Union on Count III
(labeled by the Sprint Lumber Parties as a claim for “breach of fiduciary duty”).
A bench trial was held on the remaining issues, and on May 21, 2019, the trial court
entered its final judgment. The trial court incorporated its March 29, 2019 partial summary
judgments into the final judgment. It further concluded that Union had a duty to defend the
Sprint Lumber Parties in the Underlying Suit as of June 13, 2016, the date of Union’s first
disclaimer letter and that Sprint Lumber and Laderoute were entitled to damages flowing from
the breach of the duty to defend of $398,531 paid to Sprint Lumber and Laderoute’s attorneys
and $276,993 paid to Downey, Higdon, Reynolds, and Meng’s attorneys for work performed
after June 13, 2016, in defending them in the Underlying Suit. The trial court also found that
there was coverage under the Policy for the Sprint Lumber Parties’ settlement with Porters and
6
that Union had a duty to indemnify Sprint Lumber and Laderoute for $775,000, the amount they
paid to Porters to settle the Underlying Suit, along with interest and fees of $52,357, which had
been paid in connection with a loan taken out to finance the settlement. Furthermore, the trial
court concluded that Union’s handling of the claim and its refusal to pay the settlement amount
was vexatious and without reasonable cause or excuse. It found that Sprint Lumber and
Laderoute were jointly entitled to $77,500 from Union as a penalty under the vexatious refusal
statutes for Union’s failure to pay the settlement amount. It found that, although Union’s failure
to defend was also vexatious, it was constrained by Missouri law to limit its application of the
penalty to only the settlement amount. Finally, the trial court found that Sprint Lumber and
Laderoute were entitled to reasonable attorney fees from Union incurred in pursing this case in
the amount of $193,841.2
This appeal by the Sprint Lumber Parties and cross-appeal by Union followed. For
organizational purposes, Union’s cross-appeal is addressed first. Additional relevant factual and
procedural background is presented below in the discussion of the parties’ points on appeal.
UNION’S CROSS-APPEAL
Union raises five points in its cross-appeal. In points one and two, it challenges the trial
court’s grant of partial summary judgment in favor of the Sprint Lumber Parties on the issue of
Union’s duty to defend. In points three, four, and five, Union challenges the judgment against it
to indemnify for the settlement reached in the Underlying Suit.
2
Finding no evidence that Downey, Higdon, Reynolds, and Meng incurred any monetary damages or attorney fees
resulting from the Underlying Suit, the trial court did not award any of the damages or fees to them.
7
Summary Judgment of Duty to Defend
In points one and two, Union contends that the trial court erred in entering partial
summary judgment in favor of the Sprint Lumber Parties on the issue of Union’s duty to defend.3
It asserts that the trial court misapplied the law because (1) there was no possibility for coverage
under the Policy for personal and advertising injury and (2) even if there were facts alleged in the
complaint in the Underlying Suit for personal and advertising injury, coverage was excluded
under two exclusions in the Policy.
Appellate review of the grant of summary judgment is de novo. Green v. Fotoohighiam,
606 S.W.3d 113, 115 (Mo. banc 2020). The reviewing court applies the same criteria as the trial
court in determining whether summary judgment was proper. Id. Summary judgment is proper
if the movant is entitled to judgment as a matter of law and no genuine issues of material fact
exist. Id. Facts contained in affidavits or otherwise in support of a party’s motion for summary
judgment are accepted as true unless contradicted by the non-moving party’s response to the
motion. Id. The record is reviewed in the light most favorable to the party against whom
judgment was entered, according that party all reasonable inferences that may be drawn from the
record. Id.3
The Sprint Lumber Parties filed a motion for summary judgment and Union filed a cross-motion for summary
judgment on the issue of Union’s duty to defend. In entering its partial summary judgment on the issue, the trial
court granted in part the Sprint Lumber Parties’ motion for summary judgment. In its points one and two, Union
specifically contends that the trial court erred in granting partial summary judgment in favor of the Sprint Lumber
Parties and against it on its cross-motion for summary judgment. “Generally, an order denying a party’s motion for
summary judgment is not a final judgment and is therefore not subject to appellate review.” Ferguson v. St. Paul
Fire & Marine Ins. Co., 597 S.W.3d 249, 254 (Mo. App. W.D. 2019) (internal quotes and citation omitted).
“However, the denial of a motion for summary judgment may be reviewable when, as in this case, the merits of the
motion for summary judgment are interwined with the propriety of an appealable order granting summary judgment
to another party.” Id. (internal quotes and citation omitted).
8
The interpretation of an insurance contract is a question of law given de novo review.
Doe Run Res. Corp. v. Am. Guarantee & Liab. Ins., 531 S.W.3d 508, 511 (Mo. banc 2017).
When interpreting an insurance contract, the policy language is given its plain meaning, or the
meaning that would be attached by an ordinary purchaser of insurance. Id. “If the policy
language is clear and unambiguous, it must be construed as written.” Id. A phrase is ambiguous
only if it is “reasonably open to different constructions.” Id. (internal quotes and citation
omitted). “Courts may not create an ambiguity when none exists.” Id.“An insurer owes two distinct duties to its insured: a duty to indemnify and a duty to
defend.” Allen v. Cont’l W. Ins. Co., 436 S.W.3d 548, 552 (Mo. banc 2014). The duty to defend
is broader than the duty to indemnify. Allen v. Bryers, 512 S.W.3d 17, 31 (Mo. banc 2016).
“The duty to defend arises only when there is a possibility or potential for coverage at the outset
of the case.” Id. “The duty to defend is determined by comparing the insurance policy language
with facts: ‘(1) alleged in the petition; (2) the insurer knows at the outset of the case; or (3) that
are reasonably apparent to the insurer at the outset of the case.’” Id. (quoting Allen, 436 S.W.3d
at 553). “If the complaint merely alleges facts that give rise to a claim potentially within the
policy’s coverage, the insurer has a duty to defend.” Id. (internal quotes and citation omitted).
The insurer is not relieved of its duty to defend merely because the plaintiff in the underlying
lawsuit pleaded its claims inartfully. Allen, 436 S.W.3d at 552-53. The duty to defend
potentially insured claims arises even if claims beyond coverage may also be present. Truck Ins.
Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 79 (Mo. App. W.D. 2005). “To extricate itself
from the duty to defend the insured, the insurance company must prove that there is no
possibility of coverage.” Bryers, 512 S.W.3d at 31 (internal quotes and citation omitted).
9
The duty to defend does not depend simply on a comparison of the policy’s coverage
with the allegations in the pleadings against the insured; instead, a duty to defend may also be
triggered by “the facts [the insurer] knew or could have ascertained from a reasonable
investigation.” Truck Ins. Exch., 162 S.W.3d at 79. Thus, “even though the pleadings do not
show coverage,” a duty to defend may exist where a possibility of coverage is demonstrated by
“known or reasonable ascertainable facts.” Id. (internal quotes and citation omitted). “[T]he
allegations contained within the petition alone are not the sole determinant of the duty to
defend.” Trainwreck West Inc. v. Burlington Ins. Co., 235 S.W.3d 33, 42 (Mo. App. E.D. 2007).
“[T]he insurer cannot ignore safely actual facts known to it or which could be known to it or
which could be known from reasonable investigation.” Id. (internal quotes and citation omitted).
Possibility of Coverage
In point one, Union contends that the trial court misapplied the law in finding that it had a
duty to defend because there was no possibility of coverage for “personal and advertising injury”
under the Policy since the facts in the federal complaint had no relationship to (or sought
damages for) any “personal and advertising injury.” Specifically, Union asserts that all of the
claims and damages in the Underlying Suit were based on allegations of knowingly
misappropriating confidential information, trade secrets, and customer contacts, and that none of
the alleged facts triggered coverage under subparts d, e, or f of the definition of “personal and
advertising injury.”4
Coverage B of the Policy applied to claims seeking damages for “personal and
advertising injury”:
4
Union did not dispute at trial, and does not dispute in this appeal, that the Sprint Lumber Parties were insured
under the Policy.
10
We will pay those sums that the insured becomes legally obligated to pay as
damages because of “personal and advertising injury” to which this insurance
applies. We will have the right and duty to defend the insured against any “suit”
seeking those damages. However, we will have no duty to defend the insured
against any “suit” seeking damages for “personal and advertising injury” to which
this insurance does not apply. We may, at our discretion, investigate any offense
and settle any claim or “suit” that may result.
The Policy had a personal and advertising injury limit of $1,000,000 for any one person or
organization and an aggregate limit of $2,000,000. In addition, it provided excess liability
coverage of $5,000,000 for personal and advertising injury.
The Policy defined the term “personal and advertising injury” as follows, in pertinent part:
Personal and advertising injury means injury, including consequential “bodily
injury”, arising out of one or more of the following offenses:
…
d. Oral or written publication, in any manner, of material that slanders or libels a
person or organization or disparages a person’s or organization’s goods, products
or services;
e. Oral or written publication, in any manner, of material that violates a person’s
right to privacy;
f. The use of another’s advertising idea in your “advertisement[.]”
In their motion for summary judgment, the Sprint Lumber Parties argued, in part, that
Porters’s allegations in the Underlying Suit included claims of disparagement of its goods,
products, and services for which the Policy provided coverage under subpart d. In McCormack
Baron Management Services, Inc. v. American Guarantee & Liability Insurance, Co., 989
S.W.2d 168 (Mo. banc 1999), the Missouri Supreme Court considered almost identical policy
language involving coverage for personal injury for the disparagement of a person’s or
organization’s goods, products, or services. In that case, the insured was a real estate
management company that hired a security guard service for one of its complexes. Id. at 169.
11
One of the service’s employees was fired after the insured told the service that the employee had
been insubordinate by making complaints about the misconduct of another employee. Id. The
fired employee sued the insured and the security guard service. Id. He asserted a claim for
tortious interference with a contractual relationship against the insured, alleging that he was fired
as a direct result of the insured’s statement to his supervisor. Id. The insurance company refused
to provide a defense for the insured, claiming that the policy did not cover the fired employee’s
suit. Id. at 170.
The Missouri Supreme Court held that the insurance company had a duty to defend the
insured in the fired employee’s action. Id. at 174. It defined “disparage” as “to lower in esteem
or reputation,” “to diminish the respect for,” “to lower in rank by actions or words,” or “to speak
slightingly of.” Id. at 171 (internal quotes and citation omitted). It further determined that
coverage for an offense that disparages a person’s or organization’s goods, products, or services
is not limited to the cause of action of disparagement or injurious falsehood, but can include a
claim for tortious interference with a contractual relationship. Id. at 171-72.
Under the definition of “disparage” endorsed in McCormack, the allegations against the
Sprint Lumber Parties in Porters’s pleadings gave rise to the possibility that the Sprint Lumber
Parties caused customers to leave Porters through disparaging statements and conduct. In
Porters’s original petition, filed on May 9, 2016, it described the “Nature of the Case”:
In this lawsuit, Porter seeks to protect its confidential information and trade
secrets from continued misappropriation and unlawful use by Defendants, as well
as obtain damages arising from Defendants’ wrongful actions in soliciting its
employees and customers and destroying its protected electronic information.
These wrongful acts have taken place over the course of nearly five months
through dozens of meeting and communications between Sprint Lumber and the
Former Employees. Defendants conspired on how to “capture” Porters’ sales,
copy its confidential information and trade secrets, and thereafter “dump” that
information from Porters’ systems. All the while, the Former Employees
12
continued to be employed by Porters—affirmatively undercutting its business as
they collected regular paychecks—even remarking to Sprint Lumber during work
hours that they “will be bearing gifts” and boasting that “[a] monopoly is great.”
The petition alleged that Former Employees affirmatively undercut Porters’s business as they
directly competed against Porters and worked to solicit its customers for Sprint Lumber. It
asserted that Former Employees were engaged in an “orchestrated effort” to “hamper” Porters’s
business and “raid” its employees and customers for Sprint Lumber. Porters further alleged that
its customers were “repeat customers for which it had a reasonable, valid business expectancy
and probable future business relationship” and that the Sprint Lumber Parties wrongfully
interfered with that expectancy by “inducing or causing a breach of that relationship by
undercutting Porters’s business” through solicitation of Porters’s customers. Porters alleged that
much of the solicitation for Sprint Lumber occurred while Former Employees were still Porters’s
employees.
Porters filed a motion for temporary restraining order and request for preliminary
injunction on the same day it filed its original petition. The motion made the same basic
allegations as Porters’s petition but added, “[The Sprint Lumber Parties’] actions continue to
inflict substantial harm on Porters, including in the form of lost customer relationships, lost
employees, lost information, and lost good will.”
Porters later filed first and second amended petitions reasserting the allegations contained
in the original petition. The first amended petition added an antitrust claim under the Sherman
Act alleging that the Sprint Lumber Parties intended to put Porters out of business and to
monopolize the industry in St. Joseph and the surrounding region. Additionally, the first
amended petition specifically alleged that as a result of the conspiracy between the Sprint
Lumber Parties, “Porters suffered damages, including lost revenue, good-will, and customer
13
relationships.” In the second amended petition, Porters added the following sentence to its
statement of the “Nature of the Case”: “The conspiracy culminated in the Former Employees
diverting [Porters’s] sales and business and customer relationships to Sprint Lumber and harming
[Porters’s] good will and reputation—all before, during, and after their orchestrated transition
from employment at Porters to employment at Sprint Lumber.”
Five days after it filed its second amended petition, Porters filed a second motion for
preliminary injunction. In it, Porters alleged, “The extent and timing of the Former Employees’
departure—along with the coordinated bolstering of Sprint Lumber and undercutting of Porters
by its manager and key salespeople—magnifies the reputational and goodwill injury to Porters.
It further alleged that the Sprint Lumber Parties wrongfully interfered with business expectancies
by “[c]hallenging Porters’s ability to carry on its operation without the Former Employees” and
“[c]onveying false information regarding the circumstances of the Former Employees departure
in a way that casts negatively on Porters” to Porters’s customers.
These allegations in Porters’s pleadings supported the possibility that the Sprint Lumber
Parties disparaged Porters’s products, goods, or services. Contrary to Union’s argument that the
Underlying Suit contained only allegations of knowingly misappropriating confidential
information, trade secrets, and customer contacts, a significant and separate part of Porters’s case
was that the Sprints Lumber Parties wrongfully solicited Porters’s customers and attempted to
put Porters out of business in order to monopolize the industry in the region. Such allegations
were raised in Porters’s general allegations and its breach of loyalty, tortious interference, civil
conspiracy, and antitrust claims and were independent from the trade secret and confidential
information claims and allegations.
14
The term solicit means “to ask for or to request some thing or action in language which
convinces that the asking or requesting is being done in earnest and that the solicitor wants
results.” Adian N. Baker & Co. v. Demartino, 733 S.W.2d 14, 16 (Mo. App. E.D. 1987) (internal
quotes and citation omitted). In the context of Porters’s claims, solicitation required statements
to be made to customers to persuade them to change their loyalty and patronage from Porters to
Sprint Lumber. Porters’s allegations raised the possibility that the Sprint Lumber Parties used
words that operated to lower esteem or respect for Porters, its reputation, and its rank.
Porters’s allegations that the Sprint Lumber Parties’ conduct harmed its good will further
supported the possibility of disparagement. Good will of a business is defined as “an intangible
asset that attaches to a business as a result of such favorable factors as location, product
superiority, reputation, and managerial skills” and “a reasonable expectancy of preference in the
race of competition.” Hanson v. Hanson, 738 S.W.2d 429, 433 (Mo. banc 1987) (internal quotes
and citations omitted). Porters’s allegations raised the possibility that the Sprint Lumber Parties’
statements and conduct were disparaging to Porters, causing its customers to believe that it no
longer possessed a favorable reputation or managerial skills. See, e.g., JAR Laboratories LLC v.
Great Am. E & S Ins. Co., 945 F.Supp.2d 937, 944 (N.D. Ill. 2013) (allegation in underlying
complaint that insured’s statements damaged the good will associated with the underlying
plaintiff’s product and diverted sales from it “bolster[ed] the conclusion that the allegedly
misleading statements disparaged [the product].”).
Union argues that “[n]one of the complaints allege any facts regarding, or claims for, or
damages from slander, libel or disparagement.” It further suggests that the misconduct alleged in
the Underlying Suit amounted to nothing more than comparison-based advertising, which should
not be covered, citing Select Designs, Ltd. v. Union Mutual Fire Insurance Co., 674 A.2d 798,
15
804 (Vt. 1996). In Select Designs, a plaintiff sued its competitor, the insured, alleging that the
insured and its officers induced the plaintiff’s sales manager to leave the plaintiff for
employment with the insured, bringing with him proprietary information and using that
information to induce the plaintiff’s customers to break their contract with the plaintiff and enter
into contracts with the insured. Id. at 803-04. Thereafter, the insured sought a declaration that
its insurer owed it a duty to defend the action brought by the plaintiff under the personal injury
coverage of the policy for disparaging a person’s or organization’s goods, products, or services.
Id. at 804. The Vermont Supreme Court found that the plaintiff’s complaint against the insured
did not allege that the insured disparaged the plaintiff’s products or services reasoning:
For [the insured] to argue that [the sales manager] necessarily disparaged the
goods and services of [the plaintiff] in soliciting business from [the plaintiff’s]
customers is to contend that all comparison-based advertising is actionable and
that [the sales manager] necessarily went over the line of protected commercial
speech. Disparagement in this context does not simply mean comparing a
competitor’s product or service unfavorably with one’s own, but must constitute
an ‘injurious falsehood’ to be actionable.
Id.The Missouri Supreme Court, however, specifically declined to follow Select Design in
McCormack. It found that Select Design was “directly contrary” to its decision that coverage for
the disparagement of another’s goods, products, or services does not turn on whether a specific
cause of action such as defamation, libel, slander, or injurious falsehood is asserted against the
insured. McCormack, 989 S.W.2d at 171-72.
Furthermore, the allegations in the Underlying Suit were significantly different than those
in the Select Design case. Porters’s allegations did not merely allege that the Sprint Lumber
Parties’ used its proprietary information to lure its customers away to Sprint Lumber. The
allegations went beyond ordinary product or service comparisons. Porters alleged that the Sprint
16
Lumber Parties wrongfully solicited Porters’s customers and acted to put Porters out of business
altogether and to monopolize the contractor business in the region by harming Porters’s
relationship with its customers and its good will and reputation. Again, allegations of harm to
Porters’s good will and reputation bolstered the possibility that the Sprint Lumber Parties used
statements that criticized and disparaged Porters’s service. Furthermore, Porters specifically
accused the Sprint Lumber Parties of questioning Porters’s ability to carry on its business
without the Former Employees and of making false statements to Porters’s customers regarding
the circumstances of the Former Employees’ departure.
Porters’s allegations against the Sprint Lumber Parties supported the possibility that the
Sprint Lumber Parties caused customers to leave Porters through disparaging statements and
conduct—that their statements and conduct had the effect of lowering the customers’ esteem for
Porters, diminishing Porters’s reputation among customers, diminishing customers’ respect for
Porters, and lowering Porters’s rank in the minds of customers. Beyond the allegations of
Porters’s pleadings, the facts which Union could have discovered through a reasonable
investigation (which it never conducted) must also be considered in determining whether it had a
duty to defend.5 The trial court did not misapply the law in finding that there was a possibility of
5
Although not alleged in the summary judgment pleadings, evidence was presented at the bench trial that Union
(specifically the claims adjuster, Williams, and her supervisor, Fahey) did not investigate to determine what the
Sprint Lumber Parties said to Porters’s customers in soliciting them to leave Porters or how such solicitation
occurred. Fahey specifically testified that in handling the claim, neither he nor Williams contacted the Sprint
Lumber Parties, Porters, or their attorneys to ask for any additional information about the Underlying Suit. They
never asked Downey, Reynolds, or Higdon what they said to Porters’s customers to make them take their business to
Sprint Lumber. As will be discussed under Union’s point five below, Downey, Reynolds, and Higdon testified at
the bench trial about what they told Porters’s customers in their solicitation of them. Their statements to Porters’s
customers were reasonably discoverable from the outset of the case. Thus, even if Porters’s pleadings alone did not
support the possibility of coverage, and the trial court erred in entering partial summary judgment, sufficient
evidence at trial supported Union’s duty to defend based on the facts alleged in the petition and those Union knew or
should have known at the outset of the case.
17
coverage for the disparagement of goods, products, or services under the “personal and
advertising injury” coverage of the Policy and, thus, that Union had a duty to defend.
Because we have determined that there was a possibility of coverage and a duty to defend
for injury arising out of the disparagement of Porters’s goods, products, or services under subpart
d of the definition of “personal and advertising injury,” we need not address whether there was a
possibility of coverage for injury arising out of the oral or written publication of material that
violates Porters’s right to privacy or the use of Porters’s advertising idea in Sprint Lumber’s
advertisement in subparts e and f, respectively.
Point one of Union’s cross-appeal is denied.
Coverage Not Excluded
Alternatively, Union argues in point two that even if there were facts alleged in the
complaint in the Underlying Suit for personal and advertising injury, coverage was excluded
under two exclusions in the Policy—Infringement of Copyright, Patent, Trademark, or Trade
Secret and Access or Disclosure of Confidential or Personal Information. Specifically, Union
asserts that all of the facts alleged in the Underlying Suit centered on and sought damages for the
wrongful and unlawful misappropriation and destruction of confidential information and trade
secrets and the exclusions barred coverage for injuries arising out of such acts.
Exclusions are necessary provisions in insurance policies; and if they are clear and
unambiguous within the context of the whole policy, they are enforceable. Floyd-Tunnell v.
Shelter Mut. Ins. Co., 439 S.W.3d 215, 221 (Mo. banc 2014). While the insured bears the initial
burden of proving coverage, the insurer has the burden of demonstrating that an exclusion bars
coverage. Am. Family Mut. Ins. Co. v. Sharon, 596 S.W.3d 135, 143 (Mo. App. W.D. 2020).
“Because an insured purchases coverage for protection, the policy will be interpreted to grant
18
coverage rather than defeat it.” Id. at 147 (internal quotes and citation omitted). Consequently,
an exclusion is strictly construed against the insurer and in favor of the insured. Id.Coverage B of the Policy provided several exclusions to which the insurance did not
apply including:
Infringement Of Copyright, Patent, Trademark Or Trade Secret
“Personal and advertising injury” arising out of the infringement of copyright,
patent, trademark, trade secret or other intellectual property rights. Under this
exclusion, such other intellectual property rights do not include the use of
another’s advertising idea in your “advertisement”.
However, this exclusion does not apply to infringement, in your “advertisement”,
of copyright, trade dress or slogan.
Another exclusion under Coverage B was:
Access Or Disclosure Of Confidential Or Personal Information
“Personal and advertising injury” arising out of any access to or disclosure of any
person’s or organization’s confidential or personal information, including patents,
trade secrets, processing methods, customers lists, financial information, credit
card information, health information or any other type of nonpublic information
This exclusion applies even if damages are claimed for notification costs, credit
monitoring expenses, forensic expenses, public relations expenses or any other
loss, cost or expense incurred by you or others arising out of any access to or
disclosure of any person’s or organization’s confidential or personal information.
These exclusions did not eliminate the possibility of coverage for disparagement of
Porters’s goods, products, or services. Again, Union’s argument under this point is based on its
characterization that all of Porters’s allegations in the Underlying Suit centered on and sought
damages for the wrongful and unlawful misappropriation and disclosure of confidential
information and trade secrets. That characterization, however, is far too sweeping. As discussed
in point one, the Underlying Suit also involved the wrongful solicitation of its customers through
the disparagement of Porters.
19
Union failed to demonstrate that the exclusion for the infringement of trade secrets or
other intellectual property barred coverage for disparagement. The plain language of the
intellectual property exclusion did not relate to the disparagement of Porters’s goods, products,
and services. Numerous cases have held that disparagement is outside the scope of an
intellectual property exclusion like the one in the Union Policy. See Minute Key, Inc. v. Charter
Oak Fire Ins. Co., No. 16-cv-1850-JLK, 2017 WL 3584876, at *4 (D. Colo. August 11, 2017)
(allegation in underlying complaint that insured sought to steal business from the underlying
plaintiff by falsely accusing it of patent infringement was not an allegation of patent
infringement and was outside the scope of the intellectual property exclusion); Hartford Fire Ins.
Co. v. Vita Craft Corp., 911 F.Supp.2d 1164, 1180 (D. Kan. 2012) (allegation in underlying
complaint asserting that the insured spread false rumors about the underlying plaintiff’s licensee
were not tied to intellectual property rights, and the intellectual property exclusion did not bar
coverage); Align Tech., Inc. v. Fed. Ins. Co., 673 F.Supp.2d 957, 972 (N.D. Cal. 2009) (allegation
in underlying counterclaim of insured company’s suit for misappropriation of trade secrets that
accused insured of making false promises to prospective employees, insinuating that former
executives breached non-competition agreements, maligning management, recruiting its entire
sales force, and unlawfully soliciting its employees did not bear any relation to parties’
intellectual property dispute, and the intellectual property exclusion did not apply). Porters’s
allegations did not show that the Sprint Lumber Parties’ conspiracy to breach the duty of loyalty
and/or to tortiously interfere with Porters’s customer relationships by disparaging Porters
unequivocally and without exception arose out of the infringement of Porters’s trade secrets or
other intellectual property.
20
Likewise, Union failed to demonstrate that the exclusion for the access or disclosure of
confidential information barred coverage for disparagement. Again, Porters’s allegations did not
show that the Sprint Lumber Parties’ conduct involving disparagement of Porters necessarily
arose out of any access to or disclosure of Porters’s confidential or personal information.
Even if one or both exclusions excluded coverage for Porters’s injuries arising out of
misappropriation and access and disclosure of its confidential information and trade secrets,
there was a possibility of coverage for its injuries arising out the independent and distinct causes
relating to the disparagement of its services not excluded under the Policy. “Missouri recognizes
the concurrent proximate cause rule when determining whether an exclusion provision in an
insurance policy excludes coverage for an injury when that injury has two concurrent proximate
causes, one covered by the policy and one excluded.” Adams v. Certain Underwriters at Lloyd’s
of London, 589 S.W.3d 15, 29 (Mo. App. E.D. 2019). “If the included cause is truly independent
and distinct from the excluded cause, then coverage will be found under the policy.” Id.Porters alleged various wrongful conduct by the Sprint Lumber Parties. Porters’s claims
for breach of duty of loyalty and for tortious interference with customer relationships by
disparagement of Porters were independent and distinct from Porters’s claims of
misappropriation and access and disclosure of its confidential information and trade secrets. The
claims for breach of duty of loyalty and for tortious interference by disparagement did not
require proof of any of the elements of the claims involving confidential information and trade
secrets. Union failed in its burden to prove there was no possibility of coverage for Porters’s
injuries under the exclusions.
Point two of Union’s cross-appeal is denied.
21
Duty to Indemnify
In points three and four, Union contends that the trial court erred in entering judgment
against it to indemnify for the settlement reached in the Underlying Suit. It asserts that there
cannot be a duty to indemnify where there was no duty to defend for the reasons asserted in
points one and two.
“Missouri law is clear that where there is no duty to defend, there is no duty to
indemnify.” View Home Owner’s Assoc. v. The Burlington Ins. Co., 552 S.W.3d 726, 732-33
(Mo. App. W.D. 2018) (internal quotes and citation omitted). As noted above, the duty to defend
and the duty to indemnify are separate and distinct. Allen, 436 S.W.3d at 552; Arch Ins. Co. v.
Sunset Fin. Servs., Inc., 475 S.W.3d 730, 733 (Mo. App. W.D. 2015). “An insurer may have a
duty to defend claims falling within the policy even if it may not ultimately be obligated to
indemnify the insured.” Arch Ins., 475 S.W.3d at 733 (internal quotes and citation omitted).
“The duty to defend arises from the potential liability to pay based on the facts as they appear at
the outset of the case.” Id. (citing McCormack, 989 S.W.2d at 170). On the other hand, “[t]he
duty to indemnify is determined by the facts as they are established at trial or as they are finally
determined by some other means, for example through summary judgment or settlement.”
McCormack, 989 S.W.2d at 173. If relevant evidence adduced at trial contradicts or adds facts
necessarily indicating the absence of coverage, then the insurer has no duty to indemnify the
insured. Arch Ins., 475 S.W.3d at 734.
Here, the trial court entered partial summary judgment finding that Union had a duty to
defend. It found, however, that the summary judgment record was insufficient on the question of
Union’s duty to indemnify and conducted a bench trial on that issue (along with damages).
Union does not challenge or dispute the trial court’s findings of fact supporting the existence of
22
coverage under the Policy and the duty to indemnify in these points. Its only argument is that
because it did not have a duty to defend as argued in points one and two above, it did not have a
duty to indemnify. As discussed above, however, the trial court did not err in granting partial
summary judgment finding that Union had a duty to defend, therefore, Union’s arguments in
points three and four regarding its duty to indemnify are meritless.
Points three and four of Union’s cross-appeal are denied.
In an alternative argument to points three and four, Union contends in point five that the
trial court erred in entering judgment against it to indemnify for the settlement reached in the
Underlying Suit because the exclusions for Infringement of Copyright, Patent, Trademark, or
Trade Secret and Access or Disclosure of Confidential or Personal Information applied to the
entire settlement. Specifically, it argues that even if it had a duty to defend, the trial court
misapplied the law in finding that it had a duty to indemnify because all of the damages claimed,
including any for disparagement, violation of privacy, and use of advertising ideas, were
interdependent and caused by the Sprint Lumber Parties’ unlawful misappropriation and access
and disclosure of confidential and private company information, customer contacts, lists, and
trade secrets, which were excluded from coverage for “personal and advertising injury” by the
exclusions.
Sufficient evidence at trial established Union’s duty to indemnify. Specifically, the
evidence demonstrated that the Sprint Lumber Parties conspired to breach their duty of loyalty
and to tortiously interfere with Porters’s customer relationships by disparaging Porters and that
Porters’s damages from that conduct was independently sufficient to support coverage for the
entire $775,000 settlement paid to Porters to settle the Underlying Suit.
23
Former Porters employees, Downey, Reynolds, and Hidgon, testified at the bench trial.
Before leaving Porters, Downey was the manager of its Elwood, Kansas location, and Reynolds
and Higdon were salespeople at the location working with building contractors. They testified
that they became dissatisfied with Alex Porter, the owner’s son, when he took over the business,
specifically the manner in which he was running the business and the direction he wanted to take
it, leaning to the retail side. They stated that before they left their employment with Porters to go
to work for Sprint Lumber in the spring of 2016, they contacted their customers in person or by
email about moving their business to Sprint Lumber and gave them credit applications for Sprint
Lumber. They told their customers that they believed Sprint Lumber was a better opportunity for
themselves and their customers and that they would be able to service or take care of them better
at Sprint Lumber because Sprint Lumber was more contractor-oriented. While such statements
merely compared Sprint Lumber’s service to Porters’s service, other statements by Downey,
Reynolds, and Higdon to customers disparaged Porters. For instance, their solicitation of
Porters’s customers included criticisms about Porters’s management and its decision about
services. It also included criticism about Porters’s ability to service its contractor customers and
to stay in business once Downey, Reynolds, and Higdon left Porters. Downey specifically told
one customer that Porters’s owner and his son were “not capable” of running the Elwood
location without them. All testified that they understood what they were saying to the customers
was disparaging to Porters. Reynolds testified that he knew that sending his customers credit
applications for Sprint Lumber while working for Porters could cause the customers to view
Porters negatively. The testimony of Downey, Reynolds, and Higdon demonstrated that their
statements to Porters’s customers while still employed at Porters (and after) disparaged Porters’s
service.
24
Additionally, the settlement agreement between the Sprint Lumber Parties and Porters
from the Underlying Suit, admitted into evidence at the bench trial, further established Union’s
duty to indemnify the Sprint Lumber Parties for their settlement with Porters for their conspiracy
to breach the duty of loyalty and to interfere with Porters’s customer relationships by disparaging
Porters. The Settlement Agreement contained a section entitled “Basis for Settlement,” which
provided, in pertinent part:
This AGREEMENT and the amount the DEFENDANT SETTLING
PARTIES (defined below) are paying in accordance with this AGREEMENT are
based upon the following claims and allegations by PORTERS any or more of
which, acting independently, gave rise to this AGREEMENT and the total amount
paid under this AGREEMENT:
(1) That DOWNEY, HIGDON, REYNOLDS, and MENG, with the
cooperation, aid and encouragement of SPRINT and LADEROUTE, tortiously
interfered with the relationships PORTERS had with its customers, including
thirty-one specifically identified customers, by disparaging PORTERS’ goods,
products and services so as to cause the customers to lose goodwill for PORTERS
and to either terminate their relationship with PORTERS or significantly reduce
purchases from PORTERS;
(2) That DOWNEY, HIGDON, REYNOLDS, and MENG, with the
cooperation, aid and encouragement of SPRINT and LADEROUTE, breached
their duty of loyalty to PORTERS by disparaging PORTERS’ goods, products and
services so as to cause PORTERS’ customers to lose goodwill for PORTERS and
to either terminate their relationship with PORTERS or significantly reduce
purchases from PORTERS;
The agreement included two additional bases for the settlement—Sprint Lumber Parties’ breach
of their duty of loyalty to Porters by providing Sprint Lumber and Lauderoute with Porters’s
confidential advertising ideas and by communicating to Sprint Lumber and Lauderoute
confidential and trade secret information in which Porters had a right to privacy. The settlement
agreement clearly provided that each of the bases was independent and distinct and that each, on
its own, supported the total amount paid under the settlement.
25
In Missouri, “[w]here one is bound to protect another from liability, [it] is bound by the
result of the litigation to which such other is a party, provided [it] had opportunity to control and
manage it.” Schmitz v. Great Am. Assurance Co., 337 S.W.3d 700, 709 (Mo. banc 2011) (internal
quotes and citation omitted). “Once an insurer unjustifiably refuses to defend or provide
coverage, the insured may, without the insurer’s consent, enter an agreement with the plaintiff to
limit its liability to its insurance policies.” Id. at 710. “The insurer cannot have its cake and eat
it too by both refusing coverage and at the same time continuing to control the terms of
settlement in defense of an action it had refused to defend.” Id. (internal quotes and citation
omitted).
After Union refused to defend the Sprint Lumber Parties and pay Porters’s settlement
demand, they were free to, and did, execute a settlement agreement with Porters. Each admitted
that the settlement was based in part on the claims and allegations regarding their disparagement
of Porters’s goods, product, and services. The trial court made several findings of fact about the
settlement agreement that Union does not challenge on appeal. It found that the Policy provided
coverage for each of the stated bases for the agreement. It found that the parties to the settlement
agreement were all represented by counsel in the Underlying Suit who were familiar with the
facts of that case and the risks of proceeding to trial. It found that the settlement agreement was
not the product of collusion between the parties to the agreement, and the agreement was
reasonable. Finally, it found that “[t]he allocation set forth in the ‘Basis for Settlement’ portion
of the settlement agreement is reasonable and is supported by the facts of [the Sprint Lumber
Parties’] conduct.” The settlement agreement and the admissions of the Sprint Lumber Parties
therein further established Union’s duty to indemnify. See Kirk King, King Constr., Inc. v. Cont’l
W. Ins. Co., 123 S.W.3d 259, 266 (Mo. App. W.D. 2003) (settlement agreement between
26
underlying plaintiff and insured requiring insured to pay damages for building a home in
violation of underlying plaintiff’s copyright, which was committed as part of the insured’s
advertising, established insurer’s duty to indemnify under advertising injury coverage of
insurance policy).
In making its argument under this point, Union does not challenge the evidentiary record
from the bench trial. “The duty to indemnify is determined by the facts as they are established at
trial or as they are finally determined by some other means, for example through summary
judgment or settlement.” McCormack, 989 S.W.2d at 173. Union argues, “If Downey, Higdon,
and Reynolds ‘disparaged’ Porters’s products, goods, and services…they did so by using
protected, confidential information and trade secrets in soliciting customers whose identity was
also protected and confidential. These facts fall squarely within the Union policy’s access or
disclosure or confidential and personal information and the infringement of trade secret
exclusions.” It further argues that “all of the damages claimed by Porters were traceable to and
caused by the wrongful acts of its former employees in taking and misappropriating confidential
and protected private company information, customer contacts, lists and trade secrets.” Union,
however, provides no evidentiary support for its argument. Instead, the evidence at trial revealed
that Downey, Higdon, and Reynolds had long-term relationships with their customers and knew
their identities and how to contact them without resorting to Porters’s customers lists or other
information. Union does not cite to any evidence establishing that the customer identities and
contact information were confidential or trade secrets or that Downey, Higdon, and Reynolds
actually used Porters’s information or trade secrets to disparage Porters.
As explained in point two above, the concurrent proximate cause rule supported the trial
court’s judgment even if the exclusions at issue applied to exclude coverage for Porters’s
27
injuries, which we need not decide. The exclusions do not exclude coverage for injuries caused
by the disparagement of Porters’s goods, products, or services. Even if the exclusions operated
to exclude coverage for the disclosure and use of trade secrets or confidential information,
coverage still existed for the disparagement, an independent and distinct cause. Adams v. Certain
Underwriters at Lloyd’s of London, 589 S.W.3d 15, 29 (Mo. App. E.D. 2019). The trial court did
not err in entering judgment against Union to indemnify the settlement reached in the Underlying
Suit.
Point five of Union’s cross-appeal is denied.
SPRINT LUMBER PARTIES’ APPEAL
The Sprint Lumber Parties raise three points on appeal. In their first point, they challenge
the trial court’s grant of summary judgment in favor of Union on Count III of their second
amended petition claiming breach of fiduciary duty. In point two, the Sprint Lumber Parties
challenge the trial court’s calculation of the statutory penalty for Union’s violation of sections
375.296 and 375.420, RSMo 2016. Finally, in point three, they challenge the trial court’s
calculation of damages for Union’s breach of its duty to defend.
Summary Judgment on Breach of Fiduciary Duty Claim
In their first point on appeal, the Sprint Lumber Parties contend that the trial court erred
in granting summary judgment in favor of Union on Count III of their second amended petition
for breach of fiduciary duty. They argue that there are genuine issues of material fact and Union
was not entitled to judgment as a matter of law because (1) a liability insurer’s undertaking to
defend an insured is not a condition precedent or a prerequisite to the existence of fiduciary
duties on the part of the insurer; (2) Union had a fiduciary relationship with the Sprint Lumber
Parties that began when the Policy was issued; and (3) the labeling of Count III is not
28
determinative and the facts alleged support a claim for bad faith failure to defend and bad faith
failure to settle and Union did not establish that it was entitled to summary judgment on those
viable theories.6
As noted above, appellate review of the grant of summary judgment is de novo. Green,
606 S.W.3d at 115. Summary judgment is proper if the movant is entitled to judgment as a
matter of law and no genuine issues of material fact exist. Id.
An insurer may commit an actionable breach of fiduciary duty even if it fails to fulfill its
contractual obligation to assume an insured’s defense. Thus, in Shobe v. Kelly, 279 S.W.3d 203,
208 (Mo. App. W.D. 2009), an insured sued the insurer for bad faith failure to settle. Under that
tort, an insurer under a liability policy has a fiduciary duty to its insured to evaluate and negotiate
third-party claims in good faith. Id. at 209. Where the insurer wrongfully breaches this duty and
refuses to settle within policy limits, the insurer may be held liable for resulting losses to the
insured. Id. The insurer in Shobe never provided a defense to the insured, even under a
reservation of rights. Id. at 210. This court found that if an insurer wrongly denies coverage,
denies even a defense under a reservation of rights, and then completely refuses to engage in
settlement negotiations, it cannot avoid liability for bad faith failure to settle by its wrongful
refusal to assume control of the proceedings. Id. at 211. Other decisions similarly recognize that
a claim for bad faith failure to settle derives from the fiduciary duty created by the insurer’s right
6
Although the Sprint Lumber Parties contend in their point relied on that there are material facts in dispute, they do
not identify any in their argument. The only citation to the record they make is to their second amended petition.
Additionally, the reasons cited in their point relied on are legal, not factual. As there are no issues of fact in dispute,
the only issue for review is whether Union was entitled to judgment as a matter of law.
29
to control the defense or settlement of claims against the insured.7
Count III of the Sprint Lumber Parties’ petition alleged that Union had breached its
fiduciary duties by failing to act in good faith to defend and settle claims against the Sprint
Lumber Parties. Even if the Sprint Lumber Parties were wrong to label Count III as a claim for
breach of fiduciary duty, the label they placed on the claim would not be controlling.
“[T]he rule is well established in Missouri that the character of a cause of action is
determined from the facts stated in the petition and not by the prayer or name given the action by
the pleader.” Am. Eagle Waste Indus., LLC v. St. Louis Co., 379 S.W.3d 813, 829 (Mo. banc
2012) (internal quotes and citation omitted). To determine the cause of action, the facts stated in
the petition along with the relief sought are considered rather than the form of the petition. Id.“To be deemed sufficient, a petition need not even label the theory upon which a plaintiff seeks
recovery.” Id. The question, therefore, is did the Sprint Lumber Parties’ petition invoke claims
of bad faith failure to defend and to settle and inform Union of what they would attempt to
establish at trial. Id.7
An insurer’s right to control settlement and litigation under a liability insurance policy creates a
fiduciary relationship between insurer and insured. Thus, an insurer owes a duty to exercise good
faith in evaluating and negotiating third-party claims against its insured, and the insurer may be
held liable in tort for a third-party judgment in excess of policy limits if it fails to perform its
fiduciary obligation in good faith. It is the existence of this fiduciary relationship between insurer
and insured, aside from insurer’s subsisting implied covenant of good faith and fair dealing under
the insurance policy, that exposes an insurer to tort liability for failing to exercise good faith in
evaluating and negotiating third-party claims against an insured.
Freeman v. Leader Nat’l Ins. Co., 58 S.W.3d 590, 598 (Mo. App. E.D. 2001) (citing Duncan v. Andrew
Cnty. Mut. Ins. Co., 665 S.W.2d 13, 18 (Mo. App. W.D.1983)). See also Rock Port Market, Inc. v.
Affiliated Foods Midwest Coop., Inc., 532 S.W.3d 180, 188-89 (Mo. App. W.D. 2017) (tort of bad faith
failure to settle arises where policy gives insurer “the absolute authority to evaluate and settle third-
party claims against the insured,” and the insured is accordingly “subservient to the dominance of
the insurer to settle a third-party claim”); Dairy Farmers of Am., Inc. v. Travelers Ins. Co., 292 F.3d
567, 573 (8th Cir. 2002) (Missouri law).
30
An insurer’s wrongful failure to defend constitutes a breach of contract. Adams v.
Certain Underwriters at Lloyd’s of London, 589 S.W.3d 15, 38 (Mo. App. E.D. 2019). If an
insurer wrongfully refuses to defend, it is liable to the limits of its policy plus attorney fees,
expenses and other damages. Allen v. Bryers, 512 S.W.3d 17, 38 (Mo. banc 2016). “This is true
even though the company acts in good faith and has reasonable grounds to believe there is no
coverage under the policy.” Id. at 38-39 (internal quotes and citation omitted). However, if an
insurer acts in bad faith in refusing to defend, it is liable for the entire amount of an underlying
judgment beyond policy limits. Id. (noting that in Columbia Casualty Company v. HIAR
Holding, L.L.C., 411 S.W.3d 258 (Mo. banc 2013), “because the insurer acted in bad faith for
refusing both to defend and to settle, the insurer was liable for the entire amount of the judgment
beyond the policy limits.”).
In addition to a duty to defend, inherent in an insurance policy is the insurer’s obligation
to act in good faith regarding the settlement of a claim. Advantage Bldgs. & Exteriors, Inc. v.
Mid-Continent Cas. Co., 449 S.W.3d 16, 24-25 (Mo. App. W.D. 2014). “A claim for bad-faith
failure to settle ‘is a tort action based on the insurer’s failure to protect the interests of its
insured.’” Id. (quoting Shobe, 279 S.W.3d at 212). Its elements are:
(1) the liability insurer has assumed control over negotiation, settlement, and legal
proceedings brought against the insured; (2) the insured has demanded that the
insurer settle the claim brought against the insured; (3) the insurer refuses to settle
the claim within the liability limits of the policy; and (4) in so refusing, the insurer
acts in bad faith, rather than negligently.
Id. at 25 (internal quotes and citation omitted). But as discussed above, where an insurer
wrongly denies coverage, refuses to defend, and then refuses to engage in settlement
negotiations, an insurer cannot avoid liability for bad faith failure to settle by its wrongful refusal
to assume control of the proceedings. Shobe, 279 S.W.3d at 211. See also Truck Ins. Exch. v.
31
Prairie Framing, LLC, 162 S.W.3d 64, 94 (Mo. App. W.D. 2005) (The “obligation to act in good
faith regarding settlement continues even if an insurer denies coverage and refuses to defend the
insured.”).
Bad faith requires more than erroneous denial of coverage. Bryers, 512 S.W.3d at 39;
Shobe, 279 S.W.3d at 211-12. Bad faith is “the intentional disregard of the financial interest of
the insured in the hope of escaping the responsibility imposed upon the insurer by its policy.”
Allen, 512 S.W.3d at 39 (internal quotes and citation omitted). An insurer cannot protect its
interests to the detriment of the insured’s but must sacrifice its interests in favor of those of the
insured. Advantage Bldgs., 449 S.W.3d at 25. Examples of bad faith include failing to
investigate fully a third-party claimant’s injuries or recognize their severity; ignoring that a
verdict could exceed policy limits; refusing to consider a settlement offer; and not keeping an
insured informed of settlement offers or the risks of an excess judgment. Bryers, 512 S.W.3d at
39; Shobe, 279 S.W.3d at 211. “Limiting an investigation to the question of coverage, then
standing on a denial without considering the interests of an insured also shows bad faith.”
Shobe, 279 S.W.3d at 211.
The Sprint Lumber Parties’ second amended petition against Union asserted facts that
supported claims for bad faith failure to defend and bad faith failure to settle. It alleged facts
showing coverage under the Policy. It alleged that Union had an exclusive right to defend the
Sprint Lumber Parties and to settle a claim. It alleged that Union repeatedly failed to investigate
the claim and that it repeatedly refused to defend the Sprint Lumber Parties. It alleged that
Union offered to defend under a reservation of rights at a later date, which the Sprint Lumber
Parties rejected. It alleged that Porters submitted a settlement demand, that the Sprint Lumber
Parties asked Union to pay the demand, that Union refused to do so, and that the Sprint Lumber
32
Parties were forced to enter into a settlement agreement with Porters to eliminate their financial
risks. Count III, which incorporated the above allegations, specifically alleged that Union’s
refusal to defend the Sprint Lumber Parties in the Underlying Suit and to pay Porters to settle
was “without reasonable and sufficient justification, was in bad faith and was vexatious.” It
alleged that Union placed its financial interests above those of the Sprint Lumber Parties.
Finally, it alleged that Union acted with reckless indifference to and conscious disregard of the
Sprint Lumber Parties’ rights.
Union’s summary judgment pleadings regarding Count III did not demonstrate that the
Sprint Lumber Parties’ allegations were without factual support or that there was no genuine
issue of material fact as to whether Union acted in bad faith in refusing to defend and to settle.
In fact, after the bench trial, the trial court made findings of fact regarding Union’s bad faith,
including that Union’s investigation was wholly inadequate and cursory, that its investigation
was limited to a review of Porters’s pleadings and the policy and started with a presumption of
no coverage, and that Union’s attitude in handling the claim was vexatious, recalcitrant, and
without reasonable cause or excuse from the time the claim was opened through trial.
The Sprint Lumber Parties’ second amended petition supported claims for bad faith
failure to defend and failure to settle. Union failed to show that there were no genuine issues of
material fact and that it was entitled to judgment as a matter of law on those viable theories. The
trial court, therefore, erred in granting summary judgment in favor of Union on Count III of the
Sprint Lumber Parties’ second amended petition. The summary judgment on Count III is
reversed, and the case is remanded to the trial court for further proceedings on the Sprint Lumber
Parties’ claims for bad faith failure to defend and to settle.
Point one of the Sprint Lumber Parties’ appeal is granted.
33
Statutory Penalty for Vexatious Refusal to Pay
In point two, the Sprint Lumber Parties contend that the trial court erred in calculating the
statutory penalty for Union’s violation of sections 375.296 and 375.420, RSMo 2016. They
argue that the trial court erroneously declared or applied the law in determining that the “amount
of loss” from which the statutory penalty was calculated included only the settlement amount of
$775,000 and not the attorney fees and expenses paid by Sprint Lumber and Lauderoute to
defend the Sprint Lumber Parties in the Underlying Suit.
In its judgment, the trial court stated:
The Court concludes that Sprint Lumber and Laderoute are jointly entitled to
$77,500 from [Union] as a penalty under the vexatious refusal statutes for
[Union’s] failure to pay Sprint Lumber and Laderoute the $775,000 paid to
Porters to settle the Underlying Suit. While the Court believes the entirety of
[Union’s] conduct was vexatious, including their failure to defend, the Court
believes it is constrained by Missouri law to limit its application of the penalty to
only the amount of the settlement. In addition, under the vexatious refusal
statutes, Sprint Lumber and Laderoute are entitled to reasonable attorney fees
from [Union] in the amount of $193,841, which have been incurred in pursuing
the above-captioned case.
“Sections 375.296 and 375.420 allow penalties to be assessed against an insurer when it
refuses to make payment, upon demand and in accordance with the policy, vexatiously, willfully
and without reasonable cause.” Nooter Corp. v. Allianz Underwriters Ins. Co., 536 S.W.3d 251,
294 (Mo. App. E.D. 2017) (internal quotes and citation omitted). Section 375.296 provides:
In any action, suit or other proceeding instituted against any insurance company,
association or other insurer upon any contract of insurance issued or delivered in
this state to a resident of this state, or to a corporation incorporated in or
authorized to do business in this state, if the insurer has failed or refused for a
period of thirty days after due demand thereof prior to the institution of the action,
suit or proceeding, to make payment under and in accordance with the terms and
provisions of the contract of insurance, and it shall appear from the evidence that
the refusal was vexatious and without reasonable cause, the court or jury may, in
addition to the amount due under the provisions of the contract of insurance and
interest therein, allow the plaintiff damages for vexatious refusal to pay and
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attorney’s fees as provided in section 375.420. Failure of an insurer to appear and
defend any action, suit or other proceeding shall be deemed prima facie evidence
that its failure to make payment was vexatious without reasonable cause.
Section 375.420 provides:
In any action against any insurance company to recover the amount of any loss
under a policy of automobile, fire, cyclone, lightning, life, health, accident,
employers’ liability, burglary, theft, embezzlement, fidelity, indemnity, marine or
other insurance except automobile liability insurance, if it appears from the
evidence that such company has refused to pay such loss without reasonable cause
or excuse, the court or jury may, in addition to the amount thereof and interest,
allow the plaintiff damages not to exceed twenty percent of the first fifteen
hundred dollars of loss, and ten percent of the amount of the loss in excess of
fifteen hundred dollars and a reasonable attorney’s fee; and the court shall enter
judgment for the aggregate sum found in the verdict.
Courts construe Section 375.420 permitting penalties against an insurer for its vexatious refusal
to pay strictly, because it is penal in nature. Thornburgh Insulation, Inc. v. J.W. Terrill, Inc., 236
S.W.3d 651, 657 (Mo. App. E.D. 2007). See also Legg v. Certain Underwriters at Lloyd’s of
London, 18 S.W.3d 379, 387 (Mo. App. W.D. 1999); State ex rel. Webb v. Hartford Cas. Ins. Co.,
956 S.W.2d 272, 276 (Mo. App. W.D. 1997).
The Sprint Lumber Parties argue that that the “amount of loss,” from which the statutory
penalty is calculated, should not only include the loss Union was obligated to indemnify, but also
include the measure of damages the Sprint Lumber Parties are entitled due to Union’s breach of
its duty to defend. Specifically, they assert that the “loss” used to calculate the penalty includes
not only the settlement amount for Porters’s losses, but also includes the Sprint Lumber Parties’
damages resulting from Union’s breach of its duty to defend, including their attorney fees and
expenses to defend the Underlying Suit.
The plain language of section 375.420, however, defies such interpretation. In the
statute, “loss” is modified or described by the adjective prepositional phrase “under a policy.”
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Loss under an insurance policy is that for which the policy insures or covers. Third-party
indemnity coverage, such as in this case, “insures the insured’s liability for losses which third
parties suffer on account of the insured’s actions.” Truman Med. Ctr., Inc. v. Progressive Cas.
Ins. Co., 597 S.W.3d 362, 368 (Mo. App. W.D. 2020). In this case, Coverage B of the Policy
provided coverage for personal and advertising injury liability: “We will pay those sums that the
insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’
to which this insurance applies.” Per the settlement agreement, the Sprint Lumber Parties
became legally obligated to pay $775,000 as damages for losses suffered by Porters for personal
and advertising injury. In turn, Union was obligated under its coverage to indemnify The Sprint
Lumber Parties for those losses suffered by Porters.
Sections 375.296 and 375.420 impose the penalty where an insurer vexatiously refuses to
pay its own first party insured’s casualty losses; and also where (as in this matter) an insurer
vexatiously refuses to pay the third party loss it was obligated to pay (for its insured) under a
policy of indemnity. In either instance, the “loss” upon which the penalty is measured is the
“loss” which is covered “under the policy.” § 375.420. Sprint conflates the indemnity insurer’s
obligation to pay covered losses (under its policy of indemnity) with its obligation to provide a
defense (and the resulting damages it may be obligated to pay its insured because it violated its
duty to provide a defense). The triggering event for the penalty is vexatious refusal “to make
payment” under Section 375.296—not a breach of other duties (like the duty to defend).
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Similarly, in Section 375.420, it is the insurer’s “refus[al] to pay such loss without reasonable
cause or excuse” that allows the court or jury to assess the penalty—not the failure to defend.8
The trial court did not erroneously declare or apply the law in determining that the
“amount of loss” from which the statutory penalty was calculated for vexatious refusal to pay
included only the settlement amount of $775,000 (for Porters’s losses) and not the attorney fees
and expenses paid by Sprint Lumber and Lauderoute to defend the Sprint Lumber Parties in the
Underlying Suit.
Point two of the Sprint Lumber Parties’ appeal is denied.
Damages for Breach of Duty to Defend
In their final point on appeal, the Sprint Lumber Parties contend that the trial court erred
in calculating damages recoverable from Union’s breach of the duty to defend. They argue that
the trial court erroneously declared or applied the law in only awarding Sprint Lumber and
Lauderoute damages for attorney fees and expenses incurred for legal work done after June 13,
2016, the date of Union’s first disclaimer letter. They assert that Sprint Lumber and Lauderoute
were entitled to recover all the attorney fees and expenses they paid to defend the Sprint Lumber
Parties against the Underlying Suit, including an additional $19,000.44 in attorney fees and
expenses they paid for work done from May 9, 2016 to June 13, 2016.
Where an insurance company refuses to defend an insured who is in fact covered, it is
liable to the limits of its policy plus attorney fees, expenses, and other damages incurred in
defending the underlying action. Allen v. Bryers, 512 S.W.3d 17, 38 (Mo. banc 2016); Landie v.
8
Even if the word “loss” in section 375.420 could also be interpreted expansively to include the damages the Sprint
Lumber Parties suffered as a result of Union’s failure to defend, the fact that section 375.420 is a penal statute,
which must be interpreted strictly, would require us to adopt the narrower interpretation discussed in the text.
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Century Indem. Co., 390 S.W.2d 558, 562 (Mo. App. 1965). An insurer, however, has no duty to
pay for fees incurred prior to the insured’s demand for coverage. Monsanto Co. v. Gould Elecs.,
Inc., 965 S.W.2d 314, 318 (Mo. App. E.D. 1998) (“indemnitee has the right to recover attorney’s
fees reasonably incurred in the defense of a claim, provided the indemnitor has notice of the law
suit and an opportunity to defend.”). See also Cincinnati Ins. Co. v. Mo. Highways & Transp.
Comm’n, No. 4:12-cv-01484-NKL, 2014 WL 7330980, *1 (W.D. Mo. Dec. 19, 2014) (applying
Missouri law, insurer must compensate insured for its attorney fees incurred in defense of
underlying action against insured from the date insured tendered demand for defense).
The Sprint Lumber Parties gave Union notice of its claim on May 17, 2016. Sprint
Lumber and Laderoute were entitled to reasonable attorney fees and expenses they incurred to
defend the Sprint Lumber Parties in the Underlying Suit from that date. The trial court erred in
limiting its award for Sprint Lumber’s and Laderoute’s damages for attorney fees and expenses
incurred to legal work done after June 13, 2016 (the date of Union’s first disclaimer letter). That
part of the trial court’s judgment is reversed, and the case is remanded to the trial court to award
reasonable attorney fees and expenses incurred by Sprint Lumber and Laderoute in defending the
Sprint Lumber Parties in the Underlying Suit from May 17, 2016 (the date Union was notified of
the claim for coverage).
Point three of the Sprint Lumber Parties’ appeal is granted.
ATTORNEY FEES ON APPEAL
Before submission of this case, the Sprint Lumber Parties filed a motion for attorney fees
on appeal with this court under sections 375.296 and 375.420. The motion was taken with the
case.
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Under this court’s Special Rule 29, a party may file a motion for attorneys’ fees on appeal
“pursuant to contract, statute or otherwise.” A court may award reasonable attorney fees where
an insured prevails against an insurance company for vexatious refusal to pay under section
375.420. Nooter Corp. v. Allianz Underwriters Ins. Co., 536 S.W.3d 251, 300 (Mo. App. E.D.
2017). This includes appeals involving claims of an insurer’s vexatious refusal to pay. Id.“[R]efusing to compensate an attorney for time reasonably spent on appellate work defending the
judgment below would be inconsistent with the legislative intent to provide for recovery of said
fees.” Merseal v. Farm Bureau Town & Country Ins. Co., 396 S.W.3d 467, 475 (Mo. App. E.D.
2013).
Union’s denial of the Sprint Lumber Parties’ claim and its position in the proceeding
below were based on its argument that it did not have a duty to defend or indemnify the Sprint
Lumber Parties for the Underlying Suit under the Policy. The trial court found against Union on
these issues and further concluded, “Union’s handling of the claim at issue, and its refusal to pay
Sprint Lumber and Laderoute the amount they paid to Porters to settle the Underlying Suit, is
vexatious and without reasonable cause or excuse….Union’s attitude, at all relevant times, has
been vexatious and recalcitrant.”
Both parties appealed in this case. In Union’s appeal, it continues to deny a duty to
defend or indemnify. It does not directly challenge the trial court’s determination that it acted
vexatiously and without reasonable cause or excuse. In denying that the Sprint Lumber Parties
are entitled to attorney fees on appeal under section 375.420, Union continues to argue that there
was never a duty to defend or indemnify and thus no claim for vexatious refusal to pay.
“The entitlement to attorneys’ fees on appeal stands upon the same ground as that at the
trial court level.” Stark Liquidation Co. v. Florists’ Mut. Ins. Co., 243 S.W.3d 385, 402 (Mo.
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App. E.D. 2007) (internal quotes and citation omitted). Because we affirm the trial court’s
judgment ruling in favor of the Sprint Lumber Parties on their action against Union to recover
the amount of their loss under the Policy (the $775,000 settlement with Porters) under section
375.420, the Sprint Lumber Parties’ request for attorney fees on appeal is granted. “While
appellate courts have the authority to allow and fix the amount of attorney’s fees on appeal, we
exercise this power with caution, believing in most cases that the trial court is better equipped to
hear evidence and argument on this issue and determine the reasonableness of the fee requested.”
Berry v. Volkswagen Grp. of Am., Inc., 397 S.W.3d 425, 433 (Mo. banc 2013) (internal quotes
and citation omitted). The case is remanded, therefore, to the trial court to award reasonable
attorney fees to the Sprint Lumber Parties for their defense of Union’s appeal.
CONCLUSION
The trial court’s partial summary judgment in favor of the Sprint Lumber Parties finding
Union had a duty to defend and its judgment against Union to indemnify the Sprint Lumber
Parties is affirmed, except that its award of attorney fees and expenses for Union’s breach of its
duty to defend is reversed and remanded. The trial court’s summary judgment in favor of Union
on the Sprint Lumber Parties’ Count III of their second amended petition is reversed. The case is
remanded to the trial court for further proceedings consistent with this opinion and to award
attorney fees to the Sprint Lumber Parties for their defense of Union’s appeal. The judgment is
affirmed in all other respects.
/s/ Thomas N. Chapman
Thomas N. Chapman, Judge
All concur.
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