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On January 12th, 2021, the Missouri Court of Appeals affirmed a trial court ruling against Liberty Insurance Corporation, finding it liable for the $7.5 million remaining balance of a wrongful death judgment. The case provides important lessons for insurers on how to avoid being bound to substantial judgments against their insureds, even where viable policy exclusions exist.

Based upon the current state of Missouri law, insurers in the state will continue to face almost unlimited liability in claims where they choose not to immediately address coverage issues. 

How can an insurer avoid the pitfalls found in this case and other complex claims? Rasmussen Dickey Moore has extensive insurance law experience, providing analysis of coverage issues and counseling insurers in litigation matters. RDM represents multiple national insurance providers. RDM takes sophisticated, strategic, innovative, and detail-oriented approaches to each of our clients’ cases.

Geiler v. Liberty Insurance Corp.: The Facts

Geiler v. Liberty Insurance Corp. arises from an automobile accident on September 26th, 2015. Richard Geiler was killed after being ejected from a vehicle owned by Sharpe Holdings, Inc. and driven by a Sharpe employee. At the time of the accident, Geiler was participating in a rehabilitation program operated by CNS International Ministries, Inc., which required Geiler to work at a dairy farm operated by Sharpe as part of its “Work Dynamic” program.

Geiler’s family filed a wrongful death suit against CNS and Sharpe in May of 2016. The suit alleged negligence on the part of CNS and Sharpe which caused Geiler’s fatal injury. Sharpe subsequently tendered the complaint to its two insurers, Starr Indemnity & Liability Company and Liberty Insurance Corporation.

At the date of the occurrence, Starr insured Sharpe under a workers’ compensation and employer’s liability insurance policy. Sharpe was insured by Liberty under an umbrella policy, which provided that Liberty would pay sums arising from bodily injury in excess of the “retained limit.” The Liberty Policy would cover amounts over the limits of the insured’s other insurance, not to exceed the coverage limit of $10 million. The Liberty Policy excluded coverage for “Employer’s Liability,” however, “if the bodily injury…[was] covered by underlying insurance.”

On July 12th, 2016, Liberty denied coverage without a reservation of rights. Liberty informed Sharpe that it would not be participating in the defense of the claim and would not indemnify Sharpe under the policy. Following the denial of coverage by Liberty, Plaintiffs and Sharpe appear to have entered into a “Mary Carter” agreement. Plaintiffs agreed to limit their recovery against Sharpe to the policy limits of the Starr Policy while preserving their right to seek an excess judgment against Liberty.

At a bench trial in the underlying case on August 18, 2017, the trial court found in favor of the Plaintiffs in the amount of $9.5 million. The court found that Geiler was an employee of Sharpe at the time of the accident, being “exclusively involved in the ongoing dairy farm operations,” but that Geiler was not an employee of Sharpe within the scope of the Missouri Workers’ Compensation Law. Following the judgment, Plaintiffs filed a partial satisfaction of judgment in the amount of $2 million, reflecting the payment of the policy limits under the Starr Policy.

Plaintiffs then filed an equitable garnishment action against Liberty to collect the remainder of the judgment, $7.5 million. Liberty defended the garnishment suit. First, Liberty filed a third-party petition against Starr for equitable subrogation, breach of contract, and negligence. Liberty then sought discovery from Plaintiffs. The trial court ultimately held that it would not compel Plaintiffs to respond to discovery, as “Liberty had wrongfully failed to defend Sharpe and that it was [therefore] bound by the [underlying judgment].” All three parties—Plaintiffs, Starr, and Liberty—then each filed Motions for Summary Judgment, and the trial court granted those motions filed by Plaintiffs and Starr. Liberty appealed.

Liberty raised several issues on appeal, most notably that the underlying judgment was “void” for want of subject matter jurisdiction. Liberty also contended that it was entitled to summary judgment in its favor because coverage was excluded under the facts established at the bench trial.

Case Analysis

Was this a Workers’ Comp claim?

The heart of Liberty’s defense on appeal was that the underlying accident was a workers’ compensation issue, not a standard negligence case. In other words, Liberty argued that its denial of the defense of Sharpe was proper: the underlying judgment was “void” because it should have been filed as a workers’ compensation claim and the trial court simply did not have subject matter jurisdiction over the claim. The Court of Appeals found Liberty’s arguments misplaced.

The Court of Appeals held that a judgment may only be collaterally attacked—a challenge through a separate lawsuit, as opposed to a direct appeal in the original suit—only where the underlying judgment is void. A judgment is generally not void where the trial court possessed both personal jurisdiction over the defendants and subject matter jurisdiction over the claims. The Court of Appeals found that the trial court in Geiler had both.

Liberty’s contention that the trial court lacked subject matter jurisdiction was based on the exclusive remedy provisions of Missouri’s Workers’ Compensation Law. Under the law, the workers’ compensation system is the sole remedy for employees seeking damages for injuries sustained in the course of their employment. Employees are not generally permitted to sue their employer in a civil action for damages arising from bodily injury. Liberty’s point, therefore, was that Geiler, as an employee of Sharpe, was required to have his claim litigated within the state’s workers’ compensation system, not the trial courts.

Subject Matter Jurisdiction or Statutory Authority?

The Court of Appeals noted that while Liberty’s contention was conceivably correct, it confused subject matter jurisdiction with statutory authority. The Missouri Constitution, the Court of Appeals noted, held that circuit courts have “have original jurisdiction over all cases and matters, civil and criminal.” Although the trial court in the instant matter may have lacked the statutory authority to grant the relief requested (assuming Liberty’s position was correct), the court did not lack subject matter jurisdiction over the claim.

When should Liberty have challenged these issues?

Ultimately, instead of sitting out the underlying claim and collaterally attacking the judgment in a separate proceeding, Liberty was required to appear in the underlying wrongful death lawsuit and plead the workers’ compensation exclusive remedy argument as an affirmative defense. The Court of Appeals would not permit Liberty to relitigate issues now that would have been raised in the earlier case. As the trial court did not lack subject matter jurisdiction (or personal jurisdiction over Liberty), the underlying judgment could not be collaterally attacked, and Liberty’s argument necessarily failed.

The other major argument that Liberty presented on appeal was that its motion for summary judgment should have been granted because the trial court in the underlying wrongful death suit concluded that Geiler’s injuries arose out of the operations and/or work of CNS, a defendant that Liberty did not insure. 

The problem for Liberty, the Court of Appeals noted, was that it failed to properly challenge this issue at the trial level. In their “Further Statement of Additional Uncontroverted Material Facts,” Plaintiffs asserted that “[a]t the time of the fatal injury…Geiler was not involved in the ongoing operations of non-party [CNS]…or any other related or affiliated entity.” In defending against Plaintiffs’ motion for summary judgment, Liberty was required to respond to this material fact by either admitting or denying the statement, but Liberty failed to do so. Therefore, it could not now challenge the issue on appeal.

Liberty also raised other issues on appeal, including the trial court’s denial of its right to conduct discovery, but the Court of Appeals held that Liberty had failed to properly preserve those issues on appeal. Therefore, the trial court’s judgment against Liberty, that it was liable for the remaining $7.5 million judgment in favor of Plaintiffs, was affirmed.

Missteps Lead to A Blank Check

When Sharpe tendered the Geiler complaint to Liberty, the insurer had multiple options. But when it denied coverage and declined to participate in the defense of the claim, Liberty left itself vulnerable to an expensive judgment.

Indeed, in retrospect, Liberty being bound by a substantial judgment in Geiler’s lawsuit was almost inevitable from the moment it denied Sharpe’s claim. From that moment on, Liberty’s insured, Sharpe, was left with two choices: (1) vigorously defend against Geiler’s allegations in hopes of securing a settlement or judgment below the $2 million Starr Policy limits, protecting Sharpe’s own financial assets, or (2) agree with Plaintiffs to drop its vigorous defense in exchange for Plaintiffs agreeing to execute any excess judgment against Liberty, not Sharpe. 

Option (1) left Sharpe potentially liable for an excess judgment and punitive damages, which would not have been covered by any insurance policy, while option (2) ensured that any judgment could not reach its personal assets. Sharpe would have likely pushed its insurer to enter into an agreement with Plaintiffs and limit its liability exposure. Of course, Starr would have had to have agreed to settle the Plaintiffs’ suit for their policy limits, $2 million, though that may have not been a difficult cost-benefit decision to make under the circumstances. 

Although the details of the Mary Carter agreement between Plaintiffs and Sharpe were not discussed by the Court of Appeals, the contract likely prohibited Sharpe from calling witnesses at trial, cross examining any witnesses, or presenting any evidence before the court. Thus, when Plaintiffs introduced evidence from an economist showing a total loss of $9,446,337 as a result of Geiler’s death, these opinions went unchallenged. Plaintiffs had a blank check that Liberty would have to cash.

Due to bad timing, it is not even clear that Liberty was aware of the Mary Carter agreement prior to the Plaintiffs attempt to garnish the $7.5 million judgment from Liberty. Although Mo. Ann. Stat. § 537.065 (2) requires that “…insurers shall be provided with written notice of the execution of [a Mary Carter] contract and shall have thirty days after receipt of such notice to intervene as a matter of right in any pending lawsuit involving the claim for damages,” this notice provision became effective only on August 28, 2017, ten days after the bench trial in the Geiler matter. The prior version of §537.065 did not require notice to be given to insurers such as Liberty.

Even following the 2017 amendment to §537.065, however, it is not clear that Liberty could have done anything to challenge the validity of the $9.5 million judgment entered by the court.  In Knight v. Knight, the Missouri Court of Appeals recently held that while the 2017 amendment to §537.065 gave insurers a right to intervene, it did not give insurers the right to “contest the insured’s liability, and the claimant’s damages, on the merits, whatever the status of the litigation at the time of the insurer’s intervention.” 609 S.W.3d 813 (July 14, 2020).  Nor did the amendment specify when an insurer must be notified, only that the insurer is limited to thirty (30) days from notification to intervene. 

Thus, pursuant to §537.065, parties can enter into an agreement to shift all liability to one party or one insurer, and provide notice only at the last possible moment, even after a trial on the merits, but before judgment in the matter is entered, and the insurer will be bound to the judgment. 

Insurers in Missouri simply can no longer afford to deny coverage and refuse to participate in the defense of claims against their insureds.

What Can Insurers Do To Avoid the Blank Check?

Instead of an outright denial of coverage, Liberty could have pursued other alternatives.

Defending the insured and reducing the value of the case

First, Liberty could have defended Sharpe under a reservation of rights. In this defense, Liberty could have attempted to drive down the value of the case by raising many of the issues it attempted to raise in its collateral attack.

For example, Liberty contended that the decedent was a repeat felon without a home, assets, dependents, or a consistent work history, facts which were not disclosed to the trial court in the underlying case.  Liberty would likely have attempted to use these facts to challenge any future lost wages calculations, or other damage assessments, by Plaintiffs’ economist. If the value of the claim was driven below $2 million, the Starr Policy would cover the entire settlement/judgment amount, as the Liberty Policy was only responsible for excess sums above the other insurance amount.

Asserting an affirmative defense

By initially appearing and defending Sharpe, Liberty could have had the opportunity to assert its affirmative defense that the court lacked statutory authority to hear the workers’ compensation claim.

Determining coverage

Additionally, Liberty could have, simultaneous to the underlying wrongful death claim, filed a separate declaratory judgment action to determine the nature and extent of coverage. During the pendency of the declaratory judgment action, Liberty could have moved to stay the underlying proceedings until the coverage action was resolved. 

What went wrong

By deferring their chance to put forth a defense, Liberty was left out of the process and found itself on the hook for a multimillion-dollar judgment. There were opportunities to reduce or eliminate Liberty’s financial liability in the case. The collateral attack was ultimately too little, too late.

Insurers Facing Complex Claims and Cases

Insurance claims like those in Geiler v. Liberty Mutual Corp. are rarely clear-cut. Claims involving multiple parties and policies demand close scrutinization. You need a strategic approach to analyzing and determining coverage and managing litigation needs.

RDM’s substantial experience with issues of coverage, bad faith claims, subrogation, and other complicated insurance matters leaves us well-poised to assess insurers’ cases and provide counsel on the various options and opportunities unique to each case. And while our goal is usually to extricate our clients from complex litigation matters, we have the trial experience to see any case through to the end. When weighing your options pertaining to any claim, RDM is ready to help. Contact us today.