WHEN AND HOW DOES AN INSURANCE COMPANY’S DUTY TO DEFEND ARISE?
Sometimes the black letter law passed by the legislature is unclear. The legislature can’t anticipate every possible fact scenario when they pass a law, so it lay to the courts to interpret the law and give guidance to what it means. This interpretation is called case law. When the court decides a certain meeting to the law it essentially answers a legal question. Lawyers and other courts then can rely on that ruling when they have a similar issue in their case. The following case answers the question above.
Allen v. Continental Western Insurance Co., 436 S.W.3d 548 (Mo. 2014).
This case addresses the following issue:
When and how does an insurance company’s duty to defend arise?
In this case, the Missouri Supreme Court was asked to determine if an insurance company’s refusal to defend a title lending company in a lawsuit for conversion (e.g., unlawful repossession) was proper, based upon when it was made and which facts the insurance company relied upon. Id. at 550. The court ultimately held that it was “reasonably apparent” that there was no “potential or possible liability” coverage from the outset of the underlying suit against the lender, the duty to defend never existed. Id. at 552. The insurance contract clearly outlined that “expected or intended injury” were excluded, and the tort filed against the insured lender required an intentional act for the plaintiff to prevail, meaning all damages fell squarely into this exclusion. Id. at 553.
This case offers a rare situation in which the Defendant insurance company may be more sympathetic than the Plaintiff: a payday and title lending company. Id. at 550. The case deals with the Defendant refusing to provide a legal defense to the Plaintiff in another lawsuit. Id. In the underlying suit, Plaintiff repossessed the vehicle of an individual that was mistakenly believed to have defaulted on her title loan. Id. The lawsuit that the vehicle’s owner filed alleged the intentional tort of conversion, which is essentially civil theft. Id. Plaintiff notified Defendant of the charge and requested that Defendant provide a legal defense pursuant to an insurance agreement between the parties. Id. However, Defendant refused to provide Plaintiff with an attorney. Id. Defendant cited a provision of the insurance policy that excluded “property damage that is expected or intended from the standpoint of the insured.” Id. Plaintiff then filed a lawsuit against Defendant seeking the costs of hiring a defense attorney in the lawsuit for conversion. Id. at 551. Plaintiff’s lawsuit was based on Defendant’s failure to defend, which the trial court found did exist. Id. Defendant then appealed and ultimately landed in the Missouri Supreme Court. Id.
The court began by noting that there are “two distinct duties [owed] to an insured: a duty to indemnify and a duty to defend.” Id. at 552. In this case, only the broader duty to defend was at issue. Id. Under Missouri law, the duty to defend arises when “there is a potential or possible liability to pay based on the facts at the outset of the case.” Id. If these facts suggest liability based upon the language of the insurance contract, the duty to defend exists. Id. However, this doesn’t simply mean the facts contained in the lawsuit’s filing are consulted. Id. at 553. Instead, the insurer most also considered facts known and “reasonably apparent at the outset of the case.” Id.
There was no possibility of liability from the outset of the underlying case in these circumstances. Id. The owner of the wrongfully repossessed vehicle was seeking damages for an intentional tort, and the policy clearly excluded “damage that is expected or intended.” Id. Thus, the only potential damages sought were “for damages [Plaintiff] intended, which the policy unambiguously excluded.” Id. The fact that Plaintiff may have had made a mistake, and believed that it had a right to repossess the car didn’t matter: Missouri law recognizes an action for conversion without bad faith, because the intentional act is the taking of property, not taking property that is known to belong to someone else. Id. at 556. Thus, the duty to defend, based upon the facts known at the onset of the case, never arose under the contract and Defendant was right to refuse to provide a legal team to defend Plaintiff. Id.