O'Reilly Auto Enterprises, LLC v. United States Fire Insurance Company et al
Filing
227
ORDER denying 184 Defendant U.S. Fire's motion for summary judgment on Count I. Signed on 1/14/20 by District Judge Roseann Ketchmark. (Martin, Elizabeth)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
SOUTHERN DIVISION
O’REILLY AUTO ENTERPRISES, LLC,
Plaintiff,
v.
UNITED STATES FIRE INSURANCE
COMPANY, WESTCHESTER SURPLUS
LINE INSURANCE COMPANY,
CONTINENTAL CASUALTY
COMPANY, COLUMBIA CASUALTY
COMPANY,
Defendants.
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Case No. 6:17-03007-CV-RK
ORDER
Before the Court is Defendant United States Fire Insurance Company’s Motion for
Summary Judgment on Count I. (Doc. 184.) The motion is fully briefed. (Docs. 185, 204, 214.)
Oral argument on the motion was held on January 9, 2020. (Docket Entry 226.) For the reasons
below, the motion for summary judgment on Count I is DENIED.
I.
Background
Plaintiff O’Reilly Auto Enterprises, LLC (“Plaintiff” or “O’Reilly”) brings this insurance
dispute lawsuit against four insurance carriers relating to coverage for certain asbestos personal
injury lawsuits. Defendant United States Fire Insurance Company (“U.S. Fire”) is a primary
insurance carrier, and the remaining three defendants are excess/umbrella carriers: Westchester
Surplus
Lines
Insurance
Company
(“Westchester”),
Continental
Casualty
Company
(“Continental”), and Columbia Casualty Company (“Columbia”). Plaintiff’s First Amended
Complaint asserts two counts: Breach of Contract/Vexatious Refusal against U.S. Fire (Count I)
and Declaratory Judgment against all defendants (Count II). In the pending motion, U.S. Fire
seeks summary judgment on Count I of Plaintiff’s Amended Complaint.
Plaintiff is the successor-in-interest to Grand Auto, Inc. (“Grand Auto”). Industrial
Indemnity, San Francisco, CA (“Industrial Indemnity”) issued two polices to Grand Auto
identified as Policy No. SG851-5539 (“Policy 5539”) and Policy No. SG857-2271 (“Policy 2271”)
(collectively, the “U.S. Fire Policies”).
U.S. Fire holds Industrial Indemnity’s rights and
obligations under the U.S. Fire Policies.1 Policy 5539 provided coverage for the period of May
22, 1984, to May 22, 1987. Policy 2271, at the time it was issued, provided coverage for the period
of May 22, 1987, to May 22, 1990.
At some point prior to November 1, 2012, U.S. Fire provided Plaintiff with a defense and
indemnity for asbestos-related bodily injury lawsuits filed against Grand Auto (the “Asbestos
Suits”) under the U.S. Fire Policies. In correspondence dated November 1, 2012, U.S. Fire
incorrectly declared Policy 5539 to be exhausted. U.S. Fire’s declaration of exhaustion was based
on a mistaken belief that Policy 5539 had total limits of $1,500,000 for Policy’s 5539 three-year
term. However, Endorsement 11, which was effective May 22, 1985, had increased the total limits
for the three-year term to $2,500,000. As a result of the incorrect declaration of exhaustion of
Policy 5539 on November 1, 2012, U.S. Fire began allocating all losses for the Asbestos Suits to
Policy 2271. In correspondence dated August 14, 2013, U.S. Fire incorrectly declared Policy 2271
to be exhausted, and as of that date, stopped providing Plaintiff with defense and indemnity for the
Asbestos Suits.
U.S. Fire denies that it had a copy of Endorsement 11 in its files at the time it declared
Policy 5539 exhausted and submits an affidavit indicating that its best re-creation of Policy 5539
as of September 6, 2013, did not include Endorsement 11. According to U.S. Fire, the original
Policy 5539 was delivered to Plaintiff and U.S. Fire does not maintain the original files. At the
time U.S. Fire received discovery requests from Plaintiff during this litigation, Endorsement 11 as
well as other documents showing an aggregate limit of $2.5 million were in U.S. Fire’s possession.
Plaintiff filed this lawsuit in November 2016, which U.S. Fire subsequently removed to
this Court. In October 2018, U.S. Fire and Plaintiff entered into a Partial Release and Settlement
Agreement (“Partial Settlement”). Under the terms of the Partial Settlement, U.S. Fire paid
Plaintiff a certain sum and agreed it would provide Plaintiff with a defense and indemnity for “all
pending and future asbestos lawsuits” until the aggregate policy limits of Policy 5539 and Policy
2271 are exhausted. At oral argument, the parties represented to the Court that as of that date
(January 9, 2020), the policy limits of Policy 5539 and Policy 2271 are not yet exhausted.
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For purposes of this Order, references to Grand Auto and Plaintiff are considered interchangeable,
as are references to U.S. Fire and Industrial Indemnity.
2
The relevant portions of the Partial Settlement are as follows:
RECITALS
M.
Subsequent to the filing of [this lawsuit], O’Reilly and US Fire have
determined that the annual aggregate limits of liability under [Policy 5539] were
$500,000 for the annual period May 22, 1984 to May 22, 1985, $1,000,000 for the
annual period May 22, 1985 to May 22, 1986, and $1,000,000 for the annual period
May 22, 1986 to May 22, 1987.
...
P.
O’Reilly and US Fire have agreed to settle and resolve O’Reilly’s
claim for vexatious refusal to pay and defend claims under [Policy 2271] and/or
[Policy 5539] on the terms and conditions stated herein.
AGREEMENT
...
1.
Payment to O’Reilly: . . . U.S. Fire . . . will pay O’Reilly
[$984,130.78] . . . [which] represents reimbursement to O’Reilly for payments it
made in excess of $50,000.00 per claim for settlements and defense costs incurred
to defend the claims described in Exhibit ‘A’ hereof.
...
5.
Partial Release of US Fire. . . . O’Reilly releases US Fire . . . from,
and against any and all claims arising from the failure to pay or defend claims under
[Policy 5539], including, but not limited to, any claim [sic] breach of contract,
vexatious refusal under §375.420 RSMo., or any other statute, for bad faith/good
faith and fair dealing, and/or unfair claims practices. This release shall include a
release from any statutory penalties or attorneys’ fees incurred by O’Reilly with
respect to the enforcement of [Policy 5539] and claims in [this lawsuit] relating to
the alleged vexatious refusal of US Fire to pay or defend claims under [Policy
5539]. In addition, O’Reilly . . . waives all right to recover, or to claim a right to
recover, any attorney fees it has incurred in connection with [this lawsuit] on or
before October 1, 2018, with respect to any claim for vexatious refusal to pay or
bad faith under [Policy 2271].
6.
Reservation of Claims by O’Reilly: Except as specifically stated in
Section 5 above, nothing herein shall be deemed to release US Fire or to prohibit
O’Reilly from pursuing all other claims against US Fire in [this lawsuit] including,
without limitation, (a) the policy limits relating to asbestos claims, and the scope,
meaning, applicability or enforceability of any deductible under [Policy 2271], (b)
any penalties, damages or attorney fees for bad faith or vexatious refusal to pay or
defend claims under [Policy 2271], (c) the scope, meaning, applicability or
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enforceability of any deductible under [Policy 5539], (d) the recovery of attorney
fees, expenses and indemnity payments made by O’Reilly . . .
(Doc. 185-5 at 2-4.)
The parties agree that Plaintiff’s claims for breach of contract and vexatious refusal under
Policy 5539 were released by the Partial Settlement. What remains in Count I is Plaintiff’s (1)
breach of contract claim under Policy 2271, and (2) vexatious refusal claim under Policy 2271. It
is U.S. Fire’s position that as a result of the Partial Settlement, the factual basis for these claims
under Policy 2271 no longer exist and therefore, U.S. Fire is entitled to summary judgment on
Count I.
II.
Legal Standard
A movant is entitled to summary judgment “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c). The rule requires summary judgment to be entered “against a party
who fails to make a showing sufficient to establish the existence of an element essential to that
party’s case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986).
III.
Discussion
A.
Choice of Law Analysis
As a threshold issue, the Court must decide which state law applies regarding the rules for
construction of insurance contracts since state law controls the substantive issues. See Interco,
Inc. v. Nat'l Sur. Corp., 900 F.2d 1264, 1266 (8th Cir. 1990) (citing Erie R.R. Co. v. Tompkins,
304 U.S. 64 (1938)). Missouri’s choice-of-law rules determine which state’s law should govern.
Am. Guar. & Liab. Ins. Co. v. United States Fid. & Guar. Co., 668 F.3d 991, 996 (8th Cir. 2012)
(citing Brown v. Home Ins. Co., 176 F.3d 1102, 1105 (8th Cir. 1999) (a federal court sitting in
diversity applies the forum state’s choice-of-law principles)). A court need not undertake the
choice-of-law inquiry unless a conflict of law is demonstrated. See Prudential Ins. Co. of Am. v.
Kamrath, 475 F.3d 920, 924 (8th Cir. 2007) (citation omitted). Because neither party raises an
actual conflict of applicable law as to Count I, the Court will apply Missouri law.
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B.
Plaintiff’s Breach of Contract Claim as to Policy 2271
Under Missouri law, the elements of a breach of contract claim are: (1) the existence and
terms of a contract, (2) that plaintiff performed or tendered performance pursuant to the contract,
(3) breach of the contract by the defendant, and (4) resulting damages suffered by the plaintiff.
Keveney v. Mo. Military Acad., 304 S.W.3d 98, 104 (Mo. 2010). “A submissible case in a breach
of contract action requires the plaintiff to present substantial evidence to prove” these elements.
United States Neurosurgical, Inc. v. Midwest Div. - RMC, LLC, 303 S.W.3d 660, 664 (Mo. Ct.
App. 2010).
U.S. Fire argues that the Partial Settlement renders moot Plaintiff’s breach of contract claim
under Policy 2271. U.S. Fire maintains that Plaintiff has no evidence of breach because once the
parties entered into the Partial Settlement, U.S. Fire has since complied with the defense and
indemnity obligations under Policy 2271. This position is problematic for several reasons. First,
the Partial Settlement does not explicitly release U.S. Fire from Plaintiff’s breach of contract claim
against it as to Policy 2271. Second, U.S. Fire cites no authority to support its position that entry
of the Partial Settlement constitutes a negation of a breach. In addition, U.S. Fire admits it
incorrectly notified Plaintiff that the limits of Policy 2271 were exhausted and that it then refused
to pay defense and indemnity costs for the next five years.
U.S. Fire also maintains that Plaintiff has no evidence of damages because once the parties
entered into the Partial Settlement, U.S. Fire has since paid Plaintiff all the amounts Plaintiff seeks
as damages under its breach of contract claim under Policy 2271. In response, Plaintiff presents a
declaration by Mr. James Enloe indicating that during the five-year period between
August 13, 2014, and the Partial Settlement, Plaintiff sustained damages additional to the amount
U.S. Fire has reimbursed it per the Partial Settlement. (Doc. 204-1 at ¶¶ 14, 15.) Even if the Court
disregarded this evidence of actual damages, lack of proof of actual damages does not suffice to
negate the damages element of Plaintiff’s breach of contract claim because, under Missouri law,
nominal damages are available where a contract and its breach are established. Shirley’s Realty,
Inc. v. Hunt, 160 S.W.3d 804, 808 (Mo. Ct. App. 2005). Therefore, U.S. Fire has not met its
burden to show it is entitled to summary judgment as to Plaintiff’s breach of contract claim.
C.
Plaintiff’s Vexatious Refusal Claim as to Policy 2271
The elements of a vexatious refusal to pay claim are: (1) that plaintiff had an insurance
policy with defendant, (2) the defendant refused to pay, (3) defendant’s refusal was without
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reasonable cause or excuse. Dhyne v. State Farm Fire & Cas. Co., 188 S.W.3d 454, 457
(Mo. 2006). Under the Missouri vexatious refusal statute,
where an insurer has refused to pay a claim without reasonable cause or excuse, the
court may award damages not greater than 20% of the first $1,500.00 of the loss
and 10% of the loss in excess of $1,500.00 together with reasonable attorney’s fees,
in addition to the amount of recovery [and interest] owing under the policy.
Morris v. J.C. Penney Life Ins. Co., 895 S.W.2d 73, 76 (Mo. Ct. App. 1995) (paraphrasing
Mo. Rev. Stat. § 375.420). To prove a claim of vexatious refusal, the insured must show the
insurer’s refusal to pay the claim was willful and without reasonable cause, as the facts would
appear to a reasonable and prudent person. Id. Whether an insurer’s refusal to pay is “vexatious”
is determined by the situation as presented to the insurer at the time it was called on to pay.”
Russell v. Farmers & Merchs. Ins. Co., 834 S.W.2d 209, 221 (Mo. Ct. App. 1992) (citation
omitted). “[A]n insurer that persists in its refusal to pay after it becomes aware that it has no
meritorious defense is subject to penalty for vexatious refusal.” Id. (citation omitted).
U.S. Fire argues that there is no evidence of a refusal to pay or vexatiousness given that it
has defended and indemnified the Asbestos Suits tendered by Plaintiff since the Partial Settlement.
This argument fails. As stated above, Plaintiff presents evidence that during the five-year period
between August 13, 2014, and the Partial Settlement, Plaintiff sustained damages additional to the
amount U.S. Fire has reimbursed it per the Partial Settlement. Even if U.S. Fire had paid all actual
damages claimed by Plaintiff under Count I, Plaintiff can maintain its vexatious refusal claim for
interest and punitive damages.
In addition, examples of evidence of vexatiousness include an unreasonable delay in
providing the benefits due under a policy. See Dhyne, 188 S.W.3d at 457-58 (rejecting insurer’s
argument that there was insufficient evidence to find a refusal to pay, in part, because insurer
eventually paid); Merseal v. Farm Bureau Town & Country Ins. Co., 396 S.W.3d 467, 473 (Mo.
Ct. App. 2013) (citation omitted) (jury may find for plaintiff by finding vexatious delay based on
circumstances of the case). “Examples of evidence of vexatiousness [also] include a refusal to pay
based on an inadequate investigation[.]” Russell, 834 S.W.2d at 221. Here, not only is there
evidence of a refusal to pay, genuine issues of material fact remain whether U.S. Fire unreasonably
delayed payment and whether U.S. Fire could have learned of the existence of Endorsement 11
after an adequate investigation. Therefore, U.S. Fire has not met its burden to show it is entitled
to summary judgment on Plaintiff’s vexatious refusal to pay claim.
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IV.
Conclusion
After careful consideration, U.S. Fire’s Motion for Summary Judgment on Count I is
DENIED.
IT IS SO ORDERED.
s/ Roseann A. Ketchmark
ROSEANN A. KETCHMARK, JUDGE
UNITED STATES DISTRICT COURT
DATED: January 14, 2020
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