Primary insurer avoids most of $22M settlement

A federal appeals court has sided with a trucking company’s primary insurer, which claimed it wasn’t responsible for paying the majority of a settlement linked to a $46 million verdict.

The 8th U.S. Circuit Court of Appeals upheld a federal district court’s decision to apply Missouri law and grant the primary insurer’s motion for summary judgment against an excess insurer.

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See case in Verdicts & Settlements

This case stems from one of the largest Missouri verdicts in 2006. A St. Louis City jury awarded $46 million to the parents of a young couple, Ana and Jose Silva, who were killed in a violent car accident. A Consolidated Freightways tractor-trailer rear-ended them in the fog outside Joplin.

The trial judge reduced the verdict to $30 million and the case later settled for about $22 million. Of that amount, U.S. Fidelity & Guaranty Co. paid $5 million under its policy while excess insurer, American Guarantee and Liability Insurance Co., a subsidiary of Zurich American Insurance Co., paid $17 million.

In April 2006, USF&G filed a complaint for declaratory judgment against Zurich in federal district court in Missouri, claiming its payment of $5 million fulfilled its obligations.

Later in 2006, Zurich filed suit in the state of Washington against USF&G and its claim manager, TIG Insurance Co. Zurich claimed USF&G failed to settle the Silva plaintiffs’ underlying wrongful death suits in bad faith. Zurich sought $17 million in damages from USF&G.

The Washington court transferred Zurich’s action to Missouri, where it was consolidated with USF&G’s action.

Zurich requested that USF&G’s motion for summary judgment be evaluated under Washington law. Consolidated Freightways had operated its nationwide trucking company out of Washington before its dissolution in December 2004.

Also, the state of Washington may have offered better chances for Zurich. Mike Ward, attorney for the Zurich subsidiary, said Washington is not as strict for bringing bad faith claims compared with Missouri.

The district court determined the dispute between the two insurers had more contacts with Missouri than Washington and then granted USF&G’s motion for summary judgment.

On appeal, Zurich claimed the district court erred in applying Missouri law rather than Washington law. Zurich also argued that a Consolidated Freightways trust’s failure to make a demand for a settlement within the policy limits does not defeat the bad faith claim.

The 8th U.S. Circuit Court of Appeals, in its opinion Friday, breaks down the factors to be considered when evaluating which state’s law should govern. They include place where the injury occurred; the place where the conduct causing the injury occurred; the domicile, residence, nationality, place of incorporation and place of business of the parties; and the place where the relationship, if any, between the parties is centered.

“In such a case, the district court was correct to place less weight on the location of the contractual relationship between the insured and the insurers, and more weight on the location of the underlying litigation,” the court said while evaluating the fourth factor.

As another part of its argument, Zurich claimed the district court erred when it determined that the company’s bad faith claim fails under Missouri law because the insured never made a demand for USF&G to settle the Silva litigation within the primary policy limits. Zurich claimed USF&G and TIG did not keep the Consolidated Freightways Trust advised of the Silvas’ settlement offers.

But the 8th Circuit court disagreed, saying the trust was advised of settlement demands and elected not to settle because it believed Consolidated Freightways’ exposure in the accident was much less than what the Silva plaintiffs wanted.

Ward, a Brown& James attorney in St. Louis for American Guarantee, declined to comment on the opinion and the possibility of an appeal.

Peter Thompson, who represented USF&G, declined to comment. Thompson is based in Washington, D.C., at the Thompson, Loss & Judge law firm.