Insurer’s intervention denied in $35 million crash judgment

The Court of Appeals Western District ruled that a judge correctly affirmed a $35 million arbitration award for a man injured in a motorcycle accident, despite claims that the insurer should have been allowed to take part in the case.

The ruling marks the third time the appeals court has examined a recent Missouri law that gives insurance companies a chance to intervene in so-called 537.065 agreements, which allow a plaintiff to obtain a judgment against a defendant whose insurer has declined to provide unreserved coverage. None of the cases has involved an insurer that successfully intervened, leaving unanswered what, if anything, insurers will be able to do once they do enter the case.

“I wouldn’t glean anything from this opinion that touches on that issue,” said Ken Barnes of the Barnes Law Firm in Kansas City, an attorney for the plaintiff. While such a case probably will arise someday, “we just don’t have that under our fact pattern,” he said.

The underlying dispute stemmed from a 2013 crash in Jackson County. According to the suit, Richard A. Aguilar was riding a motorcycle when a U-Haul truck driven by Patricia Hollandsworth ran into him, severely injuring him. Daniel and Deborah Clymens had rented the U-Haul to enable Hollandsworth to move out of the Clymens residence.

After Aguilar sued Hollandsworth in 2017, Hollandsworth sought coverage from a GEICO Casualty Co. policy that the couple held on a separate vehicle. GEICO denied coverage but offered to defend Hollandsworth under a reservation of rights, which meant that the insurer wouldn’t promise to pay any award entered against her. Hollandsworth rejected the defense and instead entered into an agreement with Aguilar.

Under section 537.065 of the Revised Statutes of Missouri, defendants who face such a reservation of rights from insurers can agree to allow the plaintiff to obtain a judgment against the defendant at a bench trial, then seek to collect the money from the defendant’s insurer in a separate action.

GEICO sought to intervene under a law that Missouri lawmakers passed in 2017 that requires the parties to alert insurance companies that they are entering into an ’065 agreement. The insurer then has 30 days to seek to intervene before the judgment is rendered.

Aguilar, however, dismissed the suit and instead took the case to binding arbitration. In 2018, the arbitrator awarded him $8 million in economic damages, $20 million in noneconomic damages and $7 million in punitive damages. A Jackson County judge confirmed the award later that year, with statutory interest running 7.5 percent annually. GEICO was denied a request to intervene in the confirmation case.

Aguilar now is seeking to recover the award from GEICO in a separate lawsuit pending in Jackson County. GEICO had asked a federal court to determine if its policy covered Hollandsworth, but the federal suit has been stayed while the Jackson County suit proceeds, as it likely will determine the coverage issue.

GEICO argued that the judgment shouldn’t have been confirmed without the insurer’s participation. In briefs, it argued that the award was procured by “undue means” and that the ’065 agreement was a “contrivance designed to advance” a bad-faith claim against GEICO. Judgments reached after ’065 agreements  often are well in excess of the insurer’s policy limits, but the plaintiff can seek to collect that additional money by alleging the insurer acted in bad faith in refusing to settle the case.

The Western District said nothing in the new statute gives insurers an unconditional right to intervene, and the parties gave the judge no reason to reject the award.

“The actions that the parties took in entering a section 537.065 agreement and an agreement to submit their dispute to arbitration are authorized by statute.” Judge Thomas H. Newton wrote.

“The company waived the right to contest the cause of the accident or the extent of Mr. Aguilar’s injuries and damages by choosing not to defend Ms. Hollandsworth without reservation and disclaiming any liability under the Clymenses’ automobile insurance policy. GEICO will have the opportunity to litigate its liability in the garnishment action.”

Judges Lisa White Hardwick and Mark D. Pfeiffer concurred.

The case is similar to one the Western District addressed in March, when it said an insurance company had no right to intervene in a case that resulted in a $6 million award for an injured driver. That case, Britt v. Otto, also involved an award reached during arbitration.

Last year, the appeals court allowed a $6.9 million judgment against a Columbia nightclub to stand. The club’s insurer in Desai v. Seneca Specialty Insurance Co. argued it should have been informed of the agreement, as the judgment didn’t become final until after the intervention law took effect in 2017.

However, the Western District — and, following a transfer, the Missouri Supreme Court — said the agreement itself predated the law’s effective date, so the parties had no obligation to notify the insurer.

The garnishment suit is pending before Jackson County Circuit Judge Kenneth R Garrett III. That case had been set for an Aug. 28 trial on coverage, but the trial was delayed while the Western District considered the case.

“I suspect we’ll have that coverage issue determined sooner rather than later,” said John Cusick, also of the Barnes Law Firm, who also is representing Aguilar. He added that, if coverage is found, the case would proceed to a second phase to determine if the insurer acted in bad faith.

John Franke of Franke Schultz & Mullen, an attorney for GEICO, didn’t return a call seeking comment.

The case is Aguilar v. GEICO Casualty Co., WD82266.