Court says insurer off hook for $3 million award

The Court of Appeals Western District held May 19 that a man injured at a Kansas City-area business can’t recover a $3 million arbitration award from an insurer for the business’ security provider.

David McConnell originally sued CS&L Investments and Vanguard Security Services in 2018, alleging that he was injured by a patron whom Vanguard had ejected from the business. Neither Vanguard’s insurer nor CS&L’s own insurer agreed to provide CS&L with a defense, so the company entered into a 537.065 agreement with McConnell.

Under section 537.065 of the Revised Statutes of Missouri, a defendant whose insurer has declined to provide coverage can agree to allow the plaintiff to obtain a judgment against it. The plaintiff then can seek to collect the money from the defendant’s insurer in a separate action if it can prove there is coverage.

McConnell and CS&L took the case to arbitration, resulting in the $3 million award. After a Cass County Circuit Court confirmed the award in 2018, McConnell and CS&L filed an equitable garnishment action and a claim of bad faith against Vanguard’s insurer, West Bend Mutual Insurance Co., as well as other insurers connected to the case.

A Jackson County judge dismissed the claims against West Bend. CS&L was not named on its policy, and Vanguard had provided security to the company under an oral contract.

The Western District affirmed. Chief Judge Karen King Mitchell, joined by Judges Thomas H. Newton and Lisa White Hardwick, said McConnell and CS&L had offered legal arguments for why West Bend’s policy should cover CS&L but didn’t plead facts that would support those claims.

“In sum, none of the allegations made by either McConnell or CS&L, in either the petition or the cross-claims, provide[s] sufficient factual support for the necessary claim that CS&L was covered under West Bend’s policy with Vanguard,” Mitchell wrote.

According to court records, both the equitable garnishment and the underlying suit regarding McConnell’s injury are still pending in Jackson County. Jason Moore of DiPasquale Moore in Kansas City, an attorney for McConnell, didn’t return a call seeking comment. Tom Hershewe of Dollar, Burns & Becker, who represented CS&L, declined to comment immediately, saying he hadn’t read the opinion.

The ruling came just days after the end of the 2020 legislative session, in which lawmakers considered but ultimately didn’t pass a bill that would have made it harder to route ’065 agreements through arbitration.

The proposal built on a law passed in 2017 that revised how such agreements are reached. Previously, the insurer was barred from participating at the bench trial where such agreements are resolved, leaving no one to contest the case or the plaintiff’s measure of the damages. The 2017 law requires the parties to alert insurance companies that they are entering into the agreement and give them 30 days to seek to intervene before the judgment can be rendered.

In response, some attorneys began taking their ’065 agreements to arbitration, then seeking court confirmation of the resulting award when the insurer no longer could intervene. This year’s bill would have countered that tactic by requiring the insurer’s written agreement before any arbitration award could be reduced to a judgment or collected.

The bill, HB 2049, cleared the House and got a hearing before the Senate shortly before the end of session. However, it never came up for a vote in the Senate.

The case is McConnell et al. v. West Bend Mutual Insurance Company, WD82865.