Court OKs $11.4M award; new law could prevent more like it

Three judges of the Missouri Court of Appeals Eastern District offered three opinions June 29 on the propriety of an $11.4 million arbitration award in an employment discrimination case.

All three judges agreed that, under current state law, insurers had no way to contest the award before it was confirmed in circuit court. But they diverged on whether the process was fair to the insurers who might have to pay the resulting judgment to plaintiff Harold Barnett.

 Barnett, who is Black, was terminated as a janitor for Columbia Maintenance Co. in 2014. He alleged that the now-deceased owner of the company used racial slurs and other derogatory names to refer to Barnett and had ordered a supervisor to “get rid of” Barnett despite his positive performance reviews.

The court’s ruling came the same day that Gov. Mike Parson signed a bill specifically designed to offer relief to insurers who find themselves in such a situation. 

Russ Waters of Brown & James, who represented AMCO Insurance Co. and Depositors Insurance Co. in the case and also testified before the Missouri legislature in favor of the bill, noted the striking timing.

“You’ve got three judges writing three separate opinions on a 537.065 case the same day the legislature reforms and makes clear, hopefully, what’s going to occur in the future with 537.065 cases,” he said. “Very coincidental.”

The suit originally was filed in St. Louis County, but after the defendant’s insurers denied coverage, the parties submitted the case to binding arbitration. Glenn Norton, of-counsel with Blitz, Bardgett & Deutsch and a retired Eastern District judge, awarded more than $11.4 million to Barnett. 

He separately awarded about $8.6 million to Charles Taylor, the supervisor who had refused the order to fire Barnett. In written findings, he described both cases as among “the most egregious and blatant Missouri Human Rights case violations” he’d ever seen.

The combined $20 million award was ranked as the third-largest judgment of 2020, as tracked by Missouri Lawyers Media.

The arbitration occurred as part of an agreement between the plaintiffs and the defendant under section 537.065 of the Revised Statutes of Missouri. Under that law, defendants who are denied coverage can agree to allow the plaintiff to obtain a judgment against them, which the plaintiff then seeks to collect from the defendant’s insurance policy through separate litigation.

Such a judgment typically is determined at a bench trial at which the defendant puts up little or no defense and where the insurer, until recently, was unable to participate. A 2017 law now requires parties to ’065 agreements to give notice to the insurer, which then has 30 days to seek to intervene before a judgment can be rendered. 

In response, a number of parties to such agreements began to take their cases to arbitration, then had the resulting award confirmed by a court after the window for the insurer to intervene had passed. In Burnett’s case, AMCO and Depositors successfully intervened in the original court case only to watch the plaintiff dismiss it, take the matter to arbitration, then confirm the award long after the 30-day period for intervention had ended.

Judge Angela T. Quigless, writing for the Eastern District, declined to read more into the 2017 statute than was there and said all the parties had “proceeded according to their statutory rights.”

“Proceeding according to ones’ rights is not collusion, as Insurers would have us believe,” she wrote.

In a separate opinion, Kurt S. Odenwald concurred in the result but argued that the law as written had the “possibility of systemic unfairness” for the insurers, whom he likened to Mr. Potter, the antagonist banker of “It’s a Wonderful Life.” 

“Whether and to what extent that right of intervention should be extended to arbitration proceedings is a matter of policy to be addressed by the legislature, and not the courts,” he wrote. “But lest we forget, under our system of laws and justice, even Mr. Potter is guaranteed a fair resolution of the claims brought against him.”

In yet another separate opinion, Judge James M. Dowd pushed back against the insurers’ “lamentations,” noting that they gave up the right to control the litigation when they denied coverage. He argued that plaintiffs ultimately must prove that such coverage existed. If the insurers’ interpretation of the policy is correct, Dowd, wrote, the entry of the large awards would be “academic and meaningless,” as they would be uncollectable.

So far, AMCO and Depositors have prevailed on that point. On Dec. 31, a federal judge declared that there was no coverage for either Barnett’s or Taylor’s awards. That ruling is now on appeal to the 8th U.S. Circuit Court of Appeals. In addition, actions remain pending in St. Louis County Circuit Court that seek to collect the awards from the insurers and allege that they denied coverage in bad faith.

State lawmakers already have addressed Odenwald’s invitation to clarify the statute. The newly signed law will give insurers an “unconditional right” to take part in proceedings involving ’065 agreements. It also specifies that any arbitration awards are unenforceable unless the insurer has agreed to the procedure in writing. The law is set to take effect Aug. 28.

Gretchen Myers, an attorney for Barnett, said the new law gives insurers no incentive to provide coverage, as they will be able to continue to fight the case even after a denial.

“Like any new legislation, it’s going to change the way that cases are presented and how injured plaintiffs can find justice,” she said. “We’ll have to see how it plays out.”

The case is Barnett v. Columbia Maintenance Company et al., ED109008. The insurer intervention bill is HB 345.