Bad faith claim revived in long-running malpractice case

The Missouri Court of Appeals Eastern District on April 18 resurrected a long-running claim against a legal malpractice insurer that a prior decision of the court had appeared to extinguish.

In 2021, the Eastern District ruled that The Bar Plan Mutual Insurance Company wasn’t liable for judgment against Jeffrey Witt, a now-disbarred lawyer who had been sued by former clients Jessica and Brian Stacy.

However, the appeals court held that its earlier ruling didn’t bar the Stacys from pursuing a separate bad faith claim against the insurer, which Witt had assigned to the plaintiffs as part of an earlier agreement and that had proceeded on a separate track from their efforts to collect the judgment.

“This Court did not hold the Agreement was invalid for all purposes and that Witt had no authority to assign his separate tort claims to the Stacys,” Judge Renée Hardin-Tammons wrote. “Nor could it, because neither of those propositions were necessary to the resolution of the equitable garnishment action.” Judges Lisa P. Page and Thomas C. Clark II concurred.

The Stacys had sued Witt for malpractice after he assigned a disbarred lawyer to handle their case after they were injured in a car crash in 2007. The Bar Plan defended Witt but informed him shortly before trial that his policy’s $1.5 million aggregate limit didn’t apply, and that only $500,000 in coverage was available.

Witt terminated The Bar Plan’s defense and entered into an agreement with the Stacys under section 537.065 of the Revised Statutes of Missouri, which allows a plaintiff to obtain a judgment against a defendant whose insurer has declined to provide unreserved coverage. The plaintiffs could then seek to recover the judgment from the insurer rather than from Witt himself.

Following that agreement, a judge awarded the Stacys $950,000, including $500,000 in punitive damages. A separate judge later ruled that The Bar Plan was liable for the $450,000 compensatory portion of the judgment. But the Eastern District said the insurer had correctly interpreted its policy and never breached its obligations to Witt, which meant the lawyer never had the right to reach an ‘065 agreement with the Stacys.

Given that holding, the Bar Plan argued that the Stacys also couldn’t pursue Witt’s claim that The Bar Plan acted in bad faith by failing to settle the case, which Witt had assigned to the Stacys as part of the ‘065 agreement. However, the bad faith claim had been severed from the garnishment action and proceeded under a separate case number. The Eastern District said its 2021 ruling said nothing about that separate case.

“The Bar Plan’s argument the Stacys should have litigated the severed bad faith claim along with the equitable garnishment claim is foreclosed by their acquiescence to exactly the opposite procedure,” Hardin-Tammons wrote. “Holding otherwise would incentivize sandbagging.”

The matter was remanded to St. Louis County Circuit Court for further proceedings.

The case is Stacy v. The Bar Plan Mutual Insurance Company, ED110678.