Opinion handed down May 26, 2015
After leaving a friend's party at a bar, Daniel Minden (“Daniel”) was knocked airborne and run over by a vehicle driven by Curtis Lammert and later died from those injuries. His children (“Minden”) brought claims against the bar. Atain Specialty Insurance Co. (“Atain”), the bar's insurer, failed to participate in the mediation between the Mindens and the bar, which ultimately resulted in a settlement and consent judgment and an assignment of claims against Atain from the bar to the Mindens. The Mindens brought suit against Atain in federal district court and on motions for summary judgment, succeeded on their equitable garnishment claim, but their vexatious refusal claim was rejected. On appeal, the U.S. Court of Appeals for the Eighth Circuit affirmed the trial court’s judgment in a decision focusing heavily on the interpretation of the insurance policy between the bar and Atain.
I. Facts and Holding
The underlying claim arose out of events after a St. Louis County police officer's birthday party at a bar called Gannon's, attended by both Daniel Minden and a guest named Curtis Lammert. At Gannon's closing time, Mr. Lammert was concerned that one apparently intoxicated guest, Sherri, was going to be taken advantage of by another guest, Gene; Mr. Lammert therefore argued with Gene and was eventually able to take Sherri into his pickup truck. In attempting to lock Sherri's car for the night, Mr. Lammert accidentally set off its car alarm, and Gene and Daniel, who was walking toward a remote parking lot of Gannon’s, subsequently yelled at him. Mr. Lammert then entered his pickup truck and, so it was testified, looked, and drove, toward Gene. Gene got out of the way, but Daniel, who did not see Mr. Lammert's truck approach, was tossed into the air by the impact of the truck and afterwards run over by the truck. Mr. Lammert turned himself in, and, after Daniel died from his injuries, Mr. Lammert pled guilty to manslaughter.
Daniel’s children brought premises liability and negligence claims, among others, against Gannon's, the bar, for the death of Daniel related to the dangerously designed parking setup of Gannon's. Atain was the general commercial liability insurer of Gannon's and failed to defend Gannon’s against the negligence and premises liability claims. Minden and Gannon's reached a settlement on those claims, leading Gannon's to assign to Minden any claim that it had against Atain; this also led to an uncontested consent judgment against Gannon's in the amount of $2 million. Minden then brought suit against Atain for vexatious refusal to defend and equitable garnishment in the U.S. District Court for the Eastern District of Missouri.
Both parties moved for summary judgment, and the district court granted summary judgment to Minden on the equitable garnishment claim, but also granted summary judgment to Atain on the vexatious refusal claim. On the equitable garnishment claim, the district court reasoned that two insurance policy exclusions, which Atain alleged to exclude insurance coverage for Gannon's loss, did not apply to this situation and therefore Atain should have defended Gannon's against the premises liability and negligence claims. These exclusions were an “automobile exclusion” that prevented insurance coverage for injury arising from automobiles, and an “assault and battery” exclusion for injuries caused by assault or battery. It is notable that the insurance policy contained no internal definition of 'assault' or 'battery.' On the vexatious refusal claim, the district court found that, because the policy exclusions could arguably apply and their application was a “close call,” Atain was not “vexatious” in refusing to defend.
Minden appealed the district court's ruling on vexatious refusal, and Atain appealed the equitable garnishment ruling. The U.S. Court of Appeals for the Eighth Circuit affirmed the decision of the district court as to both issues. On the equitable garnishment issue, the Eighth Circuit held that, where a layperson could reasonably understand an automobile exclusion to apply only to automobiles somehow related to the insured, the automobile exclusion will be restrictively interpreted in that manner. The court further held that an “assault and battery” exclusion is not applicable where there is enough evidence of record to conclude that the alleged act leading to injury was not intentional, even if the alleged act was a crime requiring a “reckless” mental state. On the vexatious refusal issue, the court held that an insurer has reasonable cause to refuse to defend an insured where the insurer has not acted “particularly recalcitrant,” where a police report evinces a mental state that would meet a policy exclusion, and where it is a “close call” as to whether a policy exclusion applied.
II. Legal Background
In Missouri, equitable garnishment is one permitted device by which a person who becomes a judgment creditor may collect on that judgment directly from the insurer of the insured against whom judgment was rendered. Equitable garnishment is governed by Missouri Revised Statute Section 379.200, which, relevantly, entitles a judgment creditor to the insurance proceeds that are provided for in a liability insurance contract between the judgment debtor and the insurer. Because the right to collect from the insurer in this way derives from the right of the insured, the insurer may defend against an equitable garnishment action by using a defense it would have against its insured. The plaintiff bringing an equitable garnishment action must show that he received a favorable judgment against the insurer's insured – that, at the time of the incident, the policy was in effect, and that the injury falls within the policy's coverage.
Vexatious refusal is governed by Missouri Revised Statutes Section 375.420, stating in relevant part that a party suing, under most insurance policies, to recover on a loss is permitted to receive attorney's fees and a certain percentage of additional damages above the proceeds of the policy when the evidence supports that the insurer's refusal to pay was done with no reasonable cause or excuse. Vexatious refusal damages are not permitted where the insurer has the actual belief, with reasonable cause and a meritorious defense, that an insurance policy does not cover an alleged injury. Even where an insurer would normally be permitted to request a court's determination of the issue of its liability, as when there are no Missouri cases directly on the matter, an insurer may still be penalized if its attitude is “vexatious and recalcitrant.” An insurer may be vexatious, whether or not there is a litigable issue as to insurance coverage, where, for example, it repeatedly fails to investigate its insured's claims.
An insurer bears the burden of proof that an insurance policy exclusion applies when that insurer uses that policy exclusion to refuse to pay or defend an insurance claim. An insurance policy's language will be construed consistently with the interpretation of “an ordinary person of average understanding,” and ambiguities will be construed against the insurer. A liability insurer's duty to defend a claim against its insured arises only when the injury involved is within the insurance policy's coverage. If either the allegations in a petition filed against an insured, or reasonably ascertainable facts show that the injury alleged is possibly or potentially covered under the insurance policy, the insurer must defend its insured.
III. Instant Decision
The U.S. Court of Appeals for the Eighth Circuit first decided the issue of equitable garnishment. After investigating Missouri's equitable garnishment statute, the court explained that it was Atain's burden to prove that the claim for Daniel's injury was excluded under the insurance policy's automobile and “assault and battery” exclusions, on which Atain relied. As to the automobile exclusion, which excluded injury by an automobile “whether or not owned . . . [or] used . . . by any insured,” the court found that the exclusion was not applicable. The court reasoned that the phrase “whether or not” was unclear, as evinced by the fact that the Louisiana Court of Appeals considered whether an identical provision in another policy applied, rather than straightforwardly deciding to affirm the Louisiana lower court's decision against coverage. Since a layperson may reasonably have believed that only damage arising from automobiles associated somehow to the bar-owner would be barred by the automobile exclusion, but could also have interpreted the clause favorably to the insured, the “‘tie’ goes to the insured . . . .”
In determining whether the insurance policy's “assault and battery” exclusion was applicable, the Eighth Circuit agreed with the district court that, since intent is an essential element of assault or battery, and since Mr. Lammert's guilty plea was to manslaughter, which had the mental state of recklessness rather than intent, the manslaughter conviction was not a sufficient basis on which to deny coverage. Further, because there was sufficient evidence of record to decide that Mr. Lammert's relevant actions were unintentional, although there was “certainly” evidence favoring Atain's position as well, the Eighth Circuit held the “assault and battery” exclusion inapplicable. Since both exclusions on which Atain relied in failing to defense were not applicable, the district court's decision in favor of Minden on the equitable garnishment claim was affirmed.
The court then turned to the issue of the insurer's alleged vexatious refusal to defend. It stated the elements of vexatious refusal, as governed by Missouri's statute, as obliging the plaintiff to show “(1) the existence of the insurance policy; (2) the insurance company's refusal to pay; and (3) such refusal was without reasonable cause or excuse.” The Eighth Circuit rejected Minden's argument that Atain could have performed investigation that would uncover the truth about Mr. Lammert's (lack of) intent, holding that Missouri law does not appear to require an insurer to go beyond an initial police report in order to have a reasonable cause to deny coverage. Because Atain denied coverage with reasonable cause and without acting “particularly recalcitrant,” the Eighth Circuit affirmed the district court's decision denying Minden's vexatious refusal to defend claim.
This case is yet another example of the strong interpretive penalty imposed on form insurance policies provided by insurers. An exclusion of coverage for injuries arising from an automobile, “whether or not” it is used or owned by the insured, is fairly clear, and it is difficult to see how a much clearer provision could be drafted without further expanding the likely already lengthy form insurance policy. It might be preferable that, rather than applying rules of construction that do not accurately reflect the fair import of an insurance policy, courts would instead perform an un-augmented interpretation of automobile exclusion provisions and, if the terms of the contract were seriously unfair, decide in favor of the insured on an unconscionability or public policy basis.
To the extent this case affects how insurance companies view the current state of Missouri's law pertaining to commercial general liability automobile and “assault and battery” exclusions, especially where there is a “lack of any Missouri cases directly on point concerning the exclusions at issue,” the decision here may discourage insurers from performing any extensive investigation into claims that might be excluded under the initially known facts. In a competitive market for insurance, the savings from a reduced amount of investigation could be passed on to insureds in the form of lower premiums or by other means. But these would-be savings could come at an eventual cost in reduced likelihood of payout to insureds. Insurers, feeling insulated from a vexatious refusal claim upon receiving some initial information supporting a policy exclusion's applicability, might see everything to lose and nothing to gain from pursuing further investigation which risks a decision in favor of coverage.
- Rich Byrd
 Minden v. Atain Specialty Ins. Co., 788 F.3d 750 (8th Cir. 2015).
 Id. at 753.
 Id. at 757.
 Id. at 752.
 Id. at 753.
 Id. at 752, 755.
 Id. at 753.
 Id. at 753 n.1.
 Id. at 753.
 Id. at 753-55.
 See Minden v. Atain, Appellant’s Opening Brief and Addendum, 2014 WL 905969 (C.A.8) at 19.
 Minden, 788 F.3d at 753.
 Id. at 754.
 Id. at 752.
 See id. at 754-55.
 See id. at 755-56.
 See id. at 756-57.
 Lancaster v. Am. & Foreign Ins. Co., 272 F.3d 1059, 1064-65 (8th Cir. 2001).
 Mo. Rev. Stat. § 379.200 (Cum. Supp. 2013).
 Glover v. State Farm Fire & Cas. Co., 984 F.2d 259, 260 (8th Cir. 1993).
 Kotini v. Century Sur. Co., 411 S.W.3d 374, 377 (Mo. Ct. App. 2013).
 Mo. Rev. Stat. § 375.420 (2000).
 Watters v. Travel Guard Int'l, 136 S.W.3d 100, 109 (Mo. Ct. App. 2004).
 Stark Liquidation Co. v. Florists' Mut. Ins. Co., 243 S.W.3d 385, 401 (Mo. Ct. App. 2007).
 See Jensen v. Allstate Ins. Co., 349 S.W.3d 369, 375 (Mo. Ct. App. 2011).
 See Trainwreck W. Inc. v. Burlington Ins. Co., 235 S.W.3d 33, 41 (Mo. Ct. App. 2007).
 Penn-Star Ins. Co. v. Griffey, 306 S.W.3d 591, 596-97 (Mo. Ct. App. 2010).
 Minden v. Atain Specialty Ins. Co., 788 F.3d 750, 754 (8th Cir. 2015).
 Id. at 754-55.
 Id. at 755.
 See id.
 Id. at 755-56.
 Id. at 756.
 Id. at 757.
 Cf. K. N. Llewellyn, The Standardization of Commercial Contracts in English and Continental Law by O. Prausnitz. London: Sweet & Maxwell, 52 Harv. L. Rev. 700, 703 (1939) (book review).
 Minden v. Atain Specialty Ins. Co., 788 F.3d 750, 757 (8th Cir. 2015).