Missouri Appellate Court: Insurer’s 537 Protections May Not Apply to Underlying Arbitration

(September 2019) - In Britt v. Otto, 2019 Mo. App. LEXIS 397 (Mar. 26, 2019), the Missouri Court of Appeals opened the door to an argument that an insurer’s statutory right to intervene in a liability lawsuit after a 537 notice may not apply as to an arbitration conducted to determine liability and damages. The Court of Appeals affirmed a ruling denying the insurer the right to intervene in the action to confirm the arbitration award of $5,998,027.

The subject policy had liability limits of $100,000. The claimant asserted that the policy also provided supplemental coverage for first aid services (which the arbitrator ultimately set at $35,583.84). This dispute derailed an effort to settle the case. The claimant had offered to settle for “all applicable policy limits plus any payments” due under the policy. The insurer agreed only to pay its limits, but denied that more was owed. The claimant then concluded there was no settlement. The insurer brought a federal suit to enforce the settlement, but did not name the insured as a party or ask for a determination as to the full amount available under the policy.

Meanwhile, the insured gave notice of an intent to enter into arbitration or participate in a bench trial under Section 537.065.2 asserting that the insurer was refusing to defend without reservation of rights. Under Missouri law, a section 537.065.1 agreement may be entered into to protect an insured’s assets other than the insurance policy, based on an asserted failure to defend unconditionally.

In the notice at issue, the insured’s counsel offered to and did defend the claim based on the assertion that there was a binding settlement. Despite having the opportunity within 30 days after the notice, the insurance company declined to participate in arbitration. It only sought to intervene to oppose the petition to confirm the award after liability and damages were established. It argued that it was entitled to intervene (1) as a matter of right under section 537.065.2; (2) as a matter of right under Rule 52.12(a)(2) based on the potential that its rights would be materially prejudiced absent an intervention; (3) permissively, under Rule 52.12(b). The trial court denied the motion. The Missouri Court of Appeals affirmed.

On appeal, the court questioned whether 537 would allow an insurer to timely intervene in an arbitration, based on the assertion that an arbitration may not qualify as a “pending lawsuit involving the claim for damages,” and affirmatively held that Section 537 did not confer the right to intervene in a later action to confirm the arbitration award.

In reaching its conclusion, the court criticized the insurer’s motion as untimely, filed substantially more than 30 days after it had notice of the 537 agreement, commenting, in part “there is little doubt that the General Assembly intended … to afford insurers a temporally limited right to intervene … before liability and damages have been determined….” Thus, even if arbitration proceedings were in the intended scope of Section 537.065.2, this situation was not.

Without the benefit of Section 537, the court held that the insurer’s potential liability was not a sufficiently direct interest to support intervention of right. The court explained that the question of the insurer’s liability to pay the award was not presented in the action to confirm the award. Similarly, the trial court had properly declined the motion to join as a permissive intervenor.

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