More Claimants,
Fewer Problems?
Interpleading Out of
Extra-Contractual Liability
Most practitioners have been involved in a situation where multiple people have been injured by the negligence of an individual with insufficient insurance coverage to compensate all the claimants. Such a case presents dilemmas for all parties (claimants, attorneys, insureds, and carriers) on the proper manner to resolve the claims.
This past session, the Missouri General Assembly passed House Bill 1531 which superficially appears to eliminate the problems for carriers in such situations, while in reality creating problems for others involved in multi-claimant cases.
While not yet signed into law, House Bill 1531 will likely go into effect on August 28, 2018 and will modify several components of Missouri law. The bill’s addition to §507.060 has the potential to substantially impact extra-contractual litigation throughout Missouri.
HB 1531
In a multiple claimant situation, carriers have generally had the ability to pursue an interpleader action if the requirements of §507.060 were met. The criteria was exposure to multiple or double liability arising out of a single loss. The amendments contained in HB 1531 do not necessarily change this predicate, but instead provide a “get out of liability” card to the carrier.
In essence, the modifications to §507.060 through HB 1531 provide that:
- A carrier is entitled to file an interpleader action if:
- More than one claim is made against the carrier’s insured arising out of a single event; and
- The value of the claims exceeds the carrier’s total limits of coverage for the event.
- If the requirements are met, the carrier can avoid extra-contractual liability if:
- The carrier files an interpleader action within 90 days of receiving the first settlement offer or demand from a claimant; and
- The carrier deposits its limits into the court within 30 days of the court granting interpleader; and
- The carrier defends all of its insureds in good faith from any claims or lawsuits for damages arising out of the event.
The section does not, however, require a claimant to release an insured from any liability upon the carrier’s interpleader.
Any time an insured is involved in a multi-claimant situation, the insured is placed in a tough situation. Often their last and only line of protection is their carrier, that has collected premiums from the insured, to not only provide indemnity but also good faith and professional claims handling services. With the additions to §507.060, part of these protections may be eliminated.
Rather than requiring the carrier to perform its obligation to act in good faith by protecting the insured’s interests in a multi-claimant situation, the carrier is apparently permitted to sit on its hands and wait to file an interpleader action. There is little incentive for the carrier to perform its obligation to conduct professional claims handling and little incentive to proactively resolve and secure releases for the insured from the claims posing the greatest exposure when given the opportunity to do so. These excess claims always pose the greatest threat to the insured and honest judgment and good faith require the carrier to resolve these claims in the interest of their insured. With no threat of extra-contractual exposure for failing to do so, the carrier has little incentive to identify excess claims and resolve them at an early stage, as the failure to do so is apparently excused by §507.060.
In addition, while the carrier receives great protection by the enactment of HB 1531, the insured benefits little. Claimants are not required to give a release upon interpleader and an insured with personal assets is at significant risk from future suits when the carrier chooses to interplead its limits. After the carrier chooses interpleader, the insured has little bargaining power with the claimant to protect his/her personal assets as any potential extra-contractual claim may no longer exist regardless of the carrier’s previous conduct.
Finally, the HB 1531 modification of §507.060 raises numerous questions.
One of which is whether actions of the carrier, prior to its filing an interpleader action, that are indicative of bad faith are excused. These actions include failing to inform the insured of its excess exposure, failing to inform the insured of its right to personal counsel and failing inform the insured of previous settlement offers. Further, potential conflicts of interest are numerous when the carrier has sought interpleader but is defending its insured in other suits.
Questions that must be answered include:
- Can the carrier use in house counsel to provide a defense in these circumstances?
- Does the insured or carrier get to select counsel to provide the defense?
Current and Future Considerations
The full effect of HB 1531 cannot, and likely will not, be realized until the revised §507.060 has been in place for an appreciable amount of time. Presently, any case involving multiple claimants should be filed prior to August 28, 2018 to protect a potential right to extra-contractual recovery for a carrier’s bad faith.
In the future, claimants and personal counsel for the insured should closely evaluate the conduct of the carrier both before and after interpleader. This includes any attempt by the carrier to save on defense costs or any limitation on the defense being provided to the insured after interpleader. §507.060 only releases the carrier from extra-contractual liability if the carrier continues to provide a defense to its insureds in good faith.
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