Avoiding Bad Faith Liability Claims in Missouri in Cases Involving Multiple Claimants

Takeaway: Statute amended in 2018 provides insurers with a roadmap to avoid bad faith liability claims when there is insufficient coverage for multiple claimants.

A recent and not widely known amendment to the Missouri Interpleader Statute is a gift for insurers when they’re presented with multiple claimants and not enough coverage.

Prior to 2018, insurers in Missouri were put in a difficult situation when faced with large claims that involved multiple competing claimants and a limited amount of coverage. While Missouri courts provided guidance to insurers during post-judgment proceedings by favoring a pro rata share distribution, there was no guidance for prejudgment settlements. See Christlieb v. Luten, 633 S.W.2d 139 (Mo. App. E.D. 1982). In those prejudgment cases, the insurer was put in a no-win situation when one competing claimant tried to settle earlier than another claimant, especially if that non-settling claimant had a stronger claim to coverage. Moreover, the insurer could not just wait on the non-settling claimant until the judgment phase as they risked losing out on a settlement with that first claimant, who may have presented a fair demand in order to avoid litigation. As a result, Missouri insurers were tasked with making difficult decisions with no certainty on potential bad faith claims. Fortunately, the Missouri legislature recognized this situation and amended the Missouri Interpleader Statute in August 2018 to provide insurers a roadmap for navigating these types of claims.

Under the amended statute § 507.060, RSMo (Cum. Supp. 2018), an insurer can avoid bad faith liability in these situations by filing an interpleader action within 90 days of the first offer of settlement or demand for payment by a claimant. In the interpleader action, the insurer must name as defendants all claimants against the insured and deposit the full coverage limit with the court within 30 days of the order granting the interpleader. After that, the insurer must continue to defend all insureds in good faith against any claims for damages arising from the accident. In addition to those simple steps, the statute appears well-crafted to head off any potential ancillary litigation, as it preempts objections by claimants by disqualifying arguments that their claims are of not common origin, are adverse to and independent of one another, or that the insurer has claimed no liability in whole or part to any of the claims. In other words, the legislature has attempted to provide a common-sense remedy for these difficult claims as long as insurers follow the statute and its timing provisions.

Thus, to avoid liability, an insurer must:

  1. File an interpleader action within 90 days of first offer of settlement or demand.
  2. Name all claimants against the insured as defendants.
  3. Deposit all applicable limits of coverage into the court within 30 days of the court’s order granting interpleader.
  4. Continue to defend the insured(s) in good faith.

Again, insurers must stay diligent when presented with such claims as the statute has to be strictly followed in both time and compliance in order to obtain the protection. Fortunately, it appears the statute’s straightforward nature is producing the desired results because, as of the writing of this article, no new cases have been filed challenging any of its provisions. Hopefully, this is one gift by the Missouri Legislature that will not need to be returned for further amendment after the holidays.

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Kerri Forsythe

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