Insurers operating in Missouri received an early Christmas present with the Missouri Supreme Court's December 2024 decision in McCrackin v. Mullen.1 The court ruled in favor of Safeco Insurance Company's motion to intervene and stay an underlying tort action while the insurer sought a declaration of its rights under a homeowner's policy of insurance. This procedure was previously introduced in a Missouri appellate court decision in the 1980s but was challenged or otherwise ignored in subsequent Missouri decisions.2 Until now, the Missouri Supreme Court has not weighed in on whether this was a viable action to be taken by an insurer.
In McCrackin, Mullen was sued in a wrongful death case filed by McCrackin on behalf of the decedent's estate for alleged criminal conduct in luring the decedent out of a pool hall and into the parking lot, ambushing him and participating in his killing. While Mullen was being criminally prosecuted, McCrackin sued him for damages. Safeco, Mullen's homeowner's insurer, denied coverage for the civil lawsuit based upon the intentional and criminal acts exclusion in the policy.
Thereafter, Safeco filed a declaratory judgment action seeking a declaration that it did not owe Mullen a defense or indemnity for his part in the alleged wrongful death of the decedent. Safeco then sought to intervene in the civil action for the sole purpose of staying it until its declaratory judgment action could be resolved. The motion to intervene was opposed and ultimately denied by the trial court. McCrackin eventually obtained a $16.5 million civil judgment against Mullen.
Safeco appealed the trial court's decision denying its right to intervene. The Missouri Supreme Court held that Safeco was wrongfully denied this right because the insurance company had an interest in the outcome of the tort action involving its insured, even though Safeco had previously denied coverage for it. The Court pronounced, “Insurers with a good faith coverage question should file a declaratory action simultaneous with the underlying tort action and seek a stay of the tort action until the declaratory judgment action is resolved.” The Missouri Supreme Court determined that because Safeco met the criteria for intervention as of right, for the purpose of seeking a stay, the trial court's decision to deny Safeco's motion to intervene constituted error.
IMPLICATIONS AND OPPORTUNITIES
This decision has broad implications for insurers in Missouri. Unlike many states, Missouri insurers often must make a very quick choice about whether to deny coverage altogether or control the defense without reserving their rights when coverage is tendered to them, oftentimes before the insurer may fully appreciate its coverage defenses or its insured's liability defenses. This is because, in Missouri, an insurer wishing to reserve its rights typically must do so without controlling the defense or using its choice of counsel since policyholders have the right to reject a “reservation of rights” defense.3 As a result, in many instances in Missouri, there is no middle ground for an insurer to both reserve its rights and control the defense, especially when dealing with sophisticated policyholders. Instead, insurers operating in Missouri routinely must give up their right to dispute coverage if they want to control the defense.
With this new decision, insurers in Missouri will have another option: disclaim if there is a basis to do so, and then file a simultaneous declaratory judgment action while seeking to stay the underlying action. If the insurer wins the coverage action, it can walk away from the underlying dispute before it even develops. If the insurer loses the coverage action, then it can control the defense (and likely the settlement) of the underlying dispute, once again, before it fully develops.
While seeking a declaratory judgment may increase the expense for insurers in some cases, by using this process, the insurer can now essentially determine its coverage rights, assuming it has a basis to dispute a duty to defend, without losing control of the defense of the underlying action should it turn out that the insurer is wrong regarding its coverage defenses. Taking the opportunity to stay the underlying case and litigate its coverage defenses may also present the insurer an opportunity to resolve the underlying case, with all parties understanding the risk that there may not be coverage (and therefore, may not be anything to gain in litigating the underlying dispute) should the insurer win. Thus, the upshot of this decision may ultimately be an opportunity to increase settlements across the board in Missouri without litigation of the underlying dispute. This decision may also effectively save defense costs in some cases because insurers with strong coverage defenses will be able to stay the underlying case without incurring defense costs from independent counsel or risking the consequences of bad faith if the disclaimer is not well-taken.
For many years, Missouri has been considered a sort of “coverage wasteland.” However, the tide may be turning for the better for insurers in the state following the McCrackin decision.
Footnotes
1. 2024 LEXIS (Mo. Banc. Dec. 23, 2024).
2. See State ex. Rel. Rimco, Inc. v. Dowd, 858 S.W. 2d 357 (Mo. App 1993); Lodigensky v. Am. States Preferred Ins. Co., 898 S.W.2d 661 (Mo. App 1995); and Estate of Langhorn v. Laws, 905 S.W.2d 908 (Mo. App 1995).
3. See Kinnaman-Carson v. Westport Ins. Group, 283 S.W.3d 761 (Mo. 2009).
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