U-Haul Company of Missouri and ARCOA Risk Retention Group, Inc. v. Timothy Andre Carter, Christy Wilson-Finister, Davon Wilson, Keith L. Williams, Ashley Knight and Keith Dawson

Citation: 567 S.W.3d 680Docket: WD81506

Court: Missouri Court of Appeals; January 21, 2019; Missouri; State Appellate Court

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U-Haul Company of Missouri and ARCOA Risk Retention Group, Inc. appeal a declaratory judgment from the Circuit Court of Jackson County, which granted summary judgment in favor of Respondents—Christy Wilson-Finister, Davon Wilson, Keith Williams, and Ashley Knight—while denying U-Haul and ARCOA’s motions for default judgment. The case arose from an insurance coverage dispute following an automobile collision involving Timothy Carter. U-Haul and ARCOA argue that the collision was part of a fraudulent scheme among Carter and the Respondents to file false insurance claims, asserting that they have no obligation to defend or indemnify Carter under their insurance policies.

The trial court ruled that U-Haul and ARCOA were estopped from contesting the coverage issues due to a prior judgment in a personal injury lawsuit that found Carter liable for negligence in causing the collision. However, the appellate court determined that the Respondents did not sufficiently establish their entitlement to summary judgment and subsequently reversed the trial court's decision, remanding the case for further proceedings.

The factual background reveals that on April 28, 2014, Carter rented a U-Haul truck, which included liability insurance that excluded coverage for intentional acts or fraudulent claims. During the incident, Carter collided with an Acura driven by Respondent Wilson-Finister, with other Respondents as passengers. Investigations by U-Haul's claims handler revealed Carter admitted the collision was staged for fraudulent purposes. Subsequently, in July 2016, Respondents initiated a personal injury lawsuit against Carter and U-Haul, alleging negligence, negligent entrustment, and agency claims against U-Haul through Midtown Investment Corp., which leased the truck to Carter.

U-Haul and Midtown filed counterclaims against Respondents and crossclaims against Carter, alleging fraud and civil conspiracy related to a staged car accident for fraudulent claims. They claimed that Carter confessed to this scheme, supported by his written and recorded statements. In March 2017, U-Haul initiated a declaratory judgment action against Respondents, Carter, and Keith Dawson, asserting no duty to defend Carter under the Rental Contract or the Excess Rental Liability Policy due to Carter's fraudulent actions. U-Haul was granted permission to add ARCOA, the policy underwriter, as a plaintiff. All parties attempted to stay the personal injury case pending the declaratory judgment resolution, but the request was denied. In May 2017, Respondents dismissed their claims against U-Haul and Midtown but retained their claim against Carter. U-Haul and Midtown subsequently dismissed their counterclaims and crossclaims. In June 2017, a bench trial against Carter ensued, resulting in a judgment against him for negligence, awarding Respondents significant damages. Respondents later sought summary judgment in the declaratory action, arguing that U-Haul and ARCOA were collaterally estopped from contesting Carter’s liability due to the prior negligence finding. The trial court granted this motion, determining that U-Haul and ARCOA could not relitigate the issue of liability. An appeal followed, with the standard of review being de novo, examining whether U-Haul and ARCOA were indeed precluded from relitigating Carter’s liability and if the negligence finding entitled Respondents to a judgment regarding U-Haul and ARCOA's duty to defend and indemnify under the relevant agreements.

Respondents failed to prove an uncontested factual basis for their legal claims, leading to the reversal of the trial court's summary judgment and a remand for further proceedings. Collateral estoppel prevents parties from relitigating previously adjudicated issues and requires four elements for application: 1) identity of the issue in both actions; 2) a judgment on the merits in the prior action; 3) involvement of the party against whom estoppel is asserted in the prior action; and 4) a full opportunity for that party to litigate the issue previously. Fairness is paramount, and collateral estoppel cannot be applied if it would be inequitable. It does not bar litigation of issues not previously argued or essential to the prior judgment. In the context of a declaratory judgment action involving U-Haul and ARCOA, the existence of a duty to defend Carter in an underlying personal injury lawsuit hinges on whether the refusal to defend was justified. Respondents’ argument relies on the underlying negligence finding against Carter, which is not binding on U-Haul and ARCOA if their refusal to defend is justified. However, Respondents did not assert or prove that the refusal to defend was unjustified. An insurer's duty to defend is broader than its duty to indemnify, based on potential liability as understood at the outset of a case. An insurer must demonstrate no possibility of coverage to extricate itself from this duty and risks wrongful refusal. If an insurer wrongfully refuses to defend after having the opportunity, it cannot relitigate facts already established in the underlying case. A declaratory judgment action implies a refusal to defend, and if found unjustified, the insurer may be deemed to have waived control over the underlying defense.

The personal injury lawsuit focused solely on Carter's liability, but this finding alone does not automatically indicate that U-Haul and ARCOA's decision to refuse defense was wrongful. A comprehensive evaluation of the factual allegations against Carter and the known facts to U-Haul and ARCOA at the time of their decision, including Carter's admission of involvement in a fraudulent scheme, is necessary. Without this analysis, it cannot be established whether the refusal to defend was justified based on the terms of the insurance policies.

Respondents failed to provide an uncontroverted factual record supporting their claim that U-Haul and ARCOA's refusal was unjustified, which is critical for their summary judgment motion. They did not include the relevant insurance policies or reference them in their motion, undermining their argument. The determination of whether U-Haul and ARCOA's refusal to defend was justified must involve analyzing the policies’ terms.

Furthermore, Respondents' assertion that the negligence finding in the personal injury lawsuit obligates U-Haul and ARCOA to indemnify Carter is flawed, as it relies on a binding determination that has not been established. Even if the negligence finding were binding, the policies' terms still need examination regarding indemnification.

U-Haul and ARCOA contend that the negligence finding does not preclude a lack of coverage under the policies. They argue that Carter's conduct could exclude coverage while still being negligent, highlighting that these two outcomes are not mutually exclusive.

Consequently, the trial court erred in granting summary judgment for the Respondents. Collateral estoppel cannot be used against U-Haul and ARCOA, which permits them to pursue default judgments against Carter and Dawson. The judgment granting summary judgment is reversed, and the case is remanded for further proceedings consistent with this opinion.