Missouri Federal Court Rejects Bad Faith Claim

In its recent decision in Hullverson v. Liberty Ins. Underwriters, 2013 U.S. Dist. LEXIS 101640 (E.D. Mo. July 22, 2013), the United States District Court for the Eastern District of Mississippi had occasion to consider the issue of whether Missouri law permits an insured to assert a bad faith claim sounding in tort based on an insurer’s breach of the duty to defend.

Liberty International Underwriters insured the Hullverson law firm under a professional liability policy.  The firm and several individual attorneys were sued in connection with various activities relating to the firm’s advertising.  Liberty denied coverage for the suit, prompting Hullverson to commence a declaratory judgment action against Liberty.  In addition to asserting causes of action for declaratory judgment and breach of contract, Hullverson’s complaint stated a cause of action for vexatious refusal to pay in violation of Missouri Revised Statutes §§ 375.296 and 375.420, and a cause of action for bad faith failure to defend and indemnify.

Liberty moved to dismiss Hullverson’s bad faith cause of action, arguing that Missouri’s vexatious refusal to pay statutes preempt such a cause of action.  The court agreed that as a general proposition, a bad faith cause of action for breach of duty to defend is not permissible under Missouri law.  The seminal decision on the issue, observed the court, is Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62 (Mo. 2000), in which the Missouri Supreme Court held that “an insurance company's denial of coverage itself is actionable only as a breach of contract and, where appropriate, a claim for vexatious refusal to pay.”  These decisions, explained the Hullverson court, make clear that absent wrongful conduct independent of the denial of the duty to defend, an insured cannot recast a breach of contract claim as a tort claim.   With this general rule in mind, the court concluded that Hullverson failed to alleged the requisite independent conduct that would permit a bad faith claim:

Plaintiffs have failed to plead or argue any conduct in Count IV that is distinct from conduct alleged in Counts I, II, and III. The bad faith claim is not wholly independent of their breach of contract and vexatious refusal claims. This is not they type of independent tort claim contemplated by Overcast. Plaintiffs have merely stated a claim for bad faith based almost wholly on Liberty's refusal to pay their insurance claim. Missouri courts have consistently interpreted the holding in Overcast to preclude these types of claims.

As such, the court agreed that Hullverson was limited to its claim for vexatious refusal to pay, and that its bad faith claim must be dismissed.