Gulf Insurance Co. v. Noble Broadcast
936 S.W.2d 810, 1997 WL 22814, 1997 Mo. LEXIS 17 (1997)
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Rule of Law:
An insurance policy containing an auto exclusion is ambiguous and must be construed in favor of coverage for special events like parades when an endorsement states "Subject otherwise to all the terms, limits and conditions of the Policy." Furthermore, a Section 537.065 settlement agreement, entered into after an insurer's unjustified refusal to defend, must be reasonable in amount to be enforceable against the insurer.
Facts:
- Noble Broadcast conducted a "Free Money" parade as a promotion for a radio station it owned.
- A Noble employee drove the station’s mobile studio in the parade and tossed money to the crowd.
- The crowd at the parade pushed Angelia Fuller in front of the mobile studio.
- One of the wheels of the mobile studio ran over Fuller’s lower leg, causing her injuries.
- Noble Broadcast had a business auto insurance policy with Pacific Indemnity Insurance Company and a commercial general liability (CGL) policy with Gulf Insurance Company.
- Fuller filed suit against Noble Broadcast and the driver of the mobile studio, alleging Noble was negligent in conducting a parade without adequate safety precautions and for negligently operating the mobile studio.
Procedural Posture:
- Angelia Fuller filed suit against Noble Broadcast and its employee in an unspecified court.
- Noble Broadcast removed the case to the United States District Court for the Western District of Missouri.
- Gulf Insurance Company refused to defend Noble Broadcast in the federal suit, citing an auto exclusion in its CGL policy.
- Noble Broadcast, Pacific Indemnity Insurance Company, and Fuller entered into a settlement agreement under section 537.066, RSMo 1994, where Pacific paid $187,500 to Fuller and a consent judgment for $1,000,000 (the limit of the CGL Policy) was entered against Noble Broadcast.
- The federal district court entered judgment on Fuller's claim that Noble was negligent in conducting the parade; all other claims were dismissed.
- Gulf Insurance Company, upon refusing to pay the judgment, filed a declaratory judgment action in the circuit court of Jackson County (trial court) seeking a finding that Fuller's injuries were not covered and that the settlement agreement was unenforceable.
- The trial court granted summary judgment to Fuller, Pacific, and Noble Broadcast on the coverage issue, finding the CGL policy ambiguous and thus covering Fuller's injuries.
- After conducting a trial on the validity of the settlement agreement, the trial court found the settlement to be unenforceable because the amount was unreasonable.
- Both parties appealed to the Missouri Court of Appeals: Fuller (appellant) appealed the trial court’s determination that the settlement was unreasonable, and Gulf (appellant) appealed the summary judgment finding that the CGL Policy covered Fuller’s injuries.
- The court of appeals held that Fuller’s injuries were not covered under the CGL Policy and, therefore, did not address the issue of reasonableness.
- The Supreme Court of Missouri granted transfer.
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Issue:
1. Is a commercial general liability policy, which contains an auto exclusion but also a special events endorsement for "parades" stating it is "Subject otherwise to all the terms, limits and conditions of the Policy," ambiguous as to whether injuries arising from an auto's use during a parade are covered? 2. Must a settlement agreement entered into under Section 537.065, RSMo 1994, between an injured party and an insured (after the insurer refused to defend), be reasonable in amount to be enforceable against the insurer, in addition to being free from fraud and collusion?
Opinions:
Majority - Covington, Judge
1. Yes, a commercial general liability policy containing an auto exclusion but also a special events endorsement for "parades" that states it is "Subject otherwise to all the terms, limits and conditions of the Policy" is ambiguous, and therefore, injuries arising from the use of an auto during a parade are covered. 2. Yes, a settlement agreement entered into under Section 537.065, RSMo 1994, between an injured party and an insured (after the insurer refused to defend), must be reasonable in amount to be enforceable against the insurer. The court found the CGL policy's language, specifically the phrase "Subject otherwise to all the terms, limits and conditions of the Policy" within the special events endorsement, to be ambiguous. The word "otherwise" creates uncertainty because it is reasonably open to different constructions: either the endorsement is subject to all other policy terms (Gulf's interpretation) or it is subject to all terms except those that conflict with special event coverage (Fuller's interpretation, which would supersede the auto exclusion). Since every word in a contract is to be given meaning, and the policy used "subject to" elsewhere without "otherwise," the inclusion of "otherwise" implies a different meaning. When policy language is ambiguous, it must be construed against the insurer and in favor of coverage. The court distinguished prior cases like Killian and Porterfield because their policies were not found ambiguous. Regarding the settlement, the court explicitly adopted a reasonableness standard for Section 537.065 settlements, finding it strikes an appropriate balance between the insured's and insurer's interests. When an insurer refuses to defend, the insured, though not engaging in collusion or fraud, may act in a self-interested way by stipulating to a large settlement figure because they will not be obligated to pay. Therefore, a standard higher than just "free from fraud and collusion" is necessary. The burden of proving the unreasonableness of the settlement falls on the insurer. The court found the $1,000,000 settlement in this case unreasonable given Fuller's medical bills and lost wages totaling $12,072.79 and expert estimates of probable verdict ranges between $50,000 and $75,000. The judgment of the trial court finding coverage was affirmed, and the judgment finding the settlement unreasonable was also affirmed. The case was reversed and remanded for the trial court to determine a reasonable settlement amount for which the insurer should be held liable.
Dissenting - Robertson, Judge
1. No, a commercial general liability policy containing an auto exclusion and a special events endorsement for "parades" that states it is "Subject otherwise to all the terms, limits and conditions of the Policy" is not ambiguous. Justice Robertson disagreed with the majority's finding of ambiguity based on the word "otherwise." He argued that, in this context, "otherwise" means "in other ways." When defined in a manner consistent with this common meaning and considering the intent of the policy read as a whole and in context, the phrase "subject otherwise to" is intended to invoke the exceptions to the policy previously and unambiguously set out, such as the auto exclusion. He contended that attempting to find ambiguity by searching for uncommon dictionary meanings renders every insurance contract meaningless and that the meaning of words is derived from their use in language and context. Therefore, he found the policy unambiguous and believed the auto exclusion should apply to deny coverage for Fuller's injuries. Given this conclusion, he stated he would not reach the issue of the settlement's reasonableness.
Analysis:
This case significantly impacts insurance contract interpretation in Missouri, particularly concerning the interplay of general exclusions and specific endorsements. By finding ambiguity in "subject otherwise to," the court reinforced the principle of construing ambiguous language against the insurer, potentially broadening coverage in specific event contexts despite broad exclusions. Furthermore, the explicit establishment of a "reasonableness" standard for Section 537.065 settlements provides crucial guidance for both insureds and insurers. It ensures that such agreements are not disproportionately inflated to the insurer's detriment, while still holding the insurer accountable for an unjustified refusal to defend.
