State Farm Fire & Casualty Co. v. Metcalf

PARRISH, Chief Judge.

State Farm Fire & Casualty Company (State Farm) appeals from a summary judgment that included an award of damages in favor of Eugene C. Metcalf and William E. Metcalf (claimants). The trial court declared that State Farm had issued a policy of automobile insurance that applied to an automobile accident in which Sharon K. Metcalf was killed and that the limits of liability provided by that policy were $25,000 per person, including death, and $50,000 per occurrence. The trial court further found for State Farm on two counts of a counterclaim brought by claimants (Counts I and II) and for claimants on a third count of the counterclaim (Count III). The trial court awarded damages in Count III in the amount of $975,000 “because of State Farm’s bad faith refusal to defend and settle ... wrongful death claims against State Farm’s insured.” This court affirms in part, reverses in part and remands.

Lance Lee Metcalf and Sharon K. Metcalf, claimants’ parents, were killed in an automobile accident on May 30, 1990. The automobile in which they were riding, and which was operated by Mr. Metcalf, left a roadway, went down a steep embankment, and came tq rest approximately 75 feet away from the roadway. Mr. Metcalf was the named insured in two policies of automobile insurance issued by State Farm.

The following chronology relates to legal proceedings that occurred after the automobile accident:

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State Farm appeals from the part of the judgment in the declaratory judgment action that granted summary judgment to claimants on Count III of their counterclaim and awarded damages “because of State Farm’s bad faith refusal to defend and settle ... wrongful death claims against State Farm’s insured.”

The following provision was part of the liability section of the applicable insurance policy.

We will:

1. pay damages which an insured becomes legally liable to pay because of:
a. bodily injury to others, and
b. damage to or destruction of property including loss of its use, caused by accident resulting from the ownership, maintenance or use of your car, and
2. defend any suit against an insured for such damages with attorneys hired and paid by us. We will not defend any suit after we have paid the applicable limit of our liability for the accident which is the basis of the lawsuit.

The liability section of the policy also included a “household exclusion clause” that provided:

THERE IS NO COVERAGE:

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2. FOR ANY BODILY INJURY TO:
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c. ANY INSURED OR ANY MEMBER OF AN INSURED’S FAMILY RESIDING IN THE INSURED’S HOUSEHOLD.

*754But for Missouri’s Motor Vehicle Financial Responsibility Act (as that act has been construed in Halpin v. American Family Mut. Ins. Co., 823 S.W.2d 479 (Mo. banc 1992),1 and its progeny), the household exclusion clause in State Farm’s policy would have precluded recovery from State Farm based on Mr. Metcalfs negligent operation of his motor vehicle. See American Family Mut. Ins. Co. v. Ward, 789 S.W.2d 791, 795-96 (Mo. banc 1990). Lance Lee Metcalf was an insured under State Farm’s policy. Sharon K. Metcalf was a member of his family, his wife. They resided in the same household. The injuries that produced Sharon K. Met-calfs death were attributable to Lance Lee Metcalfs negligent operation of his insured vehicle.

Halpin held that household exclusion clauses cannot exclude coverage required by Missouri’s Motor Vehicle Financial Responsibility Law, §§ 303.010 — .370.2 “[Pjublic policy requires that a contract of liability insurance provide the coverage indicated in § 303.190[3] so that the insured will be in compliance with § 303.025.” 823 S.W.2d at 481. However, Halpin did not completely eliminate the effectiveness of household exclusion clauses.

[A]s we understand the opinion [in Hal-pin], the FRL [i.e., the Motor Vehicle Financial Responsibility Law] did not render the household exclusion clause entirely void. Because § 303.190.2 requires motor vehicle liability insurance policies to provide coverage in only the amounts speci-fled therein, insurers and their policyholders are free to make insurance contracts containing household exclusion clauses affecting coverage in excess of the amounts required by § 303.190.2.

State Farm v. Zumwalt, 825 S.W.2d 906, 909 (Mo.App.1992) (footnote omitted).

By its first point on appeal, State Farm argues that the trial court erred in granting summary judgment as to Count III of the counterclaim because by the language of its policy, State Farm had no duty to defend the wrongful death action. State Farm contends the household exclusion clause rendered the part of the liability coverage that would have otherwise required it to provide a defense inapplicable.

In holding that the Motor Vehicle Financial Responsibility Law did not avoid the household exclusion clause in an automobile liability policy beyond the amounts of coverage mandated by § 303.190.2, the Supreme Court explained:

As Ward pointed out, our decisions recognize freedom of contract in liability insurance. Ward, 789 S.W.2d at 795. See Rodriguez v. General Accident Insurance Co., 808 S.W.2d 379 (Mo. [banc] 1991); Hines v. Gov’t Employees Ins. Co., 656 S.W.2d 262 (Mo. banc 1983); Cano v. Travelers Ins. Co., 656 S.W.2d 266 (Mo. banc 1983). When the contract language is clear, as it is here, exceptions based on public policy must usually find support in necessary implication from statutory provisions. Cameron Mutual [Ins. Co. v. Madden], 533 S.W.2d 538 (Mo. banc 1976). Section 303.190.7[4] manifests to insureds *755that they have no basis for expecting coverage in excess of the requirements of § 303.190.2.

Halpin, 823 S.W.2d at 483. Herpel v. Farmers Ins. Co., 795 S.W.2d 508, 510 (Mo.App.1990), previously explained the right of “freedom of contract” in insurance policies:

Insurance policies are contracts, and the rules of contract construction apply. Automobile Club Inter-Insurance Exch. v. Farmers Ins. Co., Inc., 778 S.W.2d 772, 774 (Mo.App.1989). The words of an insurance policy are given their ordinary meanings, Id., unless it is plain that a technical meaning is intended. Krombach v. Mayflower Ins. Co., Ltd., 785 S.W.2d 728, 731 (Mo.App.1990).

Language identical to that in the policy of insurance that is the subject of this appeal was construed in State Farm Mutual Ins. Co. v. Zumwalt, supra. This court held “the household exclusion clause ... is void insofar as it purports to deny coverage in the amounts mandated by § 303.190.2, but valid as to any coverage exceeding those amounts.” 825 S.W.2d at 909. This court perceives no basis for applying the household exclusion clause differently with respect to its effect on liability coverage for bodily injury and property damage and its effect on an obligation to defend a lawsuit arising from an accident involving an insured person.5

One of the circumstances in which the policy proclaims “there is no coverage” is when the person injured was “any insured or any member of an insured’s family residing in the insured’s household.” The policy contains no language that suggests this exclusion applies to State Farm’s obligation to pay damages because of bodily injury or property damage, but does not apply to its contractual obligation to defend a lawsuit “for such damages.”

State Farm appropriately calls av-tention to the purpose served by the Motor Vehicle Financial Responsibility Law.

The plain purpose ... is to make sure that people who are injured on the highways may collect damage awards, within limits, against negligent motor vehicle operators.

Halpin, 823 S.W.2d at 482. Injured parties are protected, as a matter of public policy, for damages for personal injuries up to $25,-000 per person and $50,000 per accident. A provision in liability coverage that, if enforced, would otherwise defeat that purpose is void. This was the holding in Hatpin. A provision that denies the requirement for State Farm to defend a claim brought by an injured party does not thwart the statutory protection defined in Hatpin. The contractual obligation to defend claims for personal injury or property damage is a protection provided the insured, not the person injured. Such an exclusion does not violate public policy. State Farm’s household exclusion clause, as it applies to defense of claims for personal injuries, is valid.

The trial court’s holding that State Farm had a duty under the terms of its insurance policy to defend the claim for wrongful death of a household member of its insured was an erroneous application of law. State Farm’s first point is granted. Having no duty to defend the wrongful death action, State Farm’s refusal to do so was warranted.

State Farm further asserts by its fifth point on appeal that the trial court erred in granting summary judgment with respect to Count III of claimants’ counterclaim “on a basis of ‘bad faith’ because the counterclaim failed to allege and the evidence failed to show that [claimants] ever offered to settle ... within the amount of the policy limit or that [State Farm] had the opportunity to settle for such sum, nor was it pleaded or *756proved that the insured estate ever made such a demand.”

Dyer v. General American Life Ins. Co., 541 S.W.2d 702 (Mo.App.1976), states the elements required to recover on a tort claim for bad faith refusal of an insurance company to settle a claim within policy limits.

The elements of the tort appear to be that: (1) the liability insurer has assumed control over negotiation, settlement, and legal proceedings brought against the insured; (2) the insured has demanded that the insurer settle the claim brought against the insured; (3) the insurer refuses to settle the claim within the liability limits of the policy; and (4) in so refusing, the insurer acts in bad faith, rather than negligently.

Id. at 704.

State Farm’s assertion that Count III of the counterclaim did not allege, and the evidence did not show, that claimants offered to settle within applicable policy limits nor that State Farm had the opportunity to settle for such sum is supported by the record on appeal. Claimants argue, however, that because State Farm had notified the personal representative of the estate of the policy provisions that gave State Farm the exclusive right to determine whether or not settlement should be accomplished, and that State Farm would not assume any liability for the claim that was made, a demand to settle was not required; that such a demand was not necessary “because the law does not require the doing of a useless and futile act.” This court finds that argument unpersuasive.

Landie v. Century Indemnity Co., 390 S.W.2d 558 (Mo.App.1965), states that an insurer may be liable for an excess judgment if it acts in bad faith “in refusing to settle [a] claim against its insured within its policy limits when it has a chance to do so.” Id. at 563. There is no showing that State Farm had an opportunity to settle the claim against the estate within its policy limits. Not having had an opportunity to settle the claim within policy limits, State Farm could not have refused to do so. Claimants were not “entitled to a judgment as a matter of law.” Rule 74.04(c). Point V is well-taken.

The foregoing is dispositive of this appeal. Review of State Farm’s remaining points is not required.

The summary judgment that was granted as to Count III of claimants’ counterclaim is reversed. In all other respects, the judgment is affirmed. The case is remanded for further proceedings as to Count III of the counterclaim.

CROW, P.J., concurs. SHRUM, J., concurs in separate opinion filed.

. The accident in which Sharon K. Metcalf was killed occurred May 30, 1990. The Halpin opinion was filed Januaiy 28, 1992. State Farm paid the $25,000 policy limit into the court in which the judgment had been entered in the wrongful death case on February 14, 1992.

. References to statutes are to RSMo 1986. Further, references in this opinion to provisions of chapter 303 refer to sections of the Motor Vehicle Financial Responsibility Law, some provisions of which are printed side by side in bound volume 3 of the 1986 Revised Statutes with repealed sections of The Motor Vehicle Safety Responsibility Law having the same section numbers that were repealed effective July 1, 1987.

. Section 303.190.2(2) specifies the amount of required liability coverage to be "twenty-five thousand dollars because of bodily injury to or death of one person in any one accident and, subject to said limit for one person, fifty thousand dollars because of bodily injury to or death of two or more persons in any one accident, and ten thousand dollars because of injury to or destruction of property of others in any one accident.”

. § 303.190.7 states:

Any policy which grants the coverage required for a motor vehicle liability policy may also grant any lawful coverage in excess of or in addition to the coverage specified for a *755motor vehicle liability policy and such excess or additional coverage shall not be subject to the provisions of this chapter. With respect to a policy which grants such excess or additional coverage the term, "motor vehicle liability policy” shall apply only to that part of the coverage which is required by this section.

. The Supreme Court of Montana reached the same conclusion in interpreting its Motor Responsibility Law. See Lewis v. Mid-Century Ins. Co., 152 Mont. 328, 449 P.2d 679, 683 (1968).