A practitioner’s guide to excess judgment assignments and covenant not to execute arrangements
Missouri Injury & Insurance Law | missouriinjuryandinsurancelaw.com
Introduction
When a liability insurer refuses to settle within policy limits and an excess judgment results—or is anticipated—Missouri law provides a mechanism that can transform an otherwise uncollectable excess judgment into a significant recovery for the injured plaintiff. The consent judgment paired with an assignment of the insured’s bad faith claim, sometimes called a Damron agreement or Morris agreement after analogous arrangements recognized in other jurisdictions, allows the injured party to pursue the insurer for the full amount of an excess judgment. This post examines how these arrangements work under Missouri law, the elements necessary for their enforceability, and the strategic considerations that govern their use.
The Problem the Assignment Solves
The fundamental problem that consent judgment and assignment arrangements address is the collusion between the under-insured tortfeasor and the injured plaintiff that an insurer will inevitably argue when it faces an excess judgment. When a defendant has limited personal assets and a policy that is insufficient to compensate the injured party, the defendant has every incentive to cooperate with the plaintiff in creating a record that supports a subsequent bad faith claim against the insurer. The insurer, predictably, will argue that any consent judgment was the product of collusion and should not be enforced.
Missouri courts have addressed the enforceability of consent judgments in the insurance context. The key principle is that a consent judgment entered in good faith, for a reasonable amount supported by the evidence, and in circumstances where the insurer had a genuine opportunity to settle within limits, will generally be enforceable against the insurer in a subsequent bad faith action.
Elements of an Enforceable Assignment
For a consent judgment and bad faith assignment to be enforceable in Missouri, practitioners should ensure that several elements are present. First, the underlying settlement demand must have been within the applicable policy limits and must have been communicated to the insurer with sufficient information to evaluate the claim. An assignment based on a demand that was above policy limits or that lacked adequate supporting documentation will be vulnerable to challenge.
Second, the insurer must have had a genuine opportunity to settle within limits and must have refused without reasonable cause. The record of the insurer’s conduct during the settlement demand period is the evidentiary foundation of the subsequent bad faith claim. Practitioners should ensure this record is thoroughly documented before structuring an assignment arrangement.
Third, the consent judgment amount must be reasonable in light of the damages evidence. A consent judgment for an amount far exceeding the reasonable value of the case will be challenged as collusive and may undermine the subsequent bad faith claim. The amount should be supported by competent evidence—medical records, economic loss documentation, expert opinions on damages—that would have supported the same verdict at trial.
Fourth, the assignment should be memorialized in a written agreement that clearly identifies the claims being assigned, the consideration—typically a covenant not to execute on the insured personally—and the scope of the assignment. Missouri recognizes the assignment of chose-in-action claims including bad faith claims, but the assignment document should be drafted carefully to avoid ambiguity about its scope.
The Covenant Not to Execute
The covenant not to execute is the consideration the injured party provides to the insured in exchange for the assignment. By covenanting not to execute the judgment against the insured personally, the plaintiff eliminates the insured’s personal exposure while preserving the plaintiff’s right to pursue the bad faith claim against the insurer. The covenant must be genuine—a sham covenant that the parties have no intention of honoring will undermine the enforceability of the entire arrangement.
Practitioners should also consider whether the covenant not to execute affects the judgment’s finality for purposes of the bad faith claim. Missouri courts will examine whether the judgment represents a genuine adjudication of the plaintiff’s damages rather than a manufactured number designed solely to create bad faith exposure for the insurer.
Insurer Challenges to Consent Judgments
Insurers challenging consent judgments in Missouri bad faith litigation typically raise three primary arguments: collusion between the plaintiff and insured; unreasonableness of the judgment amount; and failure of the plaintiff to make a reasonable or appropriate settlement demand within policy limits. Each of these arguments can be defeated with a properly constructed record.
The collusion argument is addressed by demonstrating that the consent judgment amount is supported by independent evidence of damages and that the settlement was genuine and made in good faith. The reasonableness argument is addressed by presenting the same damages evidence that would have supported a comparable jury verdict. The settlement argument is addressed by demonstrating that the insurer was given a settlement that could have been accepted, provided notice of the claim and adequate information on which to make the decision. If the demand was time limited then 537.058 RSMo. must have been followed.
Conclusion
Consent judgment and bad faith assignment arrangements represent one of the most powerful tools available to Missouri plaintiff’s practitioners in cases where an insurer has refused to fulfill its obligation to its insured by settling within policy limits. Properly structured and documented, these arrangements can convert an insurer’s bad faith conduct into substantial additional recovery for seriously injured clients. The practitioner who understands Missouri’s framework for these arrangements and who builds the necessary record from the earliest stages of the case will be best positioned to use them effectively.
