A unified framework for understanding the insurer’s twin obligations and the consequences when either is breached
Missouri Injury & Insurance Law | missouriinjuryandinsurancelaw.com
Introduction
Missouri’s bad faith insurance jurisprudence rests on two distinct but interrelated duties: the duty to defend and the duty to settle. Both flow from the same source—the insurer’s contractual assumption of exclusive control over litigation and settlement—and both carry serious consequences when breached. What distinguishes Missouri’s approach from many jurisdictions is the breadth of the damages available when an insurer acts in bad faith. Under Scottsdale Insurance Co. v. Addison Insurance Co., 448 S.W.3d 818 (Mo. 2014), an excess judgment is not a prerequisite to a bad faith claim, and the measure of damages extends well beyond any policy limit. This post synthesizes the fiduciary framework, the elements of a bad faith claim as defined by Scottsdale, and the full scope of recoverable damages—including punitive damages—available to Missouri insureds and their assignees.
The Fiduciary Foundation: Craig, Young, and Truck Insurance Exchange
The fiduciary character of the insurer-insured relationship under a liability policy was articulated with particular clarity by the Western District in Craig v. Iowa Kemper Mutual Insurance Co., 565 S.W.2d 716 (Mo. App. W.D. 1978). Craig explained the analogy that continues to define the relationship:
“The fiduciary duty of an insurer for good faith rests on the reservation of the exclusive right to consent or negotiate the claim of liability brought against the insured, and so withhold from the insured the right to settle without consent of the insurer. Such terms of an agreement repose on the insurer the power to act for the insured, akin to authority a client vests in an attorney or principle and an agent — each a relationship of inherent fiduciary obligation.” Craig v. Iowa Kemper Mut. Ins. Co., 565 S.W.2d 716, 723 (Mo. App. W.D. 1978).
The analogy to attorney-client and principal-agent relationships is not merely rhetorical. It carries legal weight. Just as an attorney who holds settlement authority over a client’s claim must exercise that authority in the client’s best interest, an insurer that holds exclusive settlement authority over its insured’s liability exposure must exercise that authority with the insured’s financial interest as the paramount consideration.
Young v. United States Fidelity and Guaranty Co., 588 S.W.2d 46, 47 (Mo. App. S.D. 1979), reinforced this principle by holding that the fiduciary obligation requires the insurer to always consider the best interest of the insured when handling a third-party claim. The word ‘always’ is significant—there is no exception for cases where the insurer’s financial interest points in a different direction. Truck Insurance Exchange v. Prairie Framing, LLC, 162 S.W.3d 64 (Mo. App. W.D. 2005), completed the framework by holding that when the insurer’s interests conflict with the insured’s, the insurer must sacrifice its own interest in favor of the insured’s. Read together, Craig, Young, and Truck Insurance Exchange establish a fiduciary standard that is demanding in both its scope and its application.
The Duty to Defend: No Possibility of Coverage Required to Escape It
Missouri’s duty to defend is among the broadest in the country. The standard is not whether coverage probably exists, or even whether coverage is more likely than not. The duty to defend arises whenever there is any possibility that the claim falls within the policy’s coverage. To extricate itself from the duty to defend, the insurer must prove that there is no possibility of coverage. Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 79 (Mo. App. W.D. 2005). This is a demanding standard, and insurers who refuse to defend based on anything less than a clear, unambiguous exclusion do so at their peril.
Two principles further expand the duty’s reach. First, the duty is not determined solely by the allegations of the petition. The insurer cannot safely ignore actual facts known to it or which could be known from reasonable investigation. Standard Artificial Limb, Inc. v. Allianz Ins. Co., 895 S.W.2d 205, 210 (Mo. App. E.D. 1995). The insurer must consider the petition in light of facts it knew or could have reasonably ascertained. Id. An insurer that rests its refusal to defend solely on the face of the petition, while ignoring known facts that would support coverage, has not conducted the analysis that Missouri law requires.
Second, any doubt about coverage must be resolved in the insured’s favor. The duty to defend is not contingent on the probable outcome of the underlying litigation: ‘The duty to [defend] is not dependent on the probable liability to pay based on the facts ascertained through trial.’ McCormack Baron Management Services, Inc. v. American Guarantee & Liability Insurance Co., 989 S.W.2d 168, 170 (Mo. banc 1999). The presence of even a single potentially covered claim in a multi-count complaint is sufficient to trigger the duty to defend the entire action. Capital Indem. Corp. v. 1405 Associates, Inc., 220 F.2d 1045 (E.D. Mo. 2002).
The Duty to Settle: Fiduciary Obligation Persists Even Through Coverage Disputes
The duty to settle is the obligation of the insurer—arising from its exclusive right to control litigation and settlement—to make reasonable efforts to resolve claims within policy limits. This duty is grounded in the same fiduciary relationship that underlies the duty to defend, and it does not disappear simply because the insurer disputes coverage. As the Western District held in Hyatt Corp. v. Occidental Fire & Casualty of North Carolina, 801 S.W.2d 382, 388-89 (Mo. App. 1990), the fiduciary obligation exists even if there is a dispute as to coverage between the insurance company and the policyholder.
The persistence of the duty to settle through coverage disputes has a corollary that Missouri courts have applied with notable rigor: an insurer cannot benefit from its wrongful denial of coverage, even if that denial was mistaken or made in good faith. Landie v. Century Indemnity Co., 390 S.W.2d 558 (Mo. App. 1965); W. Cas. & Sur. Co. v. Herman, 405 F.2d 121 (8th Cir. 1968). An insurer that denies coverage and thereby causes its insured to face an excess judgment without the benefit of settlement negotiations cannot later escape the consequences of that denial by pointing to the good faith of its mistaken coverage analysis.
The essence of bad faith, as stated in Zumwalt v. Utilities Insurance Co., 228 S.W.2d 750 (Mo. 1950), is the intentional disregard of the financial interests of the insured in the hope of escaping the responsibility imposed upon the insurer by its policy. The bad faith inquiry therefore focuses not on the technical correctness of the insurer’s coverage analysis but on whether the insurer genuinely considered and protected its insured’s financial interests when it had the opportunity to do so through settlement.
The Elements of a Bad Faith Claim Under Scottsdale
The Missouri Supreme Court’s decision in Scottsdale Insurance Co. v. Addison Insurance Co., 448 S.W.3d 818 (Mo. 2014), provides the definitive statement of the elements of a bad faith failure to settle claim in Missouri. The court identified four elements:
1. The insurer has the exclusive right to contest or settle any claim;
2. The insured may not voluntarily assume any liability or settle any claims;
3. The insurer is guilty of fraud or bad faith in refusing the opportunity to settle a claim against its insured within the policy limits; and
4. The insured suffers damages.
Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818, 828 (Mo. 2014). The first two elements will be established by the policy itself in virtually every liability insurance case—defense and settlement control clauses are standard. The litigation therefore typically turns on the third and fourth elements: bad faith and damages.
On the bad faith element, the evidence proving the claim will come from evidence of how the company handled the claim. Rinehart v. Shelter General Insurance Co., 261 S.W.3d 583 (Mo. App. W.D. 2008). This evidence is relevant to demonstrate the insurer’s state of mind. Id. Practitioners should conduct discovery targeted at the entire claims handling process: the investigation timeline, the reserve history, internal communications about the settlement demand, and any analysis of the insured’s excess exposure. The insurer’s contemporaneous conduct—not its after-the-fact litigation position—is the measure of good faith or bad faith.
Damages Under Scottsdale: No Excess Judgment Required
Perhaps the most significant aspect of the Scottsdale decision for Missouri practitioners is its holding on damages. The court held explicitly that damages in a bad faith claim are not limited by the policy limits and do not require an excess judgment. Scottsdale, 448 S.W.3d at 828. This reflects Missouri’s commitment to fully compensating insureds for the harm caused by their insurer’s bad faith conduct.
The Scottsdale court’s reasoning is compelling. Requiring an excess judgment as a prerequisite to a bad faith claim would force the insured to go to trial after its insurer wrongfully refuses to settle, instead of permitting the insured to protect itself from further liability by settling on its own terms. As the court observed, citing Truck Insurance Exchange, there is ‘no attraction to a rule that rewards bad faith by relieving the insurer of excess liability if it forces harsh choices onto an insured facing a huge judgment.’ Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 93 (Mo. App. W.D. 2005). The bad faith refusal to settle claim does not require an excess judgment. Scottsdale, 448 S.W.3d at 828.
The measure of damages in a Missouri bad faith claim is therefore all damages proximately caused by the insurer’s breach of its duty. Scottsdale, 448 S.W.3d at 828; Shobe v. Kelley, 279 S.W.2d 203 (Mo. App. 2008). This encompasses not only the financial consequences of any judgment but also the fear of financial ruin, the impact of bankruptcy, and other intangible harms that flow from the insurer’s failure to protect the insured’s financial interests. The insured’s policy limits do not limit the insurance company’s liability as a tortfeasor. The insurer is liable for the full measure of harm its wrongful conduct caused.
Punitive Damages: Clear and Convincing Evidence of Outrageous Conduct
Missouri law permits the recovery of punitive damages in a bad faith insurance claim upon a showing by clear and convincing evidence that the insurer’s conduct was outrageous because of evil motive or reckless indifference to the rights of others. Rinehart v. Shelter General Insurance Co., 261 S.W.3d 583 (Mo. App. W.D. 2008). This standard is demanding but achievable in cases of egregious insurer conduct.
The punitive damages standard in bad faith cases focuses on the insurer’s state of mind. Evidence of reckless indifference—the insurer’s awareness of the insured’s significant excess exposure combined with a willful disregard of that exposure in the refusal to settle—can satisfy the clear and convincing evidence standard without requiring proof of actual malice. Practitioners pursuing punitive damages should develop evidence of: the insurer’s internal knowledge of the magnitude of the insured’s exposure; the insurer’s awareness of the reasonableness of the settlement demand; any pattern of similar conduct by the insurer in other cases; and the insurer’s financial condition, which is relevant to the deterrence function of punitive damages.
The availability of punitive damages also serves an important function in settlement negotiations. An insurer that faces not only compensatory damages for the full harm caused by its bad faith but also potential punitive damages has a powerful financial incentive to resolve the claim. Practitioners pursue punitive damages in every bad faith case where the evidence supports the claim and should develop the punitive damages record through discovery with the same rigor applied to compensatory damages.
Integrating the Framework: A Practical Roadmap
The principles discussed in this post provide a unified analytical framework for Missouri bad faith cases. At the threshold, the fiduciary duty defines the standard of conduct the insurer must meet. The duty to defend analysis determines whether the insurer was obligated to provide a defense. The duty to settle analysis determines whether the insurer fulfilled its obligation to protect the insured’s financial interests through reasonable settlement efforts. The Scottsdale elements framework provides the structure for pleading and proving the bad faith claim. And the punitive damages standard defines the additional remedy available when the insurer’s conduct was egregious.
Practitioners who build their bad faith cases around this integrated framework—grounding every argument in controlling Missouri authority, developing the factual record to address each element, and pursuing the full measure of available damages—will present the most comprehensive and persuasive cases for their clients.
Conclusion
Missouri has constructed a bad faith insurance framework based upon the intentional or reckless breach of well recognized duties. The fiduciary duty recognized in Craig and Zumwalt, the duty to defend standard articulated in Truck Insurance Exchange, the persistence of the duty to settle through disputes under Hyatt and Landie, the four-element bad faith framework of Scottsdale, and the full-compensatory-plus-punitive damages regime of Scottsdale and Rinehart collectively provide injured insureds and their assignees powerful tools to hold bad faith insurers fully accountable. Extra contractual cases are not easy, but complex. They require a high level of expertise in tort, insurance law as well as diligence in pursuing and proving the claims. Cases often involve multiple suits and sometimes fought in different forums. The practitioner who master’s this framework and applies it rigorously in every case serves both the individual client and the broader goal of deterring insurer misconduct in Missouri.
