Statutory Changes in Missouri Lead to Blue Skies Ahead for Insurance Companies Facing Bad Faith Set-Ups and Collateral Source Rule Issues

Recent legislation signed by Missouri Governor Eric Greitens is expected to promise procedural relief from bad faith set-ups in Missouri as well as provide clarity regarding the collateral source rule.

New Legislation Affecting Bad Faith Set-Ups

Section 537.065 of the Missouri Revised Statutes allows claimants and insureds to contract to limit recovery to insurance coverage. This statute is unique to Missouri, as no other states have established such a practice by statute. Typically, the insured, while knowing that he will not be held personally responsible, agrees to either settle the claim or to not legally oppose the tort victim’s prosecution of the claim at trial. Post-trial the insurer is limited to disputing only the legal conclusion of whether coverage existed and usually barred from re-litigating any other aspect of the suit. These agreements are often used to pressure the insurance company into providing a defense where there may not be coverage or to pay policy limits on questionable claims.  They are also used as schemes whereby insureds and claimants work in concert to obtain coverage and create inflated damage awards at uncontested bench trials.

Effective August 28, 2017, Missouri House Bills 339 and 714 repeal section 537.065 and enact a new section 537.058, as well as a revised section 537.065 (as signed by Gov. Greitens). The new law will help curb the abuses associated with section 537.065 agreements by allowing insurers to intervene in underlying lawsuits. By participating in the underlying lawsuit, the insurer will be able to present a more accurate picture on liability, damages, and coverage issues. The bills further provide that an insured cannot enter into such a settlement agreement with a claimant if the insurer is providing the insured a defense without reservation, under the reasoning that an insured should not be allowed to enter into an unauthorized settlement agreement if an insurer defends without qualification. When an insurer defends under the policy, the insurer is fulfilling its policy obligations and should expect the insured to comply with its corresponding policy obligations, including the duty to cooperate and refusal to pay provisions.  As such, section 537.065, as amended, adds the following procedural protections:

1. An insured may only enter into a section 537.065 agreement limiting recovery to the insured’s insurance if the carrier has had the opportunity to defend without reservation, but refused to do so.

2. Before a judgment may be entered against an insured who has entered into a section 537.065 agreement with the plaintiff, the insurer must have 30 days’ notice of the agreement.

3. The insurer may intervene as a matter of right in the lawsuit during the 30-day period.

In an effort to prevent bad faith setups, the law also establishes standards governing time limit demands with section 537.058 providing:

1. A time-limited demand must be in writing, sent by certified mail to the insurer, and allow at least 90 days for acceptance. It also must offer an unconditional release of the insurer’s insureds and contain the information set forth in section 537.058.2 which pertains to the date and location of the loss, injuries, claims, and parties to be released.

2. A time-limited demand must be accompanied by health care provider information, medical record authorizations and employer information.

The failure to comply with this statute  means that in a lawsuit filed by a claimant as an assignee of the tortfeasor, or vice versa, the demand will not be considered a “reasonable opportunity to settle” for the insurer and is inadmissible in any lawsuit alleging extra-contractual damages against the tortfeasor’s liability insurer. This law, however, does not apply to a direct claim of bad faith by the insured on his/her own behalf.

Note that section 537.058 does not apply to offers, demands, or time-limited demands within 90 days of a jury trial.

Changes to the Collateral Source Rule

On July 5, 2017, Governor Greitens also signed Missouri Senate Bill 31, bringing needed changes to Missouri’s collateral source rule. The collateral source rule generally prohibits a defendant from introducing evidence that part of a plaintiff’s damages were paid for by a third party independent of the defendant, such as the plaintiff’s insurer or a public benefits program. However, in Missouri, this rule had been interpreted to allow plaintiffs to offer evidence of the full amount billed, without regard to contractual adjustments based on the theory that defendants should not benefit from discounts to the total amount billed. Of course, the counter-argument is that, without such discounts, plaintiffs are allowed to recover a windfall.

Missouri Senate Bill 31 amends section 490.715 to redefine the “value” of medical expenses as:

a sum of money not to exceed the dollar amounts paid by or on behalf of a plaintiff or a patient whose care is at issue plus any remaining dollar amount necessary to satisfy the financial obligation for medical care or treatment by a health care provider after adjustment for any contractual discounts, price reduction, or write-off by any person or entity.

Therefore, damages claimed by the plaintiff at trial that have been satisfied by a payment from a defendant, the defendant’s insurer, or authorized representative prior to trial are not recoverable. The defendant is entitled to deduct such payments toward damages from any judgment as provided by current law.

Parties may introduce evidence of the plaintiff’s actual cost of the medical care or treatment, and the law repeals a provision which provided that there was a rebuttable presumption that the value of the medical treatment provided is represented by the dollar amount necessary to satisfy the financial obligation to the health care provider. This presumption caused uncertainty and confusion.

Concluding Remarks

Of course, we do not know how the plaintiffs’ bar will respond to these changes – albeit – it can be assumed that short time limit demands will be plentiful before August 28, 2017, when the law goes into effect.  Nor do we know how the courts will apply these laws. The good news is that with these changes Missouri may be on the road to being removed from its spot near the top of the list of the worst states for insurance companies.