Missouri On Track to Reform Interpleader Law: House Bill 1531 Unanimously Approved by the Senate

As he was leaving office, Missouri Governor Eric Greitens signed at least 77 bills into law, including House Bill 1531, which may protect insurance carriers subjected to purported bad faith claims.

“Interpleader” is a civil procedure vehicle used to force claimants to litigate a dispute involving two or more claims to a limited amount of money held by a third party, such as an insurance carrier.  A common example is when multiple people are injured in a car accident and the injuries exceed the amount covered by the tortfeasor’s policy limits.  What should the insurance carrier do?

Under the prior law, codified at Section 507.060 RSMo, the tortfeasor’s insurer could interplead the policy limits, but the insurer would remain subject to a purported bad faith claim.  This would put insurers in an impossible situation, choosing between paying claims on a first-come, first-serve basis to avoid time-based bad faith claims, paying the limits on the most seriously injured claim, or gathering all of the claimants’ documentation supporting their injuries or damages in an attempt to globally resolve all claims within the policy limits, and reducing the insured’s exposure to excess claims.

House Bill 1531 adds a new interpleader procedure to Section 507.060 RSMo, whereby an insurer may interplead the policy limits and thereafter be insulated from any extracontractual exposure or liability beyond the policy limits.  Under the new law, if an insurer files an action for interpleader “within ninety days after receiving the first offer of settlement or demand for payment by a claimant” and “timely deposits all of its applicable limits of coverage into court within thirty days of the court’s order granting interpleader,” the insurer “shall not be liable to any insured or defendant for any amount in excess of the [insurer’s] contractual limits of coverage in the interpleader or any other action, so long as the [insurer] defends all of its insureds in good faith from any claims or lawsuits for damages allegedly caused by the incident or occurrence…” [emphasis added].  The law specifies that it only applies if the “claims total an amount in excess of [the insurer’s] total limits of coverage available for that one incident or occurrence.”

The bill was heavily debated by the House in January 2018.  Opponents to the bill expressed concern that it might extinguish an insurer’s duty to defend and lead insurers to “dump and run” because it allows them the option to interplead the funds into the court, without obtaining a release or dismissal of any claim for damages against the insured.  The idea is that, as a result, the insured could still be on the hook for damages in excess of their policy limits after the interpleader lawsuit is over.

The new law will become effective on August 28, 2018.

Click Here to read HB 1531:

Posted by Attorney and Katherine M. Flett. Katherine Flett is a member of the litigation team whose primary focus is on assisting clients in insurance defense, business litigation, employment law, and bankruptcy matters.