In the 

Missouri Court of Appeals

Western District

RANDEL MCDONALD, ET AL.,

Appellants,

v.

INSURANCE COMPANY OF THE 

STATE OF PENNSYLVANIA, ET AL.,

Respondents.

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WD77854

OPINION FILED: 

March 31, 2015

Appeal from the Circuit Court of Jackson County, Missouri

The Honorable Bryan Round, Judge

Before Division Three: 

Victor C. Howard, P.J., James Edward Welsh, and Gary D. Witt, JJ.

Randel and Kathryn McDonald, doing business as McDonald Marketing Services, appeal 

the circuit court's judgment in an equitable garnishment action finding that Insurance Company 

of the State of Pennsylvania (ICSOP) is entitled to a credit in the amount of $62,500 for amounts 

paid to the McDonalds by two different insurance carriers in an underlying lawsuit. The 

McDonalds assert six points on appeal. The McDonalds contend that the circuit court erred: (1) 

by admitting evidence of payments by their insurance carrier, Charter Oak Fire Insurance 

Company, because evidence of payments from a collateral source is inadmissible and prejudicial;

(2) by admitting evidence of their settlement with Charter Oak because the settlement was 
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irrelevant, immaterial, and prejudicial and may not be used to mitigate the damages owed by 

ICSOP, (3) by finding that ICSOP is entitled to a credit for their settlement of claims against 

Charter Oak and Certain Underwriters at Lloyd's of London because ICSOP cannot re-litigate the 

liability of its insured in the underlying lawsuit and is bound by the judgment entered in the 

underlying lawsuit, (4) by failing to enter judgment in their favor and against ICSOP for the 

entirety of the judgment entered by the court in the underlying lawsuit because the judgment is 

binding on ICSOP in an equitable garnishment action, (5) by failing to award them prejudgment 

interest because they are entitled to prejudgment interest pursuant to section 408.020, RSMo 

2000, and (6) by failing to assess court costs against ICSOP because they are entitled to costs 

pursuant to section 514.060, RSMo 2000, and Rule 77.01. We reverse the circuit court's 

judgment and remand for the circuit court to determine whether it wants to exercise its discretion 

to award prejudgment interest and costs in this case in light of our reversal.

On December 3, 2012, the McDonalds filed suit in the District Court of Wyandotte 

County, Kansas, against Bam, Inc. (Bam); Certain Underwriters at Lloyd's of London (Lloyd's), 

and Charter Oak Fire Insurance Company (Charter Oak). Through the petition, the McDonalds 

alleged that they contracted with Bam to transport frozen food from a warehouse in 

Independence, Missouri, to a warehouse in Wyandotte County, Kansas. According to the 

petition, the goods were frozen when placed onto Bam's trailer and had to remain frozen to be 

edible and useable food products. The petition further alleged that Bam delayed the 

transportation of the products and that when the products arrived in Kansas City, Kansas, the 

products were no longer frozen. The McDonalds claimed that Bam was insured under a policy 

of insurance issued by Lloyd's and that they were entitled to pursue a direct case of action against 

Lloyd's. They also asserted that they were insured under a policy of property insurance issued by 
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Charter Oak. The McDonalds stated that claims had been made on both insurance companies for 

the loss, but neither insurance company had agreed to pay. The McDonalds prayed for damages 

in the amount of $75,000 against Bam, Lloyd's, and Charter Oak and requested costs and 

attorney's fees.

After filing the petition, the McDonalds settled with Lloyd's in the amount of $25,000 in 

exchange for the McDonalds' dismissing Lloyd's from the underlying lawsuit with prejudice. 

The McDonalds also settled with Charter Oak in the amount of $37,250 in exchange for the 

McDonalds' dismissing Charter Oak from the underlying lawsuit with prejudice.

Service in the underlying lawsuit was effectuated on Bam by serving the Missouri 

Secretary of State. Bam did not answer or otherwise respond to the McDonalds' petition in the 

underlying lawsuit and did not file any pleading in the matter.

In the meantime, Bam's insurer, ICOSP, was notified of the McDonalds' suit in the 

District Court of Wyandotte County, Kansas. On April 29, 2013, ICOSP notified Bam that "there 

was no coverage" under its policy for the claims filed by the McDonalds, and ICSOP refused to

defend Bam in the underlying lawsuit.

On July 23, 2013, the District Court of Wyandotte County, Kansas held a default hearing 

in the underlying lawsuit. Kathryn McDonald offered testimony regarding the claim for 

damages. The evidence established that Bam delivered a trailer to a warehouse in Independence, 

Missouri. Bam's driver opened the doors to the trailer and backed the trailer into the loading 

dock in such a manner that prevented the doors on the trailer from closing. The driver then

disconnected the trailer from the truck and left the warehouse. The McDonalds' employees then

loaded the frozen food into the trailer. Bam's driver did not return, even though numerous 

telephone calls were made to Bam. During that time, the frozen food products were sitting in the 
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trailer with the doors open and no way to refrigerate them. After several hours, a different driver 

for Bam arrived at the Independence warehouse to transport the food to the Wyandotte County, 

Kansas, warehouse. It was at this time that the doors to the trailer could be closed and that the 

refrigeration on the trailer activated. As a result of the delay caused by Bam, the formerly frozen 

food products thawed to the point that they could not be sold as edible food product and had to 

be destroyed.

Kathryn McDonald claimed that they lost frozen food valued at $70,472.75; incurred 

additional labor costs as the result of the unreasonable delay in the amount of $693.75, lost profit 

from the inability to sell the inventory in the amount of $27,085.73, and lost business as a result 

of customers having to find other frozen food products in the amount of $18,412.43. The 

District Court of Wyandotte County, Kansas, entered a default judgment against Bam for the 

above noted amounts, for a total judgment of $116,664.66.

On August 28, 2013, the McDonalds filed their petition for equitable garnishment against 

ICSOP and Bam, seeking to satisfy the default judgment entered against Bam by garnishing the 

policy of insurance issued by ICSOP. The McDonalds claimed that they were entitled to 

judgment against ICSOP in the amount of $116.664.66 and entitled to costs, attorney's fees, and 

prejudgment interest on the liquidated sum. ICSOP filed its answer denying that the ICSOP 

policy could be garnished and asserted an affirmative defense stating:

To the extent [the McDonalds] have received full or partial payment for 

the damages claimed in the Petition from any party or nonparty, including, but not 

limited to Charter Oak Fire Insurance Company and/or Certain Underwriters at 

Lloyd's London, by way of assistance, payment settlement, judgment, or 

otherwise, ICSOP is entitled to a setoff in the amount of such payment(s).

The McDonalds filed a motion for summary judgment seeking the circuit court's 

determination that the damages awarded to them by the District Court of Wyandotte County, 
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Kansas, were covered under ICSOP's policy of insurance. The circuit court granted the 

McDonalds' motion for summary judgment finding that the policy of insurance issued by ICSOP 

provided coverage to Bam. Specifically, the circuit court found that, "since the frozen goods 

were not in the care, custody and control of Bam at the time the frozen goods were damaged, the 

'care, custody and control' exclusion in the policy of insurance did not apply and the injury was 

covered by the policy of insurance issued by [ICSOP]." The circuit court, however, denied the 

McDonalds' motion for partial summary judgment on ICSOP's claim for a credit or set-off and 

set the matter for trial.

During trial, the circuit court granted ICSOP's motion to amend its affirmative defense by 

interlineation to read:

To the extent plaintiffs have received full or partial payment for the 

damages claimed in the Petition from any party or nonparty, including, but not 

limited to Charter Oak Fire Insurance Company and/or Certain Underwriters at 

Lloyd's London, by way of assistance, payment settlement, judgment, or 

otherwise, ICSOP is entitled to a setoff in the amount of $37,250 and/or $25,000 

paid, respectively, by Charter Oak Fire Insurance and Certain Underwriters at 

Lloyd's London.

When ICSOP sought to introduce into evidence the McDonalds' settlement agreement with 

Charter Oak and settlement agreement with Lloyd's, the McDonalds objected. With regard to 

their settlement with Lloyd's, the McDonalds argued that any claim that Bam was entitled to a 

credit had to be raised in the District Court of Wyandotte County, Kansas. As to the settlement 

with Charter Oak, the McDonalds argued that (1) any claim that Bam was entitled to a credit had 

to be raised in the District Court of Wyandotte County, Kansas, and (2) that any insurance 

coverage obtained by the McDonalds was a collateral source. The circuit court overruled those 

objections. 
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At the end of trial, the circuit court announced from the bench that ICSOP was "entitled 

to credit of $37,250 and $25,000 for the recovery made previously, and that is based on the 

notion that generally that I don't think that the plaintiff is entitled to a windfall and to recover 

more than they lost." On August 12, 2014, the circuit court entered its judgment consistent with 

its ruling from the bench, finding in favor of the McDonalds in the amount of $116,664.66 but 

finding that ICSOP was entitled to a credit in the amount of $62,500. Thus, the circuit court 

entered judgment against ICSOP in the amount of $54,164.66 and ordered each side to bear its 

own costs. The McDonalds appeal from the circuit court's judgment.

Review of this court-tried equitable garnishment action is governed by Murphy v. Carron, 

536 S.W.2d 30, 32 (Mo. banc 1976). Schmitz v. Great Am. Assur. Co., 337 S.W.3d 700, 705 (Mo. 

banc 2011). We will affirm the circuit court's judgment unless it is unsupported by substantial 

evidence, it is against the weight of the evidence, or it erroneously declares or applies the law. 

Id.

In their first two points on appeal, the McDonalds assert that the circuit court erred in 

admitting evidence of the payment/settlement made by the McDonald's insurance carrier, Charter 

Oak. First, the McDonalds contend that evidence of payment from a collateral source is 

inadmissible and prejudicial pursuant to the collateral source rule. Second, they contend that 

evidence of their settlement with Charter Oak was irrelevant, immaterial, and prejudicial and 

may not be used to mitigate the damages owed by ICSOP, the insurer of the wrongdoer. We 

agree.

"The collateral source rule is an exception to the general rule that damages in tort are 

compensatory only." Smith v. Shaw, 159 S.W.3d 830, 832 (Mo. banc 2005). The collateral 

source rule prevents a wrongdoer from reducing his liability for damages to an injured person by 
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proving that "'plaintiff has received or will receive compensation or indemnity for the loss from a

collateral source, wholly independent'" of the wrongdoer. Collier v. Roth, 434 S.W.2d 502, 507 

(Mo. 1968) (citation omitted). "'[S]tated more succinctly, the wrongdoer may not be benefited 

by collateral payments made to the person he has wronged.'" Id. (citation omitted). "The 

application of the collateral source rule prevents an alleged tortfeasor from attempting to 

introduce evidence at trial that the plaintiff's damages will be covered, in whole or in part, by the 

plaintiff's insurance." Smith, 159 S.W.3d at 832. "The rule expresses the policy that a 

'wrongdoer should not benefit from the expenditures made by the injured party in procuring the 

insurance coverage.'" Id. (citation omitted). "The rationale for such application of the collateral 

source rule is that 'plaintiffs who contract for insurance or other benefits with funds they could 

have used for other purposes are entitled to the benefit of their bargain.'" Porter v. Toys 'R' UsDelaware, Inc., 152 S.W.3d 310, 320 (Mo. App. 2004) (citation omitted). Application of the 

collateral source rule, therefore, depends on proof that the McDonalds contributed to the funds 

they claim as a collateral source. Moore v. Auto. Group, Inc. v. Lewis, 362 S.W.3d 462, 470 (Mo. 

App. 2012) (citing Tatum v. Van Liner Ins. Co., 104 F.3d 223, 225 (8th Cir. 1997)).

No dispute exists in this case that the McDonalds paid Charter Oak for first party 

insurance coverage for any damage to their property. The McDonalds, therefore, contracted for 

insurance through Charter Oak with funds that they could have used for other purposes. As such, 

they are entitled to the benefit of their bargain. Pursuant to the collateral source rule, Bam, as the 

wrong doer, and its insurer should not benefit from the expenditures made by the McDonalds in 

procuring insurance coverage from Charter Oak.

ICSOP argues that evidence of Charter Oak's payment to the McDonalds was necessary 

and relevant to establish its right to set-off and that, without the evidence of Charter Oak's 
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payment, the McDonalds would be impermissibly allowed to recover twice for the same injury.1 

ICSOP fails to understand, however, that "[t]e collateral source rule is an exception to the general 

rule that damages in tort are compensatory only." Smith, 159 S.W.3d at 832. Under the 

collateral source rule, ICSOP cannot obtain a credit for a payment made by the McDonalds' 

collateral source and cannot introduce evidence on such as an affirmative defense. The circuit 

court, therefore, erred in admitting evidence of the payment/settlement made by Charter Oak and 

erred in ordering that ICSOP was entitled to a credit for the Charter Oak settlement.2

In their third point on appeal, the McDonalds assert that the circuit court erred in finding 

that ICSOP was entitled to a credit for their settlement of claims against Charter Oak and 

Lloyd's. The McDonalds argue that ICSOP is not entitled to a credit because it cannot re-litigate 

the liability and damages of its insured in the underlying lawsuit and is bound by the judgment 

entered by the District Court of Wyandotte County, Kansas, in the underlying lawsuit. As we 

have already determined that ICSOP was not entitled to a credit for the McDonalds' settlement of 

their claim with Charter Oak, we address only whether ICSOP was entitled to a credit for the 

McDonalds' settlement of their claim with another of Bam's insurers, Lloyd's. 

 

1To the extent that ICSOP is concerned about the McDonalds' receiving a double recovery for their 

property damage, we note that such a concern lies with the McDonalds' insurer and not with ICSOP. When an 

insurer pays an insured for a claim that the insured has against a tortfeasor, although the insured retains legal title to 

the claim, the insurer has a right to subrogation. Knob Noster R-VIII School Dist. v. Dankenbring, 220 S.W.3d 809, 

816 (Mo. App. 2007). In a subrogation action, "[t]he exclusive right to pursue the tortfeasor remains with the 

insured, and the insured holds the proceeds for the insurer." Id. Even if an insurer foregoes its right of subrogation 

as part of its settlement with its insured, the principle is the same as it is just a factor in the determination of the 

consideration exchange.

2We acknowledge that generally the erroneous admission of evidence in a court tried case is rarely a cause 

for reversal because we are to presume that the circuit court considered only properly admitted evidence and ignored 

inadmissible evidence. Mullenix-St. Charles Props., L.P. v. City of St. Charles, 983 S.W.2d 550, 557 (Mo. App. 

1998). However, where, as in this case, it is obvious that the circuit court relied on improperly admitted evidence, 

the presumption is rebutted. Id.
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In the underlying lawsuit, Bam did not raise the issue that it was entitled to a credit for 

the settlement by Lloyd's. Generally speaking, "'[w]hen a plaintiff receives a pretrial settlement 

that partially compensates his claim, the trial court will take any prior payments into 

consideration and will credit them on the damages assessed . . . as required by law.'" Moore, 362 

S.W.3d at 468 (citation omitted). "Accordingly, if a plaintiff stands to recover duplicative 

damages for the same wrong, a defendant may plead an affirmative defense seeking to offset any 

judgment against it by any amounts already received by the plaintiff as compensation for that 

wrong." Id. "To prove a double recovery, a defendant must demonstrate an overlap between: 

(1) the injuries or damages for which a plaintiff has received compensation; and (2) the injuries 

or damages that are the subject of a plaintiff's claim against the defendant." Id. "Where . . . a 

defendant claims an offset based on a settlement payment received by the plaintiff, how the 

settling parties intended the settlement to be allocated is a question of fact." Id. Bam did not 

plead any affirmative defense seeking to offset any judgment against it by any amounts received 

by the McDonalds from Lloyd's as compensation for that wrong. 

As Bam's insurer, ICSOP had the opportunity to control and manage the litigation in the

underlying lawsuit, but ICSOP determined that "there was no coverage" under it policy for the 

claims filed by the McDonalds and chose not to defend Bam in the underlying lawsuit. ICSOP is 

essentially taking the position that, although its policy of insurance covered Bam and although it 

wrongfully denied coverage and wrongfully refused to defend Bam in the underlying lawsuit, it 

is entitled to a credit for the Lloyd's settlement even though Bam itself could not benefit from it, 

given that Bam failed to raise it as an affirmative defense in the underlying lawsuit. "Where one 

is bound to protect another from liability, he is bound by the result of the litigation to which such 

other is a party, provided he had opportunity to control and manage it." Schmitz, 337 S.W.3d at 
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709 (citations and internal quotation marks omitted and emphasis in the original). "The standard 

is whether the insurer had the opportunity to control and manage the litigation, not whether the 

insurer had the duty to control and manage the litigation." Id. at 709-10 (emphasis omitted).

ICSOP cannot deny coverage and refuse to defend an insured and then try to re-litigate the 

damages owed by its insured in an equitable garnishment action. As the Missouri Supreme Court 

has stated, "The insurer that wrongly refuses to defend is liable for the underlying judgment as 

damages flowing from its breach of its duty to defend." Columbia Cas. Co. v. HIAR Holding, 

LLC, 411 S.W.3d 258, 265 (Mo. banc 2013).

Further, even had Bam raised the issue of a credit/set-off of the Lloyd's settlement as an 

affirmative defense, "how the settling parties intended the settlement to be allocated" was a 

question a fact for the District Court of Wyandotte County, Kansas. Moore, 362 S.W.3d at 468. 

Id. The settlement agreement entered into by Lloyd's stated that Lloyd's denied that its cargo 

policy provided coverage for the claim against Bam and denied that the McDonalds had any 

direct cause of action against Lloyd's. Further, it stated that Lloyd's desired to avoid the expense 

of defending themselves and the expense of a defense, under reservation of rights, of Bam. 

Thus, Lloyd's settled with the McDonalds in the amount of $25,000 in exchange for the 

McDonalds' dismissing Lloyd's from the underlying lawsuit with prejudice. To establish that the 

McDonalds were receiving a double recovery for its property damage, Bam would have had the 

burden to prove that there was an overlap between the injuries or damages for which the 

McDonalds received compensation from Lloyd's and the injuries or damages that were the 

subject of the McDonalds' claim against Bam in the underlying lawsuit. No such evidence was 

presented in the underlying default judgment lawsuit.
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All of these issues could have and should have been resolved in the underlying lawsuit in 

the District Court of Wyandotte County, Kansas. Given that ICSOP had the opportunity to 

control and manage the underlying lawsuit but failed to seize the opportunity, ICSOP is not 

entitled to a credit for the McDonalds' settlement of their claim against Lloyd's. 

In their fourth point on appeal, the McDonalds assert that the circuit court erred by failing 

to enter judgment in their favor and against ICSOP for the entirety of the judgment entered by 

District Court of Wyandotte County, Kansas, in the underlying lawsuit because the judgment is 

binding on ICSOP in an equitable garnishment action. We agree.

"An equitable garnishment action is a legal proceeding, authorized by section 379.200, 

RSMo [2000], to reach insurance money in satisfaction of a judgment." Smith v. Progressive 

Cas. Ins. Co., 61 S.W.3d 280, 283 (Mo. App. 2001). "To establish an equitable garnishment 

claim, the plaintiff must prove that he obtained a judgment in his favor against the insurance 

company's insured, the policy was in effect when the incident occurred and that the injury is 

covered by the insurance policy." Kotini v. Century Sur. Co., 411 S.W.3d 374, 377 (Mo. App. 

2013). "The underlying judgment is binding on the insurer by way of the doctrine of collateral 

estoppel." Id. at 378.

In this case, the McDonalds established that they obtained a judgment in their favor 

against Bam in the District Court of Wyandotte County, Kansas, that ICSOP's insurance policy 

was in effect when the damage to the McDonalds' property occurred, and that the damage to the 

property was covered by the insurance policy. Thus, the underlying judgment entered by the 

District Court of Wyandotte County, Kansas, is binding on ICSOP through collateral estoppel. 

Therefore, because we have held that ICSOP was not entitled to any credits for the settlement 

payments by Charter Oak or Lloyd's, the circuit court erred in failing to enter judgment against 
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ICSOP for the entirety of the judgment entered by District Court of Wyandotte County, Kansas,

in the underlying lawsuit.

In their last two points on appeal, the McDonalds contend that the circuit court erred by 

failing to award them statutorily mandated prejudgment interest and by failing to assess court 

costs against ICSOP. The McDonalds assert that they are entitled to prejudgment interest 

pursuant to section 408.020, RSMo 2000, and entitled to have costs assessed against ICSOP

pursuant to section 514.060, RSMo 2000. 

An equitable garnishment action is "a suit in equity against the insurance company to 

seek satisfaction of one's judgment under an insurance policy." Little v. Am. States Ins. Co., 179 

S.W.3d 433, 434 n.2 (Mo. App. 2005). "'In equitable actions, the determination of whether to 

award prejudgment interest is left to the discretion of the trial court.'" Springfield Land & Dev. 

Co. v. Bass, 48 S.W.3d 620, 634 (Mo. App. 2001) (quoting 21 West, Inc., v. Meadowgreen Trails, 

Inc., 913 S.W.2d 858, 872 (Mo. App. 1995)). The same is true in regard to an award of costs. 

"In equity cases, the trial court has an inherent, discretionary power to award costs to either party 

or to award them proportionately among the parties." Bd. of Managers of a part of Peppertree 

Square, Section No. 1 v. Ricketts, 701 S.W.2d 767, 769-70 (Mo. App. 1985); Sadowski v. Brewer, 

693 S.W.2d 891, 893 (Mo. App. 1985). "The award of costs is a matter within the circuit court's 

sound discretion[.]" Sasnett v. Jons, 400 S.W.3d 429, 441 (Mo. App. 2013); Peet v. Randolph, 

157 S.W.3d 360, 366 (Mo. App. 2005). 

Because we are reversing the circuit court's judgment to the extent that it found that 

ICSOP was entitled to a credit in the amount of $62,500 for amounts paid to the McDonalds by 

their settlement of claims with Charter Oak and Lloyd's, we feel compelled to remand this case 
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to the circuit court for it to determine whether it wants to exercise its discretionary power to 

award prejudgment interest and costs in this case.

Conclusion

We, therefore, reverse the circuit court's judgment finding that ICSOP is entitled to a 

credit in the amount of $62,500 for amounts paid to the McDonalds by their settlement of claims 

with Charter Oak and Lloyd's. We remand for the circuit court to determine whether it wants to 

exercise its discretion to award prejudgment interest and costs in this case.

/s/ JAMES EDWARD WELSH

James Edward Welsh, Judge

All concur.