Opinion ID: 2803237
Heading Depth: 2
Heading Rank: 2

Heading: Vexatious Refusal to Defend

Text: Even though the district court found that the exclusions did not bar coverage, the court found that Atain's refusal to defend was not vexatious as a matter of law. The court found that Atain did have the duty to defend, but its failure to do so did not meet the rigorous test to prove a vexatious claim under Missouri Revised Statute § 375.420, which requires an insured to prove: (1) the existence of the insurance policy; (2) the insurance company's refusal to pay; and (3) such refusal was without reasonable cause or excuse. Thus, under Missouri law, there is no vexatious refusal where the insurer has reasonable cause to believe there is no liability and there is a meritorious defense to the policy. Watters v. Travel Guard Int'l, 136 S.W.3d 100, 108-10 (Mo. Ct. App. 2004). While generally a question of fact, the vexatious refusal issue can be determined as a matter of law based upon undisputed facts. Id. at 109. The district court determined that because it was a close call on whether the above exclusions applied, there was reasonable cause for Atain to believe there was no coverage and corresponding duty to defend. Minden asserts that there is at the very 6 Atain does not argue that the intentional or not issue is a factual issue precluding summary judgment. Instead Atain repeatedly argues that it is entitled to summary judgment because an intentional act is not required in order for the exclusion to apply. -10- least a factual dispute about what Atain reasonably believed, and points to the following allegedly disputed facts: that if Atain had conducted any sort of investigation it would have discovered via numerous witness statements that the issue of Lammert's intent was in dispute; and that Minden's expert, George Smith, testified in a deposition that insurance industry practices would generally indicate a defense was warranted. Minden also cites Pace Properties v. American Manufacturers Mutual Insurance Co., 918 S.W.2d 883 (Mo. Ct. App. 1996), wherein the court held that the vexatious claim was a factual issue to be decided by the jury, even where the coverage issue was litigable. Id. at 888. The existence of a litigable issue does not preclude a vexatious penalty where evidence shows the insurer was vexatious and recalcitrant. Id. In Pace, the issue was submitted to the jury because, while the insurance company asserted that it relied upon an expert's report in refusing to defend, there was sufficient evidence that reliance upon that expert's report was unreasonable, and that a modicum of independent investigation would have indicated as much to an insurer. Id. Atain persuasively cites Trainwreck in support of its argument that its refusal to defend cannot be considered vexatious in this case. In Trainwreck, the Missouri Court of Appeals held that the duty to defend is determined from the cause of action pleaded at the time the action is commenced, not from what an investigation may later show the facts to be. 235 S.W.3d at 39. The Trainwreck court held the insurer was not required to go beyond the initial police report, the plaintiff's petition, and a letter from the insured to avoid a vexatious refusal to defend judgment after denying coverage and defense of the claim. Id. at 36-39. Similar to Trainwreck, Atain relied upon the initial police report charging Lammert with second-degree assault in its decision to deny coverage. While a further investigation might have unearthed the possibility of coverage, Missouri law does not seem to require such conduct for an insurance company to avoid a vexatious claim. And there seems to be no evidence that the situation is similar to Pace, as Minden has not established that Atain has acted particularly recalcitrant. Given our above analysis -11- regarding the exclusions, and the lack of any Missouri cases directly on point concerning the exclusions at issue, we find that Atain had reasonable cause to believe there was no coverage. Accordingly, we agree with the district court that Atain's failure to defend was not vexatious within the meaning of Missouri Revised Statute § 375.420.