Court Opinion

ID: 9770180
Source: CourtListenerOpinion
Date Created: 2023-08-29 15:53:30.195045+00
Date Added: 2024-06-11T07:31:15.563378
License: Public Domain

RONNIE L. WHITE, Judge,
dissenting.
I respectfully dissent.
I. Estoppel and the Application of Brown v. State Farm
The principal opinion draws its estoppel analysis from Brown v. State Farm Mut. Auto Ins. Co.,1 an opinion that was explicitly designed to deal with a particular, narrow question. By applying that analysis out of the context in which it was developed and broadening Brown into a rule of general application, the Court today undermines an important doctrine that has long protected Missouri insurance consumers.
As Brown itself notes, the longstanding rule is that “an insurer, having denied liability on a specified ground may not thereafter deny liability on a different ground.”2 It was the interpretation, not the viability, of this rule that was at issue in Brown. The question before the Court was whether the rule that prejudice is presumed, where an insurer announces a specific defense and later seeks to rely on a different defense. This applies with equal force where the insurer issues a general denial, and later relies on a more *537specific defense falling within that general denial. In Brown, the insurer issued a denial letter stating that the claim (an alleged car theft) was “not a loss as defined by your policy.”3 When the insured sued for coverage, State Farm sought to prove that the claim was not a “loss” (defined in the policy as an “accidental loss”), because Ms. Brown was complicit in the theft.4 The trial court excluded this evidence on estoppel grounds. In reversing, this Court held that “where the insurer’s initial denial is stated in such a way that it reasonably implies the subsequently, but more specifically stated, consistent reason for denial,” no detrimental reliance can be claimed, and no prejudice occurred merely because the claimant was forced to file suit.5 The Brown Court, however, reiterated that the announcement of a specific defense itself prejudices the claimant merely by causing him or her to prepare to combat that particular defense and not others:
It is the announcement of the specific defense which lulls the insured into relying to his detriment and subsequent injury on the insurer’s stated position. Thus “the rationale of these cases is that the plaintiff has relied to his detriment on the assertion of the defense by preparation to meet that issue and that the defendant may not shift the grounds of the defense after the fact.”6
It is undisputed that in this ease State Farm initially denied coverage to Todd Sha-han by filing a declaratory judgment action asserting he was not covered by the Hunolt’s insurance because he was not a permissive user of their car. State Farm offered no other grounds for denying coverage. State Farm lost the declaratory judgment and immediately undertook an active defense of Todd Shahan. This defense ended in August of 1995, nearly three years after State Farm filed its declaratory judgment action. State Farm sought to withdraw from the representation upon the completely different ground that the injuries suffered by Andrew Shahan were excluded from coverage under the household exclusion in State Farm’s policy. This is not a situation, as in Brown, where the later-claimed defense is merely a more specific version of the earlier denial. Accordingly, under Brown, as under earlier cases, no further prejudice need be demonstrated to estop the insurer from denying coverage.
Even if Brown did require some additional showing of prejudice in this situation, such prejudice is amply demonstrated here. State Farm first undertook and then abandoned Todd Shahan’s defense. In Missouri, as elsewhere, it is the rule that an insurer, with knowledge of facts that would give rise to a defense of noncoverage, who nevertheless undertakes to defend an insured without a reservation of rights, is generally estopped from raising such a defense subsequently.7 In such circumstances the danger of prejudice to the insured is severe, since the insurer has the power to bind the defendant to a particular defense relative to the plaintiff. Consequently, a minimal showing of prejudice, including mere delay in withdrawing from a defense after discovery of relevant facts indicating noncoverage, may be sufficient to es-top the insurer from subsequently denying coverage.8 Indeed, some cases take the position that “where the insurer takes over complete control of the defense with knowledge of the coverage question, prejudice to the insured is conclusively presumed, and need not be alleged or proved.”9
*538The principal opinion holds that Todd Sha-han was not prejudiced by State Farm’s conduct of his defense and eve of trial withdrawal because he was represented by his own counsel throughout the litigation. But this counsel was, according to the affidavit he filed when requesting a continuance after State Farm abruptly withdrew, “secondary,” and State Farm’s counsel was “the only attorney involved in the management of the defense of th[e] case.” During that time extensive litigation was conducted, an answer was filed on behalf of Mr. Shahan, discovery was had and numerous hearings were held. It was more than a year after undertaking to defend Mr. Shahan (and three years after the initial action was filed), and only after a pretrial conference had been held and voir dire commenced, that State Farm’s counsel sought to withdraw from the representation. This request was initially denied. It was ultimately granted when State Farm made clear to the court that it would no longer pay for counsel’s time, even if the court required him personally to continue to defend Todd Shahan. Mr. Shahan was clearly prejudiced by the delay occasioned by State Farm’s eve of trial withdrawal. Also, he was forced to try his case on the record developed by State Farm, with an attorney who was far less familiar with the case, and had far less time to prepare it, than the counsel State Farm provided to Mr. Shahan, and then abruptly withdrew.
The majority opinion holds that this clear prejudice is not relevant, however, since Andrew Shahan, the injured plaintiff must be prejudiced by the initial denial and subsequent defense on new grounds, in order to take advantage of an estoppel argument. In my view, this holding ignores the procedural posture of this ease. “Garnishment is a legal process through which a holder of a judgment may apply sums which others owe the judgment debtor to the satisfaction of the judgment. It is said that the garnishor stands in the shoes of the judgment debt- or.” 10 The question in garnishment is not whether State Farm has a defense against the plaintiff garnishor. The question is whether it has a defense against the insured defendant: “ ‘whatever defence the garnishee could urge against an action by the defendant, for the debt in respect of which he is garnished, he may set up in bar of a judgment against him as garnishee.’ ”11 State Farm has no policy defense against Andrew Shahan’s garnishment action, except to the extent that it has such a defense against primary liability to Todd Shahan, its insured. If estoppel operates to prevent State Farm raising a defense against Todd Shahan, then State Farm may not raise that defense against a garnishor to whom Todd Shahan is indebted. State Farm’s failure to raise the household exclusion until the very eve of trial clearly prejudiced Todd, and State Farm should be estopped from raising the exclusion against him, as well as against Andrew Shahan, who is merely attempting to collect the debt State Farm owes to Todd. To reach the conclusion as the principal opinion does, a garnishee may raise a defense against a gar-nishor that it would be estopped from raising against the judgment debtor defeats the very purpose of garnishment. The purpose is to allow a judgment creditor to recover monies to which the judgment debtor is entitled.
Because State Farm initially denied Todd coverage on one specific basis, it is estopped from denying coverage based upon a different specific policy defense. To the degree that further prejudice is required in such circumstances, it is manifestly shown by State Farm’s first undertaking an unconditional defense of Todd Shahan and then withdrawing from that representation, despite at all times being aware of the facts giving rise to its later-claimed defense. Andrew Sha-han, as a garnishor, is subject to State Farm’s defenses to coverage only to the extent that Todd Shahan, as a judgment debt- or, would be; State Farm is therefore es-topped from denying coverage of Todd in the present garnishment action.
II. Household Exclusion
I agree both with the principal opinion’s admonition that language should be read to *539mean what it plainly says and with its definition of the word “or.” I disagree, however, that these premises support the conclusion that the sentence “THERE IS NO COVERAGE:. ... FOR ANY BODILY INJURY TO:.... ANY INSURED OR ANY MEMBER OF AN INSURED’S FAMILY RESIDING IN THE INSURED’S HOUSEHOLD” is completely devoid of ambiguity.
Even when written in non-teehnical language, it is not inherently clear whether a phrase following two items joined by a disjunctive modifies both or only the latter of the two. In the sentence “There is no dessert for any boy or any girl who does not finish dinner,” “or” clearly separates unlike things (“any boy” and “any girl”) and creates two distinct classes. The sentence is nevertheless ambiguous, because the two classes could be 1) boys and 2) girls who do not finish dinner, or 1) boys who do not finish dinner and 2) girls who do not finish dinner. Since exclusions are construed narrowly, in favor of coverage, the more restrictive of the two possible constructions applies. Thus, the household exclusion at issue here excludes coverage for injuries to 1) any insured residing in the insured’s household and 2) any member of an insured’s family residing in the insured’s household.
Because Andrew Shahan is, as he concedes, “an insured” within the meaning of the policy, the decisive question is whether he resides in “the insured’s household.” The question of which insured is “the insured” under this policy language has been extensively litigated. In State Farm Mutual Insurance Co. v. Ballmer, this Court overruled an earlier court of appeals opinion holding this exclusion ambiguous.12 In Ballmer and Carney, the injured party was a passenger who resided in the same household as the permissive driver, but was not residing with the named insured. The Carney court held that the exclusion was ambiguous, since the phrase “the insured” could mean the named insured, or it could refer back to the person identified as “an insured” earlier in the policy, in that case the permissive driver.13 The court construed the ambiguity against the insurer and in favor of coverage and held the exclusion inapplicable.14 In overruling Carney, this Court disagreed and held that the exclusion unambiguously expressed the second meaning described in Carney, that is, that “the insured” referred back to the earlier phrase “an insured” and, thus, meant to refer to the “specific category of ‘insured’ that applies to the situation.”15 In Ballmer, as here, that category was the permissive driver definition under' section 4. of the definition of “insured,” and the Court upheld applicability of the exclusion, since the injured party resided in the same household as the permissive driver.16 Here, the factual situation is reversed. Instead of residing in the same household as the permissive driver, the injured party resides in the same household as the named insureds. To hold, as State Farm argues, that “the insured” under the exclusion can mean both the named insured as well as the permissive driver, would be to accept the precise argument this Court rejected in Ballmer.
Under Ballmer, “the insured” means the particular tortfeasor identified under the definition of “insured,” in this case, the permissive driver, Todd Shahan. Thus, the exclusion, read in light of Ballmer, prohibits coverage of injuries to 1) any insured who lives' in the tortfeasor’s household or 2) any member of an insured’s family who resides in the tortfeasor’s household. This reading is consistent with the public policy allowing narrow household exclusions in some restricted circumstances. While generally disfavored, such clauses are permissible “to exempt the insurer from being required to cover claims by those persons to whom the insured, on account of close family ties, would be apt to be partial in the case of injury; the exclusion serves to protect the *540insurer against collusive or cozy claims.”17 Under the principal opinion’s interpretation, the household exclusion applies to bar coverage to a permissive driver for injuries he causes to any other person eligible to be an insured driver under the policy. This is true where the injured party and the tortfeasor have no close connection and do not reside in the same household. Here, Todd Shahan and Andrew Shahan shared little more than a last name. There is nothing in the record suggesting collusion, and the principal opinion’s reasoning would apply even if they were not half-brothers. If State Farm had intended to have its household exclusion cover persons who did not reside in the same household as the tortfeasor, it would have been more natural and unambiguous for the exclusion to exclude coverage for any member of an insured’s family who resides in an insured’s household. Since State Farm did not write the policy this way, I disagree with the majority’s decision to give it this construction, especially in light of the public policy requiring exclusions to be narrowly construed against exclusion.
The decision in Ballmer and the public policy allowing household exclusions limit the applicability of the exclusion at issue here to instances where the injured party resides in the tortfeasor’s household. Because Andrew and Todd did not reside in the same household, Andrew’s injuries were not excluded from coverage under the automobile policy, and he is entitled to the proceeds of that policy.
III. Conclusion
In my view, State Farm’s conduct estops it from asserting the household exclusion in its policies against garnishor, Mr. Shahan, and, in any case, the household exclusion in the automobile policy at issue here does not bar coverage for liability between persons who do not live in the same household. Accordingly, with respect, I dissent.

. 776 S.W.2d 384, 386 (Mo. banc 1989).

. Id. at 386.

. Id.

. Id.

. Id. at 389.

. Id. (quoting Morris v. Travelers Ins. Co., 546 S.W.2d 477, 487-8 (Mo.App.1976)).

. State Farm Mut. Auto. Ins. Co. v. MFA Mut. Ins. Co., 485 S.W.2d 397, 402 (Mo. banc 1972); Mistele v. Ogle, 293 S.W.2d 330, 334 (Mo.1956); 7C Appleman, Insurance law and Practice, sec. 4692.

. See, e.g., Mistele, 293 S.W.2d at 334 (two year delay in withdrawing from representation after facts giving rise to defense of noncoverage allegedly became known sufficient to submit question of estoppel to factfinder).

. 7C Appleman, Insurance Law and Practice, sec. 4693. See also Royle Mining Co. v. Fidelity & Cas. Co. of New York, 161 Mo.App. 185, 142 S.W. 438, 442 (1911).

. Wenneker v. Physicians Multispecialty Group, 814 S.W.2d 294, 296 (Mo. banc 1991).

. Id. (quoting Drake on Attachments, sec. 672).

. 899 S.W.2d 523, 525 (Mo. banc 1995) (overruling State Farm Mut. Auto. Ins. Co. v. Carney, 861 S.W.2d 665 (Mo.App.1993)).

. Carney, 861 S.W.2d at 668-69.

. Id.

. Ballmer, 899 S.W.2d at 526.

. Id.

. 8 Couch on Insurance 3d 114:25-26.