Court Opinion

ID: 9778092
Source: CourtListenerOpinion
Date Created: 2023-08-29 20:32:00.072934+00
Date Added: 2024-06-11T07:33:03.645756
License: Public Domain

DIXON, Judge,
dissenting.
I dissent. I cannot agree with several of the issues treated in the majority opinion.
First, I do not believe the trial court should have submitted the issue of Shelter’s vexatious refusal to pay on the policy to the jury, and the part of the judgment awarding attorney’s fees on that basis should be reversed. There can be little doubt that the defendant insurance company had a bona fide and legitimate defense to the action. The issue of submissibility to the jury was very close. The application was made by Mrs. Crewse on behalf of both her and her husband and at her husband’s direction. She signed the application after the agent had filled in answers to the questions. She and her husband are bound by the answers she acknowledged by her signature even though she did not read the application. DeLisle v. Cape Mutual Insurance Co., 675 S.W.2d 97, 100 (Mo.App.1984). The majority acknowledges this is so. Mrs. Crewse knew of the three previous fires and she knew of her husband’s bankruptcy. Shelter was falsely informed about previous fires and the bankruptcy of the husband. On the bankruptcy issue, the majority asserts that the materiality of the bankruptcy makes this a submissible issue for the jury. The assertion is made that the evidence was “that the insurance industry does not generally consider bankruptcy to be a factor in the decision in [sic ] accepting an application for homeowner’s insurance.” In another place the majority states, “that other insurance companies do not find bankruptcy to be a factor when considering an application for property insurance against fire.” It is very dubious that the record supports such broad statements. The issue was raised in the evidence only in the defendants’ case and in the rebuttal testimony of an insur-*45anee agent named Hutchinson. Defendants offered the testimony of Aufrenc, an underwriter for Shelter. He testified that the written underwriting rules require an agent to reject an application which discloses a bankruptcy within five years. The testimony was unequivocal that this application would have been rejected if the underwriter had known of the bankruptcy. On cross examination the witness said he did not know that Shelter was the only company that asked about bankruptcy and that apparently other companies insured regardless of bankruptcy.
Read in context, these answers only demonstrate the unwillingness of the witness to contradict the cross examiner’s leading questions rather than show the witness’ affirmative knowledge. The testimony of Hutchinson on this issue is as follows:
Will you tell the ladies and gentlemen of the jury whether or not bankruptcy has anything at all to do with fire, fire insurance. [objection]

THE COURT: He can testify as to his knowledge.
(Proceedings returned to open court.)
Q (By Mr. Wheeler) Do you remember the question?
A Give it again, please.
Q Does bankruptcy have anything to do with property insurance against fire? A No.
MR. YALBRACHT: I object as to the general nature of the question. It is improper. It is unlimited.
THE COURT: Sustained. You can ask him concerning the companies for which he writes.
Q (By Mr. Wheeler) Do the companies you write for inquire as to bankruptcy for their applications?
A No.
Hutchinson admitted he was not “familiar with other companies other than the ones I am working for” and that he could not testify as to the requirements of Shelter or other companies. Hutchinson, although an agent for 18 years, did not say he had any experience with underwriting and admitted he knew nothing about the issue of bankruptcy, except that his companies did not ask about bankruptcy. In fact, the evidence does not even address the question of the underwriting policy as to bankruptcy. All that it shows is that the question is not asked. If the companies acquired knowledge of bankruptcy in another fashion, e.g. from a credit report, such information might still be considered by the underwriter as a ground for rejecting the risk.
This testimony simply does not support the broad propositions stated in the majority opinion. The submissibility issue as to the bankruptcy representation is a very close one and turns on the question of whether Hutchinson’s testimony is substantial. I do not believe that it is, but the majority does. Nonetheless, the issue is certainly a viable one and the bona fides of Shelter in asserting the defense cannot be questioned.
Turning to the representations about previous fires, the majority asserts that since the agent Sides knew of the last of these fires that the issue is controlled by DeLi-sle, supra. I do not agree that DeLisle controls. The majority says that DeLisle applies, first, because there was evidence in the instant case, as in DeLisle, of prior knowledge of fire loss and, second, that the insured’s agent completed the application in DeLisle and asked no questions. In DeLisle, the lack of knowledge of a third earlier fire is not the critical question. What turned the issue in DeLisle was the failure of the defendant insurer to present any evidence that the knowledge of previous fires was material. In fact, defendant’s evidence showed that the knowledge of previous fires was only a factor to consider in accepting the coverage and that because they could not investigate the previous fires they would decline the risk. Defendant’s evidence also positively showed that a loss 8 or 10 years before would not cause them to decline the risk. Thus, in DeLisle, there was no evidence that the third earlier fire would have rea*46sonably influenced a company to reject the risk or increase the premium.
In the present case, the issue is also what evidence exists to show the materiality of the risk. While the Shelter agent said he would not have written the policy had he known of the prior fire losses, the underwriter did not testify that such losses would inevitably result in denial of the risk, only that they would be investigated. The amount of the fire loss on the two earlier fires was not in evidence and the third loss, which was substantial, was known to the company, but not to the agent when the policy was issued. Thus, I would agree that the issue of the prior fire losses should have gone to the jury. I also agree that Mrs. Crewse’s testimony that the agent thwarted further response about fire losses by telling her fire losses on motor vehicles were not relevant would make the issue of whether the answer was in fact untrue a jury issue. Again, while the issue is sub-missible, it is in no way contrived or forced factually or legally and does not show a lack of bona fides in asserting the defense.
The majority finds that the allowance of attorneys fees as a part of damages for vexatious refusal to pay pursuant to § 375.420, RSMo 1978 is justified under this evidence by the application of DeWitt v. American Family Mutual Insurance Co., 667 S.W.2d 700 (Mo. banc 1984).
The general rule for submissibility of damages for vexatious refusal to pay under § 375.420 is that such damages may not be recovered if there is a bona fide defense of law or fact. “The insurer has a right, without penalty, to litigate an open question of law or disputed facts for which there is reasonable or probable cause for belief.” Cohen v. Metropolitan Life Insurance Co., 444 S.W.2d 498, 506 (Mo.App.1969). Hopkins v. North American Co. for Life and Health Insurance, 594 S.W.2d 310, 318 (Mo.App.1980); Lake v. Farm Bureau Mutual Insurance Co., 624 S.W.2d 28 (Mo.App.1981). This rule of sub-missibility arises from the language of the statute “without reasonable cause or excuse.” If the evidence viewed as a whole shows that a genuine and bona fide defense of law or fact was present, then the refusal to pay cannot be “without reasonable cause or excuse.”
DeWitt states an exception to the general rule. The exception in the language of DeWitt is as follows, “The existence of a litigable issue, either factual or legal, does not preclude a vexatious penalty where there is evidence the insurer’s attitude was vexatious and recalcitrant.” DeWitt, 667 S.W.2d at 710. The DeWitt court found evidence to support application of the exception in a delay in payment of mortgages, in the non-return of premiums, and in the general weakness of defendant’s reason for refusal to pay. Id.
There is no evidence in the instant case comparable to that shown in DeWitt. The mortgages were paid by Shelter pursuant to its right to subrogate as was contained in the policy. The premiums were promptly and fully tendered with interest at 10%. Shelter paid the $1,500 living expense due under the policy after it was aware the defense was available. As shown above, the issue as to the viability of the defense of misrepresentation is not in doubt and the issue was a close call under the evidence. The exception stated in DeWitt requires proof of active bad faith that is not present here. The majority opinion is in error in asserting the agent Sides knew of the last motor vehicle fire loss. The payment of the windstorm loss mentioned in the majority opinion is immaterial absent proof Shelter knew of the misrepresentations at the time that loss was paid. There is no such evidence.
While § 375.420 serves a salutory purpose in compelling insurers to deal in good faith, it should not be so loosely construed that it operates to inhibit bona fide defenses. The court should not have submitted the issue of vexatious refusal to pay.
I also believe that the damage instruction in this case was patent error. It was the plaintiffs’ theory that the provision of the policy which reads as follows:
This policy covers any private detached garage on the premises. This coverage *47also includes materials and supplies located on the premises or adjacent thereto, intended for use in construction, alteration or repair of such garage,
allowed a recovery for materials on hand to construct a garage. There is no doubt that the policy so provides. The instruction directs the jury to return a verdict for “$22,-400 with interest at 9% per annum from March 13, 1983.” The majority opinion concedes interest should not be accrued from March 13th but from June 3, 1983. There is also error in the amount of $22,-400. The figure is computed by plaintiffs as $15,000 for dwelling, $6,000 for unscheduled personal property, and $1,500 for appurtenant structures, less $100 deductible. There is only a smattering of evidence as to the value of the materials on hand. The proof of loss lists lumber and materials valued at $200. No witness gave any other testimony as to value. It was apparently plaintiffs’ view that proof of any loss under the materials provisions triggered the $1,500 limit on appurtenant structures. I cannot agree that the policy should be read to permit a recovery for $1,500 when the plaintiffs’ evidence shows that the loss was only $200. The valued policy statutes refer to the values of items in existence at the time of the coverage and should not apply to such an item as the evidence discloses in this case. While the statute might deny Shelter any right to question the value of the existing appurtenant structure, the statute should not require it to pay $1,500 for $200 worth of material. There was no appurtenant structure destroyed, and the valued policy statute has no application.
There is, however, an even more significant defect in the damage instruction, which when considered in the full context of the case, requires reversal. Shelter urges that the damage instruction is erroneous because it does not require the jury to credit Shelter’s payment of the Crewse’s mortgage indebtedness to the bank against the amount due. The effect of the present judgment is to unjustly enrich the Crewses if the claim of Shelter for repayment of the amount paid under the mortgage clause is barred.
The claim of Shelter for the payment made to the bank is barred under the compulsory counterclaim rule, Rule 55.32. The failure to assert a compulsory counterclaim bars the claim. Knight v. M.H. Siegfried Real Estate, Inc., 647 S.W.2d 811, 813 (Mo.App.1982). The rule applies to set-off and recoupment as well as conventional counterclaims. McDowell v. Schuette, 610 S.W.2d 29, 36 (Mo.App.1980); Standard Insulation & Window Co. v. Dorrell, 309 S.W.2d 701, 704 (Mo.App.1958). The claim of Shelter to credit for payment made under the mortgage clause is not a conventional counterclaim. It is a form of recoupment. Recoupment “goes to mitigation or extinguishment of plaintiff’s damages but permits of no affirmative judgment for the defendant.” Edmonds v. Stratton, 457 S.W.2d 228, 232 (Mo.App.1970). “In its strict and literal sense it is a purely defensive matter....” Freeman Contracting Co. v. Lefferdink, 419 S.W.2d 266, 275 (Mo.App.1967). It is distinguishable from a conventional or affirmative counterclaim because recoupment may not provide a basis for judgment against the plaintiff while a counterclaim can. Id. It is unlike a set-off which must arise from a separate and distinct obligation. The modern pleading authorities recognize that the theory of recoupment is available as a purely defensive plea or as a counterclaim in terms of the manner it is presented or instructed upon. The recoupment by Shelter is within Rule 55.32 as a compulsory recoupment both by the definition of recoupment itself and by the definition of transaction under the Rules. “Transaction,” under Rule 55.-32, is to be applied in its broadest sense to serve the purpose of the rule in bringing all logically related claims into a single litigation, and a defendant in a contract action is required to present all claims he has against a plaintiff arising out of the contract. State ex rel. J.E. Dunn, Jr. & Associates, Inc. v. Schoenlaub, 668 S.W.2d 72, 75 (Mo. banc 1984). Shelter’s right of re-coupment arose out of the insurance contract upon which plaintiffs’ suit was based. The transaction between the parties was *48the contract and the recoupment was part of the transaction.
In this case the contract between the parties provided an additional right to Shelter. By the terms of the mortgage clause, Shelter was bound to pay the bank even if a defense existed as to the insured. DeWitt, 667 S.W.2d at 710; Weekly v. Missouri Property Insurance Placement Facility, 538 S.W.2d 375, 379 (Mo.App.1976). The mortgage clause, however, also permitted Shelter in any case where liability as to the insured was contested to take an assignment and be subrogated to the bank’s rights against the insured. That is what occurred in this case — the notes show that they were assigned to Shelter. This right under the policy gave rise to the affirmative counterclaim which Shelter submitted. The claim in tort which that counterclaim submitted did not by the election of remedies bar the simultaneous submission of the theory of recoupment against plaintiffs’ claim under the contract. Clayton Brokerage Co. v. Pilla, 632 S.W.2d 300, 305 (Mo.App.1982), because those remedies are not inconsistent. The theories are alternative. If plaintiff prevails on the insurance contract, defendant is entitled to re-coupment; if plaintiff loses on the contract action, the defendant can still prevail on the affirmative counterclaim for fraud in the inducement of the contract and the resultant damage. The instant case is analogous to Freeman Contracting Co. v. Lefferdink, supra. In Lefferdink, plaintiff sued on a contract to repair a foundation. Defendant counterclaimed in tort, contending the work was negligently done, damaging the premises. Lefferdink, 419 S.W.2d at 270. Plaintiff prevailed and defendant’s counterclaim was denied in the trial court. On appeal the court found defendant had failed to prove negligence, Id. at 277, but that the damages shown entitled him to recoupment on plaintiff’s claim. Id. 275-276. The case was reversed for a new trial on plaintiff’s claim.
The instant case should also be reversed for a new trial on the plaintiffs’ claim with appropriate instruction on the theory of recoupment. The judgment on the submitted counterclaim is final; the defendant does not contend otherwise. I, therefore, dissent from the majority opinion affirming the plaintiffs’ judgment.