Deny, Delay, and Defend is a common theme around the insurance industry and is often cited to explain an insurer’s reluctance to pay claims. Books have been written on the subject and consultants have been utilized by insurers to put this business plan into place. Despite repeated litigation challenges, these business practices have continued with insurers attempting to avoid or minimize the payment of claims. It’s unlikely this practice will end anytime soon as the increased profitability among insurers as a direct result of these strategies makes it almost impossible to justify a change.
With profit on the line, insurers will go to great lengths to deny and delay claims before even committing to a defense. It’s likely these insurers will attempt to use a recent Missouri Supreme Court decision to further pursue these ends. However, the decision is not as broad as the insurance industry would lead others to believe.
McCrackin v. Safeco Ins. Co., 701 S.W.3d 868 (Mo. Banc 2024)
Riley McCrackin was killed after being shot outside a pool hall in 2019. The assailants were believed to include a young man named Tynan Mullen. In February 2022, McCrackin’s father Jeremy filed a lawsuit in state court (“Underlying Lawsuit”) against Mullen and others alleging they caused the wrongful death of Riley.
At the time of McCrackin’s death, his family alleged that Mullen lived with his grandmother and was insured under her homeowner’s policy with Safeco. It does not appear that Mullen informed Safeco of the lawsuit or requested a defense. Counsel for McCrackin informed Safeco of the lawsuit and offered to settle for the policy limits of the homeowner’s policy. Safeco refused the offer and claimed there was no coverage based on an intentional act exclusion.
Amendment of Underlying Lawsuit and Safeco’s Federal Declaratory Judgment
Following Safeco’s denial, Jeremy McCrackin filed a First Amended Petition in the Underlying Lawsuit. This pleading alleged that Mullen negligently failed to warn Riley McCrackin of the danger posed by the others involved in his death. Safeco apparently learned of the amendment and informed Jeremy McCrackin by letter that no coverage was available as Mullen’s acts were intentional, criminal and subject to those exclusions under the policy.
In December 2022, after again denying coverage, Safeco filed a Federal Declaratory Judgment Action (“DJ Action”) asking the federal court to declare there was no coverage under the homeowner’s policy and that Safeco had no duty to defend or indemnify Mullen under the homeowner’s policy. Safeco moved for summary judgment arguing there was no coverage under the allegations made in the original or amended petition in the Underlying Lawsuit. Jeremy McCrackin moved to stay the DJ Action pending the resolution of any criminal proceedings against Mullen.
Additionally, Jeremy sought leave to file a second amended petition in the Underlying Lawsuit. The second amended complaint named only Mullen as a defendant and alleged that his negligent conduct caused the death of Riley. Jeremy McCrackin and Mullen set the Underlying Lawsuit for a bench trial in May 2023 to have the Court resolve the claims.
In late April, a few weeks before the scheduled bench trial, Safeco moved to intervene in the Underlying Lawsuit on the basis that its interest in defending the Underlying Lawsuit gave it the ability to intervene as a matter of right. Safeco further alleged that it was only seeking intervention to stay the Underlying Lawsuit until the DJ Action was concluded.
At roughly the same time, Jeremy McCrackin and Mullen moved to stay the DJ Action pending resolution of the Underlying Lawsuit. McCrackin and Mullen argued that the resolution of the Underlying Lawsuit was necessary to determine Safeco’s duty to indemnify and that Safeco could litigate coverage in an equitable garnishment action after resolution of the Underlying Lawsuit. The federal court agreed with McCrackin and Mullen and stayed the DJ Action.
The court in the Underlying Lawsuit did not agree with Safeco’s motion to intervene and requested stay. The Court found that Safeco did not meet the standard to intervene as a matter of right or the standard for permissive intervention citing to past precedent. The Court also found that a stay would not be appropriate in these circumstances as the DJ Action had already been stayed.
The bench trial was allowed to proceed and a judgment totaling $16.5 million was entered in favor of Jeremy McCrackin and against Mullen.
Appeal
Safeco disagreed with the decision and appealed. The intermediate court of appeals upheld the trial court decision based on decades of precedent that an insurer who denies a duty to defend and indemnify has no interest in the underlying proceeding. Safeco was not deterred and sought and was granted transfer to the Supreme Court of Missouri.
The Supreme Court decided to reverse the trial court. In doing so, the Supreme Court determined that Safeco had a sufficient interest as a potential defender of Mullen to warrant intervention for the limited purpose of seeking a stay of the Underlying Lawsuit while coverage is litigated in a declaratory judgment action. Again, this decision seemed contrary to several long-standing cases finding that an insurer denying coverage had no interest and therefore no right to intervene in a liability action absent a specific statutory right to do so.
The Court in McCrakin confirmed that insurers who have not been given an opportunity to defend have the right to intervene in a liability action against a potential insured for the sole purpose of requesting a stay pending the resolution of a declaratory judgment on coverage. However, that is the extent of McCrackin. The decision cannot be read to require the trial court to actually grant the request for a stay. In this case in particular, a denial of the stay in the underlying claim would seem to make sense given the federal court declaratory judgment had already been stayed. Further, under many circumstances, a duty to indemnify cannot be determined until after a judgment has been entered against the insured that establishes ultimate facts that bear on coverage. Given this, the logical procedure would be to allow the liability claim to proceed and for coverage to be addressed in any subsequent equitable garnishment or declaratory judgment proceeding.
Additionally, McCrackin confirms that the trial court has discretion on whether to actually stay the liability action and still has discretion to determine whether a motion to intervene is timely. Such decisions will be dependent on the facts presented and will undoubtedly be resolved on a case-by-case basis going forward. Further, McCrackin directs insurers that any declaratory judgment should be filed in the same court where the liability action is pending if possible. Such a pronouncement will likely put an end to the overuse of federal courts to litigate coverage issues.
More is to be learned as the McCrackin holding and its meaning is litigated. Ultimately, the decision itself does no more than allow a carrier to intervene to ask for a stay of a liability case and should not be read to require a stay actually be granted.
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