Section 39 Effect of Existence of Vexatious Penalty Statutes; Extent of Preemption of Tort Claims Including Bad Faith

LibraryDamages 2012

Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62 (Mo. banc 2000), involved three counts seeking relief:

Breach of contract Vexatious refusal to pay statutes Defamation

The trial court had previously granted summary judgment to Billings Mutual, finding that it was not subject to the vexatious refusal to pay statute, § 375.420, RSMo 2000, because § 380.511, RSMo 2000, provides that mutual insurance companies are not covered by § 375.420. Overcast, 11 S.W.3d at 64. Neither party appealed that ruling. A judgment was entered in favor of the plaintiff on his claim for defamation, and on appeal in response to Billings Mutual’s position that the vexatious refusal to pay statute preempted the defamation claim, the Court stated:

The insurance company’s major contention on appeal is that Missouri’s vexatious refusal to pay statute, section 375.420, preempts and excludes other remedies that the insured may have against his insurance company. However, the language of the statute does not purport to preempt the common law breach of contract remedy but only to add to that remedy. Nor is there any such preemptive intent discernable from the context of the statute.

Id. at 66.

The Court went on to state that there had not been a tort claim that supplanted or supplemented the basic contract claim and remedy when an insurance company wrongfully refused to pay a loss incurred by its own insured. It stated:

Overcast’s tort claim for defamation is not dependent on the elements of the contract claim. Indeed it would be possible for the insurance company to defame Overcast even in a situation where it had decided to pay his claim. Thus, Overcast’s defamation claim is not based on the company’s refusal to pay and is based on conduct quite distinct from conduct that merely constituted a breach of contract. We cannot infer that the legislature intended, by providing the vexatious refusal to pay remedies in section 375.420, to immunize insurers against all other claims made by an insured for any conduct occurring during a claim determination.

To support its contention that section 375.420 preempts Overcast’s defamation claim, the insurance company cites four court of appeals decisions that decline to extend the “bad faith tort” to actions by an insured against his own insurer—commonly called “first party” claims. Without much analysis, these court of appeals cases cite section 375.420 as “preempting” the bad faith tort claim. The lengthiest discussion is found in Duncan v. Andrew Co....

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