Missouri is the only state in the union that has a statute allowing defendants to cut out insurers and sue on behalf of a defendant for punitive damages and it has resulted in millions of dollars in losses over the years against insurance companies, according to a civil justice reform lobbyist.
But if insurance bad faith litigation outlined in Republican Sen. Tony Leutkemeyer (MO-03)’s Senate Bill 179 and Republican Rep. Bruce DeGroot (District 101)'s House Bill 345 are approved, such sweetheart deals, called "537.065 Agreements," allegedly negotiated behind an insurer’s back will come to an end.
“It's a way to target and assign an interest to an individual that may have been the plaintiff in another case for the insurance bad faith litigation and to get punitive damages beyond what may have been involved in the accident,” said Rich AuBuchon, executive director of the Missouri Civil Justice Reform Coalition.
As previously reported, the term “537.065 Agreements” refers to a section of a Missouri statute, which mitigates punitive damage agreements and intervention in lawsuits for insurance companies.
“It has a trickle-down effect,” AuBuchon said. “You can't have tens of millions of dollars of punitive damages against the insurance company and think for a second that it doesn't affect auto insurance rates overall in the state of Missouri for risk. So, obviously, Missouri has been doing a lot over the years to reduce insurance costs. This was just one more input that policyholders have to pay for.”
A letter from an insurer denying a claim opens the door under the statute for the injured party to negotiate a 537.065 Agreement and not to hold the defendant harmless for any judgment that is entered against them.
“Together, they go against the insurance company because they’ve assigned the interest of the bad faith claim as part of the settlement to the injured party who then sues the insurance company for failure to settle based upon the other person's claims,” AuBuchon told the St. Louis Record.
While SB 179 never made it past being calendared, AuBuchon said that HB 345 was approved by the House and is currently parked in a fiscal review committee.
“It received 110 votes out of 163, which is a very good vote in the Missouri House with 114 Republicans,” Aubuchon said. “It ended up passing the House after they made negotiation changes in the Senate.”
It is an area of law that Missouri lawmakers had tried to fix before.
State Sen. Caleb Rowden (R-Columbia) sponsored SB 49 in 2019, a bill that would have prohibited arbitration awards against insurers unless the insurer had agreed to the process in advance. However, SB 49 expired in the Senate.
“Trial lawyers are opposed because this is a serious blow to their process of using arbitration, which has resulted in hundreds of millions of dollars of liability over the last few years, but at this point, having the bill receive 110 votes in the House, I don't predict it will have any problems going forward," AuBuchon said.
The proposed legislation will provide insurers the opportunity to intervene in the process after being notified of an insured's dispute.
“The statute doesn’t authorize intervention rights in the arbitration proceeding and what has happened is when insurance companies do get a notice under the statute for a court proceeding, they go to intervene and are told to go sit in a corner,” Aubuchon said.
Under HB 345, insurance companies will have the opportunity to intervene.
“Arbitration that proceeds without the insurance company would be rendered void,” AuBuchon said. “So you have to give the insurance company notice and certainly insurance companies like to be involved in arbitration when they have the option to actually participate. If you try to do a sweetheart deal behind the insurer’s back without notice, that arbitration award would be void.”