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House’s Special Committee on Litigation Reform hears DeGroot’s interpleading bill

JEFFERSON CITY, Mo. – Should the state change up the rules regarding its statutes on interpleaders? That seems to be intent on one bill heard early Tuesday morning.

The House’s Special Committee on Litigation Reform met Tuesday morning to hear Rep. Bruce DeGroot’s HB 1531, a bill seeking to “modify provisions relating to interpleading in civil proceedings.”

An interpleader is a civil procedure which allows a plaintiff or defendant to initiate a lawsuit in order to compel two or more other parties to litigate a dispute. This occurs when the plaintiff holds property or money on behalf of another but does not know to whom the assets should be transferred.

Translation: it’s a legal remedy used when two or more parties seek ownership of money or property held by a third party.

The bill says that a plaintiff’s insured may be joined as a defendant and required to interplead when the plaintiff could be exposed to multiple claims against the same insurance coverage.

In addition to this, the bill would set up a procedure as to how an insurer might deposit “all applicable limits of coverage” into the court in an interpleader, and would not be liable for further coverage beyond that of its contractual limits “so long as the insurer defends its insured from any further claim or lawsuit.

“Section 507.060 has been abused for a long time by plaintiff’s attorneys, sometimes, not always, and what this bill looks to fix that,” DeGroot said.

DeGroot explained that, in the scenario in which a person had a car accident, and there were multiple people in the other vehicle, an insured person’s policy would cover up to a specified amount of money. If the injuries, however, of the other vehicle added up to more than that specific amount of money, the insurance company, under the current statute, would interplead the funds with the court, but “still are subject to a bad faith claim.”

“If we have insurance carriers with $100,000 policies that are on the hook for $14 million, well everybody pays for that,” DeGroot said. “We all get an increased premium.”

He also stated that such an environment has a negative effect on companies, saying it made them “not want to do business in the state of Missouri.”

“It leads to a general overall unfair climate,” DeGroot said.

Testifying alongside Rep. DeGroot was Clay Crawford, an attorney out of Kansas City.

“Almost all states have statutes for interpleaders,” Crawford said. He explained that what makes Missouri unique is that the under current law, as he told the committee, by merely interpleading their funds, insurance providers can be exposed to claims of bad faith.

Crawford told the committee that the amendment to interpleader statute would allow companies to take advantage of the interpleader “without being exposed to themselves to millions of dollars in liabilities in excess of their contractual liability.” He contended that the current statutes sometimes put insurance carriers in impossible situations where they would have to choose to pay out claims on a first-come, first-served basis and exhaust their policy limits to avoid bad faith claims.

“It would allow for fair allocation of limited liability proceeds among people with claims and avoid the gamesmanship and races to the courthouse or law offices,” Crawford said. “When you have these claimants and their lawyers jockeying for position to try and maximize their recoveries, it results in long delays and unfair allocations of limited insurance proceeds.”

Rep. Mark Ellebracht expressed concern that the bill might extinguish the insurance provider’s duty to defend, or “dump and run.”

Rep. Gina Mitten shared the same concerns, and asked if DeGroot would be amenable to an amendment to the bill, since the language was “meant to prohibit a dump and run.” She said that the language seemed to create some confusion. She also noted that different states handled interpleaders differently.

She spoke to concerns about lawyers not having incentive to mount a strong defense.

“There’s already a lot of pressure on the defense counsel to keep things cheap,” she said. “As to the concerns of exposing them to multimillion dollar liabilities, they’re already exposed to that.”

“We don’t expect these things to happen. No reasonable person buys a million dollar policy expecting to hit some black ice in my lifetime,” Mitten said.

Crawford responded, saying that the natural market forces and the cost of engaging an interpleader would encourage carriers to settle when they can, and said: “woe be the lawyer who takes a case with a third party payer and doesn’t do everything professionally necessary to provide a quality representation of their client.”

While Crawford spent a good portion of the hearing fielding questions, others testified against the bill, citing similar concerns to those shared by Ellebracht and Mitten.

“It looks like the intent of the bill is to absolve the insurance company of its duty to obtain a release,” David Zevan, President of the Missouri Association of Trial Attorneys said. “They’re not obtaining a release for the money, so they have a duty to indemnify and defend. When they put that money in, they’re saying ‘we’re going to continue to defend you, but we have put the money in the court.’ But they haven’t obtained a release for that, they’re still liable above and beyond that $50,000. You’ve exonerated your own liability, but you’ve still exposed me to liability.”

Zevan says that there are plenty of fine lawyers out there in those types of roles, but says he has little faith that they will do everything they can possibly do because an insurance company could be telling them how much they can spend and what they can’t spend.

“They might not be acting in my best interest, but who cares anymore? They have no incentive,” Zevan said. “Why can’t the company turn to its own insured and say ‘Hey, you only have $50,000 in insurance. We could continue to defend you, you might get hit for more than this $50,000, so why don’t we see if we can offer up the $50,000 and get a release from all of these people? What if we did that for you?’ Then they’re simply doing their jobs. Unfortunately, the system works as it does now, and holds insurance companies accountable. I don’t know why we want to let them walk over their insured.”

He calls it, quite simply, a way for companies to increase their profits.

Rich Aubuchon, a lobbyist representing Property Casualty Insurers Association of America also testified, summing up their sentiment in a few sentences.

“We believe this strikes a good balance that allows the insured to receive what they paid for and also that they get a good, vigorous defense,” Aubuchon said. “It’s a good balance.”

At the end of the hearing, the committee adjourned, taking no action on the bill.