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American States Insurance Company v. Ankrum

October 01, 2002


St. Louis County District Court File No. CX-97-602194

Considered and decided by Anderson, Presiding Judge, Randall, Judge, and Parker, Judge.*fn1


1. An appellate court will not disturb a jury's finding that no joint venture existed when the evidence reasonably supports the finding.

2. The district court did not err in allowing intervention by an interested party and vacating a default judgment when the intervenor's motion was timely and its interests were not adequately protected by the parties to the lawsuit.

3. The district court properly enforced Miller-Shugart agreements based on its findings that the agreements were reasonable and prudent and not the product of collusion.

4. An insured is not entitled to recover attorney fees in an action to determine coverage when the insurer withdraws from representation in reliance on a default judgment and accompanying court order determining that it owed no duty to defend or indemnify.

The opinion of the court was delivered by: Randall, Judge

Affirmed in part and reversed in part; motion denied


This appeal is from a declaratory judgment determining that respondents-insureds are entitled to coverage under individual commercial liability policies issued to them by appellant-insurer. The insurer argues that (a) the insureds were engaged in a joint venture and, therefore, are not entitled to coverage under their individual policies; (b) respondent-intervenor, the plaintiff in the underlying action, lacked standing to intervene and vacate the default judgment against the insureds; (d) the Miller-Shugart agreement was invalid because the insureds' entitlement to coverage had already been judicially determined and the agreement was the result of collusion; and (e) the district court erred in awarding the underlying plaintiff attorney fees. We affirm in part and reverse in part; we deny respondents' motion to strike.


Procedural facts

In January 1995, a fire started in a Tofte Cove townhome and spread throughout the building, which contained six townhomes. The fire started when an employee of the Tofte Management Company was using a hot-air gun to thaw frozen pipes located in a townhome's wall. As a result, Tofte Cove Homeowners Association (Tofte Cove) sustained $762,163 in property damage. Tofte Cove was compensated for the loss by its property insurer, St. Paul Companies.

In 1996, Tofte Cove, on behalf of St. Paul Companies, brought a breach-of-contract action against the subcontractors hired to construct the Tofte Cove townhomes, alleging that defective construction, specifically the failure to install fire stops, caused the fire to spread far more extensively than it would have if fire stops had been installed. Respondents Lyle Ankrum and Bill Ermatinger, who installed sheetrock and performed drywall services on the townhomes, were brought into that action in January 1997 when they were served with the second amended complaint.

Both Ankrum and Ermatinger had commercial liability-insurance policies with appellant American States Insurance Company (ASI). Ankrum and Ermatinger in January and March 1997, respectively, tendered defense of the action to ASI. ASI retained Robert Magie to represent Ankrum and Ermatinger.

In March 1997, ASI sent Ankrum a reservation-of-rights letter notifying him that ASI reserved its right to disclaim coverage if it was later determined that the allegations and damages claimed in the lawsuit fell outside of the policy coverage and that ASI might bring a declaratory-judgment action to determine the extent of coverage owed. Ermatinger testified that he did not receive any letter from ASI in 1997, and ASI did not produce a copy of a reservation-of-rights letter to Ermatinger. In April 1997, Magie filed an answer and cross-claim on behalf of Ankrum and Ermatinger, alleging that it was not their responsibility to install fire stops.

In July 1997, ASI commenced a declaratory-judgment action against Ermatinger and Ankrum, seeking a declaration that it was not obligated to provide a defense or coverage to Ermatinger or Ankrum in the underlying Tofte Cove action because Ermatinger and Ankrum were either partners or in a joint venture when they performed the drywall work on the Tofte Cove townhomes. Although the summons and complaint named and were served on both Ermatinger and Ankrum, the complaint referred only to policy number 01-CD-608242-1, the policy issued to Ankrum, and to "the policy issued to defendant Ankrum" and to "the policy of insurance issued by [ASI] to Lyle Ankrum." ASI had issued a separate policy to Ermatinger, policy number 01-CD-566779-1.

Neither Ermatinger nor Ankrum served or filed an answer in the declaratory-judgment action. Ermatinger testified that he probably "laid [the summons and complaint] aside and forgot about it." Ankrum gave no reason for failing to answer. Magie testified that Ermatinger and Ankrum came to see him about the declaratory-judgment action but declined, on confidentiality grounds, to disclose any information about those meetings.

Tofte Cove was not named as a party in the declaratory-judgment action. Tofte Cove's attorney, Steve Pfefferle, testified that Magie told him about the declaratory-judgment action but that he did not seek to intervene because he was waiting for the formal notice required by law to be provided to interested parties.

In November 1997, ASI moved for a default judgment in the declaratory-judgment action based on Ankrum's and Ermatinger's failure to answer. The district court granted ASI's motion, ordering that ASI had no duty to defend or indemnify defendants Lyle Ankrum and bill Ermatinger, or either of them in the separate litigation brought against them by [Tofte Cove].

On November 12, 1997, judgment was entered for ASI. The judgment states that more than 20 days had elapsed after the summons and complaint was served on Ankrum and Ermatinger and that neither one had served an answer or made any appearance in the action.

In November 1997, per ASI's instructions, Magie withdrew from representing Ankrum and Ermatinger in the Tofte Cove action. Neither Ankrum nor Ermatinger hired another attorney to represent them.

A mediation was conducted, and the parties other than Ermatinger and Ankrum settled for a total of $300,000, with the carpenter contractor contributing $102,500; Rysdahl, Buntz contributing $145,000; and the architect contributing $52,500. The $300,000 settlement left about $450,000 in outstanding damages. Pfefferle testified that at the mediation, someone informed him of the default judgment for ASI in the declaratory-judgment action.

In June 1998, Pfefferle wrote a letter to ASI's attorney, William Paul, stating that Tofte Cove intended to pursue its claim against Ermatinger and Ankrum through entering into Miller-Shugart agreements with them and moving to vacate the default judgment in the declaratory judgment action. The letter stated that a Miller-Shugart agreement was likely to be in the amount of $450,000; indicated that Tofte Cove would be willing to settle for an amount substantially less than $450,000; and invited ASI to enter into settlement negotiations. The letter stated that Tofte Cove held Ankrum and Ermatinger responsible for failing to install fire stops.

A jury trial in the Tofte Cove action was scheduled to begin on November 30, 1998. Tofte Cove had at least three experts prepared to testify against Ermatinger and Ankrum on the issues of liability, causation, and damages. The contractors who had settled with Tofte Cove had cross-claims pending against Ermatinger and Ankrum and experts prepared to testify that the drywall and sheetrock work had been performed negligently.

In October 1998, Ascher, substituted counsel for Tofte Cove, contacted Ankrum and informed him that Tofte Cove proposed entering into a Miller-Shugart agreement with Ankrum. Ascher explained to Ankrum that under a Miller-Shugart agreement, Ankrum would confess judgment in a certain amount, and Tofte Cove would only seek to satisfy the judgment against ASI. Asher testified that he explained to Ankrum that he was not his attorney and could not give him legal advice. Ascher testified that he had basically the same conversation with Ermatinger. Both Ankrum and Ermatinger advised Ascher that they did not believe they were at fault for the fire loss.

On October 13, 1998, Ascher sent proposed Miller-Shugart agreements in the amount of $225,000 each to Ankrum and Ermatinger. Ascher indicated on the accompanying cover letter that he would like a response by October 20, 1998.

Ermatinger signed the agreement on October 15, 1998, and returned it to Ascher, who signed it on October 22, 1998. Ermatinger testified that he signed the agreement because he had been told it would get him out of the lawsuit and protect his assets. Ermatinger testified that he did not understand that by signing the agreement, he was admitting liability in the amount of $225,000 and that Tofte Cove could attempt to collect that amount from his insurer.

Ascher did not receive a response from Ankrum by October 20, so he called him a second time. Ascher testified that he explained to Ankrum that Tofte Cove had information, evidence, and opinions that could result in Ankrum and Ermatinger or either one of them being legally liable for the full amount of $750,000 in damages. Ankrum signed the ...

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