White Knight Diner, LLC v. Owners Insurance Company ( 2023 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 21-2956
___________________________
White Knight Diner, LLC; Larry Lee Hinds; Karen Freiner
Plaintiffs - Appellants
v.
Owners Insurance Company
Defendant - Appellee
____________
Appeal from United States District Court
for the Eastern District of Missouri – St. Louis
____________
Submitted: September 21, 2022
Filed: June 6, 2023
____________
Before SMITH, Chief Judge, KELLY and GRASZ, Circuit Judges.
____________
KELLY, Circuit Judge.
White Knight Diner, LLC, Larry Lee Hinds, and Karen Freiner (collectively,
White Knight) appeal the decision of the district court 1 to grant summary judgment
1
The Honorable Matthew T. Schelp, United States District Judge for the
Eastern District of Missouri.
in favor of Owners Insurance Company (Owners). Having jurisdiction under 28
U.S.C. § 1291, we affirm.
I.
On March 15, 2015, Ambar Arango and Dzemal Omervic were involved in a
car accident in St. Louis, Missouri. One of the cars crashed into White Knight Diner,
resulting in property damage to the restaurant. At the time, White Knight was
insured by Owners pursuant to a policy that provided coverage for property damage
and loss of business income (the Policy). The Policy included the following
subrogation2 clause:
If any person or organization to or from whom we make payment under
this Coverage Part has rights to recover damages from another, those
rights are transferred to us to the extent of our payment. That person or
organization must do everything necessary to secure our rights and
must do nothing after loss to impair them. But you may waive your
right against another party in writing[.]
The Policy was also subject to a $1,000 deductible.
Following the accident, White Knight submitted a claim to Owners pursuant
to the Policy, and Owners paid White Knight $66,366.27. That amount represented
$49,965.10 for property damage and $16,371.17 for loss of business income. The
repairs for White Knight’s property damage were completed by October 2015.
White Knight subsequently brought suit in Missouri state court against
Arango and Omervic for lost income (the Arango Litigation). Arango was insured
by State Farm, and Omervic was insured by Progressive. Both drivers were subject
2
In the insurance context, subrogation is the “principle under which an insurer
that has paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered by the
policy.” Subrogation, Black’s Law Dictionary (11th ed. 2019).
-2-
to policy limits for liability coverage: Arango’s State Farm policy limit was $50,000,
and Omervic’s Progressive policy limit was $25,000.
Before White Knight initiated the Arango Litigation, Owners sought to recoup
from State Farm and Progressive the money it had paid to White Knight under the
Policy, as well as White Knight’s $1,000 deductible. Specifically, on July 15, 2015,
Owners 3 sent State Farm a “Request for Payment” with instructions to “CONTACT
[OWNERS] PRIOR TO SETTLEMENT.” On December 8, 2015, State Farm issued
a check to Owners in the amount of $33,668.14, which represented half of the money
Owners had paid to White Knight plus half of White Knight’s $1,000 deductible.
Owners then issued a $500 check to White Knight. State Farm did not require a full
release of White Knight’s claims or future claims in exchange for its payment to
Owners.
Owners also sent a near-identical request to Progressive but, unlike State
Farm, Progressive declined to pay. Owners told White Knight, which was aware of
the Policy’s subrogation clause, about its efforts to recoup its payment to White
Knight from the drivers’ insurers. White Knight did not object.
After Arango’s insurer paid Owners, Arango sought a setoff for that amount
in the still-ongoing Arango Litigation. The state court denied that request,
concluding that Arango could not assert a setoff against any amount she owed White
Knight for sums State Farm paid to Owners. White Knight eventually settled its
claim against Omervic for $25,000, and settled its claim against Arango for
$16,331.86. The state court then dismissed White Knight’s case with prejudice.
While the Arango Litigation was still pending, White Knight and several other
insureds filed the instant class action against various insurance companies including
Owners. The plaintiffs sought, among other things, an order declaring that these
3
Owners hired Trover Solutions “to handle [its] subrogation portion,” but we
refer to Owners for simplicity.
-3-
insurers’ practice of settling subrogation claims with each other directly, without the
insureds’ involvement, violated Missouri subrogation law.4 After the insurers
brought several motions to dismiss, the district court dismissed all parties except for
Owners and White Knight. White Knight then filed an amended complaint against
Owners only, adding new causes of action, including breach of contract and breach
of the implied covenant of good faith and fair dealing.
Owners filed a motion for summary judgment on all claims. White Knight
moved for partial summary judgment on its declaratory judgment claim. The district
court granted Owners’s motion, denied White Knight’s motion, and entered
judgment in Owners’s favor. White Knight now appeals.
II.
On appeal, White Knight argues that because Owners’s conduct violated
Missouri subrogation law, the district court erred in granting summary judgment to
Owners on its declaratory judgment claim. In addition, White Knight argues there
were disputed questions of material fact concerning whether Owners’s actions were
taken in violation of the Policy and thus a reasonable jury could find in White
Knight’s favor on its breach of contract and implied covenant of good faith and fair
dealing claims.
We review the grant of summary judgment de novo, viewing the record in the
light most favorable to the nonmoving party and drawing all reasonable inferences
in its favor. Langford v. Norris, 614 F.3d 445, 459 (8th Cir. 2010). “Missouri law
controls as to all substantive matters in this case,” including interpretation of the
Policy. Travelers Prop. Cas. Ins. Co. of Am. v. Nat’l Union Ins. Co. of Pittsburgh,
621 F.3d 697, 707 (8th Cir. 2010).
4
The class action was initially filed in Missouri state court, but it was
subsequently removed to federal court by one of the defendant-insurers.
-4-
A.
First, White Knight contends it was entitled to an order declaring that Owners
violated Missouri law when it sought subrogation-related reimbursement from State
Farm and Progressive before White Knight recovered any money from the drivers
responsible for its damages.
Generally, in Missouri, if an insurance company “under its contract obligation
pays all or part of the property damage incurred by its insured[,]” that insurance
company is subrogated to the insured’s rights against the third party that caused the
damage. See Farmers Ins. Co. v. Effertz, 795 S.W.2d 424, 426 (Mo. Ct. App. 1990);
see also Kroeker v. State Farm Mut. Auto. Ins. Co., 466 S.W.2d 105, 111 (Mo. Ct.
App. 1971). “Unlike some states, which provide that legal title to a property damage
claim passes to [an] injured party’s insurer once the insurer pays the injured party’s
claim, Missouri provides that the legal title to the cause of action remains in the
insured, and that the insurer’s only interest is an equitable right to subrogation.”
Hagar v. Wright Tire & Appliance, Inc., 33 S.W.3d 605, 610 (Mo. Ct. App. 2000).
Thus the “exclusive right to sue for the entire loss remains with the insured, though
he will hold the proceeds for the insurer.” Effertz, 795 S.W.2d at 426. This means
that absent an assignment 5 of claims from the insured, an insurance company may
not sue or formally settle with the tortfeasor or the tortfeasor’s insurer directly. See
Hagar, 33 S.W.3d at 610–11 (“In a subrogation situation, since the insured still holds
the legal right to the claim, the insurer cannot sue the tortfeasor directly but must
wait and assert its subrogation interest against any recovery the insured makes
against the tortfeasor,” and since the insurer has “no right to prosecute [a] claim
directly, it certainly ha[s] no right to arbitrate and settle the claim directly, without
the [insured’s] consent.”).
5
See Keisker v. Farmer, 90 S.W.3d 71, 74 (Mo. banc 2002) (explaining the
distinction between an assignment and subrogation in that with an assignment, “the
assignor gives all rights to the assignee[,]” and in the insurance context, “[b]y an
assignment, the insurer receives legal title to the claim, and the exclusive right to
pursue the tortfeasor”).
-5-
Against this backdrop, White Knight asserts that Owners’s efforts to obtain
reimbursement directly from State Farm and Progressive, before White Knight had
recovered anything from the tortfeasors, “violated Missouri subrogation law.” In
support, White Knight relies on Hagar. In Hagar, Shelter Insurance paid its insured,
the Hagars, for property damage after a fire at their home, and the Hagars then sued
Wright Tire, the alleged third-party tortfeasor, for personal injury and property
damage. 33 S.W.3d at 607–08. Shelter then approached Wright Tire’s insurer,
Continental, for reimbursement of its payment to the Hagars. And in exchange for
a release of liability, Continental ultimately reimbursed and settled with Shelter. Id.at 608–09. When the suit between the Hagars and Wright Tire was resolved, Wright
Tire sought a credit against the judgment for the amount its insurer, Continental, had
already paid to Shelter. Id. at 609. The trial court refused to allow the credit. Id.The Missouri Court of Appeals affirmed. The court determined that because
Shelter only held a subrogation interest in the claim, “Shelter had no right to
prosecute any portion of the Hagars’s claim against Continental or Wright Tire
directly.” Hagar, 33 S.W.3d at 611. With no right to prosecute the claim, it
necessarily followed that Shelter “had no right to arbitrate and settle the claim
directly, without the Hagars’s consent.” Id. Wright Tire was therefore properly
denied a credit against the judgment for the amount its insurer had paid Shelter. Id.
at 607, 610–12. Accordingly, after Hagar, a court in Missouri will not recognize as
valid an insurer’s premature effort to recover money from a tortfeasor, under the
guise of subrogation, that it paid its injured insured.
But a refusal to recognize a premature payment as valid subrogation is not the
same as saying those premature efforts are illegal. Here Owners sought—and
partially obtained—payment from the drivers’ insurers, even though Owners had no
legal right to the claim against either driver. But the state court in the Arango
Litigation recognized this. Citing Hagar, the court denied Arango’s request for a
credit against the judgment for the money State Farm—Arango’s insurer—had
already paid Owners. See Hagar, 33 S.W.3d at 609–12. White Knight calls out
Owners for trying to circumvent the subrogation clause in the Policy. In Hagar the
-6-
court addressed almost identical circumstances and agreed that the insurance
companies’ premature settlement and reimbursement efforts were not enforceable as
a matter of law. But the court did not declare the conduct unlawful. Until Missouri
courts or the Missouri legislature makes such a declaration, we decline White
Knight’s invitation to do so ourselves.
B.
The more difficult question is whether Owners breached the Policy when it
sought reimbursement from the tortfeasors’ insurers in a manner contrary to the
subrogation rights granted in the Policy. To state a claim for breach of contract
under Missouri law, a party must allege “(1) the making and existence of a valid and
enforceable contract, (2) the right of the plaintiff and the obligation of the defendant
thereunder, (3) a violation thereof by the defendant, and (4) damages resulting to the
plaintiff from the breach.” Compass Bank v. Eager Rd. Assocs., LLC, 922 F. Supp.
2d 818, 823 (E.D. Mo. 2013) (citing Gilomen v. Sw. Mo. Truck Ctr., Inc., 737
S.W.2d 499, 500–01 (Mo. Ct. App. 1987)).
White Knight argues that disputed material facts remain as to whether
Owners’s subrogation efforts—or attempted subrogation efforts—were conducted
in breach of the Policy. But the Policy does not expressly prohibit Owners from
requesting payment from the tortfeasors’ insurers. And to the extent White Knight
argues that Owners breached its contract because its reimbursement request to State
Farm violated Missouri law, this argument is unavailing as we have explained above.
Nonetheless, even assuming Owners’s actions were taken pursuant to the
Policy, White Knight’s claim still fails because it does not establish that it suffered
any damages as a result of Owners’s failure to abide by the contracted-for
procedures. White Knight, as an insured party under the Policy, contracted for and
paid premiums to receive insurance. And Owners settled White Knight’s claim
under the Policy when Owners paid White Knight a total of $66,366.27 for property
damage and business income loss. On appeal, White Knight does not argue that
-7-
Owners’s payment under the Policy was insufficient to compensate it for its covered
losses, nor does White Knight contend that it made additional requests for
compensation or that such requests were denied by Owners.6 To the contrary, by
not spending all of the money it received from Owners, White Knight implicitly
conceded that additional funds were unnecessary for its claimed property repairs. In
short, White Knight does not point the court to evidence of additional covered loss
amounts that Owners failed to pay under the Policy. Thus, White Knight has not
shown that it suffered any damages beyond the compensation it received from
Owners. Without evidence of damages, a breach of contract claim fails. See Al-
Khaldiya Elecs. & Elec. Equip. Co. v. Boeing Co., 571 F.3d 754, 759 (8th Cir. 2009)
(“Summary judgment is appropriate where there is no evidence that the plaintiff was
damaged by a breach of contract.”).
White Knight also maintains that its ability to recover its uninsured losses
from Arango was compromised. That is, White Knight contends that it was forced
to settle its lost income claim against Arango for less than State Farm’s policy limit
because State Farm had already paid Owners $33,668.14. But, as White Knight
acknowledges, Arango was not entitled to a setoff based on State Farm’s payment
to Owners. And nothing prevented White Knight from recovering the full policy
amount in its claim against Arango. Moreover, White Knight would have only been
able to keep what it recovered in the Arango Litigation to the extent it could prove
uninsured damages or damages in excess of what Owners paid it under the Policy.
See Keisker, 90 S.W.3d at 75 (holding that an insured could keep lost profits to the
extent it could prove that these profits represented uninsured losses); Travelers Prop.
Cas. Co. of Am. v. Kansas City Power & Light, 568 F. Supp. 2d 1040, 1060–61
(W.D. Mo. 2008) (holding that an insured was entitled to keep excess recovery to
the extent it represented provable uninsured losses). To the extent White Knight
now suggests it had identifiable uninsured losses, White Knight fails to offer any
evidence—or point to anything in the record—demonstrating any uninsured losses.
6
As the district court determined, White Knight did not bring a claim
challenging Owners’s investigation, valuation, or payment of its insurance claim.
-8-
See, e.g., Extended Stay Inc. v. Am. Auto. Ins. Co., 375 S.W.3d 834, 843 (Mo. Ct.
App. 2012) (“Although it is not always possible to establish the amount of damages
with the same degree of certainty, a claimant must establish the fact of damages with
reasonable certainty.”). 7
C.
Finally, White Knight argues that Owners violated its duty of good faith and
fair dealing when it asked State Farm for its pro rata share of the damages paid to
White Knight under the Policy. “Missouri law implies a covenant of good faith and
fair dealing in every contract.” Farmers’ Elec. Coop., Inc. v. Mo. Dep’t of Corr.,
977 S.W.2d 266, 271 (Mo. banc 1998). Under Missouri law, a “breach of the
covenant of good faith and fair dealing occurs where one party exercises a judgment
conferred by the express terms of the agreement in such a manner as to evade the
spirit of the transaction or so as to deny the other party the expected benefit of the
contract.” Cordry v. Vanderbilt Mortg. & Fin., Inc., 445 F.3d 1106, 1112 (8th Cir.
2006) (cleaned up) (quoting Mo. Consol. Health Care Plan v. Cmty. Health Plan, 81
S.W.3d 34, 46 (Mo. Ct. App. 2002)).
White Knight argues that because there are disputed issues of fact as to
whether Owners breached the Policy, a jury could find that Owners violated its duty
of good faith and fair dealing when it exercised its subrogation rights in a manner
that disadvantaged White Knight and deprived it of the benefits of the subrogation
7
White Knight also appears to contend that it was damaged because, had
Owners waited to assert its subrogation rights until White Knight recovered from
Arango and Omervic, White Knight would have insisted Owners share the expenses
and fees incurred in suing the drivers. See Keisker, 90 S.W.3d at 75 (explaining that
an insurer’s “subrogation recovery must be reduced by its share of litigation
expenses”). But White Knight never asked Owners to share expenses, even after
receiving notification of Owners’s prejudgment efforts to seek reimbursement from
the drivers’ insurers. And in any event, the summary judgment record lacks evidence
to support any amount White Knight asserts it would be owed, leaving a finder of
fact with no evidence of loss.
-9-
clause. Because the breach of contract claim fails, this claim necessarily fails as
well. See Koger v. Hartford Life Ins. Co., 28 S.W.3d 405, 413 (Mo. Ct. App. 2000)
(holding that the trial court did not err in granting summary judgment in the insurer’s
favor on the insured’s good faith and fair dealing claim because insured did not
suffer damages). 8
III.
We affirm the judgment of the district court.
_____________________________
8
To the extent White Knight argues Owners’s conduct violated the spirit of
the Policy, see Glenn v. HealthLink HMO, Inc., 360 S.W.3d 866, 877 (Mo. Ct. App.
2012) (noting that a party exercising express contract rights may still breach the
covenant of good faith if it does so “in a manner that evades the spirit of the
agreement and denies the movant the expected benefit of the agreement”), White
Knight overlooks the nature of subrogation. The purpose of subrogation is to, among
other things, place the loss on the wrongdoer and to prevent the insured from
receiving a double recovery for a single loss. See Keisker, 90 S.W.3d at 75(“Subrogation exists to prevent unjust enrichment.”). Subrogation thus provides an
equitable allocation of payment responsibility. With these principles in mind, White
Knight has failed to show that it was disadvantaged or otherwise deprived of the
benefits of the Policy’s subrogation clause under the facts of this case.
-10-