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STATE FARM FIRE & CASUALTY CO. v. FINNEY3/3/1989
The opinion of the court was delivered by
State Farm Fire & Casualty Co. v. Gordon Finney and Dean Johnson, Case No. 62,711, and Gordon Finney v. Dean Johnson v. State Farm and Casualty Company, Proposed Intervenor, Case No. 62,712, are consolidated for appeal. In the first action, State Farm Fire & Casualty Co. (State Farm) appeals the
district court's finding that an insurer may not maintain a declaratory judgment action to determine if there is coverage for the acts of its insured if the declaratory judgment also decides key factual issues in an underlying tort suit brought against the insured. In the second action, State Farm appeals the district court's denial of its motion to intervene in the underlying tort suit to stay that action until the declaratory judgment action was decided.
On January 22, 1988, Gordon Finney brought an action in Leavenworth County District Court against Dean Johnson claiming that on July 2, 1987, Johnson shot him with a gun either (1) willfully, wantonly, maliciously, and intentionally or (2) negligently. At the time of the incident, Johnson was insured under a homeowners policy issued by appellant, State Farm. The policy provided coverage for personal liability and medical payments under "coverages L and M," but contained the following exclusion:
"1. Coverage L and Coverage M do not apply to:
a. Bodily injury or property damage which is expected or intended by an insured."
After being notified that Finney had filed suit against its insured, State Farm provided Johnson with an attorney. Pursuant to a reservation of rights, State Farm also notified Johnson that, under the policy exclusion, it was denying coverage for intentional or expected acts.
On February 24, 1988, State Farm filed a declaratory judgment action asking the district court to determine that there was no coverage under the policy for the acts alleged in the civil tort suit and, therefore, State Farm had no contractual duty to defend Johnson. At a discovery conference, counsel provided for Johnson requested that State Farm's declaratory judgment action be stayed pending the outcome of the civil tort suit. The district court requested briefs and oral argument. At a subsequent hearing, State Farm argued that the declaratory judgment action should not be stayed because, under its interpretation of our holding in Patrons Mut. Ins. Ass'n v. Harmon, 240 Kan. 707, 732 P.2d 741 (1987), it would be collaterally estopped to raise its policy defense (non-coverage for intentional acts) by a judgment in the civil tort suit.
The district court disagreed with State Farm's interpretation of
Patrons and held that, under Bell v. Tilton, 234 Kan. 461, 674 P.2d 468 (1983), where an insurer provides an attorney to defend its insured in a pending action, while reserving its policy defenses, that attorney's defense of the action does not estop the insurer from asserting its policy defense in a subsequent civil proceeding. Counsel for Johnson then orally moved to dismiss the declaratory judgment action, contending that a declaratory judgment action cannot be maintained to decide key factual issues to be determined in the underlying tort suit, citing U.S. Fidelity & Guaranty Co. v. Continental Ins. Co., 216 Kan. 5, 531 P.2d 9 (1975), and State Automobile & Casualty Underwriters v. Gardiner, 189 Kan. 544, 370 P.2d 91 (1962). The district court sustained Johnson's motion and dismissed the declaratory judgment action. State Farm appealed.
State Farm then filed a motion seeking to intervene in the tort action to stay the civil action and to allow the declaratory judgment act
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