author: VANCE, Judge.

text:
    STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Real Party in Interest for George Randall McPherson, Administrator of the Estate of Rickey McPherson, Deceased, Appellant, v. Bonnie REGISTER, George Randall McPherson, Administrator of the Estate of Rickey McPherson, Deceased, Jimmy Long, James E. Long, d/b/a Long’s Auto Sales, and Travelers Insurance Company, Real Party in Interest for James E. Long, Appellees.
    Court of Appeals of Kentucky.
    June 22, 1979.
    Maxey B. Harlin, Stephen P. Smith, Har-lin, Parker & Rudloff, Bowling Green, for appellant.
    Jeffrey O’Grody, David W. Anderson, John David Cole, Cole, Harned & Broderick, Bowling Green, for appellees.
    Before HAYES, REYNOLDS and VANCE, JJ.
   VANCE, Judge.

This is another in a series of cases in which the operator of a motor vehicle is insured against liability under the terms of policies issued by two separate companies, but each of the policies contain “excess or escape” clauses, and each company seeks to escape all or a part of the liability thereby. See Government Employees Insurance Company v. Globe Indemnity Company, Ky., 415 S.W.2d 581 (1967); Ohio Casualty Insurance Company v. State Farm Mutual Automobile Insurance Company, Ky., 511 S.W.2d 671 (1974); and Royal Globe Insurance Companies v. Safeco Insurance Company, Ky.App., 560 S.W.2d 22 (1978).

The accident here occurred between automobiles operated by Bonnie Register and Rickey McPherson. Bonnie Register was injured and her claim was settled for $12,-900.00. No question as to liability or the amount of settlement is presented.

Appellant, State Farm Mutual, had in force a liability policy issued to George McPherson, the father of Rickey. This policy, under its omnibus clause, would clearly provide coverage for Rickey except for an escape clause which provided that the insurance with respect to a nonowned automobile owned by any person or organization engaged in the automobile business “shall not apply to any liability or loss against which the insured or the owner of such vehicle has further collectible insurance applicable thereto, in whole or in part.”

The automobile operated by Rickey McPherson was owned by James E. Long d/b/a Long’s Auto Sales. The appellee Travelers Insurance Company had in force a garage liability policy which insured James E. Long and Long’s Auto Sales against liability. The automobile in question was normally used by Jimmy Long, the son of the owner, and on this occasion Jimmy Long was a passenger in the automobile. McPherson and Jimmy Long were using the vehicle for a purpose totally unrelated to the business of Long’s Auto Sales.

The Travelers policy contained an escape clause which provided that the policy did not afford coverage to garage customers if there was available to the garage customer other valid and collectible insurance, whether primary, excess or contingent. The policy defined “garage customer” as any person other than an employee, director, stockholder, partner, or member of the named insured, or a resident of the same household as the named insured, employee, director, stockholder, partner or member.

The trial court determined that the escape clauses in each of the policies were mutually repugnant and under the authority of Ohio Casualty Insurance Company v. State Farm Mutual Automobile Insurance Company, supra, judgment was entered requiring each company to bear one-half of the expense of the settlement of the claim.

The mutual repugnancy of the escape clauses rests upon the fact that the State Farm Mutual policy would absolve State Farm because the vehicle involved was a nonowned automobile owned by a person engaged in the automobile business who had othc .• collectible insurance applicable to the claim, while the Travelers policy would absolve Travelers from liability because the operator of the vehicle was a “garage customer” as defined in the policy who had other available collectible insurance applicable to the claim.

The definition of “garage customer” contained in the Travelers policy has the effect of excluding from its coverage everybody except the named insured, its employees, directors, stockholders and partners and residents of their households. It would exclude coverage, to the extent that other insurance was available, to persons who would normally be included under omnibus coverage. State Farm Mutual contends that such an exclusion runs afoul of KRS 187.490 or KRS 190.033. The purpose of these statutes is to protect members of the public and when that protection is provided the purpose of the statute is satisfied.

Here the public policy of the statute is satisfied. The dispute does not concern whether the required coverage exists, but rather which and to what extent the contesting insurance companies shall be required to provide that coverage. When the contest is between two insurers, the liability for a loss should be determined by the terms and provisions of the respective policies without regard to the rights which injured third parties might assert under a compulsory insurance statute. Royal Globe Insurance Companies v. Safeco Insurance Company of America, supra.

State Farm Mutual also contends that McPherson was not a garage customer because he occupies the same position as Jimmy Long, who was covered by the Travelers policy. We find no evidence, however, which would require or justify a holding that Rickey McPherson should be considered to be an employee, director, stockholder, partner or member of Long’s Auto Sales or a resident of the household of any such person. The trial court correctly concluded that he was a garage customer as defined in the policy and consequently was excluded from primary coverage under the Travelers policy.

The escape clauses are mutually repugnant and the judgment is affirmed.

All concur.


source: Caselaw Access Project

author: COOPER, Judge.

license: Public Domain

text:
    George W. PETERSON, Appellant, v. Kum Ok PETERSON, Appellee.
    Court of Appeals of Kentucky.
    June 22, 1979.

      G. William Bailey, Jr., Pate, Richardson & Bailey, Elizabethtown, for appellant.
    Nicholas L. Pearl, Radcliff, for appellee.
    Before COOPER, GANT and HOWER-TON, JJ.
   COOPER, Judge.

This is an appeal from a judgment in the Hardin Circuit Court dissolving the marriage ot the parties, wherein the trial court affirmed the separation agreement as a part of the final judgment in the dissolution of the marriage.

This appeal presents two significant questions in the area of domestic relations: 1) the effects of reconciliation on a settlement agreement; and 2) the correct standard in reviewing a trial court’s ruling on the con-scionability of such agreements. Both issues are questions of first impression in the area of domestic relations law as it is affected by the 1972 revision of our divorce statutes. Although there are many Kentucky cases addressing the first issue, its significance herein arises from the fact that this is the first case to present the question under no-fault divorce. The second issue has arisen recently in a number of cases.

George Peterson, petitioner below and appellant herein, and Kum Ok Peterson were married in Seoul, Korea, on July 12, 1968. Two children were born of this marriage; a daughter now ten years of age; and a son, now eight.

George and Kum moved to Kentucky in 1975, and at the date of dissolution resided in the city of Radcliff. George is a sergeant in the United States Army, stationed at Ft. Knox. Kum works in Ft. Knox at the Officers’ Open Mess.

The parties first separated on September 3, 1977. Three days thereafter, George filed a petition in the Hardin Circuit Court seeking a dissolution of marriage. The parties reconciled, however, so the summons issued with the petition was never served on Kum.

According to George, the parties next separated near the end of March, 1978. This separation led to the execution of a settlement agreement on April 6. The same document apparently was re-executed on April 7. The agreement was drafted by Kum’s attorney, and George signed the agreement without consulting his attorney. The terms of the agreement distributed the parties’ property, gave custody of the children to Kum, and obligated George to pay $600.00 per month as child support and spousal maintenance. George also agreed to pay Kum’s car payment of $100.00 per month.

George testified that another attempt at reconciliation was made when he moved back in with Kum on August 21, 1978. However, this reunion was short-lived as George further testified that on September 14 he was ordered by his company commander to move out of the house and back to the barracks.

The record reflects that the summons was served on Kum on July 25, 1978. Kum’s response was filed August 8, 1978. Filed therewith was a motion for incorporation of the settlement agreement. The agreement was filed September 5, 1978. On September 6, 1978, George moved the trial court for an order awarding him temporary custody of the children. George also moved the court for temporary use and possession of the marital home and an automobile during the pendency of the action.

On September 15, 1978, Kum filed a motion seeking to have George adjudged in contempt of court for violation of a restraining order. In the affidavit supporting that motion, Kum alleged that George had attacked her, threatened her, and destroyed most of her clothing.

Oral arguments were heard by the trial court on September 28, 1978. George was the only witness to testify at that proceeding. The trial court entered its order on October 5, dissolving the parties’ marriage and incorporating the agreement into the decree by reference. George now appeals from that incorporation, asserting that the parties’ reconciliation in August, 1978, rendered the settlement agreement null and void.

I.

A review of Kentucky case law on the subject discloses that the effect of reconciliation on settlement agreements depends upon whether the provisions of the agreement are executed or merely executo-ry. With fully executed property settlements, reconciliation does not abrogate the agreement unless the parties intended it to do so. Gordon v. Gordon, Ky., 335 S.W.2d 561 (1960). To ascertain the intention of the parties, the Court will look at the construction the parties themselves have placed on the agreement. King v. King, Ky., 274 S.W.2d 656 (1954).

Where the provisions of a settlement agreement are executory, however, “[t]he rule followed in this jurisdiction is that a reconciliation of the spouses and [a] resumption of cohabitation by the parties to the separation agreement nullifies the agreement . . . .” Goodaker v. Littell, Ky., 314 S.W.2d 539, 540 (1958); Ray v. Ray’s Ex’x, 249 Ky. 347, 60 S.W.2d 935 (1933); Hoskins v. Hoskins, 201 Ky. 208, 256 S.W. 1 (1923). Even with executory agreements, however, reconciliation will not abrogate the agreement if “the court can determine from other evidence the real intention of the parties.” Goodaker, supra at 540. Such contrary intentions may be ascertained by looking to the language of the agreement itself, Hartley v. Hartley, 305 Ky. 350, 203 S.W.2d 770 (1947), or from the acts of the parties subsequent to reconciliation, Hall v. Hall, Ky., 328 S.W.2d 541 (1959).

While there are no Kentucky cases specifically addressing the point, it seems clear that a settlement agreement is not annulled by a brief cohabitation or occasional sexual relations between the parties. Annot., 35 A.L.R.2d 707 (1954). However, it is equally clear that the duration of a reconciliation is unimportant. For exam-pie, it has been held that a one-year reconciliation annulled an agreement, Gardner v. Gardner, Ky., 280 S.W.2d 198 (1955), as well as a fifteen-year reconciliation, Hoskins, supra. The important factor in determining whether there has been, in fact, a reconciliation is the parties’ intentions. Thus, it is said that:

A reconciliation and resumption of relations, in order to affect a postmarital contract, ordinarily contemplate the establishment of a home in which the parties live in the normal relationship of husband and wife.
24 Am.Jur.2d Divorce and Separation § 916.

Further, both parties must have intended to become reconciled. The agreement is not annulled where only one of the parties desires reconciliation. Id.; Annot., 35 A.L. R.2d 707 (1954).

Once it is found that the parties’ attempted reconciliation nullified the agreement, the provisions are void for all purposes. The agreement is not revived by a subsequent separation. 24 Am.Jur.2d Divorce and Separation § 913.

Research in this area discloses no Kentucky cases addressing the issue since the 1972 revision of our divorce statutes. However, a review of those statutes discloses no reason why an agreement should not be annulled after a true reconciliation of the parties. In fact, by promoting the use of settlement agreements to resolve marital disputes, KRS 403.110, the doctrine may have even more validity under the no-fault divorce statutes.

Applying the above principles to the case at bar leads to the conclusion that the decision below on this issue was not clearly erroneous. While it is true that Kum did not testify, George’s testimony is not so compelling as to require the trial court to find that the agreement was annulled. At the most, George’s testimony indicates that the parties had twice engaged in sexual relations during their separation and that George had entertained some ideas of reconciliation. There was absolutely no evidence that Kum ever desired reconciliation, except for George’s bare assertion that: “As I understood it, we were going to see how things worked out and try to get back to normal relations.” George admitted, in fact, that Kum had rebuffed all his previous attempts at reconciliation. An examination of the dates of the various pleadings in this case further discloses that a reconciliation was at most merely contemplated by the parties. Viewing the case as a whole, the trial court could reasonably have decided that this was one of those cases,

involving a trial resumption of cohabitation [in which] it may be said that the person or persons who insist that the cohabitation shall be a trial do not have a present intention to resume cohabitation on a permanent basis, but merely intend to make up their minds at a later date, and so there is no mutual intention to establish a permanent home and no permanent composition of differences. The “trial” is in effect a negotiation for a future reconciliation, and is not a complete agreement. 35 A.L.R.2d 707, 753 (1954).

In addition, it appears that the agreement itself may prevent annullment. An example of such a holding may be found in the case of Hartley v. Hartley, supra. In that case, the agreement stated that it was the parties’ intention for the agreement provision to remain in effect whether a divorce was granted or not, and to stand “in any action.” In reaching the result that the agreement was not annulled by a reconciliation the Court wrote:

It is clear to us that this provision of the contract was inserted to give permanence to the agreement, and that it clearly manifests that it was the intention of the parties at the time that no subsequent conduct should have any effect upon the division of the property. Id. at p. 773.

In the instant case, the preamble to the separation agreement could be construed as having the same effect. The preamble of George and Kum’s agreement states as follows:

WITNESSETH:
That whereas the marriage between these parties is experiencing difficulty and the parties are not certain about the prospects of reconciliation; and
WHEREAS, the parties are living apart and have lived apart since the date of the signing of this separation agreement,
WHEREAS, the parties are desirous of effecting and promoting an amicable settlement of all disputes between these parties, and
WHEREAS, it is now determined that it is impossible for the parties to live happily in a marital state at this time, and the parties mutually agreed to enter into this written separation agreement, and
WHEREAS, the parties desire to enter into an agreement with respect to their property rights, and other rights, including the wife’s right to support and maintenance both temporarily and in the event that either party obtains a decree against the other for divorce and including the obligations for the husband to pay child support both temporarily and in the event of a subsequent divorce;

It thus appears that regardless of whether the facts in this case are viewed as one in which only one party had the intent to reconcile or as the case where the parties intended reconciliation not to annui their agreement, the decision of the trial court cannot be said to be clearly erroneous. CR

The second issue presented by this appeal deals with the KRS 403.180 requirement that a trial court determine whether the settlement agreement is unconscionable pri- or to approval of that agreement. This issue appears to be arising more frequently, indicating the need for a judicial explanation of the appropriate standard.

The clearest example of the issue is presented by the so-called “uncontested” divorce. In such cases, the trial court is presented with an agreement which, on its face at least, appears to be reasonable. Since the dissolution proceeding is “uncontested,” the parties offer no proof of economic circumstances. . Although the trial court could request such proof on its own motion, KRS 403.180 does not require it to do so. Such a request is apparently rare, perhaps because the court views the case as agreed. The trial court then approves the agreement as conscionable without really knowing the underlying facts. Sometime thereafter, the silent party appeals to this Court for relief contending that the agreement is unconscionable and that the trial court erred in failing to so rule.

A more difficult case is presented by the facts herein because George did contest the conscionability of the document at the trial court level. George’s arguments go both to the property aspects and the maintenance and child support provisions of the agreement. Looking at merely the support provisions, it is clear that had those amounts been ordered by a court, they would have been reversed as an abuse of discretion. It is equally clear, however, that George freely agreed to pay approximately two-thirds ($700.00) of his salary ($934.00 net per month) as support. There is no evidence of fraud or overreaching in the execution of this agreement.

Because KRS 403.180 contemplates the challenge of unconscionability by a party to the agreement, the question is what factors are necessary to support such an argument. Several policy considerations should first be evaluated in making such a determination.

First, while our no-fault divorce act clearly promotes the settlement of disputes by agreement, KRS 403.110, 403.180, it is also clear that the law favors stability in such settlements. Thus, the provisions for modification are fairly stringent, see KRS 403.250, and a “definite and substantial burden” is placed upon the party seeking modification. McKenzie v. McKenzie, Ky., 502 S.W.2d 657 (1973). That being the case, it would follow that the party challenging the agreement as unconscionable should also have the burden of proof.

The modification cases define un-conscionability as “manifestly unfair and inequitable.” Wilhoit v. Wilhoit, Ky., 506 S.W.2d 511 (1974). Such a definition should also apply to a court’s initial ruling on an agreement under KRS 403.180. Thus, an agreement could clearly be set aside on the basis of fraud, undue influence, or overreaching. On the other hand, an agreement could not be held unconscionable solely on the basis that it is a bad bargain. The difficult cases, of course, are those that fall between these two extremes. The case at bar is a perfect example.

In this case, George has agreed to a rather harsh settlement. As in most of these cases, the reason for a party’s initial agreement to such a harsh settlement is somewhat difficult to understand. In this case, George stated the reason for his execution of the agreement was “so she could not possibly come back at me with desertion, and more or less to protect myself. And also to just make it legal on paper.” There was no allegation that George did not understand the economic consequences of his acts when the agreement was executed. It appears that his argument is based only on his alleged inability to make the $700.00 per month payments. It is equally clear, however, that George has been making these payments for a period of several months. Although George did testify that he has lost a second job, there was no evidence as to the amount of wages paid by that job. However, as the trial court stated at the hearing:

Well, of course, the agreement is going to be pretty hard to live with, I think. But these people are of age. They have been married for a considerable period of time. There is no testimony of any overreaching. He says he don’t [sic] think its fair. But his testimony is that he did read it, was typed up, he did sign it, it was discussed. And of course I notice in the allowance here that part of that is for her too. And, of course, if he wanted to give her everything he made, and the agreement is voluntary, I don’t think the court has any control over it. I see no showing, whatever, of misrepresentation, overreaching, or anything else.

It would appear that in cases of this nature the trial court is in the best position to evaluate the circumstances surrounding such an agreement. In some cases, the trauma of divorce may have prevented a party from fully appreciating the economic circumstances of the agreement. However, in other eases, it may appear that the spouse now challenging the agreement initially sought its execution to expedite the dissolution proceedings. Having achieved the dissolution, the spouse now seeks to set aside the agreement.

Given the nature of our no-fault divorce statute, coupled with the desirability of imparting some degree of finality to settlement agreements, a party challenging an agreement as unconscionable should have a relatively high burden of proof. Since the trial court is in the best position to judge the circumstances surrounding the agreement, its finding on the issue of con-scionability should not be set aside on appeal- unless there is some evidence of fraud, undue influence, overreaching, or evidence of a change of circumstances since the execution of the original agreement. Applying that standard to the instant case leads to the conclusion that the decision below is not clearly erroneous. The only factor which may have afforded George relief is the loss of his second job. However, George’s complete failure to prove the impact of that loss, or the circumstances surrounding it, make the trial court’s decision supportable, and thus not clearly erroneous.

The judgment is affirmed.

All concur.


author: BARDGETT, Chief Justice.

text:
    Patrick Louis OATES, Appellant, v. SAFECO INSURANCE COMPANY OF AMERICA, Respondent.
    No. 60892.
    Supreme Court of Missouri, En Banc.
    July 17, 1979.

      Donald L. Schlapprizzi, Murphy & Schlap-prizzi, St. Louis, for appellant.
    Daniel T. Rabbitt, Jr., Mark F. Haywood, Moser, Marsalek, Carpenter, Cleary, Jaeck-el, Keaney & Brown, St. Louis, for respondent.
   BARDGETT, Chief Justice.

This appeal involves the issue of whether a prior judgment adverse to plaintiff-appellant in an action against an uninsured motorist now precludes appellant from maintaining an action against his “uninsured motorist” insurance carrier because of the doctrine of collateral estoppel. This cause was transferred after opinion by the Missouri Court of Appeals, Eastern District, on application of respondent, pursuant to Rule 83.03. Portions of the Court of Appeals opinion will be utilized without the use of quotation marks.

On September 30, 1972, an automobile collision occurred in Iron County, Missouri, between the appellant, Patrick Oates, and one Bernard Coad. On January 15, 1973, Oates filed suit against Coad in Iron County. Mr. Coad filed an answer and counterclaim and further responded by way of interrogatory that he had no automobile insurance to cover his liability at the time of the collision. Oates answered the counterclaim through counsel retained by his insurance carrier, respondent, Safeco Insurance Company of America.

Thereafter, on April 25, 1973, Oates filed this suit in the city of St. Louis against respondent, Safeco, on the uninsured motorist provision in appellant’s policy. On May 15, 1973, appellant Oates, by leave of court, dismissed his cause of action in Iron County against Mr. Coad without prejudice.

On May 29, 1973, Safeco moved that the city circuit court case be dismissed for lack of jurisdiction and venue. This motion was premised on allegations that Safeco had no office in the city and that St. Louis County was the proper venue and jurisdiction for the case. This motion was overruled on June 18, 1973.

On June 28, 1973, Safeco filed its answer to Oates’s petition in St. Louis City Circuit Court in which Safeco admitted that Oates was an insured under a policy issued by it which included uninsured motorist coverage and that the policy was in effect on the day of the collision with Coad. No special defenses were raised.

Coad’s counterclaim in the Iron County suit then proceeded to a judgment in Coad’s favor for $1500 in April 1974. Upon that judgment becoming final, Safeco, on August 14, 1974, filed an amended answer in the St. Louis City suit setting forth the additional defenses of res judicata and es-toppel by judgment against Oates, referring to Rule 55.32(a) and attaching a certified copy of the pleadings, instructions, and judgment from the Iron County suit. On joint motion for change of venue, the suit was transferred to the Circuit Court of St. Louis County in June of 1975.

On September 20, 1976, Oates struck all allegations of primary negligence from his petition and left remaining only the humanitarian negligence allegations against Safe-co. Safeco reargued its motion to dismiss and the court sustained Safeco’s position on the grounds that Oates was collaterally es-topped by the Iron County judgment from proceeding in the case.

Appellant Oates contends that the trial court erred in dismissing his petition, whether it did so on the grounds of collateral estoppel, res judicata, or compulsory counterclaim. Respondent Safeco replies (1) that because appellant dismissed his suit against Coad, the uninsured motorist, initially instituted by him in Iron County, and permitted the negligence issues to be decided in Coad’s favor on Coad’s counterclaim in the tort action, the appellant is barred from pursuing his rights under the uninsured motorist coverage afforded by Safeco’s policy by reason of Rule 55.32(a), the compulsory counterclaim rule; (2) that appellant’s claim is barred by the doctrine of collateral estoppel because the liability of the uninsured motorist has already been decided adversely to him in the tort action and he may not relitigate that issue again in this proceeding; (3) that appellant’s claim is barred by the doctrine of res judicata; and (4) that since appellant may not recover against Coad, the uninsured motorist, he may not recover under the terms of the policy of insurance issued to him by respondent Safeco.

I

Safeco contends, inter alia, the appellant was not “legally entitled to recover” damages against Coad after the termination of the Iron County case and is, therefore, precluded from proceeding against Safeco. One of the terms of uninsured motorist coverage is that the insured be legally entitled to recover against the tortfeasor.

To recover under an uninsured motorist policy, the insured does not need an unsatisfied judgment against the uninsured motorist, Noland v. Farmers Insurance Exchange, 413 S.W.2d 530 (Mo.App.1967), but has the burden of proving (1) that the other motorist was uninsured, (2) that the other motorist is legally liable to the insured, and (3) the amount of damages, Noland, supra; Hill v. Seaboard Fire & Marine Ins. Co., 374 S.W.2d 606, 609 (Mo.App.1963). The second element set out is equivalent to the statutory and contractual requirement that the insured be “legally entitled to recover”.

In Crenshaw v. Great Central Insurance Co., 527 S.W.2d 1, 4 (Mo.App.1975), the court stated that the insureds must show “that at the time [the] litigation against the insurer was commenced [the insureds’ action against the insurance company under the uninsured motorist clause] they . [the plaintiff was] . . . legally entitled to recover damages from the owner or operator of the uninsured highway vehicle.” (Emphasis added.) See also Byrn v. American Universal Insurance Co., 548 S.W.2d 186, 188 (Mo.App.1977). In Crenshaw the court held that the insured was not legally entitled to recover because the two-year wrongful death statute of limitations had lapsed before the insured filed suit under the uninsured motorist policy and, therefore, the insured was not “legally entitled to recover” at the time the litigation was commenced. See also Hunt v. State Farm Mutual Auto Ins. Co., 560 S.W.2d 280, 282 (Mo.App.1977).

Crenshaw and Hunt, supra, stand only for the proposition that where there is a built-in, substantive limitation on the underlying tort action, which would bar insured’s action against the uninsured motorist at the time the action is filed against the insurer under the uninsured motorist policy, such limitation also bars the action against the insurer. Id.; Davis, Uninsured Motorist Coverage: Some Significant Problems and Developments, 42 Mo.L.Rev. 1, 9 (1977).

However, in Edwards v. State Farm Insurance Co., 574 S.W.2d 505, 506-507 (Mo.App.1978), the court held that the insured was not barred from proceeding against his uninsured motorist carrier even though the insured could not recover against the tort-feasor because the 5 year tort statute of limitation had expired prior to suit thus barring the insured’s suit against the tort-feasor.

Additionally, in Reese v. Preferred Risk Mutual Insurance Co., 457 S.W.2d 205 (Mo.App.1970), the insured originally sued both the uninsured motorist and the insurance company under the uninsured motorist clause; subsequently dismissed with prejudice the uninsured motorist, and then obtained a judgment against the insurance company. This judgment was set aside when the trial court sustained insurer’s motion for a judgment n. o. v. on the grounds that the dismissal with prejudice of the uninsured motorist deprived insurer of any right to recover from the uninsured motorist and made it impossible for the insured to show he is “legally entitled to recover”. On appeal the court reversed, reasoning that the dismissal with prejudice did not adjudicate the issue of whether insured is legally entitled to recover from the uninsured motorist. The court stated at 208:

“This phrase ‘legally entitled to recover’ was discussed in Booth v. Fireman’s Fund Ins. Co., 253 La. 521, 218 So.2d 580, 583 where the court stated: ‘ * * * We interpret the words “legally entitled to recover” to mean simply that the plaintiff must be able to establish fault on the part of the uninsured motorist which gives rise to damages and prove the extent of those damages. * * * ’
“Also in Sahloff v. Western Casualty & Surety Company, Wis., 171 N.W.2d 914, 917 the court agreed with the Louisiana court’s interpretation of this phrase in stating: ‘ * * * We think the phrase [legally entitled to recover] was used only to keep the fault principle as a basis for recovery against the insurer and deals with the question of whether the negligence of the uninsured motorist and the absence of contributory negligence is such as to allow the insured to recover.
“Again in DeLuca v. Motor Vehicle Acc. Indem. Corp., 17 N.Y.2d 76, 268 N.Y.S.2d 289, 215 N.E.2d 482 the court stated that the language in question ‘legally entitled to recover’ simply means and denotes fault on the part of the uninsured motorist. We agree with the interpretation placed on this phrase by these courts and hold that this phrase refers to fault on the part of the uninsured motorist. The phrase involves the causal negligence on the part of the uninsured motorist (and the absence of contributory negligence where submitted) and the resulting damages to the insured. Also we believe this phrase is ambiguous and as such must be construed in favor of the insured.” (Emphasis supplied.)

Under these decisions, the insured is “legally entitled to recover” if his action is not barred by a substantive limitation at the time the action is brought against the uninsured motorist carrier (Crenshaw, supra ) and he can show (1) causal negligence or fault on the part of the uninsured motorist, (2) the absence of contributory negligence where submitted, and (3) resulting damage to himself (Reese, supra).

II

Safeco contends that Oates was required by the compulsory counterclaim rule to litigate his claim in the Iron County case.

When Oates dismissed his claim against Coad in Iron County, Coad’s counterclaim took the place of the petition. “[I]t must set forth all of the elements of and be subject to all the rules of procedure in civil actions as if the suit had been begun by the defendant in the first instance.” Sharp v. Stiles, 187 S.W.2d 770, 773 (Mo.App.1945). Once Coad’s counterclaim became the original claim, Oates was subject to Rule 55.32(a), which governs compulsory counterclaims.

Oates’s claim against Safeco under the uninsured motorist clause is a separate and distinct cause of action from Oates’s tort claim against the uninsured motorist. Hill v. Seaboard Fire & Marine Ins. Co., supra, at 611; Noland, supra, at 533; Edwards, supra, at 506. This claim was not a compulsory counterclaim under Rule 55.-32(a) because it was not a claim against an opposing party (Coad) arising out of the same transaction or occurrence. The failure of Oates to assert his tort cause of action (either as a claim or counterclaim) against Coad does not affect Oates’s action against Safeco because Oates is not required to assert any claim against Coad as a condition precedent to recovery under the insurance contract. Noland, supra, at 533.

The failure of Oates to assert the tort cause of action against Coad as a counterclaim waives Oates’s cause of action in tort against Coad and prevents Safeco from exercising its right to subrogation which would arise upon payment to Oates. With respect to the uninsured motorist carrier’s right to subrogation, as affecting the insured’s right to sue the uninsured motorist carrier, Edwards v. State Farm Insurance Co., supra, at 508, holds that the insured is not barred from his uninsured motorist claim even though the insured’s conduct prevents the company from exercising its subrogation right.

In Edwards the court, at 508, discussed the effect of the insurer’s loss of its right to subrogation which resulted when the insured filed his action under the uninsured motorist policy after the five-year tort statute of limitations had lapsed, precluding the insurer from recovering against the uninsured motorist via subrogation. The court quoted and adopted the reasoning of Sahloff v. Western Casualty & Surety Co., 45 Wis.2d 60, 171 N.W.2d 914, 918-919 (1969), which held that the contract statute of limitations applied to an insured’s action under the uninsured motorist policy, 574 S.W.2d at 508:

“This is another phase of the [already rejected] argument that the insurer stands in the shoes of the uninsured motorist and therefore should have all his rights. The insurer has not so contracted in the uninsured motorist endorsement. * * * the action by an insured against his insurer under the uninsured motorist endorsement is an action on the policy and sounds in contract although in order to recover the insured must prove the negligence of an uninsured motorist. * *
“It is true an insurer * * * is put to some disadvantage when it can no longer pursue subrogation against an uninsured motorist. However, such hardship does not go to the nature of the cause of action and consequently does not determine what statute of limitations should apply. The application of any statute of limitations generally creates a hardship but it is a hardship because someone delayed doing what he might have done. * * * this argument overrates the importance of subrogation because an [uninsured motorist tends to be financially irresponsible and a subrogation right against such a person is not worth very much.”

Oates’s failure to assert a compulsory counterclaim constitutes a procedural waiver of the claim under Rule 55.32(a). The compulsory counterclaim rule is not a substantive limitation and therefore the holding of Crenshaw, supra, is inapplicable. The elements required under Reese, supra, to constitute legal entitlement to recover are not affected by the failure of Oates to assert a counterclaim in the Iron County suit because Oates may show causal negligence, the lack of contributory negligence, and resulting damage in the separate and distinct suit under the uninsured motorist clause regardless of the procedural waiver of his rights against Coad. Cf. Edwards v. State Farm, supra, wherein the procedural waiver of allowing the tort statute of limitations to lapse before suit was brought under the uninsured motorist contract did not prevent the insured from establishing he was “legally entitled to recover” in the contract action.

Therefore, the failure of Oates to assert his counterclaim does not preclude him from being “legally entitled to recover” because the compulsory counterclaim rule creates a procedural bar only.

In connection with these contentions of respondent, we must consider the situation in which Oates found himself between the time of the collision on September 30, 1972, and the date of the Iron County judgment on April 17, 1974.

In 1970 the case of State ex rel. Cozean v. Meyer, 449 S.W.2d 377 (Mo.App.1970) was decided. There, people named Darst, were injured in an automobile collision and sued the other automobile driver’s (Hurst’s) administrator and in a second count of the same case sued his own (plaintiff’s) uninsured motorist carrier alleging the other driver, Hurst, was uninsured. Hurst filed a proceeding in prohibition alleging, inter alia, that plaintiff improperly joined the uninsured motorist carrier as a codefendant because the action against the other automobile driver (Hurst) was in tort whereas the action against the uninsured motorist carrier (State Farm Mutual Ins. Co.) was in contract.

The underlying facts of Cozean are similar to the instant case. The issue in Cozean was whether an injured plaintiff could sue the other automobile driver in tort and his (plaintiff’s) insurance carrier in contract in the same case.

The court of appeals in Cozean, relying upon State ex rel. Campbell v. James, 263 S.W.2d 402 (Mo. banc 1953), held 449 S.W.2d at 380:

“The causes of action here attempted to be asserted against the relator [uninsured tortfeasor] and the insurer [uninsured motorist carrier] arise neither from the same transaction nor occurrence. One is in tort and the other on contract. Consequently they cannot be lawfully joined. This is a rule generally followed. Lloyds’ London v. Blair, 10 Cir., 262 F.2d 211; Holt v. Bell, Okl., 392 P.2d 361; Campbell v. Campbell, 145 W.Va. 245,114 S.E.2d 406. Since the respondent therefore is without jurisdiction of the causes attempted to be brought before him against the relator, prohibition will lie. State ex rel. Gulf Oil Corporation v. Weinstein, Mo.App., 379 S.W.2d 172.”

Thus, at the time the Oates v. Coad suit was filed in Iron County (1973) and at the time of the Iron County judgment (1974) the existing state of the law prohibited Oates from joining is uninsured motorist insurance carrier — Safeco—as a party defendant in the Iron County tort action, even though under Wells v. Hartford Accident & Indemnity Co., 459 S.W.2d 253 (Mo. banc 1970), the uninsured motorist carrier could have intervened on the side of the uninsured motorist.

It was not until February 1975, after the Iron County case was concluded, that this court decided State ex rel. Farmers Ins. Co., Inc., v. Hon. Donald Murphy, 518 S.W.2d 655 (Mo. banc 1975) and overruled Cozean holding that an uninsured motorist could sue the tortfeasor and his (plaintiff’s) uninsured motorist carrier in the same action.

Inasmuch as appellant was prohibited by law from joining the tort and contract action by suing the other auto driver and the uninsured motorist carrier it would seem wholly inappropriate to bar him from suing his insurance carrier because he failed to join the two claims. It seems clear that one would reasonably construe Cozean to mean that the two claims were considered in law to be separate and distinct and not affected by the counterclaim rule.

The court holds it was not necessary for Oates to counterclaim against Coad in order to present his claim against Safeco, the uninsured motorist carrier.

Ill

Safeco contends Oates is barred from litigating the instant action because of (a) res judicata and (b) collateral estoppel, both arising out of the Iron County judgment adverse to Oates.

Traditionally, res judicata (claim preclusion) precludes the same parties from relitigating the same cause of action whereas collateral estoppel (issue preclusion) precluded the same parties from relitigating issues which had been previously adjudicated. Res judicata does not apply here because these are not the same parties or the same cause of action as in the Iron County case.

The concept of collateral estoppel has been extended, allowing strangers to the prior suit to assert collateral estoppel against parties to the prior suit to bar reliti-gation of issues previously adjudicated. This extension of the concept of collateral estoppel removes the requirement of mutuality of estoppel which required that the party asserting the estoppel also be bound by the estoppel. See, Bernhard v. Bank of Am. Nat. Trust & Sav. Assn., 19 Cal.2d 807, 122 P.2d 892 (1942); Blonder-Tongue Laboratories, Inc. v. University of Ill. Found., 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971); LaRose v. Casey, 570 S.W.2d 746, 749-750 (Mo.App.1978).

As of 1976, most commentators listed Missouri among the states which strictly adhered to the requirement of mutuality of estoppel. Cunningham, Collateral Estoppel: The Changing Role of the Rule of Mutuality, 41 Mo.L.Rev. 521, 542 (Fall 1976). This court has not expressly abolished the requirement of mutuality but has allowed defensive use of issue preclusion by a stranger to the prior suit against a party to the prior suit. See, Arata v. Monsanto Chemical Co., 351 S.W.2d 717 (Mo.1961). The Missouri Court of Appeals, Western District, has, however, expressly abolished the requirement of mutuality of estoppel and adopted the Bernhard Doctrine from Bernhard v. Bank of Am. Nat. Trust & Sav. Assn., supra: LaRose v. Casey, supra, at 749-750. The Bernhard Doctrine requires a case-by-case, issue-by-issue review of the appropriateness of the application of collateral estoppel by a stranger to the prior suit. The court in reviewing whether the application of collateral estoppel is appropriate should consider: (1) whether the issue decided in the prior adjudication was identical with the issue presented in the present action; (2) whether the prior adjudication resulted in a judgment on the merits; and (3) whether the party against whom collateral estoppel is asserted was a party or in privity with a party to the prior adjudication. LaRose v. Casey, supra, at 749; Bernhard v. Bank, etc., supra, at 895. Most courts have added a fourth factor to the three enunciated by Chief Justice Traynor in the Bern-hard case: whether the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in the prior suit. Collateral Estoppel, supra, 41 Mo.L.Rev. at 529; 860 Executive Towers, Inc. v. Board of Assessors, 385 N.Y.S.2d 604, 612 (A.D.1976); Johnson v. U. S., 576 F.2d 606, 614 (5th Cir. 1978). Fairness is the overriding consideration in determining whether or not to apply the Doctrine of Mutuality. Johnson, supra, at 614; Freeman v. Marine Midland Bank—New York, 419 F.Supp. 440, 448-449 (E.D.N.Y.1976); Read v. Saaco, 49 A.D.2d 471, 375 N.Y.S.2d 371, 375 (1975).

Among the numerous new problems created by uninsured motorist insurance coverage is the conflict of interest situation arising where, as here, the uninsured motorist asserts a counterclaim. It is no longer debatable that the insurance carrier has a right under Missouri law to intervene in a case where a claim is made that there is an uninsured motorist as a named defendant. State ex rel. State Farm Mutual Automobile Insurance Company v. Craig, 364 S.W.2d 343, 349[11] (Mo.App.1963). When it does so, the interest, of the insurance company is inimical to that of its insured, and, more particularly this is true, where, as here, the uninsured motorist’s counterclaim seeks damages in a lesser amount than the coverage afforded the insured under the terms of the uninsured motorist coverage contained in the policy of insurance issued by the carrier. The insurance company “wins” if a judgment goes against ifs insured and the company lets it become final by satisfying it.

Where this is so, the carrier is put in the untenable position where it must, in order to comply with the terms of its insurance policy, undertake to defend its insured in the tort action, while at the same time becoming an adversary against its insured to protect itself against the insured’s establishing that he is legally entitled to recover against the uninsured motorist.

This has been recognized as constituting a conflict of interest. In Allstate Insurance Company v. Hunt, 450 S.W.2d 668, 671[1] (Tex.Civ.App.1970) it was held that it was not error to exclude the issuer of an automobile policy providing uninsured motorist coverage and its attorney from participation in the trial of a tort action wherein its insured was seeking damages against an uninsured motorist on the ground there was a conflict of interest. In O’Bryan v. Leibson, 446 S.W.2d 643, 644[2] (Ky.App.1969) the action of the circuit judge in striking the carrier’s attorney from representing the plaintiff in defense of a counterclaim filed by an uninsured defendant, where the plaintiff also had joined the carrier as a defendant under the uninsured motorist’s coverage, was permitted to stand because the insurance company attorney had a “dual allegiance” which overrode the carrier’s right to defend her on the counterclaim. Additional authority for the obvious and almost constant conflict of interest problem in uninsured motorist coverage cases is found in Widiss, Uninsured Motorist Coverage §§ 7.2 and 7.3, p. 255.

Although the appellant makes no claim in this court that able defense counsel retained by the respondent rendered less than competent representation, he does argue that he should not be barred from proceeding in this contract action because he was not a party to both actions in the same capacity or quality. The basis for this argument is the conflict of interest problem discussed above, and which appellant contends removes him from the purview of collateral estoppel and res judicata.

None of the cases cited in the briefs or found in our research on collateral estoppel or res judicata are uninsured motorist cases. And very few of those noted involve a situation where there is a built-in conflict of interest between the parties.

In Johnson v. United States, supra, the court in considering the application of collateral estoppel quoted from the earlier case of Bruzewski v. United States, 181 F.2d 419 (3d Cir.), cert. den., 340 U.S. 865, 71 S.Ct. 87, 95 L.Ed. 632 (1950), as follows (576 F.2d at 614):

“A party who has had one fair and full opportunity to prove a claim and has failed in that effort, should not be permitted to go to trial on the merits of that claim a second time. Both orderliness and reasonable time saving in judicial administration require that this be so unless some overriding consideration of fairness to a litigant dictates a different result in the circumstances of a particular case.”

In Ferguson v. Birmingham Fire Ins. Co., 460 P.2d 342, 348 (Or. banc 1969), an insurer was attempting to avoid paying under a liability policy and the court holding the prior suit should bind the issue said: “The judgment should operate as an estoppel only where the interests of the insurer and the insured in defending the original action are identical — not where there is a conflict of interests.”

Neither Johnson v. U. S., supra, nor Ferguson v. Birmingham are uninsured motorist cases, but these and others demonstrate that a court, when called upon by one not a party to the initial litigation, to bar another from proceeding in court with a claim on collateral estoppel grounds, should carefully consider the equities of the particular situation, lest one be unjustly prevented from having a full and fair hearing on his claim.

The unique problems presented by uninsured motorist cases were addressed in the concurring opinion of Smith, P. J., in Beard v. Jackson et al., 502 S.W.2d 416 (Mo.App.1973), a case decided while Cozean, supra, was controlling and prior to State ex rel. Farmers Ins. Co. v. Murphy, supra. Judge Smith pointed out at l.c. 420, “Uninsured motorist litigation presents problems which are not easily resolved by application of common law principles or our present rules of procedure. * * * It appears to me that the unique nature of this type of litigation and the frequency with which it occurs would warrant an examination by the Supreme Court Rules Committee of procedures for this specific type of litigation. * * * When a unique and different type of litigation emerges we should develop procedures to efficiently deal with it. As to uninsured motorist litigation we have not as yet done so.” The matter will be referred to an appropriate committee for a rule suggestion.

What Judge Smith said in Beard is applicable to this case also. The present rules simply are not calculated to afford fairness to the parties, because of the continuing conflict of interest problem which is simply exacerbated when the uninsured motorist counterclaims.

In these circumstances we believe it would be inequitable to apply the collateral estoppel rule so as to bar Oates from suing Safeco on the contract and therefore decline to do so.

The judgment dismissing appellant’s petition is reversed and the cause is remanded to the Circuit Court of St. Louis County for further proceedings.

DONNELLY, RENDLEN, SEILER, WELLIVER and MORGAN, JJ., concur.


author: SWOFFORD, Chief Judge.

text:
    MISSOURI PUBLIC SERVICE COMPANY, Respondent, v. PEABODY COAL COMPANY, Appellant.
    No. KCD 29611.
    Missouri Court of Appeals, Western District.
    Jan. 29, 1979.
    Motion for Rehearing and/or Transfer to Supreme Court Denied Feb. 26, 1979.
    Application to Transfer Denied April 10, 1979.

      Thompson & Mitchell, William G. Guerri, Edwin G. Akers, Jr. and John H. Stroh, St. Louis, and Dietrich, Davis, Dicus, Rowlands & Schmitt, Edward E. Schmitt, Kansas City, for appellant.
    William H. Sanders, Sr., Charles A. Schliebs, Blackwell, Sanders, Matheny, Weary & Lombardi, Judith P. Rea, Kansas City, for respondent.
    Before SHANGLER, P. J., SWOFFORD, C. J., and TURNAGE, J.
   SWOFFORD, Chief Judge.

This is an appeal from a decree of specific performance involving a contract between the parties wherein the appellant (Peabody) agreed to supply the respondent (Public Service) with coal for the production of electricity at the power plants of Public Service in Jackson County, Missouri over a long term. Faced with escalating costs, Peabody unsuccessfully attempted to negotiate a higher price per ton for coal furnished under the contract, and failing in such attempts, declared its intention to discontinue coal shipments. Public Service thereupon elected to consider this position of Peabody to be an anticipatory breach of the contract and thereafter instituted this action to require specific performance of the contract as it was written.

The resolution of this appeal depends upon the underlying basic facts concerning the contractual relationship of the parties. Public Service is a state-regulated public utility supplying electricity and serving the consumers in 28 Missouri counties. In anticipation of need for expanded capacity, it constructed a large coal burning power plant at Sibley, Missouri in Jackson County, and simultaneously undertook negotiations with several coal suppliers, including Peabody, for a 10-year coal supply agreement to meet the requirements of the plant. Letters of intent were signed in 1966 with Peabody and one other coal supplier. At that time, the supply of coal was described as a “buyers market” in which coal suppliers and natural gas companies competed vigorously for the business of energy producers.

Negotiations progressed between the parties to the point where Peabody made an offer to Public Service to supply its coal needs at the Sibley plant for a period of ten years at a base price of $5.40 per net ton, subject to certain price adjustments from time to time relating to costs of labor, taxes, compliance with government regulations, and increase in transportation costs, as reflected in railroad tariffs. Peabody’s offer also contained an inflation escalator clause based upon the Consumer Price Index published by the United States Department of Labor. Public Service rejected this offer because of the price adjustment features, but negotiations continued and ultimately resulted in the drafting by Peabody of an agreement essentially the same as the original offer in the area of price adjustments except that the inflation escalator clause was changed so that it would be based upon the Industrial Commodities Index, also published by the United States Department of Labor, but unlike the Consumer Price Index, based, in large part, upon material production costs. This final agreement was formally executed by the parties on December 22, 1967.

Performance under the agreement was profitable for Peabody during the first two years of operation thereunder. Thereafter, production costs began to outpace the price adjustment features of the contract to the extent that in 1974, Peabody requested modification of the price adjustment features. Public Service rejected all proposed modifications in this area but did offer a modification to provide for an increase of $1.00 in the original cost per net ton. This proposal was rejected by Peabody.

On September 16, 1974, a meeting was held between officials of Public Service and Peabody at the Jackson County, Missouri home office of Public Service. At this meeting Public Service again flatly rejected Peabody’s proposed modifications of the contract. Peabody thereupon declared that unless these proposed modifications were met, coal shipments to Public Service would cease and the contract would be considered by Peabody to be inoperative. Contact and negotiations continued during which Public Service adamantly refused to agree to the proposed modifications and declared its intentions to hold Peabody to the terms of the original contract. Peabody, by letter dated May 6,1975, mailed from its principal office in St. Louis, Missouri, advised Public Service that upon the expiration of 60 days all coal shipments under the contract would cease, if the contract modifications were not agreed to by Public Service.

It is undisputed that Peabody possessed adequate coal supplies and ability to perform the contract. Rather, excuse from performance is claimed upon the basis of excessive economic loss under the agreement, absent modification; that excuse from performance was lawful upon the doctrine of “commercial impracticability” under Section 400.2-615 RSMo 1969.

Peabody claimed and the evidence tended to establish that the loss was occasioned largely because the escalation clause in the contract was based upon the Industrial Commodities Index which in years prior to the execution of the contract had been an accurate measure of inflation but had ceased to be an effective measure due to the 1973 oil embargo, runaway inflation and the enactment of new and costly mine safety regulations. Public Service conceded a weakening of this significant function of the Industrial Commodities Index but introduced evidence, including admissions by Peabody, that the events bringing this about were foreseeable at the time of the execution of the contract.

Peabody introduced evidence that its losses under the contract were in excess of 3.4 million dollars at the time of the trial. Peabody’s evidence showed that 60% of these claimed losses were not due to inadequacy of the price adjustment features of the contract to track inflation, but rather to reduction in price caused by lower calorific and higher waste content of the coal received than that originally contemplated under the terms of the contract. It is apparently not disputed that had the escalation clause been based upon the Consumer Price Index, Peabody’s purported losses would have been substantially reduced.

That Peabody sustained loss under the contract seems clear, although the extent and cause thereof was in sharp dispute. Public Service, over objection, was permitted to show that since performance of the contract began, Peabody had experienced an approximate three-fold increase in the value of its coal reserves, presumably brought about by the same inflationary trend and other causes to which it ascribes its loss under the contract.

This cause was tried without a jury and the court entered its decree of specific performance, from which judgment Peabody appealed. Under such circumstances, the judgment must be affirmed unless there is no substantial evidence to support it, or it is against the weight of the evidence, or erroneously declares or applies the law. Rule 73.01; Murphy v. Carron, 536 S.W.2d 30, 32[1] (Mo. banc 1976). The issues upon this appeal are essentially legal in nature, and are, in part at least, issues of first impression in Missouri. These legal issues are governed by the terms and provisions of Chapter 400, Uniform Commercial Code, RSMo 1969 (effective July 1, 1965) (U.C.C.) and in force at the time of the execution of the sales contract here involved.

At the outset, the position of Peabody as to venue in this case must be resolved. Peabody asserts that the Circuit Court of Jackson County was an improper venue for the institution of this action since it was neither present in that county nor did it breach its contract with Public Service in that county. Section 508.040 RSMo 1969. The trial court found, however, that Peabody had been guilty of an anticipatory breach of its contract with Public Service at the September 16, 1974 meeting of officials of both companies held in Jackson County, Missouri, and by reason thereof the venue was proper.

The decisional law of Missouri has long recognized the doctrine of anticipatory repudiation. Eddington v. Cockrell, 221 Mo.App. 52, 286 S.W. 405, 406[2] (1926); Ewing v. Miller, 335 S.W.2d 154, 158[6] (Mo.1955) and cases cited therein. Section 400.2-610 RSMo 1969 (U.C.C.) gives this doctrine statutory definition and provides, in part:

“Anticipatory repudiation
When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may
[Here the statute sets out the options available to the injured party.] * * ⅜ f)

The comments accompanying this section further elaborate on this definition by stating that anticipatory repudiation “centers upon an overt communication of intention” which demonstrates “a clear determination not to continue with performance”. There was ample competent evidence to support the trial court’s finding that this repudiation of the contract within these definitions occurred at the meeting of September 16, 1974, giving due regard to the opportunity of the trial court to judge the credibility of the witnesses as to what occurred at that meeting where the testimony conflicted. Rule 73.01.3(b).

Peabody’s assertion that the breach of its contract, if any, occurred in St. Louis upon posting of the May 6, 1975 letter under the so-called “mail box rule” is not persuasive. Under Section 400.2-610, supra, where an anticipatory repudiation occurs, the party whose contract has thus been breached may wait a commercially reasonable time for the offending party to perform the contract or retract the repudiation thereof. It is reasonable to conclude that the letter of May 6, 1975 was nothing more than a confirmation that Peabody had no intention of performance of the contract or retraction of its earlier repudiation.

Further, it should be noted that U.C.C. gives the party injured by the breach a clear option to sue in specific performance, which Public Service chose to do. Section 400.2-610(b); Section 400.2-711(2)(b); Section 400.2-716. Both the form of action and the venue were proper under the facts in this case.

Nevertheless, Peabody strongly urges, as a ground for reversal of the decree, that the court erred in entering the decree because Public Service acted in bad faith in its refusal to accede to a price modification of the contract and thus Public Service breached the contract. In so doing, Peabody relies upon the U.C.C. provisions imposing the obligation of good faith upon both buyer and seller as an inherent part of all contracts for the sale of goods. Section 400.1-203 under General Provisions of U.C.C. provides:

“Obligation of good faith
Every contract or duty within this chapter imposes an obligation of good faith in its performance or enforcement.”

Section 400.2-103(l)(b) under the provisions of U.C.C. relating to Sales, it is provided in part:

“Definitions and index of definitions
* * * * * *
‘Good faith’ in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. * * * »>

Such good faith, honesty and adherence to commercial or business standards are also inherent in the right to maintain an equitable action for specific performance of a contract as in the case at bar. There is no evidence or present claim that Public Service acted in any particular outside the boundaries thus imposed in the original negotiations, offer and counteroffers and final execution of the sales contract here in question nor in the performance of the obligations thereunder preceding the breach by repudiation. Peabody’s charge is based entirely upon the refusal of Public Service to accede to Peabody’s demands for price modification, which refusal, it asserts, constituted bad faith and thus placed the onus of breach upon Public Service. Neither the law of contracts generally nor the terms of U.C.C. relied upon by Peabody lend support to this theory. The contract here involved was settled as a result of arm’s length dealing with no cloud of dishonesty, lack of good faith or failure to adhere to standard business or commercial practice upon the part of either party. The fact that foreseeable economic trends or developments resulted in loss of anticipated profits or, as here claimed, actual financial loss, does not prevent Public Service from refusal of a modification of price and to take advantage of a good bargain. Such is particularly true here, for the reason that Public Service is a utility impressed with public interest and any increase in its cost in producing electricity would reflect in its rates to its public and private consumers. For this reason, its good faith, if it had agreed to a gratuitous modification upward of its costs, might properly be called into question. Indeed, in the case of U.S. for the Use and Benefit of Crane Co. v. Progressive Enterprises, Inc., 418 F.Supp. 662 (E.D.Va.1976), strongly relied upon by Peabody, the court held in similar circumstances that the purchaser “possessed the contractual right to refuse to modify and to demand performance on the original terms” (at l.c. 664). Where an enforceable, untainted contract exists, refusing modification of price and seeking specific performance of valid covenants does not constitute bad faith or breach of contract, and the trial court properly so held.

The appellant’s final allegation of error is that the trial court erred in refusing to relieve or excuse it from its obligations under the contract upon the basis of “commercial impracticability” under Section 400.2-615 RSMo 1969 (U.C.C.), which section reads, in part:

“Excuse by failure of presupposed conditions
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
(a) Delay in delivery or nondelivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
(Emphasis supplied)

The comments accompanying this section treat it as dealing with the doctrine of “commercial impracticability” and central to this concept is that the doctrine may be applicable upon the occurrence of a supervening, unforeseen event not within the reasonable contemplation of the parties at the time the contract was made. Such occurrence must go to the heart of the contract.

Further light is shed upon the provisions of Section 400.2-615, in Comment No. 4, accompanying that section, which states:

“4. Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section.” (Emphasis added)

In the case of Transatlantic Financing Corp. v. United States, 124 U.S.App. D.C. 183, 186, 363 F.2d 312, 315[3] (1966) the court articulates the ingredients necessary to establish the claim of “commercial impracticability” as (1) the occurrence of a contingency; (2) the nonoccurrence of which was a basic assumption upon which the contract was made; and (3) by which occurrence further performance has become commercially impracticable. The fact that the statute is drawn in such general terms is to provide flexibility in its application and full scope for the application of equitable principles and considerations with which the doctrine of commercial impracticability is imbued, as recognized in the Transatlantic Financing Corp. decision, supra. When so viewed and applied, a wide variety of commercial situations often unique to the particular case under consideration are subject to scrutiny. This is particularly true in a case such as the one at bar, where the claim of commercial impracticability is based primarily upon the fact that the performance of the contract results in great financial loss to Peabody due to increase in cost of production (due to the causes enumerated) which were not foreseeable at the time the contract was made. In this connection, Peabody argues that in the resolution of this issue, only the contract in litigation should be considered by the court and that the factors of Peabody’s financial condition, experience in the production of coal, resources, availability of the raw material (coal reserves) and other factors should be disregarded. This argument is without merit and Peabody cites no authority in support thereof. Those factors have a direct bearing and evidentiary value in determining the question of foreseeability of the occurrence triggering the loss. See e. g. Eastern Airlines, Inc. v. Gulf Oil Corp., 415 F.Supp. 429 (S.D.Fla.1975). A commercial, governmental or business trend affecting a contract’s value which would be foreseeable to a party with wide experience and knowledge in the field and, perhaps, not to a party with less; a loss to a party with vast resources and ample supply of raw materials to perform a bad bargain would be less harmful than to a party without them; and, the application of the doctrine and the equitable principles inherent therein might call for relief in one instance and not another based upon these factors, and others, outside the strict confines of the contract itself.

Further, the trial court is put upon inquiry and finding (under the statute) that the nonoccurrence of the event was a “basic assumption on which the contract was made” and that the occurrence of such event “alters the essential nature of the performance thereunder.” See: Eastern Airlines v. Gulf Oil Corp., supra; United States v. Wegematic Corp., 360 F.2d 674 (2d Cir. 1966); Neal-Cooper Grain Co. v. Texas Gulf Sulphur Co., 508 F.2d 283 (7th Cir. 1974); 6 Corbin on Contracts, Section 1333 (Rev.Ed.1962); 6 Williston on Contracts, Section 1952 (Rev.Ed.1938).

A recent case which is strikingly similar to the case at bar is Iowa Electric Light & Power Co. v. Atlas Corporation, 23 U.C.C. Rep.Service (U.S., N.D.Iowa 5/4/78). In that case, the Iowa Electric entered into a contract in 1973 whereby it was to purchase approximately 700,000 pounds of uranium concentrate from Atlas, at a beginning price per pound of $7.10, over an extended period for use in the production of electric energy. The contract contained an escalation clause providing for an automatic inflationary price per pound increase of $0.12329 cents per day or 3¾% per month on July 15th of each year so that the contract price by 1978 would be approximately $8.45 per pound. Because of late deliveries, Iowa Electric by way of a proceeding in injunction, in the nature of specific performance, sought to insure deliveries under the terms and at the price established in the contract, and Atlas counterclaimed seeking to reform the contract by judicial decree so as to provide a higher price per pound for the product upon the basis of commercial impracticability. The case was tried upon the counterclaim by stipulation of the parties and the court denied Atlas the relief sought and dismissed its counterclaim.

The basis upon which Atlas sought relief was that unforeseen factors had so drastically increased its costs and resulted in burdensome losses amounting to approximately $1,800,000.00 in 1976 and projected to losses of approximately $4,000,000.00 in fiscal years 1977 — 1979. Atlas attributed the increase in its costs to the Arab oil embargo and OPEC cartel, unexpected federal environmental and occupational safety regulations, inflation in wages and costs of chemicals and equipment, and certain uranium market conditions. Atlas produced evidence that its costs had increased to $17.40 per pound and that the open market price per pound in 1977 was $43.00 per pound. The court held, among other things:

(1)That the term “ ‘impracticable’ as used in U.C.C. § 2-615 does not mean impossible and each situation should be viewed in the context of reasonable commercial relationships”; that “Atlas must show that the increase is more than onerous or expensive and that it had no part in stimulating that increase”; and that the “burden of proving each element of impracticability is on the party claiming excuse”.
(2) That, although some of the factors which resulted in the increased cost of production may have been unforeseen and the total impact was not contemplated by the parties during contract negotiations, prior to contract there was good reason to anticipate rising costs and drastically increased expense arising from inflation and governmental environmental and safety regulations.
(3) It was not clear that Atlas was not in a position to protect itself contractually from some of the risks; that some of the increased costs resulted from internal corporate decisions; and, that increased costs were partially due to rise in the market price of uranium, the fact that Atlas’ reserve in Alkaline ores used in processing uranium were rapidly becoming exhausted, facts known to Atlas at the time the contract was negotiated.

The court in Iowa Electric refused to reform the contract principally upon the basis of the failure of Atlas to sustain its burden of proof to establish “commercial impracticability”, but the facts there are so similar the case stands for an acceptable precedent in the case at bar.

It should again be emphasized that in the negotiations leading to the contract now before this Court an escalator clause was agreed upon to cover the contingencies of increase in Peabody’s costs due to wages reflected by labor contracts; payments for unemployment, social security taxes and Workmen’s Compensation insurance premiums; costs of compliance with federal, state and local laws, regulations or orders; railroad tariffs; and, increase in the costs of material and supplies, explosives, electric power and administrative and supervisory expense based upon the Industrial Commodities Index of the Department of Labor. There is no evidence nor, indeed, serious claim, that Public Service did not abide by the letter of these provisions, and in addition, prior to suit, agreed to a further price increase of $1.00 per net ton, which Peabody rejected.

The facts as shown by the record lead to the conclusion that at least some of the loss resulted from the fact that for some unexplained reason the Industrial Commodities Index lagged behind the Consumer Price Index, the measuring factor first proposed by Peabody, in reflecting inflationary cost increases. That such indexes were based upon different commercial and economic factors was presumably known by both parties since each was skilled and experienced in those areas and the divergence between the indexes could not be said to be unforeseeable. Be that as it may, Peabody agreed to the use of the Industrial Commodities Index factor.

The other claim made by Peabody alleged to bring it within the doctrine of “commercial impracticability”, is the Arab oil embargo. Such a possibility was common knowledge and had been thoroughly discussed and recognized for many years by our government, media economists and business, and the fact that the embargo was imposed during the term of the contract here involved was foreseeable. Peabody failed to demonstrate that this embargo affected its ability to secure oil or petroleum products necessary to its mining production albeit at inflated cost. In fact, as previously stated, this embargo can reasonably be said to have, at least indirectly, contributed to the marked appreciation to the value of Peabody’s coal reserves by forcing the market value of that alternative source of energy upward in this country.

It is apparent that Peabody did make a bad bargain and an unprofitable one under its contract with Public Service resulting in a loss, the cause and size of which is disputed. But this fact alone does not deal with either the “basic assumption” on which the contract was negotiated or alter the “essential nature of the performance” thereunder so as to constitute “commercial impracticability”. The court below properly decreed specific performance.

The judgment is affirmed.

All concur.

      . Subparagraphs (b) and (c) cover situations where a seller’s capacity to perform the contract is only partially impaired and for allocation of his curtailed production among all of his customers and notice to the buyers. These provisions are not applicable here.


author: GUNN, Judge.

text:
    Andrew J. FRISELLA, by his guardian, Vera Frisella, Respondents, v. RESERVE LIFE INSURANCE COMPANY OF DALLAS, TEXAS, Defendant.
    No. 40072.
    Missouri Court of Appeals, Eastern District, Division One.
    May 22, 1979.

      Eric F. Tremayne, Tremayne, Lay, Carr & Bauer, Clayton, for defendant.
    Charles J. McMullin, St. Louis, for respondents.
   GUNN, Judge.

Plaintiff-respondent Andrew Frisella through his wife-guardian brought suit against defendant-appellant Reserve Life Insurance Company for a refund of insurance premiums paid during a period of disability, together with interest, penalty and attorney’s fees for vexatious refusal to pay the claim. The jury found in favor of the Frisellas except for the penalty and returned a verdict for $4,414 for premium refund, $529.68 in interest and $3,500 in attorney’s fees. The verdict specifically provided that there was to be no recovery for penalty. Reserve Life has appealed claiming, among other things, that the trial court erred in failing to grant its motion for directed verdict.

Andrew Frisella was the insured for $50,-000 under a policy of life insurance issued by Reserve Life. A rider to the policy provided for waiver of premiums upon receipt of proof by the insurer that the insured had become totally disabled. The Frisellas presented evidence that Andrew Frisella had become totally disabled by reason of a mental defect sometime in 1968. Claim for refund of premium was filed in February, 1976, and Reserve Life denied the claim except for a refund of one-quarter year’s premium based on the policy’s declared limitation. At the close of the evidence, Reserve Life filed a motion for “summary judgment” which it claims to be a motion for directed verdict. The trial court denied the motion which forms the underlying complaint for Reserve Life’s appeal.

As a preliminary matter to reaching a denouement to this case, we consider the Frisellas’ contention that Reserve Life failed to file a motion for directed verdict at the close of the case and is therefore barred from raising the submissibility of the plaintiffs’ case on appeal. The Frisellas are correct in their assertion that the record of proceedings at the close of the evidence is destitute of a motion captioned “motion for directed verdict.” At the close of the Frisellas’ evidence and again at the close of all the evidence, Reserve Life made oral motions for judgment as a matter of law but erroneously referred to such motions as motions for summary judgment. The trial court denied both motions, and Reserve Life filed an after trial motion for new trial and an alternative motion to set aside the verdict and enter judgment in accordance with its motion for directed verdict which had been inadvertently designated as a motion for summary judgment. The latter after trial motion had also been incorrectly captioned as a motion for directed verdict. The after trial motions were argued and overruled with the trial court correctly considering and treating them as being properly designated as motion for judgment notwithstanding the verdict and motion for new trial. We believe that Reserve Life’s after trial motions, although inelegantly presented and not a paradigm to follow, were sufficient to preserve its points of error for our review. This is so particularly as the trial court readily understood and treated the motions for their proper purpose — as motions for judgment n. o. v. and new trial.

Of course, in a jury case the proper method of preserving the issue of sub-missibility of a plaintiff’s case for appellate review is to submit a motion for directed verdict with the trial court at the close of plaintiff’s case and again at the close of all evidence. Thereafter, in the event of an adverse judgment, the defendant should assign the trial court’s failure to direct the verdict as error in an after trial motion for new trial or either a motion for judgment notwithstanding the verdict or in a motion to set aside the verdict and judgment and enter judgment for defendant. Sides v. Mannino, 347 S.W.2d 391 (Mo.App.1961); Millar v. Berg, 316 S.W.2d 499 (Mo.1958); Milner v. Texas Discount Gas Co., 559 S.W.2d 547 (Mo.App.1977); Zellmer Real Estate, Inc. v. Brooks, 559 S.W.2d 594 (Mo.App.1977); Shobe v. Borders, 539 S.W.2d 330 (Mo.App.1976); Herrman Lumber Co. v. Cox, 521 S.W.2d 4 (Mo.App.1975); Wilkerson v. State Farm Mut. Auto. Ins. Co., 510 S.W.2d 50 (Mo.App.1974); Pasley v. Newton, 455 S.W.2d 43 (Mo.App.1970); Manning v. McAllister, 454 S.W.2d 597 (Mo.App.1970). The Frisellas are correct in their contention that the failure to move for a directed verdict at the close of all the evidence waives, upon appeal, the contention that plaintiff failed to make a submissible case. Sides v. Mannino, supra; Herrman Lumber Co. v. Cox, supra; Pasley v. Newton, supra; Manning v. McAllister, supra. However, Reserve Life did move for a directed verdict at the close of all evidence although the motion was not so captioned. But the trial court certainly understood and considered it to be a motion for directed verdict. While the motion for directed verdict must state the basis for the motion with some particularity, Wilkerson v. State Farm Mut. Auto. Ins. Co., supra, a liberal construction should be applied in construing the assignment made, particularly if the defect which is the subject of the motion is apparent, Gillenwaters Bldg. Co. v. Lipscomb, 482 S.W.2d 409 (Mo.1972), or if the motion and oral argument in support substantially comply with the requirements for a motion for directed verdict. Schubert v. St. Louis Public Service Co., 206 S.W.2d 708 (Mo.App.1948), aff’d 358 Mo. 303, 214 S.W.2d 420 (1948). See also, Brown v. Gamble Const. Co., 537 S.W.2d 685 (Mo.App.1976); Stafford v. Far-Go Van Lines, Inc., 485 S.W.2d 481 (Mo.App.1972). Such is the situation in this case. While desultory, the motions and argument were not so in need of emendation or so nubilous as to destroy their purpose. The contention that a defendant has not preserved or presented to the trial court its ground of error based on a claimed failure in plaintiff’s proof lacks validity if the record indicates that the trial court was fully aware of defendant’s position. Brown v. Gamble Constr. Co., Inc., supra; Rothweiler v. St. Louis Public Service Co., 224 S.W.2d 569 (Mo.App.1949), rev’d on other grounds, 361 Mo. 259, 234 S.W.2d 552 (banc 1950). The record here established that the trial court was fully aware of Reserve Life’s contention that it was entitled to a directed verdict as a result of the policy’s provisions limiting the Frisel-las’ recovery of premium refunds to one year prior to the filing of the claim. The foundation supporting Reserve Life’s after trial motions was stated in the oral motion for directed verdict and fully presented to the trial court to the extent that the intent of the motion was clearly understood and treated by the trial court as motion for directed verdict despite the erroneous designation of the motion. The claimed errors were thereby preserved for our review.

We now turn to the cynosure of the case concerning Reserve Life’s obligation to refund premium payments made during the period of disability of the insured. As here pertinent, the waiver of premium rider, including notice provisions, which was introduced by the Frisellas, provides as follows:

Benefits. The Company upon receipt of due proof that the Insured is totally disabled, as defined below, will
(a) Waive the payment of each premium under the policy which becomes due during the period of total disability, and
(b) Refund any premium which became due and was paid during the period of such total disability but refund will be limited to such premiums paid within one year prior to the date written notice of claim was filed with the Company,
Provided
(a) The Insured has been totally disabled continuously for not less than six months, and
(b) Such disability commenced after the Effective Date and before the policy anniversary nearest the 60th birthday of the Insured.
* * * * * *
Notice of Claim. No claim for benefits under this rider shall be valid unless written notice of the total disability on which the claim is based is given to and received by the Company during the lifetime of the Insured and during the continuance of total disability. Failure to give such notice within such time shall not invalidate any claim if it shall be shown that it was not reasonably possible to give it within such time and that such notice was given as soon as was reasonably possible.

The Frisellas’ evidence was that sometime in 1968, Andrew Frisella developed some characteristics of presenile dementia. His mental condition deteriorated through subsequent years culminating in his being declared mentally incompetent in September, 1975. Notice to Reserve Life of claim for refund of premium based on disability was given by Mrs. Frisella dated February 18, 1976. Reserve Life thereupon waived any further premium payments and refunded $168.55 which had been paid by the Frisel-las covering the last quarter period of 1975. The Frisellas claim that under the policy provisions, Reserve Life was obligated to make premium refund of $4,414 based on premiums paid from 1968 when signs of Mr. Frisella’s enervating illness were first sig-nalled. Reserve Life asserts, inter alia, that the policy provision limits its liability for the refund of premiums to those paid within one year prior to the date written notice of the claim was filed. It is clear that the policy of insurance does so specifically provide for the limitation. Under the established law, the terms of the policy are controlling, and the Frisellas must be limited in their recovery under the terms of the policy to a refund of premiums “paid within one year prior to the date written notice of claim was filed with [Reserve Life].” To the extent that it exceeds such amount and provides for penalty, except for interest on the amount owed, the judgment is hereby reversed.

An insurance policy is simply a contract, involving matters of basic contract law. Stahlberg v. Travelers Indem. Co., 568 S.W.2d 79 (Mo.App.1978); Huth v. General Acc. & Life Assur. Corp., Ltd., 536 S.W.2d 177 (Mo.App.1976). The insurance company’s liability is determined by the terms of the contract of insurance as contained in the policy. Levin v. State Farm Mut. Auto. Ins. Co., 510 S.W.2d 455 (Mo. banc 1974). In order to be eligible for waiver of premiums, the Frisellas as claimants had to give written notice to Reserve Life of Mr. Frisella’s total disability. Thus, before any recovery could be had under the waiver of premium rider the Frisellas had the burden of proof that they had complied with the terms of the policy regarding notice. Northwestern Mut. Ins. Co. v. Independence Mut. Ins. Co., 319 S.W.2d 898 (Mo.App.1959).

The Frisellas observe that Reserve Life failed to plead the matter of notice as an affirmative defense and are thereby barred from raising that issue now. The matter of giving notice was not — as the Frisellas contend — a subject of affirmative defense which they claimed was not pleaded. Rather, notice was a condition precedent to their recovery of premiums paid while under disability. Their proof of compliance with the condition precedent was absolutely essential to their recovery under the terms of the policy. See, McNeal v. Manchester Ins. & Indem. Co., 540 S.W.2d 113 (Mo.App.1976). As stated in Grossman Oil & Steel Co. v. Bituminous Cas. Corp., 558 S.W.2d 255, 259 (Mo.App.1977): “The insured must, of course, bring himself within the terms of the policy and prove by substantial evidence that the claim sued on is within the coverage provided by the terms of the insurance contract.”

Next, after receipt by the company of proof of disability, the policy provides that recovery of premium refund is limited to those paid within one year prior to the date of the claimant’s written notice of claim. In this case, the Frisellas’ own evidence was that the critical date of alleged proof of disability and written notice of claim to Reserve Life was February 18, 1976. Thus, whether raised affirmatively or not, Reserve Life’s liability for refund of premiums is specifically limited under the terms of the policy to those paid for the year prior to February 18, 1976, and no more. The Fri-sellas in making their prima facie case through the introduction of the insurance policy and by Mrs. Frisella’s testimony of filing claim and notice of disability established the one year limitation by their own evidence. Grossman Iron and Steel Co. v. Bituminous Cas. Corp., supra. It was the Frisellas’ evidence which solidly placed the limitation of premium waiver before the trial judge and jury, and the jury was thereby interdicted from concerning itself with more than the one year liability limitation for premium refund. So by the paradox of the Frisellas’ submission of the insurance policy with its condition and Mrs. Frisella’s testimony regarding the filing of the claim, the issue of affirmative defense is made immaterial. Billings v. Independent Mut. Fire Ins. Co., 251 S.W.2d 393 (Mo.App.1952).

The Frisellas postulate that the “Notice of Claim” provision of the premium waiver rider providing that “ . [f]ailure to give such notice [of total disability] within such time [lifetime of the insured] shall not invalidate any claim . ,” blots out any one year limitation. The Frisellas read the foregoing language of the policy to mean that there can be no limitation placed on any claim by failing to give proper notice. We disagree with their interpretation. The one year premium waiver limitation is affixed to the date of notice of claim — in this case February 18, 1976. The “[fjailure to give such notice” phrase refers to the immediately preceding language specifying that notice of claim for waiver and the refund of premium is to be provided during the lifetime of the insured and during the continuance of total disability. The quoted language merely provides that the insured’s claim will not be invalid if not asserted before the insured dies or disability terminates. The claim is not invalid, but the benefits continue to be limited as provided by the terms of the policy. The one year premium refund liability is firmly interlaced with the notice provisions of the policy’s waiver rider. Aetna Life Ins. Co. v. Durwood, 278 S.W.2d 782 (Mo.1955).

On appeal Reserve Life has argued that the Frisellas were entitled to no premium refund whatsoever as there was no proof of disability by virtue of the fact that Mr. Frisella continued to receive substantial annual payments from the corporation bearing his name. Ordinarily the determination of whether an insured is totally disabled is a question of fact to be resolved by the jury. Stout v. Central Nat’l Life Ins. Co., 522 S.W.2d 124 (Mo.App.1975); Cox v. Washington National Ins. Co., 520 S.W.2d 76 (Mo.App.1974). And there was evidence for the jury to consider that Mr. Frisella was totally disabled since 1968. He was feckless and phlegmatic in his daily routine at his office. The fact that a salary was given to him by his company was more in the nature of a gift than for any work performed. Credibility of witnesses and weight to be given to their testimony is a matter for jury resolution. Davis v. Fiske, 578 S.W.2d 328 (Mo.App.1979); Casada v. Hamby Excavating Co., Inc., 575 S.W.2d 851 (Mo.App.1978); Wilkens v. Cash Register Service Company, 518 S.W.2d 736 (Mo.App.1975). We find no basis for interfering with the jury’s finding that Mr. Frisella had been disabled since 1968. The mere fact that Mr. Frisella received monetary benefits from his company did not disqualify him from being eligible for the one year waiver of premium provided by the policy. See, e. g., Wiener v. Mut. Life Ins. Co. of New York, 352 Mo. 673, 179 S.W.2d 39 (1944); Heald v. Aetna Life Ins. Co., 340 Mo. 1143, 104 S.W.2d 379 (1937); Stout v. Central National Life Ins. Co., supra; Cox v. Washington Nat’l Ins. Co., supra; Montgomery v. Travelers Protective Ass’n of America, 434 S.W.2d 17 (Mo.App.1968); Tenkhoff v. New York Life Ins. Co., 191 S.W.2d 1005 (Mo.App.1946); Burns v. Aetna Life Ins. Co., 234 Mo.App. 1207, 123 S.W.2d 185 (1939); Rogers v. Metropolitan Life Ins. Co., 122 S.W.2d 5 (Mo.App.1938).

Reserve Life also argues that the trial court erred in allowing Mrs. Frisel-la to testify in the narrative; that a mistrial should have been declared when testimony was introduced that Reserve Life had refused all offers to settle the case. As the Frisellas correctly respond, the trial court has considerable discretion in controlling the examination of witnesses, Hoene v. Associated Dry Goods Corp., 487 S.W.2d 479 (Mo.1972), including whether in the narrative. State v. Wren, 498 S.W.2d 806 (Mo.App.1973). We find no abuse of discretion here. As to the reference to settlement, there was no harm to Reserve Life. In fact the testimony would appear to be beneficial to it as asserting the strength of its position as to absence of liability by rejecting plaintiff’s efforts to settle the case. See Aiple v. South Side National Bank, 442 S.W.2d 145 (Mo.App.1969). But while we find no error in this particular case with the settlement testimony, reference to compromise discussions by either party is fraught with danger and should be eschewed. Vinyard v. Herman, 578 S.W.2d 938 (Mo.App.1979).

The final matter to be considered is the award of attorney’s fees as penalty for vexatious refusal to pay the Frisellas’ claim. Section 375.420, RSMo Supp.1975 by which the Frisellas seek the attorney’s fee penalty, is penal in nature and must be strictly construed; that is, the insurer’s conduct in denying the claim must be without reasonable cause or excuse. Bassett v. Federal Kemper Ins. Co., 565 S.W.2d 823 (Mo.App.1978); Hay v. Utica Mut. Ins. Co., 551 S.W.2d 954 (Mo.App.1977). The mere fact that there is a jury verdict adverse to the insurer does not make it liable for attorney’s fees. Obviously with the result reached in this decision, Reserve Life did have a reasonable and meritorious defense to the Frisellas’ claim and cannot be subjected to payment of vexatious damages or attorney’s fees under § 375.420. Hay v. Utica Mut. Ins. Co., supra.

For the reasons set forth in this opinion, the judgment below is modified by entering judgment in favor of the Frisellas and against Reserve Life for the refund of premiums paid by the Frisellas for the one year prior to February 18, 1976, together with interest thereon. In all other respects the judgment is reversed.

Judgment modified and reversed.

SNYDER, P. J., and SMITH, J., concur.

      . The motion for directed verdict can preserve a claimed error in a jury tried case although the error is not specified in the motion for new trial and the error specified in the motion for directed verdict does not parallel the error claimed on appeal. Welch v. Hesston Corp., 540 S.W.2d 127 (Mo.App.1976).

      . Emphasis added.