Bill Pipkin - Established First Party “Bad Faith” Law in Oklahoma

by Rex Travis, originally published in the Oklahoma County Bar Association May Briefcase. Used by permission.

William A. “Bill” Pipkin died April 7. Bill was not a member of the Oklahoma County Bar. He always practiced in Moore but had a lot of cases in Oklahoma County.

Bill was not a specialist. He was a general practitioner who handled the gamut from family law to criminal law and real estate cases. Yet, he established an important area of Oklahoma law: first party bad faith.

Bill represented a man named Bobby Christian, who worked for an oil field related company. Christian had a disability policy through his company. Bill sued American Home Assurance Company in Garvin County, where Mr. Christian lived and worked because the insurance company would not pay him disability benefits under the policy.

During the trial of that suit on the policy, it developed that the insurance company had no legal defense to the claim. It had to pay the policy benefits.

Bill then filed a second suit in Oklahoma County arguing that the insurance company was in bad faith in denying the claim and that the denial of benefits caused Christian emotional distress and made him pay attorney fees. The case was assigned to Judge Jack Parr. The law in Oklahoma at that time was clear: the only thing the insurance company owed for failure to pay an insured’s claim was the amount of the claim. This didn’t give an insurance company much incentive to pay claims since all it would be out would be its defense costs and what it would have to pay if it lost the case.

Judge Parr, of course, followed the law in place at the time and sustained American Home’s Motion for Summary Judgment. Bill knew that was the law, but it just didn’t seem right to him. He appealed, urging the Oklahoma Supreme Court to reverse the law which held the insurance company was not liable for “consequential damages” if it denied a claim in bad faith. He relied on some California cases which had broken new ground in holding that way.

The time was right. Justice Simms, in a unanimous opinion, adopted the California courts’ rationale, holding that there was a covenant implied in an insurance policy, that the insurance company would handle claims in good faith and, if good faith required it, pay the policy. The case became Christian v. American Home Assur. Co., 1977 OK 141, 577 P.2d 899.

There had been earlier cases in which a liability insurance company could be held liable to its insured if it failed in bad faith to pay a liability claim and, as a result, the insured became liable for an amount in excess of his policy limit. These were called “third party” bad faith cases because the claim involved the insured’s liability to a third party (the claimant). Those cases were based on the rationale that the insurance company, by agreeing to defend the insured, owed a fiduciary duty to do so in good faith. However, this was the first case to apply the rule in a first party case (where the insured is suing his insurance company for money).

Those of us who practice in this area have benefitted from Bill’s willingness to try to change bad law. I and my clients have had the benefit of Bill’s good work for almost 40 years, for which I remain grateful. It’s an inspiration for the good things lawyers can do.