Oklahoma Insurance Law Update 2017

INSURANCE LAW UPDATE 2017

Presented to the Oklahoma Association for Justice By Rex Travis

Thursday, November 30th, 2017: Skirvin Hilton Hotel, Oklahoma City, OK

Thursday, December 7th, 2017: Renaissance Hotel & Convention Center, Tulsa, OK

© 2017 - Rex Travis


BAD FAITH

UM Carrier Was in Bad Faith for Submitting Medical Bills to Medical Review for Reasonableness and Refusing to Pay the Bills as an Uncontested Amount - Falcone v. Liberty Mutual Insurance Co., 2017 OK 11, 391 P.3d 105

Falcone v. Liberty Mutual Insurance Co. [1] holds a UM carrier is in bad faith when it challenges reasonableness of medical bills and submits the bills to medical review and them refusing to pay the bills as an uncontested amount to settle the claim.

Ms. Falcone was injured while a passenger in her Mother’s car, insured by Liberty Mutual for $100,000 UM and $1,000 med-pay. She was taken by ambulance to the OU Medical Center ER. The doctors there ordered CT scans of her neck vertebrae and transferred her to the Level 2 trauma center (L2). She was discharged less than 4 hours later with a total bill of $47,203, of which $24,420.25 was treatment in the L2 trauma center. She had later treatment, including facet joint injections. Her total medical bills incurred were $67,098.23. 

Liberty refused to pay its $100,000 UM limit. It paid the $1,000 med-pay and offered $37,855.23. Falcone sued on the policy and for bad faith. Liberty increased its evaluation to $52,677.98. Liberty argued that it had submitted the medical bills to a medical “utilization reviewers,” out-of-state medical doctors who were of the opinion the ER doctors erred in ordering CT scans when plain x-rays would have been sufficient and in referring Ms. Falcone to the L2 trauma center.

 Finally, Liberty paid its $100,000 limit (less the $1,000 med-pay) and Falcone dismissed without prejudice her policy claim and proceeded with her bad faith claim. The trial court, Judge Prince, in Oklahoma County, held that, as a matter of law, Liberty was not in bad faith for refusing to pay its limits and submitting the bills to the medical review. The Supreme Court reversed, in a unanimous decision by Justice Watt. All but two of the Justices reversed and remanded “for further proceedings in accordance with the views expressed in this opinion.” Justices Gurich and Reif concur that Liberty has been in bad faith but on remand would submit to the jury only the question of the amount of bad faith damages. 

The opinion notes that the med-pay portion of the policy has a provision that it agrees to pay “reasonable expenses incurred for necessary medical treatment” caused by an accident and contrasts that with the UM language “pay compensatory damages which an ‘insured’ is legally entitled to recover” from the uninsured motorist. The opinion says the med-pay language “might arguably allow” Liberty to submit the bills to medical review but the UM language does not.

TITLE INSURANCE

Title Insurance Claim Not Triggered By Allegation of Inability to Use Property - Choate v. Lawyers Title Insurance Corp., 2016 OK CIV APP 60, 385 P.3d 670  

Choate v. Lawyers Title Insurance Corp.[2] holds the coverage of a title insurance policy is not triggered by an allegation of circumstances interfering with the use of property, opposed to a claim of a defect in the title. 

A lawyer (Choate) bought an abandoned church in Seminole after the church moved to another location. He bought title insurance on the purchase through another lawyer who was the agent for Lawyers Title Insurance. The abandoned church building burned. The City of Seminole had the burned structure torn down as a safety hazard. 

Choate sued the title insurance company, alleging that the lawyer who wrote the title policy and owned the local title company knew of a policy on the part of the City to have the unused building torn down and not grant any kind of occupancy permit for use of the property. Choate claimed this circumstance, among other things, constituted a violation of the title policy and sued the title insurance company on the policy and for bad faith.

The trial court, Judge Butner, in Seminole County District Court, granted the title insurance company’s motion to dismiss. The Court of Civil Appeals, in an earlier appeal, reversed because the court did not make the required finding that the petition could not be amended. The trial court then dismissed a second time, finding the defects in the petition incurable. This appeal resulted. 

The Court of Civil Appeals, in a unanimous opinion by Judge Hetherington, affirmed. The petition against the title insurance company claimed, not a defect in title, but circumstances rendering the proper use of the property impossible. That claim is not what is insured by a title insurance policy. Rather the title insurance policy insures against a defect in the title itself, existing at the time the title policy was written. Since the court had determined there was no coverage under the title policy, there was a legitimate coverage dispute which justified the title insurance company’s denial of the claim, which precluded the bad faith claim.

EMPLOYEE DISHONESTY  

“Non-Cumulation of Limit of Insurance” Provision Does Not Prevent Coverage of Losses Under Separate Policies Covering Multiple Years - First United Methodist Church of Stillwater, Inc. v. Philadelphia Indemnity Insur. Co.2016 OK CIV APP 59, _ P.3d _ 

First United Methodist Church of Stillwater, Inc. v. Philadelphia Indemnity Insur. Co. [3] holds a non-cumulation of limit of insurance provision in an employee dishonesty policy does not prevent recovery of separate policy limits under policies covering prior years when loss occurred.   

The insured church’s finance manager embezzled about $200,000 over the period from 2009 to 2012. Philadelphia Indemnity had employee dishonesty coverage with $50,000 limits in each of four policies in force during those years. The church discovered the losses in December of 2012 and reported the losses to the insurance company in January of 2013. 

The insurance company paid one $50,000 limit and denied further payment on the basis of policy provisions including a requirement that losses to be covered must be reported within one year of the year of loss and a non-cumulation provision which prohibited accumulating losses from year-to-year.   

The trial court, Judge Corley in Payne County, agreed with the insurance company and granted it summary judgment. The Court of Civil Appeals reversed, in this opinion by Judge Barnes. 

The insurance company relied on a Tenth Circuit opinion applying Oklahoma law, Business Interiors Inc. v. Aetna Cas. and Sur. Co., 751 F.2d 361 (10th Cir. 1984), holding multiple thefts by an employee constitute a single “occurrence” under an employee dishonesty policy. However, the Oklahoma Court of Civil Appeals notes that all the thefts in Business Interiors took place over 7 months during a single policy year and did not involve multiple policies. The Court also noted that, under Oklahoma law, each policy renewal resulted in a new policy, not an extension of the old one.  

The Court of Civil Appeals next considered the effect of the non-cumulation provision and a related “prior loss” provision which said that, if a loss is covered in part by this insurance and in part by a prior “canceled or terminated” insurance, the insurance company would pay the higher of the two limits but not both. It appears the Court did not find this clause applicable, although there was not much discussion of it.    

With regard to the prior loss provision, the Court noted that the insurance company cited a number of other jurisdiction cases supporting its position but chose to select the contrary ruling of E.J. Zeller, Inc. v. Auto Owners Ins. Co., 2014 WL 5803028 (OH App.), a not-for-publication Ohio Court of Appeals case. (I’ll remember this next time I’m reluctant to cite and rely on a foreign, not for publication case reported only in West Law.) The Oklahoma Court simply found its analysis and reasoning much more compelling than the published opinions from other state and federal courts. The Oklahoma Court found the non-cumulation and prior loss provisions ambiguous and construed them against the insurance company and in favor of coverage. The Court reached its decision that the provisions were ambiguous through holding that either of two interpretations were reasonable and cited cases holding that makes the policy provision ambiguous.  

That all leaves the issue of whether the insured met the policy requirement of giving notice within a year of discovering the loss. The policy year ran from January 1 of each year to December 31. The church discovered the loss in December of 2012 and reported it in January of 2013. The Court holds this triggered the $50,000 policy limit for 2013 (which the insurance company paid) but also triggered the limit for 2011 because of the discovery within a year of the end of 2011. Of course, the policy limit for 2012 was triggered by the loss being discovered in December of 2012. If you do much property insurance work, this is a good case to know about.

BAD FAITH

Proper Conflict of Laws Rule for a Bad Faith Case Is the Tort Rule, Not the Contract Rule, So It Was Improper to Apply Kansas Law. As the Law of the State In which the Policy Was Written Where the Loss Occurred in Oklahoma and the Claim was Adjusted in Oklahoma - Martin v. Gray, 2016 OK 114, 385 P.3d 64 

Martin v. Gray [4] holds a tort choice of law rule, rather than a contract one should be used to determine which state’s law is to be applied in a bad faith case, so it was error for the trial court to apply Kansas law to a case in which a UM policy was written in Kansas but the loss occurred in Oklahoma and the claim was adjusted primarily in Oklahoma.  

Ms. Martin had her car insured on her parent’s policy in Kansas when she lived with them. She moved to Oklahoma and her parents told the agent she had moved and the car would now be principally garaged in Oklahoma, not Kansas. She was hurt in a wreck in Oklahoma by an apparent uninsured motorist and incurred $27,000 in medical bills with future medical bills projected to be in excess of $100,000.  

The insurance company, Goodville Mutual Insurance Company, a Pennsylvania company, handled the claim out of Pennsylvania. It offered $27,000 in Kansas no fault benefits and $10,000 in UM coverage. Martin sued Goodville in Oklahoma for UM on the contract and for bad faith. 

The trial court, Judge Dixon, in Oklahoma County, applied Kansas law as the law of the state where the contract was entered into. Finding that Kansas does not recognize a bad faith cause of action, he dismissed the bad faith. He also certified the choice of law issue for interlocutory appeal. The Supreme Court granted certiorari and held the trial court should instead have applied the tort choice of law test and looked to which state had the most significant relationship to the transaction.      

With the insurance company adjusting the claim from Pennsylvania but the claim having arisen in Oklahoma, it would seem Oklahoma would have the most significant relationship. The Court says it would normally have remanded for a determination which state had the most significant relationship but said the parties settled the case in the meantime.

Normally, that would have resulted in a dismissal of the appeal. Here, however, the Court applies a rule that the Court will retain the appeal and decide the issue when it is important to settle an issue of law because of the “public interest or likelihood of recurrence.” The Court noted here the uncertainty by the bench and bar as to the proper rule to be applied in such cases.

POLLUTION EXCLUSION

Indoor Air Exclusion Does Not Violate Oklahoma Public Policy - Siloam Springs Hotel, LLC v. Century Surety Company, 2017 OK 14, 391 P.3d 111 

Siloam Springs Hotel, LLC v. Century Surety Company [5] holds that an indoor air exclusion in a CGL policy does not violate Oklahoma public policy.     

This is the second time we have talked about this case. We encountered it last year in reporting on the same named case in the Tenth Circuit reported at 781 F.3d 1239. We talked about that case because it held that often federal courts should certify insurance coverage questions to state courts because such cases often have public policy implications which it is better to have state courts address than to have federal courts predicting state law. 

The earlier report in the 10th Circuit held that the record did not support federal jurisdiction because it erroneously assumed the insured company was an Oklahoma corporation while it was an LLC. Noting that federal diversity jurisdiction requires that there be complete diversity so that if a single member of an LLC is non-diverse, there is no diversity jurisdiction, the circuit remanded the case for a determination of diversity and for a determination of which state’s law should be applied. 

The Western District federal court made the determination that there was jurisdiction and that Oklahoma was the proper court to which to certify as the state whose law should be applied. The federal district court, Judge Miles-LaGrange, certified the public policy question to the Oklahoma Supreme Court. 

The question certified was whether an “indoor air exclusion” in the policy violated Oklahoma public policy. The Supreme Court held it did not. 

The insured was an Oklahoma LLC which owned and operated a hotel in Arkansas. The policy contained an exclusion for losses arising from any toxic or hazardous air condition. The language sounds awfully like the absolute pollution exclusions which have been held invalid in many states, but not in Oklahoma.       

The losses which brought about the case resulted because an indoor swimming pool heater malfunctioned and caused carbon monoxide poisoning to hotel guests. This decision by the Oklahoma Supreme Court means there will be no coverage available to pay those claims. 

As noted, this litigation is a reprise of the history of the absolute pollution exclusion. After a wave of pollution litigation hit the insurance industry, the insurance companies responded by writing a pollution exclusion which, in order to provide coverage for suits such as this, excepted from the exclusion “sudden or accidental.” Because the industry, represented by ISO (Insurance Services Office) wrote the exclusion (called an “absolute pollution exclusion”) and presented the policy forms for approval by the states and assured the insurance commissions claims such as these would be covered, even under the absolute pollution language, most states held sudden, accidental discharges would be covered. 

Apparently, when Oklahoma was first confronted with the issue, this history was not properly briefed to the Court, resulting in Bituminous Cas. Corp. v. Cowen Construction Co., 2002 OK 34, 55 P.3d 1030. This case upheld the absolute pollution exclusion without showing any awareness of this history.  

 In the present opinion, neither the majority in an opinion by Chief Justice Combs, joined by Justices Winchester, Edmondson, Reif and Appeals Court Judge Buettner (sitting by designation) nor the dissent, made up of Vice Chief Justice Gurich and Justices Watt and Colbert make any mention of the history. Only Justice Kauger, who dissents separately, discusses the history. She would have reformulated the question to ask if the provision was ambiguous and would have held it ambiguous and invalidated it. This was perhaps not the Supreme Court’s finest hour.     

BAD FAITH 

Purchaser Under Contract for Deed, Known to Insurance Company, Had Standing to Sue For Bad Faith - Hensley v. State Farm Fire and Casualty Co., 2017 OK 57, 398 P.3d 11  

Hensley v. State Farm Fire and Casualty Co. [6] holds the purchaser of a home who was known to the insurance company and who paid for the insurance, which remained in the seller’s name, had standing to sue the property insurance company for bad faith. 

Hensley, the named insured, owned a mobile home and the lot on which it sat. He sold the property to Douglas and financed the sale on a contract for deed, the terms of which were such that the monthly payment would be adjusted to reflect changes in the insurance premium. The effect of all this was that Douglas, the purchaser, paid for the insurance by paying Hensley, the seller, who paid State Farm. 

State Farm was aware of the arrangement. In fact, State Farm handled a claim several years before the present one and noted in the claim file that Hensley had sold the property to Douglas and that “this needs to be rewritten.” But, it did not get rewritten.  

After several years, Douglas sold to another person and was in the process of renovating the property to suit the new purchaser when this vandalism and theft loss occurred. State Farm paid some of the loss, but disputes developed over whether the policy provided replacement cost coverage and the amount to be paid on the loss. Douglas and Hensley sued State Farm on the policy and for bad faith. State Farm defended on the ground that Douglas had no standing to sue for bad faith, since he was not named as an insured on the policy. 

The Court, Judge Cantrell, in Tulsa County, granted State Farm summary judgment. The Court of Civil Appeals sustained, and the Supreme Court reversed both courts in this opinion by Justice Edmondson. The Justices split 6 to 3 with Justices Colbert, Reif, Watt and Vice Chief Justice Kauger joining and Chief Justice Combs and Justices Winchester and Wyrick dissenting. 

The majority said that the fact that Douglas had equitable title was not alone sufficient to give him standing to sue. The rule remains in Oklahoma that the insurance contract is a personal contract between the insured and the insurance company so that sale of the property does not substitute insureds. 

However, the fact that State Farm knew of the arrangement, coupled with a policy provision, drove the result that Douglas had standing as something akin to a third-party beneficiary. The “Loss Payment” provision of the policy provided that the loss would be paid to the named insured “unless some other person is named in the policy or is legally entitled to receive payment.” Under the circumstances, Douglas was such a person. 

FEDERAL EMPLOYEE HEALTH INSURANCE SUBROGATION 

Federal Employee Health Insurance Preempt State Law Restrictions on Subrogation - Coventry Health Care of Missouri, Inc. v. Nevils, 137 S. Ct. 1190 (2017)   

Coventry Health Care of Missouri, Inc. v. Nevils [7] holds that subrogation provisions of federal employee insurance policies preempt state law restrictions on subrogation and that granting such preemption does not violate the supremacy clause of the U.S. constitution.  

Nevils was a retired federal employee living in Missouri. He was injured in a car wreck and incurred medical bills which were paid by his federal employee health insurance. The health insurance company which insured him, Coventry, filed a lien to recover the subrogation for which his policy provided. However, Missouri law prohibited subrogation of health insurance payments. Nevils sued in state court to recover his damages and made a settlement. He paid the subrogation out of his recovery to resolve the lien and filed a state court class action against Coventry to recover the payment and to establish that state law restrictions on subrogation prevented subrogation of federal employee health insurance payments in Missouri.

The Missouri trial court held against him and the Missouri Court of Appeals affirmed. However, the Missouri Supreme Court reversed, holding that the preemption provisions of FEHBA (the Federal Employees Health Benefit Act, 5 U.S.C. Sec. 8901 et seq.) are ambiguous, triggering a “presumption against preemption.”

While all this was going on, the Office of Personnel Management (OPM) promulgated a regulation that state restrictions on subrogation were preempted by the federal statute, regulations and the terms of the contracts by which OPM provides health insurance to federal employees. When Coventry appealed to the U.S. Supreme Court, the Supreme Court remanded the case to the Missouri Supreme Court to reconsider its decision in light of the new regulation. The Missouri Supreme Court held on remand that the federal statute providing that the provision of federal contracts for providing health insurance preempted state law permitted such preemption. However, it held that permitting a contract written by a private health insurance company to preempt state law was a violation of Art. VI, Clause 2 of the U.S. Constitution, the supremacy clause.

The U.S. Supreme Court reverses the Missouri Supreme Court in this decision by Justice Ginsburg. All Justices joined in the opinion with Justice Thomas concurring specially.

The Supreme Court holds that what preempts state law is not the policy or contract but rather the federal statute and regulations. The Supreme Court notes that a similar regulatory scheme (where policies are permitted to survive free of state law) has existed for a long time in such systems as ERISA. (Which doesn’t seem to recommend the solution very well in light of criticism by the Supreme Court over the years of ERISA’s excesses!)

The major controversy the Supreme Court dealt with had to do with the language of the provision dealing with federal preemption, 5 U.S.C. Sec. 89029m)(1), which calls for preemption with regard to provisions which “relate to . . . payments with respect to benefits.” Nevils argued that provision simply prevented the states from requiring federal employee health insurance policies to provide coverage for such things as chiropractor visits. The Supreme Court rejected that argument, saying it was Congress’s intent to apply the preemption to payment by the beneficiary or a tortfeasor to the health insurance company.

Justice Thomas wrote a brief but interesting concurring opinion. He suggests that a statute which permits the executive branch to enter into contracts which preempt state law might exceed the power of the President. He notes that he is not addressing the issue because Nevils did not raise the argument.

So, under this case, state law restrictions on subrogation are preempted. How does that effect lawyers in Oklahoma which doesn’t prevent health insurance subrogation? This decision can be expected to do away with the state-law based “make-whole” rule and rules requiring the subrogated health insurance company to pay its proportionate share of recovery costs, including attorney fees. We see almost daily ERISA plans which purport to say the health plan can take all of the recovery and leave the attorney who made the recovery without an attorney fee. Often, the ERISA plan which refused to agree to pay attorney fees and costs out of the recovery simply do not make a subrogation recovery because the lawyers don’t want to work for nothing! If this is the result in FEHBA cases, it may not benefit the government very well.

APPRAISAL

Payment of Appraisal Award by Insurance Company Not Bound by Appraisal Does Not Make Insured the Prevailing Party under 36 O.S. Sec. 3629B - Hayes Fam. Trust v. State Farm Fire & Cas. Co., 845 F.3d 997 (10th Cir. 2017)  

Hayes Fam. Trust v. State Farm Fire & Cas. Co. [8] holds that payment of an appraisal award by an insurance company which is not bound by the award does not make the insured the prevailing party so as to be entitled to the benefits of 36 O.S. Sec. 3629B. 

The Hayes family trust had a property damage claim against its insurance company, State Farm. The parties were unable to agree on the amount of damages. State Farm offered $150,000 and the trust demanded appraisal under the statutory fire policy. When the parties were unable to agree on a third, neutral appraiser, the trust filed in state court to ask the court to appoint one. State Farm removed the case to federal court. 

The federal court, Judge Cauthron, in the Western District, appointed a neutral appraiser and administratively closed the case. The appraisers returned an award of $347,254. The trust asked the trial court to reopen the case and confirm the award. State Farm (perhaps fearing a bad faith claim) paid the amount of the award by a check, which the trust cashed. The trust then moved for attorney fees, costs and interest under 36 O.S. Sec. 3629B. Judge Cauthron ruled that the trust’s acceptance of State Farm’s check concluded the case and declined to award the Section 3629B benefits. The trust appealed. 

The 10th Circuit Court of Appeals affirmed, in an opinion by Chief Judge Tymkovich. Much of the opinion deals with federal procedural matters not pertinent to insurance law. What is pertinent to insurance law is that both Judge Cauthron and the 10th Circuit held that because State Farm, not having demanded the appraisal, was not bound by the appraisal award, so its payment, accepted by the trust, did not make the trust the prevailing party so as to be entitled to attorney fees, costs and interest under section 3629B. 

This peculiarity of Oklahoma law (the Court notes Oklahoma is alone in this regard) stems from an earlier state court opinion in Massey v. Farmers Ins. Gp., 1992 OK 80, 837 P.2d 880. That case holds that, because a statute, 36 O.S. Sec. 4801 (the statutory fire policy) requires the provision, it would be a constitutional violation of the right to trial by jury and access to the courts to bind a party to the outcome of the appraisal. However, one can waive a constitutional right and does so by demanding appraisal so the party demanding appraisal is bound by it but the other party is not.  

As a practical matter, the party not bound is usually the insurance company because the insurance companies know not to demand appraisal. The insureds often don’t and get caught in the trap of demanding appraisal. This appears to have cost an insured here some 3629B benefits, although the trust appears to have come out pretty well in the amount of the award.

OTHER INSURANCE CLAUSES 

Fire Loss Shared Pro Rata Based on Value of Loss to Specific Property Insured - Philadelphia Indem. Ins. Co. v. Lexington Ins. Co., 845 F.3d 1330 (10th Cir. 2017)  

Philadelphia Indemnity Ins. Co. v. Lexington Ins. Co. [9] holds that a loss insured by two policies should be paid pro rata by the two insurance companies on the basis of the amount of the loss where one policy insured only the one policy and the other insured a number of properties. 

The Tulsa public school district leased a school building to a charter school. The lease required the charter school to insure the building with a policy naming the school district as loss payee. The charter school bought a policy on the school with a $7 million policy limit from Philadelphia Indemnity. The district already had the building insured along with more than 100 other buildings the district owned for a $100 million limit with Lexington Insurance company. The school burned.  

The two insurance companies could not reach agreement as to how much each company should end up paying but, between the two of them, paid a total loss for the school building of $6,014,359.06. Then, Philadelphia sued Lexington in the Northern District federal court for a declaratory judgment of how much of the loss each insurance company should bear. 

Lexington argued that Philadelphia had no standing to sue it for declaratory judgment because Philadelphia had no contractual relationship with Lexington. It also argued Philadelphia should bear the whole loss because its coverage was more specific than was Lexington’s. Philadelphia argued Lexington should bear almost all of the loss because the loss should be shared on the basis of the ratio between Lexington’s $100 million and Philadelphia’s $7 million limits. 

The Court, Judge Dowdell, in the Northern District, held Philadelphia had standing and that the $6 million plus loss should be paid in the ratio of Philadelphia’s $7 million limit and the $6 million plus loss, causing Philadelphia to pay 54% and Lexington to pay 46%. Both insurance companies appealed. The 10th Circuit Court of Appeals affirmed in this opinion by Judge Matheson. 

The Court made short work of Lexington’s argument that Philadelphia had no standing. There was certainly a case or controversy over the coverage, which a declaratory judgment was appropriate to resolve.  

Moving on to the merits, the Court recognized that the controlling Oklahoma authority on other insurance clauses is Equity Mutual Ins. Co. v. Spring Valley Wholesale Nursery, Inc., 1987 OK 121, 747 P.2d 947, and applied the rules established in that case to resolve this one. The Court concluded Philadelphia’s coverage on the one school bought by the charter school was not more specific and that the other insurance clauses of the two policies were virtually identical so proration was required. The Court also rejected an argument that a provision in the lease requiring the charter school to provide coverage did not alter the rules of policy interpretation.   

In determining the ratio to be applied, the Court noted that there was a policy provision in Lexington’s policy that “In the event of a loss” the company’s liability would be limited to the “least of” several options, one of which was “the actual adjusted loss.” This lead the Court to select the $6 million plus total loss figure as the factor to be used in determining the proration and arrived at the near 50-50 split of the loss. 

This was a 2 to 1 decision by a three-judge panel. Judge McHugh concurred in part and dissented in part. He would have reached a pro rata division by applying the $7 million and $100 million policy limits and made the larger policy pay the lion’s share of the loss.  

This is a pretty dense opinion. Its principle use to most of us will be as a “go to case” to be cited in federal courts on other insurance clauses.

PROFESSIONAL LIABILITY (NOTICE)   

Lack of Notice Defeats Liability Coverage – Attorney Fees Cut - Thames v. Evanston Ins. Co.,2015 WL 3398149 (N.D. Okla. May 26, 2015)  

Thames v. Evanston Ins. Co. [10]holds lack of notice to the liability insurance company defeats coverage and attorney fees can be cut, but not arbitrarily.   

A title company went broke and misappropriated about $100,000 wired to it to close a real estate purchase. The purchaser sought and got a temporary restraining order to freeze the company’s escrow account but there was only small amount there. The title company’s lawyer notified the title company’s professional liability carrier of the TRO but not of the filing of the later lawsuit to get judgment for the purchaser’s losses. 

The title company’s owner and the title company defended the lawsuit without notifying the professional liability carrier. The owner took bankruptcy but was denied a discharge because of the nature of the liability. The title company and owner offered to confess judgment, again without notifying the carrier. The purchaser accepted the offer to confess and took judgment for $120,000 and filed this garnishment against the liability carrier, which removed it to federal court. 

The federal court, Magistrate Judge Paul Clear, in the Northern District, granted the carrier summary judgment, based on lack of notice, and awarded the carrier attorney fees. The purchaser appealed and the carrier cross-appealed, due to reductions to the attorney fee awarded. 

The 10th Circuit affirmed the denial of coverage on the summary judgment but affirmed in part and reversed in part the attorney fee award. There was unquestionably no notice of the suit in which the $120,000 judgment was awarded, and the carrier was prejudiced by the lack of notice since it could not defend. Both courts rejected the purchaser’s argument that the notice to the carrier of the TRO hearing was sufficient notice to the carrier, the policy required notice to the carrier of all papers and notices of a suit. 

The 10th Circuit affirmed the trial court’s decision reducing the attorney fee award for travel time by the Oklahoma City firm the carrier hired to defend the suit in Tulsa. There was no showing that it was necessary to hire Oklahoma City counsel, so it was within the Court’s discretion to deny attorney fees for the travel time.  

There was sharp dispute about the number of hours charged by the carrier’s lawyers. The purchaser complained that his lawyer expended 621 hours while the carrier’s lawyers billed 832 hours. There were also claims of duplication of effort based on the number of lawyers working on the case in the firm. The trial judge resolved the controversies by cutting the bills by 12%. He cited a 2nd Circuit case justifying a percentage decrease, as opposed to a line-by-line review of the billing entries. The 10thCircuit said it did not insist on a line-by-line review but wanted to see something more definite than an arbitrary percentage rate reduction. 

HOMEOWNER’S INSURANCE 

Homeowners Policy Did Not Cover Damages for Improper Relationship of a Teacher With a Student - State Farm Fire and Cas. Co. v. Dawson, 687 Fed. Appx. 740 (10th Cir. 2017)(unpublished)   

State Farm Fire and Cas. Co. v. Dawson [11]holds a teacher’s homeowner’s liability policy does not cover damage to a student arising from the teacher having an improper relationship with a student.  

Dawson, insured by a State Farm homeowner’s policy, was accused of having an improper relationship with a female student, including having solicited nude pictures of her. Her parents found out and the teacher was criminally charged and sued civilly. State Farm defended the civil suit under reservation of right and filed this declaratory judgment action against the teacher and the girl, for a declaration there was no coverage. 

The Court, Judge Vicki Miles-LaGrange in the Western District, granted State Farm summary judgment. Dawson appealed. The 10th Circuit Court of Appeals affirmed, in this opinion by Judge McHugh. Both courts found there was no coverage because there was neither bodily injury nor property damage flowing from the alleged, improper behavior. 

The policy defined “bodily injury” as “physical injury, sickness, or disease to a person.” The policy excludes from the definition of bodily injury “emotional distress, mental anguish, humiliation, mental injury, or any similar injury unless it arises out of actual physical injury.” There just was no evidence of such physical injury. 

The policy defined “property damage” as “physical damage to or destruction of tangible property, including loss of use.” There was no evidence or claim of damage to tangible property. Both courts rejected the argument that the girl had and lost a property interest in being able to graduate from her high school when she had to drop out of school and finish high school online. That right, even if a property right, was not a “tangible” property. 

ERISA   

Administrator Who Misadvised Employee as to Effective Date of Life Insurance Benefit Was Not an ERISA Fiduciary So As To Render the Employer Liable for a Surcharge in the Amount of the Promised Coverage - Derryberry v. Pharmerica Corp., 2016 WL 5876128 (W.D. Okla. Oct. 7, 2016)      

Derryberry v. Pharmerica Corp. [12] holds an administrative employee who misadvised an employee of the effective date of a life insurance benefit was not an “ERISA fiduciary” so as to render the employer liable for a surcharge under ERISA.   

Mr. Derryberry began a new job with Pharmerica on December 2, 2013. He inquired about company-sponsored life insurance. Ms. Pollard, a Pharmerica employee, responded that he had 31 days within which to apply for benefits and that, with a hire date of 12/2/13, he needed to apply by 12/31/13. She wrote that his coverage would take effect 1/1/14. He enrolled on December 24, naming his wife as beneficiary.

In fact, the plan provided coverage would begin “on the first day of the month following 30 days after your date of hire.” That would make the coverage effective February 1, 2014. He died January 20, 2014.  The Court, Judge Robin Cauthron, in the Western District, held that the email from Ms. Pollard was not a part of the benefit plan so there was no coverage. Ms. Derryberry sought to surcharge the employer, arguing that Ms. Pollard, an agent of the employer, was an ERISA fiduciary so that her error in advising Mr. Derryberry of the effective date of the coverage would become the responsibility of the employer, Pharmerica.  

Judge Cauthron granted Pharmerica summary judgment, holding that an ERISA fiduciary had to have discretionary authority or control of the plan. She had no such control but rather was an administrative employee empowered only to communicate to employees information about the plan.

INSURABLE INTEREST

Summary Judgment Inappropriate Due to Fact Questions in Case of Car Gift - Safeco Ins. Co. of Am. v. Wiemer, 2017 WL 1397244 (Feb. 6, 2017) 

Safeco Ins. Co. of Am. v. Wiemer [13] holds summary judgment inappropriate in the case of a gift of a car.   

Safeco insured a car belonging to Mr. and Mrs. Dagenet. With Portra McAlister driving, there was a wreck. Safeco denied coverage on the ground that Mr. and Mrs. Dagenet had given the car to Porta McAlister before the wreck and that she had added it to her policy with Cornerstone National Insurance Company. (The case does not show the relationship between the Dagenets and Ms. McAlister.)       

Cornerstone paid some claims but insisted Safeco had coverage. Safeco filed this declaratory judgment action for a determination it did not and moved for summary judgment. The Court, Judge White, in the Eastern District, denied summary judgment.

Mr. Dagenet said he was going to give the car to Portra if she wanted it and that she was test-driving it at the time of the wreck. Safeco claimed the placing of coverage on the car by Cornerstone on Portra’s policy meant that the car belonged to Portra. However, the Court noted that the car was actually added to Portra’s policy after the wreck with the coverage back-dated to before the wreck. These fact questions precluded summary judgment.

BAD FAITH

Pleading Sufficient to Get Bad Faith Case Past Motion to Dismiss - Calvary Baptist Church v. Church Mut. Ins. Co., 2016 WL 543239 (W.D. Okla. Feb. 10, 2016)

Calvary Baptist Church v. Church Mut. Ins. Co. [14] holds an amended complaint was sufficient to get a bad faith case past a Federal Rule 12(b)(6) motion to dismiss. A church sued Church Mutual Insurance Company for bad faith handling of a property insurance claim. It is not completely clear what made the defense attorneys think the complaint was subject to a motion to dismiss. It alleged with some specificity what the insurance company did wrong in under evaluating a property insurance claim following a vandalism loss (air conditioners torn up to get copper out of them) and a roof loss with associated interior water damage.    

The Court, Judge Miles-LaGrange in the Western District, overruled a Federal Rule 12(b)(6) motion to dismiss. She recites at length the pleading spelling out the actions the church alleged were bad faith.

REMOVAL 

Reciprocal Insurance Exchange Cannot Remove a Case to Federal Court Because Some of its Members May Not be Diverse - McDonald v. CSAA Ins. Exch., 2017 WL 887108 (W.D. Okla. Mar. 6, 2017)  

McDonald v. CSAA Ins. Exch. [15] holds a reciprocal insurance exchange may not remove a case to federal court because it cannot meet the burden of proving that none of its members are citizens of the forum state.    

CSAA Insurance Exchange, along with its California incorporated insurance company removed from Logan County District Court a bad faith case in a dispute over earthquake coverage. The insureds moved to remand to state court. The Court, Judge Russell, in the Western District, ordered remand.

He noted that there is a presumption in favor of remand so that the party moving to remand has a heavy burden to prove diversity. If any member of the reciprocal exchange were to be an Oklahoma citizen, diversity would be defeated because the reciprocal is an unincorporated association. Any insured of the reciprocal would be a member.  

CSAA argued that there should be no Oklahoma insureds because the reciprocal is not licensed to write insurance in Oklahoma. The Court found that made no difference because an Oklahoma citizen or a limited liability company with an Oklahoma member could have bought insurance with the reciprocal in California.  

GOVERNMENT LIFE INSURANCE    

Life insurance Beneficiary Will Be Permitted to Amend Complaint to Resolve Beneficiary Designation Issue - Heskett v. Metro. Life Ins. Co., 2017 WL 1322230 (W.D. Okla. Apr. 10, 2017)  

Heskett v. Metro. Life Ins. Co.[16] holds that an incorrectly designated government life insurance beneficiary will be permitted to amend her complaint to attempt to prove a change of beneficiary naming her the beneficiary was sufficient. 

Ms. Heskett was the “domestic partner” of Mr. Lassiter. When he died, she attempted to claim his Federal Employee Group Life Insurance (FEGLI) pursuant to a beneficiary designation he attempted to make. Metropolitan Life Insurance Company (Met Life) instead paid the proceeds to Mr. Lassiter’s children by a prior marriage pursuant to a 2013 beneficiary 2016 

Ms. Heskett filed suit against Met Life and the 2013 beneficiaries, alleging state law violations. She apparently did not know that FEGLI preempts state law. Met Life moved to dismiss her case and asked that she not be permitted to amend because it argued FEGLI requires strict compliance with beneficiary designations. Among other things, FEGLI requires that the beneficiary designation go to his employment office and not to the company, as was done here.  

The Court Judge Cauthron in the Western District sustained the motion to dismiss, with prejudice as to the children and as to all claims except to determine whether the 2016 beneficiary designation was sufficient to meet the FEGLI standards. Judge Cauthron rejected Met Life’s claim that the 2016 beneficiary designation was void because Mr. Lassiter’s name was misspelled. The Court said she knew of no law that said a scrivener’s error will invalidate a beneficiary designation. 

SGLI Insurance Company Not Subject to Section 3629B Consequences When It Was Willing to Pay But Had to Delay Due to Criminal Investigation - Brock v. Prudential Ins. Co. of Am., Inc., 2017 WL 1147771 (N.D. Okla. Mar. 27, 2017)   

Brock v. Prudential Ins. Co. of Am., Inc. [17] holds a Serviceman’s Group Life Insurance (SGLI) company is not subject to the interest and attorney fee provisions of 36 O.S. Sec. 3629B where the company was prepared to pay benefits but had to delay because of a criminal investigation by the Army’s Criminal Investigation Division (CID).  

Army Sergeant Carl Brock had named his brother, Paul Brock, the beneficiary of his $400,000 SGLI policy. Then, there was electronically submitted to the insurance company (Prudential) a change of beneficiary naming Irene Brock (presumably his wife). Then he was killed. The Army CID said the change of beneficiary had never been signed by Sergeant Brock (a requirement for a change of beneficiary of a government life insurance policy) and that CID was investigating Ms. Brock’s possible involvement in his death. CID asked prudential to hold off on payment pending the investigation.

Within a month of the conclusion and report of the investigation, but after Paul Brock had filed suit, Prudential paid the $400,000 death benefit plus a small amount of interest based on a formula Prudential uses in paying interest on benefits. Paul Brock claimed interest at 15% per annum, pursuant to 36 O.S. Sec. 3629B and argued he was entitled to judgment against Prudential because it had breached its contract (the policy) by the delay in payment.

The Court, Judge Dowdell, in the Northern District, granted Prudential summary judgment. He found under the circumstances, the delay in payment was not a breach of the contract so there would be no judgment. There being no judgment, he was not the prevailing party so no interest under Sec. 3629B was due.

MEDICAL MALPRACTICE COVERAGE

Court Accepts Jurisdiction in Med-Mal Declaratory Judgment Case But Holds Part of Action in Abeyance Pending State Court Trial of Underlying Case - Fair Am. Ins. and Reinsurance Co. v. Stewart, 2017 WL 1227939 (N.D. Okla. Mar. 31, 2017) 

Fair Am. Ins. and Reinsurance Co. v. Stewart [18] holds the court has jurisdiction of a medical malpractice coverage declaratory judgment action but that the court should decide only the issues as to which there are no factual disputes and hold in abeyance the issues which will be involved in the state court tort trial. 

A psychiatrist insured by Fair American was accused of sexual misconduct with patients and gave up his medical license rather than face a hearing before the medical board. Two women made claims and filed lawsuits, carefully avoiding reference to the doctor having sex with them but alleging misuse of the “transference” phenomenon.

Fair American filed this federal declaratory judgment action for a declaration it had no coverage or that, if it did, its coverage is limited to $25,000 per claim due to a provision saying if sexual misconduct is claimed, then all coverage under the policy is reduced to $25,000.

The defendants (the two women and the doctor) filed motions to dismiss and Fair American filed a motion for summary judgment. The Court, Judge Kern, in the Northern District, analyzed the claims and the evidence and concluded there was jurisdiction for a declaratory action but, to minimize federal court interference with the state court proceedings, he should decide only the issues as to which there is no factual disagreement and hold in abeyance the other issues which will be involved in the state court trial.

He entered declaratory judgment there is no coverage of punitive damages or for the tort of outrage and no coverage for any events before the policy’s retroactive date. As to the other issues, he stayed those to be brought back to the Court, if necessary, after the state court trial.

BAD FAITH

No suit for negligence against an insurance adjuster or appraiser; Bad faith petition failed to survive federal court motion to dismiss - Hightower v. USAA Cas. Ins. Co., 2017 WL 1347689 (N.D. Okla. Apr. 7, 2017) 

Hightower v. USAA Cas. Ins. Co. [19] holds there can be no bad faith claim nor a negligence claim against an insurance adjuster or appraiser for an insurance company so joining the adjuster did not prevent removal to federal court and that a bad faith petition failed to survive a federal court motion to dismiss. 

The insured sued in a state court on a roof loss to a home. He joined with the suit on the policy claims for bad faith and intentional infliction of emotional distress against the insurance company and a negligence and bad faith claim against the insurance adjuster, who he claimed undervalued the claim. The insurance company removed the case and moved to dismiss. Plaintiff moved to remand.

The Court, Judge Dowdell, in the Northern District, dismissed the claims against the insurance adjuster and held this created diversity so he overruled the motion to remand. He held that the controlling Oklahoma law, Trinity Baptist Church v. Brotherhood Mut. Ins. Services, LLC, 2014 OK 106, 341 P.3d 75, preclude a tort suit against the adjuster because the adjuster owes a duty only to the company he represents and not to the insured. The Court summarily rejected the plaintiff’s argument that this adjuster was an appraiser, not an adjuster. The Court said it didn’t matter what term you use; the result is the same. 

The Court also made short work of the intentional infliction of emotional distress claim, citing the Oklahoma cases holding intentional infliction requires conduct so outrageous and extreme as to go beyond all bounds of decency and be regarded as atrocious and intolerable in a civilized society. The Court evidently didn’t think a dispute over an insurance claim rose to that level.

The Court sort of got on a roll in dealing with these issues and went on to sustain the motion to dismiss the bad faith claim, which seemed to have been pleaded with the particularity which Judge Dowdell found sufficient in other bad faith cases. See, for example, Langager v. Massachusetts Bay Ins. Co. 2017 WL 3586862.

CANCELATION

Cancelation Requires Only That The Insurance Company Mail, Not That The Insured Receive, Cancelation Notice - Rumery v. The Travelers Home & Marine Ins. Co., 2017 WL 1273997 (N.D. Okla. Mar. 31, 2017)    

Rumery v. The Travelers Home & Marine Ins. Co. [20] holds that an insurance company need only mail cancelation notice to the insured and that there is no requirement that the insured receive the cancelation.   

The insured bought coverage on several cars. He replaced one of the cars with a newer car, for an increased premium. The agent told the insured he did not know exactly how much the new premium would be and that the insurance company would bill him. Travelers produced proof that it mailed a notice but the insured, who testified he had trouble getting his mail did not get it. Neither did he get a cancelation notice. 

After the policy was canceled, the insured had a one-car wreck and made a claim for property damage. Travelers denied the claim and the insured sued on the policy and for bad faith. Travelers removed the case to federal court and moved for summary judgment, which the Court, Judge Dowdell, in the Northern District, granted. 

The policy and the state law require only that the cancelation notice be mailed to the insured, not that the notice be received. The insured’s testimony that he did not receive the notice didn’t invalidate the cancelation, particularly in light of the insured’s testimony he had trouble with his mail being put in someone else’s mail box. 

It is interesting to speculate about whether, absent the testimony about trouble getting his mail, an argument could have been made which would get the case past summary judgment. There is a presumption of non-mailing from testimony of non-receipt. However, the testimony required to trigger that presumption has to be pretty strong that the insured always got mail addressed to him. 

When I get one of these cases, I always check to see whether the bank or other financer of the car got a copy as well as checking to see if the agent did. If they didn’t, there’s a pretty good chance you can prove non-mailing. If they did, you probably have better cases in your office to work on. 

ERISA

ERISA Claimant Should Be Given Opportunity to Exhaust Administrative Appeals - Unum Life Ins. Co. of Am. v. Stearman, 2017 WL 1476162 (W.D. Okla. Apr. 24, 2017)  

Unum Life Ins. Co. of Am. v. Stearman [21] holds an ERISA beneficiary to a death benefit would be given an opportunity to exhaust ERISA administrative remedies.  

A dispute as to who was the proper beneficiary of an ERISA death benefit resulted in Unum Life interpleading the death benefit. One of the claimants (Ms. Stearman) counterclaimed asserting in addition to the death benefit, an accidental death benefit was due. Unum denied that the accidental death benefit was due.

The Court, Judge DeGiusti, in the Western District, held a scheduling conference and determined that UNUM was correct and that Ms. Stearman had not exhausted administrative remedies. He held the case in abeyance to give her time to exhaust the administrative appeals.

The Court discussed the nature of the exhaustion of remedies issue. He says it is not a contractual doctrine but rather is a judicial doctrine stemming from the fact that ERISA employs an administrative system, in which a record is made for court review, rather than the usual procedure of the courts s making the record, citing 10th Circuit and Western District cases.

The parties addressed concerns about the effect of the delay on standing and statute of limitations issues and resolved the problem by UNUM stipulating not to raise these issues until after the Court resolves the issue of who is the proper beneficiary.

PROFESSIONAL LIABILITY  

An Assertion in a Suit But Not Asserted As A Separate Claim Creates the Possibility of Recovery Under a Professional Liability Policy and Requires Defense - Schwegman v. Contl. Cas. Co., 2017 WL 1826697 (N.D. Okla. May 5, 2017)       

Schwegman v. Contl. Cas. Co. holds that an assertion of damages flowing from professional negligence in a suit but not as a separate claim creates the possibility of recovery under a professional negligence policy and may require defense.  

Schwegman, an insurance agent, sold a painting contractor a disability policy for his painting business. Later, the painting contractor gave up his painting business and entered into a partnership with Schwegman to sell insurance. Because the painter no longer had employees, the disability policy was cancelled because he was the only insured.  

The new insurance business did not go well and Schwegman and his partner, the painter, had a falling out. The painter sued Schwegman for damages from the business deal clearly not covered by Schwegman’s Professional Liability policy with Continental. In discovery in the business dispute lawsuit, the painter was asked about his complaints about Schwegman and the painter complained about the sale and loss of the disability policy. 

Schwegman contacted Continental and asked Continental to defend him in the business lawsuit. Continental declined, looking only to the pleadings which involved strictly business issues. Schwegman and the painter settled their business suit and Schwegman sued Continental for his defense costs and bad faith. Continental removed to federal court and moved to dismiss. 

The Court, Judge Eagan, in the Northern District, treated the motion to dismiss as a motion for summary judgment and overruled Continental’s motion. Judge Eagan saw the issue to be: 

Whether, under Oklahoma law, a lawsuit in which the plaintiff asserts damages, but not a separate claim, arising from professional negligence creates the possibility of recovery under a professional negligence insurance agreement.

The Court holds it does and notes Utica Mut. Ins. Co. v. Voyles, 277 Fed.Appx. 809, 812 (10th Cir. 2008) says Oklahoma requires the court to look beyond the four corners of the pleading to determine whether a duty to defend exists.

The Court overrules the Motion both as to the contract action and the bad faith case. This could be a very important coverage case.

COMPANY LIABLE ON POLICY

Motion to Case Dismiss Granted, Even When Company Seeking Dismissal Had Said It Wrote the Policy - Richie v. Fed. Ins. Co., 2017 WL 1843710 (N.D. Okla. May 8, 2017)

Richie v. Fed. Ins. Co. [22] holds that dismissal on the ground the company sued didn’t write the policy is proper even when the company said in a letter to the insured that the insured was covered by that company.

Plaintiff said he bought a homeowner’s policy from Chubb but that the policy was issued by Great Northern. In response to a motion to dismiss from Chubb, the insured filed a letter from Chubb, referring to “renewal of your insurance policy with Chubb” which said “Relax, you’re insured by Chubb.”

The Court, Judge Payne, in the Northern District, sustained a motion to dismiss, saying the policy shows, despite the letter, that the policy was written by Great Northern. Apparently, he thinks Chubb was just kidding!

TRANSPORTATION LIABILITY INSURANCE

MCS90 Endorsement to Truck Policy Does Not Permit Reduction of Pollution Limits - Envtl. Cleanup Inc. v. Ruiz Transport, LLC, 2017 WL 2080270 (W.D. Okla. May 12, 2017)

Envtl. Cleanup Inc. v. Ruiz Transport, LLC [23] holds a transportation insurance company cannot avoid the effect of an MCS90 endorsement by reducing the policy limit applicable to pollution.

A truck belonging to Ruiz Transport, insured by Global Hawk Insurance Company, was hauling a load of transformers from Mexico to Kansas when it overturned, spilling hundreds of gallons of transformer oil and diesel fuel. Environmental Cleanup, Inc. incurred $112,000 in cleanup costs from the spill. It billed Global Hawk, which paid the $10,000 it said was the pollution policy limit of its policy.

Environmental Cleanup sued Ruiz and Global Hawk, arguing the Global Hawk policy had to have an MCS90 endorsement, required by the Motor Carrier Act of 1980 (MCA) 94 Stat. 793 and that the endorsement required limits of at least $750,000. The Court, Judge Russell, in the Western District, agreed with Environmental Cleanup and granted it summary judgment.

The purpose of the MCS90 endorsement was to prevent abuses in which insurance companies would write policies but deny coverage where the insured used trucks other than those described in the policy. The endorsement required that the coverage apply to any truck being used under the truckers’ permit and required minimum limits of $750,000.

Judge Russell notes that, under the MCA, if the insurance company is required to pay money it would not be required to pay but for the statute, it can recover the money from the trucking company. That is true, of course, only to the extent the trucking company has assets.

The insurance company relied on Carolina Casualty Ins. Co. v. Yeates, 584 F.3rd 868 (10th Cir. 2009). That case held that the endorsement did not require payment where another insurance company (State Farm) had and paid a $750,000 limit and the Carolina Casualty policy did not cover the truck involved. The 10th Circuit held in that case that Carolina Casualty Company did not have to pay a second, $750,000 limit. Here, only $10,000 was available, absent the applicability of the endorsement.

DECLARATORY JUDGMENT

Court Exercises Discretion in Favor of Retaining Declaratory Judgment (As Opposed to Abstaining) But to Permit Insurance Company to Respond to Unexpected Argument by Filing Another Motion for Summary Judgment - James River Ins. Co. v. Blue Ox Dance Hall, LLC, 2017 WL 2367052 (N.D. Okla. May 31, 2017)

James River Ins. Co. v. Blue Ox Dance Hall, LLC [24] holds the court should retain declaratory judgment action and not abstain but will give the insurance company another chance to respond to an unexpected argument by allowing it to file another declaratory judgment action.

Blue Ox Dance Hall, LLC apparently runs some pretty rough night clubs. On at least three occasions, its bouncers ejected patrons and are claimed to have injured them in the process. James River Insurance Company issued a liquor liability and comprehensive general liability policy covering Blue Ox. Instead of attempting to exclude assault and battery from coverage, James River wrote a provision which reduced the limit for assault and battery coverage to $25,000/$50,000 and provided claim costs, including defense, would be deducted from the 25/50 policy. The result is, of course, that there is no assault and battery coverage.

James River sued the three sets of plaintiffs in federal court for a declaratory judgment that the provision applied and was valid. The Court, Judge Eagan, in the Northern District, partially granted and partially sustained a partial motion for summary judgment. The Court looked at the considerations courts should consider in determining whether to abstain or take up a declaratory judgment action and concluded it should retain jurisdiction and not abstain.

In an interesting development as to which there does not appear to be any precedent, the defendants in the DJA (Blue Ox and the plaintiffs in state court cases against Blue Ox) argued that the provision reducing the limit by defense costs was contrary to an Oklahoma Insurance Department Regulation, Oklahoma Administrative Code Sec. 365:15-1-15. That regulation provides that no policy can be reduced by defense costs. The Commission may waive the regulation, but the policy must be prominently placarded to show the provision. None of that happened here.

After the defendants raised the regulation in responses to the motion for partial summary judgment, James River replied that, as a non-admitted or surplus lines carrier it need not comply with Oklahoma insurance regulations but does not seem to cite any authority in support of that somewhat startling proposition.

The Court concludes that the briefing on that issue is not very complete and, instead of sustaining or overruling the motion, deferred a ruling and suggested the insurance company could file another motion to raise the issue. This could be an interesting decision.

COMPANY LIABLE ON POLICY

Motion to Dismiss Improper Where the Claim the Wrong Company is Sued Rests on a Document Not Before the Court - Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co., 2017 WL 2569521 (N.D. Okla. June 13, 2017)

Ranchers Pipe & Steel Corp. v. Ohio Sec. Ins. Co. [25] holds a motion to dismiss is not proper where the claimed basis that the wrong insurance company was sued is a document not in the record or before the court.

This is one of a number of cases in which the insured thinks he is buying coverage from one company but ends up getting coverage with another company, usually another company in the same group. Usually these problems get resolved by a substitution of parties, but we have seen several lately where the court had to resolve the issue,

Here, the insured in a commercial roof claim case thought their coverage was with Liberty Mutual. After the roof loss, the insured sued both Liberty and Ohio Security, apparently due to some doubt which one was the correct carrier. Liberty moted to dismiss based on a “Policy Change Endorsement” apparently changing the name of the insurance company. The Court, Judge Dowdell in the Northern District, overruled the motion to dismiss, noting that he could, but chose not to, convert the motion to dismiss to a motion for summary judgment so he could consider the change endorsement. He invited the insurance company to raise the issue again on a summary judgment motion. That sounds like an issue the parties ought to work out.

BAD FAITH

No Bad Faith Claim Where Insurance Company Had a Hired Expert Supporting Its Position Claim Was Not Covered - Hamilton v. Northfield Ins. Co., 2017 WL 2656150 (June 20, 2017)

Hamilton v. Northfield Ins. Co. [26] holds that a fact dispute as to the cause of a roof and water loss precluded summary judgment for the insurance company on the policy claim but that the fact that the insurance company was able to hire an expert who supported its position made summary judgment for the insurance company on the bad faith claim appropriate.

The insured claimed damage to is commercial building due to a windstorm loss which damaged the roof and resulted in water damage to the interior of the building. The adjuster said the roof damage and resulting water damage was not due to wind but rather was the result of roof deterioration. The roofer said the loss was caused by wind damage. The insurance company hired one of the usual engineering firms to testify the insurance adjuster was right. During the dispute over the claim, the insurance company declined to renew the insured’s coverage.

 The insured sued on the policy and for bad faith and filed a Daubert motion to exclude the testimony of plaintiff’s expert. (It is not clear from the case report whether this is the roofer or a hired expert.) The insurance company argued that, without the expert’s testimony, there was no proof of a covered windstorm loss so it was entitled to summary judgment. The Court, Judge White, in the Eastern District, overruled the insurance company’s Daubert motion and, as a result, overruled the motion for summary judgment on the coverage.

Then the Court took up the insurance company’s motion for summary judgment on the bad faith claim. The Court held that, even if both the adjuster and the hired expert were wrong, the strongest claim that would establish would be negligence, which is not enough to support a bad faith and punitive damage claim. The Court seemed unimpressed by the insured’s argument that the non-renewal of the policy indicated bad faith. It dealt with the issue in a footnote without much comment.

DECLARATORY JUDGMENT

No Reason to Abstain From Declaratory Judgment Where Facts Decided Will Be Different Than Those In The Underlying State Court Action - Mesa Underwriters Specialty Ins. Co. v. Marquez, 2017 WL 2990284 (N.D. Okla. July 13, 2017)

Mesa Underwriters Specialty Ins. Co. v. Marquez [27] holds the court need not abstain from issuing a declaratory judgment where the facts being decided in the DJA will be different from the facts to be decided in the state court action.

Mr. and Mrs. Marquez and their company, Psycho Path ran a Halloween “haunted house” to which they charged admission. Bradyn McClain was killed at the haunted house. His mother, Lisa McClain, sued the Marquez’s and Psycho Path, who had liability coverage with Mesa Underwriters. Mesa Underwriters filed a declaratory judgment action against the Marquez’s, Psycho Path and Mrs. McClain. All the defendants moved to dismiss.

The Court, Judge Dowdell, in the Northern District, overruled the motion as to all but one defendant. He dealt at length with the issue whether the court in the DJA should abstain in deference to the state court, in which the tort action was pending. He concluded the issues to be decided in the DJA were sufficiently different than the issues in the state action that there was no reason for abstention.

The opinion does not reflect the facts in detail, but the coverage issue revolves around whether Bradyn was an employee of Psycho Path so that his injury and death were within a policy exclusion. The defendants will claim he was an unpaid volunteer. Bradyn was killed when a barrel on which he was using a welding or cutting torch exploded. The issue in the tort suit is likely to be whether Psycho Path provided him a safe place to work.

Mrs. McClain objected to being joined in the DJA. The Court held she was properly joined but honored the insurance company’s representation that it would not object to her being dismissed “subject to recognition that [she] was provided opportunity to have her voice heard on the coverage issue and voluntarily declined such opportunity.” Based on that, the Court dismissed her without prejudice.

This is a puzzling position for her to take. The result will be that she will be bound by the coverage decision but will not be able to participate in the decision. It is also somewhat puzzling why defendants in DJA’s want the courts to dismiss them or abstain. That leaves them in a position to have to try the underlying case and then maybe find they have no coverage out of which to collect the judgment. Often, they would be better off having the coverage resolved in the DJA, following which they can decide whether to pursue the claim if they lose or maybe settle the claim if they win the coverage issue.

GENERAL LIABILITY – ANTI-INDEMNITY STATUTE

Anti-Indemnity Statute Precludes Duty to Defend Under Construction Contract and Policies Required by the Contract - BITCO Gen. Ins. Corp. v. Commerce and Industry Ins. Co., 2017 WL 835197 (W.D. Okla. March 2, 2017) 

BITCO Gen. Ins. Corp. v. Commerce and Industry Ins. Co. holds the anti-indemnity statute (15 O.S. Sec. 221) bars a duty to defend the owner and general contractor under a construction contract.

Parnon Gathering, Inc. (owner) hired IPS Engineering (general) as a general contractor for the construction of a pipeline. The General hired Global Pipeline Construction, LLC (welder) to do welding on the pipeline. On a hot, windy day during a drought, sparks from the welding caught dry grass on fire, resulting in a massive wildfire which caused enormous property damage. (The ultimate outcome, after a long jury trial in Payne County was a verdict for $6.5 million actual and $1.5 million punitive damages.) This case involves the attendant coverage litigation in federal court.

The construction contract required the welder to carry $1 million primary and $10 million excess liability coverage, naming the owner as an additional insured. BITCO satisfied that requirement with a policy naming the welder as named insured and the owner and general as additional insureds. While the opinion is not totally clear, apparently Commerce and Industry Insurance Company (Commerce) insured the owner and demanded BITCO assume the owner’s defense.

Bitco refused and filed this action against Commerce for a declaratory judgment that it had no obligation to defend, based on the Oklahoma anti-indemnity statute (15 O.S. Sec. 221). That statute forbids a construction contract to indemnify or require defense of a claim which is the fault of the indemnitee (which would be the owner here). This would lead one to believe the welder, who started the fire could be obligated to defend and indemnify the general and owner.

However, the Court says she has read the pleadings in the underlying lawsuits and, because the pleadings do not claim the owner or general are vicariously liable for the negligence of the welder, BITCO has no duty to defend and denies Commerce summary judgment on the issue.

Because the welder was held liable in the state court, it would seem the indemnity provisions will work themselves out. However, this or another court may need to work on the defense cost issue, which will be considerable.

Anti-Indemnity Statute Does Not Bar Insurance Requirement in Construction Contract Where Negligence Claimed is Not That of the Indemnitee - Bitco Gen. Ins. Corp. v. Wynn Constr. Co., Inc., 2017 WL 3470584 (W.D. Okla. Aug. 11, 2017)

Bitco Gen. Ins. Corp. v. Wynn Constr. Co., Inc.[28] holds the Oklahoma anti-indemnity statute (15 O.S. Sec. 221) does not bar a requirement in a construction contract for indemnity where the negligence alleged is in part not that of the indemnitee.

Wynn Construction Company (Wynn) and Nabholz Construction Services (Nabholz) entered into a construction contract. The case does not tell us anything about the nature of the contract or the relationship between the two companies. The contract required Wynn to carry commercial general liability (CGL) insurance designating Nabholz as an additional insured.

Apparently, Wynn and Nabholz were sued for some liability arising out of the performance of the contract. Wynn had CGL coverage with BITCO (formerly Bituminous Casualty Corporation). BITCO refused to defend Nabholz, on the ground that the contract between Wynn and Nabholz requiring indemnity violated the Oklahoma anti-indemnity statute (15 O.S. Sec. 221). BITCO sued Wynn and Nabholz for a declaratory judgment and Nabholz counter-claimed for judgment on the policy and for bad faith.

In this opinion the Court, Judge Miles-LaGrange, in the Western District, overrules BITCO’s motion to dismiss the counter-claim. First, the Court found that Sec. 221 applies because the contract was a construction contract covered by the statute. Further, the Court found that the exception to the prohibition on indemnification in Subsection A of the statute was not avoided by the provision in Subsection D that a project-specific policy was not within the statute’s prohibition. The Court found the BITCO policy was not “project specific” although there is no discussion of why that is so.

However, the Court overrules the motion to dismiss because she found the suit against Wynn and Nabholz sought recovery for the fault of both. Thus, the anti-indemnification statute was not violated because the statute only applies where the indemnification is for the fault of the indemnitee.

In a second order entered the same day, and reported under a different West Law Number -2017 WL 3470583, the Court sustained a motion to dismiss Wynn Construction’s counter-claim. The basis for the dismissal was that BITCO has defended Wynn throughout the litigation and has not refused to pay if damages are awarded against Wynn. For those reasons, there has been no breach of contract by BITCO and there can be no bad faith claim absent a breach.

CLASS ACTION

Lack of Commonality Precludes Class Action Over Life Insurance Reinstatement - Proctor v. Globe Life and Accident Ins. Co., 2017 WL 3585790 (W.D. Okla. Aug. 18, 2017)

Proctor v. Globe Life and Accident Ins. Co.[29] holds lack of commonality precluded certification of a national class against a life insurance company.

Oklahoma City-based Globe Life has sold life insurance throughout the United States since 1951. Proctor sued Globe Life asserting it had for many years followed a practice in dealing with reinstatement which violated a policy provision and which resulted in Globe retaining premiums paid to reinstate coverage but in which reinstatement did not occur. He sought to have a nationwide class certified.

The Court, Judge Vicki Miles-LaGrange, in the Western District, denied certification. She found that the fact there would be 50 different state laws applicable with, among other things, different statutes of limitation, prevented the commonality required by Federal Rule 23.

BAD FAITH

Motion to Dismiss Bad Faith Counterclaim No Good Where Insured Alleged Insurance Company Denied Claim Without Investigation by Filing the Dec Action - Massachusetts Bay Ins. Co. v. Langager, 2017 WL 3586862 (N.D. Okla. Aug. 18, 2017)

Massachusetts Bay Ins. Co. v. Langager[30] holds a counterclaim for bad faith is not subject to a motion to dismiss where the insured alleges the insurance company denied his UM claim with no investigation and no basis for denial by instead filing the declaratory judgment action.

 Langager was the driver of a delivery truck insured by Massachusetts Bay for UM coverage. He says he was injured in a wreck while occupying the truck. He sued for bad faith, saying the insurance company did not respond to his claim other than by filing the declaratory judgment action. The insurance company moved to dismiss the bad faith counterclaim.

The Court Judge Dowdell in the Northern District denied the motion. He said the factual allegations were sufficient to defeat a motion to dismiss.

GENERAL LIABILITY

“Particular Part” Exclusion Triggers “Business Risk” Exclusion Barring Coverage to Whole Structure for Negligence While Working on Foundation - MTI, Inc., formerly Midwest Towers, Inc. v. Employers Ins. Co. of Wausau, 2017 WL 3698492 (W.D. Okla. Aug. 25, 2017)

MTI, Inc., formerly Midwest Towers, Inc. v. Employers Ins. Co. of Wausau[31] holds an exclusion for damage to “that particular part of real property on which” you are working or that particular part “which must be restored, repaired or replaced” because your work was defective barred coverage for the whole of a cooling tower which fell due to the insured’s work negligently done on the foundation.

The insured, a tower construction company, contracted with an electric utility company to replace all the anchor bolts fastening a large water cooling tower. When the insured got the bolts removed, it did not have available the equipment to inject epoxy resin adhesive needed to hold the tower in place. So, for three days there were no bolts holding the cooling tower to the foundation. A wind storm came and moved the cooling tower enough that it leaned. It proved cheaper to replace it at a cost of about $1.5 million, than to repair it. The insured settled with the utility for $350,000 and sued its CGL carrier, Employers of Wausau to recover the money.

Employers denied coverage based on an exclusion for damage to that particular part of real property on which you are performing operations or that particular part of property that must be restored, repaired or replaced because your work was defective. These exclusions are the most recent iteration of the “business risk” or “faulty workmanship” exclusions. The term “business risk” arises because there is an inherent risk in doing business that the work the insured does or the goods the insured supplies will not be satisfactory to the customer. The insurance companies do not want to insure that risk and so seek to exclude it.

Often, as here, there is damage to the entire structure and not just to the part the insured built or supplied. That risk should be covered because it is not simply a cost of repairing or replacing what the insured did unsatisfactorily.

Here, however, the Court, Judge Russell in the Western District, granted summary judgment to the insurance company. He reaches that result somewhat strangely. He first notes that, in addition to the foundation repair, the insured contracted to replace some louvers higher up on the structure, which were not involved or connected to the foundation problem.

He then notes that Oklahoma has no case involving the “particular part” exclusion language and that there is sharp division around the country among courts which have ruled whether the clauses exclude coverage of the whole structure and not just to the work done by the insured. Some courts have held only damage to the part of the structure the insured built or repaired is excluded. Other courts hold damage to the whole structure and not just the part the insured works on is excluded.

He then notes that the rule in Oklahoma is that the insurance company has the burden to prove that an exclusion applies and that, if more than one interpretation of the policy is reasonable, the policy must be construed in favor of the insured and coverage.

Then he holds the exclusion is not ambiguous and that it precludes coverage for the damage to the entire cooling tower. Hopefully, when this issue hits the Oklahoma Supreme Court in another case, there will be a contrary result!

BAD FAITH

Summary Judgment Not Available as to Contract Claim But Fact Dispute as to Contract Case Precludes Bad Faith Claim - Harris v. Progressive Direct Ins. Co., 2016 WL 9022439 (W.D. Okla. Sept. 14, 2016)

Harris v. Progressive Direct Ins. Co.[32]. holds evidentiary disputes preclude summary judgment for the insured on the suit on the policy but that those same disputes indicate the insurance company had a good faith basis for denying the claim so summary judgment for the insurance company is appropriate on a bad faith claim.

The insured took her insured, commercial truck to a repair facility. Thieves broke into the facility and tried to steal the truck. They rammed the fence at the facility repeatedly with the truck, trying to get away with it but were unable to break out and abandoned the effort.

The insured made claim for body damage and engine damage she claimed were caused during the attempted theft. Progressive ultimately paid for the body damage but resisted paying for the engine repair, claiming the engine work was due to wear and tear. The policy provided wear and tear damage was excluded unless due to “theft of the vehicle.”

The insured sued on the policy and for bad faith and moved for summary judgment on the policy claim, arguing there was no question the engine problem was caused during the theft. However, Progressive presented an opinion by an expert who said he thought the damage pre-existed and was due to wear and tear before the theft.

The Court, Chief Judge Heaton in the Western District held the expert’s testimony created a dispute of fact which precluded judgment for the insured on the contract claim. However, he held the same conflict of evidence indicated a basis for a belief on the insurance company’s part that it had a basis for denying the claim and required summary judgment for the insurance company on the bad faith claim.

No Bad Faith Damages Attributable to Med-Pay Carrier Where Insured’s Lawyer Withheld Bills and Failed to Promptly Pay Med-Pay on Liens - Williams v. Allstate Fire and Cas. Ins. Co., 2016 WL 5745547 (W.D. Okla. Sept. 30, 2016)

Williams v. Allstate Fire and Cas. Ins. Co.[33] holds summary judgment for a med-pay carrier was appropriate where there was a delay in payment of med-pay but the insured’s lawyer withheld the medical bills from the carrier and then failed to promptly pay the med-pay on the medical liens and the insured’s damages were limited to emotional distress from bad credit.

The Allstate insured was injured in a car wreck in Texas in January of 2011. In September of 2011, the insured’s lawyer wrote a representation letter to Allstate in which he told Allstate not to disclose their coverage to anybody but the lawyer, not to pay anything to anybody without a request from the lawyer and not to put anybody on any checks issued except the insured and the lawyer. He followed this with a letter in November of 2011 telling Allstate he would furnish medical bills and records after the insured had completed treatment. In January of 2012, the lawyer supplied a signed proof of loss form but no medical bills. The insured testified the lawyer told him not to submit his bills to health insurance.

The lawyer finally submitted medical bills October 17, 2012. Allstate asked for an “exhaustion” letter, confirming there was no med-pay available on the car the insured was riding in, since Allstate’s med-pay would be excess to that coverage. On May 6, 2013, the lawyer spoke by phone with the adjuster and told her the car the insured was in was also insured by Allstate and that there was a letter confirming it had no med-pay. The lawyer said he would fax a copy of the letter but didn’t do so because he said when he looked at his file, it appeared he had earlier sent the letter. He didn’t tell Allstate he wasn’t going to send the letter. It ultimately turned out he had sent the letter earlier but with the wrong claim number on it and it got put in the wrong file.

The lawyer later explained in a deposition he didn’t want Allstate to pay the providers directly because he needed to “marshal” the available coverage to pay all the bills and that he had a ‘litigation strategy” to maximize the client’s recovery by accumulating the medical bills.

Allstate wanted an “independent” medical examination (apparently actually an examination by a doctor of Allstate’s selection). The lawyer insisted on attending the medical examination and videotaping it. Allstate was unable to find a doctor willing to do that, so it instead had a “peer review” of the medical records. This resulted in a finding the injury was a soft tissue one with a long gap in treatment. However, there were enough medical bills early in the claim to equal the $25,000 med-pay limit.

The lawyer filed suit to recover the med-pay and for bad faith on August 7, 2013. Allstate paid the $25,000 med-pay in September of 2013. The Court notes the check remained uncashed in the lawyer’s office until April of 2014. This delay appears to have been because the lawyer was trying to negotiate reductions of the liens.

Allstate moved for summary judgment on the bad faith claim arguing the cause of the delay was the lawyer’s handling of the case and that there were no damages flowing from the bad faith but rather that whatever emotional distress damages (the insured’s only claim) were from the lawyer’s handling and not any bad faith on Allstate’s part.

The Court, Judge DeGiusti, in the Western District, exhaustively reviewed the evidence and determined he could not conclude there was no evidence to support bad faith on Allstate’s part in the delay but that none of the damages flowed from any act claimed to be bad faith. Since there were no damages from the bad faith, Allstate got summary judgment.

There are a lot of lessons here. To the extent that the lawyer lets the dispute be between the insurance company and the lawyer, the client is not going to come out well. The decision not to submit the bills to health insurance, probably an attempt to avoid the effect of 12 O.S. Sec. 3009.1 (the “paid v. incurred” statute) was almost certainly a mistake. The practice of holding back medical bills was also a bad choice.

Allegation of Bad Faith Complaint Sufficient to get by Federal Rule 12(b)(6) Motion to Dismiss - Thomas v. Farmers Ins. Co., Inc., 16-CV-17-TCK-PJC, 2016 WL 5794760 (N.D. Okla. Oct. 4, 2016)

Thomas v. Farmers Ins. Co., Inc.[34] holds a state petition in a case removed to federal court is sufficient (although just barely) to get past a Federal Rule 12(b)(6) motion to dismiss.

This is a relatively common occurrence in which a lawyer files a case in state court where the rule of notice pleading under the Pleading Code still prevails, only to have it removed to federal court where the defense lawyer and the court are outraged that the state court petition does not meet the standards for federal court pleading set forth in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2007). Of course, the rule in Oklahoma is that when Oklahoma adopts a statute or rule, we adopt the court interpretations of the statute or rule bur not subsequent decisions which interpret or alter the rule. For that reason, Oklahoma has not adopted Twombly and Iqbal.

That appears to be the problem here. Plaintiff filed a bad faith case in state court. The insurance company removed it and then complained that the state court petition did not meet the federal pleading standard and moved to dismiss under Federal Rule 12(b)(6). This time, the Court, Judge Kern, in the Northern District held that the Petition was sufficient under the federal rule. He did however, take a swipe at the Plaintiff’s lawyer for arguing that the pleading should be tested by state standards since it was, after all, a state court pleading, filed in state court and removed to federal court. The federal cases are clear, although almost certainly ill-considered, that state court pleadings are to be tested by federal standards in a removed case.

BAD FAITH

Evidence Justifies Submitting Contract and Bad Faith Case to Jury - Trotter v. Am. Modern Select Ins. Co., 220 F. Supp. 3d 1266 (W.D. Okla. 2016)

Trotter v. Am. Modern Select Ins. Co.[35] holds that evidence of the settlement of a business tort case with a contribution by the insured justifies submitting the bad faith case to the jury and overruling the insurance company’s motion for summary judgment.

A substantial business tort case resulted from a family dispute. Brenton Trotter worked for his uncle at Trotter Overhead Doors. He left that employment and went out on his own, forming Trotter Doors. Thanksgiving and Christmas apparently became more exciting as Trotter and the two door companies soon became embroiled in litigation. The claims involved included use of the family name, advertising slogans and logos, trademark infringement, cybersquatting, violation of the Oklahoma Deceptive Trade Practices Act and unfair competition.

Trotter had a general liability policy with American Modern Select Insurance Company. Trotter hired a trademark and intellectual property specialist to defend him in the case and demanded a defense and indemnity from American Select. The insurance company agreed to pay the specialist and assigned two different teams of adjusters to oversee the litigation, one to handle the claim and the other the coverage issue. The insurance company concluded some of the claims were not covered but that others might be under the personal and advertising liability coverages.

The parties conducted an unsuccessful mediation. Then the court ordered the parties to a judicial settlement conference at which the case settled for $550,000, with $275,000 each contributed by the insured and the insurance company. After the settlement was reached at the settlement conference, American Modern’s coverage counsel refused to pay the $275,000 it had agreed to pay without a coverage release from its insured, an issue not discussed at the settlement conference. She later explained she assumed there would be a coverage release. The Court in the bad faith opinion notes that requesting a release beyond the subject matter of the settlement violates the Oklahoma Unfair Claim Settlement Practices Act. The insurance company later paid its part of the settlement but continued to seek a coverage release.

The insurance company sought summary judgment on both the contract and bad faith claims. Chief Judge Heaton denied the summary judgment finding enough evidence to submit the issues to the jury.

CLAIMS MADE POLICIES

Representation/Preservation of Evidence Letter Not Sufficient to Trigger Claims Made Coverage - Colony Insurance Co. v. Chesapeake Energy Corp., 215 F.Supp.3d 1190 (W.D. Oklahoma, September 28, 2016)

Colony Insurance Co. v. Chesapeake Energy Corp.[36] holds an attorney’s letter that he represents a client and asking the insured to preserve evidence about an accident was not sufficient to constitute a claim triggering coverage under a claims-made liability policy.

A drilling company employee was hurt on a Chesapeake rig January 26, 2013. On February 6, 2013 Chesapeake got a letter from a lawyer saying he represented the injured man and asking Chesapeake to preserve records and evidence about the accident. Chesapeake did not at that time report the claim to Colony. Rather, it reported the claim to Colony on June 27, 2014.

Chesapeake had claims-made, excess liability policies with Colony covering the 2012-2013 policy year providing $2 million coverage in excess of $1 million. For the policy year 2013-2014, the year in which notice was given, an identical policy was in force but with limits of $1 million in excess of $2 million.

The policies provided claims would be covered (1) for which a claim is made during the policy period or (2) about which a “notice of circumstances” is given during the policy period. The notice of circumstances is what Chesapeake gave Colony in 2014.

The injury claim settled for a confidential amount, apparently more than $1 million but less than $2 million. Colony paid $847,829.90 of the settlement with Chesapeake paying the balance but Chesapeake and Colony reserved the issue of how much coverage existed. Apparently, Chesapeake had a self-insured retention (SIR) of $1 million for the 2012-2013 policy year and $2 million during the 2013-2014 policy year. Thus, which policy year’s policy would determine whether Colony owed any of the loss or whether the entire loss was within Chesapeake’s self-insured retention.

On cross-motions for summary judgment, the Court, Judge DeGiusti, in the Western District granted Colony summary judgment, holding that the coverage triggered under the circumstances was the $2 million SIR of the 2013-2014 policy year. He noted that the term “claim” was defined in the policy as “any demand or suit against any insured” and that this is consistent with the case law saying a claim is “an assertion by a third party that the insured may be liable to it for damages.” The representation and preservation letter does not qualify. Thus, it would appear that the entire loss will fall on Chesapeake.

This is a good case to know about when drafting representation letters when it might be important whether there is sufficient coverage.

COMPANY LIABLE ON POLICY

Insurance Company Not Entitled to Motion to Dismiss Due to Lack of Support - Summit Labels, Inc. v. Liberty Mut. Ins. Co., 2017 WL 3881768 (N.D. Okla. Sept. 5, 2017)

Summit Labels, Inc. v. Liberty Mut. Ins. Co.[37] holds Liberty Mutual was not entitled to a motion to dismiss where it did not support its motion with sufficient documentation.

Summit Labels bought a property insurance policy from Liberty Mutual. Liberty appears to have placed the coverage with its subsidiary company, Ohio Security Insurance Company. When there was a hail loss, Summit sued both insurance companies. Liberty Mutual filed a motion to dismiss, saying the coverage really was with Ohio Security and that Liberty was not properly named as a party.

The Court, Judge Kern, in the Northern District, overruled Liberty’s motion to dismiss. He noted that Liberty submitted 13 pages of a 192-page policy, which it said were the declaration pages of the policy. He says Liberty should have submitted the whole policy. He also notes that the declarations pages it did submit had the Liberty Mutual logo right next to the language that coverage is “provided in” Ohio Security. That is all insufficient, he says, to show that Liberty is not at all involved.

Perhaps there are cases in which it really matters which of several companies in an insurance group is the correct defendant to name. Most of the time, however, it would appear the courts and lawyers spend a lot of time and energy higgling over the issue.

DECLARATORY JUDGMENT

Court will exercise discretion in favor of declining to hear a declaratory judgment in favor of letting the issues be resolved in a suit by the insured against the insurance company - Harco Natl. Ins. Co. v. Roe, 2016 WL 8674625 (N.D. Okla. Sept. 30, 2016)     

Harco Natl. Ins. Co. v. Roe[38] holds that a court can and will sometimes exercise its discretion in favor of declining to hear a declaratory judgment action in favor of letting the same issues be determined in a suit by the insured against the insurance company.

In 2009, Timothy Roe was test-driving a commercial truck, accompanied by his minor daughter, Shelby Roe when they were hit by an uninsured or underinsured motorist. The truck dealer had $500,000 UM coverage on the vehicle with Harco National Insurance Company. Harco paid the whole $500,000 single limit policy to Timothy Roe for his injuries.

In 2014, Shelby Roe, now of age, made claim for her injuries. She claimed $31,000 in medical bills. Harco took the position it need not pay her anything, since it exhausted its policy limit paying her father’s claim. But, it didn’t tell her. Instead, Harco filed this declaratory judgment action in the Northern District, seeking a declaration it did not have any obligation to her. She almost immediately responded by filing her own action in Rogers County and moved to dismiss the declaratory action.

The Court Judge Payne in the Northern District, noted that the courts have discretion to decline to enter a declaratory judgment if the issues will be decided in another action. Harco objected that its case, filed before Ms. Roe’s, should the surviving case. Judge Payne apparently heeded her lawyer’s argument that he couldn’t have filed sooner because Harco never denied her claim until it filed the declaratory action.

This part of the litigation may be “much ado about nothing.” Harco has removed the Rogers County case to the Northern District, where it is assigned to Judge Payne. So, the issues will be tried in the same court by the same judge.

What will be exciting is the outcome of the merits of the case. Does a UM carrier have a duty to attempt to apportion limited policy proceeds among multiple injured claimants? Is it bad faith for the UM carrier to fail to do so? Stay tuned to this station!

 

DECLARATORY JUDGMENT – DUTY TO DEFEND

Liability Policy’s No Action Clause Does Not Preclude Declaratory Judgment Action to Establish Duty to Defend - Wilbanks Securities, Inc. v. Scottsdale Ins. Co., 215 F. Supp. 3d 1196 (W.D. Okla. 2016)

Wilbanks Securities, Inc. v. Scottsdale Ins. Co. holds a “no action” clause in a liability policy applies only to a suit by third parties and does not preclude a declaratory judgment by the insured to establish a duty to defend.

Wilbanks Securities was accused of financial irregularities and involved in an arbitration. It had a financial services professional liability policy with Scottsdale, which refused to defend Wilbanks in the arbitration. Wilbanks filed suit for a declaratory judgment that Scottsdale had a duty to defend the arbitration.

Scottsdale moved to dismiss, asserting the “no action” clause of the policy and its language: No suit may be brought against us “unless the obligation of the insured” has been finally determined by judgment. Of course, this would deprive the insured of its right to a defense of the action. Judge David Russell, in the Western District, held that was an invalid interpretation of the “no action” clause and that the no action clause applies only to suits by third-party claimants under the policy.

UM

No UM Subrogation Against The Underinsured Motorist’s Assets, Including The Proceeds Of An Underinsured Motorist’s Excess or Umbrella Liability Policy - Raymond v. Taylor, 2017 OK 80, __P.3d __

Raymond v. Taylor holds there is no UM subrogation against an underinsured motorist’s assets, including an excess or umbrella policy on the underinsured motorist.

Raymond and Taylor worked for Guy’s Seed Company. Both occupied a company vehicle which American Mercury insured with a single limit UM policy. They were in a bad wreck with a vehicle belonging to Blue Knight Energy Partners, which had a $1 million primary liability policy and a $40 million excess liability policy. There was an explosion. Taylor was killed and Raymond was badly hurt.

American Mercury promptly tendered its $1 million UM limit, paying $500,000 each to Taylor’s estate and to Raymond’s guardian. Raymond sued Blue Knight and its driver in Woodward County. Taylor’s estate intervened to assert its claim and American Mercury intervened to seek recovery of its UM payments.

Blue Knight’s liability carrier settled both cases for an undisclosed amount greater than the $1 million primary liability coverage but less than the $41 million total of its primary and excess liability coverage. Part of the terms of the settlement were that money be held in trust out of the settlement to pay American Mercury’s subrogation if the outcome of the controversy was that American Mercury had subrogation. American Mercury filed a motion to have its subrogation right against the settlement.

The trial court held that American Mercury had subrogation against the entire recovery. The Court of Appeals, Division III, affirmed. The Supreme Court reversed, in this five to four decision by Justice Watt. Justices Kauger, Edmondson, Colbert and Reif joined the majority opinion. Justice Combs wrote a dissent, joined by Justices Gurich, Winchester and Wyrick.

The basis for the majority’s decision that the UM carrier has no subrogation against assets of the underinsured motorist in excess of the primary liability coverage, including an excess policy, is the second sentence of 36 O.S. Sec. 3636(F):

Provided, however, with respect to payments made by reason of the coverage described in subsection C of this section, the insurer making such payment shall not be entitled to any right of recovery against such tort-feasorin excess of the proceeds recovered from the assets of the insolvent insurer of said tort-feasor.

This somewhat strange opinion culminates a string of earlier Supreme Court opinions dealing with the relationship between the insured’s UM coverage and an excess or umbrella liability policy. Moser v. Liberty Mut. Ins. Co., 1986 OK 78, 731 P.2d 406 held that no offer of UM coverage was required in conjunction with the writing of an excess or umbrella liability policy. Rather, the “liability policy” requiring a UM offer referred only to a primary liability policy.

Moser was followed by GEICO Gen. Ins. Co. v. NPIC,2005 OK 40, 115 P.3d 856. GEICO held that where there is an excess or umbrella policy on the tortfeasor, the UM carrier’s exposure is triggered when the insured’s damages exceed the primary coverage. GEICO General has the effect of making the order of payment when there is an umbrella or excess liability policy the primary liability policy, then plaintiff’s UM and then the excess or umbrella policy. Raymond v. Taylor is just the logical next step in that line of cases.

The majority ties its decision directly to 3636(F) and from that to 3636(C) by saying:

¶15 As Title 36, Section 3636(F) specifically refers to subsection (C), it is clear that the insurer referred to is the same primary insurer who is either insolvent or with whom the tort-feasor is under-insured. There is no language in Section 3636(C) or (F) to indicate that the legislature contemplated UM carriers recovering from excess insurance policies of the tort-feasor. Instead, the legislature gave explicit instructions that UM carriers are not entitled to any right of recovery against the tort-feasor in excess of recovery from the insurer of the tort-feasor.

The majority refutes the argument by American Mercury and the dissent that the language of paragraph C refers only to the case where the tortfeasor’s liability carrier becomes insolvent by saying:

¶17 While Section 3636(C), was originally enacted with only language referring to insolvency, 1968 Okla. Sess. Laws 163-64, it was amended in 1979 to also include under-insured vehicles,1979 Okla. Sess. Laws 452-53. Then Subsection (E), now (F), was later amended in 1989 to clarify the reference to subsection (C),11 but did not limit the reference to any specific part of subsection (C), showing a legislative intent12 for this sentence, in what is now subsection (F), to apply to the entirety of subsection (C). 1989 Okla. Sess. Laws 211-12. Resolving the apparent conflict by having the reference in subsection (F) apply to the entirety of subsection (C) promotes the Legislature’s intent and is consistent with this Court’s tendency to protect the insured’s right to collect from the UM carrier.

The majority makes clear its intended outcome and rationale when it says:

We hold that under Section 3636(F), Mercury was limited to subrogation from the primary insurer and is not entitled to subrogation from any assets of the tort-feasor, including the excess liability policy.

The dissent argues that Subsection C, by its very terms applies only to the case of the insolvent liability carrier. It explains the logic of its decision:

¶8 . . . . Simply put, a tortfeasor’s liability insurer being unable to pay due to insolvency is not the tortfeasor's fault. In that context, it makes sense to limit subrogation to only the assets of the insolvent insurer of the tortfeasor, which is precisely what the second sentence of 36 O.S. 2011 § 3636(F) does. On the other hand, failure to carry sufficient liability insurance to meet a claim can easily be said to be a result of the tortfeasor's own poor planning and bad judgment. In that situation, allowing subrogation of other assets of the tortfeasor directly, such as an excess insurance policy, by the underinsured motorist carrier makes sense given the principles of equitable subrogation.

[1] 2017 OK 11, 391 P.3d 105.

[2] 2016 OK CIV APP 60, 385 P.3d 670. 

[3] 2016 OK CIV APP 59, _ P.3d _.

[4] 2016 OK 114, 385 P.3d 64.

[5] 2017 OK 14, 391 P.3d 111.

[6] 2017 OK 57, 398 P.3d 11.

[7] 137 S. Ct. 1190 (2017).

[8] 845 F.3d 997 (10th Cir. 2017).

[9] 845 F.3d 1330 (10th Cir. 2017).

[10] 2015 WL 3398149 (N.D. Okla. May 26, 2015).

[11] 687 Fed. Appx. 740 (10th Cir. 2017) (unpublished).

[12] 2016 WL 5876128 (W.D. Okla. Oct. 7, 2016).

[13] 2017 WL 1397244 (Feb. 6, 2017).

[14] 2016 WL 543239 (W.D. Okla. Feb. 10, 2016).

[15] 2017 WL 887108 (W.D. Okla. Mar. 6, 2017).

16] 2017 WL 1322230 (W.D. Okla. Apr. 10, 2017).

[17] 2017 WL 1147771 (N.D. Okla. Mar. 27, 2017).

[18] 2017 WL 1227939 (N.D. Okla. Mar. 31, 2017).

[19] 2017 WL 1347689 (N.D. Okla. Apr. 7, 2017).

[20] 2017 WL 1273997 (N.D. Okla. Mar. 31, 2017).

[21] 2017 WL 1476162 (W.D. Okla. Apr. 24, 2017).

[22] 2017 WL 1843710 (N.D. Okla. May 8, 2017).

[23] 2017 WL 2080270 (W.D. Okla. May 12, 2017).

[24] 2017 WL 2367052 (N.D. Okla. May 31, 2017).

[25] 2017 WL 2569521 (N.D. Okla. June 13, 2017).

[26] 2017 WL 2656150 (? June 20, 2017).

[27] 2017 WL 2990284 (N.D. Okla. July 13, 2017).

[28] 2017 WL 3470584 (W.D. Okla. Aug. 11, 2017).

[29] 2017 WL 3585790 (W.D. Okla. Aug. 18, 2017).

[30] 2017 WL 3586862 (N.D. Okla. Aug. 18, 2017).

[31] 2017 WL 3698492 (W.D. Okla. Aug. 25, 2017).

[32] 2016 WL 9022439 (W.D. Okla. Sept. 14, 2016).

[33] 2016 WL 5745547 (W.D. Okla. Sept. 30, 2016).

[34] 2016 WL 5794760 (N.D. Okla. Oct. 4, 2016).

[35] 220 F. Supp. 3d 1266 (W.D. Okla. 2016).

[36] 215 F.Supp.3d 1190 (W.D. Oklahoma, September 28, 2016).

[37] 2017 WL 3881768 (N.D. Okla. Sept. 5, 2017).

s[38] 2016 WL 8674625 (N.D. Okla. Sept. 30, 2016).