Reinsurance Law Blog

Reinsurance Law Blog

Appraisal process, prevailing party, attorneys fees — 10th Circuit, Oklahoma

Posted in Contractual Liability

In re: Hayes Family Trust v. State Farm Fire & Cas. Co., involved a property damage claim where the policyholder invoked the appraisal process after the parties could not agree on the amount of the loss.

The policy establishes a procedure whereby each party selects an impartial appraiser; the appraisers then select an impartial umpire. But if the appraisers are unable to agree on an umpire, the policy grants either party the right to seek appointment of the umpire by the court. After Hayes sought the district court’s assistance with the appointment of an umpire, the parties participated in the appraisal process, which resulted in a unanimous award.

State Farm paid the balance of that award, and Hayes accepted payment. But despite State Farm’s payment, at Hayes’s request, the district court confirmed the award and entered judgment in favor of Hayes. Hayes promptly moved for an award of prejudgment interest, attorney’s fees, and costs under a prevailing party statute. In response, State Farm moved to vacate or amend the judgment. Finding that the parties settled any dispute over the amount of loss, the court agreed with State Farm and vacated its order confirming the appraisal award and the judgment.

Hayes now appealed the order vacating judgment in an attempt to recover prejudgment interest, fees, and costs. The Tenth Circuit affirmed. Under Oklahoma insurance appraisal law, the appraisal award was not binding on State Farm because it did not invoke the appraisal process. Therefore, State Farm’s voluntary payment of the award, and Hayes’s acceptance of that payment, settled any dispute over the amount of loss to Hayes’s property. Because the parties settled their dispute over the amount of loss, the district court properly vacated its earlier judgment in favor of Hayes. For the same reason, because the court vacated the judgment, Hayes cannot be a “prevailing party” under the Oklahoma Insurance Code’s prevailing party statute.

ERISA expressly preempts law to regulate generic drug pricing; 8th Cir. – Iowa

Posted in Disability Benefits, New Case

Pharmaceutical Care Management v.  Nick Gerhart arose from a dispute over Iowa Code § 510B.8.

Section 510B.8 regulated how pharmacy benefits managers (PBMs) established generic drug pricing and required drug pricing disclosures. Specifically,

Subsection 1 require[d] PBMs provide information regarding pricing methodologies to Iowa’s insurance commissioner at the commissioner’s request; Subsection 2 limit[ed] the types of drugs to which a PBM can apply [generic drug] pricing and limits the sources from which a PBM may obtain pricing information; and Subsection 3 require[d] PBMs provide information regarding their pricing methodologies in their contracts with pharmacies and to provide procedures by which pharmacies can comment on and appeal rates, with potential retroactive payment to pharmacies for incorrect pricing.

Pharmaceutical Care Management, a PBM trade association, sought a declaratory judgment that ERISA preempted Section 510B.8.  Iowa claimed ERISA preemption was improper because Section 510B.8 applied to PBMs administering ERISA plans and explicitly exempted other ERISA plans. Iowa also claimed because Section 510B.8 directly regulated PBMs and pharmacies, the mere possibility of increased health plan costs was insufficient for ERISA preemption.

Judgment for Pharmaceutical Care Management was proper because Section 510B.8 necessarily affected ERISA programs by imposing state management and administration requirements. The requirements unlawfully interfered with ERISA’s uniform reporting, disclosure, and recordkeeping procedures. Thus, warranting preemption. Section 510B.8’s express ERISA exclusions did not prevent preemption because the exclusions were prohibited ERISA references and functionally excluded ERISA employee benefits plans from coverage.

Insured vs Insured exclusion applies to preclude coverage under D&O policy — 8th Circuit Minnesota

Posted in Contractual Liability, Duty to Defend

In Jerry’s Enterprises, Inc. v. U.S. Specialty Insurance Co, Sullivan, a former director of the company, and her daughters (also shareholders) sued Jerry’s regarding the valuation of their stock.  Jerry’s settled, and then sued US Specialty for its defense costs and for sums paid under the settlement agreement.  The trial court said no coverage and the Eighth Circuit affirmed.  First, Sullivan was an insured person under the policy.  Second, the insured v. insured exclusion applied. Third, the allocation clause did not apply to the daughters’ claims.

The policy defines Insured Person as “any past, present or future director, officer, managing member, manager or Employee of the Insured Organization.

The insured v. insured provision excludes from coverage under the policy any claim:

[B]rought by or on behalf of, or in the name or right of . . . any Insured Person, unless such Claim is:
(1) brought and maintained independently of, and without the solicitation, assistance or active participation of . . . any Insured Person . . . .

The court found the Insured vs. Insured exclusion bars coverage for any lawsuit brought by a former director such as Sullivan. The court concluded that “the loss associated with the Sullivan lawsuit is not covered under the insurance policy due to the presence of a former director—Sullivan—as an active participant.” The policy language is not ambiguous and therefore did not require interpretation.

The allocation clause applies where there are covered and uncovered claims.  In that situation, the policyholder and the insurance company will work out how to allocate the loss:

If Loss covered by this Policy and loss not covered by this Policy are both incurred in connection with a single Claim, either because the Claim includes both covered and uncovered matters, or because the Claim is made both against Insureds and against others not included within the definition of Insured, the Insureds and the Insurer agree to use their best efforts to determine a fair and proper allocation of all such amounts . . . .

The Eighth Circuit discussed the differing results from the 7th and 11th Circuits on the allocation clause.  It determined that the allocation clause did not apply to the loss, because Sullivan, an Insured Person under the policy, was the “driving force” behind the lawsuit.

“We here acknowledge the tension that exists between the Insured vs. Insured exclusion and the allocation clause. . . JEI has presented various arguments for allocating loss among the claims of Cheryl Sullivan and her daughters despite the presence of the assistance exception, and these arguments are not wholly without merit. But ultimately, two principles of Minnesota contract law counsel us to rule in favor of U.S. Specialty. First, applying the allocation clause to the Sullivan claim would render the assistance exception superfluous, effectively reading that exception out of the contract. See PowerSports, Inc. v. Royal & Sunalliance Ins. Co., 307 F. Supp. 2d 1355, 1362 (S.D. Fla. 2004). That we cannot allow. See Henning, 383 N.W.2d at 652 (insurance policies must be construed as a whole). Our holding, on the other hand, does not read the allocation clause out of the contract. It simply limits the reach of the allocation clause when more specific language exists elsewhere in the contract. Second, a basic principle of Minnesota contract law instructs courts to make specific contract language controlling over general language. . . . Here, the Insured vs. Insured exclusion speaks directly to lawsuits brought with the participation of Insured Persons. The allocation clause speaks generally to any claim brought with covered and uncovered matters. The exclusion clause controls.”

Future promises do not constitute fraud and construction damages are subject to the Arkansas Statute of Repose; 8th Cir, Arkansas

Posted in Contractual Liability

Star City School Dist. v. ACI Bldg. Sys., L.L.C., arose from a construction contract dispute between Star City School District and a roofing manufacturer. Star City alleged the manufacturer failed to repair a roof.

Judgment for the manufacturer was proper because Star City failed to properly allege reliance and the manufacturer’s future promise to repair did not constitute fraud. Star City’s claims were barred by Arkansas’ statute of repose because all damages from defective construction are subject to the statute. Thus, Star City’s breach of contract and warranty claims were barred.

Recreational land use act applies to Tulsa’s River Parks Authority — Oklahoma

Posted in immunity, New Case

In Sanders v. River Parks Authority, 2016 OK CIV APP 79, Bogdanich died after being struck by a young boy riding a bicycle.  Bogdanich’s survivors sued the River Parks (and others) claiming negligent design of the trails, inadequate warning signs, and insufficient supervision.  The River Parks got summary judgment, though, arguing it was immune from suit under the Recreational Land Use Act, (RLUA), it was immune under the Oklahoma Governmental Tort Claims Act (GTCA), and design or construction claims were barred because they were performed by independent contractors. The trial court granted summary judgment to the River Parks and the Court of Civil Appeals affirmed.

While the River Parks charges fees for certain activities, there was no charge to Plaintiff’s decedent (or the bicyclist) for use of the trails.  The Court rejected Plaintiffs’ claims that if a landowner charges any fee to any person or conducts any commercial or other activity for profit, there is no immunity under the RLUA.  Rather, “the type of commercial activity which takes a landowner out of the purview of immunity must be connected with the invitees’ commercial use of the lands or waters.” (citing Hughey v. Grand River Dam Authority, 1995 OK 56, 897 P.2d 1138; Mustain v. Grand River Dam Authority, 2003 OK 43, 68 P.3d 991)

Immunity is only waived when “the for-profit activities are connected to 1) the admitted public’s presence upon the premises, or 2) its free use of the locus delicti.”  Thus, the type of commercial activity that takes a landowner out of immunity must be connected with the invitees’ recreational use of the land. Commercial activity unrelated to the land use by the invited guests is not a bar to immunity. (Again, citing to Mustain, above).  Since the plaintiffs’ decedent’s use of the trails was not directly related to fees charged to restaurants or for use of River West Park or for filming, summary judgment was appropriate.



Whether the insurer’s investigation of a claim was reasonable was a question of fact precluding summary judgment 10th Circuit, Colorado

Posted in Insurance Bad Faith

In Peden v. State Farm Mutual Auto Ins Co., the Tenth Circuit reversed a summary judgment in favor of State Farm on a uninsured / underinsured motorist claim.  State Farm had both the liability coverage and the UM / UIM coverage.  State Farm paid $240,000 on the liability coverage, and after suit was filed, paid $350,000 on the UM /UIM.  Peden claimed over $600,000 in damages. Peden claimed that State Farm unreasonably delayed or denied her claim, entitling her to additional damages under Colorado law.  Peden sought partial summary judgment on the unreasonableness of State Farm’s actions, and State Farm sought summary judgment on any claim for further liability. The trial court granted State Farm’s motion and denied Peden’s motion as moot.

But there was some evidence to support the claim that State Farm unreasonably denied or delayed Peden’s claim.  As a result, summary judgment was reversed.  State Farm’s discount of the claim required additional investigation which did not occur until after the claim was denied. A reasonable fact finder could find that State Farm should have interviewed Peden and the other occupants before discounting her claim by 15% claiming she had assumed the risk by going for a ride with a drunk driver. State Farm’s valuation  did not include anything for future noneconomic damages, prejudgment interest, or future wage loss. A reasonable fact-finder could justifiably infer that State Farm inadequately investigated the damages that would have been available to Ms. Peden if she had sued Mr. Graf. Furthermore, compliance with state law did not protect State Farm.


Misrepresentation on application voids policy, 8th Circuit, Arkansas

Posted in Contractual Liability

In Nationwide Property and Casualty v. Faircloth, Faircloth applied for auto insurance on line.  When asked for the “primary use” of the vehicle, Faircloth chose Work/School (commute to/from, errands).  After Faircloth had an accident, Nationwide learned that Faircloth used the vehicle for deliveries, putting 1200 miles a week on it.  Nationwide said Faircloth should have told them he was using the car for “Business” (deliveries, sales calls, taxi) rather than for Work.  Nationwide filed a declaratory judgment action seeking rescission of the policy and tendering the premiums.  The trial court granted summary judgment to Nationwide, and the Eighth Circuit affirmed.

Nationwide met its burden of establishing that it would not have issued the same coverage had Faircloth chosen “business” as his primary use. Nationwide’s underwriter stated: Had Nationwide known of Mr. Faircloth’s use of his vehicle as a delivery service in connection with his employment, including his full-time use [of] the vehicle as a delivery driver, he would not have been issued this policy over the online application. The policy purchased would not have been available, and he would have[,] [i]nstead, been referred to the Nationwide Call Center in order to purchase a business automobile insurance policy for the vehicle.

Even though the underwriter admitted that “work” and “business” have the same colloquial meaning and that there was no set criteria for determining a vehicle’s primary use or the materiality of a misrepresentation, nothing contradicted the underwriter’s statement that the policy would not have been issued if Faircloth had truthfully answered “Business” in the application.


CAFA amount in controversy requirement discussed, 10th Circuit

Posted in New Case

In Hammond v., the issue was whether the case was properly removed under the Class Action Fairness Act, CAFA.  The Tenth Circuit reversed the district court’s remand of the case based on the amount in controversy.

The term (amount in controversy) has required a party seeking federal jurisdiction to show only . . . that “a fact finder might legally conclude” that damages exceed the statutory amount. To justify dismissal under this standard “it must appear to a legal certainty that the claim is really for less than the jurisdictional amount.” St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938).

Since there was a legal possibility that the jurisdictional amount would be met, there was enough to trigger federal jurisdiction.

[F]ederal jurisdiction under CAFA doesn’t depend on how much the plaintiff is likely to recover but on the amount the plaintiff’s allegations suggest she might lawfully recover. And neither, again, are we given any reason to doubt the collective wisdom of our colleagues. It is our judgment, as it was theirs, that “[o]nce the proponent of federal jurisdiction has explained plausibly how the stakes exceed $5 million . . . the case belongs in federal court unless it is legally impossible for the plaintiff to recover that much.” Spivey , 528 F.3d at 986; see also Raskas , 719 F.3d at 887-88; Hartis , 694 F.3d at 944-46; Lewis , 627 F.3d at 400-02.

Third Party Has Standing to Claim Benefits –Missouri

Posted in Contractual Liability

In Blankenship v. Old Missouri Insurance Company, the Missouri Court of Appeals reversed summary judgment for the insurance company, and found that a third party beneficiary had standing to bring a direct action against the insurance company.  The plaintiff was a farm worker, claiming entitlement to medical payments (med pay) coverage and liability coverage under the policy.

“[i]f a contract promises something at one point and takes it away at another, there is an ambiguity.” Seeck, 212 S.W.3d at 132-33.

An endorsement to the policy said

“Coverages L and M are extended to apply to bodily injury to a farm employee while performing duties in connection with the farming operations of an Insured.” An exclusion in the endorsement stated, “[c]overage under this endorsement does not apply to liability for bodily injury excluded under the Farm Personal Liability Coverage and not specifically covered under this endorsement.” A condition in the endorsement stated “[t]his coverage is subject to the terms of the Farm Personal Liability Coverage and doe s not increase the limits stated therein.” The limits of liability on the declarations page also combined Coverages L and M in a single line, “$300,000 Farm Employee Liability & Med Pay” with a separate premium.

The court concluded:

In an action under the original policy, section L, it is clear that Appellant would not have standing to bring an action against the insurance company; however, in the original policy, section M, it is clear that Appellant is a third-party beneficiary and could bring the action against Respondent. The endorsement clearly adds Appellant to the class of people who are now covered under Endorsement L and M.




Moving truck not “auto”, no coverage, no duty to defend 10th Cir Kansas

Posted in Contractual Liability, Duty to Defend

In Progressive Northwestern Ins. v. Handshumaker, the court ruled that a policy that excluded from its definition of an “auto” a cutaway cab or a vehicle where the cab is separate from the cargo area, did not cover an accident where the insured was driving a rented box truck for moving.  The injured party had already recovered $25,000 from the insurance on the truck.   The “other insurance” clause did not create coverage.

The Other Insurance provision did not affect coverage. Reading the provision as addressing the contingency of Progressive’s shared coverage with another entity, the district court held that it had no application where, as here, the policy did not provide coverage in the first place.

Note: Perhaps if there was no other insurance, such that the truck would have been uninsured but for the Progressive policy, public policy might have required coverage, if the policy was issued to cover state mandated liability.  The definition might also exclude many pickup trucks from coverage.