Reinsurance Law Blog : Oklahoma Insurance Lawyer & Attorney : Stauffer & Nathan Law Firm

In Remund v. State Farm Fire & Cas. Co., the plaintiff built his cabin over a creek.  He wanted flood insurance to cover any damages caused to his cabin or to the piers and channel which supported his cabin and affected the flow of the creek.  He was told the policy would cover any damage to his property.  But when high runoffs did damage the piers and channel, the claim was denied.  He sued State Farm for breach of contract, breach of warranty, estoppel, and bad faith.  The federal regulations on flood insurance say that representations regarding the extent and scope of coverage which are not consistent with the National Flood Insurance Act or the Program’s regulations, are void.  Summary judgment to State Farm was affirmed on appeal.

The court found that the claims were preempted by federal law.  44 C.F.R. § 61.5(e).  The regulation creates the legal fiction that an insurance agent “acts for the insured,” instead of for her employer (the private insurance company).  Thus, § 61.5(e) shields the private insurance company from liability for certain of the agent’s tortious acts. Whether this is good public policy because it makes participation in the NFIP more attractive to private insurance companies, or bad public policy because it may result in injustice for some insureds, is not for the courts to decide.

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In Olsen v. Siddiqi, Olsen sued Siddiqi  and Global in a class action for sending unsolicited faxes under the Telephone Consumer Protection Act (TCPA).  Global tendered the defense to its commercial general liability  insurer, American Family, which refused the defense, claiming the policy did not cover the claims. Global then settled the case for $4,917,500, with the parties agreeing the judgment could only be recovered from the proceeds of Global's insurance policy with American Family.  Eventually, the trial court granted summary judgment to Olsen, and the Missouri Court of Appeals reversed.

The issue was whether the statutory damages awarded to Olsen constituted "property damage" under the policy and under Missouri law.  Olsen relied on Universal Underwriters Ins. Co. v. Lou Fusz Automotive Network, Inc., 401 F.3d 876 (8th Cir. 2005), which held that statutory damages under the TCPA constituted "damages" under the terms of the insured's policy. But the policy in that case was materially different than the policy in this case.  In Universal, the policy covered punitive damages.  In this case, the policy did not. 

Under Missouri law, unless otherwise bargained for, the term "damages" does not include fines and penalties. Thus, if the statutory damages awarded in the underlying judgment are in the nature of fines or penalties, they are not covered by Global's policy. The court concluded that the TCPA is both remedial- when an individual seeks recovery for actual monetary loss- and penal- when an individual seeks the statutory damages of $500.00 for each violation. As Olsen opted to recover statutory damages, those damages were penal in nature, and as penalties, did not constitute "damages" under the terms of Global’s policy.

The court concluded: 

The statutory damages awarded to Olsen and the class members in the underlying suit do not constitute "property damage" under the terms of Global's general commercial liability policy and the laws of this State. As such, Global's policy provides no coverage for the damages awarded in the settlement agreement, and the trial court erred in determining otherwise. The case is remanded to the trial court with an order to enter summary judgment in favor of American Family.
 

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Eissa vs. Aetna Life Ins. Co. involved Long Term Disability (LTD) benefits under an ERISA plan.  Eissa received short term disability under Boeing's ERISA plan for physical and mental disabilities.  The plan limited benefits for mental disabilities to 24 months total.  In addition, the amount of benefits was reduced by any Social Security benefits awarded.  Eissa was denied any LTD benefits because his disability was found to be mental rather than physical.  This finding was affirmed on appeal.  Aetna then sought to "recoup" payments made to Eissa based on the award of Social Security benefits.  Eissa sought bankruptcy protection and was discharged, yet the trial court found that he owed the money anyway, under a recoupment theory.  The Tenth Circuit reversed this ruling.  Since Aetna did not owe Eissa any more money, there was no fund from which Aetna could recoup the money.  Thus, there was no exception to discharge, and the debt was discharged by the bankruptcy. 
 

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Western World Ins. Company v. Markel American Ins. Company involved two insurance companies which insured a "Haunted House."  Judge Gorsuch had some fun with his opinion some of which will be quoted below.  Hodges' flashlight went out and he fell down an elevator shaft while looking for another.  Western defended and paid the claim; then sued Markel.  Markle claimed it owed nothing because of an escape clause in its policy.  But the "escape clause" was found in the "who is an insured" part of the policy, not in the "other insurance" part of the policy.  And, it was unclear whether the "escape clause" applied to all insureds or just additional insureds.  Furthermore, the "escape clause" if applied as Markel claimed would make the other insurance clause superfluous, something that contract law doesn't like to do.  Oklahoma law requires that ambiguities be resolved in favor of coverage, and that's what the Tenth Circuit did.  Judge Gorsuch states: 

“[I]f an insurer desires to limit its liability under a policy, it must employ language that clearly and distinctly reveals its stated purpose.” Spears v. Shelter Mut. Ins. Co., 73 P.3d 865, 868 (Okla. 2003). If (as here) the relevant limiting policy provisions are “unclear or obscure,” then the objectively reasonable expectations of a person “in the position of the insured” control. Id. Put differently, when a policy’s escape hatch is less a clearly marked exit than it is a hidden trap door, the reasonable expectations of an insured who has read and become familiar with the policy language supplies the rule of decision.

Finally the whole escape clause precludes any liability argument was not raised in Markel's reservation of rights letter to its insured -- which raised many other arguments as to why it should not cover the claim ("arguments it gave up the ghost on long ago")

The case was sent back to the trial court for determination of how much Markel should pay.  No escape for either insurance company, indeed.

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In Graham v. State Farm, summary judgment to the insured was reversed on appeal.  The primary UM  limits exceeded the insured's UM limits.  The State Farm policy language was clear and unambiguous, providing underinsured motorist coverage only to the extent that the State Farm policy limits exceed those of any primary underinsured motorist coverage. Thus, because the primary underinsured motorist coverage exceeded the State Farm policy limits, the trial court erred in granting summary judgment for $100,000 in favor of Graham. Reversed and remanded.

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Employers Mutual Casualty Company v. Bartile Roofs, Inc., 10th Circuit Wyoming


Based on its previous rulings in the same case, the Tenth Circuit held there was no duty to defend claims based on an insured’s negligent and unworkmanlike construction under the CGL policy issued by EMC to Bartile.  “[R]egardless of the label applied to a claim, “[u]nder [both] Wyoming and Utah law, the natural results of an insured’s negligent and unworkmanlike construction do not constitute an occurrence triggering coverage under a CGL policy.” Bartile I, 618 F.3d at 1174. . .”

In this case, the allegations were amended to specifically include claims of negligence.  There was a claim that Bartile’s negligence caused damage to other parts of the building. It was claimed that “work was negligently performed so as to accident[ally] cause physical damage to, and loss of use of other parts of the work at the project”. . . i.e., water damage.  Bartile claimed that Wyoming law would hold that conduct constituting both a breach of contract and a tort can trigger a duty to defend.  But the court stated the tort/contract distinction is essentially irrelevant to the applicable definition of an “accident” per Bartile I.  According to the court, Bartile made no argument that the consequential water damage at issue was not a natural result of Bartile’s own unworkmanlike or negligent construction.  Thus, “Bartile has not established an “accident” subject to policy coverage. 
 

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In Walker v. Progressive, the Tenth Circuit affirmed a summary judgment in favor of the insurer on the plaintiffs’ bad faith claim.  The bad faith claim involved the investigation of the theft loss of plaintiffs’ Tahoe while they were on vacation.  The Tahoe was found later, burned.  Progressive found that the steering column was not damaged, the car was for sale when it was stolen, it was a gas guzzler and plaintiffs had all the keys.  Progressive said these were red flags for fraud, and had its Special Investigation Unit (SIU) investigate the claim.  Plaintiffs were out of town when the theft occurred and Progressive wanted photos of the vacation.  When the photos were received, they appeared altered.  In addition, although the plaintiffs had said there were two keys, a third showed up.  The key and the photos were explained and the claim was paid.  

Plaintiffs’ bad faith claim is founded on the contention that Progressive’s investigation was both “untimely” and “improper,” and does not concern the disagreement between the parties concerning the value of loss or Progressive’s right to conduct a fraud investigation.  The gist was the way Progressive handled the third key and photo issues. Plaintiffs offered no explanation as to how they were damaged by the alleged unreasonable actions of Progressive, which is a required element of the bad faith claim. 

Once Progressive verified that the Walkers were out of town during the date of loss, it authorized
coverage for the claim, even though the origin of the third key remained unresolved. Thus, “it was irrelevant when Progressive determined the origin of the third key because Progressive agreed to pay for the repairs to The Vehicle in November 2008.”  The expert report prepared after the lawsuit was filed and after payment was authorized was irrelevant to the claim at issue – and was prepared in response to the lawsuit itself. 

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Circuit court erred in granting summary judgment to insurers based on a conclusion that appellants (successors in interest to the original insureds) are not an insured under policies.  Policies unambiguously cover occurrences while policies were in effect, and cover successors, which include appellants.  “Occurrence-based policies cover negligent acts or omissions which occur within the policy period, regardless of the date when the negligent acts or omissions are discovered or claim is made.”  Allegations describing facts covered by policy trigger duty to defend.  Therefore, if petition alleges that a covered event occurred within the policy’s effective date, insurer has a duty to defend though the policy has long expired.  Presence of allegations on which no recovery is possible do not discharge duty to defend. 

Renco v. Certain Underwriters at Lloyds

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Intermed Ins. Co. v. Hill

If two events, one excluded and the other covered, each constitute a “separate and distinct” cause of injury, exclusion of the one will not bar coverage of the other.  Malpractice policy excluded liability for any person’s sexual conduct.  Plaintiff alleged that, after insured failed to supervise employee, employee sexually assaulted plaintiff.  Plaintiff alleged that failure to supervise proximately caused plaintiff’s injury separately and concurrently with employee’s conduct.  In insurer’s declaratory judgment action, insurer failed to negate such causation. Summary judgment was improperly granted to the insurance company. 

Missouri courts have recognized "that where an insured risk and an excluded risk constitute concurrent proximate causes of an accident, a liability insurer is liable as long as one of the causes is covered by the policy."  Under this rule, an insurance policy will be construed to provide coverage where an injury was proximately caused by two events -- even if one of those events was subject to an exclusion clause -- if the differing allegations of causation are "independent and distinct."  that is:

[i]f the essential elements of a negligence claim asserting a cause of injury can be stated without regard to the essential elements of a differing claim of negligence that also is asserted to have caused the same injury, then the separate causes are independent and distinct from the other, and support the application of the concurrent proximate cause rule.

The proper supervision of medical personnel is not inherently related to the prevention of sexual assault. Because the Clinic's negligent supervision of PA constituted an independent, concurrent proximate cause of Appellant's injuries, the trial court erred in granting summary judgment in favor of the insurance company.

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