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

The eight corner rule says that you compare the allegations of the complaint to the policy to determine the duty to defend.  This works for most cases, but where the insurer is aware of other facts, those facts must also be considered in determining coverage. 

In Apartment Investment and Management Company (AIMCO) v. Nutmeg Insurance Co., AIMCO had been sued in several actions based on the acts of one of AIMCO’s independent contractors.  The trial court looked at each complaint separately and said there was no duty to defend, since the allegations either did not state facts which amounted to wrongful acts, or were otherwise excluded under the policy.  The Tenth Circuit reversed, finding that the insurance company should have looked at all the allegations in all the complaints to determine if there was coverage.   After examining the complaints taken together, the Tenth Circuit was satisfied they contained sufficient information to provide Nutmeg with reasonable notice that these suits “might fall within coverage of the policy,” Hecla, 811 P.2d at 1089.  The Tenth Circuit also ruled that the exclusions did not apply to preclude coverage. 

 

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In Professional Solutions Insurance Company v. Mohrlang, the issue was whether one limit or two applied to claims against the same attorney.  If the claims were “related” one limit applied, if not, two limits applied.  Professional Solutions Insurance Company (PSIC) provided single coverage liability of $500,000, up to an annual aggregate limit of $1 million, to one of its insureds. When appellee Bruce Mohrlang submitted a negligence claim against the insured, and appellee Harry Mohrlang submitted another alleging breach of fiduciary duties, PSIC conceded liability of at least $500,000 on each but argued that under the policy definitions, the claims were related and thus subject to the $500,000 single coverage limit. The parties eventually settled, with PSIC agreeing to pay the single coverage limit of $500,000 and pursue a declaratory judgment action to determine any further liability. The sole question was whether the two claims were related to one another so as to cap PSIC’s liability at $500,000, or whether the two claims were unrelated and thus separately covered under PSIC’s annual aggregate limit of $1 million. On a stipulated record, the district court granted summary judgment in favor of the Mohrlangs, and the Tenth Circuit affirmed.

The critical inquiry was whether the claims were “temporally, logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision.”  Bruce Mohrlang’s claim was based on the insured’s negligence in structuring a corporate stock sale, while Harry Mohrlang alleged breach of fiduciary duties based on the insured’s misrepresentations that caused him to release a deed of trust he held against the corporate entity.

First, the court found that Harry Mohrlang’s claim was not temporally connected to the sale because the insured caused Harry Mohrlang to release his deed of trust some three weeks after the sale closed. Next, the court found no logical connection between the claim and the sale because neither the deed of trust nor the promissory note it secured was incorporated into the final sale agreement and both should have remained unaffected by the sale. Finally, the court determined that no causal connection existed between Harry Mohrlang’s claim and the sale because the promissory note remained a valid, independent obligation even after the sale, and the deed of trust was not released until the insured’s unforeseeable acts severed any causal link that could have existed. Hence, the court ruled that the two claims were unrelated and PSIC was liable under the policy’s $1 million annual aggregate limit. 
The Tenth Circuit affirmed for the reasons stated by the trial court.

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Hartford insured Vakas' medical office when it was destroyed in a fire.  The policy provided for replacement cost coverage up to $240,000; but only if the property was replaced. Otherwise, it provided for actual cash value of the destroyed property.  In this case, only 4 items were replaced, as Dr. Vakas had been dead several years by the time of the fire.  But, the claimants (Dr. Vakas' heirs) still wanted Hartford to pay the replacement cost for the destroyed office contents. 

The court notes that Kansas law applied and follows the general rules regarding construing ambiguous policies against insurance companies.  The court found that the policy is not ambiguous or internally inconsistent.  After reading the policy, “a reasonably prudent insured would understand that Hartford would not pay replacement-cost value unless and until the property actually was replaced.”

Thus, summary judgment was affirmed.

See, Vakas v. Hartford

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In Andres v. Oklahoma Farm Bureau Mutual Ins. Co., the Oklahoma Court of Civil Appeals decided that even though OFB should have paid the Andres' claim, it could not be found liable for bad faith.  It therefore affirmed in part and reversed in part a motion for summary judgment granted in favor of OFB.  

Andres made a claim on his homeowners policy when water from a city sewer line backed up into his home.  OFB said it wasn't covered, citing to policy language which excluded losses from water damage, including “water which backs up through sewers or drains . . .”  The court found this exclusion applies not only to water, but to the sewage which might be in the water.  But, the policy policy specifically covered "Accidental Discharge or Overflow of Water or Steam from within a plumbing . . . system[.]"  Thus, the policy was ambiguous, because it both included and excluded sewage back ups, and therefore, the policy was construed against the insurer. 

Although the court decided that OFB was liable to the homeowners on the policy, it upheld the summary judgment on the bad faith claim, since OFB had a legitimate dispute as to coverage.  The court states: 
 

OFB denied the claim on the grounds that the claim was not covered by the policy; it relied upon decisions from nine other jurisdictions which supported its theory; its legal theory was plausible; and there was no Oklahoma precedent. Nothing in the appellate record suggests that OFB lacked a good-faith basis for refusing to pay Plaintiffs' claim. Thus, we conclude as a matter of law that OFB had a reasonable legal basis for refusing to pay the claim, and it is not liable for breach of the duty of good faith and fair dealing. The trial court properly entered summary judgment on this claim.

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In Clark v. State Farm, the issue was whether the court should have certified a class action against State Farm after Clark’s claims against it had been determined and a judgment issued.  The case involved a PIP claim under Colorado law.  There was a determination that the State Farm policy at issue had to be retroactively reformed to comply with Colorado law; it was, and a judgment was entered against State Farm for the policy limits, which was paid.  The court then refused to certify a class of others for whom such retroactive reformation could apply, finding the controversy moot, as judgment had been entered for Clark.  Other people were not allowed to intervene as plaintiffs because they sought intervention too late.  The court said there was no case or controversy, and class action was properly denied.
 

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In Mansur v. PFL Life Insurance Co., the issue was whether PFL was properly granted summary judgment on Mansur’s claims of breach of contract and bad faith.  PFL issued Mansur a long term care policy which was to pay $80 a day while Mansur was in a nursing home.  If the parties agreed on an Alternate Plan of Care (APC) then it could provide benefits while the insured was at home.  This appeal concerns the meaning of the Policy’s APC provision. Mansur claims that because PFL agreed that the home care provided was appropriate, the requirements for APC coverage were satisfied and PFL should have paid $80 per day for Mansur’s home care after she left the nursing home. Mansur also claims that PFL acted in bad faith (1) by offering to pay under that provision only $32 per day for one period and $48 per day for a later period, (2) by refusing to pay even those amounts when Mansur demanded the full $80, and (3) by refusing to waive payment of Policy premiums while Mansur was receiving home care. The trial court’s grant of summary judgment to PFL was affirmed. 

 

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In Graham v. Hartford Life & Accident, the Tenth Circuit held that a health and disability plan provided to US postal employees was not a governmental plan – therefore it was subject to ERISA.  The plan was apparently offered through the National Rural Letter Carriers Association, the exclusive bargaining agent for rural letter carriers.  Since the plan was governed by ERISA, there was no right to a jury trial.  The court affirmed the ruling of the trial court that the denial of benefits was not arbitrary and capricious
 

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In reviewing the year end blogs and blawgs, I came across this list of the top 10 coverage cases in 2009.  Page 3 starts the list of dumb insurance cases of the year; the top 10 significant cases are listed at p. 4; and then discussed beginning on p. 5; the cases include a discussion of whether single or multiple occurrences resulted when two boys fell into a pit on the insured's property (court found there were two occurrences); whether insurers are entitled to get attorneys fees from each other in coverage disputes between them (no; there is no exception to the American rule for insurance companies); and whether a contractor's endorsement which effectively reduced coverage to an insured was enforceable (it was). 

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While the insurer had waived certain privileges relating to the settlement of the underlying claim, based on the insurer’s concession that it would not advance an advice of counsel defense, the waiver would not be expanded to include all privileged communications and work product of the insurer’s attorneys.  The decision clarifies a prior decision which found a waiver of attorney client privileges related to the settlement of underlying asbestos claims. 

Previously, the court found that USF&G waived the attorney-client privilege as to communications between its officer, James Kleinberg, and Robert Omrod, the in-house lawyer whose advice Kleinberg disclosed at his examination before trial regarding preparation of the reinsurance billing.

“During the testimony of Kleinberg, many questions were asked regarding USF&G's decision to allocate all claims to a single treaty year as opposed to spreading them over the several coverage years. This witness repeatedly revealed the advice he received regarding preparation of the bill. Consequently, he placed this matter at issue,” the panel concluded. “Therefore, the Reinsurers may seek testimony and production of documents regarding presentation of the reinsurance claim . . .  only to the extent that the discovery relates to disclosures made during James Kleinberg's examination before trial testimony.”

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