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

The Tenth Circuit has affirmed a summary judgment in favor of State Farm, which held that the earth movement exclusion is not ambiguous.  In Davis-Travis v. State Farm Fire & Casualty Co, a pipe in the bathroom had burst and flooded the house.  An inspection revealed damage to the flooring and baseboards as well settlement damage to the residence.  The settlement damage was determined to have been caused by movement of the clay under the foundation.  State Farm covered the portion of the claim related to interior water damage but denied the portion related to the foundation movements caused by settlement. The denial was based on the policy’s earth movement exclusion, which the court called the lead-in clause. The homeowners sued for breach of contract and bad faith, claiming the policy covered the settlement damages.  The trial court found that neither the lead-in clause nor the term earth movement was ambiguous, and granted summary judgment to State Farm, which was affirmed by the Tenth Circuit.

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In Ball v. Wilshire Insurance Company, the court ruled that a loaned vehicle exclusion which excluded coverage for those using the car with the owner’s permission was unenforceable, since Oklahoma public policy requires that the general public be protected up to the minimum amount of legislatively mandated coverage.  The court also ruled, however, that there was no duty to defend under the policy, since such a duty was not required to fulfill the public policy behind mandatory minimum liability coverage.  The court also determined that Wilshire did not act in bad faith in delaying UM payment to Ball, since the law was unsettled. 
 

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After the Olahs sued him for malpractice, Dr. Baird filed bankruptcy. The Olahs asked the trustee of  Dr. Baird’s bankruptcy estate to “sell” them Dr. Baird’s right to consent to settlement under his medical liability insurance policy. The trustee balked,  writing that by the terms of the insurance contract he did “not believe that there  was any asset which the trustee could assume and assign to” the Olahs. The Olahs then sought a declaration that the “right to settle”  was indeed part of the estate. When the trial court refused to so hold, they appealed.  The Tenth Circuit ruled that the liability policy is properly part of the estate, and that the trustee has discretion to exercise Dr. Baird’s rights under  the policy (including the consent to settle) or to assign those rights to the Olahs. 

There were some interesting arguments made in this opinion.  The insurance company argued that making the consent to settle clause assignable would “drastically impact the risk and burden on [it].”  The Tenth Circuit didn’t buy it, noting that the insurance company had the right and duty to defend the claim, and that no one could force the insurance company to settle.  If the insurance company and the plaintiffs negotiated a mutually agreeable settlement, then it would be in the insurance company’s interest to have the plaintiffs and not Dr. Baird exercise consent.  Further, since Dr. Baird’s liability was discharged in bankruptcy, he had nothing to lose and everything to gain from frustrating a settlement.

In re Baird, Case No. 07-4282




 

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