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

Oldenkamp vs. United American Insurance involved cross motions for summary judgment. The trial court granted summary judgment to the plaintiffs on their claim for coverage and to the defendant on plaintiffs’ bad faith claim.

The insurance company refused to pay for surgery for the removal of a congenital cyst from plaintiffs’ son’s eyelid, claiming it was a pre-existing condition. An Oklahoma insurance regulation precludes pre-existing condition exclusions for congenital anomalies of a covered dependent child. United claimed the regulation did not apply to it because the policy was not a “health insurance policy”, but was a “limited benefit policy”. The Tenth Circuit reviewed the statutes and agreed with United. A statute specific to limited benefit policies allowed for a waiting period for coverage of pre-existing conditions. Plaintiffs also believed the policy was not a limited benefits policy. The trial court gets to decide if that issue may be raised on remand.

As to the bad faith claim, the summary judgment dismissing it was affirmed. United raised a legal argument on which there was no controlling decision by the Oklahoma courts which would have shown that the argument was unreasonable. “[B]ecause we have held that United did not breach the insurance contract by denying coverage under these circumstances, it follows that we necessarily agree that United’s denial of coverage was reasonably based.” The fact that United was unaware of the regulation relied on by Plaintiffs was not bad faith, and United didn’t have to get a legal opinion before denying the claim. The court noted that one Oklahoma case allowed a bad faith claim to go forward when the contract was not breached, but declined to apply it in this case. Even if United falsely stated that a doctor reviewed the claim, that did not cause any damages, and therefore could not form the basis of a bad faith claim. The fact that United gave Plaintiffs the “runaround” on their claim and did not produce everything that Plaintiffs thought it should was also not grounds for their bad faith claim.

The spoliation claim was not supported and was properly denied.

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In Flores v. Monumental Life, the Tenth Circuit reversed a summary judgment entered in favor of the insurer on the breach of contract claim, but affirmed the dismissal of the bad faith and negligence per se claim.

Mrs. Flores had an accidental death policy with Monumental, which would pay off if death was caused by an accidental bodily injury, independent of all other causes. The policy said that “[t]he Injury must not be caused by or contributed to by Sickness.” Mrs. Flores was on blood pressure medicine when she fell and broke her arm. She was in the hospital for 10 days and was transferred to a rehab center when she died from toxic levels of her blood pressure medicine. The medical examiner could not determine if the high levels of the medicine was caused by Mrs. Flores liver problems or by an overdose of the medicine.

Monumental denied the claim for benefits because there was no evidence Mrs. Flores’s death had resulted from an accidental bodily injury independent of all other causes and because her death fell within the specific exclusion for sickness or its medical or surgical treatment. The district court found that Mrs. Flores high blood pressure was a contributing cause to the death and found there was no coverage. While the fall was not an injury which caused death, the Tenth Circuit found that there was a fact question as to whether an overdose of blood pressure medicine caused her death. If so, that would constitute an injury under the policy.

Just because the policy requires the injury causing death to be independent of all other causes, that doesn’t mean it must have occurred in a vacuum. Rather, the accidental injury itself must be the sole proximate cause of the death. Courts have long rejected attempts to preclude recovery on the basis that the accident would not have happened but for the insured’s illness. The court distinguished cases where either the disease was aggravated by the accident or the accident aggravated the disease. Where a pre-existing disease only contributed to death insofar as it placed the insured in a position where an unanticipated and unintended occurrence might happen, the Oklahoma Supreme Court has found coverage under the terms of similar accidental insurance policies.

Since the medical examiner said he could not tell if the high levels of the medicine were caused by Mrs. Flores bad liver or by an overdose, it was up to the jury to decide. The sickness exclusion did not preclude coverage. The definition of “sickness” is “Sickness means an illness or disease which results in a covered Loss.” Because of the use of covered in the definition of sickness, the court found a reasonable person could believe that sickness could result in a covered loss, despite the sickness exclusion. In other words, the policy was ambiguous.

The court affirmed summary judgment on the bad faith claims, finding no basis for bad faith from the defendant’s general claims handling, failure to have written guidelines, or failure to train its claims handlers in Oklahoma law. There was a legitimate dispute as to coverage.

Plaintiff argues that he stated a valid negligence per se claim based on Defendant’s violation of two Oklahoma statutes: an administrative code which requires that warning language be put at the beginning of accident-only policies; and a statute which requires an insurer to adopt and implement reasonable standards for claims investigations. There was no evidence that violation of the first caused damages and no evidence of violation of the second.

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Peter Sindhuphak in the Insurance Litigation and Regulatory Law Blog discusses a recent California Supreme Court case. The insured settled his earthquake claim against his insurer, State Farm, and released all his claims against the insurer. Then, the insured apparently became dissatisfied with the settlement and sued State Farm for fraud, claiming, inter alia, that State Farm misrepresented the limits available under the policy. But in order to sue for fraud, the insured had to rescind the settlement and return the money to State Farm. 

Oklahoma law also requires by statute return of consideration in the rescission context. 

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Diane Polscer discusses a recent Oregon case on exhaustion requirements on the duty to defend in umbrella policies.  The court concluded the insurer’s duty to defend under an umbrella policy was triggered even where all other underlying coverage for all possible periods had not been exhausted.

Generally, umbrella policies are only required to kick in once the primary policy (or policies) have been used up.  Here, the court held that only primary policies covering the same year as the umbrella policy needed to be exhausted before the umbrella policy was on the hook.

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Chip Merlin at the Property Insurance Coverage Law Blog states: Many will read Buckley Towers Condo., Inc. v. QBE Insurance Corp., No. 09-13247, 2010 WL 3551609 (11th Cir. Sept. 14, 2010), to stand for the proposition that an insurer does not have to pay anything towards replacement costs under a replacement cost policy, when replacement is elected but repairs have not been made.

See what the fuss is about:  click here

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Brownings v. American Family involved a claim for the breach of the duty to defend and indemnify. The Tenth Circuit describes the underlying facts:

Michael Browning’s response to a property dispute was, even most charitably regarded, extreme. He threatened his neighbors, David and Brenda Reichles, with violence and punctuated his threats with gunfire. Reichles sued both Michael and his wife. Brownings asked American Family Mutual Insurance Company (American Family) to pay for their defense of Reichles’ claims. When it refused, Brownings sued in Colorado state court claiming a breach of their homeowner’s insurance contract. American Family removed the case to federal court. Brownings unsuccessfully objected to the removal. Ultimately the district court entered summary judgment in favor of American Family. Brownings appeal from both the merits and the procedural decisions. We affirm.

The case involved a fence dispute – when new owners had the property surveyed, they (the Reichles) tried to move the fence, and Brownings tried to keep them from moving it. After one incident where Brownings swore at the Reichles and fired his assault rifle 15-30 times, the Reichles sued Brownings for negligent and intentional emotional distress (among other things). Brownings requested a defense of the Reichles claims from American Family, which declined. Eventually, there was a judgment against Brownings on the emotional distress claims. When American Family did not pay, Brownings sued and the case was removed to federal court.

While the policy had the expected coverages, it also had the expected exclusions, including an intentional acts exclusion and a criminal acts exclusion. Because Brownings pleaded guilty to threatening the Reichles with a gun, the court found both exclusions applied to preclude coverage, stating: “The Policy does not require American Family to defend intentional acts or those resulting in a criminal conviction. Such limiting policy provisions seek “to prevent extending to the insured a license to commit harmful, wanton or malicious acts.”” Trespass claims were intentional acts under Colorado law were not covered – even if it did result in property damage.

As to the claims for emotional distress, the factual allegations were the same for both the negligent and the intentional infliction of emotional distress claims, including but not limited to:Brownings’ verbal and physical threats (including the dramatic placement of a bullet riddled human silhouette on the fence), rapid-fire discharge of the assault rifle in the immediate vicinity of the Reichles, and threats to shoot them. The inseparability of the factual allegations, coupled with the admitted intentional acts, necessarily invokes the intentional acts exclusion of the Policy. And besides, the since Brownings pleaded guilty to charges of threatening the Reichles with a gun, the criminal acts exclusion applied as well.

One other issue raised was whether the removal was proper since American Family did not file the notice of removal in state court for 18 days. While the rule requires the notice be filed promptly in state court, there was no action taken by the state court during the 18 day period and no one was harmed by the oversight. As a result, the motion to remand was properly denied.

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In Tarrant v. Guthrie First Capital Bank, plaintiff's judgment against the bank was reversed because the court instructed the jury on prima facie tort, which has not been recognized in Oklahoma.  In fact, the Oklahoma Supreme Court has indicated in Patel v. OMH Medical Center, Inc., 1999 OK 33, 987 P.2d 1185,:

Until the Oklahoma Supreme Court recognizes such a claim, any verdict based on a prima facie tort instruction is reversible error.

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The Tenth Circuit clarified the appropriate standard for discovery related to a dual role conflict of interest in ERISA cases in Murphy v. Deloitte & Touche Group based on the recent Supreme Court decision of  Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343 (2008). While the holding did not change Tenth Circuit law, the court felt it was appropriate to clarify its prior holdings.  

In an ERISA case where the plan “‘gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,’” the  administrator’s decision is reviewed for an abuse of discretion – and in this context, abuse of discretion and arbitrary and capricious are the same standard.  

In reviewing a plan administrator’s decision under the arbitrary and capricious standard, the federal courts are limited to the administrative record.  As a result, discovery is generally inappropriate in these cases.  The court found that while case law prohibits courts from considering materials outside the administrative record where the extra-record materials sought to be introduced relate to a claimant’s eligibility for benefits, this general restriction does not conclusively prohibit a district court from considering extra-record materials related to an administrator’s dual role conflict of interest. Therefore, discovery related to the scope and impact of a dual role conflict of interest may, at times, be appropriate.  The appropriateness of such discovery is governed by Fed.R.Civ.P.  Rule 26(b).  A district court has substantial discretion in handling discovery requests under Rule 26(b).

 

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Insurer not entitled to recoup costs of defense where there was no duty to defend

In Employers Mutual Casualty v. Bartile Roofs, the Tenth Circuit ruled that there was no right to recoup defense costs from the insured where the insurer defended under a reservation of rights. The court first determined that jurisdiction and venue was proper, and that Wyoming law would apply unless it conflicted with Utah law. The case involved a dispute between a general contractor and a subcontractor regarding a hotel roof. The district court concluded that EMC did not have a duty to defend its insured, Bartile, against the allegations. As a result, EMC contended that it was entitled to recoup those defense costs.

Wyoming law, however, disfavors an insurer’s attempts to defend insureds while retaining the right to deny coverage and recoup defense costs at a later date. This is seen as a unilateral attempt to modify and change the policy coverage. Rather, an insurer who does not believe that coverage exists should deny a defense at the beginning, instead of defending and then seeking to recoup defense costs from its insured. The CGL policies contain no provisions allowing such recoupment, and the reservation of rights letter cannot unilaterally change the policy requirements.
 

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