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

Mount Vernon Fire Ins. Co. v. Okmulgee Inn Venture

Mount Vernon issued a liquor liability policy insuring Okmulgee Inn for liability for injuries imposed on the insured by reason of the selling, serving or furnishing of any alcoholic beverage. Okmulgee was sued by three patrons who were injured in a bar fight on the premises. Mount Vernon said it had no duty to defend the subsequent lawsuit because the allegations did not indicate the patrons’ injuries were caused by the selling, serving, or furnishing of alcoholic beverages. The trial court agreed, but the Tenth Circuit reversed.

Okmulgee argued there was a duty to defend because the victims were served alcohol, witnesses referred to beer bottles being used in the bar fight just before the shooting, and a police report from a prior incident revealed that the shooter previously had been arrested at the same bar for public intoxication. Mount Vernon said there was no evidence that the shooter had been served or furnished any alcohol, or that alcohol precipitated the shootings. The Tenth Circuit said that the facts showed there was a credible possibility that alcohol contributed to the injuries. The district court arrived at a different conclusion because the victims’ complaints did not specifically allege that alcohol caused the injuries, and the district court declined to make that assumption based on the circumstances. The Tenth Circuit found the district court’s analysis was too restrictive. “The duty to defend cannot be limited by the precise language of the pleadings. The insurer has a duty to look behind the third party's allegations to analyze whether coverage is possible.” Based on the nature of the facts gleaned from the underlying complaints and other materials, the Tenth Circuit concluded “there is a possibility of coverage. Consequently, Mt. Vernon is obligated to defend its insured, and Okmulgee is entitled to summary judgment on the duty-of-defense issue.” But the court declined to decide whether Mount Vernon had any duty to indemnify Okmulgee, prior to a determination of any liability of Okmulgee to the patrons. “[I]f Okmulgee is found to be liable for any claims, Mt. Vernon's duty of indemnification will extend only to those claims falling within the scope of the policy.”

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In Trinity Mortgage Companies v. Dryer, Dryer was sued for malpractice after a default was entered against Trinity in favor of Junker.  Later, Trinity and Junker reached an agreement which gave Junker an ownership interest in Trinity but only to the extent that Junker could control any lawsuit and any proceeds of that lawsuit against Dryer, on behalf of Trinity. Trinity then sued Dryer and both sides sought summary judgment.  Summary judgment was granted to Dryer and Trinity appealed.  The Tenth Circuit affirmed.

The trial court found that the claim against Dryer was effectively assigned to Junker.  Without the agreement, Junker would not likely recover anything against Trinity, and thus, the assignment was prohibited by 12 Okla. Stat. § 2017.  In addition to the statutory prohibition, the court decided that the assignment of a legal malpractice claim to a former adversary was contrary to public policy. 

The Tenth Circuit agreed that Trinity in fact did improperly assign tort claims. The settlement agreement between Junker and Trinity assigned tort claims by giving Junker decision-making authority concerning the litigation, precluding Junker from making decisions for Trinity apart from the lawsuit, sheltering Junker from any of Trinity’s liabilities, limiting Junker to money received from the lawsuit, prohibiting Junker from sharing in any other income of Trinity, and allowing Junker to collect on his judgment against Trinity only through the lawsuit. Thus, the settlement agreement was an assignment of a tort claim prohibited by Oklahoma law. The Tenth Circuit did not reach the public policy argument, but also affirmed summary judgment on the contract claim, because the breach of contract claim sounded in tort.
 

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In American Farmers & Ranchers v. Shelter, American's insured was driving a car owned by Shelter's insured when he had an accident.  American claimed that the "other insurance" clause in Shelter's policy violated Oklahoma's Compulsory Insurance law and should be disregarded such that Shelter should be required to pay its limits before American was required to pay anything.  The trial court disagreed.  The trial court found that since both policies had mutually exclusive other insurance clauses, the clauses would be disregarded and each policy would pay a prorated amount.  The Oklahoma Court of Civil Appeals agreed with the trial court and affirmed. 

The Court cites Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc., 1987 OK 121, 747 P.2d 947 as follows: 

When concurrent policies have such "other insurance" clauses which cancel each other, we hold that they are mutually repugnant and are to be disregarded, with the loss shared by the insurers on a pro rata basis. Where the insurers have designated in their policies the same method of apportionment, the contracts will control. Absent concurring provisions for apportionment, coverage of the loss is to be shared on a pro rata basis according to the ratio each respective policy limit bears to the cumulative limit of all concurrent policies. ...
...
Oklahoma's compulsory liability insurance laws do not dictate the determination of primary coverage.... Statutory policy is implicated only when insurers deny liability, not when they are in dispute as to which will provide primary coverage.

Even if the last part of the opinion was dicta, the Court found it persuasive and found that both insurers should pay their pro rata amounts to the injured party.  The court concludes that Oklahoma's Compulsory Insurance Law "does not constrain an insurer from declaring its coverage as excess when there is other insurance which covers its insured's liability with respect to a claim also covered by its policy. The statutory policy of the [compulsory insurance law] is implicated only if the insurer denies liability. It does not control a dispute between insurers as to which provides primary coverage. Such a dispute is a matter of contract. "

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