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

 In Roberts v. Printup, Ms. Roberts was injured in a one car accident. She was a passenger, her son Printup was driving. The accident was promptly reported to Shelter, the insurance company, and she received the limits of the medical payments. Eleven days before the statute of limitations ran on the claim, Roberts sent a letter to Shelter offering to settle for policy limits ($25,000) and estimating her medical bills to be in excess of $125,000. The letter said she needed a response within 10 days because of the statute of limitations. Ms. Roberts had an agreement with her attorney that if Shelter paid the claim upon demand, she would not owe any attorneys fees on the amount paid. Shelter did not respond for three weeks and then attempted to accept the offer. Ms. Roberts refused. After liability was admitted, a judge determined Ms. Roberts damages to be in excess of $1 million. Shelter paid its limits and Ms. Roberts then was assigned Printup’s claims against Shelter for the excess judgment. 

The trial court granted summary judgment to Shelter on the claims of bad faith and negligence. The Tenth Circuit reversed, affirming the dismissal of the bad faith claim, but sending back the negligence claim. See, Roberts v. Printup, 422 F.3d 1211, 1212 (10th Cir. 2005). In the first appeal, the court found that Shelter’s failure to respond to Roberts letter within 10 days was a violation of the Unfair Claims Practices Act as adopted by Kansas. In the second go around, the district court found that Shelter did not have a written policy, procedure, or mechanism in place to ensure that a claim would be acknowledged within ten working days, that Shelter was negligent in handling the letter and that Roberts was not trying to manufacture a bad faith claim. Nevertheless, the district court found that the failure to timely respond did not cause the excess judgment, thus ruling that Shelter was not liable for the excess judgment.

The Tenth Circuit reversed again. The court states:

It is readily apparent that it was foreseeable to Shelter that its negligence in failing to implement a system to handle reasonable time-sensitive settlement offers from an injured party could result in a lawsuit being filed against its insured. Accordingly, its attempt to accept the expired offer in this case did not absolve it of liability for damages to its insured caused by its earlier negligent failure to settle.

* * * *

Shelter did not give Mr. Printup’s interest the same consideration as its own or it would have set up an appropriate system to handle time-sensitive settlement offers.

The Tenth Circuit found that based on the district court’s findings, “it is apparent that it was Shelter’s failure to implement a system to handle reasonable time-sensitive offers in negligent disregard of its insured’s interest that exposed Mr. Printup to damages in excess of policy limits.” Thus, the court reversed and remanded the case with directions to enter judgment in favor of Roberts. 

 

 

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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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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 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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Payless was sued in California for making hourly employees work "off the clock."  It asked its insurer, Travelers, to defend and indemnify, but Travelers declined, saying that the claim was not covered.  Payless settled the claims and then went after Travelers for reimbursement of the settlement and defense expenses.  Travelers got summary judgment and the Tenth Circuit affirmed.

See, Payless v. The Travelers. 

The Tenth Circuit found that this was a case of a misplaced modifier.  The clause at issue excluded certain statutory claims against employers and stated: 

The Insurer shall not be liable for Loss on account of any Claim made
against any Insured . . . for an actual or alleged violation of the Fair
Labor Standards Act (except the Equal Pay Act), the National Labor
Relations Act, the Worker Adjustment and Retraining Notification Act,
the Consolidated Omnibus Budget Reconciliation Act of 1985, the
Occupational Safety and Health Act, the Employee Retirement Security
Act of 1974, any workers’ compensation, unemployment insurance,
social security, or disability benefits law, other similar provisions of
any federal, state, or local statutory or common law or any
amendments, rules or regulations promulgated under any of the
foregoing; provided, however, this exclusion shall not apply to any
Claim for any actual or alleged retaliatory treatment on account of the
exercise of rights pursuant to any such law, rule or regulation.

emphasis added. 

The question was whether "other similar provisions" modified all the listed exclusions, or just the underlined exclusions.  The court found that even though bad grammar was used, the clause excluded all claims arising out of the Fair Labor Standards Act or other similar state law. 

The court held that bad grammar did not make the clause ambiguous and even quoted Groucho Marx: 

The opinion states:

All this underscores that, while the rules of English grammar often afford a valuable starting point to understanding a speaker’s meaning, they are violated so often by so many of us that they can hardly be safely relied upon as the end point of any analysis of the parties’ plain meaning. So it is that Groucho Marx could joke in Animal Crackers, “One morning I shot an elephant in my pajamas. How he got into my pajamas I’ll never know,” leaving his audience at once amused by the image of a pachyderm stealing into his night clothes and yet certain that Marx meant something very different. In the more mundane task of contract interpretation, we must be no less entitled to acknowledge the parties’ plain meaning without being straight-jacketed by a grammatical rule into reaching a patently unintended result.

Grammar and Groucho in an insurance policy interpretation case. Doesn’t get much better than that!

 

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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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Yaffe v. Great American, Case No. 06-7057 (10th Cir. 8/27/07);
www.ca10.uscourts.gov/opinions/06/06-7057.pdf

This case involved a dispute between an insured, Yaffe, and its excess carrier, Great American.  As a result of an explosion at Yaffe’s scrapyard in Muskogee, Oklahoma. Yaffe incurred  $1,785,986.89 in liability on claims by numerous parties. Yaffe had two insurance policies – a  commercial general-liability policy issued by ACE with limits of $1,000,000 per occurrence; and a commercial umbrella policy issued by Great American with limits of $25,000,000.  The ACE policy, however, had a per claim deductible, rather than a per occurrence deductible.  Since most of the claims were under $10,000, ACE paid just under $500,000 of Yaffe’s total liability of over $1,785,000.  Yaffe wanted Great American to pay the difference between what Yaffe paid out in claims and the ACE policy limits – about $785,000.  Great American claimed it had no liability because the ACE policy had not been exhausted.  The trial court granted summary judgment to Great American, holding that the Great American policy is unambiguous and that Great American is only liable after the ACE policy is exhausted. The Tenth Circuit reversed, finding that the Great American policy was ambiguous.  The Tenth Circuit refused, however, to grant summary judgment to Yaffe, since Great American had not had an opportunity to respond to Yaffe’s motion for summary judgment in the trial court. 

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In Adair Group Inc. v. St. Paul Fire and Marine Insurance Co., the court determined the meaning of an "event" in a CGL policy. In the policy, an "event" was defined, in part, as an "accident." Adair claimed the policy covered claims resulting from "[t]he unanticipated failure of some of Adair's subcontractors to perform their work in a workmanlike manner." Both the trial court and the Court of Appeals disagreed, finding that such a claim was a breach of contract, and was not an accident or covered event under the policy. It did not matter if it was the subcontractors or the insured who failed to perform as required. The court concluded that "the deficient performance of Adair's subcontractors is not in itself an event triggering application of the insurance policy" and therefore, summary judgment was proper.

Read the case

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