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

In Merseal v. Farm Bureau, the Merseals filed for bankruptcy and valued the property in their home at $600.  Six months later, the house was destroyed in a fire, and the Merseals made a personal property claim for $150,000 dollars. 

Farm Bureau denied the claim because the Merseals intentionally misrepresented the extent and amount of their personal property. Farm Bureau based its belief on the discrepancy between the value of the personal property stated in the Merseals’ bankruptcy filing and the insurance claim. The Merseals sued alleging breach of contract and vexatious refusal to pay. A jury found in favor of the Merseals, and the trial court entered judgment according to the jury's verdict. The Merseals were awarded $134,362 on the policy, $13,586 for vexatious refusal to pay, and $67,000 in attorney's fees. The appellate court affirmed. 

Misrepresentations must be intentional to avoid the policy.  The method of valuation for bankruptcy is different from the method for valuation for insurance claims. Further, it was claimed the mistakes were made in the bankruptcy filing, and not in the insurance claim. The vexatious refusal claim was also upheld.  Farm Bureau placed the limits on the personal property after the bankruptcy claim without input from the Merseals; had the property valued after the fire by an independent company which valued the property at $131,929 actual cash value and $146,135 replacement cost; and failed to further investigate after getting a letter from the Merseals acknowledging errors on their bankruptcy statement, and explaining those errors.
 

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In Tran v. Nationwide Mutual Ins. Co, (unpublished) Ms. Tran was injured in an accident with an uninsured motorist.  She filed a claim with Nationwide.  After Nationwide made several requests for medical bills, Ms. Tran's attorney submitted them with a demand for payment of policy limits.  The bills totaled approximately $11,000.  There followed several rounds of offers between Nationwide and Tran's attorney.  At some point, the lawyer demanded payment of the undisputed amount of the damages, but Nationwide declined.  Eventually, Tran sued Nationwide for breach of contract and bad faith.  The parties filed summary judgment motion on the issues of bad faith and breach of contract.  The trial court granted Nationwide's motion and denied Tran's motion and Tran appealed.  The 10th Circuit affirmed. 

Tran claimed that Nationwide was in bad faith for not tendering the undisputed amount of the claim until after suit was filed, and was in breach of contract for not paying her the non-economic (pain and suffering) damages to which she was entitled.  Tran relied on the Quine case which was previously summarized here. There was no bad faith because there was a legitimate dispute as to the value of Ms. Tran's claim.  There was no breach of contract because there was no evidence of Ms. Tran's non-economic damages presented to the trial court. 

 

 

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In Benson v. Leaders Life Ins. Co., 2012 OK 111,   the insured did not admit to any alcohol problems in his life insurance application, although he did admit to having a blood clot in his leg.  Almost a year later, the insured was killed when he was attempting to help a stranded motorist.  Hospital records apparently showed the deceased had a blood alcohol content of 0.24%

After reviewing the records the insurance company concluded that Mr. Benson had falsified his answers on his application and rescinded the policy due to Mr. Benson's alcoholism. Leaders Life would rescind the policy even if the mistake was innocent, and the state of mind of the applicant was never considered. It was agreed that alcohol played no part in Mr. Benson's death.  

The Oklahoma Supreme Court held in Massachusetts Mutual Life Ins. Co. v. Allen, 1965 OK 203, 416 P.2d 935, there must be a finding of an intent to deceive the insurer before a policy may be avoided by reason of the insured's false statement or omission in the application. "Massachusetts Mutual, Whitlatch, Brunson, Claborn and Scottsdale are controlling precedent from this Court requiring a finding of insured's intent to deceive an insurer before a misrepresentation, an omission or incorrect statement in an application can avoid the policy under §3609."

Since the jury heard the evidence and it was a jury question, the court refused to reweigh the evidence and affirmed the award of $350,000 in actual damages and $10,000 in punitive damages:

"In plain language, we are not allowed to substitute our judgment for that of the jury merely because we would have decided or viewed disputed material fact questions differently than the jury. Where competent evidence was presented at trial to support reasonable findings as to those material fact questions relating to the claim in suit and no reversible error is otherwise shown, an appellate court must affirm a judgment based on a jury verdict, not second-guess such judgment or the jury verdict upon which it is based. These general principles guide our review here.

In the present matter, at trial, Leaders Life made clear that they believed there were material misrepresentations made by Mr. Benson. They argued that insured had attempted to deceive them. However, the trier of fact, the jury did not find that such a misrepresentation had been made. They decided in favor of the beneficiary, Shannon Benson and awarded her $350,000.00 dollars in actual damages and $10,000.00 in punitive damages. In the present matter, Mr. Benson did not die from an alcohol related illness; he died by being hit by a car attempting to assist a stranded motorist. If he had ignored the stranded motorist, Mr. Willige, Mr. Benson would have not been struck and may still be alive and working today. This Court cannot substitute its judgment for that of the jury under the case law presented in this lawsuit. Brunson v. Mid-Western Life Ins. Co., 1976 OK 32, ¶21, 547 P.2d 970; Whitlatch v. John Hancock Mutual Life Insurance Co., 1968 OK 6, ¶11, 441 P.2d 956; Scottsdale Insurance Company v. Tolliver, 2005 OK 93, ¶11, 127 P.3d 611."

 

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In Porter v. Farmers Insurance Co., (unpublished decision) the insured, Porter was in a one car accident in 2007.  Porter anonymously called in the accident in 2008, and then identified himself and told Farmers about the accident in 2009.  Porter initially claimed he did not recall the circumstances of the accident, but thought it was a one car accident.  Later, he claimed another car was involved which caused the accident.  Before the accident, Porter added the car to his policy.  Porter said he wanted to add it as an additional car, but the agent replaced the truck Porter had insured with the car.  Porter had previously signed a UM waiver on his truck, but did not sign one on the car.  

Farmers decided that UM coverage was imputed as a matter of law and tendered payment.  Porter's lawyer told Farmers to withhold payment while it was determined whether there were any liens on the payment.  Eventually, in October, 2011, payment was made.  Porter sued for breach of contract and bad faith. Summary judgment to Farmers was affirmed by the Tenth Circuit. The trial court held that to the extent UM coverage was imputed by law, Farmers’ payment of the statutory limit entitled it to summary judgment on the breach of contract claim. Denying Mr. Porter’s bad faith claim, the court held that Farmers’ investigation was adequate and its delayed payment was reasonable.

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In Davis v. Progressive Northern, 2012 OK CIV APP 98, Davis was a passenger in a car involved in a one car accident. Progressive paid Davis liability limits but did not pay him UM (uninsured motorist) coverage because the named insured had rejected UM coverage and had not paid any premiums for it.  Davis sued Progressive, claiming that the rejection was ineffective because the UM rejection form had not been approved by the insurance department.  Eventually, the trial court dismissed the claim.  The trial court found the selection/rejection form was in complete accord with 36 O.S. §3636(H) and failure to submit the form to the Department of Insurance for approval did not render the form invalid, citing 36 O.S. §3620.

The court of civil appeals affirmed the dismissal.  The form used by Progressive was virtually identical to the required statutory language and was therefore effective to waive UM.

 

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In Colony Insurance Co. v. Burke, a child placed in foster care by the state died, apparently of neglect while in Jones' care.  Oklahoma purchases liability insurance for foster parents who are licensed and/or certified by the DHS. Two companies which provided that insurance are United National Insurance Company (“United”), which defended Jones (Foster parent) in the wrongful death action, and Appellee Colony Insurance Company (“Colony”). Colony’s and United’s policies each had a $300,000 policy limit.  Colony claimed that its policy did not cover the claim, yet before trial the insurers offered $300,000 total to settle the claim.  The Estate of the child rejected the offer, but countered for the limits of both policies.  This offer was rejected by the insurers and at trial, the jury awarded $20 million. 

After the judgment, Colony filed a declaratory judgment action, claiming it had no duty to defend or indemnify Jones as a result of the Estate's wrongful death action. Of course, Jones and Estate counterclaimed for bad faith, breach of contract, etc., and Estate brought in United and asserted similar claims against it.  Before United's motion to dismiss was granted, however, Estate, Jones and United settled their claims.  United paid the Estate $2.75 million and the Estate dismissed its third-party claims against United. Separately, Jones agreed to pursue her pending counterclaims for breach of contract and bad faith against Colony, and to dismiss her state-court appeal of the underlying wrongful-death judgment, in exchange for which the Estate promised to limit its execution on the underlying judgment against Jones to 75% of any amounts Jones ultimately recovered from Colony.

Meanwhile, Colony filed a motion to dismiss claiming the Estate had no standing to assert contractual or bad faith claims against Colony. The district court granted Colony’s motion as to all of the Estate’s claims except for its claim for garnishment.  Colony and Jones then settled for $4 million.  It was agreed that $300,000 of the $4 million was Colony's policy limits and that Jones would pay Estate 75% of the $4 million per the prior agreement between Jones and Estate.  Colony then sought summary judgment against Estate on the garnishment claim, claiming the payment to Jones (and Jones payment to Estate) in amounts in excess of the policy limits extinguished the garnishment claim.  The district court agreed and the Tenth Circuit affirmed.  

 

 

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Morton v. Progressive Northern Ins. Co. (unpublished)

While boating over a Memorial Day weekend, Paul Morton’s boat motor was damaged, he claims from a submerged object. His insurer, Progressive Northern Insurance Company, concluded the damage was caused by wear and tear and mechanical failure, and refused to pay for the repair. Morton sued Progressive for breach of duty to deal fairly and to act in good faith. A jury found in favor of Progressive. Mr. Morton appeals, challenging several of the district court’s evidentiary rulings and its grant of Progressive’s motion for attorneys’ fees.

The Court of Appeals affirmed.  It found that Morton failed to identify his mechanics as experts as required by the rules.  Thus, the trial court properly excluded their opinions as to how the motor was damaged.  Further, such opinions were not proper lay testimony.  The court found that disparaging remarks about the Progressive adjuster were properly admitted as at least marginally relevant to rebut Mr. Morton’s character and credibility evidence as well as to rebut his characterization of his interactions with the adjuster and other Progressive employees.  Objections as to Progressive’s witnesses testimony were not specific, or were not made on the record.  There being no plain error, the trial court’s ruling was affirmed. Finally, attorneys fees were properly awarded to Progressive as “the ‘core element’ of the damages sought . . . [was] composed of the insured loss.”

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Andres v. Oklahoma Farm Bureau is the second case arising out of the denial of a homeowners claim.  In the first case, Andres v. Oklahoma Farm Bureau Mut. Ins. Co., 2009 OK CIV APP 97, 227 P .3d 1102, (Andres 1) the court held that, although OFB had a reasonable basis for denying coverage and therefore was not liable for bad faith, Plaintiffs claim was in fact covered under OFB's policy. Thus, Plaintiff was entitled to judgment on her breach of contract claim as a matter of law. The case was remanded with directions to the trial court to enter judgment in Plaintiffs favor on the latter claim, and to "set the matter for trial on the issues of damages, attorney fees, and costs."

After remand, OFB made an offer of judgment and then sought a scheduling order and additional discovery.  When OFB objected to Plaintiff’s motion for summary judgment, Plaintiff filed this action, claiming that OFB’s actions since the remand amounted to bad faith.  OFB was granted summary judgment and Andres appealed.  

The essence of Plaintiffs bad faith claim is her contention that OFB failed to initiate and pursue an independent investigation to evaluate her claim once the appeal in Andres I was concluded. Oklahoma law is clear that an insurance company has a duty to its insured to conduct an investigation of a claim that is "reasonably appropriate under the circumstances," and to "promptly settle the claim for the value or within the range of values assigned to the claim as a result of its investigation." Newport v USAA, 2000 OK 59, 11 P.3d 190, 196-97.  What is "reasonably appropriate under the circumstances," in terms of an investigation, of necessity will differ depending on the facts of a particular case. In this regard, it has been noted that "[o]nce a court ... proceeding is commenced seeking insurance benefits, normal claim handling is superseded by the litigation proceeding."  "To date, the courts have uniformly rejected the argument that an insurer can be guilty of bad faith for simply defending itself in a coverage litigation and taking advantage, even zealously so, of every right afforded under applicable state and federal discovery rules."

Thus, the court found that Plaintiff could not pursue a bad faith claim based on failure to investigate while the matter was in litigation. Neither party suggests that the value of Plaintiffs claim, or the amount of her damages, was undisputed. Thus, summary judgment was proper.

Please note this is an unpublished decision and is not precedential. 

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In Graham v. State Farm, summary judgment to the insured was reversed on appeal.  The primary UM  limits exceeded the insured's UM limits.  The State Farm policy language was clear and unambiguous, providing underinsured motorist coverage only to the extent that the State Farm policy limits exceed those of any primary underinsured motorist coverage. Thus, because the primary underinsured motorist coverage exceeded the State Farm policy limits, the trial court erred in granting summary judgment for $100,000 in favor of Graham. Reversed and remanded.

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Employers Mutual Casualty Company v. Bartile Roofs, Inc., 10th Circuit Wyoming


Based on its previous rulings in the same case, the Tenth Circuit held there was no duty to defend claims based on an insured’s negligent and unworkmanlike construction under the CGL policy issued by EMC to Bartile.  “[R]egardless of the label applied to a claim, “[u]nder [both] Wyoming and Utah law, the natural results of an insured’s negligent and unworkmanlike construction do not constitute an occurrence triggering coverage under a CGL policy.” Bartile I, 618 F.3d at 1174. . .”

In this case, the allegations were amended to specifically include claims of negligence.  There was a claim that Bartile’s negligence caused damage to other parts of the building. It was claimed that “work was negligently performed so as to accident[ally] cause physical damage to, and loss of use of other parts of the work at the project”. . . i.e., water damage.  Bartile claimed that Wyoming law would hold that conduct constituting both a breach of contract and a tort can trigger a duty to defend.  But the court stated the tort/contract distinction is essentially irrelevant to the applicable definition of an “accident” per Bartile I.  According to the court, Bartile made no argument that the consequential water damage at issue was not a natural result of Bartile’s own unworkmanlike or negligent construction.  Thus, “Bartile has not established an “accident” subject to policy coverage. 
 

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In Walker v. Progressive, the Tenth Circuit affirmed a summary judgment in favor of the insurer on the plaintiffs’ bad faith claim.  The bad faith claim involved the investigation of the theft loss of plaintiffs’ Tahoe while they were on vacation.  The Tahoe was found later, burned.  Progressive found that the steering column was not damaged, the car was for sale when it was stolen, it was a gas guzzler and plaintiffs had all the keys.  Progressive said these were red flags for fraud, and had its Special Investigation Unit (SIU) investigate the claim.  Plaintiffs were out of town when the theft occurred and Progressive wanted photos of the vacation.  When the photos were received, they appeared altered.  In addition, although the plaintiffs had said there were two keys, a third showed up.  The key and the photos were explained and the claim was paid.  

Plaintiffs’ bad faith claim is founded on the contention that Progressive’s investigation was both “untimely” and “improper,” and does not concern the disagreement between the parties concerning the value of loss or Progressive’s right to conduct a fraud investigation.  The gist was the way Progressive handled the third key and photo issues. Plaintiffs offered no explanation as to how they were damaged by the alleged unreasonable actions of Progressive, which is a required element of the bad faith claim. 

Once Progressive verified that the Walkers were out of town during the date of loss, it authorized
coverage for the claim, even though the origin of the third key remained unresolved. Thus, “it was irrelevant when Progressive determined the origin of the third key because Progressive agreed to pay for the repairs to The Vehicle in November 2008.”  The expert report prepared after the lawsuit was filed and after payment was authorized was irrelevant to the claim at issue – and was prepared in response to the lawsuit itself. 

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Circuit court erred in granting summary judgment to insurers based on a conclusion that appellants (successors in interest to the original insureds) are not an insured under policies.  Policies unambiguously cover occurrences while policies were in effect, and cover successors, which include appellants.  “Occurrence-based policies cover negligent acts or omissions which occur within the policy period, regardless of the date when the negligent acts or omissions are discovered or claim is made.”  Allegations describing facts covered by policy trigger duty to defend.  Therefore, if petition alleges that a covered event occurred within the policy’s effective date, insurer has a duty to defend though the policy has long expired.  Presence of allegations on which no recovery is possible do not discharge duty to defend. 

Renco v. Certain Underwriters at Lloyds

 

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In Haltom v. Great Northwest Ins., the issue was whether Plaintiffs' knee injury arose out of the car accident she was in a few weeks before.  When Haltom was checked out after the accident, she complained of many things, but not her knee.  A few weeks later, while doing yoga, her knee began to hurt.  She sought treatment and an MRI 4 months after the accident showed no tear.  But a few months after that, she had a tear in her knee and got it fixed.  She told the doctor her knee was hurt in the car accident.  In the meantime, the other driver agreed to pay policy limits and Haltom asked Great Northwest for a subrogation waiver.  Eventually, Great Northwest agreed to the waiver and paid her $10,000 in med pay.  Later, it declined any payment under her underinsured motorist coverage, claiming that the knee problem was not related to the accident.  

Summary judgment to the insurance company was affirmed.  It was not unreasonable to question whether the knee was injured in the accident, especially since there was no evidence of injury to the knee after the accident in the emergency room, and the first MRI did not show any tear. 

 

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In Hale v. Allied Insurance, Plaintiff was hurt in an accident involving a non-owned ATV on a wilderness trail.  The ATV was not registered, and not covered by insurance.  Plaintiff claimed he was entitled to UM coverage under his own policies for his injuries.   The insurer denied the claim, relying on an exclusion for accidents involving “any vehicle or equipment . . . [d]esigned mainly for use off public roads while not upon public roads.” Reasoning the ATV was designed for off-road use and the trail was not a public road, the insurer denied the claim.  The trial court agreed, granting summary judgment to the insurer. 

The Tenth Circuit affirmed.  It noted that although "road" wasn't defined in the policy, the policy  distinguishes between public roads and terrain suitable only for specially designed vehicles.  The policy’s language excludes coverage for accidents involving vehicles “designed mainly for use off public roads while not upon public roads.”  The trail where the accident happened was not a road, but an obstacle course, which inexperienced drivers were told to avoid. 

In addition, Plaintiff argued that UM coverage was mandated by Wyoming law, which required motor vehicles be covered; since ATV 's are defined as motor vehicles, they are required to be covered.  But, since this argument wasn't made to the trial court, the Tenth Circuit declined to consider it. 

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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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Mid Continent v. Union Ins. Co. (Tenth Cir, not published)

When S&W’s contractor Griffin, was hurt working on Noble’s site, he sued Noble.  Noble asked S&W to indemnify it per their contract.  The issue was which one of S&W’s insurers (primary or umbrella) was liable to pay for Griffin’s injuries.  If the accident was Griffin’s fault, the primary carrier, Mid Continent was on the hook.  Otherwise, the umbrella carrier, Union, had to pay.

The Mid Continent Policy contains “exclusions,” which limit Mid-Continent’s coverage. The exclusions in turn contain “exceptions,” which limit the scope of an exclusion and broaden Mid-Continent’s coverage. If an event is listed in an exception to an exclusion, Mid-Continent must cover that event.

The issue in this case involves an exception to an exclusion in the Policy. The “Contractual Liability Exclusion” limits coverage for, among other events, bodily injury arising from a contractual assumption of liability. The “Insured Contract Exception” narrows the Contractual Liability Exclusion so that Mid-Continent covers S&W’s contractual assumption of liability if S&W assumes that liability as part of an “insured contract.” The Contractual Liability Exclusion in the Policy provides: “This insurance does not apply to: . . . ‘Bodily injury’ . . . for which the insured is obligated to pay damages by reason of the assumption of liability in a contract . . .”. The Insured Contract Exception to the Contractual Liability Exclusion provides: “This exclusion does not apply to liability for damages: . . . Assumed in a contract that is an ‘insured contract’ . . . .”

Thus, because of the Contractual Liability Exclusion, Mid-Continent generally does not provide coverage for bodily injuries for which S&W (the insured) has assumed liability in a contract. But, Mid-Continent provides coverage if S&W assumed that liability as part of an insured contract by virtue of the Contract Exception to the Contractual Liability Exclusion.  An insured contract is a contract where the insured assumes liability for bodily injury to a third party where the insured or those acting for the insured would be liable in tort.

It was agreed that Mid Continent would be liable if Griffin caused his injuries.  So the question became, what does “cause” mean?  Mid Continent relied on depositions to show that Griffin did not cause his injuries.  Union put on experts to opine that Griffin caused the explosion when he took apart the machine he was working on, and that Griffin’s failure to wear flame resistant clothes contributed to his injuries.   The trial court defined “cause” in its plain and ordinary usage to mean “be the cause of, effect, bring about; occasion, produce; induce.” The court found that Griffin caused, at least in part, his injuries because the explosion was caused by Griffin’s taking the machine apart.  Thus, Mid Continent was liable.

There is also a nice discussion of determining causation under Oklahoma law and with regard to insurance policies.

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In Blumenthal v. New York Life Insurance, Blumenthal cancelled his universal life insurance policy with New York Life after  discovering the policy’s cash value and death benefit would be zero between 13 and 17 years.  The district court granted New York Life’s motion for summary judgment on the ground that the claims were barred by Oklahoma’s statutes of limitation.  Written materials relating to the policy were enough to put Blumenthal on notice of the basis of any claim he may have against New York Life.  Blumenthal appealed.  The Court of Appeals affirmed the district court’s ruling. It was an undisputed fact that Blumenthal received information that would put a reasonable person on notice that the anticipated premiums might be insufficient to maintain the policy until its maturity date. Blumenthal admitted that he never would have bought the policy if he had read the information when it was provided to him.

 

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Certain Underwriters v. B3, Inc., was a declaratory judgment action in state court, on whether the Total Pollution exclusion in an insurance policy issued by Lloyds applied to bar coverage for liability and damages.  The trial court found that there was no coverage, and the Court of Civil Appeals affirmed.  Since there was no coverage for the claim, there was no need to determine whether another party was a third party beneficiary of the policy and entitled to indemnification. 

The claim involved a damage claim by nearby landowners who said that their sewage from the defendants' wastewater treatment plant ended up on their property.  The court found that sewage was a pollutant (no kidding!) and was within the pollution exclusion of the policy.

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In Brown v. Oklahoma Farm Bureau, Brown was sued for negligently conducting a house inspection.  Although his policy was issued by AG Security, he sued both AG and Oklahoma Farm Bureau.  The court found that Oklahoma Farm Bureau was not liable on the claim because it did not issue the policy, even though it handled the claims for AG.  

The court found that Brown's alleged negligent inspection did not cause property damage, a requirement for coverage under the policy.  Further, even if it had, the professional services exclusion (the exclusion excluded coverage for property damage resulting from "rendering of or failure to render professional services in the performance of any claim, investigation, adjustment, engineering, inspection, appraisal, survey or audit services.") precluded coverage for the claim. 

There were coverage issues so that the bad faith claim was properly dismissed; further, the exclusion applied, so the contract claim was properly dismissed.

 

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After a large judgment was entered on behalf of their client, the law firm split up, resulting in a fee dispute between the lawyers.  When one of the lawyers sought a defense from his professional liability insurer, it filed a declaratory judgment action, claiming that there was no coverage for fee disputes.  The trial court agreed, and the Court of Civil Appeals affirmed.

The Court of Civil Appeals cites from the trial court's ruling as follows:

The language of the OAMIC policy is clear and unambiguous in excluding from coverage the following:

This policy does not apply:

a. To any claim arising out of any dishonest, fraudulent, criminal, malicious or knowingly wrongful act or omission or deliberate misrepresentation committed by, at the direction of, or with the knowledge of any insured.

b. To any claim arising out of the division of fees or fee [apportionment] between an insured and any other lawyer or lawyers.

. . . .

All of the allegations . . . arise from the fee dispute . . . . and as such, are excluded from coverage under the policy.

Oklahoma Attorneys Mutual Insurance Co. v. Capron, 2011 OK CIV APP 46

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Cohen-Esrey, the insured, was a property manager for an apartment complex.  Its employee, Phillips was found to have been pocketing rental money in September, 2006.  Cohen-Esrey notified its insurers of a potential claim on or before October 30, 2006.  But on November 1, 2006, Cohen-Esrey switched its errors and omissions coverage to Twin Cities.  No notice of the potential claim was given to Twin Cities until after June, 2007, when the apartment complex owners demanded that Cohen-Esrey make good on the money its employee, Phillips, stole. When Twin Cities denied the claim, Cohen-Esrey sued.  On summary judgment, the trial court found for Twin Cities because of the failure to satisfy the policy’s condition precedent that at the policy’s inception Cohen-Esrey “was [not] aware of [a] Wrongful Act, fact, circumstance or situation that [it] knew or could reasonably have foreseen might result in a Claim under this Policy.”  The Tenth Circuit affirmed.

Cohen-Esrey’s errors-and-omissions policy with Twin City was a claims made liability policy that covered both loss and defense costs. “Under a claims-made policy, coverage is only triggered when, during the policy period, an insured discovers and notifies the insurer of either claims against the insured or occurrences that might give rise to such claims.”  In contrast, under an occurrence policy, “coverage becomes effective if the negligent or omitted acts occur during the term of the policy.” The Twin City policy covered losses that Cohen-Esrey “shall become legally obligated to pay . . . resulting from Claims first made against the Insured during the Policy Period . . . for a Wrongful Act by the Insured, or an Entity for whom an Insured Entity is legally responsible.  The policy provision central to the dispute states that “as [a] condition[] precedent to coverage hereunder[,] . . . as of the inception date no partner, principal, officer, director, or member of the Insured was aware of any Wrongful Act, fact, circumstance or situation that he or she knew or could  reasonably have foreseen might result in a Claim under this Policy.”  Such prior-knowledge conditions are common in claims-made policies because they “ensure that only risks of unknown loss are potentially incurred,”

Kansas applies what it terms a two-prong, subjective-objective test to determine whether a prior-knowledge condition has been satisfied. The subjective prong is “whether the insured knew of certain facts.”  The objective prong is whether Cohen-Esrey could reasonably have foreseen that the facts known to it might result in a Claim under the Policy. Because the facts show that the insured knew facts which might result in a claim under the policy and failed to tell Twin City about  those facts, summary judgment was proper.
 

Tenth Circuit applying Kansas law

Cohen Esrey v. Twin City

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The Gibsons were told by their insurance company that their homeowner's policy would not be renewed when it expired on March 28; the Gibsons contacted their agent and thought they had insurance because they had taken down an above ground pool.  But the Gibsons did not pay any premium and heard nothing from the insurance company.  When they had a loss about a month after the policy expired, the insurance company denied it, saying there was no insurance in effect at the time of the loss.  The trial court granted summary judgment to the insurance company and the Court of Civil Appeals affirmed. 

The Gibsons were given proper notice of non renewal; and they did not pay any premiums.  The agent's statements could not bind the insurance company to cover a risk it had declined. There was no policy in effect at the time of the loss and summary judgment was proper. 

Gibson v. The Automobile Insurance Company, 2011 OK CIV APP 16

 

 

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In McMullan v. Enterprise Financial Group, Inc., the question certified to the Oklahoma Supreme Court was whether a bad faith claim could be brought against a vehicle service provider. 

In McMullan, the plaintiff purchased a used car from a dealership, and also purchased a vehicle service contract from the Defendant, Enterprise. The service contract indemnified the buyer for certain repair costs if mechanical breakdowns occurred before 48 months or 50,000 miles, whichever happened first. When a claim was made within 6 months, Defendant refused to pay. McMullan sued Enterprise for breach of contract and bad faith. 

The trial court granted summary judgment on the bad faith claim, since the vehicle service agreement was not an insurance contract. The Oklahoma Supreme Court reversed. The court states:

Although vehicle service providers may not be subject to the exact same requirements and regulations as insurance providers, vehicle service contracts meet the definition of and are designed to function and perform as "insurance." The consumer pays for indemnity and pays to shift the risk of paying for high repair costs to the vehicle service provider in exchange for a pre-paid premium. Because these contracts function like insurance, their providers should be subject to the same covenants of good faith that insurers must meet.

 

 

 

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There have been some recent unpublished cases of interest which discuss landowner liability, including landlord liability to third parties for conditions on the property.  Here is a summary of some of the main points of these unreported decisions.  

 

An absentee landlord in Oklahoma generally cannot be held liable as the keeper or harborer of its tenant’s pets. Hampton v. Hammons, 1987 OK 77, 743 P.2d 1053; Eastin v. Aggarwal, 2009 OK CIV APP 67, 218 P.3d 523; Bishop v. Carroll, 1994 OK CIV APP 37, 872 P.2d 407.

 

A property owner owes a licensee a duty to exercise reasonable care to disclose to him the existence of dangerous defects known to the owner, but unlikely to be discovered by the licensee. To an invitee, an owner owes the additional duty of exercising reasonable care to keep the premises in a reasonably safe condition for the reception of the visitor, but the owner need not remove known but obvious hazards. Pickens v. Tulsa Metropolitan Ministry, 1997 OK 152, 951 P.2d 1079, 1084. In other words, a landowner owes to an invitee, as well as to a licensee, a duty to protect him from conditions which are in the nature of hidden dangers, traps, snares and the like.” “A landowner has no duty to protect a business invitee from open and obvious dangers.” McKinney, 1993 OK 88 at 9, 855 P.2d 602 at 604.

 

A “hidden danger” within the terms of the rule governing the liability of an owner or occupant of the premises “need not be totally or partially obscured from vision or withdrawn from sight; the phrase is used to describe a condition presenting a deceptively innocent appearance of safety `which cloaks a reality of danger.’ Pickens, 1997 OK 152 at 10, 951 P.2d at 1084 (quoting Rogers v. Hennessee, 1979 OK 138, 3, 602 P.2d 1033, 1034). See also Jack Healey Linen Serv. Co. v. Travis, 1967 OK 213, 8, 434 P.2d 924, 927. In Julian v. Secured Investment Advisors, 2003 OK CIV APP 81, 23, 77 P.3d 604, 608, this Court noted:

 

The Oklahoma Supreme Court has stated that “the characteristic of an item as being observable . . . cannot, by itself, require that item to be declared as a matter of law an open and obvious danger.” Zagal v. Truckstops Corp. of America, 1997 OK 75, 9, 948 P.2d 273, 275. Instead, “[a]ll of the circumstances must be examined to determine whether a particular condition is open and obvious to the plaintiff or not.” Id. (citing Brown v. Nicholson, 1997 OK 32, 8, 935 P.2d 319, 322).

 

The general rule is that the right of possession and control over leased premises is a fundamental requirement for ascribing liability to a landlord for injury suffered on those leased premises, but the general rule does not apply where the leased premises are open to the public. See Schlender v. Andy Jansen Co., 1962 OK 156, 0, 380 P.2d 523 (Syllabus 3); Price v. MacThwaite Oil & Gas Co., 1936 OK 562, 0, 61 P.2d 177 (Syllabus 2).

 

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Doug Hambelton hit a deer with his tractor-trailer truck and his transmission failed about two weeks later. Canal, his insurer, refused to pay for the transmission repair, contending it was a mechanical failure. Hambelton sued Canal for breach of contract and bad faith. A jury found and awarded in favor of Hambelton on both claims, awarding actual damages of $5,366.98, plus $117,555.00 for bad faith, punitive damages of $75,000.00, and $72,982.50 in attorneys’ fees. The Tenth Circuit affirmed. 

First it was determined that the trial court correctly applied Oklahoma law.  Although the significant contacts were fairly evenly split, the trial court was correct in not applying Missouri law because while Missouri’s prohibition against bad faith and extracontractual damages protects Missouri insurers, Canal was not a Missouri insurance company.  Because the contractual relationship, which gave rise to the duty of good faith Oklahoma law seeks to protect, came into existence in Oklahoma, the district court correctly held that applying Oklahoma law protects Oklahoma’s policy interest without violating the policy of Missouri or South Carolina.

Canal’s claim that there was insufficient evidence to support the verdict was waived because Canal failed to file a Rule 50(b) motion after the verdict.  This failure forecloses a challenge to the sufficiency of the evidence. See, Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394, 404 (2006).  Canal’s claims that the bad-faith and punitive damage awards were excessive and  unconstitutional were also waived. Canal neither moved for a new trial after the jury verdict nor filed a post-trial motion to set aside the verdict. It cannot do so for the first time on appeal. See Hardeman v. City of Albuquerque, 377 F.3d 1106, 1122 (10th Cir. 2004).  In a separate order, the award of attorneys fees was also affirmed.

Hambelton v. Canal Insurance

Attorneys fees opinion

Hambelton v. Canal Insurance 2

 

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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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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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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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In Miller vs. Monumental Life Ins. Co. the trial court ordered (after remand from a prior appeal) that the ERISA based case be sent back to the plan administrator so the record could be completed.  The plaintiff, Miller, appealed from this order, claiming it was improper on various grounds.  The Tenth Circuit ruled that it was an interlocutory order over which it had no jurisdiction to determine. 

Aside from a few well-settled exceptions, federal appellate courts have jurisdiction solely over appeals from final decisions of the district courts of the United States.  A final decision is one that ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.  The order remanding the case to the plan administrator was not a final decision.

The court considers whether ERISA remand orders are reviewable on a case by case basis, and considers “practical finality.”  Neither the cost or delay associated with additional review of the “sole cause” defense, nor Miller’s unfounded fear about loss of his argument that Monumental was not entitled to raise this defense, justifies treatment of the remand order as a final order for purposes of review. Miller’s contentions are not “effectively unreviewable.” The appeal was dismissed for lack of jurisdiction.

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Alea London Ltd. v. Canal Club, Inc., 2010 OK CIV APP 33 is an odd case. It starts out as a liquor liability exclusion case and ends up being an assumption of liability case. Canal Club was the insured, and Alea the insurer. Canal Club was sued when an intoxicated patron (Valle) left its premises and was involved in a car accident which hurt two people. It was claimed that Canal served Valle when he was obviously intoxicated, a dram shop claim. Alea refused to defend the case because of its liquor liability exclusion. Another insurer (with lower limits) defended Canal, and Alea filed a declaratory judgment action, seeking a declaration that it had no coverage under its policy. The underlying case was then amended to add a second claim that Valle became intoxicated before entering Canal Club’s premises, its employees escorted him from those premises while he was still in an intoxicated state, and those employees negligently breached a duty of reasonable care when they “failed to make sure” Valle did not leave the area outside its premises, get into his car, and drive while he was intoxicated. Alea was not notified of the change in the allegations.  

In the underlying action, the first claim was dismissed, and Canal admitted liability on the second claim. A non-jury trial settled the amount of the damages. Then, the action switched back over to the declaratory judgment case. On cross motions for summary judgment, the trial court found that Alea was liable for the claims. The Court of Civil Appeals (COCA) reversed, finding no coverage for the claims. 

First, it found that Canal Club had an obligation to notify Alea of “critical post-denial developments” and the failure to do so “may modify, excuse or provide a defense to the performance of an insurer’s contractual duties.” Second, the COCA found that there was no duty under Oklahoma law which required Canal Club to prevent a drunk patron from leaving its premises and driving his own vehicle. As a result, the admission of liability in the underlying case triggered an assumption of liability exclusion. That exclusion precluded coverage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement;” but the exclusion does not apply if the insured would be liable even in the absence of any agreement.  

The court finds there would be no duty on the part of Canal Club to restrain Valle if he were not drunk, and no duty to restrain him simply because he was drunk – where Canal Club had not served Valle any drinks.  As a result, “Coverage under the CGL policy was not triggered by the basis for judgment in the underlying lawsuit.” In other words, the only reason Canal Club had any liability is because it agreed or confessed it. This brought the claim within the assumption of liability exclusion and the policy did not provide coverage. The court reversed and remanded, ordering that judgment be entered for the insurer.

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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.

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