Missouri ok's bad faith claim where there was no coverage

Usually, when there is no coverage, there can be no bad faith for not paying the claim.  But in Advantage Buildings & Exteriors, Inc., v. Mid-Continent Casualty Company, Missouri's Court of Appeals found that Mid-Continent could be liable for failing to pay the claim because it failed to provide its insured with a timely reservation of rights letter.

Advantage was sued in 2008 for construction defects.  Mid-Continent told Advantage it was investigating coverage, reserving its rights under the policy  and would let Advantage know of its determination.  A few weeks later, Mid-Continent told Advantage it was accepting the defense of the case under a reservation of rights.  Despite being told that its insured would likely be found liable and face millions in claims, Mid-Continent determined the most that was insured was about $50,000 -- but did not tell its insured this. Mid-Continent failed to respond to settlement demands, and then, 2 years later and a few days before trial, told the insured why the majority of the claims were not covered.  Advantage made a deal with the plaintiff.  In a declaratory judgment action, it was determined that Mid-Continent's coverage position was correct -- most of the claims were not covered.  But the bad faith claim went to trial, and Mid-Continent was hit for $3M in actual damages and $2M in punitive damages. 

Mid-Continent said there could be no bad faith because it defended the case and told Advantage it was reserving its rights and doing a coverage analysis.  But this was not a "proper" reservation of rights.  A "proper" reservation of rights must be both clear and timely, and the insured must fully understand the insurer's position. "Defending an action with knowledge of non-coverage under a policy of liability insurance without a proper and effective reservation of rights in place will preclude the insurer from later denying liability due to non-coverage." There is a duty of good faith to settle claims against an insured. 

The elements to prove such a claim of bad faith failure to settle are:
(1) the liability insurer has assumed control over negotiation, settlement, and legal proceedings brought against the insured; (2) the insured has demanded that the insurer settle the claim brought against the insured; (3) the insurer refuses to settle the claim within the liability limits of the policy; and (4) in so refusing, the insurer acts in bad faith, rather than negligently.

The judgment was reversed because of bad jury instructions, and the matter remanded for a new trial on actual and punitive damages.

No bad faith for failure to follow non-precedential case -- Oklahoma law

In Porter v. Oklahoma Farm Bureau Mutual Insur. Co., 2014 OK 50, the trial court dismissed a case for bad faith and breach of contract along with a class certification claim.  Porter claimed that Oklahoma Farm Bureau (OFB) was in bad faith for denying the claim in light of a previous court of appeals decision, Andres v. Oklahoma Farm Bureau Mutual Insurance Co., 2009 OK CIV APP 97, which found the policy ambiguous and required coverage based on the reasonable expectations of the insureds.  The Oklahoma Supreme Court affirmed in part and reversed in part.  The Oklahoma Supreme Court affirmed the dismissal of the bad faith and fraud claims, and reversed the dismissal of the breach of contract claim -- and the certification issue.  The class certification was dismissed as a consequence of the dismissal of the individual breach of contract claim.  

Bad Faith. There was no bad faith in failing to follow a Court of Civil Appeals decision that did not constitute the law at the time of an insurer's resistance to payment.  Skinner, 2000 OK 18, ¶ 19, 998 P.2d at 1223-24.  A split in authority does not render the policy provisions ambiguous.

Breach of Contract. The court said that if the damage was caused by a sewer back up, it was excluded, but if it was caused from the plumbing system, there was coverage.  The trial court erred in dismissing the breach of contract claim because the allegations stated a claim for breach of contract.

Class Certification.  Because the district court's dismissal of the individual breach of contract claim was reversed, and because the trial court dismissed the class action claim because of the dismissal of the individual breach of contract claim, the district court must revisit the class-action breach of contract claim on remand.

No bad faith where exclusions applied to preclude coverage (Oklahoma, unpublished)

In Browning v. American National (Okla. App., not published), the insureds made a claim against American for water damage to their home.  Apparently, the builder failed to put a vapor guard between the bricks and the inside of the house and water got through, causing damages and mold.  The Brownings got a judgment against the builder, and sought damages from American, claiming that American denied the claim in bad faith.  Summary judgment to the insurer was affirmed.  The policy clearly excluded damages caused by construction defects and by fungus.

Before the issue of an insurer's alleged bad faith may be submitted to the jury, the trial court must first determine as a matter of law, under the facts most favorably construed against the insurer, whether the insurer's conduct may be reasonably perceived as tortious." Further, determination of liability pursuant to the insurance contract "is a prerequisite to a recovery for bad faith breach of an insurance contract." Because this Court has found that the Brownings' claimed losses are excluded under the homeowners policy and that American National did not breach the policy terms by denying payment for those losses, we also find that the Brownings cannot recover for bad faith breach of the insurance contract. "Indemnity for loss under the contract is the centerpiece of a bad faith action."

citations omitted

Failure to accept checks tendered is not bad faith

In Berendes v. Geico Casualty Co., the 10th Circuit (Utah) (unpublished) affirmed summary judgment in favor of the defendant insurance company on a bad faith claim.  Plaintiff said the insurance company was in bad faith because there was no offer of policy limits within 30 days. Plaintiff sued the tortfeasor, got an excess judgment, and went after the insurance company.  But the insurer HAD offered policy limits, which were rejected by plaintiff’s counsel as conditional, since the insurer asked for a waiver of subrogation from Plaintiffs insurer and requested information on the hospital lien. Rather, it was the plaintiff’s rejection of the settlement checks which caused undue delay; and those actions did not amount to bad faith by the insurer.  

The assignability of tort claims was raised; and the court also found there was no duty of good faith to a third party claimant.



Wrongful Repo No Accident

In Allen v. Continental Western, the issue was whether the insurance company had a duty to defend a claim alleging a wrongful repossession by the insured.  The insured had repossessed Whipple's van twice, apparently to get her to pay back a loan.  In Missouri, an insurer's duty to defend is broader than that of the duty to  indemnify."The duty to defend  arises whenever there is a potential or possible liability to pay based on the facts at the  outset of the case and is not dependent on the probable liability to pay based on the facts  ascertained through trial." In  determining an insurer's duty to defend a suit against its insured, the court compares the  language of the insurance policy with the allegations asserted in the plaintiff's petition.  But those facts which are known or ascertainable also control an insurer's duty to defend.

First, the court found the tort of conversion was not an “occurrence” (or accident) as required by the policy, because it was an intentional rather than an accidental act.  Next, the court dismissed the idea that one could plead within coverage by claiming an intentional act was also negligent.  The pleading reveals not a hint of negligent conduct.

Finally, the policy did not apply to "'[b]odily injury' or 'property damage' expected or intended from the standpoint of the insured." Since the insureds consciously acted to repossess Whipple’s van with both the intention, and expectation that Whipple would not be able to use it, there could be no coverage. 

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Vexatious refusal to pay shown, Missouri law

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.

Uninsured Motorist coverage and Bad faith -- failure to pay undisputed amount -- Okla law

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. 



Intent to deceive required to avoid a policy for misrepresentations in application -- Okla law

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."


No bad faith where delay in payment was requested by insured Oklahoma law

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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Summary Judgment on Bad Faith Claim Reversed, Utah law

In Blakely v. USAA Casualty Insurance Co., the insureds had a fire in their basement.  USAA paid for part of the loss, but the Blakely’s were dissatisfied and sought arbitration. The arbitration awarded the Blakelys much more than USAA paid, but less than the Blakelys wanted.  The Blakelys sued for bad faith.  Summary judgment was granted to USAA, and the Tenth Circuit reversed.

Under Utah law, the implied obligation of good faith and fair dealing requires “at the very least, that the insurer will diligently investigate the facts to enable it to determine whether a claim is valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting or settling the claim.”  In this case, although the facts were undisputed, it was still improper to grant summary judgment because under Utah law, “[w]hether there has been a breach of good faith and fair dealing is a factual issue, generally inappropriate for decision as a matter of law.”  Furthermore, “the fairly debatable defense should not be resolved through summary judgment if reasonable minds could differ as to whether the defendant’s conduct measures up to the standard required for insurance claim investigations.” The court found that the undisputed facts demonstrate that “reasonable minds could differ” as to USAA’s compliance with Utah’s standard for good faith and fair dealing, such that summary judgment was improper. The court also found that the parties entire course of conduct was relevant.

The facts relied upon for denial of summary judgment included: 1) USAA refused to replace a number of charred floor joists, and only replaced a small section of burned subflooring after repeated complaints from Plaintiffs. Even if USAA“performed all the repairs identified in [the structural engineer’s] report,” it is irrelevant, since the report specified that it only addressed structural concerns. In fact, the report suggested additional repairs were necessary to address the joist manufacturer’s warranty and “odor, or finishing difficulties;” 2) USAA’s structural adjuster refused at times to communicate with Plaintiffs; 3)  USAA’s adjuster claimed not to be able to smell smoke, even though the appraisers could smell smoke three years later; 4) USAA’s personal property adjuster did not travel to Utah, but instead delegated her duties to the wife of the contractor, who was not an adjuster.

USAA then claimed that Plaintiffs never submitted a sworn statement in proof of loss as required by the policy.  USAA did not invoke this provision when it denied Plaintiffs’ additional claims, and USAA never told Plaintiffs they needed to provide a proof of loss. In fact, USAA apparently made its initial payouts without receiving a proof of loss. USAA cannot, at this late date, invoke a contractual provision it failed to rely on in its initial settlement of Plaintiffs’ claim. Additionally, the signed proof of loss was only necessary to trigger USAA’s duty to pay money. It was not relevant to whether USAA acted reasonably in investigating and evaluating the claim.

Wrongful death, foster child and bad faith -- Oklahoma law

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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Verdict in favor of insurance company on bad faith claim affirmed, boat motor, Oklahoma law

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.”

Litigation conduct is not bad faith - Oklahoma case

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. 

Bad Faith, UM, and Judgment as a matter of Law (Oklahoma law)

In Bannister v. State Farm, Bannister was involved in a one vehicle accident.  Bannister claimed that a car cut off the car in front of him, and the car in front of him slammed on the brakes.  Bannister had to lay his motorcycle down, and was injured.  When State Farm denied the claim, Bannister sued for breach of contract and bad faith.  Later, though, Bannister withdrew his breach of contract claim.  The jury found for Bannister on the bad faith claim and awarded him $350,000 actual and $350,000 punitive damages.  The trial court granted State Farm's judgment as a matter of law, saying there was a reasonable dispute as to whether the accident was Bannister's fault.  The Tenth Circuit affirmed. 

The court noted that Bannister admitted  he was driving under the influence, speeding and following too closely.  These facts reasonably supported a legitimate dispute as to whether Bannister was majority at fault in his accident; and that no evidence suggested that further investigation would have undermined the State Farm’s legitimate basis for disputing the claim.  No other witnesses were found regarding the accident, so the determination was based on the police report and Bannister's own statements. 

On appeal, Bannister asserts that State Farm’s investigation was inadequate.  For example, Bannister argues that “had State Farm taken a recorded statement, it could have and should have asked Bannister whether he was (1) drunk, (2) speeding and/or (3) following too closely.” But Bannister  does not explain how the answers to those questions would have altered the factual basis on which State Farm reasonably disputed coverage. Critically, Bannister’s truthful answers to those questions would have confirmed that his blood-alcohol level was above the legal limit; that he was speeding by 5-10 mph; and that he was following too closely.  All of these show that State Farm had a reasonable basis to deny the claim.

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MSJ affirmed on bad faith investigation claim - Okla law

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. 

No bad faith where there was a dispute as to whether the accident caused the injury

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. 


No bad faith for failure to pay life policy in 30 days

Toppins v. Minnesota Life

Mr. Toppins died in an airplane crash within 2 years of taking out a million dollar life insurance policy – i.e., within the 2 year contestable period.  Minnesota Life began a routine investigation because the death occurred within 2 years of the policy.  The investigation included a telephone interview with Mrs. Toppins, the beneficiary, and a request that she sign the investigator’s report and some medical information release forms.    Rather than sign the documents, counsel for Mrs. Toppins demanded immediate payment and disputed Minnesota Life’s right to conduct an investigation.  Suit was filed against Minnesota Life about 35 days after the claim was sent.  Five days later, Minnesota Life was told there were no changes to the report, and Minnesota decided to pay the claim without Mrs. Toppins signature on the report or authorization.  Minnesota Life contacted its reinsurer to confirm the decision, and sent off the check for the face amount of the policy plus interest.  The claim was paid 47 days after it was received.

Summary judgment was later granted to Minnesota Life on Mrs. Toppins claims of breach of contract and bad faith.  The Tenth Circuit affirmed.  

Ms. Toppins argued that Minnesota Life breached its duty of good faith and fair dealing as follows: (1) it delayed payment while waiting for the reinsurer’s confirmation of its decision to pay, (2) it delayed payment while it waited for Ms. Toppins to sign her statement and complete the medical records authorizations, (3) it engaged in a standard practice of conducting underwriting review after an insured’s death, and (4) it did not pay on the policy within 30 days of receipt of the claim.

As to the 4 days delay in payment caused by consulting with the reinsurer, the court said that it was reasonable for an insurer to consult with its reinsurer, and the 4 day delay was not unreasonable. The insurer was entitled to investigate the claim because the insured died within 2 years of the policy inception. As to Mrs. Toppins claim that Minnesota Life was in bad faith for conducting post claims underwriting, the court rejected the claim, saying that “The tort of bad faith breach of an insurance contract must be based upon an insurer’s wrongful denial of a claim; it cannot be based upon the conduct of the insurer in selling and issuing the policy.”  

Oklahoma law says that life insurance claims shall be paid within 30 days after proof of death, otherwise, interest must be added to the amount paid. The failure to pay within 30 days, coupled with the fact that Minnesota Life did not know of the statute was not bad faith.  The payment of the full amount of the life insurance policy, plus interest, 47 days after receipt of proof of death did not constitute bad faith.

Uninsured Motorist coverage and Bad faith

 In GEICO v. Quine, Watkins was a fault free passenger injured in a 3 car collision. Her medical bills were $9,000 and she was paid $13,000 from the tortfeasor. GEICO waived its subrogation rights and Watkins sought policy limits of $100,000 for her injuries. GEICO declined to pay policy limits and offered between $6,000 and $11,000 to settle Watkins’ claim. Watkins rejected the offers but demanded that GEICO was required to tender the “undisputed” portion of the UM policy. GEICO declined to make any payment without a release and filed a declaratory judgment action. 

Based on the facts and following the doctrine of stare decisis, the court answered the certified legal question in the negative.

In reaching its decision, the Supreme Court relied heavily on Garnett v. GEICO, 2008 OK 43, 186 P.3d 935. Watkins received compensation from the tortfeasor's insurer in excess of her economic/special damages. GEICO, through its evaluation, determined that Watkins was entitled to some amount of UIM benefits under the GEICO policy for the noneconomic/general damage element of her claim. The distinction between these two damage elements is especially germane under the facts of this case. The parties could not agree on an appropriate value for Watkins' general damage claim; thus, a legitimate dispute arose. GEICO's refusal to issue an advance payment on Watkins' UIM claim presents a scenario far different than one involving a request for partial payment needed to satisfy unpaid medical expenses, lost wages, or other economic/special damages--cases where the impact of the loss is direct, immediate, and measurable with reasonable certainty.See, e.g., Weinstein v. Prudential Prop. & Cas. Ins. Co., 233 P.3d 1221, 1229-1231, 1241 (Idaho 2010) (finding sufficient evidence to support bad faith verdict where insurer unreasonably delayed payment of UM proceeds for unpaid medical bills). The only portion of her claim remaining after payment from the tortfeasor were those indeterminate sums attributable to general damages, and accordingly, the facts of this case are governed by our prior decision.

The court concludes:

that an insurer's refusal to unconditionally tender a partial payment of UIM benefits does not amount to a breach of the obligation to act in good faith and deal fairly when: (1) the insured's economic/special damages have been fully recovered through payment from the tortfeasor's liability insurance; (2) after receiving notice that the tortfeasor's liability coverage has been exhausted due to multiple claims, the UIM insurer promptly investigates and places a value on the claim; (3) there is a legitimate dispute regarding the amount of noneconomic/general damages suffered by the insured; and (4) the benefits due and payable have not been firmly established by either an agreement of the parties or entry of a judgment substantiating the insured's damages.


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No Bad Faith Where Policy Did not Cover Claim

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.


Agent not required to reimburse Insurance Company for bad faith judgment

In Guideone v. Shore, Guideone (Insurer) wanted Shore (Agent) to pay for all or part of a bad faith settlement it made with its insured.  Apparently Agent had told the insured that her UM coverage did not kick in until after the liability carrier paid its limits.  This is wrong under Oklahoma law.  But, when the insured repeated this information to the Insurer, the Insurer did not correct the error.  In addition, the Insurer did not timely investigate the claim.  As a result, the Insurer was sued for UM and for Bad Faith.  The Insurer settled with the Insured, and then went after the Agent for the money it paid in extracontractual damages.  Summary judgment to the Agent was affirmed.

There was no express indemnity in the Agency contract, so summary judgment was appropriate on that theory.  There was no right to implied indemnity because the Insurer was at fault for the Insured's claims.  There was no right to contribution under the contribution among joint torfeasors statute (12 O.S. § 832) because as an agent, Agency could not be liable to the insured for bad faith. 


Summary judgment ok where policy expired before loss

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



Vehicle service agreement subject to good faith


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.




Bad faith claim survives appraisal award

In Blakely v. USAA, the Blakelys, (Homeowners) sued USAA after a fire damaged their home.  USAA had paid the Homeowners nearly $100,000 for the loss.  Dissatisfied, the Homeowners invoked the appraisal provision and were awarded nearly $200,000 more.  Homeowners then sued USAA for breach of contract, bad faith, and intentional infliction of emotional distress.  USAA sought summary judgment on the breach of contract and bad faith claims.  It was granted, and the court also dismissed the bad faith claim.  The Tenth Circuit affirmed the dismissal of the breach of contract and intentional infliction of emotional distress claims but reversed the dismissal of the bad faith claim. 

The breach of contract claim was properly dismissed because by paying all amounts awarded under the appraisal, USAA had fulfilled its contractual obligations to Homeowners.  The intentional infliction of emotional distress claim was properly dismissed because the conduct complained of was not outrageous enough. But the bad faith claim was dismissed as frivolous.  It was not raised in summary judgment motions.  Because the Tenth Circuit did not think the bad faith claim was frivolous, this part of the trial court’s decision was reversed.

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Insurer in bad faith for not fixing transmission which failed after an accident

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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Choice of Law / Service of Suit Endorsement

Choice of Law / Service of Suit Endorsement


Cook was used a policy by Admiral. Cook told Admiral of a claim in Oklahoma. Admiral said the policy did not count the claim and that Texas laws applied because the policy was delivered to Cook in Texas.


The court disagreed finding that the service of suit endorsement allowed Oklahoma law to apply. In the Service of suit endorsement, Admiral agreed it could be sued in  any court of competent jurisdiction and that all matters would he determined in accordance of the law and practices of such court.


Since the suit was filed in Oklahoma, the court found that Oklahoma law applied.  Further, fact questions precluded summary judgment on whether the pollution exclusion applied and also whether the insured acted in bad faith.


Fossil Creek v. Cook’s, 2010 Ok Civ App 123

No bad faith where policy doesn't cover the claim

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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Pre-Existing Medical Condition does not avoid accident only death policy

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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Claim of fraud in settlement requires recission

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. 

Intentional facts are intentional acts which preclude coverage - and delay in filing notice of removal was not fatal

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.

Failure to meet requirements of the Unfair Claims Act is negligence

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.

Insurer not required to pay replacement cost where property not replaced

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

Reliance on ambiguous policy language is not bad faith

In Andres v. Oklahoma Farm Bureau Mutual Ins. Co., the Oklahoma Court of Civil Appeals decided that even though OFB should have paid the Andres' claim, it could not be found liable for bad faith.  It therefore affirmed in part and reversed in part a motion for summary judgment granted in favor of OFB.  

Andres made a claim on his homeowners policy when water from a city sewer line backed up into his home.  OFB said it wasn't covered, citing to policy language which excluded losses from water damage, including “water which backs up through sewers or drains . . .”  The court found this exclusion applies not only to water, but to the sewage which might be in the water.  But, the policy policy specifically covered "Accidental Discharge or Overflow of Water or Steam from within a plumbing . . . system[.]"  Thus, the policy was ambiguous, because it both included and excluded sewage back ups, and therefore, the policy was construed against the insurer. 

Although the court decided that OFB was liable to the homeowners on the policy, it upheld the summary judgment on the bad faith claim, since OFB had a legitimate dispute as to coverage.  The court states: 

OFB denied the claim on the grounds that the claim was not covered by the policy; it relied upon decisions from nine other jurisdictions which supported its theory; its legal theory was plausible; and there was no Oklahoma precedent. Nothing in the appellate record suggests that OFB lacked a good-faith basis for refusing to pay Plaintiffs' claim. Thus, we conclude as a matter of law that OFB had a reasonable legal basis for refusing to pay the claim, and it is not liable for breach of the duty of good faith and fair dealing. The trial court properly entered summary judgment on this claim.




No Bad faith for failure to provide benefits not provided for under the policy

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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The Case of the Misplaced Modifier - or poor English does not make policy ambiguous

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!


Place of performance determines choice of law for insurance claim

In Moses v. Halstead, the court was faced with a choice of law issue:  should the court apply the law of the place of the insurance policy or the law of the place of  performance?  The court found that Kansas law applied under both the place of the contract and the place of performance analysis.

Moses was the passenger in her car when Halstead ran off the road, injuring her.  The insurance policy was issued by Allstate in Kansas.  The accident occurred in Missouri.  When Allstate failed to settle Moses' claim for policy limits, Moses sued Halstead in Missouri and got a judgment in excess of limits.  The judgment was registered in Kansas state court, and Moses started garnishment proceedings.  Allstate removed the case to federal court.

The trial court ruled that Missouri law applied and that Allstate was entitled to judgment since Missouri required an assignment from the insured before a judgment creditor can file an action agaisnt the insurance company for bad faith refusal to settle.  Kansas does not require such an assignment.

The Tenth Circuit reversed, finding that Kansas law applied to the claim.  It noted that in Kansas, while an insurer's duties are contractually based, breach of the duty is judged by a tort standard of care.  The court reviewed various Kansas decisions and determined that a claim for negligent or bad faith refusal to settle goes to the substance of an insurer's contract duties, rather than the manner of performance of those duties. Therefore, the claim would be govered by the law of the place of the contract, Kansas.  Furthermore, the court determined that a failure to settle claim went to the manner and method of performance, and that the place of performance would apply to this issue.  Since the demand for performance and the rejection of that demand was made in Kansas, the court found that Kansas law applied to this issue, as well. 

The court then remanded the case for the trial court to apply Kansas law in the first place. 

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Bad faith claim against reinsurer subject to arbitration

In a case which has involved the interpretation of Oklahoma's arbitration statutes and the amendments to those statutes, a federal judge has ruled that an arbitration agreement between an insurer and its reinsurer is broad enough to require that any bad faith claim the insurer may have should be arbitrated as well.

The case was filed in the Northern District of Oklahoma by MidContinent against GenRe  (Case No. 06-cv-00475)  The order prohibits MidContinent from amending its complaint to add a bad faith claim but notes that MidContinent could include such a claim in the arbitration.

This case was undoubtably complicated by the recent flurry of amendments to the Oklahoma arbitration statutes.  Those statutes have always prohibited arbitration of insurance matters unless permitted by statute.  But there was always an exception to that prohibition for agreements between insurance companies -- at least  until the statutes were amended in 2005 and the legislature omitted the exception.  The 2005 amendments were retroactive; and then, in 2008 the "between insurance companies" exception was put back in.  The 10th Circuit has ruled that the 2008 amendment was also retroactive, so would apply to the dispute.



No Bad Faith for not paying for car warranty

When Pitts' car was totaled, he got his insurance company to get him another.   But his totaled car had a full powertrain warranty on it, while his replacement car did not.  He figured that cars with warranties were worth more than cars without them.  The insurer claimed that the warranty was not covered as the policy limits liability to the lesser of actual cash value or cost of replacement.  Since the matter was undecided, and there was an arguable basis for the denial of the claim, the summary judgment to the insurer on the bad faith claim was affirmed. 

Pitts v. West American Insurance Company


Earth Movement Clause not Ambiguous

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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Workers Comp Carriers may be liable for bad faith for failing to provide benefits

In Sizemore v. Continental Cas. Co,   the Oklahoma Supreme Court said that if a workers compensation insurer refused to pay benefits when due, the employee could get a certification from the workers comp court about the amount of benefits due.  From there, the employee could either (1) file a certified copy of the certification order, with the award attached, in the district court as a judgment and proceed to execution pursuant to section 42(A) or (2) the claimant may file a claim in tort for the insurer's bad faith -- in which case, the amount of unpaid benefits would be part of the damages.  

But what about the employee who was ordered to receive treatment, which the insurance company did not provide?  That is the situation in SUMMERS v. ZURICH AMERICAN INSUR. CO.,just decided by the Oklahoma Supreme Court. Since there is no monetary award to garnish, the court decides that the only recourse for a worker in that situation is to proceed directly with a bad faith action.

A claimant who has obtained an order certifying that non-monetary benefits have not been provided as ordered does not have the option of enforcing the award as a judgment in the district court. See Okla. Stat. tit. 85, § 42(A). That claimant's remedy is to proceed with a tort claim for bad faith in district court.

The "bad faith conduct by a workers' compensation insurer in refusing to pay an award of benefits to an injured worker is judged by the same standard as bad faith conduct by any other insurer." Id. citing Badillo v. Mid Century Ins. Co., 2005 OK 48, ¶ 28, 121 P.3d 1080, 1094 ("the minimum level of culpability necessary for liability against an insurer to attach is more than simple negligence, but less than the reckless conduct necessary to sanction a punitive damage award against said insurer").

It should be noted, however, that the workers comp insurer is only liable for bad faith after notice and a hearing in the workers comp court.  In Summers the court found that there were fact issues precluding dismissal.


No UM for injuries occuring during car theft

In Gaither v. Allstate Insurance Company,  the Gaithers sued Allstate for bad faith for failing to pay them under their UM coverage.  Summary judgment to Allstate was affirmed on appeal. 

The Gaithers with their children stopped at a convenience store to get drinks.  There was an altercation inside the store and Mr. Ramirez ran out, grabbed Mrs. Gaither, and put a gun to her head.  One child was still in the car, but got away; and Mrs. Gaither was able to get away as well.  Mr. Ramirez then drove off and crashed the car.  Allstate paid for the car and also paid for medical expenses under its medical payments coverage.  But Allstate refused to pay UM to the Gaithers for their injuries.  The trial court granted summary judgment to Allstate on all claims:

First, the district court concluded that the injuries suffered by the Gaithers regarding the incident with Mr. Ramirez did not “arise out of the . . . use of an uninsured auto,” thus falling outside the scope of UM coverage.

The court further granted summary judgment in favor of Allstate on the Gaithers’ bad faith claim. The court then concluded that Plaintiffs failed to raise any genuine issue of material fact relating to the Medical Payments coverage. Although the Gaithers had submitted bills that allegedly remained unpaid, the court found that they failed to demonstrate how the bills related to treatment regarding the injuries incurred on September 18, 2005.

In order to be covered for UM, there must be injuries caused by an accident, arising out of the “ownership, maintenance or use of a motor vehicle.”  The court found there were accidental injuries, but that those injuries did not arise out of the ownership, maintenance or use of the car. In order for the injuries to be causally related to the use of the car, the use of an uninsured motor vehicle must be related to its transportation nature and the injuries must be “connected to that use.”  The court discussed the various cases dealing with the issue of when an injury is caused by the car.  Eventually, the Court found that the assault took place outside the car; the Gaithers were not injured by any part of the car; the car was not running when the assault occurred; and that therefore, the Gaither’s injuries were not connected to the transportation use of the vehicle.  The fact that the assaults occurred while Ramirez was trying to escape was not sufficient to raise a fact question. 

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No bad faith for med pay coverage

Ellis fell through Spaniol’s deck and was injured.  She claimed that Spaniol’s insurer, Liberty Mutual, acted in bad faith when it failed to properly investigate and pay her claim.  The court held that Ellis, a stranger to the insurance contract, could not bring suit directly against Liberty, and had no claim for bad faith. 

The court states: “‘[T]he insurer’s duty to deal fairly and act in good faith is limited. It does not extend to every party entitled to payment from insurance proceeds. There must be either a contractual or statutory relationship between the insurer and the party asserting the bad faith claim before the duty arises.’ Roach v. Atlas Life Insurance Company, 1989 OK 27, ¶ 8, 769 P.2d 158, 161. The record does not reveal, and Ellis does not assert, a contractual or statutory relationship with Liberty Mutual. Her status was one of third-party claimant under the policy.”

Thus, Ellis’ status as a third party beneficiary is not sufficient to state a claim for bad faith against Spaniol’s insurer, Liberty.  

Ellis v. Liberty Mutual Insurance Co.

Workers Compensation & Bad Faith

We were recently asked whether a workers compensation carrier could be liable for bad faith for denying a claim.  The quick answer appears to be no, there is only bad faith in workers comp where the insurance company fails to pay an award.

This appears to be a contentious issue with the Oklahoma Supreme Court.  In the latest pronouncement, Sizemore v. Continental, the court said that it recognizes a tort for bad faith when a workers compensation carrier refuses to pay a workers compensation award.  The decision was 5/4 with one concurring and two dissenting opinions.  The reason for the multiplicity of opinions is that the court's decision in Sizemore reversed recent opinions in DeAnda and Kuykendall which held that the sole remedy for failure to pay an award was interest on the payment as set forth in the workers comp statutes.

In Whitson, the court said that a workers comp insurer could not be liable for bad faith for a vigorous defense of a claim.  But in the seminal Oklahoma bad faith case, Christian, the insurance company had no defense but went to trial anyway, allowed the insured to present his case and then rested without presenting any evidence. 

So perhaps the next chapter of this saga will provide some sort of guidance on a bad faith defense without just cause, (bad faith) vs providing a strong defense -- or litigation tactics (not bad faith). 



Standards of proof in Set Fire Bad Faith cases

In Newman v. State Farm, the 10th  circuit discussed the quantum of proof necessary for an insurance company to show a set fire and avoid a bad faith claim.  The Newman's house burned down when no one was home; Mrs. Newman had moved out and the rest of the family was camping.  The cause and origin inspection showed the fire started in or near the stove, but no accelerants were found, and no cause was determined.  State Farm was getting ready to pay the claim when it received information that the Newmans had paid someone to burn the house. 

When the claim wasn't paid, the Newmans sued State Farm for breach of contract and bad faith.  State Farm got summary judgment on the bad faith claim and the jury found for State Farm on the breach of contract claim.  On appeal, the Newmans complained that the jury was not properly instructed on State Farm's intentional acts and false swearing defense. 

“First, the Newmans argue[d] that contrary to Oklahoma law the district court did not instruct the jury that State Farm must prove each of the necessary elements of its arson defense.”  But in a case where evidence of arson is circumstantial, proof that the fire had an incendiary origin along with proof of motive, intent, and opportunity by the insured is sufficient. The insurer is not required to prove motive, intent, and opportunity specifically as elements of arson.  The jury was properly instructed that the affirmative defense of fraud need only be shown by a preponderance of the evidence, not by clear and convincing evidence.  As to the false swearing defense, no detrimental reliance need be shown, since that was not a requirement under the policy.



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Insurer not in bad faith for failing to pay on cancelled policy

In Kutz v. State Farm Fire & Casualty Company, 2008 OK CIV APP 60, the issue was whether the Kutzes were properly notified about their policy cancellation. The Kutzes sued State Farm and Agent for bad faith breach of contract after State Farm failed to defend John Kutz or pay his claim for liability for an auto accident because the policy insuring the vehicle had been canceled before the claimed loss occurred. The Kutzes asserted State Farm and Agent failed to notify them the policy was being canceled, and the Kutzes asserted Agent was negligent for failing to warn them before cancellation.

The Kutzes claimed they did not receive the following from State Farm: a balance due notice on April 30, and a cancellation notice on August 26. The policy was cancelled on September 8; and Mr. Kutz was involved in an accident in November. It was admitted that the Kutzes did not pay the full premium, but they claimed it wasn’t their fault because they did not receive a reminder that the premium was due.

The court first noted that State Farm was required to follow the terms of the policy in cancelling it. Midwestern Ins. Co. v. Cathey, 1953 OK 169, 262 P.2d 434, 436. The policy only required that the cancellation notice be mailed, not that it be received, in order to be effective. The plaintiffs claimed that the record only showed the cancellation notice was prepared, not that it was mailed. But the evidence included a photo of the envelope addressed to plaintiffs going through State Farm’s automated mailing system, and an affidavit that it was State Farm’s regular practice and procedure to submit the notices to the post office immediately thereafter, and State Farm did not deviate from its procedure. A business’s regular practice and procedure is admissible as proof of mailing. Summary judgment in favor of State Farm was affirmed.

The court then discussed the Kutzes claim that the agent was negligent in failing to tell them they forgot to pay their premium. The court that the agent had no such duty. Summary judgment to the agent was also affirmed.

This case is interesting because it details the type of proof necessary to show that something was mailed. Many insurance companies no longer send out notices by certified mail – thus, it has been difficult to show such notice. Furthermore, the court was unwilling to expand the duty of an agent to include advising a client about payment and cancellation issues.

Policy cancellation precludes coverage

In Kutz v. State Farm Fire & Casualty Company, 2008 OK CIV APP 60, the Kutzes claimed that State Farm was in bad faith for failing to defend them on an auto accident claim that arose after their policy had been cancelled for non-payment of premium. 

Plaintiffs did not deny they failed to pay the full premium due. But they claimed that State Farm did not prove that notice of cancellation was sent to them.  The parties agreed that the policy requires State Farm only to mail the cancellation notice, and not to insure that it is received.

State Farm presented the affidavit of Taylor to prove mailing of the notice (which Plaintiffs said they did not get). 
The court found the affidavit was sufficient evidence that the notice was mailed: the undisputed evidence showed that the cancellation notice was prepared on August 26, 2004, the envelope was photographed going through State Farm's automated mail system, it was State Farm's regular practice and pocedure to submit the notices to the post office immediately thereafter, and State Farm did not deviate from that procedure. Taylor could testify as to the procedure, even though the mailing of the notice happened in Arizona, while Taylor was located in Oklahoma. 

A business's regular practice and procedure is admissible as proof of mailing.
State Farm's  policy plainly states that mailing of the notice is sufficient proof of notice of cancellation.

Because the Court found that State Farm strictly complied with the cancellation provision in the policy, summary judgment was proper. 
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Cancellation of policy after loss

Roesler v. TIG; 251 Fed.Appx. 489, (10th Cir. Okla. 2007)

Roesler was a nurse anesthetist.  He purchased liability insurance from TIG in May 2002. In August 2002, Roesler was sued for his involvement in the June 1998 cesarian section birth of a severely brain-damaged infant. Roesler notified TIG, and TIG rescinded Roesler’s policy because he failed to include information about the incident on his application.  Roesler sued for bad faith and breach of contract.  A jury awarded him  $60,072 for breach of contract,  $2.31 million in compensatory damages for TIG's bad faith, and $2.3 million in punitive damages.  The Tenth Circuit found that the introduction of certain post - litigation conduct was improper, but it also found that the trial court properly denied TIG’s motion for directed verdict.  The Tenth Circuit reversed, the judgment, however, because of improper jury instructions.  The trial judge had instructed the jury (over TIG’s objection) that if the jury found that TIG’s coverage position was wrong, they would have to find that TIG acted in bad faith.  (Jody R. Nathan made this argument to the trial court).  The appellate court agreed.  The case was remanded for a new trial. 
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Wrongful Cancellation results in $800,000 Award

Vining v. Enterprise Financial Group
48 F.3d 1206, 49 Fed. R. Evid. Serv. 1026 (10th Cir. Okla. 1998)

Claimant under a credit life insurance policy sued the insurer for breach of contract and bad faith after the insurer refused to pay benefits upon the insured's death. After a jury found for the claimant and awarded her $800,000 in compensatory and punitive damages, the trial court denied the insurer's motions for judgment as a matter of law and for a remittitur, and the insurer appealed. The award was affirmed on appeal.  The insurer’s systematic practice of cancelling policies without determining whether it had good cause to do so was bad faith; since the insurer admitted that the insured did not intentionally misrepresent his health history, it had no recission defense;  the evidence supported the damages award; a report prepared by the Oklahoma Insurance Commissioner concerning the insurer's business practices was admissible; an expert witness was properly allowed to testify; and the insurer’s training manual and the testimony of other claimants was admissible to show bad faith.
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