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

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

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

The Tenth Circuit reversed again. The court states:

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

* * * *

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

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

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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 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.

 

 

 

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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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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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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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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.

 

 

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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

 

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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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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.

 

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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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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.

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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). 

 

 

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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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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.

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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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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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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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