Oklahoma Insurance Lawyer & Attorney : Stauffer Graves & Nathan Law Firm

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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NATIONAL AMERICAN INSURANCE COMPANY v. OKEMAH MANAGEMENT COMPANY,
2008 OK CIV APP 58

The insured (OKEMAH) was a sub contractor on a building.  The owner sued, claiming that the building leaked because of poor workmanship.  Naico filed a declaratory judgment action, claiming it was not required to defend Okemah because the CGL policy covered negligence claims, not breach of contract type claims; or that various exclusions precluded coverage.   The exclusions included 1) Contractual Liability Exclusion; 2) Damage to Your Product Exclusion; 3) Damage to Your Work Exclusion; 4) Building Related Illness Exclusion; 5) Fungi or Bacteria Exclusion; and 6) Exterior Insulation and Finish Systems (EIFS) Exclusion.

The court found the EIFS exclusion applied; it did not require the insured to install or apply all 5 elements of the EIFS; and the court did not reach the other issues.  Since the claim was excluded, there was no duty to defend.

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In Ferguson v. Corgis Insurance Co., the issue was the limits of a CGL policy.  The policy declarations showed a $2 million limit, but there was a endorsement which tied the limits to the limits in the Idaho Governmental Tort Claim Act.  Unfortunately for Corgis, however, the Idaho GTCA stated required minimum limits for insurance policies, not maximum limits.  Thus, the Ninth Circuit found the policy was not ambiguous and the $2 million limit applied.  It therefore reversed summary judgment in favor of Corgis. 

This is an interesting case – not necessarily for the holding, but because under undisputed facts, two courts reached opposite conclusions and still found the policy unambiguous. 

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In National American Insurance Co. v. Vallion, 2008 OK CIV APP 41 , NAICO issued an insurance policy to a school district which covered vehicles owned by the school district.  Vallion was employed by the school and was a passenger in a covered vehicle which was hit by an underinsured driver. Vallion had a car which was covered by insurance. 

The NAICO policy excluded from the definition of an "insured" for uninsured motorist coverage purposes, those who own their own vehicles which are covered by statutorily mandated insurance.  Thus, NAICO argued that even though Vallion was injured while riding in a district-owned vehicle, the policy language excludes UM coverage for him because he owns a personal motor vehicle and is insured under an insurance policy in compliance with the Oklahoma Financial Responsibility Act, 47 O.S. 2001 §7-101 et seq. (the Act).

Under Oklahoma law, the purpose of UM is "to protect the insured from the effects of personal injury from an accident with another motorist who either carries no insurance or has inadequate coverage." Burch v. Allstate Ins. Co., 1998 OK 129, ¶13, 977 P.2d 1057, 1063.  Similar contractual exclusions were upheld in Shepard v. Farmers Ins. Co., 1983 OK 103, 678 P.2d 250, and Graham v. Travelers Ins. Co., 2002 OK 95, 61 P.3d 225.

The appellate court affirmed the trial court's ruling that Vallion was not covered under the policy.

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In Gutkowski v. Oklahoma Farmers Union Mutual Insurance Co., 2008 OK CIV APP 8, 176 P.3d 1232, Plaintiffs had asphalt or composition shingles on top of wooden shingles.  The wooden shingles were used instead of decking.  Plaintiff's roof was damaged by hail.  Farmers agreed to replace the damaged asphalt shingles, but not the wooden shingles, even though the removal of the asphalt shingles would make the wooden shingles no longer usable as a nailable surface on which to attach the new asphalt shingles.

The Insureds sued Farmers for breach of contract, fraud and bad faith. Summary judgment was denied and a jury found for Farmers.  The Court of Civil Appeals reversed, finding that the trial court erred in submitting the issue of the parties’ contractual intent to the jury.

Whether an insurance contract provision is ambiguous is a question of law to be determined by the court. Max True Plastering Co., v. U.S.F. & G. Co., 1996 OK 28, ¶20, 912 P.2d 861, 869. The test to be applied in determining whether a word or phrase is ambiguous is whether the word or phrase is susceptible to two interpretations on its face from the standpoint of a reasonably prudent lay person. Id. This Court will not indulge in forced or constrained interpretations to create and then construe ambiguities in insurance contracts. Id.

Under Oklahoma law, when an insurer desires to limit its liability under a policy of insurance, it must employ language that clearly and distinctly reveals its stated purpose. Farmers failed to do so, and the subroof was, therefore, covered. 

Farmers claimed that the Insureds had two separate roofs, ie. the wood shingles constituted a divisible and separate roof from the composition roof. Farmers argued that because the wood roof did not sustain direct hail damage and the policy does not cover damage not caused by a covered peril, Farmers was only obligated to pay for the damage to the composition roof. To prevail on this theory, Farmers would have to show the necessary components that make up a single roof are divisible and separate. Oklahoma law ( Redcorn v. State Farm Fire & Cas. Co., 2002 OK 15) does not support this argument.

 The trial court's judgment in favor of Farmers on the contract claim was reversed. The trial court was directed to enter judgment in favor of the Insureds as to liability, and conduct a trial on damages.

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While it might be stating the obvious, in National American Insurance Company v. Okemah Management Company, 2008 OK CIV APP 58 , the court held that there was no duty to defend a claim that was excluded under the policy.  NAICO's insured, Okemah, was sued for various construction defects in a building.  NAICO filed a declaratory judgment action seeking a declaration there was no duty to defend or indemnify its insured because the claims were not covered. 

Plaintiffs initially sued for breach of implied warranty and poor workmanship. Plaintiffs later amended their petition to claim that Okemah was  guilty of negligence per se for violating the BOCA (Building and Code Administrators) code regarding installation of the EIFS (Exterior Insulation and Finish Systems) system.

NAICO claimed that the policy only covered tort claims, not breach of contract claims and that various exclusions precluded coverage, including 1) Contractual Liability Exclusion; 2) Damage to Your Product Exclusion; 3) Damage to Your Work Exclusion; 4) Building Related Illness Exclusion; 5) Fungi or Bacteria Exclusion; and 6) Exterior Insulation and Finish Systems (EIFS) Exclusion. NAICO contended it did not have any duty to defend where there is no coverage under the policies. Continue Reading...

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In Vanguard Environmental Inc. v. Curler, 2008 OK CIV APP 57, the Oklahoma Court of Civil Appeals held that a contract which restricted a former employee from competing against her employer was unenforceable.  The agreement precluded the former employee (Curler) from marketing because such marketing could influence customers of the employer.  This clause was unenforceable.  Previously, it had been held that restraints on a former employee's dealings with clients of the former employer are unenforceable (except for active solicitation). 

The court also found that the ban on client contact was unenforceable, as was the ban on contacts with the employer's suppliers.  Summary judgment to the former employee was affirmed. 

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Oklahoma’s Residential Property Condition Disclosure Act

Two recent Oklahoma Court of Civil Appeals decisions discusses the applicability of the Oklahoma Residential Property Condition Disclosure Act, found at 60 Okla. Stat. § 831 et seq. The Act permits buyers of residential property to sue sellers of that property for conditions known to the sellers at the time of the sale, such as flood damage to the property. The Act requires that actions be brought within two years of the date the property was transferred. 60 Okla. Stat. § 837(C), and precludes any claims for fraud resulting from sales covered by the Act.

In Mamoodjanloo v. Wolf, 2008 OK CIV APP 59, the Court of Civil Appeals found that the Act does not cover “[t]ransfers by a fiduciary who is not an owner occupant of the subject property in the course of the administration of a ... trust.” §838(A)(3). Thus the fact that the Trustees signed a disclosure form did not mean the sale was covered by the Act. But since the Act did not apply, the buyer could bring a fraud claim against the seller/trustee. The court stated:

Under the common law doctrine of caveat emptor, when a buyer inspects property prior to sale, silence on a seller's part does not constitute fraud if it relates to conditions that the buyer, through the exercise of reasonable diligence, could discern upon inspection. Therefore, the buyer may not base a fraud claim on misrepresentations concerning patent, or readily observable, defects when the purchaser has been afforded an unimpeded opportunity to inspect the property. The doctrine does not apply if a seller fraudulently conceals a latent defect. Rogers v. Meiser, 2003 OK 6, 68 P.3d 967, 976-977. A latent defect known to the seller creates a duty of disclosure in the seller. Failure to disclose amounts to fraudulent concealment of the defect. Brauchitsch v. Cravens, 1978 OK CIV APP 48, 604 P.2d 379, 380.

Since the Buyer presented some evidence that the trustee knew of prior flooding on the property and failed to disclose it, there was sufficient evidence to go to trial on a fraud claim against that trustee.

In another case, Lester v. Smith, Case No. 104,854 (released for publication by the Court of Civil Appeals, but not yet published), the court held that the two year limitation period in the Act is a statute of repose, not a statute of limitations. Therefore, the discovery rule (which tolls the statute of limitations in tort cases until the injured party knows or in the exercise of reasonable diligence should know of the injury) does not apply to claims under the Act. The Court contrasted the language of the Act’s limitations with the general statute of limitation and other Oklahoma statues of limitations and statutes of repose. The Court found that the Act was a statute of repose and that the discovery rule would not apply to claims under it. As a result, the buyer’s claims against the sellers were untimely, and judgment in the seller’s favor was affirmed. Neal Stauffer, Jody Nathan and Nathan Parrilli were on the briefs for the sellers.

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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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A judgment in excess of $650,000 was affirmed by the Tenth Circuit against Hartford Insurance Company because it did not know the provisions of its own policy, and it changed the reason it denied the claim once suit was filed.

Haberman v. Hartford, 443 F.3d 1257 (10th Cir. Okla. 2006)

In this case, Haberman was the sole shareholder of a corporation.  She and an employee were driving  on a pleasure trip when the employee lost control of the vehicle.  The employee was killed and Haberman was injured.  After Haberman collected both the liability and UM limits on the employee’s car (the one involved in the accident), she sought UM coverage under her Hartford policy.  The Hartford policy was issued to her corporation and the employee’s car was not a scheduled vehicle.  The Hartford policy, however, had an endorsement on the auto policy which specifically named Haberman as an insured for auto liability purposes.  Hartford denied the claim.  The policy limited UM coverage to specific vehicles and the employee’s car was not a listed vehicle.

On summary judgment motions, the court ruled that the endorsement made Haberman an insured for all purposes under the policy.  Even if the policy was ambiguous, the court would have to find for coverage.  It therefore entered summary judgment on behalf of Haberman finding coverage.  At trial, Haberman was granted judgment as a matter of law on her contract claim and Hartford’s quest to remove punitive damages from the jury was denied.  The jury found for Haberman and awarded her $548,000 on the contract claim, $5,000 for actual damages on the bad faith claim and a further $100,000 for punitive damages on the bad faith claim.

The appellate court affirmed both the contract and bad faith findings.  Even if there was a legitimate dispute as to coverage, the bad faith claim was appropriately decided by the jury because the reason Hartford gave when it denied the claim (that Haberman was not in a covered vehicle) was different from the reason it gave when it was in court (that Haberman was not an insured).  Furthermore, because there was evidence that Hartford ignored its own policy language and well settled Oklahoma law, and because it delayed payment of her med pay claim, there was sufficient evidence to take the question to the jury.

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Burton (who was convicted of first degree manslaughter) shot and killed Savage in an apparent road rage incident.  Plaintiff sued Burton for the wrongful death of her husband, claiming that Burton violently and negligently shot Savage.  The court entered a judgment against Burton for $1.2 million dollars.  The judgment stated there had been a trial with witnesses and evidence presented.  Savage then garnished State Farm, Burton's insurer.  State Farm tried to get the judgment vacated.  Instead, the trial court modified it -- instead of a trial, the modified judgment stated it was based on "stipulations." 

The appellate court found that the judgment should have been vacated in its entirety.  There was no evidence that there was a trial.  The judge did not remember one.  Plaintiff was not at the "accident" and could not testify as to the facts of the accident.  Neither Burton nor his attorney were present.  Therefore the judgment, which should be based on what actually happens in court, rather than on what might happen, was improper.  It was also improper to try to prop it up by claiming it was a judgment based on stipulations.  There is nothing in the record that shows that Burton or his attorney agreed to any of the facts the court found. 

SAVAGE v. BURTON; 2008 OK CIV APP 20 Continue Reading...

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This case is the first one to interpret Oklahoma's amended declaratory judgment statute.  Previously, Oklahoma did not permit insurers to use the declaratory judgment statute to determine rights and liabilities under an insurance policy.  Since 2004, however, the statute specifically permits such determinations.  The court agreed that the plain language of the statute permitted such a determination. 

In addition, the court specifically found that the intentional act of hitting someone with your car is not covered, even if the insured did not intend to cause injury.  This is not so obvious as you might think in Oklahoma, since there are cases that distinguish between intentional acts and intentional injuries.

EQUITY INSURANCE CO. v. GARRETT; 2008 OK CIV APP 23

In this case, summary judgment in favor of Equity was affirmed.  Garrett, the insured, admitted to intentionally bumping Hull with her car.  She claimed she was trying to stop a fight between Hull and her husband and did not intend to cause Hull injury.  Equity filed a declaratory judgment seeking a declaration of no coverage and no duty to defend Garrett in Hull’s action against her.  The court found that under Oklahoma’s declaratory judgment statute, as amended, the trial court could properly declare whether there was coverage under the policy.  The Court of Civil Appeals also affirmed that there was no coverage for the intentional act of Garrett. 

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Oklahoma Court adopts claim for fraud in hiring

In Stehm v. The Nordam Group, Inc., 2007 OK CIV APP 94, www.oscn.net/applications/oscn/deliverdocument.asp, employee claimed that he was recruited by Nordam while employed with another company.  Employee was concerned about the financial stability of the airline industry, and was told that the company was financially secure due in part to substantial revenue under a specific contract.  Based in part on these assurances, Employee quit his job and went to work for defendant/Employer.  Plaintiff quickly learned that the specific contract had been terminated and that the person who had assured him of the company’s stability based on that contract was aware of the contract’s termination during the interview process.  The trial court granted summary judgment, and the Court of Civil Appeals reversed. 

There was no direct Oklahoma precedent for the claim, but the court relied upon a Colorado Court of Appeals case, Berger v. Security Pacific, 795 P.2d 1380 (1990) which found that a claim could be considered viable.  Berger recognized an action brought by a terminated employee against the former employer for fraudulent concealment of a substantial known risk that a project for which the employee was being hired would be discontinued in the near future. Berger held the employer had a duty to disclose to the prospective employee facts that "in equity or good conscience should be disclosed."  This is generally in line with Oklahoma law on fraud as stated in Varn v. Maloney, 1973 OK 133, 516 P.2d 1328:"It is equally well settled that the concealment of material facts which one is bound under the circumstances to disclose, may constitute fraud." . . . “A duty to speak may arise from partial disclosure, the speaker being under a duty to say nothing or to tell the whole truth. One conveying a false impression by the disclosure of some facts and the concealment of others is guilty of fraud, even though his statement is true as far as it goes, since such concealment is in effect a false representation that what is disclosed is the whole truth.”

The elements for the claim for fraudulent misrepresentation and/or concealment in hiring are (1) the employer misrepresented or concealed a material fact during the hiring process, (2) the employer had knowledge of the falsity of the fact or lacked reasonable grounds for believing it to be true, (3) the employer intended to induce the employee's reliance, (4) the employee justifiably relied upon the misrepresentation, and (5) damages resulted. Since there was some evidence on each of the required elements, and the evidence was disputed, summary judgment was improper.

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

After an explosion at the insured's plant, the insured's total liability was $1,785,000. Because the underlying CGL policy had a $10,000 per claim deductible (rather than a per occurrence deductible), the primary carrier paid only about half of its million dollar limits.  The insured wanted its excess carrier to pay the amounts over its primary carriers' million dollar limits, but the excess carrier said it was not required to pay because the primary carrier had not paid its limits.  The trial court sided with the excess carrier on summary judgment, but the Tenth Circuit reversed, finding that excess carrier's loss payable clause was ambiguous.  Continue Reading...

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