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

In State Farm v. Fisher, Fisher was shot and killed by Brown.  Fisher had stopped his car and was in the highway signaling for help after a passenger was shot by Brown as Brown rammed the Fisher car and then fired a shotgun at the vehicle after pulling even with it.  Brown stopped his truck, got out and shot Fisher, who was signaling for help in the road.  Fisher's family sought UM benefits from its insurer, State Farm, for his death.  Summary judgment to State Farm was affirmed. 

Citing State Farm Mut. Auto. Ins. Co. v. Kastner, 77 P.3d 1256 (Colo. 2003), the court noted that to be entitled to UM benefits under Colorado law, a claimant must demonstrate 1) that an uninsured motor vehicle was being “used” at the time he or she sustained an injury; and 2) that the use is causally related to the injury. The “use” must be contemporaneous with the injury. Because both Brown and Fisher were out of their vehicles when Brown shot Fisher, the motor vehicle was not being used at the time of the injury. Apparently, a different result would obtain as to the passenger who was shot in the Fisher vehicle while Brown was in his truck. Because it was debatable whether there was any UM coverage, State Farm was entitled to summary judgment on Fisher’s bad faith claim as well.

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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. 

 

Mansur did not dispute that that benefits under the APC provision were dependent on the parties’ agreement to an alternate plan. Mansur claimed, however that an agreement was reached on the type of care to be given and it was not necessary to agree to the amount of benefit in order for there to be a valid agreement.  PFL claimed that the payment level was an essential part of the plan, and failure to agree on that level meant that no agreement was reached.  The court agreed with PFL.  The examples of APC benefits in the policy included building a ramp or making bathroom modifications.  The court reasoned that if PFL agreed to make those modifications, it would not be paying the contractors $80/day.  It further found that PFL did not act in bad faith by failing to pay even the amounts it initially offered. There was no duty under the policy to offer any APC benefits because Mansur was not in a nursing home when she sought additional benefits, as required by the policy.  An insurer does not act in bad faith by refusing to provide benefits that it has no obligation to provide.

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(reported by harrismartin.com reinsurance news)

A federal judge has denied Swiss Reinsurance Corp.’s motion to dismiss bad faith claims brought by an insured seeking coverage for a furnace malfunction, ruling that the policy at issue is unclear as to whether Swiss Re acted as insurer or reinsurer. Felman Production Inc. v. Industrial Risk Insurers, et al., No. 3:09-0481 (S.D. W. Va.). 

After examining the policy language, Judge Robert C. Chambers of the U.S. District Court for the Southern District of Virginia ruled that it was reasonable for the policyholder to expect Swiss Re to act as a direct insurer.

In its motion to dismiss, Swiss Re asserted that it is the reinsurer of IRI’s insurance contract with Felman, not the original insurer, therefore there is no privity of contract between Swiss Re and Felman and Felman fails to state a claim upon which relief can be granted.

Judge Chambers noted that, generally, an insured party cannot maintain a direct action against a reinsurer because the insured is neither a party to the reinsurance policy nor in privity therewith. However, a reinsurer may become directly liable to the insured if the reinsurance contract is drafted to provide for direct liability on the part of the reinsurer where the original insured is a third-party beneficiary to the contract and/or the reinsurer expressly assumes liability, the judge noted. A reinsurer may also become directly liable to the insured by directly handling an insured’s claim, the judge added.

Judge Chambers concluded that the terms of the original insurance contract are unclear as to Swiss Re’s role under the policy, therefore it was reasonable for Felman to expect Swiss Re to act as a direct insurer and to join it as a defendant in the instant suit.

“In West Virginia, an insurance policy should be interpreted according to the plain, ordinary meaning of the language used,” the judge explained. “Further, ‘whenever the language of an insurance policy provision is reasonably susceptible of two different meanings or is of such doubtful meaning that reasonable minds might be uncertain
or disagree as to its meaning, it is ambiguous.’ An ambiguous provision in an insurance policy is then ‘construed strictly against the insurer and liberally in favor of the insured.’”

As evidence of its role as a reinsurer, Swiss Reinsurance pointed to the “Syndicate Policy” pages in the policy, which identified Swiss Re as the reinsurer. Felman countered that the insurer is referred to as “the companies” throughout the policies and “the companies” is defined as “the members of Industrial Risk Insurers as hereby applicable to this policy.” Felman further argued that the “insurer” is identified as “Industrial Risk Insurers” in the body of the policy.


 

“Swiss Reinsurance and Westport are two of the two member companies in the unincorporated association known as Industrial Risk Insurers,” the judge noted. “In its complaint, Felman alleges that it ‘purchased a commercial Property Insurance Policy issued by the Insurers,’ which it identifies IRI, Westport and Swiss Reinsurance. Based on the abovementioned evidence, the Court finds that the policy is, at a minimum, ambiguous as to Swiss Reinsurance’s role. The insurance contract must therefore be construed against Swiss Reinsurance and liberally in favor of Felman.”

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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.

The court notes that in Duensing v. State Farm Fire and Casualty Company, 2006 OK CIV APP 15, 131 P.3d 127, the Oklahoma Court of Civil Appeals construed the identical provisions and found the lead-in clause unambiguous, but found the earth movement clause was ambiguous. The trial court found both clauses unambiguous. The Tenth Circuit noted that the opinion of the Oklahoma Court of Civil Appeals is not precedential. On appeal, the homeowners claimed that the earth movement clause was ambiguous, not the lead-in clause, even though the lead-in clause had triple negatives and other courts had found it ambiguous.

The homeowners claimed the earth movement clause was ambiguous because the term “earth” is not defined in the policy and “earth” could be interpreted to mean many different things, citing Duensing. The court disagreed, stating that “A word in an insurance policy is not ambiguous simply because it is undefined.” When read in context, the word “earth” was not ambiguous. The court states:

The evidence in this case shows that water leaked through the slab of the home to the sub-grade, causing it to swell and then shrink. The policy states, “Earth movement [means] the sinking, rising, shifting, expanding or contracting of the earth, all whether combined with water or not.”

       The record is clear that the earth supporting the slab expanded and contracted, as a result of water, from whatever the source, and caused settlement damage. Coverage for this damage was unambiguously excluded by the earth movement clause.

Further, because the term “earth movement” is not ambiguous in context, the court did not reach the issue of bad faith, noting that a determination of liability under the contract is a prerequisite to a recovery for bad faith breach on an  insurance contract.

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In Ball v. Wilshire Insurance Company, the court ruled that a loaned vehicle exclusion which excluded coverage for those using the car with the owner’s permission was unenforceable, since Oklahoma public policy requires that the general public be protected up to the minimum amount of legislatively mandated coverage.  The court also ruled, however, that there was no duty to defend under the policy, since such a duty was not required to fulfill the public policy behind mandatory minimum liability coverage.  The court also determined that Wilshire did not act in bad faith in delaying UM payment to Ball, since the law was unsettled. 
 

Ball was driving a loaner car owned by Drumright while her car was being repaired.  She collided with another car, causing serious injuries.  Wilshire, Drumright’s insurer, refused to defend or pay on the subsequent lawsuit, but it did pay the statutory minimum limits to the injured parties in the garnishment action.  Ball then sued Wilshire, claiming that Wilshire should have defended her, and also claiming that she was entitled to UM benefits. 

The court ruled that public policy required minimum liability limits to be available to the general public.  To the extent that the loaned vehicle exclusion meant that no insurance was available to the public, it was invalid.  Presumably, the exclusion would be upheld as to any amounts over the minimum required limits.

The opinion does not state whether Ball had her own insurance.  We suspect that if she had, however, the loaned vehicle exclusion would have been upheld because the victims would have had minimum limits, even though such limits were inadequate.

The court then said that just because minimum limits were required for the protection of the public, did not mean that there was any duty to defend Ball in the underlying action.  The defense duty was contractual, and not required by the compulsory insurance law.  Similarly, the court dodged the question as to whether the loaned vehicle exclusion could permissibly remove Ball from the definition of an insured for UM purposes.  Instead, the court merely stated that the issue was unsettled, and therefore, Wilshire did not act in bad faith. 

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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. 
 

The Tenth Circuit focuses on two facts to deny coverage:  first, there was no injury to the Gaithers from physical contact with the car; and second, the car was not running at the time of the injuries.  Plaintiffs may have been able to survive summary judgment in state court where the standard is higher than in federal court.  But the cases are not helpful.  To me, it seems that those injured while someone is stealing their car are injured because of the transportation nature of the vehicle, and are arguably entitled to UM coverage.  But, without more, the courts seem unwilling to extend coverage.  

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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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If it looks like an insurance policy and quacks like an insurance policy, its an insurance policy -- according to the Oklahoma Court of Civil Appeals.  And if it meets the requirements of an insurance policy, statements in the contract that says its not insurance are going to be ignored.  Further, breach of the contract can give rise to a bad faith action.  Thus, calling a contract a debt release waiver will not insulate the parties from a bad faith claim.

EMBRY v. INNOVATIVE AFTERMARKET SYSTEMS , 2008 OK CIV APP 92 , ___ P.3d ___ (OSCN 2008)

The Embrys bought a truck and financed the purchase.  They also purchased a "Debt Relief Waiver Addendum" (DRWA); which would pay the remaining balance owed to the finance company if the truck were destroyed or stolen and the comprehensive coverage paid was less than the amount owed.  In other words, it would cover the gap if the insured value was less than balance owed on the note.  A clause in the DRWA specifically said that the parties agreed it was not insurance.  

The truck was totaled, and after the insurance paid for the loss, there was still owing some $9,000. When that amount wasn’t paid, the finance company took a default judgment against the Embrys for about $10,000.  Eventually, the DRWA paid the finance company the balance on the note.  Embry then sued under the DRWA, claiming he was treated unfairly and negligently, that the claim was handled negligently, that he was a beneficiary of the DRWA, and that there was a breach of the duty of good faith and fair dealing.

The trial court granted summary judgment and the Court of Civil Appeals reversed.

First, the court distinguished the case from a classic third party beneficiary contract because here, Embry paid for the contract.  In a classic third party beneficiary contract case, the third party has not paid for the benefits he or she seeks to recover.

Then, the court found that despite the language of the contract, the DRWA met the definition of “insurance” under Oklahoma law:  “Insurance”  is a contract whereby one undertakes to indemnify another or to pay a specified amount upon determinable contingencies. 36 O.S. § 102.  Whether or not a contract is one of insurance is to be determined by its purpose, effect, contents, and import, and not necessarily by the terminology used, and even though it contain declarations to the contrary.

Thus, the court held that Embry is entitled to the benefit of his bargain. Here, his "bargain" is a DRWA program product composed of an issuer, an administrator of claims, and an underwriter. All three components must function and perform, otherwise the DRWA product is of no value. If he is denied the benefit of that bargain and sustains damages through the bad faith or negligence of any entity that is a necessary component of the bargained-for product in order to make it function as intended, then he is entitled to recover his damages from that entity.  Further, Embry is entitled to seek damages against the defendants for bad faith and/or negligence.

EMBRY v. INNOVATIVE AFTERMARKET SYSTEMS , 2008 OK CIV APP 92 , ___ P.3d ___ (OSCN 2008)

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