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.
While an insurer has a duty under Oklahoma law to deal fairly and in good faith with its insured, an insurer has no such duty to a third party claimant. Third parties may have standing to bring contractual or bad-faith claims against an insurer, however, where there is “a contractual or statutory relationship” between the insurer and the third party. While the foster child was an insured under the policy, it was a liability policy; thus, the child/Estate was only insured by the policy for claims against the child/Estate, not for claims by the Child/Estate. Where a person making a third-party claim under a given liability policy also happens to be an insured, the insurer’s duty to that person, with respect to that claim, is defined not by the person’s status as insured, but by the person’s status as claimant.
The Court then found the Estate is not a third-party beneficiary with standing to enforce the Colony policy because the policy was not made expressly for the foster child's benefit. Colony’s policy, as a third-party liability policy, did not pay first-party benefits even to foster parents, let alone to foster children. The Oklahoma statutes do not indicate that the provision of liability coverage to the foster parent is intended or required to benefit the foster child. Instead, it could protect the foster parent from liability resulting from the foster care arrangement. This case cannot be decided by the types of insurance policies DHS was authorized to purchase. It must be decided by the type of insurance policy DHS in fact purchased, and the type of policy Colony in fact wrote.
The Tenth Circuit found there was no requirement to certify the questions to the state supreme court. It then affirmed the summary judgment on the garnishment issue. It is only where the insurance company has been found liable for bad faith that it has liability in excess of policy limits. No such finding was made in this case and Jones dismissed the claims against Colony. Thus, Colony's liability to the Estate was limited to its policy limits. Since the Estate received the policy limits and more, it had no further claims against Colony.
A judgment creditor (such as the Estate) may proceed against a garnishee (such as Colony) only to the extent that the garnishee (Colony) is liable to the judgment debtor (Jones). The fact that a judgment debtor (Jones) owes the judgment creditor (Estate) more than the garnishee (Colony) is liable for does not mean the judgment creditor (Estate) may indiscriminately garnish third parties until fully satisfied. The Estate’s apparent argument that a garnishment claim still lies against Colony because Jones still owes the Estate more money is meritless.
Furthermore, the trial court properly denied the Estate more time for discovery because the Estate had failed to state with specificity how the additional discovery it sought to undertake was relevant to its opposition of the summary judgment motion.
Finally, the court denied the parties' unopposed motion to seal certain records and briefs, citing the presumption in favor of access to judicial records. While part of what the parties wanted to seal were the settlement agreements which said they were confidential, the parties made those agreements central to the case -- in particular through the Estate’s garnishment counterclaim and Colony’s motion for summary judgment on that counterclaim.