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In Porter v. Farmers Insurance Co., (unpublished decision) the insured, Porter was in a one car accident in 2007.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.

The Tenth Circuit states:


Mr. Porter’s breach of contract claim fails for two reasons. First, Mr. Porter has not offered evidence from which a reasonable jury could find that Farmers breached its contractual duties—express or implied. Farmers only has a duty to pay UM coverage where its insured suffers damages due to an uninsured motorist or a hit-and-run. In the event of an accident, “notice must be given to [Farmers] promptly” and must include “the time, place and circumstances of the accident.” The first time Mr. Porter gave notice of his UM claim was August 4, 2009—over two years after the accident. Farmers promptly investigated this allegation but found no evidence of a second driver. . . .It was not until his November 2009 EUO that Mr. Porter first mentioned the other vehicle. Less than seven weeks later, Farmers offered full payment of the UM coverage.  Second, Mr. Porter failed to offer evidence of any damages resulting from the alleged breach. Mr. Porter claimed he was entitled to prejudgment interest on the UM payment.  It was Mr. Porter who initially requested a delay in payment, and the later delays were not the fault of Farmers. Accordingly, it would be improper to hold Farmers liable for delays beyond its control.

As to bad faith, the delay in payment was reasonable while Farmers investigated the claim. Also, there was a legitimate dispute as to whether the accident involved an uninsured motorist.  Farmer's decision to seek counsel did not cause unreasonable delay as stated by Porter's expert, Diane Luther.  "Ms. Luther contends that the retention of counsel and subsequent EUO were unnecessary because Farmers already had the information necessary to decide Mr. Porter’s claim. But this conclusion is simply contrary to the facts viewed against a backdrop of the applicable law, and we need not accept it as true." It was in the EUO that Porter mentioned the other car for the first time.  And, the delay in payment was reasonable, since Porter's attorney requested the delay. 

There was no inadequate investigation.  It is unclear whether additional investigation would have uncovered other facts.  There was no duty to investigate based on the telephone call where Mr. Porter failed to identify himself.

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.

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.

Bannister claimed that because an element of the claim of bad faith is that the insurance company owed but did not pay benefits under the policy, he should be able to keep at least the policy limits of $125,000.  Bannister cited some criminal cases dealing with lesser included offenses.  But the court said that Bannister made a tactical decision to withdraw the breach of contract claim and could not get it in through the back door.  The court states: 

[W]e are unaware of any precedent extending that criminal doctrine to this civil context, such that a forsaken contract claim would be transformed into an independent sub-claim of a separate tort claim, upon which recovery could be independently awarded. We do not interpret the Court of Civil Appeals of Oklahoma’s decision in Cales v. Le Mars Mut. Ins. Co., 69 P.3d 1206 (Okla. Civ. App. 2002), to compel a contrary conclusion. Cales held that a new trial was warranted in light of the trial court’s improper decision to bifurcate the plaintiff’s breach of contract and bad faith claims into separate trials. . . .However, notwithstanding Cales’s “not[ing]” that the plaintiff’s breach of contract claim and bad faith claims comprised “one cause of action,” the actual holding of Cales was that it was improper to bifurcate the consideration of the “two interrelated theories of recovery” when both theories had been asserted. Id. Cales did not hold that a plaintiff could recover under the ‘lesser-included’ theory of breach of contract when he had earlier chosen to abandon that theory.

Because there was a reasonable basis for State Farm's determination that Bannister was mostly at fault for the accident, the trial court's grant of Judgment as a Matter of Law is affirmed.

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.

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.
 

It is always interesting when the court finds that the insurance company can be liable for bad faith even where it has fulfilled its contractual obligations to the insured. 

Oklahoma Supreme Court rules that Loaned Vehicle Exclusion is against public policy.

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.