Jaclyn G. Oulds, An Individual v. Principal Mutual Life Insurance Co., An Iowa Corporation and Principal Financial Group, A Delaware Corporation, 6 F.3d 1431, 10th Cir. (1993)
Jaclyn G. Oulds, An Individual v. Principal Mutual Life Insurance Co., An Iowa Corporation and Principal Financial Group, A Delaware Corporation, 6 F.3d 1431, 10th Cir. (1993)
Jaclyn G. Oulds, An Individual v. Principal Mutual Life Insurance Co., An Iowa Corporation and Principal Financial Group, A Delaware Corporation, 6 F.3d 1431, 10th Cir. (1993)
3d 1431
Jim D. Loftis, of Menzer Entz Loftis & Long, P.C., Oklahoma City, OK,
Richard L. Denney, of Denney & Barrett, P.C., and Paul G. Smith, of Paul G.
Smith, P.C., Norman, OK, and Carolyn S. Smith, of Carolyn S. Smith Law
Office, Ponca City, OK, for plaintiff-appellant.
Doug K. Butler, Figari & Davenport, Dallas, TX, and James W. Berry, of Kerr,
Irvine & Rhodes, Oklahoma City, OK, for defendants-appellees Principal Mut.
Life Ins. Co. and Principal Financial Group.
The appeal in Case No. 92-6029 involves the propriety of the district court's
grant of summary judgment to defendants-appellees Principal Mutual Life
Insurance Company and Principal Financial Group (Principal) on plaintiffappellant Jaclyn G. Oulds' claim of breach of the duty of good faith and fair
dealing. In Case No. 92-6177, plaintiff appeals the court's denial of her
application for attorneys' fees. Because we find no error in the judgments of the
district court, we affirm.1
This case began when Ms. Oulds brought suit against Principal, her health
insurance carrier, alleging breach of contract and breach of the duty of good
faith and fair dealing in its denial of her claims for medical benefits. The district
court, citing the need to avoid potential prejudice to Principal, bifurcated the
breach of contract claim from the bad faith tort claim. I Appellant's App., doc. 8
at 4-5. The breach of contract claim was tried to a jury which returned a verdict
in favor of plaintiff for approximately $18,000.
After trial, Principal filed a motion asking the district court to reconsider its
earlier denial of summary judgment on plaintiff's claim of breach of the duty of
good faith and fair dealing. Upon reconsideration, the district court determined
that, because evidence at trial had established a legitimate factual and legal
dispute regarding Principal's liability for benefits, plaintiff could not meet her
burden of showing that Principal had " 'unreasonably, and in bad faith,
withh[eld] payment of the claim of its insured.' " III Appellant's App., doc. 21
at 11-12 (Order on Defendant's Motion to Reconsider) (quoting Christian v.
American Home Assurance Co., 577 P.2d 899, 904-05 (Okla.1977)).
On appeal plaintiff argues that the district court erred in bifurcating her claims,
in granting summary judgment to Principal, and in denying her attorneys' fees.
We address these issues in the order presented.
Bifurcation
10
In challenging the district court's bifurcation of her case, plaintiff cites Buzzard
v. McDanel, 736 P.2d 157 (Okla.1987), where the Oklahoma Supreme Court
issued a writ of prohibition to the district court which had granted an insurer's
motion for separate trials on issues similar to those here. The court held that the
question of whether the plaintiff could legally recover from a third-party
tortfeasor was not a separable and controlling issue in determining whether the
insurer had refused to honor its insurance contract in bad faith. Id. at 159. While
this authority would be persuasive in an Oklahoma state court, we note that
bifurcation of trials is permissible in federal court even when such procedure is
contrary to state law. Sellers v. Baisier, 792 F.2d 690, 694 (7th Cir.1986)
("Bifurcated trials are permissible in federal court under Federal Rule of Civil
Procedure 42, however, and Rule 42 may be applied in diversity cases even
though the state law employed to determine the substantive issues in the case
prohibits bifurcated trials."); see also Rosales v. Honda Motor Co., 726 F.2d
259, 262 (5th Cir.1984). Thus, because bifurcation was a permissible option
open to the district court, our only review here is to determine whether the
court abused its discretion in ordering the separation. Moss v. Associated
Transp., Inc., 344 F.2d 23, 25 (6th Cir.1965) (trial judge has discretion with
respect to ordering separate trials). Because we see no indication that the district
court abused its discretion, we affirm the district court on this issue.
Bad Faith Claim
11
The issue presented here is whether under Oklahoma law the trial court erred in
sustaining summary judgment for Principal on Oulds' claim that Principal was
guilty of the tort of bad faith.
12
13
The Oklahoma Supreme Court first recognized the tort of bad faith by an
insurer in the case of Christian v. American Home Assur. Co., 577 P.2d 899
(Okla.1978). In doing so, the court expressed its approval of the rule as it had
been adopted by the California courts. Simply stated, the rule is "that an insurer
has an implied duty to deal fairly and act in good faith with its insured and that
the violation of this duty gives rise to an action in tort...." Id. at 904. The
Christian court emphasized that it was not holding that an insurer who resists
and litigates a claim made by its insured does so at its peril that if it loses the
suit or suffers a judgment against it for a larger amount than it had offered in
payment, it will be held to have breached its duty to act in good faith. Id. The
court noted:
14
15
Id. at 905 (emphasis added). As numerous cases since Christian have made
clear, "[t]he insurer does not breach the duty of good faith by refusing to pay a
claim or by litigating a dispute with its insured if there is a 'legitimate dispute'
as to coverage or amount of the claim, and the insurer's position is 'reasonable
and legitimate.' " Thompson v. Shelter Mut. Ins., 875 F.2d 1460, 1462 (10th
Cir.1989) (quoting Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 762
(Okla.1984)). The insurer will not be liable for the tort of bad faith if it "had a
good faith belief, at the time its performance was requested, that it had a
justifiable reason for withholding payment under the policy." McCoy v.
Oklahoma Farm Bureau Mutual Ins. Co., 841 P.2d 568, 572 (Okla.1992). "A
[cause of action for bad faith] will not lie where there is a legitimate dispute."
Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 762 (Okla.1984). Thus, in order
to establish such a claim, the insured must present evidence from which a
reasonable jury could conclude that the insurer did not have a reasonable good
faith belief for withholding payment of the insured's claim. McCoy, 841 P.2d at
572.
16
The mere allegation that an insurer breached the duty of good faith and fair
dealing does not automatically entitle a litigant to submit the issue to a jury for
determination. City Nat'l Bank & Trust Co. v. Jackson Nat'l Life Ins., 804 P.2d
463, 468 (Okla.App.1990). A jury question arises only where the relevant facts
are in dispute or where the undisputed facts permit differing inferences as to the
reasonableness and good faith of the insurer's conduct. Id. On a motion for
summary judgment, the trial court must first determine, under the facts of the
particular case and as a matter of law, whether insurer's conduct may be
reasonably perceived as tortious. Id. Until the facts, when construed most
favorably against the insurer, have established what might reasonably be
perceived as tortious conduct on the part of the insurer, the legal gate to
submission of the issue to the jury remains closed. Id. "To hold otherwise
would subject insurance companies to the risk of punitive damages whenever
litigation arises from insurance claims." Manis, 681 P.2d at 762.
17
18
a. Statement of Facts.
19
In 1987, the plaintiff was suffering from various digestive symptoms including
cramps, diarrhea, and rectal bleeding. In October of 1987, plaintiff was
examined by her family physician, Dr. Donar, who performed a sigmoidoscopy
and recommended that she have a colonoscopy. Plaintiff was subsequently
examined by Dr. Donas' partner, Dr. Vyas, who performed a colonoscopy. Dr.
Vyas told the plaintiff that she had ulcerative colitis and prescribed Prednisone
and Alzulfidine for her condition. Plaintiff was uncertain of this diagnosis and
decided to see another physician. She made arrangements to see Dr. Robinson,
a specialist in gastroenterology. Dr. Robinson's records indicate that he saw the
plaintiff on November 6, 1987, and again on December 16, 1987. During this
latter visit Dr. Robinson performed a sigmoidoscopy. Dr. Robinson indicated to
the plaintiff that she probably had an inflammatory bowel disease but that it
was not ulcerative colitis. His records indicate that he believed that the
condition was likely to be Crohn's disease, a bowel disorder similar to ulcerative
colitis. Dr. Robinson told the plaintiff that he could not say for sure what was
wrong until he performed a colonoscopy. He recommended that the plaintiff
undergo another colonoscopy. Plaintiff declined at that time, however, telling
Dr. Robinson that her insurance would not cover the cost of the procedure.
(Plaintiff's former health insurance did not cover very many of the costs
associated with her first colonoscopy.) The day after this visit to Dr. Robinson,
plaintiff applied for health insurance with Principal. A Principal insurance
agent, Ms. Anita Benjamin, assisted the plaintiff in completing an application
form and wrote down responses to the questions in the application. The
responses on the application failed to reflect plaintiff's history of bowel
problems. The following questions appeared on the application form:
20
21
22
8. Has anyone ever had nervous, respiratory, circulatory, digestive, genitalurinary problems, venereal disease or other infectious disease?
23
24
25
26
27
4. Has anyone been hospitalized or been told of a need to have medical tests,
have surgery, or to be hospitalized?
28
7. Has anyone ever had gallbladder problems, ulcers, diarrhea, colitis, other
digestive problems, hepatitis, cirrhosis, or liver problems?
29
30
31
In August and September of 1989, Principal began receiving claim forms from
some of plaintiff's medical care providers. As part of its investigation of the
claims, Principal requested medical records from the health care providers.
Some of the records indicated that the plaintiff had a significant prior medical
history that was not disclosed in her application. Principal notified the plaintiff
that there would be a delay in the payment of her claims. When the plaintiff
inquired as to the reason for the delay, she was informed that the company was
conducting an investigation as to whether she had a pre-existing medical
condition. The plaintiffs' claims were delayed while the company attempted to
gather information from the doctors who had treated the plaintiff. As Principal
obtained these records, it gradually became clear that plaintiff had had some
type of bowel disease. This medical history was contradictory to the
representations contained in plaintiff's initial and second applications for
insurance. In February of 1990, the plaintiff filed a complaint with the state
insurance commissioner concerning Principal's handling of her claim. In her
complaint, plaintiff stated that she had initially taken out a policy with "some
pre-existing health problems" but that "all doctors were listed" and she was
"accepted with no riders." Plaintiff also indicated that when she switched
policies in February of 1989, she voiced concern to Principal's agent, Ms.
Benjamin, about the pre-existing problems but was told that on the second
application they "only had to go back the last year on medical records" and that
"they had all the other doctors listed" on her initial application. The complaint
was forwarded to Principal. Principal sought a reply from Ms. Benjamin, who
no longer worked for Principal. Ms. Benjamin sent a response indicating that
the plaintiff had never disclosed her pre-existing condition. Principal obtained
the opinion of its underwriters that had the information concerning plaintiff's
medical history been known, the company would not have accepted plaintiff's
application. On June 5, 1990, Principal notified the plaintiff that it was
rescinding her policy on the grounds that material medical information had not
been disclosed in her application.
At the trial on plaintiff's claim for breach of contract, plaintiff explained the
discrepancy in her initial application by stating that she had revealed her
medical history to the Principal agent, Ms. Benjamin, but that Ms. Benjamin
decided not to list the previous health problems on the application. Tr. at 12. As
to the second application, plaintiff stated that Ms. Benjamin told her that all
they needed to know about was any health problems that had occurred within
the last year. Tr. at 17. Ms. Benjamin denied that the plaintiff had disclosed her
prior health problems. Ms. Benjamin stated that she had recorded the answers
on the initial application just as plaintiff had answered them. Tr. Vol. 2 at 29091. Ms. Benjamin indicated that on the 1989 application she had first asked the
plaintiff whether there had been any changes in her health since the initial
application was filled out, but otherwise denied that she had limited the
questions on the application to events occurring in the past year. Tr. at 296-98.
32
33
We find, as did the district court, that there is no evidence in the record
reasonably tending to show that Principal acted in bad faith in denying the
plaintiff's claim. Cf. City Nat'l Bank & Trust Co. v. Jackson Nat'l Life Ins., 804
P.2d 463, 468 (Okla.App.1990). The evidence shows that Principal denied the
claim in a good faith belief that it was entitled to do so on the grounds of
misrepresentations by the plaintiff in the application.
34
had a legitimate basis for concluding that the plaintiff had failed to disclose
material medical history. The representations in both of her applications, which
by her signature she represented to be truthful, were inconsistent with her actual
medical history. Moreover, the insurance company was presented with
conflicting statements from the plaintiff and Ms. Benjamin as to what had
transpired when the plaintiff's applications were filled out. The insurance
company had no way of telling which of these persons was telling the truth. If
Ms. Benjamin was being truthful about the plaintiff's disclosures, the company
almost certainly had a valid defense to plaintiff's claim for coverage. See
Dennis v. William Penn Life Assurance Co., 714 F.Supp. 1580, 1582
(W.D.Okla.1989) (setting forth the elements of a misrepresentation defense).
35
36
In determining the facts that were known by Principal when it denied plaintiff's
claim, we have relied upon the case of City Nat'l Bank & Trust Co. v. Jackson
Nat'l Life Ins., 804 P.2d 463 (Okla.App.1990), cert. denied (Okla. Jan. 23,
1991). Under the interpretation of the tort of bad faith expressed in City Nat'l
Bank, the alleged knowledge and acts of Ms. Benjamin at the time of the
applications (including her alleged knowledge of plaintiff's prior medical
history) is not imputed to Principal for purposes determining whether Principal
acted in bad faith in denying the claim. In City Nat'l Bank, the court was faced
with a factual situation almost identical to the one before us. The plaintiff in the
City Nat'l Bank case had health problems prior to the time he applied for life
insurance. He obtained a life insurance policy from Jackson National Life, the
insurer, but no mention of the prior health problems was made in his
application. A claim was made on the policy following the plaintiff's death.
The insurer refused to pay, contending that plaintiff had misrepresented his
physical condition in the application. An action was then brought against the
insurer for breach of contract and for bad faith. It was alleged on behalf of the
plaintiff that he had told the insurance broker of his prior health problems and
that the agent had indicated that those problems did not have to be disclosed on
the application. The trial judge submitted the plaintiff's breach of contract
claim to the jury, which returned a verdict in plaintiff's favor, but he ruled as a
matter of law that the insurer was entitled to judgment on plaintiff's claim of
bad faith. The Oklahoma Court of Appeals affirmed both rulings. The court
upheld the jury's verdict for breach of contract, finding that a factual dispute
existed as to, among other things, plaintiff's intent to mislead the insurer in the
application. In doing so the court specifically cited the case of Atlas Life Ins.
Co. v. Eastman, 320 P.2d 397, 403 (Okla.1957), and noted its holding that the
knowledge and acts of an agent would be imputed to the insurer for purposes of
determining whether the insurer is liable on the policy. Despite this, the court
affirmed the decision not to submit the bad faith claim to the jury, finding that
such a claim was precluded as a matter of law. The court stated:
37 evidence adduced revealed Insurer's refusal of Appellee's claim on what Insurer
The
believed to be material misrepresentations of fact by Decedent on the application for
insurance, constituting grounds, if believed by the jury, for avoidance of liability.
Insurer had a right to litigate this legitimate dispute.
38
City Nat'l Bank, 804 P.2d at 469 (emphasis added). Clearly, the court did not
impute the alleged knowledge or acts of the agent to the insurer for purposes of
determining the insurer's good or bad faith in refusing to pay the claim. Absent
some material factual distinction between the instant case and City Nat'l Bank,
the alleged knowledge and acts of Ms. Benjamin would not preclude summary
judgment in favor of Principal on the bad faith claim. And, absent Ms.
Benjamin's knowledge being imputed to Principal, there is no basis for
concluding that the Principal agents who denied plaintiff's claim actually knew
or should have known that plaintiff's application for insurance did not contain
intentional misrepresentations.4 All Principal knew was that when Ms.
Benjamin was confronted with the plaintiff's allegations, she denied them.
39
In affirming the trial court's ruling in favor of Principal on this issue, we have
attempted to faithfully apply all of the various court decisions construing the
Oklahoma tort of bad faith, including the three most recent: McCoy v.
Oklahoma Farm Bureau Mut. Ins. Co., 841 P.2d 568 (Okla.1992), Capstick v.
Allstate Ins. Co., 998 F.2d 810 (10th Cir.1993), and Alsobrook v. Nat'l.
Travelers Life Ins. Co., 852 P.2d 768 (Okla.App.1992). In McCoy, the insurer
denied a claim for the loss of the plaintiff's residence. The house had been
destroyed by fire. The insurer contended that the fire was intentionally set by or
at the direction of the plaintiff. The only evidence that the fire was a result of
arson, however, was the opinion of the insurer's expert. As the court fully
explained in McCoy, the stated basis of the expert's opinion was flatly
incompatible with the testimony of numerous eyewitnesses to the fire and was
effectively impeached by other experts at trial. The expert's conclusion simply
was not supported by the evidence and was not an objectively reasonable basis
for denying the claim. (See e.g., McCoy, 841 P.2d at 571: "There was no
evidence of independent fires in the two locations where Insurer's expert
allege[d] that white gas had been poured and set afire.") Moreover, when
combined with the manner in which the investigation of the claim was
conducted, the circumstances gave rise to a reasonable inference of bad faith on
the part of the insurer in denying the claim. As the McCoy court noted:
40
Insurer's field adjuster conducted her field investigation, and she found nothing
suspicious. The field adjuster had issued a request to the home office that
Homeowner receive an advance payment. However, that request for reasons
unknown was subsequently canceled by Insurer's home office. This undisputed
fact supports Homeowner's permissible inference that Insurer subsequently
acted unreasonably and in bad faith in denying Homeowner's claim almost one
year after the fire. Eight days after the fire, Insurer sent its expert to the scene.
41
841 P.2d at 571. Because the evidence gave rise to a reasonable inference of
bad faith on the part of the insurer, the Supreme Court held that the claim was
properly submitted to the jury. Significantly, the McCoy decision did not
purport to overrule or undermine the reasoning expressed in any prior
Oklahoma cases granting summary judgment on the tort of bad faith, such as
Manis v. Hartford and City Nat'l Bank.
42
Just as the Oklahoma Supreme Court had done in McCoy, we held in Capstick
v. Allstate Ins. Co., 998 F.2d 810 (10th Cir.1993), that the plaintiff's claim for
bad faith properly raised a jury question. In Capstick, Allstate had denied the
plaintiff's claim of loss for a car that was destroyed by fire. Allstate produced
an expert who testified that in his opinion the fire was a result of arson. Allstate
argued that this evidence gave rise to a legitimate dispute that precluded a claim
for bad faith. We rejected this argument because the opinion of the expert was
the result of an investigation so inadequate that it gave rise to a reasonable
inference of bad faith on the part of Allstate. The Capstick opinion sets forth in
detail the unsatisfactory manner in which Allstate conducted its investigation
and how that investigation produced the "dispute" concerning coverage. The
circumstances in that case reasonably suggested that Allstate manufactured its
expert's opinion by giving him incomplete information concerning the fire. The
evidence also showed that Allstate refused to examine the scene of the fire
Similarly, in Alsobrook v. Nat'l. Travelers Life Ins. Co., 852 P.2d 768
(Okla.App.1992), the insurer's denial of certain claims without any
investigation at all, together with the failure to pay claims that the insurer
conceded were valid formed the basis of a bad faith claim that was properly
submitted to the jury. The absence of a legitimate dispute as to these claims
distinguishes Alsobrook from the case before us.
44
45
46
Plaintiff also suggests that the jury's verdict in her favor on the breach of policy
claim means that Principal's denial of coverage was in bad faith. She argues:
"The jury found for Oulds on the contract issue, which means that the jury must
have decided that Oulds was telling the truth. Therefore, in the jury's mind,
there was no legitimate dispute." Aplt.Br. at 17. This argument fails to
recognize that whether a dispute is legitimate must be judged from the facts
that were known or that should have been known by the insurer. Our ruling on
the bad faith claim is not inconsistent with the jury's determination favoring
plaintiff on her contract claim. As the court explained in Manis:
47 fact that plaintiff prevailed [on the breach of contract claim] does not make
The
defendant's actions bad faith per se. The defendant's actions were reasonable and
legitimate. Facts were in dispute as to [plaintiff's eligibility for coverage]. The
[insurer] had a right to have this dispute settled in a judicial forum. A Christian
cause of action will not lie where there is a legitimate dispute.
48
49
Plaintiff next alleges Principal's bad faith is demonstrated by the fact that it
denied her claims for the stated reason that she failed to disclose a condition of
ulcerative colitis, yet her doctor at some point came to the conclusion that she
did not have ulcerative colitis at all but was instead suffering from Lyme
disease. This argument, however, does not undermine the conclusion that there
was insufficient evidence of Principal's bad faith to raise a genuine issue of
material fact. The facts known or knowable by Principal were that plaintiff had
been treated for what two of her doctors believed was ulcerative colitis or
Crohn's disease but that plaintiff had not included that information in her
medical history. Simply because her physicians had some difficulty diagnosing
the precise disease she was suffering from would not release the plaintiff from a
duty to disclose the problem on her application, nor does it undermine the
conclusion that Principal denied her claim in good faith. Whether plaintiff had
ulcerative colitis or some other digestive disease is irrelevant to Principal's
51
Plaintiff also uses considerable space in her brief arguing the applicability of
the "directed verdict test" on the facts of this case, referring to a rule developed
by the Alabama Supreme Court in National Savings Life Ins. Co. v. Dutton,
419 So.2d 1357 (Ala.1982). That test in essence says that an insurer is entitled
to summary judgment on a bad faith claim if its defense to an action for breach
of the policy withstands a motion for directed verdict by the insured. This test
was not referred to by the district court, and its opinion granting summary
judgment on the bad faith claim does not rest simply on the fact that plaintiff's
motion for directed verdict on the contract claim was denied. Rather, the
opinion recognized that Principal's denial of plaintiff's claim because of a
legitimate dispute meant that plaintiff had failed to meet her burden of showing
bad faith under Oklahoma law.
52
Plaintiff further suggests that Principal's bad faith was demonstrated by the fact
that most of the evidence concerning her pre-existing condition was obtained
by Principal after it had delayed payment on plaintiff's first claim in August of
1989 and also by the fact that a final decision to rescind the policy was not
made until May of 1990. Plaintiff implies that Principal gathered evidence in an
attempt to manufacture a legitimate dispute as to coverage. We see no such
inference of bad faith reasonably arising from the evidence. Cf. Capstick, supra.
Records obtained initially by the company in its investigation indicated that the
plaintiff had a prior medical history that was not disclosed on her application.
Principal had a right to gather information concerning plaintiff's medical
history prior to making a determination about whether rescission was
warranted. Plaintiff has submitted nothing to show that the company was not
reasonably diligent in pursuing this information. The correspondence in the
record before us shows that, because plaintiff's medical history was not
included in the application, Principal had to contact plaintiff's doctors one by
one to obtain the numerous medical reports dealing with plaintiff's prior
treatment. Plaintiff's allegation of bad faith in the investigation of her claims
completely ignores the undisputed fact that her applications contained false
statements that the company was entitled to investigate. Moreover, plaintiff
disregards the fact that the insurance company had no means of ascertaining the
truth from the conflicting statements of the plaintiff and Ms. Benjamin. While
the court is bound on summary judgment to construe the evidence in plaintiff's
favor, the court is not bound to draw inferences that are not reasonably
supported by the evidence presented.7
53
Plaintiff argues that it was bad faith for Principal to contest liability under the
policy where it had failed to comply with Oklahoma law regarding rescission.
Citing Okla.Stat. tit. 36, Sec. 3608, plaintiff argues that Principal failed to
attach a copy of her application to the policy when issued, thus precluding the
admission of the application in evidence. Plaintiff, however, overlooks the fact
that Subsection C of that statute refers to health policies and requires only that
the insurer provide a copy of the application to the insured within thirty days of
being requested to do so. There is no evidence that plaintiff requested a copy of
her application and/or that Principal failed to provide it in a timely fashion.
54
55
The undisputed facts show a legitimate dispute as to whether the plaintiff had
misrepresented material facts on her application. Principal had a right to
withhold payment on the plaintiff's claim and to have this legitimate dispute
determined in a judicial forum. Pursuant to the Oklahoma cases on the tort of
bad faith, no material issue of fact exists concerning Principal's bad faith and
Principal is entitled to judgment as a matter of law on the bad faith claim.
Attorneys' Fees
56
As mentioned above, the district court denied plaintiff attorneys' fees because
she was not the prevailing party in the litigation. We agree with the district
court and affirm. "[I]n diversity cases generally, and certainly in this circuit,
attorney fees are determined by state law and are substantive for diversity
purposes." King Resources Co. v. Phoenix Resources Co. (In re King
Resources Co.), 651 F.2d 1349, 1353 (10th Cir.), cert. denied, 454 U.S. 881,
102 S.Ct. 370, 70 L.Ed.2d 195 (1981); see also AME, Inc. v. Consolidated
Freightways, 783 P.2d 499, 500 (Okla.Ct.App.1989) (holding that federal law
does not preempt Oklahoma attorneys' fee statute). Generally, a party cannot
recover attorneys' fees unless recovery is provided for in a contract or by
statute. City Nat'l Bank & Trust Co. v. Owens, 565 P.2d 4, 7 (Okla.1977). The
parties do not dispute that the insurance policy here did not provide for
attorneys' fees. Plaintiff, therefore, must rely on statutory authority in order to
claim fees.
57
Plaintiff first identifies Okla.Stat. tit. 36, Sec. 3629 as justification for her
recovery. That statute provides, in pertinent part:
58 It shall be the duty of the insurer, receiving a proof of loss, to submit a written
B.
offer of settlement or rejection of the claim to the insured within ninety (90) days of
receipt of that proof of loss. Upon a judgment rendered to either party, costs and
attorney fees shall be allowable to the prevailing party. For purposes of this section,
the prevailing party is the insurer in those cases where judgment does not exceed
written offer of settlement. In all other judgments the insured shall be the prevailing
party.
59
60
In Shinault v. Mid-Century Ins. Co., 654 P.2d 618, 619 (Okla.1982), the
Oklahoma Supreme Court held that the failure of an insurer to make an offer of
settlement within the ninety-day time frame specified in Section 3629 "imposes
the loss of any chance for attorney fees on the insurer as a sanction...." Id. Thus,
the insurer who fails to make an offer of settlement within ninety days cannot
recover its fees from the insured. Shinault does not, however, stand for the
proposition that, because the insurer has waived its right to fees, the insured is
automatically the prevailing party. An insurer's failure to make an offer within
ninety days, while acting to deprive the insurer of a chance to claim fees, does
not make it impossible for the insurer to protect itself from a fee claim by the
insured. The insurer can defend against potential liability for the insured's
attorneys' fees by making an offer of judgment which turns out to be greater
than the judgment actually obtained by the insured. Contrary to plaintiff's
argument, this rule applies to any offer of settlement made to the insured, not
just to those which are made within the ninety-day window. Id. ("The insured
... is the prevailing party when the judgment is more than any settlement offer
that was made, or when the insured receives a judgment when the insurer has
rejected the claim.") (emphasis added). See also Thompson, 875 F.2d at 1463
(comparing judgment to all written settlement offers); An-Son Corp. v.
Holland-America Ins. Co., 767 F.2d 700, 703 (10th Cir.1985) (same). The
Shinault court's reference to any settlement offer, and not to those made only
during the ninety-day period, defeats plaintiff's argument that Principal's offer
is legally ineffective.
61
Having established that Principal's offer was timely for purposes of defeating a
claim for fees by its insured, plaintiff now must show that her judgment
exceeded Principal's offer, as further required by the statute. Principal argues
that the judgment obtained at trial did not exceed Principal's pretrial offer to pay
all of her medical expenses and reinstate her coverage. Plaintiff counters that
her recovery by way of the judgment exceeds the amount of the settlement
offer when attorneys' fees, costs, and interest are added to the judgment.8 In
support of this argument, plaintiff cites Carson v. Specialized Concrete, Inc.,
801 P.2d 691, 692-93 (Okla.1990), in which the court, construing a statute
similar to Section 3629, held that if an offer of settlement includes costs and
fees, the trial court must calculate the amount of costs and fees incurred by the
plaintiff up to the time of the offer in deciding who has prevailed. Carson,
however, is distinguishable from this case because, here, the offer from
Principal did not include costs and fees. It was a straight offer to cover all of
plaintiff's medical costs to date and to reinstate her coverage, with no mention
of plaintiff's costs and fees. Because the settlement offer did not include her
costs and fees, they will not now be added to her judgment for purposes of
determining prevailing party status. In summary, we hold that under Section
3629 Principal's offer was timely, not to entitle it to fees, but to defeat a claim
of fees by plaintiff; further, because plaintiff's judgment did not exceed the
offer of settlement, she is not the prevailing party and is not entitled to fees
under Section 3629.
62
63
Principal does not argue that it complied with this statute, but rather that
plaintiff "asserted no such [unfair trade practice] claim." Appellee's Br. at 46.
The magistrate judge agreed with this contention, holding that "no claim was
alleged for an unfair trade practice nor has the Court given this practice any
consideration in pretrial and trial proceedings." III Appellant's App., doc. 23 at
7.
64
Plaintiff argues that the pretrial order refers to Section 1219 and that a pretrial
order supersedes all the other pleadings. While plaintiff is correct that in her
"contentions" section of the pretrial order at subparagraph (e) she does put forth
a claim under Section 1219, I Appellant's App., doc. 10 at 13-14, there is no
evidence in the record on appeal that any claim under this section was ever
developed at trial.9 The only evidence we can identify as having been presented
at trial regarding the notice requirements of Section 1219 is plaintiff's
testimony that, with regard to the disputed claims, Principal "would repeatedly
send [her] notices that they needed more information and please be patient." III
Appellant's App., doc. 26 at 23.10 There was no evidence regarding when
Principal received plaintiff's proofs of loss. Based on this record, plaintiff has
failed to meet her burden under the statute to demonstrate that Principal's
processing of her claims was an unfair trade practice. She, therefore, was not
the prevailing party on this claim because she did not present any evidence to
support it.11
65
The judgments of the United States District Court for the Western District of
Oklahoma in both Case No. 92-6029 and Case No. 92-6177 are AFFIRMED.
Honorable Wesley E. Brown, United States District Senior Judge for the
District of Kansas, sitting by designation
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination
of these appeals. See Fed.R.App.P. 34(a); 10th Cir.R. 34.1.9. The cases are
therefore ordered submitted without oral argument
During the trial on the plaintiff's claim for breach of contract, Principal
introduced evidence that the plaintiff had applied for health insurance with
another company three days after the December 17, 1989, application with
Principal. The responses on this other company's application were virtually
identical to those contained in her application with Principal. Plaintiff testified
that she made full disclosure of her medical history to the other insurance
company's agent. The agent disputed this assertion at trial. No evidence
appears in the record concerning when Principal learned of this evidence.
Consequently, we assume that it is irrelevant for purposes of summary
judgment on plaintiff's bad faith claim. Principal's good or bad faith must be
determined by the facts known to it at the time it denied plaintiff's claim
Plaintiff's brief suggests that an exception to this rule should apply where the
dispute is based on conflicting accounts of an oral conversation between the
insured and the insurer's agent. (citing Jones v. Alabama Farm Bureau Mut.
Casualty Co., 507 So.2d 396 (Ala.1986)). As City Nat'l Bank & Trust Co. v.
Jackson Nat'l Life Ins. Co., 804 P.2d 463, 469 (Okla.App.1990) demonstrates,
however, Oklahoma has not recognized any such exception
There was no evidence that Principal had actual knowledge of what happened
between Ms. Benjamin and plaintiff in the application process. Nor was there
any evidence from which Principal should have concluded that Ms. Benjamin,
rather than the plaintiff, was being untruthful concerning what had been said in
the application process. There was no evidence that Principal encouraged,
authorized, or ratified the conduct which plaintiff alleges Ms. Benjamin
engaged in at the time of the application. Also, plaintiff has pointed to nothing
that would indicate that a more thorough investigation by Principal would have
indicated that she, rather than Ms. Benjamin, was telling the truth. In sum, the
fact that Principal chose under the circumstances to act upon the statement of
its agent does not give rise to a reasonable inference of bad faith
5
Plaintiff does not dispute that the amount of the jury verdict was an amount
equal to her incurred costs and did not include the reinstatement of her
coverage, as did Principal's offer
10
The record does contain a copy of plaintiff's affidavit in which she avers that
she never received responses from Principal by certified mail to her claims. I
Appellant's App., doc. 6, exh. 1 at 1. There is no indication, however, that this
affidavit was introduced at trial
11