Insurance Brokers Doing Business In Oklahoma Subject Themselves To Suit

Posted on November 2, 2009 by Steven V. Buckman

Insurance brokers from London traveling to Oklahoma and marketing for business subject themselves to the personal jurisdiction of the State of Oklahoma when negligence is alleged for their failure to fulfil obligations.  In Willbros USA, Inc. v. Certain Underwriters at Lloyd''s of London, 2009 OK CIV APP 90,  Mandate Issued: 10-22-2009, the Oklahoma Court of Appeals determined a London-based insurance broker had sufficient contacts with the state to be subject to the jurisdiction of the court.  In a well written opinion by Deborah B. Barnes, Presiding Judge, the appellate court correctly determined there were sufficient contacts to give the Oklahoma court the authority to resolve allegations asserted by the plaintiff, Willbros USA, Inc.

The facts were fairly simple.  JLT, a London-based insurance broker, with its principal place of business in London, England, made trips to Tulsa, Oklahoma to meet with representatives of Arthur J. Gallagher & Co. of Oklahoma, Inc., for purposes of obtaining business.  Willbros, a Delaware corporation, maintained its risk management department in Tulsa, Oklahoma.  Willbros purchased a $25 Million excess liability policy through certain Underwriters at Lloyd's, London.  The business was placed using Gallagher as the retail agent and JLT as the London broker.  

In April, 2004, individuals were killed on Olero Creek in the Nigerian River delta.  Willbros was eventually sued by the families as a result of the deaths and reached an agreement for Willbros to pay $2,310,000.00 over and above its $1 Million liability limit under its primary coverage.

Lloyd's asserted the claim was not timely reported as one of the grounds for refusing payment of the $2,310,000.00 excess claim.  Willbros asserted it gave notice to Gallagher and JLT and accused the brokers of negligence in reporting the claim to Lloyd's.

JLT, as a London broker, attempted to avoid jurisdiction in Oklahoma by claiming it did not have sufficient contacts with Oklahoma to subject itself to personal jurisdiction by the courts.

If a non-resident has minimum contacts with the state that do not offend traditional notions of fair play and substantial justice, then there is jurisdiction by Oklahoma's long-arm statute.  A single act or transaction in the state can make the non-resident amenable to suit for damages arising out of the transaction.  The focus is on whether there is some act or activity in which the non-resident has availed itself of the privilege of conducting activities within the state thereby invoking the benefits and protections of its laws.

The appellate court determined JLT could have refused to enter into a contract with Gallagher, but  knowingly and purposely engaged in business with Gallagher to place the risk of Willbros in the London market.  Secondly, the court found JLT made several trips to Oklahoma where its representatives met with both Willbros and Gallagher to discuss insurance.  Although JLT argued the visits were social in nature rather than related to the insurance coverage.  Third, JLT maintained communications from its London offices with Gallagher in Tulsa about brokering insurance business, some of which was directly related to the policy at issue in the litigation.  The communication took place by e-mail, telephone conversations, as well as regular mail.  Lastly the court determined JLT voluntarily entered the stream of communications in Oklahoma to "purposely avail itself" of business. 

In summary, if you are going to do business in Oklahoma (or probably any other state), then you are subjecting yourself to the jurisdiction of the court.  The appellate court noted the opinion was solely on the basis of personal jurisdiction and made no comment as to the underlying merits of whether or not there was negligence by JLT or Gallagher.

Tags: , , ,

Legal Opinion Stating No Coverage Did Not Prevent Bad Faith Judgment

Posted on October 30, 2009 by Steven V. Buckman

An Oklahoma insurance company's reliance upon a legal opinion that there was no payment due under the policy did not prevent a judgment for bad faith and punitive damages.  In Barnes v. Oklahoma Farm Bureau Mutual Ins. Co., 2000 OK 55, 11 P.3d 162, the insurer purportedly obtained a legal opinion from an Oklahoma lawyer before refusing to pay UIM coverage.  The case was submitted to the jury on the issue of bad faith as well as punitive damages and an award entered in favor of the plaintiffs.

Oklahoma Farm Bureau Mutual Insurance Company was sued by its insured, Julie Barnes, for underinsured motorist (UIM) benefits and for breach of the implied duty of good faith and fair dealing in failing to pay her claim.  The trial judge granted partial summary judgment to Barnes for the $15,000.00 of UIM policy limits and submitted the remainder of the damages to a jury.  The jury awarded an additional $10,000.00 in actual damages and $1.5 Million in punitive damages.  Additionally, the trial court granted her $300,000.00 in attorney fees.

Barnes had been injured in a head on collision with another vehicle and her injuries were extensive.  The other driver had liability coverage of $10,000.00 per person and Barnes had uninsured motorist/underinsured motorist coverage with Oklahoma Farm Bureau and another $25,000.00 with State Farm Mutual Automobile Insurance Company. 

Barnes incurred $15,000.00 in medical bills and lost over $10,000.00 in wages.  She submitted a claim for UIM benefits to both of her insurers.  The claims not being timely paid, Barnes filed suit.

Eventually, the tortfeasor tendered its $10,000.00 of liability limits, but Oklahoma Farm Bureau refused to waive subrogation and further refused a proper substitution under 36 O.S. § 3636(E).  Likewise, the insurer refused to pay the $15,000.00 in UIM benefits claiming it was entitled to the liability coverage from the tortfeasor.

State Farm, unlike the other insurer, evaluated Barnes' claim to be at least $50,000.00 and paid its full UIM limits of $25,000.00 without claiming entitlement to a portion of the liability policy.  State Farm elected not to substitute its own $10,000.00 payment for the tentative settlement from the tortfeasor and instead waived any right at subrogation.

The main defense to the bad faith claim was that Oklahoma Farm Bureau reasonably relied upon the advice of its legal counsel concerning the proper interpretation of 36 O.S. § 3636(E) and, therefore, its behavior in litigating the issue was a legitimate dispute.

The Oklahoma Supreme Court stated:

In a tort case against an insurer for breach of the implied duty of good faith and fair dealing (i.e. for bad faith) it is the unreasonableness of the insurer's actions that is the essence of the tort. Conti v. Republic Underwriters Ins. Co., 1989 OK 128, 782 P.2d 1357, 1360; Alsobrook v. National Travelers Life Ins. Co., 1992 OK CIV APP 168, 852 P.2d 768, 770. Although reliance on the advice of counsel can be a defense to a bad faith suit, the reliance on counsel's advice must be reasonable. Durbin and Loy, Current Status of Good Faith Law in Oklahoma, supra, 24 Okla. City U.L.Rev. at 169-170. Particularly applicable here is the following statement made by the United States Court of Appeals for the Fifth Circuit concerning the advice of counsel defense in bad faith insurance claim litigation:

[I]t is simply not enough for the carrier to say it relied on advice of counsel, however unfounded, and then expect that valid claims for coverage can be denied with impunity pursuant to such advice. The advice of counsel is but one factor to be considered in deciding whether the carrier's reason for denying a claim was arguably reasonable. We believe that where, through verbal sleight of hand, the advising attorney concocts an imagined loophole in a policy whose plain language extends coverage, such advice is heeded at the carrier's risk.

Szumigala v. Nationwide Mutual Ins. Co., 853 F.2d 274, 282 (5th Cir.1988). Further, even where there has been no judicial interpretation of a relevant statutory provision, the reasonableness of reliance on advice of counsel will normally be a fact question where counsel misreads the plain language of a statute. Murphree v. Federal Ins. Co., 707 So.2d 523, 532-535 (Miss.1997).

In short, the Oklahoma Supreme Court held the opinion of the attorney was not reasonable and the insurer should not have relied upon advice that it knew or should have known from its own judgment was patently wrong.

Tags: , , , ,

Failure To Obtain A Legal Opinion Can Be Bad Faith

Posted on October 27, 2009 by Steven V. Buckman

Bad faith can result in Oklahoma from failing to obtain a legal opinion before denying coverage.  In Harrell v. Old American Ins. Co., 1991 OK CIV APP 91, 829 P.2d 75, a claims examiner failed to seek legal advice regarding a coverage question before denying payment.  The Oklahoma Court of Appeals said it was reasonable to infer the lack of a legal opinion was either because the examiner knew there was coverage or she did not want confirmation the claim was not properly excluded under the terms and conditions of the policy.  The Court determined the trial court was justified in submitting the issue of punitive damages to the jury. 

Some advantages to obtaining a legal opinion as to whether coverage exists before issuing a denial are:

  • demonstrates good faith on the part of the insurer
  • having an objective, third person gives a different perspective
  • qualified, competent Oklahoma attorneys give insight into the law
  • the cost for a legal opinion is substantially less than a bad faith award 
Tags: , ,

Insurance Agent Responsible For Failing To Obtain Coverage

Posted on October 13, 2009 by Steven V. Buckman

An insurance agent was held responsible for failure to obtain workers' compensation coverage.  In a blog post by Tred Eyerly, a summary of the decision is set forth.  Essentially, the agent held herself out as an expert on insurance for certain types of automotive dealerships.  The plaintiffs purchased insurance without specifying any particular type of coverage needed and allowed the agent to select the coverages purchased.

Although the agent was aware California required mandatory workers' compensation coverage, the initial policy provided no such coverage.  One year later, the policy was renewed with another insurer and again no workers' compensation coverage was obtained.

Later, an employee was severely burned in a fire at the dealership.  When he learned there was no workers' compensation coverage available, he sued and obtained a judgment for $11 Million, $6.8 Million of which the dealership was responsible.

The dealership then sued the insurance agent for negligence.  There was a factual dispute over whether or not workers' compensation coverage was discussed and the documentary evidence tended to show the conversation never happened.  Judgment was entered against the insurance agency for $5.8 Million, the outstanding amount of the judgment after one insurer tendered payment of $1 Million in partial satisfaction simply to extricate itself from the situation.

Tags: , , ,

Oklahoma's Statute Of Limitations For Contracts

Posted on October 9, 2009 by Steven V. Buckman

The statute of limitation under 12 O.S. § 95 requires that a lawsuit for breach of contract must be brought within five years if the claim arises from a written contract and within three years if the dispute comes from a contract not reduced to writing.  The time in which to file the lawsuit starts at the completion of the contract.  In the case of Kirby v. Jean's Plumbing Heat & Air, 2009 OK 65, the contract for installation of a new sewage pipeline was completed in 1996.  The homeowner did not file his breach of contract suit until eleven years later in 2007.  The statute of limitations had clearly expired and Oklahoma declined to apply the "discovery rule" to suits based upon breach of contract in construction cases. 

One reason for the court's refusal to extend the "discovery rule" to construction cases is that to do so would defeat the intention of the legislature with the statute of repose.  The court, in upholding the intention of the legislature, has determined there should be some outside limit on when a lawsuit can be brought regardless of the circumstances.

Tags: , , , , , , ,

What Is A Statute Of Repose?

Posted on October 5, 2009 by Steven V. Buckman

A statute of repose as well as a statute of limitation is a legislative means of ending or terminating the time in which a lawsuit may be brought.  "In practical terms, a statute of repose marks the outer time boundary for judicial enforcement of a substantive right whereas a statute of limitation interposes itself only procedurally to bar solely the remedy after a substantive right has vested and a claim accrued."  Kirby v. Jean's Plumbing Heat & Air, 2009 OK 65.

Many people are more familiar with statutes of limitation which bar a person from bringing a lawsuit after a certain period of time has expired.  Typically, statutes of limitation are more commonly thought about in situations in which there is a car accident or other negligent act committed.  The time in which to file the suit starts upon learning about the damages resulting from the negligent act.  The damaged party has a certain period in which to file a lawsuit or forever lose the right to do so.

In contrast, a statute of repose marks the absolute end of any available lawsuit.  The courts have allowed statutes of limitation to be tolled or extended because of the "discovery rule".  The discovery rule is simply the device used to trigger the time in which to file a lawsuit after learning about the damage.  Once a person learns about the damage, the lawsuit must be timely filed or the right to judicial relief is surrendered.  With a statute of repose, it doesn't matter if a person learns about the damage after the deadline or not.  The statute of repose bars the lawsuit simply because of the passage of time.

There are some other technical distinctions.  The statute of limitation does not bar the filing of the lawsuit but rather terminates the remedy available or the relief the court may allow.  The statute of repose blocks the entire lawsuit and prohibits it from going forward.

Tags: , , , , , , , ,

Plumber Saved By Statute Of Repose

Posted on September 30, 2009 by Steven V. Buckman

A homeowner hired a plumber to install a new sewer pipeline to his property in 1996.  Many years passed until 2007 when a backup of raw sewage was allowed to seep into the home and damage the property.  The homeowner filed a lawsuit against the plumber for breach of contract and the negligent work performed installing the new sewage line. 

The Oklahoma Supreme Court ruled the replacement of a sewer pipeline constitutes an "improvement to real property" within the meaning of the statute of repose found in 12 O.S. § 109.

The Supreme Court determined the Oklahoma legislature intended there to be a limit on how long lawsuits could be brought that was absolute.  As such, the defective installation of the sewer pipeline was no longer actionable.  Kirby v. Jean's Plumbing Heat & Air, 2009 OK 65.

Tags:

Appraisal Process As A Substitute For Trial

Posted on September 23, 2009 by Steven V. Buckman

If the goal of both the insurer and the insured is to obtain a prompt resolution of a property damage dispute, appraisal is sometimes an appropriate means to end the discussion and allow everyone to move forward.  I have seen appraisal used in $1,000,000.00 disputes and $5,000.00 disagreements.

The Supreme Court in Oklahoma has ruled the party requesting the appraisal is bound by the decision while the non-requesting party is not.  The rule makes sense from the perspective of both the insurance industry as well as the individuals or companies having purchased the coverage in the sense that neither side can be forced into a binding appraisal award.  The right to jury trial is a constitutionally protected right in Oklahoma. 

If you want to insist upon forcing the other side through the appraisal process, then you have to agree to be bound by the decision of the appraisers and/or umpire.  On the other hand, if you are forced to go through the appraisal process, you will not be bound by the decision. 

Does the appraisal process always work?  No.  Just like the jury system and any other dispute resolution device created by man, it is imperfect.  On the other hand, when a dispute needs to be resolved without years of litigation, expert witnesses, depositions, appeals, and legal maneuvering, the appraisal process offers an alternative to people.

While care should be given to the choice of both the appraisers and the umpire, I have witnessed situations in which there was so much maneuvering by the participants the parties ended up in litigation.  Both sides clearly want their own appraiser to be competent and knowledgeable, but it is also important to have one that is reasonable and fair-minded.  If both sides merely hire their own advocate to serve solely as their "fighter in the ring" it creates more disputes for resolution by the umpire.  Locating an umpire who has some experience can be extremely beneficial.  Since the umpire's job is strictly intended to resolve disagreements between the appraisers, prior experience in how appraissals function is helpful.  More important is willingness to listen, fairly look at the circumstances, and make a rational decision.

Having personally served as an umpire at the request of attorneys representing insureds as well as insurance companies, there is a keen responsibility that you feel as an umpire to try to do the right thing.  In particular, I recall one situation in which the appraisers with me acting as the umpire essentially reached a conclusion unanimously as to the amount.  The determination was exactly the midpoint between the polarized positions of the parties.  I recall thinking before the award was entered that we would probably hear grumbling that we simply "split the baby" and divided everything down the middle.  I personally disdain the practice of some umpires submitting a decision in the middle to avoid the appearance of showing favoritism.  The practice of "splitting the baby" is not the purpose of appraisal.  The job of the umpire is to make the right decision.  He should not be concerned with future work from the parties or making either side unhappy.

At the end of the day, lawyers, adjusters, and insureds owe a duty to try to reach results that are fair and appropriate for the situation. 

Tags: , , ,

Is Deleting Photographs From A Cell Phone Spoliation Of Evidence?

Posted on August 31, 2009 by Steven V. Buckman

The "tall building lawyer" found out during the EUO that Bubba took photos of all the hand guns one week before the fire. Bubba was going to send the photos to a disabled vet who just returned home due to a medical discharge for combat injuries.  Bubba has a big heart and wanted to do something for one of our soldiers wounded in the service of our country.  He was going to let this soldier have his pick of any gun he wanted and give it to him as a gesture of appreciation.  The fire destroyed the guns so he never sent the photos.  The insurer learned about the photos and wanted a copy to document the claim.  

The photos no longer exist.  Bubba, while scouting his favorite deer stand, saw a "buck with a rack that makes ya as giddy as a schoolgirl gettin' ready for her first date." He took so many pictures of the buck that he overwrote the photos of the guns.  

The Advisory Committee, in addressing Fed. R. Civ. P. 37(f), noted that once litigation is anticipated or is commenced, a party is under an obligation to halt or alter its destruction policies such that electronically stored information relevant to the litigation will be preserved.

The good faith requirement of Rule 37(f) means that a party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve. When a party is under a duty to preserve information because of pending or reasonably anticipated litigation, intervention in the routine operation of an information system is one aspect of what is often called a litigation hold.

When evidence is destroyed, an adverse jury instruction can be imposed as a sanction.  See Stevenson v. Union Pac. R.R., 354 F.3d 739, 747-750 (8th Cir. 2003) (although audio tape recordings were destroyed prior to the litigation as a matter or routine subject to the destruction policy, the adverse inference jury instruction spoliation sanction was affirmed as voice recordings were related to the litigation and lawsuit was certain to arise rendering destruction unreasonable and inferring intent.); In re Prudential Ins. Co. Of Am. Sales Practices Litig., 169 F.R.D. 598,615 (D.N.J. 1997) (adverse inference would be drawn from destruction of computer records when company had a haphazard and uncoordinated retention policy). 

If it ends up with a jury deciding whether or not the photos were destroyed to keep the insurance company from seeing them, there better not be any animal rights activists sitting on the jury!

Tags: , , ,

Bubba Sued With A Declaratory Judgment Action

Posted on August 24, 2009 by Steven V. Buckman

Bubba had "another one of them envelopes" sitting down at the Post Office. The lady wouldn't let him peek at this one either. He figured it was the "declaration of war suit."  After the EUO, the other lawyer made the comment this might end up as a "dec action."  I had explained to Bubba that insurance companies often file declaratory judgment actions when there is an issue as to coverage.  It allows a judge to decide the question. Our law firm has filed many of them to resolve all sorts of disputes and it's an appropriate method for an insurer to ask the court to make a decision in a fair and impartial way.

One disadvantage to bringing a declaratory judgment action is the potential risk the insured will view it as a hostile act.  Bubba thought suing the policyholder sounded more like "fightin' words" and called it a "declaration of war." Knowing our firm regularly files dec actions for insurance companies didn't really make Bubba feel any happier.  He was ready to "scrap it up!"

Logically, what else can an insurance company do that would be fair?  If the company doesn't believe there is coverage, asking a judge to decide the question is reasonable.  A dec action brings the issue to the court for resolution as opposed to simply saying, "No, we won't pay you."  Franky, our firm believes it is generally a "good faith" practice to ask the court to settle disagreements over coverage.  But, it sometimes results in the insured filing a counterclaim for "bad faith." 

Tags: , , , , , ,