The State of Oklahoma requires liability insurance for licensed or certified foster parents. In 2002, the Oklahoma Department of Human Services (“DHS”) placed a six-month-old baby in a foster home and liability insurance was provided to the foster mother by two insurers at the expense of the State. Less than one month later, the baby was found lying in her crib dead as a result of child neglect, specifically untreated illnesses and lack of personal care. In 2003, the Estate of the deceased child filed a wrongful-death lawsuit against the foster mother, the Oklahoma DHS, and two employees of the DHS.

During the litigation of the wrongful-death suit, the Estate filed an insurance claim with the liability insurer for benefits which was subsequently denied due to an exclusion for injuries resulting from physical abuse.

Just days before the trial, the insurance companies proposed a combined settlement offer which was rejected by the Estate. The case proceeded to trial and a $20 Million verdict was returned in favor of the Estate. The foster mother appealed.

In 2007, one of the two insurance companies filed a declaratory judgment action in Federal court requesting the court to find it had no responsibility to defend the foster mother or pay the damages under the liability coverage of the insurance policy. The other parties filed numerous cross-claims and counterclaims including breach of contract and bad faith. Most of the claims were settled in a compromise resolution. However, following the partial settlement, two issues remained to be decided by the Federal court.

The court ruled that:

1. the Estate of the deceased child did not demonstrate a contractual relationship existed in such a way that the foster child as a third-party claimant could assert a claim against the insurance policy. Likewise, the insurance company did not owe a duty to the Estate as a third-party claimant, and

2. the Estate could not seek garnishment against the foster mother in excess of the available liability policy limits.

The Estate appealed the rulings of the Federal court. On appeal, the Tenth Circuit Court of Appeals affirmed the District Court. Colony Ins. Co. v. Burke, 698 F.3d 1222 (10th Cir. 2012).