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!

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, it can be 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.”  You always need to consider the unintended consequences of suing your own customer.

Code compliance or ordinance and law exclusions in property insurance policies are intended by insurers to prevent damage claims turning into windfalls for policyholders.  These cases are often hotly debated by both sides.  From the perspective of the policyholder, the insured wants coverage to return the house or building to the same or similar use as before the catastrophe that occurred. 

Insurance companies on the other hand do not want to pay for expensive upgrades to the property as a result of changes in building codes and ordinances that have been implemented over numerous years from the time the structure was originally built.  The debate was blogged about recently in the property insurance coverage law blog.  Oklahoma addressed the question about five years ago.

In Spears v. Shelter Mutual Ins. Co., 2003 OK 66, 73 P.3d 865, lightning struck the Plaintiffs’ home and caused damage to part of the electrical wiring.  The home and its wiring were about 60 years old, the entire house had to be rewired to meet the current code construction adopted by municipal ordinances.  Shelter Insurance paid $1,700.00 to repair the portion of the wiring directly damages by the lightning, but refused to pay the additional $4,280.00 to rewire the entire home.  The Oklahoma Supreme Court stated:

¶4 Oklahoma law governing insurance coverage disputes is well-established. The foremost principle is that an insurance policy is a contract. Cranfill v. Aetna Life Ins. Co., 2002 OK 26, ¶5, 49 P.3d 703, 706. "Parties are at liberty to contract for insurance to cover such risks as they see fit and they are bound by the terms of the contract. It necessarily follows that courts are not at liberty to rewrite the terms of an insurance contract." Id.

In concluding its decision, the Oklahoma Supreme Court declared the ordinance or law exclusion was not ambiguous.  Neither was the exclusion hidden in the policy’s provisions or masked by technical or obscure language.  The court determined the plain and ordinary meaning of the words used in the exclusion required Shelter’s limit of liability to be $1,700.00 (the cost to repair the section of wiring directly damaged by the lightning).

Many companies actually sell additional coverage as an option for policyholders in which supplemental coverage is provided for necessary upgrades.  Although it increases the cost of the premium, it is usually fairly insignificant as compared to the risk of the expense for the upgrades if many years have passed from the time of construction. 

At the end of the day, it is an economic or marketplace decision between the seller of the insurance and the purchaser of the coverage.  If the property owner wants to spend less money on insurance coverage by not purchasing the additional coverage for code upgrades, it is an economic decision.  Likewise, if an insurance company chooses to structure its product so as to make coverage available at an increased cost, it is an open and free marketplace.

During the EUO, opposing counsel marked Bubba‘s personal inventory list as an exhibit and said he wanted to go over some of the items destroyed in the fire. EUOs are a good tool for finding out information and evaluating the credibility of the insured.  On its face, Bubba’s contents list probably caused an “inquiring mind” to want to know more.  There were only 9 pages, but Bubba had more handguns than socks, even counting the ones that didn’t match.  Shotguns took almost 2 pages, the rifles and semi-autos used almost another 6 pages.  Most homeowners’ policies have maximum limits for guns and jewelry.  The Wewoka Worldwide policy limited guns to $2,500.00.  And it was a safe bet Bubba wasn’t claiming any jewelry.

I heard the “tall building” lawyer say, “You know sir that your policy has a $2,500.00 limit on your guns?”  Bubba sounded off like he was back in boot camp, “NO SIR, I bought full coverage for my guns, sir!”  I couldn’t help laughing when Bubba started telling him “his guns wuz covered under the fishin’ ” part of the policy. I amused myself listening to the conversation until I saw opposing counsel reach into his brief case and pull out one of those big bottles of Tums. I decided to help him out just a little and said.  “I think Bubba might be talking about his inland marine floater for coverage on the guns.”  Bubba’s agent had helped Bubba by covering the guns under a floater.  Bubba just naturally associated “floater” and “marine” with “fishin'”.

After the “fishing” issue, the EUO began to smooth out for a bit. The “tall building” lawyer tried to smile a lot and act friendly. He was letting Bubba set himself up for ways to deny the claim. Like a good insurance defense lawyer, he was doing his job. One strategy some defense lawyers use is to act low key and get the witness talking. With Bubba, there wasn’t much effort to getting him to talk. Bubba never learned when was the right time to speak and when to just be quiet.

The EUO finally ended after about 6 hours. It was a long day! The “tall building” lawyer explained Bubba was going to receive a copy of the transcript and be able to make any necessary corrections to the sworn testimony. Wewoka Worldwide Insurance wanted Bubba’s signature on the transcript verifying everything he said. If it turned out Bubba didn’t tell the truth, then it could be used as evidence of false swearing against Bubba.

One significant difference between an EUO and a deposition is the “read and sign” part. In depositions, witnesses commonly waive the right to read and review the transcript.  In an EUO, most insurance policies require the witness to read and sign. Bubba’s going to “let me do the readin’ ” of his transcript before he signs.  Lucky me!

Unnecessary damages which could have been avoided by the insured cannot be recovered in a lawsuit for breach of contract as every Oklahoma insurance lawyer well knows.  A party who asserts a claim for breach of contract against an insurance company has a duty to use reasonable efforts to mitigate his damages.  Hidalgo Properties, Inc. v. Wachovia Mortgage Company, 617 F.2d 196, (10th Cir. 1980)  A party, including a policyholder, has a duty under Oklahoma law, to make all reasonable efforts to minimize his damages.  Sabine Corp. v. ONG Western, Inc., 725 F.Supp. 1157, (Okla. W.D. 1989).

The principle of mitigation of damages is summarized in the Restatement (Second) of Contracts Section 350 comments (1979) as follows:

As a general rule, a party cannot recover damages for loss that he could have avoided by reasonable efforts. Once a party has reason to know that performance by the other party will not be forthcoming, he is ordinarily expected to stop his own performance to avoid further expenditure. . . . Furthermore, he is expected to take such affirmative steps as are appropriate in the circumstances to avoid loss by making substitute arrangements or otherwise. 

A promisee is not required to go to extraordinary lengths or expense to avoid loss; only efforts that are reasonable under the circumstances are necessary.

Any Oklahoma insurance law attorney defending a case brought against an insurance company for breach of contract, fraud, bad faith, or any other cause of action will always look to see if the losses could have been reasonably avoided to prevent the insurance company from being forced to pay more than the law requires.  The lawyer representing the insured will attempt to show reasonable efforts were used or it was impossible to lessen the damage.

My favorite example is the hail storm that knocks a hole in the roof.  The insured needs to do something to stop the water from raining inside and soaking the furniture, i.e., mitigate or lessen the damage by tarping the hole in the roof.  He can’t just sit back and watch the water run down the walls!

An EUO is a lot like a deposition or testifying in court. There is a court reporter present who swears in the insured and takes down the sworn testimony. The insured is asked a lot of questions about their background and the reported claim. A lawyer wouldn’t be worth much if he didn’t at least try to prepare his client for the questions and go over what to expect. I did my best to help Bubba.

The EUO started with the court reporter asking Bubba to raise his right hand to be sworn.  She then told him "to raise his other right hand to take the oath."  The background questions were anticipated and Bubba managed to answer them. 

It was entertaining to hear Bubba explain his temporary housing expenses.  He ran 275 feet of electrical extension cords from Pudge’s kitchen to his tent so he could watch TV. Bubba, who can fix almost anything with duct tape and baling wire, bought a brand new plasma television and it just barely fit inside the 6′ wide tent he used as his temporary residence.

The "tall building lawyer" was skeptical Bubba had run extension cords from Pudge’s kitchen window down to his tent and he bluntly told Bubba he didn’t believe anyone would hook up a 50" plasma TV inside a tent.

Bubba’s third wife is the only person I ever saw call Bubba a liar that didn’t pay a hefty price for saying it. Judianne, his wife, was 5’2" and 104 lbs., when wearing her tallest, heaviest pair of cowboy boots blurted out in the middle of the "day-vorce" hearing, that Bubba was lying.  When he stood up to protest, she stuck one finger up his nose, another finger in the corner of his eye, and yanked his head around to where he didn’t need a rearview mirror to back up.  Judge Smith and I still disagree over whether she whispered in his ear or bit it! Every time the bailiff tried to pull her off, Bubba howled like a calf at branding time. Judge Smith was threatening to hold Judianne in contempt, while alternately yellin’ "Order in the Court!" It wasn’t till he threatened not to grant the divorce that she finally turned loose.

It could have been downright ugly at the EUO if Bubba had realized his honesty was being questioned. Fortunately, Bubba was so busy explaining how he installed the satellite dish in the tree next to the tent, he didn’t even notice his integrity had been challenged.

Oklahoma lawyers suing insurance companies for breach of contract in first-party cases find themselves limited by the damages which can be awarded for breach of contract.  Under 23 O.S. § 21, the measure of damages for breach of contract is the amount which will compensate a party for the damage.  In Osborn v. Comanche Cattle Industries, Inc., 1975 OK CIV APP 67, 545 P.2d 827, the Oklahoma Court of Appeals explained the reason for limiting damages:

This interest is given legal protection to achieve the paramount objective of putting the promisee injured by the breach in the position in which he would have been had the contract been performed.  

The law philosophically intends for people who have been harmed to receive compensation, not a windfall.  The concept can be illustrated by the employment relationship.  People are paid (compensated) for the work they do — an employee receives a windfall if the business owner decides to give him a new Porsche!

Bad faith allegations asserted in Oklahoma courts allow the plaintiff lawyer to ask for money in addition to what might be recoverable under the insurance policy such as:

  • financial losses
  • embarrassment and loss of reputation
  • mental pain and suffering
  • punitive damages

Oklahoma plaintiff attorneys file bad faith claims to try to recover for damages not available under the terms of the insurance policy.  Although it is technically "compensation" for damages, a bad faith claim places the insurance company at greater risk than just what the policy covers.  Problems develop when unscrupulous attorneys or vindictive insureds falsely accuse the insurer of wrongdoing simply as leverage to get their claim paid.  Oklahoma judges, however, protect insurance companies from paying damages for bad faith if the underlying disagreement is a legitimate dispute.

Property damage that results from a continuous and ongoing process over an extended period of time rather than from a defined, identifiable event such as a tornado or hail damage creates disagreements and disputes as to when property damage "occurred."  Coverage under most insurance policies is triggered by an "occurrence."  As Dana Ferestien commented, insurers and insureds continue to litigate over whether or not particular damages are an occurrence under a particular insurance policy. 

These coverage disputes become even more complicated when there are multiple insurers during the period of time in which the damages occur.  Not only is there disagreement over the time period in which the damage occurred, the policies may have different policy language resulting in different outcomes.  The "occurrence" issue arises in homeowners’ policies as well as commercial properties.  Since the damages often go unnoticed for long periods of time, the damages often turn out to be significant in terms of the dollar amount for repair/replacement.  The questions over the cause for the damage often results in both sides hiring experts who have differing opinions. 

I agree with Ferestien the "occurrence" litigation will likely continue as policyholders and insurers assert their competing and opposing positions.  In Oklahoma, attorneys familiar with insurance litigation over coverage routinely defend claims asserting there was no "occurrence" under the terms of the insurance policy and will likely continue to do so.

Cancellation of a homeowners’ insurance policy requires compliance with terms and conditions of the policy. It may sound simple, but we have seen several full blown lawsuits arise over the years where the manner in which the policy was cancelled before a loss occurred was challenged. The starting point is a review of the requirement and the procedure for cancellation inside the insurance policy as well as a review of the Oklahoma statutes. The statutory fire policy provides five days’ written notice of cancellation with or without tender of the excess premium pro rated for the remaining time not used. The notice of cancellation is required to state that the excess premium (if not tendered) will be refunded on demand.

Some insurance policies provide for a greater notice period than the statutory five days. An insurance company should comply with its own policy terms and conditions for cancellation and provide the additional time per the policy. Some policies prescribe notice of cancellation by registered mail which is not the same as certified mail. In these cases, the insurer should use the procedure for registered mail.

We saw an interesting blog not long ago by Jason W. Anderson commenting on a Washington Supreme Court decision.  The insurer attempted to cancel a policy by using certified mail as opposed to regular mail. The State of Washington has a statutory requirement for notice of cancellation and the question was whether certified mail was the equivalent of mailing under the statute.

The court decided certified mail was not the equivalent of regular mail and the policy was never actually cancelled. The court found there were some practical differences between regular mail and certified mail in that there is a greater imposition placed upon the insured as it requires the policy holder to be at home to receive the letter or actually travel to the post office to retrieve it. A cancellation notice sent by regular mail would arrive without the hassle and aggravation of signing for the certified envelope or going to the post office to pick it up.

In summary, when there is an issue of cancellation involved, the insurer should follow the applicable regulations as well as the insurance policy guidelines. When the applicable regulation and the policy provide different notice requirements, then the insurer should follow the insurance policy (provided it doesn’t attempt to give less notice than the statute).  If in doubt, consult with an attorney who practices in areas of insurance coverage.

Bubba came by for an appointment to discuss his fire loss claim. It was one of those meetings that wasn’t on my calendar; he just stopped by “to see how things were goin'”.

When I told Bubba we needed to submit his receipts for ALE, he quietly spelled “a-l-e” to himself and suddenly asked, “you mean they’ll pay for my beer?” I explained to Bubba ALE is an abbreviation for additional living expense. Most homeowners’ policies have coverage for the extra expenses the insured will usually have living in a motel, eating out at restaurants, and using temporary facilities until their house can be repaired. After I finished the explanation, I could tell Bubba was trying hard to remember the money he had spent. Bubba isn’t much of a record keeper and his memory is sometimes rather short. He only recalled three expenses, $79.95 for his tent, $75.00 for three 100′ extension cords, and $0.78 for a new toothbrush.

This was the first time I have ever seen a tent submitted under the ALE provision of a policy for temporary housing (and our firm has defended quite a few fire claims) – in the end the tent was less expensive than a motel or rent house.

He probably had some other expenses, but Wewoka Worldwide, like most insurance companies, requires receipts, credit card bills, or some type of documentation.  Bubba found his receipts on the floor of his truck preserved amongst his other valuable papers, lottery tickets, traffic citations, and coupons for 20% off Bar-B-Q at the Wild Pig.

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