Coverage Analysis
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 (10th Circuit)


  An "accident" is an "event that occurs without foresight or expectation."USF&G v. Briscoe, 239 P.2d 754, 756 (Okl. 1951).  The Tenth Circuit has explained that an accident or event is one that “takes place without one’s foresight or expectation; an undesigned, sudden and unexpected event, chance, contingency.”  SCI Liquidating Corporation v. Hartford Fire Insurance Company, 181 F.3d 1210, 1216 (10th Cir. 1999) and I.D.G., Inc. v. St. Paul Fire & Marine Insurance Company, No. 99-5067 (10th Cir. February 7, 2000).  Thus, the court has found that sexual harassment is not an "accident" under Oklahoma law.  American Manufacturers Mutual Ins. Co. v. Wodarski, 68 F.3d 483 (10th Cir. 1995).  Further, intent will be inferred as a matter of law where the insured's conduct is inherently injurious.  Allstate Ins Co. v. Thomas, 684 F.Supp. 1056, 1060 (W.D. Okl. 1988)(sexual molestation).  In such circumstances, the injuries are viewed as being the "natural, reasonably foreseeably and to be expected result" of the insured's conduct. Massachusetts Bay Ins. Co. v. Gordon, 708 F.Supp. 1232, 1234 (W.D. Okl. 1989)(assault and battery).

  Allegations of negligent supervision against the mother of a murderer were held not to allege an "occurrence" in Farmers Alliance Mut. Ins. Co. v. Salazar, 77 F.3d 1291 (10th Cir. 1996).  The court ruled that since the "occurrence" took place when a third party was injured, the appropriate focus of inquiry was on the acts that caused the plaintiff's injury, not on more attenuated conduct pre-dating the time of "occurrence."

  An older "accident" policy was held not to afford coverage for injuries suffered by an optometrist as a result of inhaling toxic fumes from the insured's dry cleaning plant over a five year period.  Leggett v. Home Ind. Co., 461 F.2d 257, 259 (10th Cir. 1972).


  Oklahoma has both an intermediate appellate court and a state Supreme Court.


  Unfair and deceptive claims handling practices are prohibited by 36 Oklahoma Statutes 1.  Unfair or deceptive consumer practices are proscribed by Okla. Stat. Ann. tit. 15 § 751 (West 1993) and tit. 78 § 51 (West 1993).

  The Supreme Court of Oklahoma has ruled that there is no private right of action under this Act.  Walker v. Chouteau, 849 P.2d 1085 (Okl. 1993).  See also  McWhirter v. Employers Mut. Cas. Co., 878 P.2d 1056 (Okl. 1994).  The court has also ruled that athird-party tort claimant has no right to assert bad faith claims against the tortfeasor’s liability insurer.  Allstate Insurance Company v.  Amick, 680 P.2d 362 (Okla. 1984 ). 

  To establish a claim of bad faith, an insured must show that the carrier's refusal to pay a claim was unreasonable and unjustified.  Willis v. Midland Risk Ins. Co., 42 F.3d 607 (10th Cir. 1994).  Plaintiffs may not prevail if there was a legitimate dispute between the parties as to either an issue of fact or law.  Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 762 (Okl. 1984).

  A breach of the insurer's implied obligations of good faith and fair dealing gives rise to a cause of action in tort.  Christian v. American Home Assur. Co., 577 P.2d 899, 901 (Okla. 1978)(bad faith refusal to settle).  

  A party alleging bad faith can only recover punitive damages if it shows that the insurer's denial of coverage for unreasonable under the circumstances.  McCorkle v. Great Atlantic Ins. Co., 637 P.2d 583 (Okla. 1981) and Williamson v. Emasco Ins. Co., 696 F.Supp. 1583 (W.D. Okl. 1988).

  “Bad faith” is an intentional tort and that the policyholder cannot  prevail unless it satisfies the more onerous standards concerning the insurer’s state of mind.   Newport v. USAA, 2000 WL 1006635, *10 (Okla. 2000)(“the availability of a punitive damages award is not automatic, but rather is governed by the standard applicable in other tort cases.  The plaintiff must show that the defendant acted with oppression, malice, fraud or gross negligence or wanton recklessness”).

  The conduct of an insurer in the course of coverage litigation is not a basis for a finding of bad faith.  Timberlake Construction Co. v. USF&G, 71 F.3d 335 (10th Cir. 1995).

  Bad faith claims may only be brought by a policyholder.  First Bank of Turley v. Fidelity & Deposit Co. of Maryland, 1996 WL 537219 (Okl. September 24, 1996). The Oklahoma Supreme Court also ruled in Turley that it would not recognize a claim for "comparative bad faith" based upon the policyholder's failure to alert its insurer to post-tender facts that might bear on the existence of coverage.  In such circumstane, the insured's contractual breach will not give rise to a basis for a tort claim.  

  Advice of counsel is not an absolute defense to a claim of bad faith.  In Barnes v. Oklahoma Farm Bureau Mutual Insurance Company, 2000 OK 55 (2000), the Oklahoma Supreme Court opined that counsel’s advice must be reasonable; otherwise the insurer relies on it at its peril.

  Insurer must prove prejudice.  Independent School District v. Jackson, 608 P.2d 1153 (Okla. 1980); Fox v. National Savings Ins. Co., 424 P.2d 19 (Okla. 1967).

  This prejudice requirement has also been held to apply to the insured’s breach of the cooperation clause by refusing to submit to an examination under oath on a fire loss. Winters v. State Farm Fire & Casualty Co., 1999 WL 66018 (E.D. Okla. January 25, 1999), 


  The Tenth Circuit has ruled that coverage for "wrongful entry, eviction, or other invasion of the right of private occupancy" is only meant to provide coverage against violations of real property rights.  The court rejected arguments that an electrocution claim based on a utility's easement as "strained." Liberty Mutual Ins. Co. v. East Central Oklahoma Electric Cooperative, No. 95-5185 (10th Cir. September 26, 1996). 


  Governed by state in which policy was issued.  Gilbertson v. State Farm Mut. Auto Ins. Co., 845 F.2d 245 (10th Cir. 1988).


  The Oklahoma Court of Appeals has ruled that a liability insurer was obligated to pay for defense counsel of the insured's own choosing in an extreme cases where appointed defense counsel admitted to an ethical dilemma based upon the insurer's refusal to permit him to pursue a defense strategy that would have conflicted with the insurer's reservation of rights in a sexual misconduct malpractice case.  Nisson v. American Home Assurance Co., 917 P.2d 488 (Okl. App. 1996).


  Superfund clean up costs were held to be "damages" by federal district court in National Indemnity Co. v. United States Pollution Control, Inc., 717 F.Supp. 765 (W.D. Okl. 1989).


  An insurer that questions its coverage obligations may either (1) seek declaratory relief; (2) defend under a reservation of rights; or (3) refuse to defend and run the risk that the claims will prove to be covered.  First Bank of Turley v. Fidelity & Deposit Co. of Maryland, 1996 WL 537219 (Okl. September 24, 1996).

  Reasonable attorney's fees are "allowable" under 36 O.S. 1991 § 3629(B) to prevailing parties.  Compare, Shadoan v. Liberty Mut. Ins. Co., 894 P.2d 1140 (Okl. App. 1994)(fee award mandatory to insured that prevailed in DJ) with Adair State Bank v. American Cas. Co., 949 F.2d 1079 (10th Cir. 1991) ("allowable" implies discretion on part of trial court as to whether to award fees or not).  More recently, however, the 10th Circuit has overruled Adair and has declred that Secton3629(B) mandates that the prevailing party be awarded attorney’s fees.  Stauth v. National Union Fire Insurance Company of Pittsburgh, No. 98-6405 (10th Cir. January 2001).  

  Attorneys' fees incurred by a policyholder in responding to a declaratory judgment action commenced by the insurer have been held not to be "reasonable expenses incurred" at the request of the insurer within the Supplementary Payments provision of standard general liability policies. Allstate Ins. Co. v. Brown, 920 F.2d 664 (10th Cir. 1990)(Oklahoma)


   --Claims Manuals

  Such discovery has been held to have no probative value in determining the mutual intent of the parties as reflected in the insurance contracts. Oklahoma Pub. Co. v. Continental Ins. Co., No. CIV-90-1251-A (W.D. Okl. Nov. 5, 1991)

   --Drafting History

   --Other Policyholder Claims

   --Reinsurance Information



  The duty to defend does not arise until the defense of a covered suit is tendered to the insurer.  First Bank of Turley v. Fidelity & Deposit Co. of Maryland, 1996 WL 537219 (Okl. September 24, 1996).  Whether a duty to defend exists or not must be determined from the actual facts, not just the pleadings.  Thus, the Supreme Court of Oklahoma declared in Turley that an insurer must look to the pleadings, to facts made known to it by the insured and to those facts that were otherwise known (or readily knowable) to it at the time that the tender of defense is received.  If later developments in the litigation suggest a possibility for coverage, it is the insured's obligation to give notice of these facts to the insurer.  Later-developed facts that were not known or knowable at the time of tender will not retroactively create a defense obligation.  Id.  However, the insured has a continuing duty to keep the insurer apprised of pertinent developments if it hopes to get coverage for them.  A failure to do so will bar coverage pro tanto.


  Prejudice will be presumed if an insurer undertakes the defense of an action without having issued a reservation of rights.  Braun v. Bradley, 936 F.2d 1105 (10th Cir. 1991) (Oklahoma law).  


  Federal courts have predicted that Oklahoma would adopt the "cause" test. Business Interiors, Inc. v. Aetna Cas. & Sur. Co., 751 F.2d 361 (10th Cir. 1984)(39 checks forged by dishonest employee over seven month period all relate to a single "occurrence").  Similarly, a Texas court applying Oklahoma law ruled in Transport Ins. Co. v. Lee Way Motor Freight, Inc., 487 F.Supp. 1325 (N.D. Tex. 1980) that diverse claims for employment discrimination arose out of single "occurrence" (the insured's discriminatory employment practices).


  A “fronting” policy has been held to be “other collectable insurance” under Oklahoma law.  Air Liquide America Corporation v. Continental Casualty Company, 2000 WL 779894 (10th Cir. June 19, 2000).

  In a dispute between professional liability policies issued to a hospital, on which a pharmacist was  an additional insured, and the pharmacist’s own malpractice policy, the Tenth Circuit has ruled in Hospital Casualty Company of Oklahoma v. Pharmacists Mutual Insurance Company, No. 99-6106 (10th Cir. February 11, 2000) that an Oklahoma District Court did not err in concluding that the Hospital’s policy was primary notwithstanding its arguments that the pharmacists’ policy was more specific to the risk.  

  Exclusion upheld by Oklahoma Supreme Court in Kerr-McGee Corp. v. Aetna Cas. & Surety Co., 905 P.2d 760 (Okl. 1995).  The court ruled that the pollution exclusion is unambiguous and clearly precludes coverage for gradual releases of pollutants.  The court further declared that intentional disposal of waste materials, even at licensed facilities, were not "accidental" discharges.  Having found the exclusion unambiguous, the court ruled that any consideration of extrinsic evidence of contractual intent was improper. Three dissenting judges opined that the court should have found ambiguity on the basis of the exclusion's alleged "drafting history."

  The Tenth Circuit has also upheld the exclusion in a consolidated set of appeals following Kerr-McGee. See Macklandburg-Duncan v. Aetna Cas. & Sur. Co., 71 F.3d 1526 (10th Cir. 1995). See also Oklahoma Publishing Co. v. Kansas City Fire & Marine Ins. Co., 805 F.Supp. 905 (W.D. Okl. 1992)("sudden and accidental" requires that a "discharge is both abrupt and unexpected or unintended by the insured").

  "Absolute" exclusion upheld in Bituminous Casualty Corporation v. St. Clair Lime Company, No. 94-6436 (10th Cir. October 27, 1995) despite insured's contention that it should not apply to toxic tort claims against a product supplier.  The court ruled that the underlying Lone Star Steel claims clearly were based upon the discharge of chemicals in an industrial activity, unlike its earlier ruling in Red Panther Chemical Co. v. Ins. Co. of the State of Pennsylvania, 43 F.3d 514 (10th Cir. 1994). In Red Panther, the court had ruled in a case arising in Oklahoma but interpreting Mississippi law, that a "total" pollution exclusion was potentially ambiguous as regards a products liability suit against an insecticide manufacturer by a garage mechanic who was accidentally exposed to hazardous chemicals while repairing a cargo truck.   While refusing to adopt the insured's suggestion that such exclusions be restricted solely to "environmental pollution," the court nonetheless held that even unambiguous policy language could be deemed ambiguous in the context of the "unique factual circumstances" of this case.  Accordingly, it remanded the case for further findings with respect to the "proper scope of the exclusion, based on the common usages and understandings of the insurance industry, and the purposes of the exclusion in conjunctions with the hazards and risks" that it was purchased for.


  Allegations that the insured failed to pay a minority shareholder royalties and profits that he was entitled to for software that he developed have been held not to involve a “loss of use” of “tangible property.”  Furthermore, the Tenth Circuit ruled in I.D.G., Inc. v. St. Paul Fire & Marine Insurance Company, 203 F.3d 935 (10th Cir. 2000)(unpublished–full text available at 2000 U.S. App. LEXIS 1680), that the claims were not based upon an “event” or “accident” under Oklahoma law.

  Punitive damages can only be insured if based on vicarious liability of insured.  Dayton Hudson Corp. v. American Mutual Liability Ins. Co., 621 P.2d 1155 (Okla. 1980).  Otherwise, such awards are contrary to the public policy of Oklahoma.  Magnum Foods, Inc. v. Continental Cas. Co., 36 F.3d 1491 (10th Cir. 1994)(claims against food chain for hiring dangerous employee).


  Insurance contracts are to be interpreted, like all contracts, in accordance with their plain and ordinary meaning.  Dodson v. St. Paul Ins. Co., 812 P.2d 372, 376 (Okla. 1991); Wiley v. Travelers Ins. Co., 534 P.2d 1293 (Okla. 1974).  Title 15 of Oklahoma Statutes, Section 157 requires that all terms in a contract be construed as a whole, giving effect to every part.

  Exclusions reduce coverage and operate independently with regard to the insuring agreement.  Trinity Universal Ins. Co. v. Broussard, 932 F.Supp. 1307, 1310 (N.D. Okla. 1996).

  The Oklahoma Supreme Court adopted the "reasonable expectations" doctrine for the first time in Max True Plastering Co. v. USF&G, 912 P.2d 861, 863 (Okla. 1996).  However, the court limited the applicability of the doctrine to cases involving ambiguous policy provisions or terms which are technical or phrased in obscure language or which are hidden in a policy's provisions.   Relying on these rules, the Tenth Circuit has since refused to circumvent a “resident” exclusion in a homeowner’s policy on the basis of the “reasonable expectations” doctrine where the language was neither “hidden” nor ambiguous.  Further, the court ruled in Roberts v.  Farmers Ins. Co., No.  98-5234 (10th Cir.  November 23, 1999) that the trial court had not erred in refusing to allow the insured to put into evidene a poll in which a local professor had asked 126 college students whether they believed that the exclusion clearly precluded coverage.


  Oklahoma Supreme Court rejects utilization of market share theory as applied to asbestos claims. Case v. Fibreboard Corp., 743 P.2d 1062, 1066 (Okla. 1987). 


  No cases.

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