Hester v. Certain Underwriters of Lloyd's et al
Filing
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OPINION AND ORDER by Magistrate Judge Steven P. Shreder granting 34 Farmers Insurance Company's Motion for Summary Judgment (dma, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
TERRY HESTER,
Plaintiff,
v.
CERTAIN UNDERWRITERS OF
LLOYD’S, et al.,
Defendants.
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Case No. CIV-12-57-SPS
OPINION AND ORDER GRANTING DEFENDANT FARMERS
INSURANCE COMPANY’S MOTION FOR SUMMARY
JUDGMENT AND BRIEF IN SUPPORT
Terry Hester owned a number of collectibles from the World War II era that were
stolen on July 25, 2010.
Mr. Hester had both a collectibles insurance policy with
Defendant Certain Underwriters of Lloyd’s and a homeowner’s insurance policy with
Defendant Farmers Insurance Company, Inc. (“Farmers”), and he notified both
companies as to his loss. When neither policy paid to his satisfaction, Mr. Hester filed
this action for breach of contract and breach of the duty of good faith and fair dealing
against both companies. Farmers now seeks summary judgment on the Plaintiff’s claims
pursuant to Fed. R. Civ. P. 56. As set forth below, the Court finds that the Defendant
Farmers Insurance Company Inc.’s Motion for Summary Judgment and Brief in Support
[Docket No. 34] should be GRANTED.
LAW APPLICABLE
This is a diversity case, so Oklahoma substantive law applies. See Erie Railroad
Co. v. Tompkins, 304 U.S. 64, 78-79 (1938). “Under Oklahoma law, insurance policies
are issued pursuant to statutes, and the provisions of those statutes are given force and
effect as if written into the policy.” Shepard v. Farmers Insurance Co., 1983 OK 103,
¶ 2, 678 P.2d 250, 251 [citation omitted].
Summary judgment is appropriate if the record shows that “there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). A genuine issue of material fact exists when “there is sufficient
evidence favoring the nonmoving party for a jury to return a verdict for that party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The moving party must show
the absence of a genuine issue of material fact, see Celotex Corp. v. Catrett, 477 U.S .
317, 325 (1986), with the evidence taken in the light most favorable to the non-moving
party, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). However, “a party
asserting that a fact cannot be or is genuinely disputed must support the assertion by . . .
citing to particular parts of materials in the record . . . or . . . showing that the materials
cited do not establish the absence or presence of a genuine dispute[.]” Fed. R. Civ. P.
56(c).
ANALYSIS
Farmers contends that summary judgment is appropriate here because Mr.
Hester’s collectibles were specifically excluded from coverage under the terms of its
policy. Mr. Hester argues that the Farmers policy offers primary coverage and the
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exclusion referenced by Farmers is an impermissible “escape clause.” The Court finds
that the loss is excluded from coverage under the terms of the Farmers policy, and that
Farmers is therefore entitled to summary judgment.
The material facts are undisputed. The collectibles were stolen from Mr. Hester’s
home on July 25, 2010, and he notified both insurers of his loss. As to the Farmers
Policy, Mr. Hester originally requested in August 2010 that Farmers “hold off on any
claim” until his claim with Lloyd’s had been processed. Farmers followed up with a
letter to Mr. Hester in September 2010, confirming that the claim was on hold. The
following month, Mr. Hester sent an email to Farmers requesting that his claim be reopened, and Farmers notified Mr. Hester in February 2011 that they were reserving their
rights on his claim. The parties continued to disagree about Mr. Hester’s loss as it related
to the Farmers Policy until Mr. Hester filed suit on February 8, 2012.
Farmers denies Mr. Hester’s claim for benefits under its policy based on the
following exclusion in “Section I – Types of Personal Property Not Insured” to the
policy: “We do not insure . . . personal property separately described and specifically
insured in this or any other policy[.]” See Docket No. 34, Ex. 3 at 16 (“Farmers Personal
Property Exclusion”).
Mr. Hester contends that this exclusion is an impermissible
“escape clause.” As relevant, the Farmers policy also contains an “other insurance”
clause that states: “Except as provided below, this insurance is excess of any other
insurance covering the property. If covered property sustains loss or damage covered by
any other insurance, we will be liable only for that portion of the loss covered under this
policy that is in excess of the limit of insurance that applies under the other insurance.”
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See Docket No. 34, Ex. 3 at 37 (emphasis added). In comparison, the Lloyd’s policy
states, “If at the time the Covered Loss occurred there is available any other insurance
which would apply to the Covered Property, the insurance under this policy shall apply
only as excess insurance over the other insurance. But in no event, will this insurance
contribute with other insurance. In any event, we will not pay more than the applicable
Limit of Insurance.” See Docket No. 34, Ex. 2 at 5.
Mr. Hester argues that the Farmers policy should be found as the primary coverage
for his claimed loss because the Farmers Personal Property Exclusion is an impermissible
escape clause.
Primary coverage is provided when, under the terms of the policy, the
insurer is liable without regard to any other insurance coverage available.
Excess coverage or secondary coverage is provided when, under the terms
of the policy, the insurer is liable for a loss only after any primary coverage
– other insurance – has been exhausted. A pro rata clause in a policy
limits coverage to a proportionate share in relation to all coverage available
for the same risk. An escape clause, also known as a no liability clause,
disclaims any and all liability if other insurance is available.
Equity Mutual Insurance Co. v. Spring Valley Wholesale Nursery, Inc., 1987 OK 121,
747 P.2d 947, 954 (1957) [emphasis in original]. Mr. Hester argues that the Farmers
Personal Property Exclusion is an impermissible “escape clause.” The Court, however,
agrees with Farmers that although the Personal Property Exclusion is an “escape clause”
to the extent that it excludes, or escapes, liability for coverage of personal property
separately described and specifically insured, it is not an escape clause that disclaims any
and all liability; rather, it disclaims liability for personal property otherwise insured. But
even assuming that it does act as an escape clause, the Court finds that the exclusion is
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permissible under freedom-of-contract principles. See Oklahoma Farmers Union Mutual
Insurance Company v. John Deere Insurance Company, 1998 OK CIV APP 156, ¶ 14,
967 P.2d 479, 482 (1998) (“In Equity Mutual, the Oklahoma Supreme Court did not
indicate that ‘escape’ clauses – or clauses of a similar nature – generally were against
public policy in Oklahoma, or that such clauses would not be enforced in appropriate
circumstances. The court did, however, specifically recognize that once the legislative
purpose underlying the state’s minimum financial responsibility laws has been served,
then ‘freedom-of-contract principles control as to any vehicle coverage in excess of that
required by statute.”) [emphasis in original], citing Equity Mutual, 1987 OK 121, ¶ 17.
See also Okla. Stat. tit. 15, § 157 (“The whole of a contract is to be taken together, so as
to give effect to every part, if reasonably practicable, each clause helping to interpret the
others.”).
Mr. Hester argues that not all of the collectibles claimed in his loss were
“separately described and specifically insured” as required by the terms of the Farmers
policy, but the terms of the Lloyd’s policy provided coverage for Mr. Hester’s collectible
property that was, inter alia, owned by him. The Lloyd’s policy only required that items
with a value over $5,000 be scheduled by endorsement as part of the policy. Docket No.
34, Ex. 2 at A.3.a & A.4.f.. All of the collectibles claimed as lost by Mr. Hester were
either Scheduled Items as part of the policy, or had a claimed value of less than $5,000.
Docket No. 34, Ex. 4 & Ex. 8. Because all of the collectibles in the claimed loss are
specifically excluded from coverage under the Farmers Policy and Lloyd’s has
acknowledged that they are covered under the Lloyd’s Policy (despite the fact that issues
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of value and authenticity remain under that policy), they are not “covered property” that
triggers the “other insurance” clause in the Farmers Policy.
The Court also finds that Mr. Hester’s claim for breach of the duty of good faith
and fair dealing fails.
In order to establish a prima facie case of bad faith under
Oklahoma law, Mr. Hester must show: (i) that his loss was covered under the Farmers
Policy, and that Farmers was required to take reasonable actions in handling his claim;
(ii) that Farmers’ actions were unreasonable under the circumstances; (iii) that Farmers
failed to deal fairly and in good faith with Mr. Hester in handling his claim; and (iv) that
Farmers’ failure caused Mr. Hester to suffer damages. Badillo v. Mid Century Insurance
Co., 2005 OK 48, ¶ 25, 121 P.3d 1080, 1093. Because Mr. Hester’s loss was not covered
under the Farmers Policy, he cannot establish a prima facie case of bad faith.
And
although Mr. Hester argues that Farmers unreasonably delayed in making a decision on
his claim and wrongly denied coverage, Farmers correctly points out that there was a
legitimate coverage dispute.
See Timberlake Construction Co. v. U.S. Fidelity &
Guaranty Co., 71 F.3d 335, 343 (10th Cir. 1995) (“The 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.”), citing Thompson v. Shelter Mutual Ins., 875 F.2d 1460,
1462 (10th Cir. 1989).
In summary, Mr. Hester’s loss is not entitled to coverage under the Farmers policy
because the policy excludes such coverage. Consequently, IT IS ORDERED that the
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Defendant Farmers Insurance Company Inc.’s Motion for Summary Judgment and Brief
in Support [Docket No. 34] is hereby GRANTED.
DATED this 18th day of January, 2013.
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