Hester v. Certain Underwriters of Lloyd's et al

Filing 91

OPINION AND ORDER by Magistrate Judge Steven P. Shreder denying 83 Motion for Attorney Fees (dma, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
TERRY HESTER,
Plaintiff,
v.
CERTAIN UNDERWRITERS OF
LLOYD’S and FARMERS
INSURANCE COMPANY, INC.,
Defendants.

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Case No. CIV-12-57-SPS

OPINION AND ORDER DENYING FARMERS
INSURANCE COMPANY’S MOTION FOR ATTORNEY FEES
The Plaintiff sued the Defendants, Farmers Insurance Company, Inc. and Certain
Underwriters of Lloyd’s, alleging breach of contract and bad faith in connection with a
theft loss sustained by the Plaintiff. The Plaintiff settled with Lloyd’s [Docket No. 76],
but Farmers prevailed on summary judgment [Docket No. 54] and seeks an award of
attorney’s fees pursuant to 36 Okla. Stat. § 3629. As set forth below, the Defendant’s
Motion for Attorney Fees and Brief in Support [Docket No. 89] is hereby DENIED.
Farmers requests attorney’s fees as a prevailing party pursuant to 36 O.S. § 3629,
which provides in pertinent part as follows:
A. An insurer shall furnish, upon written request of any insured
claiming to have a loss under an insurance contract issued by such
insurer, forms of proof of loss for completion by such person, but
such insurer shall not, by reason of the requirement so to furnish
forms, have any responsibility for or with reference to the
completion of such proof or the manner of any such completion or
attempted completion.

B. It shall be the duty of the insurer, receiving a proof of loss, to
submit a written offer of settlement or rejection of the claim to the
insured within ninety (90) days of receipt of that proof of loss. Upon
a judgment rendered to either party, costs and attorney fees shall be
allowable to the prevailing party. For purposes of this section, the
prevailing party is the insurer in those cases where judgment does
not exceed written offer of settlement. In all other judgments the
insured shall be the prevailing party.
Section 3629 is thus “a prevailing party attorney fees provision” and “serves to encourage
prompt resolution of insurance claims by keying entitlement to an award of fees to a
particular date.” Hale v. A.G. Insurance Co., 2006 OK CIV APP 80, ¶ 6, 138 P.3d 567,
569. “The insurer’s penalty for failing to reject or offer to settle a claim within 90 days is
the loss of any opportunity to recover attorney fees, even if the insurer is the prevailing
party in a lawsuit.” AG Equipment Co. v. AIG Life Ins. Co., Inc., 691 F. Supp. 2d 1295,
1305 (N.D. Okla. 2010), citing Shinault v. Mid-Century Ins. Co., 1982 OK 136, ¶ 4, 654
P.2d 618, 619 (“[Section] 3629 imposes the loss of any chance for attorney fees on the
insurer as a sanction for the failure to respond within ninety days of its receipt of Proof of
Loss.”).
Farmers obtained summary judgment on the Plaintiff’s claims and is undoubtedly
the prevailing party under Section 3629. Farmers did not, however, reject the Plaintiff’s
insurance claim within ninety days of receiving it on August 26, 2010. Instead, despite
noting that the “[s]tatutory time limit to accept/deny claim OR notice of extension of time
required” was November 27, 2010, and that its “[i]nvestigation to be complete within 120
days after the reported date” [Docket No. 83, Ex. 12], Farmers sent the Plaintiff a letter
on February 8, 2011 “to advise you, Farmers Insurance Company, Inc., is specifically

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reserving all rights relative to this claim, and will be undertaking a thorough investigation
of this claim” [Id., Ex. 16 at 1]. The last page of this letter indicated that a final decision
had not been made: “We will investigate your claim as quickly as possible, and make a
final determination regarding what amounts, if any, you may be entitled to under your
policy” [Id., Ex. 16 at 3]. The claim file indicates that Farmers was waiting for resolution
of the Plaintiff’s claim with Lloyd’s before determining whether anything was owed
under its policy [Id., Exs. 17-23]. In a September 21, 2011 letter (over a year after
receiving the original proof of loss), Farmers requested a corrected proof of loss form,
noting that the Plaintiff’s claim with Lloyd’s had gone into mediation [Id., Ex. 24]. On
January 18, 2012, the Plaintiff demanded that Farmers tender the policy limits for his loss
within ten days. [Id., Ex. 27], which prompted Farmers to again request a corrected proof
of loss [Id., Ex. 28]. On February 8, 2012, the Plaintiff commenced this action.
Farmers argues that the proof of loss received on August 26, 2010 was insufficient
to trigger its ninety-day duty under Section 3629 because: (i) the proof of loss form was
incomplete and the Plaintiff requested a delay in processing his claim while he pursued
Lloyd’s; (ii) Farmers retained the right to investigate the claim and gave itself a 120-day
extension of the 90-day period; (iii) Farmers reserved its rights and denied coverage on
February 8, 2011; (iv) Farmers requested a corrected proof of loss form on September 21,
2011; and (v) the ninety-day duty under Section 3629 was triggered until January 2012,
when the Plaintiff first claimed that Farmers was the primary (rather than excess) insurer.
“Any notice by an insured provides the insurer sufficient proof of loss if the notice
serves the ultimate purpose of affording the insurer knowledge that can be acted upon.”
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Hambelton v. Canal Insurance Co., 405 Fed. Appx. 321, 323 (10th Cir. 2010), quoting
Dixson Produce, LLC v. National Fire Insurance Co. of Hartford, 2004 OK CIV APP 79,
¶ 20, 99 P.3d 725, 727. See also Regional Air, Inc. v. Canal Insurance Co., 639 F.3d
1229, 1236 (10th Cir. 2011) (“Section 3629 is triggered by notice from an insured
claiming to have a covered loss.”), citing Association of County Commissioners v.
National American Insurance Co., 2005 OK CIV APP 44, ¶ 17, 116 P.3d 206, 209.
Farmers’ contention that the August 26, 2010 proof of loss was insufficient is belied by
the fact that Farmers did not request a corrected proof of loss for over a year. See AG
Equipment Co, 691 F. Supp. 2d at 1306 n. 8 (“An insured must substantially comply with
the requirement to provide proof of loss, and this standard is met if the proof of loss
serves the ultimate purpose of affording the insurer knowledge that could be acted upon
. . . The insurer may request additional information and conduct further investigation
before issuing a decision on whether a claim is covered, but this does not affect the
adequacy of the proof of loss.”), citing Dixson, 2004 OK CIV APP 79, ¶ 20, 99 P.3d at
727. This is similar to the situation in AG Equipment Co. v. AIG Life Insurance Co., Inc.,
wherein the court found:
AIG did not dispute the adequacy of the proof of loss when it
originally received AG’s claim for reimbursement of Ash-Kurtz’s
medical expenses and . . . it is reasonable to infer that AIG initially
deemed the proof of loss sufficient. While AIG retained the right to
investigate whether it was obligated to reimburse AG for AshKurtz’s medical expenses, it could not indefinitely hold AG’s claim
in abeyance without waiving its rights to collect attorney fees under
§ 3629. . . . AIG has not cited any evidence suggesting that it refused
to issue a decision on AG’s claim because AG’s proof of loss did not
comply with the terms of the insurance policy; instead, AIG
requested more information because it discovered information
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casting doubt on AG’s assertion that the claim was actually covered
by the Policy. . . . AIG could have rejected the claim within 90 days
based on AG’s refusal to provide the additional information
requested by AIG, and this would have preserved AIG’s right to
seek attorney fees.
691 F. Supp. 2d at 1305-1306 [emphasis added; citations omitted]. Because Farmers did
not request a corrected proof of loss for over a year, the Court finds that the Plaintiff’s
original proof loss received on August 26, 2010 was sufficient to place Farmers on notice
of the claim, and that any later request for information goes to a coverage issue rather
than sufficiency of the proof of loss.
Farmers also contends that the ninety-day deadline did not run in November 2010,
that it was extended for one hundred twenty days, or that the period did not begin to run
until January 2012. But Farmers admitted receiving a proof of loss on August 26, 2010,
and its unilateral claim of an extension does not toll the period under Section 3629. See
Association of County Commissioners of Oklahoma v. National American Insurance Co.,
2005 OK CIV APP 44, ¶ 6, 99 P.3d at 724 (“If the insurer fails to act within 90 days, it
has breached Section 3629(B) and has waived its right to attorney fees.”). Farmers notes
that the Plaintiff was told in September 2011 that “it doesn’t appear that there is any
claim to be made with Farmers” and urged to submit a corrected proof of loss if he felt
otherwise, and the Plaintiff’s failure to respond therefore allows recovery under Section
3629. But this would be so only if Farmers had first made timely response to the initial
proof of loss. See Cales v. Le Mars Mutual Insurance Co., 2003 OK CIV APP 41, ¶ 12,
69 P.3d 1206, 1208 (“Insurer did not comply with § 3629(B) because it did not submit a
written offer of settlement or rejection of the claim to the insured within 90 days after
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Cales presented Insurer with the supplemental proof of loss, following the first denial of
the claim.”) [emphasis added].
Farmers also contends that under Oklahoma law a legal determination as to excess
liability was required before it had any duty under Section 3629, citing Association of
County Commissioners of Oklahoma v. National American Insurance Co., 2005 OK CIV
APP 44, 99 P.3d 725. But the ruling in that case was based on a finding that no formal
proof of loss had been submitted to the insurer, not on the idea that an excess insurer
could operate under different rules. See 2005 OK CIV APP 44, ¶ 19, 99 P.3d at 727
(“While a formal proof of loss form may not have been part of the course of dealing
between ACCO-SIG and either Lloyd’s or NAICO, nevertheless, a demand or notice of
loss of an amount exceeding the self-insured retention was necessary for NAICO to be
able to meet its Section 3629 obligation to [make] a settlement offer or reject the claimed
loss (or risk an award of fees).”).
In summary, the Court finds that Farmers did not comply with 36 O.S. § 3629 and
is therefore not entitled to an award of attorney fees under the provision. Accordingly, IT
IS ORDERED that the Defendant’s Motion for Attorney Fees and Brief in Support
[Docket No. 83] is hereby DENIED.
DATED this 24th day of March, 2014.

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