Southern Insurance Company v. Hill

Filing 76

OPINION AND ORDER by Magistrate Judge Kimberly E. West granting 56 Plaintiff's Motion for Summary Judgment. (neh, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF OKLAHOMA
SOUTHERN INSURANCE COMPANY,
Plaintiff,
vs.
NANCY HILL,
Defendant.

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Case No. CIV-12-458-KEW

OPINION AND ORDER
This matter comes on for consideration of Plaintiff’s Motion
for Summary Judgment (Docket Entry #56). Briefing is completed and
the matter is ripe for consideration.
Factual Findings
Plaintiff Southern Insurance Company (“Southern”) issued an
insurance policy which became effective on January 3, 2011 covering
the residence and other structures owned by Defendant Nancy Hill
(“Hill”) located at 526 South Carr Pen Road, Atoka, Oklahoma (the
“Property”). As a part of its terms, the insurance policy provided
coverage as follows:
1.

Our Limit – Subject to the
deductible or other limitation
that applies, “we” pay the
lesser of:
a.
b.

insurance

“your” interest
property; or

c.

The

the “limit” that applies;

the
amount
determined
under the applicable Loss
Settlement Provisions.

policy

also

stated

in

the

with

regard

to

any

modifications of its terms as follows:
3.

Change, Modification or Waiver
of Policy terms – A waiver or
change of the “terms” of this
policy must be issued by “us”
in writing to be valid . . .

On March 23, 2011, Hill and Brandy Armstrong (“Armstrong”)
entered into a Real Estate Purchase Contract by which Hill would
sell the Property to Armstrong.

The Real Estate Purchase Contract

provided that “[p]ossession of the property shall be given to the
buyer on the date of closing”, and that “[a]fter the closing or
transfer of the property, such risk [of loss] shall be upon the
Buyer.”
On April 13, 2011, the sale of the Property closed.

On that

date, Armstrong paid the purchase price, Hill executed a Warranty
Deed in favor of Armstrong, Hill transferred possession of the
Property to Armstrong, and the mortgage Hill had taken on the
Property was paid in full.

All requirements for transfer of

ownership and possession under the Real Estate Purchase Contract
from Hill to Armstrong were satisfied.
On April 14, 2011, the Property was damaged by tornadic winds
and hail.

Hill testified that the Property no longer belonged to

her after closing.

She did not pay any money out of pocket to fix

the damages to the Property.
Hill contends that she agreed to keep the insurance policy in
effect for Armstrong’s benefits post-closing until midnight on

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April 15, 2011. Hill and Armstrong contend they disclosed the sale
of the property to Donna Hardman (“Hardman”), an agent at First
Insurance in Atoka, Oklahoma which placed insurance on behalf of
Southern.

Hill states Hardman represented that she would keep the

policy in place until April 15, 2011.

Hill asserts the policy was

kept in place to permit Armstrong to secure her own policy.
By letter dated May 5, 2011, Southern informed Hill that it
would not pay coverage under the policy for the damage done to the
Property because Hill no longer owned the Property at the time of
the loss and, therefore, no longer possessed an insurable interest
in

the

Property.

On

September

11,

2011,

Hill

executed

an

assignment of any and all claims she might have against Southern,
First Insurance, and Hardman arising from Southern’s refusal to pay
under the policy to Armstrong.
On November 6, 2012, Southern initiated this declaratory
judgment

action

(1)

declaring

that

Hill

did

not

possess

an

insurable interest in the Property on April 14, 2011, the date the
real property was damaged by wind and hail storms; (2) declaring
that

Hill’s

insurance

policy

limits

the

amount

Southern

is

obligated to pay on a claim or loss to the extent of Hill’s
interest in the Property; and (3) declaring that the terms of
Hill’s insurance policy could not be waived or modified without a
writing issued by Southern.
Standard on Summary Judgment

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Under Rule 56(c) of the Federal Rules of Civil Procedure,
summary judgment is appropriate, “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that, there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law.”

The moving party bears the initial

burden of showing that there is an absence of any issues of
material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106

S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986).

A genuine issue of

material fact exists when "there is sufficient evidence favoring
the non-moving party for a jury to return a verdict for that
party."

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106

S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986). In determining whether
a genuine issue of a material fact exists, the evidence is to be
taken in the light most favorable to the non-moving party. Adickes
v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26
L.Ed.2d 142 (1970).

Once the moving party has met its burden, the

opposing party must come forward with specific evidence, not mere
allegations or denials of the pleadings, which demonstrates that
there is a genuine issue for trial.

Posey v. Skyline Corp., 702

F.2d 102, 105 (7th Cir. 1983).
With regard to the facts related herein, this Court finds that
no genuine issue exists as to the material facts recited.
Hill’s

additional

facts

concerning

4

her

beliefs

and

Many of

Hardman’s

alleged representations are of no moment to the disputed issues in
this case.
Conclusions of Law
At the outset, it is important to recognize the limitations of
this

action.

Southern

has

brought

this

action

Declaratory Judgment Act found at 28 U.S.C. § 2201.

under

the

This is not an

action for breach of contract, breach of the implied duty of good
faith and fair dealing between an insured and insurer, or for fraud
or material misrepresentation.
claim for any such relief.

Hill has not brought a counter

Certainly, Armstrong, who was never in

privity with Southern, is not a named party to this action.

It is,

indeed, an odd posture for the parties to this action.

Should

Southern’s position under the policy prevail, Hill will not suffer
a quantifiable loss as she no longer owns the Property.

For its

part, Southern owes no duty to Armstrong, the party who suffered
the property loss, because Armstrong was not its insured under the
Policy,

the

alleged

assignment

between

Hill

and

Armstrong

notwithstanding.
The extent of relief which may be granted in this proceeding
is limited:
A federal court generally should not entertain a
declaratory
judgment
action
over
which
it
has
jurisdiction if the same fact-dependent issues are likely
to be decided in another pending proceeding.
See
Brillhart v. Excess Ins. Co., 316 U.S. 491, 495, 62 S.Ct.
1173, 1175–76, 86 L.Ed. 1620 (1942); Western Casualty and
Surety Co. v. Teel, 391 F.2d 764, 766 (10th Cir.1968).
But nothing in the Declaratory Judgment Act prohibits a
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court from deciding a purely legal question of contract
interpretation which arises in the context of a
justiciable controversy presenting other factual issues.
The Act specifically states that the court “may declare
the rights and other legal relations of any interested
party seeking such declaration, whether or not further
relief is or could be sought.”
28 U.S.C. § 2201
(emphasis added).
We recognized in United States v.
Fisher–Otis Co., Inc., 496 F.2d 1146, 1149 (10th
Cir.1974) that “[a] request for relief may be so limited
under the Declaratory Judgment Act, and any further
necessary and proper relief based upon the declaratory
judgment and any additional facts which might be
necessary to support such relief can be sought at a later
time.”
Kunkel v. Continental Cas. Co., 866 F.2d 1269, 1276 (10th
Cir. Okla. 1989).
Issues surrounding whether (1) Hardman acted as an agent of
Southern; (2) Hardman represented that coverage under the policy
would extend to Armstrong - a non-party to the contract - a
disputed fact under the deposition testimony offered herein; (3)
Hardman could create an insurable interest in a stranger to the
insurance contract in complete contravention to the terms of the
insurance policy; (4) either waiver, estoppel, or both theories
preclude Southern from denying coverage; and (5) Hill can assign
her rights under and arising from the insurance contract to
Armstrong without the written consent of Southern are all issues
outside the scope of this declaratory judgment action.

As the

Tenth Circuit authority cited relates, this Court may determine the
legal rights under the express terms of the insurance contract and
any additional relief sought on other various legal theories can be

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taken up in a subsequently brought case.

1

It is with this legal

limitation in mind that this Court approaches the requested relief.
The insurance policy expressly provides coverage only to the
extent of the insured’s “interest in the property.”

The only

legally insured party in to the policy was Hill.

Moreover,

Oklahoma law provides that:

“No insurance contract on property or

of any interest therein or arising therefrom shall be enforceable
as to the insurance except for the benefit of persons having an
insurable interest in the things insured.”
3605(A).
lawful,

Okla. Stat. tit. 36 §

An “insurable interest” is defined as “any actual,
and

substantial

economic

interest

in

the

safety

or

preservation of the subject of the insurance free from loss,
destruction, or pecuniary damage or impairment.”

Okla. Stat. tit.

36 § 3605(B).
In determining whether an insurable interest exists, Oklahoma
1

This Court notes that none of the cases cited by Hill wherein the
representations of agents gave rise to issues of waiver or estoppel arose
in the context of a declaratory judgment action seeking the limited
relief sought in this case. See McGeehee v. Farmers Ins. Co., Inc., 734
F.2d 1422 (10th Cir. 1984)(“The plaintiffs-appellants sued Farmers
Insurance Company on a fire insurance policy.”); McQuay v. Penn-America
Ins. Co., 91 Fed.Appx. 626 (10th Cir. 2003)(“The case proceeded to trial
and the jury returned a verdict in favor of (1) Plaintiff on the breach
of contract claim, and (2) Defendant on the bad faith claim.”);
Schonwald v. Sun Ins. Office, Ltd., 276 F.Supp. 775 (W.D. Okla.
1967)(“This is an action to recover on an insurance policy affording
protection against loss of rents directly resulting from untenantability
of the subject premises caused by destruction or damage by fire or other
named perils.”); Rochester American Ins. Co. v. Thomas, 54 P.2d 151
(Okla. 1935)(“This is an appeal by defendant below from a judgment
rendered against it and in favor of Lena J. Thomas in the sum of $600,
representing the amount due on a policy of fire insurance.”); American
Ins. Co. v. Jueschke, 237 P. 585 (Okla. 1925)(action by plaintiff to
recover on insurance policy upon theft of vehicle).

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courts have adopted the “factual expectation theory of insurable
interest” wherein the court must evaluate “if the insured would
gain some economic advantage by its continued existence or would
suffer some economic detriment in case of its loss or destruction.”
Snethen v. Okla. State Union of the Farmers’ Educ. and Copperative
Union of America, 664 P.2d 377, 380 (Okla. 1983); see also Delk v.
Markel American Ins. Co., 81 P.3d 629, 633-34 (Okla. 2003). At the
time of the loss in this case, Hill would neither gain an economic
advantage through the continued existence of the property nor
suffer an economic detriment. Her interest, both legal and actual,
in the property had been transferred to Armstrong and she had
absolutely no enforceable interest in the property.

As a result,

this Court must conclude as a matter of law and contractual
interpretation that Hill possessed no insurable interest in the
Property at the time of the loss, both under the terms of the
insurance policy and under the current state of Oklahoma law.
Southern next requests a finding that the insurance policy
limits the amount it is obligated to pay on a loss claim to the
extent of Hill’s interest.

Since the policy and the law requires

an insurable interest to exist before coverage is extended to the
insured, this question is effectively moot.

No insurable interest

remained in Hill, therefore, no legal obligation existed for
Southern to extend coverage under the subject policy to Hill.
The deposition testimony indicates that, at the time of the

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loss, certain personal property belonging to Hill remained on the
Property and that Southern paid for the damage to the property.
Certainly, as far as any personal property is concerned, the policy
extended coverage to the level of Hill’s interest in the personal
property.

However, by that time, Hill’s insurable interest in the

Property no longer existed.
The final question posed by this declaratory judgment action
is whether the insurance contract itself provides that its terms
could not be modified or waived unless it was in a writing issued
by Southern.

The policy does provide that a change in its terms

must be in a writing issued by Southern.
Again,

the

ruling

on

the

pending

Motion

is

limited

to

establishing the legal rights of the parties under the written
contract.

Any application of this determination in another case

for recovery may be tempered by other legal theories not available
in this action.
IT IS THEREFORE ORDERED that Plaintiff Southern Insurance
Company’s Motion for Summary Judgment (Docket Entry #56) is hereby
GRANTED.

The rights of the parties under the subject insurance

policy are declared to be as more fully outlined herein above.
IT IS SO ORDERED this 31st day of March, 2015.

KIMBERLY E. WEST
UNITED STATES MAGISTRATE JUDGE
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