Whiteman v. State Farm Fire & Casualty Company et al

Filing 68

ORDER denying 32 Defendant's Motion for Summary Judgment. Signed by Honorable Timothy D. DeGiusti on 3/30/2018. (mb)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
RUTH WHITEMAN,
Plaintiff,
v.
STATE FARM FIRE AND
CASUALTY COMPANY,
Defendant.

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Case No. CIV-16-975-D

ORDER
Plaintiff Ruth Whiteman was insured under a homeowners insurance policy
issued by Defendant State Farm Fire and Casualty Company. She contends
Defendant, among other things, breached the implied covenant of good faith and fair
dealing by failing to perform an adequate investigation of her claim of earthquake
damage to her home. Before the Court is Defendant’s Motion for Partial Summary
Judgment [Doc. No. 32]. Defendant’s motion seeks judgment as a matter of law only
as to Plaintiff’s claims for bad faith and punitive damages. Plaintiff has filed her
response in opposition [Doc. No. 45] and Defendant has replied [Doc. No. 48]. The
matter is fully briefed and at issue.
UNDISPUTED MATERIAL FACTS
There is no genuine dispute as to the following facts except where noted.
Plaintiff was insured under a homeowner’s insurance policy, Policy No. 36-CT-

1420-0 (the “Policy”), which was issued by Defendant. Section I of the Policy
(“Losses Insured”) initially provided coverage for “accidental direct physical loss”
to the property, which included, but was not limited to, fire, lightning, windstorms,
and hail. Under the heading, “Losses Not Insured,” the Policy stated Defendant
would not provide coverage for damage caused by, inter alia, “settling, cracking,
shrinking, bulging, or expansion of pavements, patios, foundation, walls, floors,
roofs or ceiling,” and “earth movement,” which the Policy defined as “the sinking,
rising, shifting, expanding or contracting of earth, all whether combined with water
or not ….” The Policy interpreted “earth movement” to include events such as
“earthquake[s] [and] erosion or movement resulting from improper compaction, site
selection or any other external forces.” Other losses not covered by the Policy
included defects in construction and/or design, and weather conditions. In 2010,
Plaintiff added an Earthquake Endorsement to the Policy, which amended Section I
to read, in part:
SECTION I - LOSSES NOT INSURED references to earthquake and
volcanic explosion are deleted. Such insurance as is afforded by Section
I of the policy is extended to insure for accidental direct physical loss
caused by earthquake or volcanic explosion.
On September 11, 2015, Plaintiff contacted Defendant stating that her
property had suffered damage from an earthquake that happened on September 10,
2015. Plaintiff stated she was at home when the earthquake occurred and she felt and
heard the floor “pop.” Defendant’s representative Scott Bagwell, checked with the
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U.S. Geological Survey (USGS) and confirmed an earthquake had occurred that day
ten to fifteen miles from Plaintiff’s home that registered 2.9 on the Richter Scale.
Bagwell also interviewed Plaintiff, who reported she had sustained cracks
throughout her home. Notes taken by another representative, Matt McLemore, stated
that he performed the following acts on September 15, 2015:
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Called and spoke with [Plaintiff] this afternoon.
Confirmed the estimated DOL [date of loss] and location.
Completed EQ [Earthquake] Q &A (will place in the file and
send to engineer).
Explained covered versus non-covered damage and use of
engineer.
Explained the 2% EQ deductible ($94,900 x 2% = $1,898
deductible)
Advised RoR [Reservation of Rights] letter will be sent out
within the next couple of days and what it means.
Advised engineer will contact her directly to schedule
appointment and then let me know; if available, I will come out
at the same time. If not, we can make other arrangements later.
Provided [Plaintiff] the toll free number, my extension, and my
name.
I asked if [Plaintiff] had any questions, no. Advised to call me if
she has any questions later and/or needs additional information,
understood.

See Def. Mot. for Summ. J. at Ex. 5 (paraphrasing added). McLemore next obtained
the name of PT&C LWG Forensic Consulting using State Farm’s pre-identified list
of engineering firms, and on September 17, 2017, McLemore spoke with a
representative of PT&C and sent Plaintiff a Reservation of Rights letter. He then
retained Registered Professional Engineer Corbin Swain to inspect Plaintiff’s home.

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Swain examined Plaintiff’s home and concluded that the damage to Plaintiff’s
home had not been caused by an earthquake, but was instead caused by “differential
foundation movement.” He also concluded that “[t]he cracking of the interior
finishes and concrete slab of the subject residence was caused by non-uniform
movement of the soils supporting the foundation and subsequent differential
foundation movement. The non-uniform movement of the supporting soils was the
result of natural soil consolidation and variation in the moisture content of the soils
underlying the foundation.” McLemore called Plaintiff to go over engineer findings
and repair recommendations. Plaintiff made it clear that she disagreed with the
conclusions.
McLemore followed up the conversation with a letter to Plaintiff, explaining
that Defendant was denying her claim based on Swain’s report. McLemore cited
several policy provisions Defendant believed excluded coverage, specifically the
aforementioned exclusions for “settling, cracking, shrinking, bulging, or expansion
of pavements, patios, foundation, walls, floors, roofs or ceiling”; “earth movement”;
construction/design defects; and weather conditions. On October 30, 2015, pursuant
to her request, McLemore sent Plaintiff color photos from the engineer’s report, a
copy of her Policy, and closed the claim. Plaintiff then filed this action.
The parties’ dispute centers around the adequacy of Swain’s inspection.
Plaintiff contends Swain failed to perform necessary tasks in order to perform a
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reasonable investigation in that he: (1) failed to inspect crucial areas where damage
could be found in Plaintiff’s home, such as the attic and front crawl space; (2) failed
to measure the moisture of the soil, although he suggested denying Plaintiff’s claim
on the basis that excess moisture in the soil caused the soil beneath to shift; (3) did
not see any evidence of “ponding” around Plaintiff’s home, despite concluding that
excess moisture contributed to the damage;1 (4) failed to take a soil sample from
beneath the home, although he asserted that damage to the home was caused by the
type of soil underneath; (5) failed to inspect/investigate how Plaintiff’s home was
built, although its damage had also been attributed to poor workmanship or soil
compaction; (6) failed to properly investigate the home for exterior damage; (7)
failed to inspect whether or not there was rainfall in the area, although he testified
that damage to the home could have been caused by moisture in the soil due to extra
rainfall; and (8) failed to consider the effects of several moderate size earthquakes
on the home’s foundation and supporting soil.
Defendant states Plaintiff’s allegations provide neither evidence of any
applicable investigatory standards that Swain failed to meet nor proof that Swain’s
investigation was a sham. Rather, Defendant contends that there can be no question

1

“Ponding” refers to the (typically unwanted) pooling of water on a surface, usually
on a flat roof or roadway.
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that its actions were reasonable under the circumstances, and it is therefore entitled
to judgment as a matter of law.
STANDARD OF DECISION
Rule 56(a), Federal Rules of Civil Procedure, provides that “[t]he court shall
grant summary judgment if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” The
Court views the material undisputed facts in the light most favorable to the nonmoving party. T.D. v. Patton, 868 F.3d 1209, 1219 (10th Cir. 2017). The Court’s
function at the summary judgment stage is not to weigh the evidence and determine
the truth of the matter asserted, but to determine whether there is a genuine issue for
trial. Birch v. Polaris Indus., Inc., 812 F.3d 1238, 1251 (10th Cir. 2015).2 An issue
is “genuine” if there is sufficient evidence on each side so that a rational trier of fact
could resolve the issue either way. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670
(10th Cir. 1998). An issue of fact is “material” if under the substantive law it is
essential to the proper disposition of the claim. Id.
Once the moving party has met its burden, the burden shifts to the nonmoving
party to present sufficient evidence in specific, factual form to establish a genuine

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Stated another way, “[t]he standard for summary judgment is not whether a plaintiff
would prevail at trial, but whether the Defendant has proven that no issues of
material dispute exist.” Werkheiser v. Pocono Township, No. 16-cv-15, 2018 WL
509814, at *3 (M.D. Pa. Jan. 23, 2018).
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factual dispute. Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th
Cir. 1991). The nonmoving party may not rest upon the mere allegations or denials
of its pleadings. Rather, it must go beyond the pleadings and establish, through
admissible evidence, that there is a genuine issue of material fact that must be
resolved by the trier of fact. Salehpoor v. Shahinpoor, 358 F.3d 782, 786 (10th Cir.
2004). Unsupported conclusory allegations do not create an issue of fact. Finstuen
v. Crutcher, 496 F.3d 1139, 1144 (10th Cir. 2007).
DISCUSSION
Under Oklahoma law, which the parties agree controls this case,3 “‘[e]very
contract ... contains an implied duty of good faith and fair dealing.’” Combs v.
Shelter Mutual Ins. Co., 551 F.3d 991, 998-99 (10th Cir. 2008) (quoting Wathor v.
Mutual Assurance Administrators, Inc., 2004 OK 2, ¶ 5, 87 P.3d 559, 561). “An
insurer has an ‘implied-in-law duty to act in good faith and deal fairly with the
insured to ensure that the policy benefits are received.’” Badillo v. Mid Century Ins.
Co., 2005 OK 48, ¶ 26, 121 P.3d 1080, 1093 (citing Christian v. American Home
Assurance Co., 1977 OK 141, ¶ 8, 577 P.2d 899, 901). “Under Oklahoma law, ‘the
essence of the intentional tort of bad faith with regard to the insurance industry is

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Subject matter jurisdiction here is predicated upon diversity of citizenship. See
Notice of Removal ¶ 7 [Doc. No. 1]. A federal court sitting in diversity applies the
substantive law of the forum state. Ace American Ins. Co. v. Dish Network, LLC,
883 F.3d 881, 887 (10th Cir. 2018).
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the insurer’s unreasonable, bad-faith conduct, including the unjustified withholding
of payment due under a policy.’” Boggs v. Great Northern Ins. Co., 659 F. Supp. 2d
1199, 1216 (N.D. Okla. 2009) (quoting McCorkle v. Great Atlantic Ins. Co., 1981
OK 128, ¶ 21, 637 P.2d 583, 587).4
“[I]f there is conflicting evidence from which different inferences may be
drawn regarding the reasonableness of insurer’s conduct, then what is reasonable is
always a question to be determined by the trier of fact by a consideration of the
circumstances in each case.” Badillo, 121 P.3d at 1093 (quoting McCorkle, 637 P.2d
at 587). “A central issue in any analysis to determine whether breach has occurred
is gauging whether the insurer had a good faith belief in some justifiable reason for
the actions it took or omitted to take that are claimed violative of the duty of good
faith and fair dealing.” Id. (citing Buzzard v. McDanel, 1987 OK 28, ¶ 10, 736 P.2d
157, 159).
In sum, to prevail on her bad faith claim, Plaintiff must show: (1) Defendant
was required under the Policy to pay her claim; (2) Defendant’s refusal to pay the
claim was unreasonable under the circumstances because it either (a) did not perform
a proper investigation, (b) did not evaluate the results of the investigation properly,

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“Bad faith,” for purposes of the tort, has been described as “willful, malicious, or
oppressive for the purposes of delaying or avoiding payment of the insured’s claim.”
Tolman v. Reassure America Life Ins. Co., 2017 OK CIV APP 15, ¶ 15, 391 P.3d
120, 123 (citing Christian, 577 P.2d at 905).
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or (c) had no reasonable basis for the refusal; (3) Defendant did not deal fairly and
in good faith with Plaintiff; and (4) Defendant’s violation of its duty of good faith
and fair dealing was the direct cause of the damages sustained by Plaintiff. Bannister
v. State Farm Mut. Auto Ins. Co., 692 F.3d 1117, 1126-27 (10th Cir. 2012); Badillo,
121 P.3d at 1093.
The applicable standard governing Plaintiff’s bad faith claim is well-known
and oft repeated:
The Oklahoma Supreme Court and this Court have made clear that an
insurer does not subject itself to a claim of bad faith merely by disputing
coverage. 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. So long as there is a
legitimate basis for doing so, disputing coverage is not bad faith per se.
We note, though, that a legitimate dispute as to coverage will not act as
an impenetrable shield against a valid claim of bad faith. An insured
may pursue a claim of bad faith even where the insurer has a legitimate
defense to coverage. However, in order to pursue such a claim, the
insured must present sufficient evidence reasonably tending to show
bad faith.... In sum, in order to establish [a bad faith] claim, the insured
must present evidence from which a reasonable jury could conclude
that the insurer did not have a reasonable good faith belief for
withholding payment of the insured’s claim.
Timberlake Constr. Co. v. U.S. Fid. and Guar. Co., 71 F.3d 335, 343-44 (10th Cir.
1995) (internal citations and quotations omitted). “Whether an insurer’s actions
reasonably give rise to an inference of bad faith must be determined in light of all
facts known or knowable concerning the claim at the time plaintiff requested the
company to perform its contractual obligation.” Oulds v. Principal Mut. Life Ins.
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Co., 6 F.3d 1431, 1439 (10th Cir. 1993) (citing Conti v. Republic Underwriters Ins.
Co., 1989 OK 128, ¶ 20, 782 P.2d 1357, 1362).
Defendant contends there is no evidence supporting Plaintiff’s bad faith claim
because its conduct was reasonable under the circumstances and there was a
legitimate dispute regarding whether the damage to Plaintiff’s home was caused by
an earthquake. As noted supra, it cites evidence that it believes supports its assertion
that it acted in good faith, such as checking with USGS to see if there had been a
severe earthquake near Plaintiff’s home; contacting Plaintiff and sending an engineer
out to inspect her home; explaining that it would be sending a Reservation of Rights
letter because there was a question as to whether Plaintiff had a covered claim; hiring
a registered professional engineer (Swain) to inspect the damages, and upon
receiving Swain’s findings, promptly informing Plaintiff of the results and its denial
of coverage.
Defendant also asserts that, under the undisputed facts, there can be no
question as to whether it had a justifiable reason for withholding payment under the
policy. It cites to evidence that it retained Swain to inspect Plaintiff’s house, who
determined the cause of loss was differential foundation movement due to soil
consolidation and not an earthquake. According to Defendant, it justifiably
concluded that the cause of loss was an excluded event rather than a covered one.

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However, Plaintiff has also provided evidence, including testimony from
Swain, which reflects that Swain did not inspect the stem wall underneath the home,
and despite concluding that extra moisture in the soil’s composition caused the
damage to Plaintiff’s home, he (1) did not measure the moisture of the soil, (2) did
not see any evidence of “ponding” around Plaintiff’s home, (3) did not take a soil
sample from beneath the home, and (4) did not inspect whether or not there was
rainfall in the area. Plaintiff also points to evidence indicating that, despite his
findings, Swain did not look into how the home was built, failed to investigate the
home for exterior cracks, and failed to consider the effects of other earthquakes on
the foundation and supporting soil.
Whether these facts, which are viewed in Plaintiff’s favor (as well as all
reasonable inferences) are sufficient to ultimately establish a claim for bad faith is
not for the Court to decide, as it does not weigh the evidence at the summary
judgment stage. Rather, the Court finds that credible evidence exists on both sides
of the parties’ dispute and such evidence should be weighed by a jury to determine
whether Defendant breached its duty to Plaintiff. Accordingly, Defendant is not
entitled to summary judgment on this claim.
Lastly, Defendant moves for summary judgment on Plaintiff’s prayer for
punitive damages. Pursuant to OKLA. STAT. TIT. 23, § 9.1, punitive damages may be
available in a bad faith suit where the insurer has either (1) recklessly disregarded
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its duty to deal fairly and act in good faith with its insured; (2) intentionally and with
malice breached its duty to deal fairly and act in good faith with its insured; or (3)
intentionally and with malice breached its duty to deal fairly and act in good faith
with its insured, and the Court finds that, beyond a reasonable doubt, the insurer
acted intentionally and with malice and engaged in life-threatening conduct. Id.
Based on its findings above, the Court finds that whether such conduct constitutes
any of the aforementioned categories of conduct warranting the imposition of
punitive damages cannot be determined as a matter of law based on the instant
summary judgment record. The record before the Court does not sway the Court in
either direction as to whether the issue of punitive damages will be presented to the
jury; hence, any ruling on the issue of punitive damages is premature.
CONCLUSION
Defendant’s Motion for Summary Judgment [Doc. No. 32] is DENIED as set
forth herein.
IT IS SO ORDERED this 30th day of March 2018.

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