Oklahoma Insurance Bad Faith Law by Clifton Naifeh

OKLAHOMA ASSOCIATION FOR JUSTICE INSURANCE LAW OKLAHOMA INSURANCE BAD FAITH LAW 2020 December 3rd & 10th, 2020 Online Via Zoom OKLAHOMA CITY, OKLAHOMA Clifton D. Naifeh NAIFEH & ASSOCIATES A Professional Corporation 870 Copperfield Drive, Suite B Norman, Oklahoma 73072 (405) 292-2244 E-Mail: [email protected] CLIFTON D. NAIFEH Clifton D. Naifeh offices in Norman, Oklahoma. He received a Bachelor of Science degree in 1973 from Oklahoma State University and a Juris Doctorate degree in 1977 from Oklahoma City University. Mr. Naifeh practices primarily in the area of civil litigation with special emphasis in insurance law, uninsured motorist, and products liability. He has served the Oklahoma Bar Association as a member of the Code of Professional Conduct Committee, the Civil Procedure Committee, and the Administration of Justice Committee, which committee he previously chaired; and he is a former member of the Professional Responsibility Tribunal. He is a member of the Oklahoma County Bar Association, and served on its Board of Directors, and a member of the Cleveland County Bar Association. Mr. Naifeh is also a member of the Oklahoma Association for Justice and previously served on its Board of Directors. He also previously served as OAJ’s Secretary-Treasurer as well as a State Delegate to the Association of Trial Lawyers of America, now American Association for Justice. He is also a member of the American Association for Justice. He frequently lectures in his practice areas and has authored several papers including The Annual Insurance Bad Faith Law Update, "The Anatomy of Plaintiff's Case-In-Chief", "Insurance Bad Faith -- Oklahoma Style", "Depositions -- Truth or Consequences" and "The Plaintiff's Primer". TABLE OF CONTENTS INTRODUCTION TO A COMPENDIUM OF QUOTABLE QUOTES ................1 I. DEFINING THE THEORY OF RECOVERY ........................1 A. HISTORICAL BACKGROUND .............................1 B. THE BAD FAITH THEORY OF RECOVERY IS FURTHER REFINED ...................................4 C. INSTRUCTING THE JURY ...............................24 D. WHAT ACTS ARE UNFAIR DEALING? ....................29 E. STATUTE OF LIMITATIONS.............................37 II. STANDING AND PARTIES ......................................45 A. BASES CREATING DUTY................................45 B. STANDING TO SUE ......................................49 C. PROPER PARTIES TO SUE ...............................76 D. FEDERAL PREEMPTION.................................97 E. CLASS ACTION REQUIREMENTS .......................105 III. LEGITIMATE DISPUTE .......................................107 A. CORNERSTONE CASES.................................107 IV. REVERSE AND COMPARATIVE BAD FAITH ...................168 V. BIFURCATION ...............................................168 VI. PUNITIVE DAMAGES.........................................171 VII. DISCOVERY .................................................181 VIII. EVIDENTIARY ISSUES ........................................191 -i- IX. ATTORNEY FEES ............................................205 X. INTEREST ...................................................213 XI. FEDERAL DIVERSITY JURISDICTION.........................215 XII. CONCLUSION................................................217 XIII. APPENDIX ...................................................218 XIV. INDEX OF CASES AND AUTHORITIES .........................225 -ii- OKLAHOMA INSURANCE BAD FAITH LAW 2020 by Clifton D. Naifeh NAIFEH & ASSOCIATES A Professional Corporation 870 Copperfield Drive, Suite B Norman, Oklahoma 73072 December 3rd and December 10th, 2020 INTRODUCTION TO A COMPENDIUM OF QUOTABLE QUOTES The tort of bad faith, or more appropriately the violation of the duty to deal fairly and in good faith, has been alive and well in this State for over half of the State's existence. The common law tort is of basically two types -- first-party claims and third-party excess liability claims. A first- party claim is one in which the insured makes a direct claim against his or her insurer whenever the covered contingency occurs and there is an unreasonable failure by the carrier to pay the insured. The traditional third-party excess liability claim is generally defined as where a third party makes claim against an insured for an amount greater than the liability policy. The carrier unreasonably fails to settle within the policy limits when given a reasonable opportunity to do so. The excess liability claim is brought by the insured against the carrier generally once judgment or settlement greater than the policy limits has been effected against the insured. Damages recoverable in both situations are policy limits, as well as consequential, and in a proper case, punitive damages. How we got from the rough and ready days of yesteryear to the high-tech sophistication of today's unfair dealing law can be traced in the following compendium of quotable quotes. I. DEFINING THE THEORY OF RECOVERY A. HISTORICAL BACKGROUND 1. In The Beginning . The first reported Oklahoma bad faith case was in a third-party or excess liability context. Boling v. New Amsterdam Casualty Co., 1935 OK 587, 46 P.2d 916 (Automobile Liability Policy): "It may be stated as a rule of law that where an insurance company agrees to indemnify against loss from personal injury claims, conditioned upon insured's surrendering -1- to the insurance company control of investigations, adjustments of claims, and defenses of lawsuits, and where the insurance company does, pursuant to such contract, take control of such matters, a relationship arises between insured and insurer which imposes on the insurer the duty owing to the insured to exercise skill, care, and good faith to the end of saving the insured harmless, as contemplated by the contract of indemnity. The insurer must act honestly to effectually indemnify and save the insured harmless as it has contracted to do -- to the extent, if necessary, that it must make whatever payment and settlement an honest judgment and discretion dictate, within the limits of the policy, and an abandonment of this duty to act subsequent to its assumption in part constituted bad faith." Id. at 919. 2. The Golden Rule Is The Law. The next case came down in 1949. National Mutual Casualty Co. v. Britt, 1948 OK 256, 200 P.2d 407 (Business Liability Policy): "[T]he Defendant [carrier] was bound to give the rights of the [insureds] at least as much consideration as it did its own in determining whether or not to effect a settlement." P. 411. "It was the right of the Defendant to exercise its own judgment upon the question of whether the claim should be settled or contested but its decision must be in good faith and with consideration of the interests of Plaintiff's. It should be the result of the weighing of probabilities in a fair and honest way after obtaining the facts upon which liability is predicated." P. 412. "If based on a mere chance that the claim might be defeated and not on a bona fide belief that the action will be defeated a refusal of such an offer of settlement would not be good faith." P. 412. Quoting a Vermont case, the Oklahoma Court first used the language "the relation became mutually fiduciary". National Mutual, supra, at 411. American Fidelity & Casualty Company v. L. C. Jones Trucking Company, 1957 OK 287, 321 P.2d 685 (Business Liability Policy): "It is the predominant weight of authority in this country that a public-liability insurer may be liable for the entire amount of a judgment obtained against the insured regardless of any policy limitation, if the insurer's handling of the claim, including a failure to accept a proffered settlement, was done in such a manner as to evidence bad faith. [A]lmost all authorities, including Oklahoma, agree that the insured may recover on grounds of negligence, bad faith or fraud in the insurer's conduct with respect to its responsibility." P. 687. "The predominant majority rule is that both parties' interests must be given the same faithful consideration. The fairest method of balancing the interests is for the insurer to treat the claim as if the insurer alone were liable for the entire amount." P. 687. -2- 3. Famous Last Words Or First Party Claimants Are Not There Yet. Renfroe v. Preferred Risk Mutual Insurance Company, 296 F.Supp. 1137 (N.D. Okla. 1969) (Automobile Collision Policy): "There are no statutes in Oklahoma relating to an insurance company's bad faith refusal to pay an insured's claim. "It appears to a legal certainty that the damages sought in plaintiff's third cause of action [claim of first party bad faith] are not recoverable under the settled law of Oklahoma." P. 1138. Ledford v. The Travelers Indemnity Company, 318 F.Supp. 1333 (W.D. Okla. 1970) (Fire Policy): "It appears that plaintiff's claim for punitive damages for the alleged oppressive manner in which his claim has been handled is defective for two reasons: First, his action herein is based and arises out of the contract of insurance with the Defendant, and Second, the losses pleaded by Plaintiff other than punitive damages appear to be covered by the terms of the policy, thus, no actual damage in tort is pleaded to support the claim for punitive damage." Wilson v. Prudential Insurance Company of America, 1974 OK CIV APP 51, 528 P.2d 1135 (Group Medical and Hospitalization Policy): "Punitive damages and other damages outside the scope of the insurance policy benefits were not recoverable, i.e., an insured's claim against an insurance company, in the case of an admittedly effective insurance policy, are limited

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