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Oklahoma Supreme Court Recognizes Bad Faith Tort against Workers' Compensation Insurer
Overturning recent case law, the Oklahoma Supreme Court has recently determined, by a vote of 5-4, that a bad faith tort can be pursued against a workers' compensation insurance carrier when there is evidence that the carrier refused to pay a workers' compensation award. See Sizemore v. Continental Casualty Co., 2006 OK 36.
In the Sizemore case, the plaintiff was injured on-the-job and had received temporary total disability payments for her injuries. However, in a separately-filed bad faith lawsuit, she alleged that the insurer failed to pay her permanent partial disability payments. The worker's compensation court found that the permanent partial disability payments were past due and accelerated the entire balance. Her separate lawsuit against the insurance carrier sought tort damages for the insurer's failure to pay. The District Court for the Northern District of Oklahoma decided sua sponte to certify the following question to the Oklahoma Supreme Court: Does Oklahoma law recognize a tort for bad faith against a workers' compensation insurer?
Though the Court obviously struggled with the decision (the Court took over two years to issue its opinion), the Court nevertheless answered the question in the affirmative. The Court stated that the injured employee has the contractual and statutory status as "third party beneficiaries" of a workers' compensation agreement. The right to enforce the agreement belongs to the employee, regardless of whether the insurer is an insurance company or an employer who voluntarily assumes insurer status.
The Court also noted that the "exclusive remedy" provisions of the worker's compensation act do not apply to an insurer's failure to act in good faith and fair dealing in payment of an award. An insurer's "bad faith" is not part of the "industrial bargain" contemplated by the worker's compensation laws. While noting that the worker's compensation laws contain provisions to enforce awards, a bad faith action will lie if the insurer refuses to pay the award despite orders of the workers' compensation court. In reaching its conclusion, the Court essentially overruled Deanda v. AIU Ins., 2004 OK 54, 98 P.2d 1080, and Kuykendall v. Gulfstream, 2002 OK 96, 66 P.3d 374.
Oklahoma Court of Civil Appeals Finds for Insurer in Two Separate Cases
The Oklahoma Court of Civil Appeals recent issued two opinions favorable to certain insurers. Hale v. A.G. Insurance Company, 2006 OK CIV APP 80 and Bailey v. Farmers Insurance Co., Inc., 2006 OK CIV APP 85.
In Hale, plaintiff insured sued defendant insurer for its failure to pay for fire damage to insured's convenience store. At trial, the insurer made an offer of proof that the fire was intentionally set, insured's policy was set to expire four days after the fire and the insured had a financial motive to set the fire and thus the insurer had a good faith belief, at the time its performance was requested, that it had a justifiable reason for withholding payment under the policy.
The insured argued that the insurer's belief that he was responsible for the arson was unreasonable, but the insured did not submit any evidence on the cause of the fire. The trial court denied insurer's motion for a directed verdict and the jury returned a verdict in favor of Plaintiff for $226,000 in actual damages and $226,000 in punitive damages.
Insurer appealed, arguing the trial court erred in denying its motion for a directed verdict. The Court cited Badillo v. Mid Century Ins. Co., 2005 OK 48, 121 P.3d 1080, for the proposition that the elements of a bad faith claim are the following:
(1) The plaintiff's loss was covered under the insurance policy issued by the insurer; 2) The insurer's refusal to pay the claim in full was unreasonable under the circumstances because it had no reasonable basis for the refusal, it did not perform a proper investigation, or it did not evaluate the results of the investigation properly; 3) the insurer did not deal fairly and act in good faith with the plaintiff; and 4) the insurer's violation of its duty of good faith and fair dealing was the direct cause of the injury sustained by the plaintiff. See Hale, 2006 OK CIV APP 80, ¶12; see also Bailey, 2006 OK CIV APP 85, ¶15.
The Oklahoma Court of Civil Appeals reversed the trial court and entered judgment on behalf of Defendant insurer. The Court found the evidence submitted by the plaintiff presented undisputed evidence that the insurer had a legitimate dispute to the insured's claim during the time the claim was reviewed. The Court found that the insurer had evidence that the fire was caused by arson and circumstantial evidence that the insured had financial motive to set the fire at the time of its denial that created a legitimate dispute to the claim. Hence, according to the Court, the insurer did not act in bad faith as a matter of law.
Similarly, in Bailey, the plaintiff sued defendant insurer for failure to pay for fire damage to insured's barn. The insurer had refused coverage on the grounds that the barn and contents were used in a business and were excluded from coverage by the policy. The insurer filed motions for summary judgment on the plaintiff's claims for breach of contract and bad faith, attaching evidentiary material showing that plaintiff had previously stated that he used his barn for his horse business and that he had claimed $52,533 in business deductions related to horse breeding. The trial court granted summary judgment for defendant on both claims.
On appeal, the Oklahoma Court of Civil Appeals affirmed summary judgment on Plaintiff's bad faith claim but reversed summary judgment on the breach of contract claim. The Court found that plaintiff's statement and tax returns created a legitimate dispute over whether plaintiff's barn and contents were used for business purposes. As such, the insurer had a good faith belief at the time its performance was requested that it had a justifiable reason for withholding payment under the policy.
The opinions in both Hale and Bailey show a willingness by Oklahoma appellate courts to find in favor of an insurer if the insurer can present some evidence that it had a legitimate basis for its actions at the time of its denial of a claim, particularly where the plaintiff has no evidence to dispute the reasonableness of the insurer's decision. Notably, expert testimony was not offered by the insured in either case, underlining the importance of expert testimony in bad faith cases.
Correctional Facilities Benefit From New Ruling from U.S. Supreme Court
In 1975, inmates filed more 6,600 federal lawsuits. By 1994, the number of inmate suits filed annually eclipsed 39,000. Just one year later, prisoner suits constituted more than twenty-five percent of all claims filed in federal court. In the wake of this sharp rise in prison litigation, Congress passed the Prison Litigation Reform Act (PLRA).
The centerpiece of the PLRA's effort to reduce the quantity and increase the quality of prisoner suits is an invigorated exhaustion provision. Prior to 1980, prisoners asserting constitutional claims were under no obligation to exhaust the grievance procedure provided by the facility. In passing the PLRA, however, Congress materially altered this landscape by removing the discretion of federal judges to dispense with the exhaustion process.
As passed, the exhaustion requirement states that "No action shall be brought with respect to prison conditions under Section 1983 of this title, or any other federal law, by a prisoner confined in any jail, prison or other correctional facility until such administrative remedies as are available are exhausted." Although designed to decrease the amount of litigation, the exhaustion provision has spawned many questions.
The exhaustion requirement obligates every inmate to satisfy every step of a facility grievance procedure before that inmate can file suit under federal law. The touchstone of the exhaustion inquiry is not whether the facility can provide the relief requested, but whether an administrative grievance procedure is available to the inmate. If an administrative procedure is available, the inmate must initiate that procedure and follow the same to its conclusion.
As early as 2001, the procedural implication of mandatory exhaustion appeared in Jernigan v. Stuchell, 304 F.3d 1030 (10th Cir. 2002). In that case, the Tenth Circuit held that inmates cannot disregard time limits for filing a grievance and then subsequently complain that the grievance procedure is no longer "available." The issue divided the circuit courts, with the majority holding that an untimely grievance still satisfied the PLRA's mandatory exhaustion requirement.
On the one hand, the majority of Circuits recognized that most grievance procedures have very short filing deadlines compared to the traditional statute of limitation period. Where the general limitations period for filing a civil rights claim is typically two years, most grievance procedures have much shorter filing periods, some as few as seven days. Simply barring untimely claims, the Courts argued, would not be consistent with the purpose of the PLRA because it does not distinguish between frivolous claims and those with merit.
On the other hand, the minority of jurisdictions determined that grievance systems are utterly useless absent some penalty for disregarding the rules governing claims. Inmates could simply wait until the filing deadlines passed and then proceed directly to court, completely circumventing the administrative review contemplated by the PLRA. For these Circuits, an inmate should not be permitted to successfully argue that he exhausted his remedies by, in essence, failing to employ them.
In Woodford v. Ngo, 126 S. Ct. 2378 (2006), the U. S. Supreme Court was called upon to resolve the split and decide whether the PLRA contained a procedural default component. In other words, can an inmate still exhaust within the meaning of the PLRA if he fails to comply with the facility rules governing the filing and prosecution of a grievance, including the applicable time limits? In siding with the minority Circuits, the Supreme Court held that unless the PLRA contained a "procedural default" component, the exhaustion language would be a largely useless appendage because the prisoner who does not want to participate in the system will have little incentive to comply with the procedural rules.
Grafting a procedural default rule onto the PLRA incentivizes prison administrators to establish thorough administrative review systems. Of course, the manner in which the system is developed will ultimately determine its success, and can just as easily operate against the facility. Systems with poor documentation, or a facility that fails to provide timely responses to inmate grievances, will find obtaining dismissals more difficult. To implement a successful grievance system, administrators must develop a practical structure, cognizant of the resources necessary to fulfill the obligation of the individual facility.
Insurers Can Be Sued Directly in Certain Trucking Cases
In trucking (and certain other motor carrier cases), an injured plaintiff can maintain a direct action against the motor carrier's insurer. See 47 O.S. § 230.30. A recent case from the District Court for the Western District of Oklahoma outlines the pleading requirements for such a direct claim: (1) the plaintiff suffered injury, (2) the injury occurred by operation of a motor carrier, and (3) the motor carrier was required to be and was in fact insured pursuant to 47 O.S. § 230.30. See Mize v. Liberty Mutual Ins. Co., 393 F.Supp.2d 1223, 1226 (W.D. Okla. 2005). Section 230.30 generally requires that motor carriers maintain some type of liability insurance policy or bond covering liability and property damage of the carrier. The statute indicates that a person injured by the operation of such a carrier "shall be a proper party to maintain" an action against the carrier. Plaintiffs often name such carriers simply for the strategic benefit of having an insurance company as a defendant.