Steadfast Insurance Company v. Agricultural Insurance Company ( 2013 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
TENTH CIRCUIT December 10, 2013
Elisabeth A. Shumaker
Clerk of Court
STEADFAST INSURANCE
COMPANY,
No. 10-5113
Plaintiff - Appellee, (D.C. No. 4:05-CV-00126-GKF-TLW)
(N.D. Okla.)
v.
AGRICULTURAL INSURANCE
COMPANY, now known as Great
American Assurance Company,
Defendant - Appellant.
ORDER AND JUDGMENT*
Before HARTZ, EBEL and HOLMES, Circuit Judges.
This appeal is before us following the Oklahoma Supreme Court’s decision
answering our certified question. The parties are aware of the facts. Briefly stated,
Plaintiff-Appellee Steadfast Insurance Co. (“Steadfast”) issued successive insurance
policies to the Grand River Dam Authority (“GRDA”), providing GRDA with first-level
excess general liability coverage from 1993 through 2002. Steadfast defended GRDA
against a number of flooding claims made during this time period. Although the flooding
* This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. It may be cited, however, for its
persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
at issue spanned the entire nine-year period of coverage, Steadfast and GRDA agreed that
the amounts Steadfast paid on those claims would be allocated to a single Steadfast
policy, the 1993-94 policy. During this same time period, Defendant-Appellant
Agricultural Insurance Co. (“Agricultural”) provided GRDA with second-level excess
liability insurance, which was triggered once Steadfast had reached its policy limits for a
given year.
In this litigation, Agricultural contended that Steadfast artificially allocated all of
the flooding claims it paid on GRDA’s behalf to Steadfast’s 1993-94 policy, wrongfully
triggering Agricultural’s second-level excess coverage for that year. On that premise,
Agricultural asserted against Steadfast 1) a claim under Oklahoma law for equitable
subrogation and 2) a direct cause of action under Oklahoma law alleging Steadfast
breached a duty of good faith and fair dealing that it owed to Agricultural. After a trial to
the court, the district court entered judgment for Steadfast on both causes of action.
Agricultural appeals that decision. Having jurisdiction under 28 U.S.C. § 1291 and
reviewing the district court’s decision de novo, see Hofer v. UNUM Life Ins. Co., 441
F.3d 872, 875 (10th Cir. 2006), we affirm the district court’s decision in part and reverse
in part.
I. Agricultural’s equitable subrogation claim
The district court ruled Agricultural did not have a viable cause of action for
equitable subrogation against Steadfast under Oklahoma law because the insured, GRDA,
had agreed with Steadfast to allocate its payment of the flooding claims to only the 1993-
2
94 policy and had further agreed to release Steadfast from any further liability under that
policy. We certified this question to the Oklahoma Supreme Court, which has responded
that a second-level excess insurer can assert a claim for equitable subrogation against a
first-level excess insurer under the circumstances in this case. Steadfast Ins. Co. v.
Agricultural Ins. Co., 304 P.3d 747, 748 (Okla. 2013). In light of the Oklahoma Supreme
Court’s ruling, we reverse the district court’s decision and remand the equitable
subrogation claim to the district court for further proceedings consistent with the
Oklahoma Supreme Court’s response to our certified question.
II. Agricultural’s claim that Steadfast breached a duty of good faith and fair
dealing owed to Agricultural
In its second claim, Agricultural alleged that Steadfast, by artificially allocating all
of the settlement amounts to its 1993-94 policy, breached an implied duty of good faith
and fair dealing that Steadfast owed directly to Agricultural. The district court concluded
that, under Oklahoma law, Agricultural could not assert such a direct cause of action
against Steadfast because the two insurers did not have any contractual relationship from
which such an implied duty of good faith and fair dealing could arise. We agree.
The Oklahoma Supreme Court, in somewhat analogous circumstances, has
declined to recognize the existence of an implied duty of good faith where there is no
contractual relationship between the parties. In Niemeyer v. United States Fidelity &
Guaranty Co., the Oklahoma Supreme Court indicated that a party injured in a car
accident could not assert a claim against the tortfeasor’s insurer for its bad faith refusal to
3
settle the injured party’s claims. 789 P.2d 1318, 1322 (Okla. 1990) (citing Allstate Ins.
Co. v. Amick, 680 P.2d 362, 364-65 (Okla. 1984)). In that case, the Oklahoma Supreme
Court concluded that, “in the absence of a contractual or statutory relationship, there is no
duty to settle a claim in good faith.” Id.We conclude that the Oklahoma Supreme Court would apply similar reasoning to
the circumstances presented here to preclude Agricultural from suing Steadfast on a claim
alleging that Steadfast directly owed Agricultural a duty of good faith and fair dealing.
While both Steadfast and Agricultural had a contractual relationship with GRDA, the
insurers did not have a contractual relationship between themselves from which such an
implied duty could arise.
Our conclusion is consistent with the majority of courts in other jurisdictions that
have similarly determined that an excess insurer cannot assert a direct cause of action
against a primary insurer that alleges the primary insurer owed the excess insurer an
implied duty of good faith and fair dealing. See Twin City Fire Ins. Co. v. Country Mut.
Ins. Co., 23 F.3d 1175, 1178 (7th Cir. 1994) (noting that just a “handful of cases from
New York and New Jersey” “hint” that a primary insurer owes an excess insurer a duty of
care, while “the overwhelming majority of American cases describe the duty that a
primary insurer owes an excess insurer as one derivative from the primary insurer’s duty
to the insured,” citing cases); Truck Ins. Exch. of Farmers Ins. Grp. v. Century Indem.
Co., 887 P.2d 455, 460 (Wash. Ct. App. 1995) (“While most courts have adopted the
theory of equitable subrogation, only a minority have found the primary insurer owes a
4
direct duty of good faith to the excess insurer.”); 28 Am.Jur. Proof of Facts 3d 507 § 14
(2011) (noting that, while “[i]n a few jurisdictions, an excess insurer may directly pursue
an action against a primary insurer for a breach of a duty owed to the excess insurer, . . .
[m]ost courts that have been asked to determine if there is a direct duty of a primary
insurer to an excess insurer (or a direct cause of action) have rejected the idea that there is
such a duty”).
III. Conclusion
For the foregoing reasons, we AFFIRM the district court’s decision dismissing
Agricultural’s direct cause of action against Steadfast for breach of the implied covenant
of good faith and fair dealing. But we REVERSE the district court’s dismissal of
Agricultural’s equitable subrogation claim and REMAND that cause of action to the
district court for further proceedings consistent with the Oklahoma Supreme Court’s
ruling on our certified question.
ENTERED FOR THE COURT
David M. Ebel
Circuit Judge
5