Brooks v. Philadelphia Indemnity

Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 1
FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT February 10, 2022
_________________________________
Christopher M. Wolpert
Clerk of Court
VICKIE BROOKS,
Plaintiff - Appellant,
v.
No. 21-6052
PHILADELPHIA INDEMNITY (D.C. No. 5:18-CV-00603-G)
INSURANCE COMPANY, (W.D. Okla.)
Defendant - Appellee.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before TYMKOVICH, Chief Judge, MATHESON and PHILLIPS, Circuit Judges.
_________________________________
This appeal arises from the denial of a Rule 59 motion for reconsideration
arising from the district court’s entry of summary judgment on Philadelphia
Indemnity’s defense of non-coverage against an uninsured motorist claim. Vickie
Brooks contends the court erred in applying Oklahoma and Tenth Circuit case law.
We conclude that the district court correctly applied Oklahoma law. Ms. Brooks
breached the Philadelphia policy by settling an automobile accident claim with two
other insurance companies before notifying Philadelphia of personal injuries she
suffered from the accident.
*
This order and judgment is not binding precedent, except under the doctrines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.
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 2
BACKGROUND
Ms. Brooks was driving a company vehicle when an underinsured motorist hit
her.1 The accident allegedly caused both damage to the vehicle and personal injury to
Ms. Brooks. At the scene of the accident, police created an accident collision report,
which included the name of the insurer, Philadelphia, and Philadelphia’s insurance policy
number. There is no indication that anyone but Ms. Brooks could have provided this
information to the police, and the collision report was accessible to her at any time after
the accident. She did not report any personal injuries to police.
Ms. Brooks’s employer then reported the accident to Philadelphia but did not
claim any damages, either to the car or arising from Ms. Brooks’s injuries. Thus,
Philadelphia had no way of knowing that any investigation was needed. Ms. Brooks also
reported the accident to the underinsured motorist’s insurer, State Farm, and her personal
insurer, AAA.
Ms. Brooks apparently then made a claim to AAA and State Farm for personal
injuries. She subsequently settled with AAA for $25,000 and State Farm for $50,000. In
doing so, she released all interested parties from liability. This included anyone that Ms.
Brooks knew had an interest in the claim, not just the parties to the contract.2
1
The district court found that Ms. Brooks worked for Avalon Correctional
Services, while Ms. Brooks states on appeal that her employer was First Enterprise
Equipment. Because the parties agree on the relevant insurance contract, this is not a
material fact.
2
Because we affirm for the same reasons as the district court, it is not
necessary to consider whether Ms. Brooks’s settlements separately destroyed
Philadelphia’s obligation to pay her claim.
2
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 3
Months later, Ms. Brooks’s counsel sent a letter to Philadelphia asking for the
policy, which included coverage for uninsured or underinsured motorists. When Ms.
Brooks learned of the underinsured motorist coverage, she submitted a claim.
Philadelphia did not respond to the claim.
Ms. Brooks then sued Philadelphia in the district court. Philadelphia moved for
summary judgment on the basis that, under Oklahoma law, Ms. Brooks’s settlements
with AAA and State Farm obviated Philadelphia’s duty to pay her claims, arguing the
settlements destroyed its ability to seek contribution from the other insurance companies.
The district court granted summary judgment for Philadelphia, relying on an
Oklahoma case holding that if an insured settles a claim without notice to his or her
insurer, coverage is forfeited under the insurance contract. See Porter v. MFA Mut. Ins.
Co., 643 P.2d 302, 305 (Okla. 1982). Because Ms. Brooks entered into two settlements
without notice to Philadelphia, the district court found that she had forfeited any claims
under the policy. Thus, Philadelphia was not liable for any of Ms. Brooks’s damages.
Ms. Brooks filed a motion for reconsideration in light of a Tenth Circuit case
interpreting Porter: Phillips v. New Hampshire Ins. Co., 263 F.3d 1215, 1222 (10th Cir.
2001). In Phillips, we held that “even if the UM carrier is legally barred from exercising
its subrogation rights against the tort-feasor, it must still pay its insured unless it would be
unfair in light of the insured’s knowing, affirmative, and prejudicial conduct.” Id. If an
insured’s settlement is made without knowledge of a potential conflict with the insured’s
policy, the insured does not forfeit coverage under the insurance contract. Id. Ms.
Brooks argued that she was not specifically aware that the Philadelphia policy included
3
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 4
potentially applicable underinsured motorist coverage since she had never seen the
policy. The district court found that this was not sufficient to make her settlements
unknowing or involuntary under Phillips, and it denied her motion for reconsideration.
ANALYSIS
Ms. Brooks argues that the district court erred by misinterpreting Phillips.3 We
agree with the district court in finding that Phillips does not apply to Ms. Brooks’s case.
Under Oklahoma law,
if an insured settles with and releases a wrongdoer from liability for a loss
before payment of the loss has been made by the insurer, the insurer’s right
of subrogation against the wrongdoer is thereby destroyed. Also as a
general rule an insured who deprives insurer, by settlement and release, of
its right of subrogation against the wrongdoer thereby provides insurer with
a complete defense to an action on the policy.
Porter v. MFA Mut. Ins. Co., 643 P.2d 302, 305 (Okla. 1982) (footnotes omitted); see
also Okla. Stat. tit. 36, § 3636(F)(1)-(2); Brambl v. GEICO General Ins. Co.,
No. 10-CV-474-TCK-PJC, 2011 WL 5326076, at *2-3 (N.D. Okla. Nov. 4, 2011) (“[T]he
insured’s voluntary settlement with the tortfeasor destroys the UM carrier’s subrogation
rights and operates as a forfeiture of any UM Case coverage.”). Thus, an insured who
enters into a settlement with a tortfeasor, without notice to his own insurance company,
forfeits any underinsured motorist coverage. By settling, the insured destroys the
3
Ms. Brooks also argued that the district court improperly found that she had
knowledge of the policy when she did not know the relevant policy provision. This
argument simply reframes Ms. Brooks’s argument under Phillips. Both turn on whether
specific and actual notice is required. Because Ms. Brooks’s Phillips argument fails, her
argument that the district court improperly found an essential fact also fails.
4
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 5
insurer’s right of subrogation, or ability to sue in the shoes of the insured.4 Under Porter,
because Ms. Brooks entered into two settlements with the tortfeasor’s insurers and did
not give notice to Philadelphia, she forfeited her claims under the Philadelphia policy.
But in Phillips v. New Hampshire Insurance Co., 263 F.3d 1215, 1222 (10th Cir.
2001), we identified an exception to the Porter rule that settlement without notice voids
an insurer’s duty to pay. There, the insured did not know whether her employer had an
insurance policy on the vehicle. Nonetheless, she requested production of any
automobile insurance policies that the employer had. The employer did not respond to
her interrogatories, and it failed to produce the insurance agreement until seven months
after the insured had already entered into a settlement agreement.
In Phillips, we held that an insured who was not able to obtain information,
despite her best efforts, about whether the vehicle was insured or which insurance
company covered the vehicle was not bound by Porter. Id. (defining a “knowing”
insured as one who “knew at the time the release was signed that he/she was impairing
any prospective subrogation rights of his/her insurer”). Only after Phillips had already
4
Ms. Brooks also contends there was no prejudice to Philadelphia due to the
destruction of its subrogation rights. She cites Phillips for this argument. In Phillips, the
tortfeasor was judgment-proof, so the court noted that even if the insured had given
notice, there was no indication that the insurance company could have collected. But
Oklahoma courts have presumed that a tortfeasor has some assets, unless that
presumption is contested or rebutted. See, e.g., Porter v. MFA Mut. Ins. Co., 643 P.2d
302, 305 (Okla. 1982) (finding that barring the insurer “from exercising its lawful right of
recourse” against the tortfeasor prejudices the insurer, without discussion of whether the
tortfeasor had any assets). Here, there is no argument that the tortfeasor is judgment-
proof. Thus, it was not error to find that Philadelphia was prejudiced by its inability to
sue.
5
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 6
settled did her employer finally respond that the vehicle was insured. Id. (“Ms. Phillips
executed the release before even obtaining NHIC’s identity or a copy of the policy.”).
Because Phillips had no way of finding out whether the vehicle had insurance coverage,
the Phillips court found that her settlement could not have been a knowing and voluntary
breach of her notice obligation. Further, she had no way of providing the insurance
company with notice of the settlement, as required by Oklahoma law. Thus, she did not
forfeit her insurance coverage when she settled with the tortfeasor before she could have
possibly known about the existence of the insurance policy.
Ms. Brooks entered into two settlement agreements without notice to Philadelphia.
Under Porter, this negates Philadelphia’s duty to pay her claim. 643 P.2d at 305. Ms.
Brooks argues her settlements fall under the Phillips exception, since she did not have
actual notice of the underinsured motorist coverage. The district court found that Ms.
Brooks was aware of the policy’s existence: The Collision Report was generated from an
investigation made at the scene and identified Philadelphia as the insurer of Ms. Brooks’s
work vehicle. She thus had actual notice of a potentially applicable insurance policy.
Ms. Brooks, moreover, does not deny that she had actual knowledge of the identity of the
insurer, Philadelphia, and the policy number. She argues instead that she was not aware
of the “details.” App. Br. at 9.
Ms. Brooks could have obtained the policy provisions by contacting
Philadelphia—which her counsel eventually did. She claims her initial failure to obtain
this information makes her settlements unknowing under the logic of Phillips. We
disagree. In Phillips, the insured used her best efforts but was not able to obtain her
6
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 7
policy in the face of recalcitrance by her employer. We emphasized that the insured
“requested information about, and production of, any automobile insurance policies her
employer had in force, but her employer did not respond [until after the settlement].”
Phillips, 263 F.3d at 1218.
Here, Ms. Brooks knew of the policy but did not procure and read its provisions
until after the settlements. Ms. Brooks could have obtained the specific information by
reaching out to Philadelphia, as her counsel eventually did. Ms. Brooks, unlike Phillips,
could have obtained all the necessary information with a modicum of due diligence.
Thus, her settlement was knowing and voluntary as explained in Phillips. Ms. Brooks
does not fall under an exception to the general rule that her settlement voids
Philadelphia’s duty to pay.
For the reasons stated above, the district court correctly denied Ms. Brooks’s
motion to reconsider. Thus, we AFFIRM the decision of the district court.
Entered for the Court
Timothy M. Tymkovich
Chief Judge
7
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 8
21-6052, Brooks v. Philadelphia Indemnity Insurance Company
PHILLIPS, J. dissenting.
Philadelphia had two required showings to meet its summary-judgment burden:
(1) that Ms. Brooks “knowingly and voluntarily” destroyed Philadelphia’s subrogation
rights with a settlement and release, and (2) that the release “actually prejudiced”
Philadelphia. On the first point, I note that Philadelphia hasn’t maintained that Ms.
Brooks knew that her employer’s automobile policy contained underinsured-motorist
(“UM”) coverage for her. As the majority notes, “[w]hen Ms. Brooks learned of the
underinsured motorist coverage, she submitted a claim.” Maj. Op. at 3. By then, she had
settled and issued general releases. On the second point, Philadelphia hasn’t argued that it
would have pursued the negligent driver or her insurer for subrogation—a minimum
requirement to show actual (as opposed to theoretical) prejudice. For these reasons, as
elaborated on below, I respectfully dissent.
I. “Knowing and Voluntary”
In Porter v. MFA Mutual Insurance Co., 643 P.2d 302, 305 (Okla. 1982), the
Oklahoma Supreme Court stated the “general rule” that “an insured who deprives [an]
insurer, by settlement and release, of its right of subrogation against the wrongdoer
thereby provides [the] insurer with a complete defense to an action on the policy.”
Because Mr. Porter settled and released “the responsible party” (the negligent driver who
injured him) from further liability before notifying his insurer (which covered UM
benefits), he prevented his insurer “from exercising its lawful right of recourse against the
responsible party[.]” Id. So the court held that Mr. Porter “was thereby precluded from
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 9
bringing action on the uninsured motorist policies.” Id. Importantly, Mr. Porter’s
knowledge of the UM coverage as contained in his policy was undisputed—he had earlier
notified his insurer that he might make an UM claim on his policy. Id. at 303.
In Phillips v. New Hampshire Insurance Co., 263 F.3d 1215 (10th Cir. 2001), we
applied Porter’s general rule to the facts of Phillips—we didn’t create an “exception” to
Porter’s general rule as the majority says. See Maj. Op. at 5. Unlike in Porter, the
claimant in Phillips didn’t know whether her employer had an insurance policy that
covered her for UM benefits. Phillips, 263 F.3d at 1218. Trying to find out, she filed suit
and served interrogatories asking about any such insurance. Id. In response, her employer
stalled for eighteen months before answering the interrogatory and providing the
insurance policy. See id. By then, the claimant had settled with the tortfeasor and
provided a release. Id. In this circumstance, we held that she had not “knowingly and
voluntarily” destroyed the insurer’s subrogation rights. Id. at 1223.
The majority relies on these two cases to support its holding that Ms. Brooks
“knowingly and voluntarily” destroyed Philadelphia’s subrogation rights despite her not
knowing that the policy contained UM coverage. It does so by pointing to information
that was available to her in the police report from the traffic accident. The report
identified Philadelphia as the insurer of her employer’s automobile and listed the
insurance-policy number. But neither Porter nor Phillips treats constructive knowledge
of an insurance policy as the equivalent of actual knowledge. How can a claimant who
doesn’t know whether a policy provides her UM coverage knowingly and voluntarily
2
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 10
destroy subrogation for UM-coverage payments?1 Also noteworthy, to get to constructive
knowledge, the majority speculates that “a modicum of due diligence” would have
revealed to Ms. Brooks the presence of UM coverage. See Maj. Op. at 7. But we should
remember that Philadelphia took months to produce the policy after the claimant asserted
a claim for UM benefits. See id. And we should remember that on summary judgment,
the non-movant gets the benefit of the doubt on disputed facts.
Further, the majority fails to acknowledge Phillips’s language saying that “in
commercial/business policies that cover employees, the UM/UIM insurer may also have a
concomitant duty to inform an injured employee-insured who may be ignorant of
potential coverage and contract terms of its right to contractual or statutory subrogation if
the insurer wishes to later elect to exercise that right.” 263 F.3d at 1224 (citing Sexton v.
Cont’l Cas. Ins., 816 P.2d 1135, 1138 (Okla. 1991), which notes that an insurer has a
1
I also disagree with the district court’s handling of Philadelphia’s summary-
judgment burden. The district court stated that “while Plaintiff’s brief argues that
Defendant’s status as a UM carrier was not known to Plaintiff at the time she signed her
release, this argument is not supported by affidavit or deposition testimony or any other
evidentiary material permitted under Rule 56.” But Rule 56 doesn’t require Ms. Brooks
to file such materials until Philadelphia had introduced admissible evidence that she knew
about the UM coverage. It didn’t do so. Under our precedent, the summary-judgment
burden shifts to the non-movant only once the movant meets its initial burden of
establishing no material disputes of fact. See Reed v. Bennett, 312 F.3d 1190, 1195 (10th
Cir. 2002); see also Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th
Cir. 1984) (“Where the moving party fails to meet its strict burden of proof, summary
judgment cannot be entered even if the opposing party fails to respond to the motion.”).
But here, Philadelphia failed to meet its burden of showing that Ms. Brooks had actual
knowledge, so no affidavit from Ms. Brooks was needed.
3
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 11
duty to “aid its insured in the preservation of its subrogation rights”).2 Here, Philadelphia
knew that Ms. Brooks had been involved in an accident on an interstate highway in which
another car had spun into the driver’s side of her car and spun it too. The accident was
serious, and clearly more than a parallel-parking mishap or some such. Yet Philadelphia
made no attempt to inform Ms. Brooks of Philadelphia’s UM coverage or any interest it
might have in pursuing subrogation against the negligent driver.
Additionally, the majority fails to credit Oklahoma’s stated public policy
underlying its UM laws. As we noted in Phillips, “[b]ecause [the Oklahoma] UM statute
is remedial and mandates the inclusion of UM coverage in motor vehicle insurance
policies, it is to be liberally construed to accomplish the legislative purpose, that of
providing coverage for injuries which would otherwise go uncompensated.” 263 F.3d
at 1224 (quoting Forbes v. Shelter Mut. Ins. Co., 904 P.2d 159, 162 (Okla. Civ. App.
1995)). And as further stated in Phillips, “[t]he central goal of [Okla. Stat. Ann. tit. 36
§ 3636, Uninsured Motorist Coverage] is to protect victims injured by uninsured or
underinsured motorists (or by insured motorists whose carriers become insolvent) by
ensuring payment of damages.” Id. (citing Barnes v. Okla. Farm Bur. Mut. Ins. Co., 11
P.3d 162, 173 (Okla. 2000)). Those policies don’t square with the majority’s new
constructive-knowledge rule.
2
The court next notes that “[a]t the very least, the insurer has a duty to promptly
produce a policy on request to an injured employee with a colorable claim under the
policy so that the employee may ascertain whether he is covered and what responsibilities
he has under the contract.” Phillips, 263 F.3d at 1224 (emphasis added).
4
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 12
II. “Actual Prejudice”
The district court committed another error requiring reversal of its summary-
judgment order. Philadelphia didn’t offer evidence that it was “actually prejudiced” by
Ms. Brooks’s releases. In Phillips, we predicted that “the Oklahoma Supreme Court
would hold that [the UM insurer] may not rely on the Porter defense if it was not actually
prejudiced by the signing of the release.” 263 F.3d at 1222. We concluded that “[a]ctual,
not just theoretical, prejudice is a necessary element of a Porter defense because only the
insured’s conduct that causes injury to the insurer can be unfair.” Id. at 1223. And that
“because [the UM insurer] did not allege any undisputed facts to establish that it was
actually injured by Ms. Phillips’ conduct, it failed to satisfy its summary judgment
burden.” Id.At the least, to meet its summary-judgment burden on actual prejudice,
Philadelphia needed to show that it would have pursued the tortfeasor (the negligent
driver) for whatever UM benefits it eventually decided to pay Ms. Brooks.3 See Porter,
3
See also State Farm Mut. Auto. Ins. Co. v. Green, 89 P.3d 97, 104 (Utah 2003)
(“In order to show actual prejudice, it is not sufficient for an insurer to show that its right
of subrogation has been extinguished. Rather, the insurer may deny coverage only if it
would have had a realistic possibility of recovering from the tortfeasor had its
subrogation right not been foreclosed by the insured’s settlement with the tortfeasor. This
requires an assessment of factors such as the assets held by the tortfeasor, the strength of
the insurer’s subrogation claim (i.e., the strength of the underlying tort claim), the
expenses and risks of litigating the insured’s cause of action, and the extent of the
victim’s damage.”); Hasper v. Center Mut. Ins. Co., 723 N.W.2d 409, 416 (N.D. 2006)
(same); Gibson v. State Farm Mut. Auto. Ins. Co., 704 N.E.2d 1, 6 (Ohio Ct. App. 1997)
(relevant factors include “the amount of assets held by the tortfeasor, the likelihood of
recovery via subrogation, and the expenses and risks of litigating the insured’s cause of
action”); Kapadia v. Preferred Risk Mut. Ins. Co., 418 N.W.2d 848, 852 (Iowa 1988)
5
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 13
643 P.2d at 305 (tying loss of subrogation rights to the claimant’s release of “a
wrongdoer,” “the responsible party,” “the tortfeasor,” and “Sheltman”—the named
negligent driver in that case). As Phillips notes, “the only time taking such action
[seeking subrogation from a tortfeasor] would be profitable to the UM/UIM carrier is
when the tort-feasor has assets beyond the liability limits (or settlement offer) of his
insurance policy that may be collected after judgment.” Id. at 1225. Philadelphia made no
showing on summary judgment that the negligent driver who injured Ms. Brooks had
collectable assets worth its time and money to pursue.
Addressing the collectability piece of “actual prejudice,” the majority recognizes
that Phillips found a lack of actual prejudice to the insurer because the “tortfeasor was
judgment-proof, so . . . even if the insured had given notice, there was no indication that
the insurance company would have collected.” Maj. Op. at 5 n.4. But then, in my view,
the majority takes a wrong turn—it contends that “Oklahoma courts have presumed that a
tortfeasor has some assets, unless that presumption is contested or rebutted,” and
concludes that Brooks failed to rebut this presumption. Id. But neither Philadelphia nor
the majority offers support for this “presumption,” and Phillips says otherwise. See 263
F.3d at 1223 (in discussing actual prejudice, the court stated that “because [the insurer]
did not allege any undisputed facts to establish that it was actually injured by Ms.
Phillips’ conduct, it failed to satisfy its summary judgment burden.” (emphases added)).
(insurer must demonstrate actual prejudice by showing it could have collected from
tortfeasor under subrogation clause).
6
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 14
Moreover, Philadelphia didn’t avail itself of any such “presumption” in its summary-
judgment motion or appellate briefing.
As mentioned, the “actual prejudice”-collectability question pertains to the
tortfeasor, not the tortfeasor’s insurance company that has already paid policy limits on
the claim. See Op. Br. at 3 (“Ms. Brooks settled with the adverse driver’s carrier, State
Farm, for his $50,000 liability limits[.]”); see also Chandler v. State Farm Auto. Ins. Co.,
598 F.3d 1115, 1119 (9th Cir. 2010) (“The court then acknowledged that an insurer’s
obligation runs . . . only to the extent of the policy limits.” (cleaned up)).
Nor is the majority correct to point to the collectability of any payments made to
Ms. Brooks by her own insurer, AAA. Once more, the UM insurer’s subrogation right
applies only against the tortfeasor. See Porter, 643 P.2d at 305 (subrogation rights only
apply to the tortfeasor); see also Chandler, 598 F.3d at 1117 (“Subrogation is an
equitable doctrine that permits an insurance company to assert the rights and remedies of
an insured against a third party tortfeasor.”); Aviation & Gen. Ins. Co., Ltd. v. United
States, 882 F.3d 1088, 1102 (Fed. Cir. 2018) (Reyna, J., concurring) (“It is well
established that subrogation is a common law doctrine based in equity that permits an
insurer to take the place of the insured to pursue recovery from third-party tortfeasors
responsible for the insured’s loss.”). And to show actual prejudice, Philadelphia must
have shown that it would have pursued the tortfeasor had its subrogation rights not been
compromised, which it simply didn’t do here. See State Farm, 89 P.3d at 104 (actual
prejudice requires more than subrogation being extinguished—“the insurer may deny
coverage only if it would have had a realistic possibility of recovering from the tortfeasor
7
Appellate Case: 21-6052 Document: 010110643610 Date Filed: 02/10/2022 Page: 15
had its subrogation right not been foreclosed by the insured’s settlement with the
tortfeasor.”).
So as a second ground on which the district court should have denied summary
judgment, I rely on Philadelphia’s failure to meet its burden to show actual prejudice.
8