Willis v. Midland Risk Ins. Co., 92-5147

• Decision Date: 12 December 1994
• Docket Number: No. 92-5147,92-5147
• Citation: 42 F.3d 607
• Parties: David Lee WILLIS, Plaintiff-Appellant, v. MIDLAND RISK INSURANCE COMPANY, Defendant-Appellee, and Rogers County Insurance Agency, Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 607

42 F.3d 607

David Lee WILLIS, Plaintiff-Appellant, v. MIDLAND RISK INSURANCE COMPANY, Defendant-Appellee and Rogers County Insurance Agency, Defendant.

No. 92-5147.

United States Court of Appeals Tenth Circuit.

Dec. 12, 1994.

Galen L. Brittingham of Thomas, Glass, Atkinson, Haskins, Nellis & Boudreaux, Tulsa, OK (Michael P. Atkinson and Leigh Reaves with him, on the brief), for plaintiff-appellant.

Stephen L. Wilkerson of Knight, Wilkerson & Parrish, Tulsa, OK, for defendant-appellee.

Before BALDOCK, HOLLOWAY and BRORBY, Circuit Judges.

HOLLOWAY, Circuit Judge.

Plaintiff-appellant David Lee Willis (Willis) brought this diversity action against defendant-appellee Midland Risk Insurance Company (Midland) for breach of an insurance contract and for tortious breach by the insurer of its implied covenant of good faith and fair dealing with its insured. On the latter claim, Willis sought both actual and punitive damages. The parties agree that Oklahoma law controls. Joint Pretrial Memorandum at 1, App. at 296.

The parties filed cross-motions for summary judgment on both the contract and tort claims. Prior to the district court's hearing on the motions, the parties settled the contract claim. The court then granted summary judgment in favor of Midland on the tort claim, thus denying both actual and punitive damages on that claim. Willis has appealed the denial of both actual and punitive damages on the tort claim.

I The Factual Background

This action arises from Midland's refusal to indemnify or defend Willis on a claim made against him for property damage resulting from a construction accident involving Willis' Caterpillar loader. Like the district court, in deciding whether there were genuine issues of material fact, we must view the record in the light most favorable to the party opposing the motion for summary judgment. Deepwater Invs. Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991). With this in mind, we note that there is record support for the following facts, most of which are undisputed.

A. The Insurance Transactions

Midland denied coverage for the accident on the basis of a "designated operations exclusion" in its policy issued to Willis. Midland argues that this exclusion limited coverage to the location originally identified in the application for insurance. Willis maintains that this per job exclusion was not in force at the time of the accident because that exclusion was never communicated to Willis; the binder sent to him did not contain such an exclusion; and the policy which did include the exclusion was not given to Willis until after the accident and after the claim was made. Joint Pretrial Memorandum at 2. Willis alleged that Midland's denial of coverage and its refusal to indemnify or defend him constituted bad faith.

The coverage at issue was purchased on June 7, 1990, by Carolyn Willis, plaintiff's wife, who went to Rogers County Insurance Agency (Rogers Agency) to secure a general liability policy and a certificate of insurance to present to Scott Construction Company as verification of insurance coverage so that her husband could begin work on the Litchfield housing addition in south Tulsa. For a thirty-day policy with liability limits of $100,000 for property damage and bodily injury, Mrs. Willis paid a premium of $457.92. App. at 178.

Willis' anticipated job with Scott Construction apparently was delayed, but he had an opportunity to work for American Airlines. In order to demonstrate to American that Willis' loader was insured, Mrs. Willis went to the Rogers Agency again on June 7 (or in any event not later than June 11) to obtain another certificate of insurance, this one for American instead of Scott Construction.

Becky Rohr, an employee of the Rogers Agency and a licensed insurance agent, took the application from Mrs. Willis and prepared both certificates of insurance at her request. Neither Rohr nor the Rogers Agency had authority to issue policies for Midland. Therefore, when the request for insurance was made, Rohr contacted Joel Stinson, who did have such authority. Stinson was an underwriter for LGI Surplus Lines, Inc., who bound coverage for Midland to Willis. Answer Brief of Appellee Midland Risk Ins. Co. at 2. It appears that Midland had arrangements with several related companies to perform such tasks as underwriting and claims handling. Because there is no dispute that all employees of these companies were acting as authorized agents for Midland with respect to the events in question, we will simply refer to such employees as if they were direct employees of Midland. Similarly, it appears to be undisputed that Rohr and the Rogers Agency are to be considered as agents for Midland with respect to the relevant events. See 36 Okla.Stat. Sec. 1423(A) (1991). Coverage for Willis' loader was orally bound by Joel Stinson, acting for Midland, based on the information relayed to him by Rohr.

Stinson apparently instructed Rohr to ascertain the location where Willis would be working. Although Stinson testified, in deposition, that he did so because the coverage would be restricted to that location, Rohr testified that she did not understand that coverage would be so restricted and that she therefore did not inform Willis of this restriction. App. at 57, 64, 67-68. Consequently, when Carolyn Willis returned to the Rogers Agency to request the second certificate of insurance for the American Airlines work, Rohr did not inquire where this work was to be performed. It seems clear that a permissible inference from this evidence is that Rohr knew that this job would be at a different location but did not regard that as significant since she did not know that the policy to be issued would be restricted to the original location.

The certificate Rohr gave Willis for American showed an effective date of June 7, 1990, on a general liability policy. App. at 94. Nothing on the certificate indicated that the policy being issued was limited to a particular location. ¹ Midland issued a temporary written binder for the loader on June 12, 1990, which stated it was effective at 1:45 p.m. on June 7, 1990, and that it would expire at 12:01 a.m. on June 20, 1990. Id. at 106, 179. The written binder did not contain any restriction as to location, nor did it identify any endorsements that would be a part of the policy when issued. Id. at 106-07. The binder did include this statement: "[T]his insurance is subject to the terms, conditions and limitations of the policy(ies) in current use by the Company." Id. at 107, 180. The policy was issued after the accident which caused the loss at issue here and was not delivered to Willis until sometime after July 11, 1990. Id. at 62-63. The location restriction on which Midland based its decision to deny coverage and on which it now relies is contained in endorsement no. N 092 to the policy as it was issued.

B. The Coverage Dispute

The same day that the written binder was issued, June 12, 1990, Willis was involved in an accident at the American site. This was five days after the effective date of the coverage stated on the binder, which was noted earlier. Willis notified Midland of the accident. ² Midland delegated responsibility for the handling of the Willis claim to Linda Rountree. According to her deposition testimony, Rountree knew that the binder had been issued to Willis without any mention of the designated operations exclusion. Id. at 88-89. She also knew that Rohr had issued two certificates of insurance that were for different locations.

Rountree hired Berryhill & Associates to investigate Willis' claim. Berryhill assigned the investigation to Jamie Pendleton. In retaining Berryhill, Rountree specifically requested investigation into three issues, one of which was what communications had occurred between Willis and the Rogers Agency regarding the location restriction. Id. at 84. However, Pendleton did not ask Willis about that topic, nor did he contact Rohr. Id. at 96. Pendleton later said that he "would want to know the nature and extent" of conversations between the insured and the soliciting agent as part of an adequate investigation. Id. at 101. The total time of the investigation, as reflected by the time billed, was one hour. Id. at 85, 321.

Rountree accepted Pendleton's report and made the decision to deny coverage without any information as to what Willis might have been told about any location restriction for his coverage in his and his wife's conversations with Rohr. Based on the brief investigation made by Pendleton and the language of the policy, Rountree denied coverage to the third party claimants on July 13 and to Willis on July 17, 1990. Id. at 60, 274. The reason given for the denial was that the designated operations exclusion limited coverage to the Litchfield housing addition, which Mrs. Willis had specified on her first visit to the Rogers Agency on June 7.

Claims were made against Willis for damages caused by the accident involving his loader. Willis again requested help from his insurer. He contacted Rountree in February of 1991. Rountree had a telephone conversation with Chuck Fraley at the Rogers Agency, who had executed the certificates of insurance. Rountree noted in her file Fraley's comment that, "[L]oss was not covered, but some good attorney would probably force the issue. We will need to inspect." Id. at 92. The record does not indicate that Rountree undertook any further investigation at that time. Coverage was again denied, apparently based on the designated operations exclusion. Id.

C. The Damage Suits and Resulting Insurance Litigation

On November 4, 1991, Willis brought the instant federal suit against Midland for breach of contract and for breach of the implied covenant of good faith and fair dealing. He sought actual damages for his liability stemming from the accident, harm to his business reputation, mental pain and suffering "as a direct result of Defendant's...