Oulds v. Principal Mut. Life Ins. Co.

• Decision Date: 06 October 1993
• Docket Number: 92-6177,Nos. 92-6029,s. 92-6029
• Citation: 6 F.3d 1431
• Parties: Jaclyn G. OULDS, an individual, Plaintiff-Appellant, v. PRINCIPAL MUTUAL LIFE INSURANCE CO., an Iowa corporation; and Principal Financial Group, a Delaware corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1431

6 F.3d 1431

Jaclyn G. OULDS, an individual, Plaintiff-Appellant, v. PRINCIPAL MUTUAL LIFE INSURANCE CO., an Iowa corporation and Principal Financial Group, a Delaware corporation, Defendants-Appellees.

Nos. 92-6029, 92-6177.

United States Court of Appeals Tenth Circuit.

Oct. 6, 1993.

Submitted on the briefs:

Jim D. Loftis, of Menzer Entz Loftis & Long, P.C., Oklahoma City, OK, Richard L. Denney, of Denney & Barrett, P.C., and Paul G. Smith, of Paul G. Smith, P.C., Norman, OK, and Carolyn S. Smith, of Carolyn S. Smith Law Office, Ponca City, OK, for plaintiff-appellant.

Doug K. Butler, Figari & Davenport, Dallas, TX, and James W. Berry, of Kerr, Irvine & Rhodes, Oklahoma City, OK, for defendants-appellees Principal Mut. Life Ins. Co. and Principal Financial Group.

Before TACHA and BALDOCK, Circuit Judges, and BROWN, ^* Senior District Judge.

WESLEY E. BROWN, Senior District Judge.

The appeal in Case No. 92-6029 involves the propriety of the district court's grant of summary judgment to defendants-appellees Principal Mutual Life Insurance Company and Principal Financial Group (Principal) on plaintiff-appellant Jaclyn G. Oulds' claim of breach of the duty of good faith and fair dealing. In Case No. 92-6177, plaintiff appeals the court's denial of her application for attorneys' fees. Because we find no error in the judgments of the district court, we affirm. ¹

This case began when Ms. Oulds brought suit against Principal, her health insurance carrier, alleging breach of contract and breach of the duty of good faith and fair dealing in its denial of her claims for medical benefits. The district court, citing the need to avoid potential prejudice to Principal, bifurcated the breach of contract claim from the bad faith tort claim. I Appellant's App., doc. 8 at 4-5. The breach of contract claim was tried to a jury which returned a verdict in favor of plaintiff for approximately $18,000.

After trial, Principal filed a motion asking the district court to reconsider its earlier denial of summary judgment on plaintiff's claim of breach of the duty of good faith and fair dealing. Upon reconsideration, the district court determined that, because evidence at trial had established a legitimate factual and legal dispute regarding Principal's liability for benefits, plaintiff could not meet her burden of showing that Principal had " 'unreasonably, and in bad faith, withh[eld] payment of the claim of its insured.' " III Appellant's App., doc. 21 at 11-12 (Order on Defendant's Motion to Reconsider) (quoting Christian v. American Home Assurance Co., 577 P.2d 899, 904-05 (Okla.1977)).

Plaintiff's subsequent application for attorneys' fees was submitted to a magistrate judge who recommended that she be denied fees because she had not been the prevailing party under Oklahoma statutory law. Id., doc. 23 at 7-8. In the alternative, the magistrate judge recommended that if the district court were to find that plaintiff had prevailed, the amount of her fees be reduced from $167,937, the amount plaintiff requested, to $107,742. Id. at 6, 12. The district court agreed that plaintiff had not been the prevailing party and thus was not entitled to statutory attorneys' fees. Id., doc. 24 at 2. The court, therefore, affirmed the findings and recommendation of the magistrate judge with regard to her ultimate entitlement to fees and rejected the magistrate's alternative reduction in the amount of those fees as unnecessary.

On appeal plaintiff argues that the district court erred in bifurcating her claims, in granting summary judgment to Principal, and in denying her attorneys' fees. We address these issues in the order presented.

Bifurcation

In challenging the district court's bifurcation of her case, plaintiff cites Buzzard v. McDanel, 736 P.2d 157 (Okla.1987), where the Oklahoma Supreme Court issued a writ of prohibition to the district court which had granted an insurer's motion for separate trials on issues similar to those here. The court held that the question of whether the plaintiff could legally recover from a third-party tortfeasor was not a separable and controlling issue in determining whether the insurer had refused to honor its insurance contract in bad faith. Id. at 159. While this authority would be persuasive in an Oklahoma state court, we note that bifurcation of trials is permissible in federal court even when such procedure is contrary to state law. Sellers v. Baisier, 792 F.2d 690, 694 (7th Cir.1986) ("Bifurcated trials are permissible in federal court under Federal Rule of Civil Procedure 42, however, and Rule 42 may be applied in diversity cases even though the state law employed to determine the substantive issues in the case prohibits bifurcated trials."); see also Rosales v. Honda Motor Co., 726 F.2d 259, 262 (5th Cir.1984). Thus, because bifurcation was a permissible option open to the district court, our only review here is to determine whether the court abused its discretion in ordering the separation. Moss v. Associated Transp., Inc., 344 F.2d 23, 25 (6th Cir.1965) (trial judge has discretion with respect to ordering separate trials). Because we see no indication that the district court abused its discretion, we affirm the district court on this issue.

Bad Faith Claim

The issue presented here is whether under Oklahoma law the trial court erred in sustaining summary judgment for Principal on Oulds' claim that Principal was guilty of the tort of bad faith.

We review the grant of summary judgment by the district court de novo, applying the same legal standard to the evidence in the record as did the district court. Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990). In doing so, we determine "whether 'the pleadings ... and admissions, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.' " Mosier v. Maynard, 937 F.2d 1521, 1524 (10th Cir.1991) (quoting Fed.R.Civ.P. 56(c)). (In addition to the above-mentioned materials typically relied upon by the parties in a motion for summary judgment, the parties in this case also cited portions of the record from the first phase of the trial.)

The Oklahoma Supreme Court first recognized the tort of bad faith by an insurer in the case of Christian v. American Home Assur. Co., 577 P.2d 899 (Okla.1978). In doing so, the court expressed its approval of the rule as it had been adopted by the California courts. Simply stated, the rule is "that an insurer has an implied duty to deal fairly and act in good faith with its insured and that the violation of this duty gives rise to an action in tort...." Id. at 904. The Christian court emphasized that it was not holding that an insurer who resists and litigates a claim made by its insured does so at its peril that if it loses the suit or suffers a judgment against it for a larger amount than it had offered in payment, it will be held to have breached its duty to act in good faith. Id. The court noted:

We recognize that there can be disagreements between insurer and insured on a variety of matters such as insurable interest, extent of coverage, cause of loss, amount of loss, or breach of policy conditions. Resort to a judicial forum is not per se bad faith or unfair dealing on the part of the insurer regardless of the outcome of the suit. Rather, tort liability may be imposed only where there is a clear showing that the insurer unreasonably, and in bad faith, withholds payment of the claim of its insured.

Id. at 905 (emphasis added). As numerous cases since Christian have made clear, "[t]he insurer does not breach the duty of good faith by refusing to pay a claim or by litigating a dispute with its insured if there is a 'legitimate dispute' as to coverage or amount of the claim, and the insurer's position is 'reasonable and legitimate.' " Thompson v. Shelter Mut. Ins., 875 F.2d 1460, 1462 (10th Cir.1989) (quoting Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 762 (Okla.1984)). The insurer will not be liable for the tort of bad faith if it "had a good faith belief, at the time its performance was requested, that it had a justifiable reason for withholding payment under the policy." McCoy v. Oklahoma Farm Bureau Mutual Ins. Co., 841 P.2d 568, 572 (Okla.1992). "A [cause of action for bad faith] will not lie where there is a legitimate dispute." Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 762 (Okla.1984). Thus, in order to establish such a claim, the insured must present evidence from which a reasonable jury could conclude that the insurer did not have a reasonable good faith belief for withholding payment of the insured's claim. McCoy, 841 P.2d at 572.

The mere allegation that an insurer breached the duty of good faith and fair dealing does not automatically entitle a litigant to submit the issue to a jury for determination. City Nat'l Bank & Trust Co. v. Jackson Nat'l Life Ins., 804 P.2d 463, 468 (Okla.App.1990). A jury question arises only where the relevant facts are in dispute or where the undisputed facts permit differing inferences as to the reasonableness and good faith of the insurer's conduct. Id. On a motion for summary judgment, the trial court must first determine, under the facts of the particular case and as a matter of law, whether insurer's conduct may be reasonably perceived as tortious. Id. Until the facts, when construed most favorably against the insurer, have established what might reasonably be perceived as tortious conduct on the part of the insurer, the legal gate to submission of the issue to the jury remains closed. Id. "To hold otherwise would subject insurance companies to the risk of punitive damages whenever litigation arises from insurance claims." Manis, 681 P.2d at 762.

Principal maintains that it denied plaintiff's claim because of material omissions and misrepresentations in plaintiff's applications for health...