Colony Ins. Co. v. Burke

• Decision Date: 17 October 2012
• Docket Number: No. 10–5035.,10–5035.
• Parties: COLONY INSURANCE COMPANY, a Virginia corporation, Plaintiff–Appellee, v. Robbie BURKE, Special Administrator of the Estate of Aurora Espinal–Cruz, Defendant–Appellant, and Deanza Jones, an Oklahoma resident, Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

698 F.3d 1222

COLONY INSURANCE COMPANY, a Virginia corporation, Plaintiff–Appellee,

v. Robbie BURKE, Special Administrator of the Estate of Aurora Espinal–Cruz, Defendant–Appellant,andDeanza Jones, an Oklahoma resident, Defendant.

No. 10–5035.

United States Court of Appeals, Tenth Circuit.

Oct. 17, 2012.

Michael L. Barkett, The Barkett Law Firm, Tulsa, OK, for Defendant–Appellant.

John H. Tucker (Kerry R. Lewis and Randall E. Long, with him on the brief), Rhodes, Hieronymus, Jones, Tucker & Gable, Tulsa, OK, for Plaintiff–Appellee.

Before HARTZ, EBEL, and HOLMES, Circuit Judges.

EBEL, Circuit Judge.

In this appeal we address (1) whether a foster child in Oklahoma has a “contractual or statutory” relationship with the insurance company that provides foster care liability insurance to the foster child's foster parent, such that the insurer owes the foster child either contractual obligations or an implied duty of good faith and fair dealing; (2) whether a judgment creditor may garnish a judgment debtor's insurance policy in excess of the insurer's actual liability to the judgment debtor; and (3) whether a defendant's status as intervenor in a co-defendant's cross-claim against a plaintiff is relevant to matters adjudicated solely between the defendant and the plaintiff. We have jurisdiction under 28 U.S.C. § 1291. We conclude that the answer to all three questions is no. Accordingly, we AFFIRM the judgment of the district court. Because we find the first question insufficiently novel, we also DENY Appellant's motion to certify the question to the Oklahoma Supreme Court. Finally, we DENY the parties' motions to file certain portions of their briefs and appendices under seal.

I. BACKGROUND

A. Aurora Espinal–Cruz's death and the underlying lawsuit

This case arises from a particularly sad and gruesome death. In January 2002, the Oklahoma Department of Human Services (“DHS”) placed then-six-month-old Aurora Espinal–Cruz (“Aurora”) and her four-year-old sister Cassandra into the foster care of Deanza Jones. Less than one month later, Aurora was found dead in her crib, killed by an untreated respiratory illness. Aurora had suffered greatly in the days before her death, having been left to lie in her own waste and vomit, while her skin was eaten by cockroaches. Appellant, Aurora's estate (the “Estate”), brought a state-court wrongful-death action against Jones, the DHS, and two DHS employees in October 2003.

Oklahoma purchases liability insurance for foster parents who are licensed and/or certified by the DHS. As pertinent to this appeal, two companies provided that insurance: United National Insurance Company (“United”), which defended Jones in the wrongful death action, and Appellee Colony Insurance Company (“Colony”). Colony's and United's policies each had a $300,000 policy limit.

Prior to trial in the wrongful-death action, in July 2006, the Estate filed a claim with Colony, which Colony denied by letter on September 11, 2006, citing a limitation in the policy for injuries arising out of physical or sexual abuse, as well as another provision relieving Colony of a duty to defend where another carrier is defending. However, before trial, Colony and United made several offers of settlement, culminating in a combined offer to settle for $300,000, four days before trial. The Estate rejected the offer, but counter-offered for $600,000, the combined limits on both the United and Colony policies. Jones demanded that Colony accept the Estate's offer. Colony did not accept, however, and the case proceeded to trial.

In January 2007, after a three-day trial, the jury returned a verdict of $20 million in actual damages against Jones and in favor of the Estate. Because DHS had previously settled with the Estate for $175,000, the award was reduced by this amount, but prejudgment interest was added for a total judgment of over $24 million plus post-judgment interest. Jones appealed the judgment.

B. Colony's Declaratory Judgment Action and the Estate's Counterclaims

On March 5, 2007, Colony filed a declaratory judgment action against the Estate and Jones in federal court, seeking a declaration that it had no duty to defend or indemnify Jones for the Estate's judgment against her. The Estate and Jones both answered and filed counterclaims against Colony based on Colony's denial of coverage and refusal to settle the Estate's claims against Jones. Specifically, the Estate asserted counterclaims for (1) breach of contract; (2) breach of the duty of good faith and fair dealing (“bad faith”); (3) garnishment; and (4) reformation of contract, while Jones asserted counterclaims for breach of contract and bad faith. The Estate also filed a third-party complaint against United, asserting similar claims, and filed a motion to intervene in Jones's counterclaims against Colony.¹ The district court eventually granted the Estate's motion to intervene in Jones' counterclaims against Colony, without comment.

On May 10, 2007, United filed a motion to dismiss the Estate's third-party claims for breach of contract and bad faith, arguing that the Estate lacked standing on these claims because neither it nor Aurora were an “insured” or a third-party beneficiary under the United policy. However, before the district court ruled on United's motion to dismiss, the Estate settled with United and with Jones. Under the Estate–United settlement, United paid the Estate $2.75 million and the Estate dismissed its third-party claims against United. Separately, Jones agreed to pursue her pending counterclaims for breach of contract and bad faith against Colony, and to dismiss her state-court appeal of the underlying wrongful-death judgment, in exchange for which the Estate promised to limit its execution on the underlying judgment against Jones to 75% of any amounts Jones ultimately recovered from Colony. In other words, in order to encourage Jones to pursue a recovery from Colony, the Estate agreed to split any such recovery 75/25 with Jones, and that the Estate would not further execute on its judgment.

Meanwhile, Colony filed a motion for judgment on the pleadings under Rule 12(c). In its motion, Colony advanced essentially the same argument as United had in its motion to dismiss—that the Estate had no standing to assert contractual or bad-faith claims against Colony. The district court granted Colony's motion as to all of the Estate's claims except for its claim for garnishment. The court concluded that Oklahoma law pertaining to foster children did not clearly confer standing upon the Estate, as a third-party claimant, to assert contractual or bad-faith claims against an insurer. The district court distinguished the statutory contexts of workers' compensation and uninsured motorist insurance, in which the Oklahoma Supreme Court has found such standing.

In the proceedings below, the Estate twice moved to certify to the Oklahoma Supreme Court the question of whether, under Oklahoma law, foster-family liability policies such as United's and Colony's are intended to protect foster children such that foster children are third-party beneficiaries with standing to sue the insurance carrier for breach of contract and bad faith. Although the district court expressed its willingness to consider certification, it ultimately denied both motions to certify.²

At a private mediation among the parties in December 2008, Colony and Jones reached a settlement, which they formalized in a May 2009 settlement agreement. Under the settlement agreement, Colony agreed to dismiss its claims against Jones and to pay Jones $4 million. Of that $4 million, $300,000 was expressly designated as the limits of the Colony policy. Jones, in turn, agreed (1) to dismiss her counterclaims against Colony and to release Colony from any and all claims under the policy; (2) to pay the Estate 75% of the settlement amount in accordance with the previous settlement agreement between Jones and the Estate; and (3) to use reasonable efforts to obtain from the Estate a full release of the judgment in the underlying state action. After reaching this settlement, Colony paid the settlement amount to Jones, and Jones paid close to $3,000,000 to the Estate in accordance with the earlier settlement agreement. Colony and Jones dismissed their claims against each other, with prejudice, on May 15, 2009.

Colony subsequently filed a motion for summary judgment on the Estate's remaining garnishment claim. Colony argued, inter alia, that because any garnishment claim the Estate may have had was limited to the policy limits of Colony's policy, the Estate's garnishment claim was extinguished by Colony's payment to Jones (and Jones' subsequent payment to the Estate) of an amount far in excess of the policy limits. The Estate filed a motion under Rule 56(f) for more time to respond so that it could conduct discovery; however, the court denied this motion, finding that the requested discovery was not relevant to the remaining garnishment issue. Ultimately, the district court granted the summary judgment motion and entered judgment in favor of Colony. The Estate timely appealed.³

The Estate has filed an original motion with this Court to certify to the Oklahoma Supreme Court the question of a foster child's relationship to the foster parent's liability insurer. The Estate and Colony have also filed motions to file certain documents under seal, which the Clerk provisionally granted, with a final decision to be made by this panel.

II. DISCUSSION

A. Colony's motion for judgment on the pleadings on the Estate's contractual and bad-faith claims

The district court granted Colony's motion for judgment on the pleadings as to all of the Estate's counterclaims except its counterclaim for garnishment. ⁴ In so doing, the district court concluded that “under Oklahoma law, the Estate did not have status as a third party beneficiary to the insurance policy at issue.” ⁵ Aple. Supp.App. at 1101. The Estate maintains on appeal...