Hensley v. State Farm Fire & Cas. Co.

• Decision Date: 20 June 2017
• Docket Number: No. 112,417,112,417
• Citation: 398 P.3d 11
• Parties: Kenneth HENSLEY, and individual, and Bob Douglas, an individual, Plaintiffs/Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, a foreign corporation, Defendant/Appellee.
• Court: Oklahoma Supreme Court

398 P.3d 11

Kenneth HENSLEY, and individual, and Bob Douglas, an individual, Plaintiffs/Appellants,

v.STATE FARM FIRE AND CASUALTY COMPANY, a foreign corporation, Defendant/Appellee.

No. 112,417

Supreme Court of Oklahoma.

FILED June 20, 2017

William R. McMahon, Jr., Tulsa Oklahoma, for Plaintiffs/Appellants, Kenneth Hensley and Bob Douglas

Jeffrey A. Curran, GableGotwals, Oklahoma City, Oklahoma, and Lisa T. Silvestri, GableGotwals, Tulsa, Oklahoma, for Defendant/Appellee, State Farm Fire and Casualty Company.

EDMONDSON, J.

¶ 1 Douglas bought real property by a contract for deed. The seller of the property was the named insured on an insurance policy. After the property was damaged Douglas brought an action in the District Court against the insurer. We hold Douglas' equitable title to the property arising from the contract for deed is insufficient by itself to confer upon him a policy-created right of insurer's duty of good faith created by the insurance contract when Douglas is not expressly named in the policy as a lienholder, insured, loss payee, or third party beneficiary, or when the contract for deed is not expressly referenced in a part of the insurance policy. We also hold Douglas presented facts on the issue whether he was an intended third party beneficiary insured by the policy. Whether Douglas is a third party beneficiary is based upon a question of fact and summary judgment is reversed and the matter remanded to the District Court for further proceedings.

¶ 2 Kenneth Hensley and his wife owned real estate containing a mobile home in which they resided. They moved and sold the property to Douglas in May 2000 using a contract for deed. The contract for deed required Douglas to keep the premises insured, and the monthly payments made by Douglas to the Hensleys were required to include the premiums. The contract for deed specified any increase in insurance premiums during the term of indebtedness would be matched with a corresponding increase in monthly payments paid to the Hensleys. The Hensleys had an insurance policy with State Farm Fire & Casualty Company on the property and the Hensleys continued to make the premium payments and the policy continued to be renewed.

¶ 3 State Farm was informed of the change in the property's status, although the record on appeal does not indicate how this occurred. The record on appeal does not indicate whether State Farm possessed a copy of the contract for deed or if the contract for deed was recorded with a county clerk.¹ In 2004 a claim was made after a hail storm. State Farm's "Policy Notes" for the insurance with a date in October 2004 states the insured has a contract for deed with the tenant, Bob Douglas, and "this needs to be rewritten." Hensley testified his insurance agent has been the same for more than thirty years. He stated his reliance on the agent for all of his insurance needs on his cars and his two residences, and he had "not really" read the State Farm policy after he received it. Hensley testified he thought Douglas can "make claims" on the policy. Douglas contacted the agent, David Puckett, to report the loss.

¶ 4 Douglas and his wife lived in the residence after execution of the agreement in May 2000. Mr. Douglas reported to a county sheriff that a theft and vandalism of the property occurred in July 2008. The theft and vandalism included, but was not limited to, removal of appliances and kitchen cabinets and damage to structural items such as baseboards along walls.

¶ 5 Douglas and his wife were not living at the residence while the property was being remodeled to sell it to a third party. The utility services were not discontinued and remained on for continued use. Mr. Douglas, retired from a local fire department, would occasionally remain overnight in the residence while he worked on the remodeling. The dwelling was insured for $60,000, dwelling extension for $15,000, and personal property for $2,850.

¶ 6 During an investigation of the loss State Farm requested a copy of the contract for deed and Hensley's bank statements. Hensley signed an affidavit stating Douglas had not missed a payment during their agreement. State Farm required a proof of loss statement from Douglas. In March 2009 State Farm sent separate correspondence to Mr. Douglas and his wife referring to each of them as "Our Insured." In August 2009, State Farm sent Hensley a letter and stated therein its "Reservation of Rights" concerning the claim "had been resolved" and "coverage has been extended." By separate letter dated the same day, State Farm sent a check for $8,441.26 to Hensley with instructions that upon repairs to the residence he would be entitled to a supplemental claim up to the amount of $5,638.83, or the actual cost of repair, whichever was less. Plaintiffs stated that State Farm ultimately paid $13,494.16 for damage to the property.

¶ 7 Douglas' lawyer responded to State Farm and argued a proof of loss for $30,000 had been submitted to State Farm. A letter was then sent by State Farm to plaintiffs' lawyer that the policy included "Replacement Cost Coverage without any deduction for depreciation," and State Farm "will consider paying replacement costs benefits" "if we determine repair or replacement costs will be incurred because repairs are substantially underway or Mr. Hensley presents a signed contract acceptable to us."

¶ 8 State Farm communicated with plaintiffs' counsel after a reinspection of the property and indicated a supplemental payment of $5,052.90 would be paid due to State Farm revising the amount of damage to $21,042.10. Plaintiffs' counsel forwarded an estimate to State Farm made by a public adjuster. The estimate states an amount total of $75,271.75, although the totals stated therein actually add to a sum of $65,271.74.

¶ 9 Mr. Hensley and Mr. Douglas filed a petition in the District Court seeking damages from State Farm for an alleged breach of the insurance contract and failure to perform an implied-in-law duty of good faith. Hensley alleged he was "named inured on the policy," and Douglas alleged he possessed an insurable interest and was "an additional insured under the policy."

¶ 10 State Farm filed a motion for summary judgment and argued (1) the property was not insured due to vacancy as defined by the policy, (2) it had performed as required by the contract and no elements for bad faith claims existed, and (3) Douglas lacked standing to bring a bad faith claim because he was a stranger to the insurance contract. Plaintiffs responded and stated several facts alleged by State Farm were disputed.

¶ 11 State Farm filed a trial brief arguing Douglas was a stranger to the insurance contract and could not bring an action against State Farm for an alleged breach of the insurance contract or for an implied-in-law duty based upon a relationship of an insurer and its insured. State Farm challenged Douglas' right to sue State Farm because its policy was issued to Hensley as the named insured. State Farm alleged "Douglas was not on the policy, did not seek his own policy on the property, did not ask to be added to the State Farm policy, and State Farm was never asked by the insured to be on the policy."

¶ 12 Plaintiffs argued the Loss Payment provision of the insurance contact gave Douglas standing.²

10. Loss Payment. We will adjust all losses with you. We will pay you unless some other person is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss and;

a. reach agreement with you;

b. there is an entry of final judgment; or

c. there is a filing of an appraisal award with us.

This provision was replaced by an amendment:

10. Loss Payment. We will adjust all losses with you. We will pay you unless some other person is named in the policy or is legally entitled to receive payment. Loss will be payable:

a. within 60 days after we reach an agreement with you or there is a filing of an appraisal award with us; or

b. within 30 days after there is entry of a final judgment.

One question presented by the parties is whether this contractual loss payment clause creates a contractual duty to Douglas from which an implied-in-law covenant of good faith and fair dealing may arise.

¶ 13 Plaintiffs expanded on their loss-payment argument and contended Douglas was an insured under the policy because of 15 O.S. § 29 and Townsend v. State Farm Mutual Automobile Insurance Co. ,³ and a "legitimate contractual expectation" existed that State Farm would act in good faith towards Douglas as an insured.⁴

¶ 14 Plaintiffs' response to defendant's second motion for summary judgment states plaintiffs "incorporate their arguments and facts in their response to Defendant's First Motion for Summary Judgment." Plaintiffs' Response makes such incorporation twenty-eight times.⁵ Douglas used these references with a few additional expressly stated facts when disputing the facts asserted in State Farm's motion for summary judgment. Plaintiffs' response to the defendant's first motion for summary judgment is not in the appellate record for this appeal. An appellant has a burden to present a record on appeal that demonstrates the alleged error in the trial court's decision.⁶ Whatever facts are in Douglas' first response to State Farm's motion for summary judgment and incorporated by reference in his second response, they are not before this Court on the record submitted to us by Douglas unless they also appear in the material actually submitted to this Court.

¶ 15 The trial court granted State Farm's motion for summary judgment and entered a final judgment against Douglas. The trial court determined Douglas "is a stranger to the insurance contract and has no standing to sue." The Court of Civil Appeals affirmed and Douglas sought certiorari. Douglas argues on certiorari he has standing to bring an action against State Farm because (1) he is a third party beneficiary insured under the policy, (2) he is defined as an insured by the...