McCarty v. First of Georgia Ins. Co., 81-1807

• Decision Date: 04 August 1983
• Docket Number: No. 81-1807,81-1807
• Citation: 713 F.2d 609
• Parties: Charles C. McCARTY and Cora L. McCarty, Plaintiffs-Appellants, v. FIRST OF GEORGIA INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 609

713 F.2d 609

Charles C. McCARTY and Cora L. McCarty, Plaintiffs-Appellants, v. FIRST OF GEORGIA INSURANCE COMPANY, Defendant-Appellee.

No. 81-1807.

United States Court of Appeals Tenth Circuit.

Aug. 4, 1983.

Robert P. Kelly and Bruce W. Gambill, Pawhuska, Okl., submitted a brief, for plaintiffs-appellants.

Kenneth R. Webster and Jim T. Priest, of McKinney, Stringer & Webster, Oklahoma City, Okl., submitted a brief, for defendant-appellee.

Before SETH, Chief Judge, McKAY and TIMBERS, ^* Circuit Judges.

TIMBERS, Circuit Judge.

Appellants Charles and Cora McCarty appeal from a summary judgment entered in the District Court for the Northern District of Oklahoma, Thomas R. Brett, District Judge, in favor of appellee First of Georgia Insurance Company (the company). Upon the company's refusal to honor appellants' home fire insurance claim, they commenced a prior action (first action) in the state District Court of Osage County, Oklahoma, seeking relief for breach of the insurance contract. After the removal of that action to the District Court for the Northern District of Oklahoma, H. Dale Cook, District Judge, dismissed the action on the ground that the one-year limitations period for commencing an action for breach of an insurance contract under Oklahoma law had expired. Appellants subsequently commenced the instant action (second action) predicated on a different theory, namely, that the company had breached its duty to "deal fairly" with the insured. Although the claim asserted in the instant action came within the longer statute of limitations period provided for causes of action sounding in tort, Judge Brett held that appellants had not pleaded a cognizable tort theory. The court reasoned that, before seeking recourse in tort, the insured must prove the existence of a "valid" insurance claim. In the court's view, dismissal of appellants' first action on the statute of limitations ground precluded finding that such a valid claim existed.

We hold that the district court misconstrued controlling Oklahoma law. We vacate the judgment and remand the case for further proceedings.

I.

On May 12, 1976, appellants purchased from the company a $15,000 home fire insurance policy on their home in Osage County, Oklahoma. The policy was purchased through the Hutton-Smith Agency located in nearby Ponca City. Fire destroyed appellants' house on May 18, 1976. Appellants made demand upon the company to pay in accordance with the policy. The company refused payment nine months later--on February 7, 1977--claiming that it never had issued a policy to appellants ¹ and that in any event the Hutton-Smith Agency was not authorized to act as its agent. Confronted by the company's refusal to pay pursuant to its policy, appellants filed a complaint with the Oklahoma Insurance Commission. The Commission investigated the matter but ultimately dismissed the proceeding in January 1978, sustaining the company's objection that the claim was outside the Commission's jurisdiction.

On May 1, 1978, appellants commenced the first action referred to above, alleging breach of the insurance contract. After that action had been removed to the federal district court, the company reiterated as its defense that it had neither issued the policy in question nor authorized the Hutton-Smith Agency to act on its behalf. It also argued that the action should be dismissed as untimely because it had not been commenced "within twelve months next after inception of the loss", as provided by Okla.Stat. tit. 36, § 4803(B), (G) (1981). Appellants responded that the delay in commencing the action should be excused because of their good faith effort to resolve the dispute through the Oklahoma Insurance Commission. Judge Cook was not persuaded. On January 24, 1979, the court entered summary judgment in favor of the company on the statute of limitations ground, holding that the administrative proceeding before the Commission did not toll the one-year statute of limitations. Appellants did not appeal from the judgment in the first action.

To explore other avenues of relief, appellants commenced an action against the Hutton-Smith Agency in the state District Court of Kay County, Oklahoma. Responding to a discovery request, the agency produced a copy of appellants' insurance policy and records indicating that the company indeed had issued and approved the policy in question. Armed with this new information, on December 24, 1980, appellants once again commenced an action against the company (second action) in the state District Court of Osage County, this time alleging that the company had breached its duty to deal fairly. After the company removed the second action to the federal district court, summary judgment was entered on June 18, 1981 in favor of the company as stated above. From that judgment, appellants have brought the instant appeal.

II.

We initially must determine whether appellants pleaded a cognizable claim in their second action. They premised their claim on Christian v. American Home Assurance Co., 577 P.2d 899 (Okla.1977), in which the Oklahoma Supreme Court held that bad faith refusals by insurance companies to honor customers' claims are actionable in tort. Because of the "special relationship between an insurer and its insured" and because of the "quasi-public nature" of the insurance industry, id. at 902, the court imposed a duty upon insurance carriers to deal fairly with their customers apart from any contractual obligations owed. See also McCorkle v. Great Atlantic Insurance Co., 637 P.2d 583, 586-88 (Okla.1981). In the instant case, appellants have alleged what strikes us as a paradigm of a breach of the fair dealing duty: the company repeatedly and inexplicably denied that it ever had issued the policy in question, even after the Hutton-Smith Agency had produced records indicating the contrary.

The company contends that appellants have not met a prerequisite for maintaining such an action under American Home, namely, that they first must prove the existence of a valid insurance claim. The company invites us to construe the pertinent language in American Home --"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", 577 P.2d at 905--to require that the insured have a cognizable contract claim at least until the time that the tort claim is asserted. Since appellants no longer may sue on their insurance contract claim, the company argues that their tort claim also must fail. We decline the invitation. The company's argument, which was adopted by the district court, we find to be without merit.

American Home did not impose the requirement that the company invites us to adopt. When the Oklahoma Supreme Court held that claimants must make a "clear showing that the insurer unreasonably, and in bad faith, withholds payment", 577 P.2d at 905, it was simply emphasizing the obvious: if the insured were not entitled to payment, a cause...