McClune v. Farmers Ins. Co.

• Decision Date: 10 September 2021
• Docket Number: No. 20-1768,20-1768
• Citation: 12 F.4th 845
• Parties: Mary L. MCCLUNE, Plaintiff - Appellant v. FARMERS INSURANCE COMPANY, INC., Defendant - Appellee
• Court: U.S. Court of Appeals — Eighth Circuit

12 F.4th 845

Mary L. MCCLUNE, Plaintiff - Appellant

v.FARMERS INSURANCE COMPANY, INC., Defendant - Appellee

No. 20-1768

United States Court of Appeals, Eighth Circuit.

Submitted: April 13, 2021

Filed: September 10, 2021

Louis Carl Accurso, Andrew Haynes McCue, Accurso Law Firm, Michael L. Wilson, Wilson Law Firm, Kansas City, MO, for Plaintiff-Appellant.

Benjamin S. McIntosh, Timothy J. Wolf, Brown & James, Saint Louis, MO, for Defendant-Appellee.

Before SMITH, Chief Judge, COLLOTON and ERICKSON, Circuit Judges.

ERICKSON, Circuit Judge.

Mary McClune suffered a right shoulder injury after being hit by a car. While recuperating from the injury, McClune injured her left shoulder from overuse. After settling with the liability carrier, McClune filed an Underinsured Motorist ("UIM") claim with her insurer, Farmers Insurance Company ("Farmers"). Farmers conducted an initial evaluation and made a settlement offer that was rejected by McClune when she presented a significantly higher counteroffer. In response to the counteroffer, Farmers continued its investigation by requesting updated medical documents and informing McClune that she needed to submit to an examination under oath ("EUO"). McClune refused and filed suit six days later. Farmers moved for summary judgment, asserting McClune had breached the policy's cooperation clause. The district court¹ granted Farmers’ motion. McClune appeals, and we affirm.

I. BACKGROUND

On August 16, 2014, McClune injured her right shoulder when she was hit by a car in a parking lot. McClune made a claim against the driver's insurer, State Farm, that was settled (with Farmers’ consent) for the $100,000 bodily injury limit. McClune's policy provided Medical ("med pay") coverage of $5,000 and UIM coverage of $500,000. McClune submitted a med pay claim against Farmers that was paid to the $5,000 policy limit. McClune also made a UIM claim against Farmers, submitting an initial settlement demand of $400,000 in June 2016. She provided Farmers with copies of her medical records and bills supporting her claim.

Farmers assigned Claims Representative Ken Kyle to investigate and adjust McClune's UIM claim. On July 5, 2016, Kyle sent a letter to McClune stating that Farmers had "finalized [its] evaluation" of McClune's UIM claim and made a $2,500 offer to settle the claim. McClune delayed responding to the offer, later explaining the delay was due to increasing problems with her left shoulder. On May 24, 2017, Dr. Jeffrey MacMillan opined that McClune had torn her left rotator cuff from overuse while her right shoulder was injured. He attributed the left shoulder problems to the automobile accident.

On July 11, 2017, more than a year after Farmers’ original offer, McClune rejected Farmers’ July 5, 2016, offer and notified them of her left shoulder injury. She also presented a $500,000 settlement demand to resolve the now enhanced UIM claim. At the end of July 2017, Kyle reopened the investigation and asked McClune to provide the following documents: a June 25, 2015, MRI report and associated bill; a bill for an August 24, 2016, MRI; all of her primary care physician's treatment records "to confirm the shoulder problems did not predate the [August 16, 2014] accident;" and Dr. MacMillan's report. McClune responded the same day indicating she would provide the documents, but it would take 3-4 weeks to obtain them from her providers.

McClune finally provided Farmers the records it had requested on Friday, October 20, 2017. Kyle confirmed receipt of the materials the following Monday. On November 7, 2017, Kyle sent McClune a letter stating that Farmers had "completed [its] evaluation" of her UIM claim as to both shoulder injuries and made a settlement offer of $6,850.

After more than three months without a response, Kyle followed up seeking a response from McClune. Kyle also asked for any new medical records related to any treatment that had occurred since their last correspondence. On March 12, 2018, McClune made a vanishing offer to Farmers stating she was willing to accept $450,000 in full settlement of all claims but the offer would expire on March 28, 2018. Two days later, Kyle informed McClune that he was unable to either accept or reject her offer at that time and that the matter was being referred to counsel.

On April 17, 2018, Farmers’ counsel emailed McClune, informing her that its investigation of her UIM claim and $450,000 settlement demand was ongoing. Counsel requested all medical records associated with her injuries "to the extent not previously provided." The letter requested documentation for the June 25, 2015, MRI, which Farmers believed they did not possess; asked McClune to execute updated medical authorizations; and informed McClune that, once it obtained all of her medical records and had them reviewed by an expert, it would schedule an EUO of McClune.

Six days later, McClune responded to Farmers’ requests by commencing an action in the Circuit Court for Jackson County, Missouri. Farmers removed the case to federal court. The parties cross-moved for summary judgment and the court granted Farmers’ motion and denied McClune's motion, finding that McClune failed to comply with the cooperation clause in her policy. McClune appeals.

II. DISCUSSION

This court reviews a grant of summary judgment applying a de novo standard of review. Gardner v. Wal-Mart Stores, Inc., 2 F.4th 745, 747 (8th Cir. 2021). Summary judgment is appropriate where there is no genuine dispute of material fact and a reasonable fact finder could not find in favor of the nonmoving party as a matter of law. See Fed. R. Civ. P. 56(a).

The parties agree that Missouri substantive law governs this diversity action. See Heubel Materials Handling Co. v. Universal Underwriters Ins. Co., 704 F.3d 558, 563 (8th Cir. 2013) (applying Missouri law to the interpretation of insurance policies in a diversity action). "If the Supreme Court of Missouri has not addressed an issue, we must predict how the court would rule, and we follow decisions from the intermediate state courts when they are the best evidence of Missouri law." Id. (quoting Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539, 542 (8th Cir. 2012) ).

Cooperation clauses are valid and enforceable in Missouri. Hendrix v. Jones, 580 S.W.2d 740, 742 (Mo. 1979). "Missouri courts have consistently acknowledged an insurer's right to a complete investigation of a claim, including examinations, and have found that the insured's failure to assist in the investigation precludes any coverage." Roller v. Am. Modern Home Ins. Co., 484 S.W.3d 110, 116 (Mo. Ct. App. 2015). To deny coverage, "an insurer must prove: (1) a material breach of the cooperation clause; (2) the existence of substantial prejudice as a result of the breach; and (3) the exercise of reasonable diligence to secure the insured's cooperation." Med. Protective Co. v. Bubenik, 594 F.3d 1047, 1051 (8th Cir. 2010).

A. Material Breach

McClune's policy imposed a duty to cooperate with Farmers when seeking coverage. In relevant part, the policy requires an insured to (1) authorize Farmers to obtain medical and other records, (2) provide any requested written proofs of loss, and (3) submit to an EUO upon Farmers’ request. While the parties dispute whether McClune's medical records authorization was still operable and whether McClune provided all of the documents that Farmers had requested, it is undisputed that on April 17, 2018, Farmers requested that McClune participate in an EUO. Rather than comply with the EUO request, McClune filed this action. By commencing suit and failing to submit to the EUO, McClune materially breached the cooperation clause. See Roller, 484 S.W.3d at 117–18 (failure to submit to an EUO constituted a breach of the cooperation clause); see also Wiles v. Capitol Indem. Corp., 215 F. Supp. 2d 1029, 1031–32 (E.D. Mo. 2001) (same).

While McClune contends her obligation to comply with the cooperation clause ended when Farmers represented it had completed its initial evaluation of her claim on November 7, 2017, McClune's contention ignores a good deal of the parties’ ongoing correspondence and the terms of the policy. McClune's policy provides that "[a] person claiming any coverage of this policy must ... [s]ubmit to examination under oath upon our request." Nothing in the language of the policy draws a distinction between an initial investigation or a reopened investigation. In addition, after she made her March 12, 2018, settlement offer, Farmers promptly informed McClune that its investigation of her claim was still ongoing. McClune has cited nothing in either her policy or Missouri law supporting her claim that her duty to cooperate was extinguished under these circumstances.

McClune also argues that she was excused from her duty to cooperate because Farmers first breached the policy, which excused her further performance, and her settlement offer expired. McClune did not raise the first argument in her summary judgment briefing and has waived it.² See Sanzone v. Mercy Health, 954 F.3d 1031, 1045 (8th Cir. 2020) (noting that arguments not presented to the district court will not be considered on appeal (citation omitted)). McClune's second argument lacks cogency. A vanishing settlement offer cannot modify a cooperation clause in an insurance policy because mutual assent is a fundamental requirement of contract formation or amendment. See Chaganti & Assocs. v. Nowotny, 470 F.3d 1215, 1221 (8th Cir. 2006). If an insured could unilaterally terminate a provision of the policy by making a vanishing settlement offer, the entire duty to cooperate would be rendered illusory by allowing a claimant to avoid the duty by imposing an arbitrary deadline.

Finally, McClune argues that Farmers waived its right to request an EUO, or is otherwise barred by estoppel. For waiver, McClune has "the burden to prove that [Farmers] intentionally relinquished its rights under that provision." Bubenik, 594 F.3d at 1053–54....