Truesdell v. State Farm Fire and Cas. Co.

• Citation: 960 F.Supp. 1511
• Decision Date: 08 April 1997
• Docket Number: No. 96-C-648-K.,96-C-648-K.
• Parties: Christopher TRUESDELL, Chris Ann Truesdell, and Lakeside State Bank, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Oklahoma

960 F.Supp. 1511

Christopher TRUESDELL, Chris Ann Truesdell, and Lakeside State Bank, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.

No. 96-C-648-K.

United States District Court, N.D. Oklahoma.

April 8, 1997.

COPYRIGHT MATERIAL OMITTED

David Sanders, Sr., Sanders & Sanders, Tulsa, for Plaintiffs.

Kent Bolling Rainey, Neal E. Stauffer, Richard L. Hathcoat, Stauffer Rainey Gudgel & Harmon, Tulsa, for Defendant.

ORDER

KERN, Chief Judge.

Before the Court are several motions submitted by the various parties to this cause of action; specifically, the Court will address Demand of Plaintiffs' for Jury Trial (docket # 15), Defendant's Motion for Summary Judgment as to All of the Plaintiffs' Claims or in the Alternative Motion for Summary Judgment as to Plaintiffs' Claims of Bad Faith and Punitive Damages (docket # 8), and Plaintiffs' Motion for Partial Summary Judgment, or in the Alternative, to Enter an Order In Limine (docket # s 36 & 37).

Parties' Motions for Summary Judgment

I. Statement of Facts

This dispute arises out of the Defendant State Farm Fire and Casualty's ("State Farm") alleged breach of an insurance contract. Plaintiffs Christopher and Chris Ann Truesdell ("the Truesdells") are the named insureds on State Farm Homeowner's Policy of Insurance, Policy No. 36-37-5481-1, which provided replacement cost property insurance for the Truesdell's residence located at 140 South Pecan Street in Nowata, Oklahoma. Plaintiff Lakeside State Bank ("Lakeside") is the named mortgagee on the insurance policy. On February 3, 1996, a fire damaged the residence of the Truesdells, rendering it uninhabitable. The Truesdells promptly reported their loss to State Farm, and State Farm agent Jeff West began investigating the loss. On February 14, 1996, an estimate of $60,837.30 for repair of the Truesdell home was submitted by Paul Davis Systems of Tulsa, Inc. ("PDS"). That same day Jeff West completed his own estimate of the repair cost totaling $46,469.05. On February 15, 1996, J & H Construction ("J & H") submitted an estimate of $45,747.38.

On February 29, 1996, State Farm issued a draft in the amount of $31,199.15 payable to both the Truesdells and Lakeside. This amount reflected State Farm's determination of the actual cash value of the Pecan Street residence minus roof depreciation, the insurance deductible, and overhead and profit costs to be paid to the contractor assuming the repairs. This payment was made pursuant to the terms of the insurance policy, which states in applicable part:

OPTIONAL POLICY PROVISIONS

Option RC—Replacement Cost—Contents.

SECTION I CONDITIONS, 3. Loss Settlement is replaced with the following:

c. We will pay the cost to repair or replace buildings under Coverage A, subject to the following:

(1) until actual repair or replacement is completed, we will pay the actual cash value of the damage to the buildings, up to the policy limit, not to exceed the replacement cost of the damaged part of the buildings for equivalent construction and use on the same premises;

(2) you must make claim within 180 days after the loss for any additional payment on a replacement cost basis.

Any additional payment is limited to the amount you actually and necessarily spend to repair or replace the damaged buildings with equivalent construction and for equivalent use on the same premises;

12. Mortgage Clause. The word "mortgage" includes trustee:

a. If a mortgagee is named in this policy, any loss payable under Coverage A shall be paid to the mortgagee and you, as interests appear.

b. If we deny your claim, that denial shall not apply to a valid claim of the mortgagee, if the mortgagee:

(1) notifies us of any change in ownership, occupancy or substantial change in risk of which the mortgagee is aware:

(2) pays any premium due under this policy on demand if you have neglected to pay the premium; or

(3) submits a signed, sworn statement of loss within 60 days after receiving notice from us of your failure to do so. Policy conditions relating to Appraisal, Suit Against Us and Loss Payment apply to the mortgagee.

On March 22, 1996 the draft submitted by State Farm was returned by Plaintiff Lakeside along with a letter stating that it was being returned because the amount tendered would not enable the Truesdells to repair their residence. The draft was resubmitted and rejected several times thereafter, and the Truesdells and State Farm continued to negotiate regarding the proper estimate for repair until the Plaintiffs filed their Petition on June 27, 1996. Although the parties dispute the relevance, it is undisputed that the Truesdells never repaired or replaced the Pecan Street residence, and that the home was sold on May 10, 1996.

II. Summary Judgment Standard

Summary judgment is appropriate if "there is no genuine issue as to any material fact and. the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court must view the evidence and draw any inferences in a light most favorable to the party opposing summary judgment, but that party must identify sufficient evidence which would require submission of the case to a jury. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-52, 106 S.Ct. 2505, 2510-12, 91 L.Ed.2d 202 (1986). Where the nonmoving party will bear the burden of proof at trial, that party must "go beyond the pleadings" and identify specific facts which demonstrate the existence of an issue to be tried by the jury. Mares v. ConAgra Poultry Co., Inc., 971 F.2d 492, 494 (10th Cir.1992).

III. Discussion

Since Defendant's and Plaintiffs' motions involve the same issues, they will be addressed simultaneously.¹ It appears that several issues of law need to be addressed initially including (1) whether a clause in an insurance contract allowing the insurer to pay actual cash value at the time of loss and reserving replacement value payment until repairs or replacements have taken place is unconscionable or void as a matter of public policy in Oklahoma; (2) Lakeside's legal rights under the contract of insurance; (3) the impact of the sale of the Pecan Street residence on Plaintiffs' claims; and (4) the relevant date for assessing Plaintiffs' allegations of bad faith. After addressing these questions, which are clearly resolvable as a matter of law, the Court will then consider whether genuine issues of fact exist as to each of the Plaintiffs' claims.

A. Enforceability of the Replacement Clause

Plaintiffs' contend that the clause in the insurance contract which allows State Farm to withhold replacement value until repairs or replacement has been completed is unconscionable, and violates Oklahoma public policy. Plaintiffs' cite Coblentz v. Oklahoma Farm Bureau Mut. Ins. Co., 915 P.2d 938 (Okla.App.1995), in support of their argument. In Coblentz, the plaintiffs' home, which was insured by replacement cost insurance, was damaged by a tornado. The replacement cost endorsement stated that the insurer would pay the actual cost of repair or replacement, but only if the plaintiffs actually repaired or replaced the property. When the plaintiffs filed a claim with the insurance company, the insurance company paid the actual cash value of the damaged property, but refused to pay for the replacement or repair costs until the plaintiffs actually repaired or replaced the property. Plaintiffs were unable to repair or replace their damaged property because they did not have the money to do so. The Oklahoma Court of Appeals held that where an insured paid an enhanced premium for a replacement value insurance policy, the insurance company could not pay actual cash value and withhold replacement value until repairs or replacement had taken place. The court declared such a condition precedent was unconscionable, and violated Oklahoma public policy as it placed the insureds "who lacked the financial wherewithal to replace the property, in a legal-`Catch 22.'"

State Farm asserts that the Coblentz opinion is not the law of Oklahoma since it is only an Oklahoma Court of Appeals case, and that the opinion is contrary to the findings of other courts addressing the same issue.

A federal court sitting in diversity, must ascertain and apply Oklahoma law with the objective that the result obtained in federal court would be the result obtained in state court. Perlmutter v. United States Gypsum Co., 4 F.3d 864, 869 (10th Cir.1993). Federal courts are obliged to follow the rulings of the state's highest court, but are not bound by intermediate appellate decisions to the extent that federal courts are bound to determine state law as it believes the state high court would. Id.; 19 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 4507 at 157 (2d ed.1996). Intermediate court decisions have been regarded by the Tenth Circuit as indicia of the leanings of the state's highest court and have followed suit "unless other authority convinces [us] that the state supreme court would decide otherwise." Daigle v. Shell Oil Co., 972 F.2d 1527, 1543 (10th Cir.1992) quoting Delano v. Kitch, 663 F.2d 990, 996 (10th Cir.1981), cert. denied, 456 U.S. 946, 102 S.Ct. 2012, 72 L.Ed.2d 468 (1982); Jordan v. Shattuck Nat. Bank, 868 F.2d 383, 386 (10th Cir.1989).

In support of their contention that the Oklahoma Supreme Court would follow the Coblentz decision, Plaintiffs indicate that, after the Court of Appeals rendered its decision, the insurance company petitioned the Oklahoma Supreme Court for certiorari, which was denied. Subsequently, the insurance company and other companies petitioned the Oklahoma Supreme Court, requesting that the court order that the Coblentz opinion not be published. The Oklahoma Supreme Court denied the insurance company's petition, and the Coblentz opinion was released for publication shortly thereafter. Plaintiffs assert that these actions constitute an inferred blessing or endorsement of the Coblentz opinion by the Oklahoma...