Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-02085/USCOURTS-ca10-88-02085-0/pdf.json

Parties Involved:
Farmers Insurance Group
Appellant
Dorothy Massey
Appellee
Harold Massey
Appellee

Document Text:

FI Lb D 

Unit.ed States Ciourt ot Appeals Tenth Circuit 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT FEBO 9 1993 

----------~OBERTL.HOECKER 

Clerk . HAROLD MASSEY and DOROTHY 

MASSEY, 

vs. 

Plaintiffs-Appellees and 

Cross-Appellants, 

) 

) 

) 

) 

) 

) 

) 

) 

FARMERS INSURANCE GROUP, doing ) 

business as Truck Insurance ) 

Exchange, doing business as ) 

Truck Underwriters Association, ) 

Defendant-Appellant and 

Cross-Appellee. 

) 

) 

) 

ORDER AND JUDGMENT* 

Nos . 88-2085 

88-2146 

(D.C. No. 87-324-C) 

(E.D. Okla. ) 

Before TACHA and BALDOCK, Circuit Judges, and O'CONNOR, District 

Judge.** 

This diversity case arising in Oklahoma involves claims for 

breach of an insurance contract and breach of the implied covenant 

of good faith and fair dealing. Following a jury trial, a 

judgment was entered in favor of Plaintiffs-Appellees Harold and 

Dorothy Massey, and they were awarded compensatory damages of 

$375, 000, punitive damages of $4,000,000, prejudgment interest, 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

** The Honorable Earl E. O'Connor, Chief Judge, United States 

District Court for the District of Kansas, sitting by designation. 

Appellate Case: 88-2085 Document: 010110170317 Date Filed: 02/09/1993 Page: 1 
attorneys fees and costs. Defendant-Appellant Farmers Insurance 

Group appeals from this judgment raising a number of alleged 

errors. Plaintiffs cross-appeal the district court's calculation 

of prejudgment interest and attorneys fees. We have jurisdiction 

under 28 u.s.c. § 1291. 

I. 

This case arose out of an arson fire at Plaintiffs' home. 

Defendant insured Plaintiffs against fire loss to their home with 

p olicy limits of $75,00 0 . Defendant's adjuster, Joe Delacerda, 

determined that Plaintiffs were not involved in the arson. 

Delacerda made a preliminary finding that the house could be 

repaired for approximately $45,000. Delacerda asked Mr. Massey to 

obtain estimates from two contractors. Mr. Massey obtained 

estimates from Simon-Price Construction and Gerald Eaves 

Construction which he submitted to Defendant. Both of these 

estimates exceeded $100,000 and involved demolishing the remaining 

structure and completely rebuilding the house . 

After receiving Plaintiffs' estimates, Defendant adjusted its 

l oss reserves up to the policy limits. Delacerda then obtained an 

estimate to repair the house for approximately $47,000 from First 

General Services of Tulsa . Contrary to Defendant's own policy, 

Delacerda did not obtain a second estimate. Three weeks after 

receiving Plaintiffs' estimates, Defendant notified Plaintiffs 

that their policy on the damaged house as well as a separate 

policy on Plaintiffs' business would be cancelled effective at the 

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end of the month. Soon thereafter, Defendant retained an 

attorney, Ray Wilburn, to represent it in the matter. 

The central dispute at this point was whether repairing the 

house would restore it to its prefire condition or whether the 

house would have to be torn down and completely rebuilt to restore 

it to its prefire condition. With the parties at an impasse, 

Defendant invoked the statutory appraisal clause of the policy. 

See Okla. Stat. Ann. tit. 36, § 4803 {West 1990). This clause 

provides that in the event that the parties fail to agree on the 

amount of loss, either party may invoke the appraisal process. 

Once this process is invoked, each party is required to select a 

competent and disinterested appraiser. The appraisers then select 

an umpire, and, if the appraisers cannot agree on an umpire, a 

court shall select the umpire. Each appraiser then submits an 

itemized appraisal of the loss. The appraisers' differences are 

submitted to the umpire who then determines the amount of the 

loss. Each party is expected to bear the cost of its own 

appraiser, and the parties equally share the cost of the umpire. 

Plaintiffs offered evidence at trial that it was contrary to 

Defendant's company policy to invoke the appraisal process, 

although Defendant sharply contested this fact claiming that the 

training manual upon which Plaintiffs relied was outdated and no 

longer reflected company policy. 

Defendant initially appointed attorney Wilburn as its 

"disinterested" appraiser despite the fact that Wilburn was 

already actively representing Defendant as its attorney in this 

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matter. Moreover, Wilburn's firm did a significant amount of 

other legal work on Defendant's behalf, receiving over $2 . 4 

million in fees from Defendant for a two-year period. After 

Plaintiffs objected to Wilburn's capacity to be disinterested and 

to his competency as an appraiser, Defendant substituted Peter 

Murlowski as their appraiser. Murlowski was employed by First 

General Services of Tulsa--the firm that had earlier given 

Defendant an estimate to repair the house. Evidence at trial 

indicated that First General depended on insurance repair work for 

95% of its business, and 25% of its business came from Defendant. 

Wilburn informed Murlowski that Defendant expected Murlowski to 

stand by his initial estimate. Upon inspecting the house, 

Murlowski maintained that the house could be repaired but adjusted 

his initial estimate of approximately $47,000 upward by 

approximately $2,000 . 

Plaintiffs appointed Dan Simmons of Simmons-Price 

Construction, which had prepared one of Plaintiffs' earlier 

estimates to rebuild the house. Simmons maintained that the house 

would have to be completely rebuilt at a cost of approximately 

$100,000 to restore it to its prefire condition. Thus, Simmons 

and Murlowski were unable to agree, and neither appraiser 

suggested the appointment of an umpire. 

Plaintiffs filed suit in state district court for breach of 

contract and breach of the implied covenant of good faith and fair 

dealing. Subsequently, Defendant moved the court for the 

appointment of an umpire pursuant to the statutory appraisal 

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process. At the suggestion of Defendant's counsel, the court 

appointed David Lambert, a local builder who specialized in 

commercial building and served on the Board of Directors of two 

insurance companies. Lambert inspected the property and received 

incomplete estimates from Murlowski and Simmons. The Murlowski 

estimate did not have any dollar values placed on it, and the 

Si mmons estimate was merely three lines rather than the itemized 

estimate he had earlier provided to Defendant. Lambert never 

attempted to negotiate a compromise between Murlowski and Simmons . 

Rather, Lambert prepared a report finding the house could be 

rebuilt at a cost of approximately $49,000, consistent with the 

Murlowski estimate. Although Defendant tendered payment, 

Plaintiffs rejected the settlement, dismissed their retained 

attorney, and, acting prose, moved the court to reconsider the 

umpire's estimate on the basis of alleged improprieties in the 

appraisal process. With their motion to reconsider pending, 

Plaintiffs, upon the advice of their newly retained counsel, 

dismissed their state action without prejudice under Okla. Stat. 

Ann. tit. 12, § 683 (West 1988). 

Plaintiffs refiled their suit in the Oklahoma federal 

district court on the basis of diversity jurisdiction. 28 U.S.C. 

§ 1332. Following a jury trial, Plaintiffs were awarded $75,000 

for loss of their home, $15,000 for additional living expenses and 

$300,000 in consequential damages for Defendant's breach of the 

insurance policy as well as $4,000,000 in punitive damages for 

Defendant ' s breach of the implied covenant of good faith and fair 

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dealing . The district court further awarded Plaintiffs attorney 

fees of $376,275, prejudgment interest exceeding $390,000 and 

costs totalling $44,766 . 

II. 

Among its many contentions, Defendant initially asserts that 

the state court umpire's damage appraisal of Plaintiffs' home is 

conclusive on the issue of the amount necessary to restore the 

dwelling to its prefire condition, and thus fixed the damages due 

on the dwelling. Defendant further asserts that if the umpire's 

award is valid, then Defendant could not have acted in bad faith 

because Plaintiffs' case rests upon Defendant's purportedly 

improper handling of the appraisal process. 

In the interest of comity, and pursuant to Okla . Stat. Ann. 

tit. 20, §§ 1602 - 1605 (West Supp. 1990), we certified the 

following question to the Oklahoma Supreme Court: 

Under Oklahoma law, what is the preclusive effect of a 

court-appointed umpire's damage appraisal under a 

statutorily-mandated provision of a fire insurance 

policy, where the insured, as of right, dismisses 

without prejudice an initial lawsuit without challenging 

the umpire's appraisal and, thereafter, institutes a 

subsequent lawsuit on the same cause of action in 

another court? 

Massey v. Farmers Ins. Group. No. 88-2085, slip op. at 2 (10th 

Cir. Mar. 26, 1990) (certification order). The Oklahoma Supreme 

Court has since answered the question by holding that "a 

court- appointed umpire's damage appraisal under the 

statutorily-mandated provision of a fire insurance policy, [Okla. 

Stat. Ann. tit. 36, § 4803 (G) (West 1990)), has no preclusive 

effect upon the party who did not demand the appraisal process." 

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Massey v . Farmers Ins. Group, 837 P.2d 880, 885 (Okla. 1992 } . 

Accordingly, because Plaintiffs did not demand the appraisal 

process, the earlier appraisal by the state court appointed umpire 

has no preclusive effect on Plaintiffs' present action. 

Therefore, the district court did not err in denying Defendant's 

motion for summary judgment and motion for a directed verdict on 

this issue. 

III. 

Defendant raises three challenges to the sufficiency of the 

evidence: (A} the evidence was insufficient to support the 

contractual damage award for additional living expenses; (B} the 

evidence was insufficient for the jury to find that Defendant 

breached the implied covenant of good faith and fair dealing; and 

(C} the evidence was insufficient for the jury to find that 

Defendant acted with fraud, malice or oppression . We view the 

evidence and all reasonable inferences therefrom in the light most 

favorable to Plaintiffs and can reverse only when it is clear that 

reasonable minds could not differ on the conclusion . Pytlik v. 

Professional Resources, Ltd., 887 F.2d 1371, 1380 (10th Cir. 

1989); McKinney v. Gannett Co., Inc., 817 F.2d 659, 663 (10th Cir. 

1987). 

A. 

The jury awarded Plaintiffs $15,000 in additional living 

expenses. Such expenses were covered under a provision of the 

policy which read as follows: 

If a covered property loss makes the residence premises 

unfit to live in, we cover the necessary increase in 

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Appellate Case: 88-2085 Document: 010110170317 Date Filed: 02/09/1993 Page: 7 
living expense incurred by you so that your household 

can maintain its normal standard of living. We shall 

pay for the shortest time needed to (a) repair or 

replace the damaged property or (b) permanently 

relocate. 

Harold Massey testified that he requested additional living 

expenses of $906 per month which were denied by Defendant. 

Defendant claims that this request was based on what Mr. Massey 

perceived as the fair market value of the house destroyed in the 

fire, and that Defendant had changed its policy so as to no longer 

reimburse for the fair market value of the destroyed property . 

However, whether the additional living expense provision included 

the fair market value of the damaged property during the period of 

its restoration was a disputed fact properly left to the 

resolution of the jury. Further, Defendant overlooks the 

additional testimony that after it cancelled Plaintiffs' 

insurance, Plaintiffs incurred $10,000 to $12,000 in additional 

expenses to make another building on Plaintiffs' property 

habitable. Taking all reasonable inferences from this testimony 

in Plaintiffs' favor, we cannot say that reasonable minds could 

not differ on the conclusion. 

B. 

Defendant next claims that the evidence was insufficient for 

the jury to find that Defendants breached the implied covenant of 

good faith and fair dealing. The parties agree that Oklahoma 

recognizes a cause of action sounding in tort for the bad faith 

breach of an insurance contract. See Buzzard v. Farmers Ins. Co., 

824 P.2d 1105, 1108-09 (Okla. 1991); Mccorkle v. Great Atl. Ins. 

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Co., 637 P.2d 583, 588 (Okla. 1981). However, the parties dispute 

the quantum of evidence necessary to submit this issue to the 

jury. 

1. 

Defendant argues that unless Plaintiffs were entitled to a 

directed verdict on the breach of contract claim, the bad faith 

claim should not have been submitted to the jury. Defendant 

relies on National Sav. Life Ins. Co. v. Dutton, 419 So. 2d 1357 

(Ala. 1982), in which the Alabama Supreme Court stated, 

"[o]rdinarily, if the evidence produced by either side creates a 

fact issue with regard to the validity of the claim and, thus, the 

legitimacy of the denial thereof, the tort claim must fail and 

should not be submitted to the jury." Id. at 1362. 

In support of its contention that Oklahoma follows the rule 

announced in Dutton, Defendant directs us to Christian v. American 

Assurance Co., 577 P.2d 899 (Okla. 1977), Timmons v. Royal Globe 

Ins. Co., 653 P.2d 907 (Okla. 1982), and Manis v. Hartford Fire 

Ins. Co., 681 P.2d 760 (Okla. 1984) . In Christian, which was the 

first Oklahoma case to recognize a cause 0 f action sounding in 

tort against an insurer for breaching an implied duty to deal 

fairly and act in good faith with its insured, the court affirmed 

a bad faith judgment based on an insurer's failure to pay a claim 

to which it had no defense. However, Christian does not suggest 

that an insurer's absence of a defense to a breach of contract 

claim is a necessary predicate to a bad faith cause of action. 

Indeed, in Timmons, also relied on by Defendant, the court 

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affirmed a bad faith judgment based on the insurer's actions in 

investigating the claim, despite the fact that the insurer had 

several defenses to the contract action. 1 The Timmons court 

recognized that "[t]he essence of the cause before the Court is 

failure to deal fairly and in good faith with an insured and as 

such, the jury may be shown the entire course of conduct between 

the parties to arrive at a determination of whether that standard 

had been breached or not . " 653 P.2d at 917. While the Oklahoma 

Supreme Court reversed a bad faith judgment in Manis where the 

insurer refused to pay a claim for fire loss claiming that the 

insured intentionally set the fire, the bad faith claim was based 

solely on the insurer's refusal to pay and there was no other 

evidence that insurer failed to deal fairly with the insured. 

Thus, even though the jury rejected the insurer's arson defense on 

the contract claim, the Manis court found that there was no 

evidence that the insurer acted in bad faith in pursuing the 

defense. 

In contrast to Manis, Plaintiffs' bad faith claim was based 

on Defendant's abuse of the statutory and contractual appraisal 

1 Defendant contends that Timmons supports its position because 

prior to the bad faith action, the insured's liability to a thi rd 

party had already been discharged by the insurer and thus the 

contract claim had already been resolved . 653 P . 2d at 911 . 

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process.

2 The Oklahoma Supreme Court has made it clear that the 

question of bad faith turns on the intent and reasonableness of 

the insurer's action, and the "crucial consideration" in 

determining whether to submit the issue to the jury is "the 

relative merit in the evidence supporting [the insurer's] 

defense." Conti v. Republic Underwriters Ins. Co., 782 P.2d 1357, 

1361 (Okla. 1989). In Mccorkle v. Great Atl. Ins. Co., 637 P.2d 

583 (Okla. 1981), the Oklahoma Supreme Court rejected the argument 

that allowing a bad faith cause of action denies insurers their 

right to have a judicial determination on the amount due on a fire 

insurance policy, noting that "a party prosecuting a claim of bad 

faith must plead the elements of the tort and he/she has the 

burden of proof. The pleading and proof requirements are the same 

as in other lawsuits." Id. at 587. Clearly rejecting the 

argument raised by Defendant here, the Mccorkle court stated that 

the essence of the intentional tort of bad faith with 

regard to the insurance industry is the insurer's 

unreasonable, bad-faith conduct ... and if there is 

conflicting evidence from which different inferences may 

be drawn regarding the reasonableness of insurer's 

conduct, then what is reasonable is always a question to 

be determined by the trier of fact by a consideration of 

the circumstances in each case. 

Id. More recently, the Oklahoma Supreme Court recognized that 

whether or not an insured is legally entitled to recover under the 

2 We note that, although Defendant's investigation indicated 

that the fire was intentionally set, Defendant never sought to 

deny coverage on the grounds that Plaintiffs were responsible for 

the fire, nor did Defendant assert such a defense at trial. 

Indeed, the district court granted Plaintiffs' motion in limine 

excluding all reference to any responsibility on the part of 

Plaintiffs for the fire. 

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policy is not the "controlling issue" in a bad faith action based 

on a denial of coverage; rather, the bad faith issue, in such a 

case, turns on "whether [the insurer], at the time [the insureds] 

made their claim, was in possession of information to establish 

that its refusal to pay was in good faith. . " Buzzard v. 

McDanel, 736 P.2d 157, 159 n.3 (Okla. 1987). Similarly, in McCoy 

v. Oklahoma Farm Bureau Mut. Ins. Co., 841 P.2d 568 (Okla. 1992 ) , 

the court held that the issue of bad faith was properly submitted 

to the jury despite the existence of a triable issue as to whether 

the insured had burned down his own house. Id. at 570-72. Thus, 

we reject Defendant's argument that Plaintiffs must have been 

entitled to a directed verdict on the breach of contract claim in 

order to submit the bad faith claim to the jury. 

2 . 

We turn to the question of whether a reasonable jury could 

have found that Defendant breached the implied covenant of good 

faith and fair dealing. Plaintiffs' cause of action was based on 

Defendant's handling of their claim, specifically Defendant's 

abuse of the statutory and contractual appraisal process. The 

Oklahoma Supreme Court has recognized that the manner in which an 

insurer handles a claim may be the basis for a bad faith judgment, 

see Buzzard v. Farmers Ins. Co., 824 P.2d 1105 , 1109 (Okla. 1991); 

Timmons v. Royal Globe Ins. Co . , 653 P . 2d 907, 917-18 (Okla. 

1982), as well as actions by an insurer which unreasonably 

withhold the payment of claims. Christian v. American Assurance 

Co . , 577 P.2d 899, 904-05 (Okla. 1977). 

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Taken in the light most favorable to Plaintiffs, the evidence 

at trial amply supported Plaintiffs' claim that Defendant acted in 

bad faith by manipulating and abusing the statutory and 

contractual appraisal process. First, according to Defendant's 

own training manual, it was against company policy to invoke the 

appraisal process or to even call it to the attention of the 

. d 3 insure . Nevertheless, Defendant did invoke the appraisal 

process following the fire which destroyed Plaintiffs' home . 

Second, under the appraisal process, each party is required to 

appoint a "competent and disinterested appraiser" once either 

party has made a written demand for an appraisal. Okla. Stat . 

Ann. tit. 36 § 4803 (West 1990). Substantial evidence was 

presented that the first appraiser appointed by Defendant was not 

competent, and that neither of the two appraisers appointed by 

Defendant were disinterested. Defendant's first appraiser, 

Wilburn, was an attorney who did substantial work on Defendant's 

behalf, and indeed had been retained by Defendant to represent it 

in its dealings with Plaintiffs. The second appraiser, Murlowski, 

relied on insurance work, a substantial portion of which was from 

Defendant, for his livelihood, and he had earlier provided an 

estimate for repairing the house. Moreover, there was direct 

evidence, in the form of a letter by one of Defendant's attorney 

who happened to be an associate of Wilburn, that Defendant 

3 Although Defendant presented testimony that the training 

manual did not reflect current company policy, whether Defendant 

complied with its own internal policy was a disputed issue for the 

jury's resolution. 

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attempted to improperly influence the second appraiser by 

conveying its expectation that the appraiser would stand by his 

estimate to rebuild the house. Thus, Defendant's overt failure to 

follow the terms of its own policy regarding the appraisal process 

provides substantial evidence that Defendant acted unreasonably 

and in bad faith . 

Other evidence submitted by Plaintiffs could reasonably lead 

the jury to infer that Defendant attempted to pressure Plaintiffs 

into accepting the lesser amount to repair the house, as opposed 

to having it rebuilt . Defendant took an average of thirty-seven 

days to submit a loss for authority to settle; however, in this 

case, Defendant took eighty-five days to submit the contents 

portion of Plainti ffs' claim. A reasonable inference is that 

Defendant delayed payment on the contents in order to pressure 

Plaintiffs to settle on the structure, thereby supporting 

Plaintiffs' assertion that Defendant acted unreasonably and in bad 

faith in handling Plaintiffs' claim. Furthermore, Defendant 

cancelled Plaintiffs' insurance policies even though Defendant's 

own investigation indicated that Plaintiffs were not at fault for 

the fire. Again, it was reasonable for the jury to infer that 

this cancellation was an attempt to pressure Plaintiffs into 

settling the loss on the structure. 

Finally, in addition to the evidence concerning Defendant's 

abuse of the appraisal process and the evidence supporting the 

inference that Defendant attempted to pressure Plaintiffs into 

accepting its offer, there was substantial evidence that 

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Defendant's actions unreasonably withheld the payment of 

Plaintiffs' claim. There was testimony that the branch office's 

authority to settle a claim on a structure was limited to $40,000, 

and any claim in excess had to be submitted to the regional office 

for approval. Defendant's own estimate exceeded $40,000, yet 

defendant waited until June 5, 1986, almost a year after the fire, 

t o request settlement authority from the regional officer. When 

authority was finally granted to settle Plaintiffs' claim for the 

policy limits of $75,000, Defendant never offered this amount to 

Plaintiffs. 

In light of this evidence, and the reasonable inferences that 

may be drawn from it, the evidence was more than sufficient to 

submit the issue of whether Defendant breached the implied 

covenant of good faith and fair dealing to the jury. 

C. 

Defendant also contends that, even if there was sufficient 

evidence of bad faith, the evidence was insufficient to show that 

Defendant acted fraudulently, maliciously or oppressively, and, 

the refore, the punitive judgment award cannot stand. Under 

Oklahoma law, malice may be inferred when a party commits willful 

acts in reckless disregard of another's rights. Slocum v. 

Phillips Petroleum Co., 678 P.2d 716, 719 (Okla. 1983). Our 

review of the evidence, and specifically Defendant's failure to 

follow the terms of its own policy regarding the appraisal 

process, convinces us that an inference of malice could properly 

be drawn by the jury. 

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Defendant raises a related argument, which although 

purporting to challenge the sufficiency of the jury instruction on 

punitive damages, appears to be based on the district court's 

finding, pursuant to Okla. Stat . Ann. tit. 23, § 9 (West 1987), 

that there was clear and convincing evidence to support the award 

of punitive damages. Oklahoma law requires the district court, at 

the conclusion of all the evidence, to make a finding outside of 

the presence of the jury "that there is clear and convincing 

evidence that the defendant is guilty of conduct evincing a wanton 

or reckless disregard for the rights of another, oppression, fraud 

or malice, actual or presumed" in order for the jury to award 

punitive damages. Id. When the district court makes such a 

finding, the limitation on punitive damages to the amount of 

actual damages, see id. (historical note) (discussing 1986 

amendment), does not apply. Id. 

The district court found that there was "certainly clear and 

convincing evidence that the defendant is guilty of conduct 

evincing the wanton and reckless disregard for the rights of 

others." VIII R. trans. at 1422 . For the reasons heretofore 

stated, we believe that the district court's finding is supported 

by the record. Because willful acts in reckless disregard of 

Plaintiffs' rights may lead to au inference of malice , Slocum v . 

Phillips Petroleum Co . , 678 P.2d 716, 719 (Okla. 1983) , the 

district court properly submitted this issue to the jury without 

limit ing the punitive damages to the amount of actual damages . 

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IV. 

Defendant raises a myriad of claims alleging error in the 

admission of evidence. We review the district court's ruling on 

the admissibility of the evidence for an abuse of discretion. K-B 

Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148, 1155 (10th Cir. 

1985); Rasmussen Drilling. Inc. v. Kerr-McGee Nuclear Corp., 571 

F.2d 1144, 1149 (10th Cir.), cert. denied, 439 U.S. 862 (1978). 

Even if the district court abuses its discretion by erroneously 

admitting particular evidence, we will not reverse a judgment when 

the error is harmless -- i.e. when the error does not affect a 

substantial right of the party asserting error. K-B Trucking. 763 

F.2d at 1156. See also Fed. R. Civ. P. 61; Fed. R. Evid. 103(a). 

"[T]he burden of demonstrating that substantial rights were 

affected rests with the party asserting error. " K-B Trucking, 763 

F.2d at 1156. 

A. 

Defendant claims that the district court erred in admitting 

evidence concerning the worth of companies that do business under 

the name Farmers Insurance Group. According to Defendant, 

evidence of its worth, which was relevant to the issue of the 

amount of punitive damages, should have been limited to evidence 

of the worth of Truck Insurance Exchange/Truck Underwriters 

Association which is the named party on the insurance policy. 

Although Defendant has not specified the Federal Rule of Evidence 

which purportedly renders this evidence inadmissible, Defendant's 

argument appears to be based on relevancy. See Fed. R. Evid. 402. 

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"'Relevant evidence' means evidence having any tendency to 

make the existence of any fact that is of consequence to the 

determination of the action more probable or less probable than it 

would be without the evidence." Fed. R. Evid. 401. Under 

Oklahoma law, punitive damages are awarded to punish wrongdoers 

for wrongs committed upon society and to deter them from such 

conduct in the future. Okla . Stat. Ann. tit. 23, § 9 (1987). 

Accordingly, evidence of the worth of a party against whom 

punitive damages are being sought is relevant to the issue of the 

amount of damages necessary to sufficiently punish and deter the 

4 party. See Silkwood v. Kerr-McGee Corp., 769 F.2d 1451, 1460 

(10th Cir. 1985), cert. denied, 476 U.S. 1104 (1986); Spaeth v. 

Union Oil Co., 762 F.2d 865, 866 (10th Cir. 1985), cert. denied, 

476 U.S . 1104 (1986). 

Nonetheless, Defendant argues that Farmers Insurance Group 

was not a party to the contract and therefore could not be liable 

for bad faith breach of the contract. See Timmons v. Royal Globe 

Ins. Co., 653 P.2d 907, 912-13 (Okla. 1982) . Thus, Defendant 

argues that evidence of the worth of Farmers Insurance Group 

should not have been admitted. This is a curious proposition 

considering that Farmers Insurance Group is t he named defendant in 

4 Defendant claims that the evidence was prejudicial because 

Farmers Insurance Group had assets of $10.1 billion in 1986 while 

Truck Insurance Exchange/Truck Underwriters Association had assets 

of between $700-800 million and a net worth of $356 million, 

thereby making the jury more inclined to award a greater amount of 

punitive damages. Nonetheless, we do not reach the question of 

prejudice in light of our holding, based on the record before us, 

that Farmers Insurance Group is the relevant entity. 

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the lawsuit. Under Defendant's reasoning, evidence of its worth 

should have been limited to the worth of Truck Insurance Exchange/ 

Truck Underwriter Association, a subordinate entity within the 

rubric of companies forming Farmers Insurance Group. In light of 

the evidence in the record showing a significant financial 

relationship between Farmers Insurance Group and Truck Insurance 

Exchange/Truck Underwriters Association, Farmers Insurance Group's 

control over the subordinate entity in the handling of claims in 

general, and the handling of the claim in this case in particular, 

we believe that the worth of Farmers Insurance Group is the 

relevant inquiry in determining the amount of damages sufficient 

to punish and deter Defendant from its tortious conduct. 

B. 

Defendant next claims that the admission of evidence 

concerning its granting of settlement authority in the amount of 

$75,000 to its branch office in June 1986 violated Fed. R. Evid. 

408. This rule provides that 

(e]vidence of (1) furnishing or offering or promising to 

furnish ... a valuable consideration in compromising 

or attempting to compromise a claim which was disputed 

as to either validity or amount, is not admissible to 

prove liability for ... the claim or its amount . Evidence of conduct or statements made in compromise 

negotiations is likewise not admissible . 

Fed. R. Evid. 408. Defendant's nrgument fails for at least two 

reasons. First, the evidence was undisputed that Defendant never 

furnished, offered or promised to furnish $75,000 to settle 

Plaintiffs' claim, nor was this evidence of conduct in compromise 

negotiations. Thus, the evidence was not the type for which a 

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Rule 408 objection will lie. Second, the evidence was not offered 

to prove liability. Rather, Plaintiffs offered this evidence to 

show that, by June 1986, Defendant had evaluated the loss at the 

policy limits but failed to offer this amount to Plaintiffs. 

Therefore, because the evidence was relevant to the issue of 

whether Defendant unjustifiably withheld payment of the claim 

thereby breaching the implied covenant of good faith and fair 

dealing, we find no abuse of discretion in its admission. 

C. 

Defendant next contends that the district court erred in 

admitting evidence that Defendant cancelled Plaintiffs' three 

other policies following the fire. Defendant's sole argument on 

appeal is that such evidence was not admissible because the 

cancellation of the policies did not violate Okla. Stat. Ann. tit. 

36, § 4807 (West 1990), which limits the reasons insurers may 

cancel policies. Whether or not the cancellation of the policies 

violated state law, this evidence was properly admitted to show 

the course of dealing between Defendant and Plaintiffs and tended 

to support Plaintiffs' argument that Defendant cancelled the 

policies to pressure Plaintiffs into settling the loss on their 

dwelling . Accordingly, we find no abuse of discretion in 

admitting this evidence. 

D. 

Defendant argues that the district court erred in admitting 

the depositions of Charles Medlock, an employee of defendant, and 

Peter Murlowski, an independent contractor whom Defendant hired as 

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its second appraiser. Again, Defendant's brief does not 

specifically articulate why the deposition testimony was 

inadmissible. However, Defendant asserts that the videotaped 

depositions should not have been admitted because both persons 

were available to testify and because Murlowski was not an agent 

of Defendant. Further, Defendant argues that the district court's 

informing the jury that the deposition testimony were admissions 

against interest was prejudicial to Defendant . While we do not 

necessarily agree with the specifics of Defendant's argument, we 

agree that district court abused its discretion in admitting the 

videotaped depositions. 

The use of depositions in a court proceeding is governed by 

Rule 32 of the Federal Rules of Civil Procedure. The deposition 

must be admissible under the rules of evidence5 and may only be 

admitted against a party who was present or represented at the 

deposition. Fed. R. Civ. P. 32(a). Moreover, Rule 32 further 

limits the admissibility of depositions in court proceedings. A 

"deposition may be used by any party for the purpose of 

5 Although the district court stated that the deposition was an 

"admission against interest," it appears that what it meant was 

that the deposition was an admission by an agent of a party 

opponent. This distinction is important because an admission by 

the agent of a party opponent is considered non-hearsay and does 

not require unavailability of the declarant, Fed. R. Evid. 

80l(d) (2), while a statement against interest is considered an 

exception to the hearsay rule and does require the unavailability 

of the declarant. Id. 804(b) (3). While we recognize Defendant's 

argument that Murlowski was not its agent, and, therefore, his 

deposition was not admissible under Fed. R. Evid. 80l(d) (2) (D), we 

need not resolve this issue because neither deposition was 

admissible under Fed. R. Civ. P. 32. 

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contradicting or impeaching the testimony of deponent as a 

witness, or for any other purpose permitted by the Federal Rules 

of Evidence." Fed. R. Civ. P. 32(a) (1) .

6 Neither Medlock nor 

Murlowski testified prior to the introduction of their deposition; 

therefore, their depositions were not admissible as impeachment. 

Rule 32 also permits "the deposition of a party or of anyone who 

at the time of taking the deposition was an officer, director, or 

managing agent, or a person designated under Rule 30(b) (6) or 

3l(a) to testify on behalf of a public or private corporation, 

partnership or association or governmental agency which is a 

party" to be used in a court proceeding by an adverse party. Fed . 

R. Civ. P. 32(a) (2). While Plaintiffs claim that Medlock and 

Murlowski were agents of Defendant, there is no contention that 

they were "officers, directors, managing agents, or persons 

designated pursuant to Rule 30(b) (6) or 31(a) 11 to testify on 

behalf of Defendant . Finally, Rule 32 permits the use of 

depositions in court proceedings when the witness is unavailable 

to testify for particular reasons or when the court finds 

6 While the rule does allow the deposition to be used "for any 

other purpose permitted by the Federal Rules of Evidence," this 

provision was added by the 1980 amendment to allow the use of 

depositions to bring in prior inconsistent statements admissible 

under Fed. R. Evid. 801(d) (1). 4A James W. Moore, Moore's Federal 

Practice, ,r 32.03, at 32-17 (2d ed. 1992). The fact that the 

deposition may be admissible under Fed. R. Evid. 801(d) (4) (D) as 

an admission by an agent of a party opponent, does not make it 

admissible "for any other purpose" under Fed. R. Civ. P. 32(a) (1). 

See 4A Moore, supra, ~ 32 . 04, at 32-25. See also Fed. R. Civ. P. 

32 (Advisory Committee Note to 1980 Amendment) (noting that 

language of subdivision (a) (1) is "too narrow" so as to be 

consistent with Fed. R. Evid. 801(d) (2)). 

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"exceptional circumstances." Fed. R. Civ. P. 32{a){3). Here, 

both witnesses were available to testify, and there is no claim 

that exceptional circumstances existed. Accordingly, the 

depositions of Medlock and Murlowski were not properly admitted 

into evidence. 

Having found error in the admission of the depositions, we 

turn to the question of whether it affected a substantial right of 

Defendant. We note that since both witness were available, 

Defendant had the opportunity to call them to the stand to 

rehabilitate their testimony, and, in fact, did s o with respect to 

Murlowski. Further, Medlock's deposition was videotaped and the 

tape was presented to the jury, thereby permitting the jury to 

view the demeanor of the witness. Finally, Defendant offers no 

argument as to how it was prejudiced by the admission of the 

depositions, and given that the testimony appears to be largely 

undisputed, 7 we fail to see how a substantial right of Defendant 

has been affected. Thus, we hold that the district court's error 

7 Medlock testified about Defendant's procedures in handling 

claims, the chain of conunand within Defendant's company, the 

authority to settle claims within the various levels of 

Defendant's company, Defendant's relationship with Wilburn, 

Medlock's specific request to Wilburn in June 1986 to settle 

Plaintiffs' claim for the policy limits, and the cancellation of 

Plaintiffs' other policies. Defendant has not disputed any of 

this testimony. 

Murlowski testified about the nature of his insurance repair 

business and his relationship with insurance companies in general 

and Defendant in particular. Murlowski also testified about his 

work on Defendant's behalf in estimating and appraising 

Plaintiffs' loss. Again, Defendant has not disputed any of this 

testimony. 

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in admitting the depositions of Medlock and Murlowski was 

harmless. 

V . 

Defendant next claims error in the instructions to the jury. 

In reviewing jury instructions, we must "consider all that the 

jury heard and ... decide not whether the charge was faultless 

in every particular but whether the jury was misled in any way and 

whether it had understanding of the issues and its duty to 

determine these issues." Durflinger v. Artiles, 727 F.2d 888, 895 

(10th Cir. 1989) . See also Ramsey v. Culpepper, 738 F.2d 1092, 

1098 (10th Cir. 1984). 11 [A]n error in the jury instructions will 

mandate reversal only if the error is determined to have been 

prejudicial, based on a review of the record as a whole." 

Durflinqer, 727 F.2d at 895 (internal quotations omitted). 

A. 

Defendant first contends that the district court erred in 

failing to instruct the jury that attorneys fees and interest 

should not be included in the award of damages. Given that no 

evidence was presented concerning attorneys fees and interest, we 

fail to see the necessity of such an instruction and find no abuse 

of discretion in failing to give it. 

B. 

Defendant next contends that the district court erred in 

failing to give Defendant's proffered instruction concerning the 

contract measure of damages under the dwelling coverage provision 

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of the policy. On the issue of damages for the breach of contract 

claim, the district court instructed the jury as follows: 

If you find that the defendant is liable to plaintiffs 

on their breach of contract cause of action you must 

then fix the amount of money which will reasonably and 

fairly compensate plaintiffs for any of the following 

elements of damage proved by the evidence to have 

resulted from the defendant's breach of contract: 

1. Fire and casualty loss to plaintiff's 

residence; 

2. Additional living expenses. 

Although Defendant has not directed this court to where in the 

~ecord we can find its specific proffered instruction on the 

issue, defense counsel characterized the instruction to the 

district court as limiting Defendant's liability under the 

dwelling coverage "as being the smallest of the . . . policy limit 

... replacement [or] the amount actually and necessarily 

expended to repair the house." IX R. trans. at 1428-29. Although 

the district court's instruction may not have been a model of 

completeness, in light of the alternative presented by Defendant, 

we cannot say that the district court abused its discretion. 

C. 

Finally, Defendant claims that it was error to instruct the 

jury on the statutory duty of insurance companies under the 

Oklahoma Fair Claims Resolution Act, because the act was not 

effective until June 1986 or November 1986 while the loss occurred 

in June 1985 and because the act does not apply to private causes 

of action. Although Defendant has not directed us to where in the 

record we can find this allegedly erroneous instruction, 

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Defendant's objection appears to relate to the district court's 

instruction regarding "acts constitut[ing] unfair claim settlement 

practices," see Okla. Stat. Ann. tit. 36, § 1222 (West Supp. 

1993); IX R. trans. at 1501-02, and its instruction regarding 

prohibited acts by an insurer and its agent. Okla . Stat. Ann. 

tit. 36, § 1254 (West Supp. 1993); IX R. trans. at 1502-03. 

Section 1222 was not effective until June 1986, and Section 1254 

was not effective until November 1986. 8 

In regards to Defendant's claim that the statutes do not 

apply to private causes of action, our review of the record 

indicates that Defendant did not object to the instruction on this 

ground. Rule 51 of the Federal Rules of Civil Procedure provides 

that" [n]o party may assign as error the giving ... an 

instruction unless that party objects thereto before the jury 

retires to consider its verdict, stating distinctly the matter 

objected to and the grounds of the objection." Fed . R. Civ. P. 51 

(emphasis added). Because Defendant's objection was limited 

solely to the ground that the statutes were not effective until 

June or November 1986, Defendant has waived the issue of whether 

the statutes are applicable to private causes of action. 

8 The district court also instructed the jury on Oklahoma's 

statutory limitation on the grounds for which an insurer can 

cancel coverage. See Okla. Stat . Ann. tit. 36, § 3639(C) (West 

1990). See also IX R. trans. at 1500 - 01 . However, Defendant's 

argument, which is limited to the statutes that were effective in 

June or November 1986, does not appear to challenge this 

instruction, because the statute on which it was based was 

effective in July 1985. See Okla. Stat. Ann. tit. 36, § 3639 

(Historical and Statutory Notes). 

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As to Defendant's claim that the instructions were erroneous 

because the statutes were not effective until June or November 

1986, Defendant's actions induced the trial court into giving the 

instruction; therefore, Defendant is precluded from raising this 

issue on appeal by the "invited error" doctrine. "When a party 

wishing to raise a new issue on appeal has by its words or actions 

invited the alleged error below, it is particularly inappropriate 

to consider that theory of relief on appeal." Hokansen v. United 

States, 868 F.2d 372, 378 (10th Cir. 1989) (citation omitted). 

See also Gundy v. United States, 728 F.2d 484, 488 (10th Cir. 

1984) (" [A]n appellant may not complain on appeal of errors which 

he himself induced or invited."). After Defendant objected to 

these instructions on the ground that the statutes were not 

effective until after the date of Plaintiffs' loss, Plaintiffs 

offered to amend the instruction to specifically inform the jury 

that Defendant's statutory duties applied only to its acts taken 

after the effective date of the statute. Defendant declined 

Plaintiffs' amendment claiming that it "would then place the 

burden on an insurance adjuster to anticipate what the law might 

be a year later. " IX R. trans. at 1433 . According to defense 

counsel, the instruction as offered to be amended by Plaintiffs 

would "have a prejudicial effect; 11 id., however, defense counsel 

failed to specify, either in the district court or on appeal, how 

the instruction as amended would have been prejudicial. The 

district court indicated that it was inclined to amend the 

instruction to make clear that Defendant's statutory duty only 

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applied to acts taken after the effective date of the statute, but 

declined to amend the instruction based on Defendant's objection 

to the amendment. While we agree that any statutory duty of 

Defendant would only arise after the effective date of the 

statute, it is undisputed that Defendant continued to handle 

Plaintiffs' claim after the effective dates of the statutes. 

Given that the statutes were in effect at the time of at least 

some of Defendant's acts which gave rise to Plaintiffs' bad faith 

claim, we do not see how Plaintiffs' amendment would have 

prejudiced Defendant, and, as noted earlier, Defendant neglects to 

inform us as to the nature of the prejudice. Indeed, it appears 

that Plaintiffs' amendment would have cured the very objection 

raised by Defendant on appeal . Under these circumstances, 

Defendant's objection to Plaintiffs' amendment invited the very 

error of which Defendant now complains; therefore, this issue 

cannot be raised on appeal . 

VI. 

Defendant argues that the $4,000,000 punitive damage award 

violates the Eighth Amendment's proscription against excessive 

fines. The "Excessive Fines Clause does not apply to awards of 

punitive damages in cases between private parties." 

Browning-Ferris Indus. v. Kelco Disposal. Inc . , 492 U. S . 257, 260 

(1989). Thus, Defendant's argument is without merit. 9 

9 While the Supreme Court has recognized that the due process 

clause may provide some limits on awarding punitive damages, see 

Pacific Mutual Life Ins. Co. v. Haslip, 111 S. Ct. 1032, 1043-46 

(1991), Defendant's argument is limited to an Eighth Amendment 

challenge. 

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VII. 

Defendant argues that the district court improperly 

calculated the attorneys fees award. Under Oklahoma law, 

attorneys fees are awarded to the prevailing party in an action 

between an insurer and an insured. Okl a. Stat. Ann. tit. 36, 

§ 3629(B) (West 1990). The district court calculated the 

attorneys fees based on the time spent prosecuting both the breach 

of contract claim and the bad faith claim. Defendant concedes 

that attorneys fees are recoverable on the breach of contract 

claim but argues that such fees are not recoverable on the bad 

faith claim. Defendant argues that the district court should have 

apportioned the time of Plaintiffs' attorneys between the two 

claims. We have squarely rejected this argument. See Thompson v . 

Shelter Mutual Ins., 875 F.2d 1460, 1464 (10th Cir. 1989) . See 

also Oliver's Sports Center v. National Standard Ins. Co., 615 

P.2d 291, 295 (Okla. 1980) (recognizing recovery of attorneys fees 

under§ 3629 (B) for time spent prosecuting bad faith claim). 

VIII. 

In their cross-appeal, Plaintiffs raise three arguments. 

First, Plaintiffs contend that the district court erred in 

limiting the prejudgment interest solely to the compensatory 

damages . Second, Plaintiffs contend that the district court erred 

in determining "the date the loss was payable" for purposes of 

calculating the award of prejudgment interest. Finally, 

Plaintiffs contend that the district court erred in calculating 

the award of attorneys fees. We find no merit in any of 

Plaintiffs' arguments. 

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A. 

Plaintiffs first argue that punitive damages should be 

included in the calculation of the prejudgment interest award. 

Oklahoma law provides for the award of prejudgment interest "on 

the verdict at the rate of fifteen percent (15%) per year from the 

date the loss was payable pursuant to the provisions of the 

contract to the date of the verdict." Okla. Stat . Ann. tit. 36, 

§ 3629 (West 1990). Plaintiffs rely on Oliver's Sports Center v. 

National Standard Ins. Co., 615 P.2d 291 (Okla. 1980), wherein the 

Oklahoma Supreme Court recognized that an attorney's time in 

prosecuting a bad faith claim could be included in the attorneys 

fees calculation under§ 3629. Id. at 295. 

In Casto v. Arkansas-Louisiana Gas Co., 562 F.2d 622 (10th 

Cir. 1977), we held that prejudgment interest was not recoverable 

on a punitive damage award under Okla. Stat. Ann. tit. 12, 

§ 727(2), a similar Oklahoma statute governing prejudgment 

interest on damages by reason of personal injury. Id. at 625-26. 

We reasoned that express terms of the statute limited prejudgment 

interest to a "verdict for damages by reason of personal 

injuries." Id . at 625 . Moreover, we noted that punitive damages 

are in the nature of punishment, rather than compensation. Id . 

See also Okla. Stat . Ann . tit. 23, § 9. 

While the language of §3629, unlike the statute at issue in 

Casto, does not expressly preclude prejudgment interest on 

punitive damages, we do not believe that the Oklahoma Supreme 

Court would interpret§ 3629 to provide for prejudgment interest 

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on a punitive damage award. As we noted in Casto, punitive 

damages are designed to punish the defendant rather than 

compensate the plaintiff. 562 F. 2d at 625. See also Okla. Stat. 

Ann. tit. 23, § 9 (West 1987) . Awarding prejudgment interest on 

compensatory damages fulfills the underlying purpose of making 

Plaintiffs whole. By contrast, allowing prejudgment interest on 

punitive damages would only serve to further punish Defendant when 

the jury has already determined the amount necessary t o 

suff iciently punish Defendant . Finally, the prejudgment intere st 

statute calculates the interest from "the date the loss was 

payable." Okla. Stat. Ann. tit. 36 § 3629. The bad faith conduct 

which gave rise to the punitive damage award in this case occurred 

ove r a substantial period of time. Not only does a punitive 

damage award not involve payment for a "loss," Defendant had no 

obligation to pay an award until the jury's verdict. Thus, we d o 

not believe the statute supports Plaintiffs' construction. 

B. 

Plaintiffs also argue that the district court's determination 

of the date that the prejudgment interest should begin to accrue 

was erroneous. Under Oklahoma law, an insurer has a duty to 

submit a written offer of settlement or rejection of a claim 

within ninety days after receipt of a proof of loss. Okla . Stat . 

Ann. tit. 3 6 , § 3629 (West 1990). The district court determined 

that the loss was payable on December 29, 1985, ninety days after 

Plaintiffs submitted their proof of loss to Defendant. 

Nonetheless, Plaintiffs argue that Defendant waived the proof of 

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loss, and therefore they should have been awarded prejudgment 

interest from the date of the loss. Whether or not Defendant 

waived the proof of loss is a factual determination to which we 

give the district court's finding deference. Moreover, 

Plaintiffs' argument unreasonably assumes that their loss was 

payable on the date of the fire. Thus, we find no error in the 

district court's determination of the date the loss was payable. 

C. 

Finally, Plaintiffs argue that the district court erred in 

determining the amount of attorneys fees . As earlier noted, 

Oklahoma law allows the prevailing party in an action between an 

insurer and an insured to recover costs and attorneys fees . Okla. 

Stat . Ann. tit. 36, § 3629 (West 1990). The district court 

determined the amount of attorneys fees by multiplying the hours 

spent by Plaintiffs' attorneys by a reasonable hourly rate and 

then doubling this amount to account, presumably for the 

contingency, which is appropriate under Oklahoma law. See 

Oliver's Sports Center v. National Standard Ins. Co., 615 P.2d 

291, 294 (Okla. 1980) . Notwithstanding Plaintiffs' contention 

that the fee should have been 40% of the total recovery in 

accordance with the contract between Plaintiffs and their 

attorney, we cannot say the district court abused its discretion 

in calculating the fees as it did. 

AFFIRMED. 

Entered for the Court 

Bobby R. Baldock 

Circuit Judge 

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