Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-07125/USCOURTS-ca10-91-07125-0/pdf.json

Parties Involved:
Commercial Union Insurance Company
Appellee
Farmers Alliance Insurance Company
Appellant

Document Text:

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

FI L~D 

United Sta es Courr of Appeals 

Temh Circuit 

FARMERS ALLIANCE INSURANCE COMPANY, 

Plaintiff-Appellant, 

v. 

COMMERCIAL UNION INSURANCE COMPANY, 

Defendant-Appellee. 

JUL 2 9 1992 

~ ROBERT L. HOECKER 

> Clerk 

) 

) No. 91-7125 

) (D.C. No. CV-91-135) 

) ( E. D. Okla. ) 

) 

) 

ORDER AND JUDGMENT* 

Before MOORE, BARRETT, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The case is therefore ordered 

Plaintiff-appellant Farmers Alliance Insurance Company filed 

this diversity suit against Defendant-appellee Commercial Union 

Insurance Company, seeking payment for costs incurred by Farmers 

in its legal defense of a common insured, Herman Roberts. Roberts 

* 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. 

Appellate Case: 91-7125 Document: 010110275143 Date Filed: 07/29/1992 Page: 1
was sued in Okmulgee County, Oklahoma, for alleged wrongful 

conduct in connection with certain oil and gas properties. At the 

time the suit was filed, Roberts was insured by Farmers under a 

property and liability policy. The complaint in the county action 

alleged no date of loss or occurrence. Based on the allegations 

in that complaint, Farmers undertook Roberts' defense in the case. 

Subsequent discovery indicated that the date of occurrence 

pre-dated Farmers' coverage. 

Roberts was insured for 

Previous to his policy with Farmers, 

property damage and liability by 

Commercial. At no time did Farmers and Commercial insure Roberts 

concurrently. 

Farmers made demand of Commercial to assume Roberts' defense. 

Commercial denied coverage in a letter to Roberts dated one week 

before the scheduled county court trial. Roberts sought and 

obtained a continuance to join Commercial in the county action. 

Both Roberts and Farmers filed actions in federal district court 

against Commercial; the cases were consolidated. Farmers 

continued to defend Roberts through the county trial, where 

Roberts was found liable for $48,050.00. 

After the county trial, Roberts filed a motion to voluntarily 

dismiss his claims against Commercial. Farmers' 

Commercial remained. Farmers alleged in its 

claims against 

complaint that 

Commercial's inaction in responding to Farmers' demands and its 

failure to participate in Roberts' defense amounted to bad faith, 

and asserted a claim under implied indemnity for payment of the 

amounts it had spent in defending Roberts. Commercial filed a 

motion to dismiss for failure to state a claim, essentially 

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Appellate Case: 91-7125 Document: 010110275143 Date Filed: 07/29/1992 Page: 2
contending that lack of contractual privity precluded any action 

by Farmers for payment of its legal fees, and asserting that 

Farmers' defense of Roberts was voluntary. After Farmers 

responded, the district court granted the motion. 

Subsequently, Farmers filed a self-styled Motion to 

Reconsider Ruling of the Court, Motion for New Trial, Motion for 

Leave to Amend Complaint, and Motion for Relief from Judgment. In 

its accompanying brief, Farmers contended that the district court 

had failed to address its allegations of bad faith. Additionally, 

it sought leave to amend its complaint to include a claim for 

equitable subrogation, attaching a copy of its amended complaint. 

After Commercial's response, the district court denied Farmers' 

motion in a minute order. 

On appeal, Farmers contends: 1) the district court erred in 

dismissing its complaint because it stated a valid claim for 

implied indemnification, and 2) the district court abused its 

discretion in denying Farmers leave to amend to state a claim for 

equitable subrogation. Our jurisdiction over this case arises 

from 28 U.S.C. § 1291. Because we agree with Farmers' second 

contention, we reverse the district court's judgment and remand 

the case. 

Farmers' Motion to Reconsider Ruling of the Court, Motion for 

New Trial, Motion for Leave to Amend Complaint, and Motion for 

Relief from Judgment was filed within ten days of the filing date 

of the district court's order granting Commercial's motion to 

dismiss; therefore, we construe it as a tolling motion under 

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Appellate Case: 91-7125 Document: 010110275143 Date Filed: 07/29/1992 Page: 3
Fed. R. Civ. P. 59. See Dalton v. First Interstate Bank of 

Denver, 863 F.2d 702, 703 (10th Cir. 1988). We review the 

district court's rulings on such motions, as well as its ruling on 

motions to amend, under an abuse of discretion standard, see 

Committee for First Amendment v. Campbell, 962 F.2d 1517, 1523 

(10th Cir. 1992)(Rule 59(e) motion); LeaseAmerica Corp. v. Eckel, 

710 F.2d 1470, 1473 (10th Cir. 1983)(leave to amend). 

In granting Commercial's motion to dismiss for failure to 

state a claim, the district court relied on a lack of contractual 

relationship between Farmers and Commercial, and stated that 

Farmers had no duty to defend Roberts and its continuing defense 

of Roberts was "completely voluntary." In holding Farmers' claim 

for implied indemnity invalid, the district court stated "there 

was no contractual or special relationship between [Farmers and 

Commercial]" and ruled that Commercial's failure to defend "did 

not impute or constructively fasten a duty upon [Farmers) to 

defend Roberts." The district court provided no reasoning for 

denying Farmers' post-judgment motions. 

Even were we to assume that the district court's order is 

correct in dismissing Farmers' arguments on implied indemnity for 

failure to state a claim, we believe that Farmers' proposed 

amended complaint states a valid claim under Oklahoma law for 

equitable subrogation. See generally Republic Underwriters Ins. 

Co. v. Fire Ins. Exch., 655 P.2d 544, 546 (Okla. 1982). Lack of 

contractual privity does not preclude Farmers from stating an 

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equitable subrogation claim. See Sexton v. Continental Casualty 

Co., 816 P.2d 1135, 1138 (Okla. 1991); see also American Nat'l 

Bank & Trust Co. v. Weyerhaeuser Co., 692 F.2d 455, 463-64 (7th 

Cir. 1982)(remanding in light of "overly narrow" interpretation of 

legal obligation under equitable subrogation claim; equitable 

basis for this cause of action implies a looser standard than a 

"fully choate legal liability"). 

Commercial contends, as the district court stated in its 

order in connection with its discussion of implied indemnity, that 

Farmers continued to pay for Roberts' defense voluntarily. If 

true, that finding could be fatal to Farmers' equitable 

subrogation claim, see Weir v. Federal Ins. Co., 811 F.2d 1387, 

1394 n.4 (10th Cir. 1987)(citing Commercial Union Ins. Co. v. 

Postin, 610 P.2d 984, 987 (Wyo. 1980)). Nonetheless, the 

voluntariness of Farmers' payment is a factual issue that cannot 

be decided at this juncture, see Weir, 811 F.2d at 1394, as 

contrary allegations and evidence in support of each position have 

been asserted by the parties, see also id. at 1395 (payment is not 

voluntary if made with "a reasonable or good faith belief in an 

obligation or personal interest"); Meckel v. Continental Resources 

Co., 758 F.2d 811, 814 n.1 (2d Cir. 1985)(interest in avoiding 

litigation is a protected interest which may support a subrogation 

claim); American General Fire & Casualty Co. v. Progressive 

Casualty Co., 799 P.2d 1113, 1116 (N.M. 1990)(duty of insurer to 

defend arises from face of complaint; once representation begins, 

volunteer status precluded). 

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Leave to amend should be granted freely when justice 

requires. Las Vegas Ice & Cold Storage Co. v. Far West Bank, 893 

F.2d 1182, 1185 (10th Cir. 1990). Unless an attempt to amend 

would be futile, see Drake v. City of Ft. Collins, 927 F.2d 1156, 

1163 (10th Cir. 1991), failure to give reasons for denying leave 

to amend can constitute an abuse of discretion, see Federal Ins. 

Co. v. Gates Learjet Corp., 823 F.2d 383, 387 (10th Cir. 1987). 

Commercial has alleged that prejudice would result should Farmers 

be allowed to amend and proceed on an equitable subrogation claim, 

but has not supported its allegation. Because the facts contained 

in Farmers' original complaint can support a valid claim for 

equitable subrogation, and in light of the early procedural 

setting of this case and the authorities cited above, we hold that 

the district court's denial of Farmers' motion for leave to amend 

was an abuse of its discretion. 

The judgment of the United States District Court for the 

Eastern District of Oklahoma is REVERSED, and the case REMANDED 

for further proceedings consistent with this order and judgment. 

Entered for the Court 

John P. Moore 

Circuit Judge 

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