Opinion ID: 160861
Heading Depth: 2
Heading Rank: 3

Heading: Discharge of Maryland Casualty's coverage obligations

Text: 36 Maryland Casualty argues on appeal that even if it owed a duty to Marathon, that duty was discharged completely by Marathon's flat rejections of Maryland Casualty's offer to defend Marathon and its rejection of Maryland Casualty's offer of the SELI limits shortly after the Berg settlement conference. Aplee. Br. at 40, 46. We reject this argument because Maryland Casualty's offer to perform was untimely and therefore insufficient to discharge its duty to Marathon. 37 On April 14, 1997, Marathon notified Maryland Casualty of the Berg litigation and demanded that Maryland Casualty provide Marathon with a defense. App. vol. 1 at 104-05. Maryland Casualty did not respond to this demand until its letter of August 15, 1997. In that letter, Maryland Casualty notified Marathon that Maryland Casualty believed it had neither a duty to defend nor a duty to indemnify Marathon, but would defend the company under a reservation of rights. Id. at 240, 247-48. On October 6, 1997, Maryland Casualty wrote a second letter to Marathon in which it reaffirmed its earlier conclusions regarding its duty to defend or indemnify Marathon and added only that it believed that SELI coverage might not apply to Marathon. See id. at 249, 250. 38 Maryland Casualty's letters to Marathon in both August and October of 1997 were untimely under Wyoming law. See Wyo. Stat. Ann. 26-15-124 (Michie 1977). Under section 26-15-124, an insurance company has only 45 days in which to decide whether it will defend or indemnify an insured. See id. This court has held that when an insurer fails to decide a claim within Wyoming's 45-day statutory time limit, its failure to do so constitute[s] a refusal to pay, even if the insurer later attempts to cure that breach. Smith v. Equitable Life Assurance Soc'y, 614 F.2d 720, 722 (10th Cir. 1980). Since Marathon notified Maryland Casualty of the Berg litigation on April 15, 1997, Maryland Casualty's response was due to Marathon by June 1. That limit was far exceeded by Maryland Casualty, which did not respond until 125 days had passed. Maryland Casualty's attempt to cure its failure to respond by offering to defend Marathon under a reservation of rights did not cure this breach. Although Maryland Casualty argues that, under a variety of standards, its response time was reasonable, those arguments are not persuasive given the existence of an express statutory time limit. 39 In accordance with Wyoming law, we hold that when Maryland Casualty gave the untimely notice that it would only cover Marathon under a reservation of rights, Marathon's rejection did not waive coverage and Maryland Casualty's coverage defenses are disallowed. 9 II DUTY TO DEFEND 40 The SELI provision obligated Maryland Casualty to defend suits brought against an insured by an employee claiming damages for bodily injury by accident arising out of his employment with the insured. Comparing the allegations in the Berg complaint to the policy's provisions, the district court concluded that Maryland Casualty had no duty to defend Marathon in the Berg suit for substantially the same reasons it held there was no coverage. See App., Vol. 4 at 969 (granting Maryland Casualty summary judgment on contract claim because the complaint does not allege facts showing liability arising out of SSI ongoing operations performed for Marathon). Marathon appeals this order. 41 It is a well-settled principle of insurance law in Wyoming as elsewhere that the duty of the insurer to defend is more extensive than its duty to indemnify the insured. Shoshone First Bank v. Pacific Employers Ins. Co., 2 P.3d 510, 513 (Wyo. 2000); see also First Wyoming Bank v. Continental Ins. Co., 860 P.2d 1094, 1097-98 (Wyo. 1993); 46 C.J.S. Ins. 1145(a) (The insurance company owes its insured a duty to defend actions brought against its insured; such duty is broader than the company's duty to indemnify . . .). The duty to defend is a separate and distinct contractual requirement under the policy. First Wyoming Bank, 860 P.2d at 1073; see also 46 C.J.S. Ins. 1145(a) and (c). Whether Maryland Casualty had a duty to defend Marathon in the Berg litigation is determined not by an analysis of the insurer's ultimate obligation to indemnify the insured but rather by examining the facts alleged in the complaint that the claim is based upon. Shoshone First Bank, 2 P.3d at 513; see also Aetna Ins. Co. v. Lythgoe, 618 P.2d 1057, 1061 n.2 (Wyo. 1980). The insurer is obligated to afford a defense as long as the alleged claim rationally falls within the policy coverage. Shoshone First Bank, 2 P.3d at 513; see also Hutchinson Oil Co. v. Federated Serv. Ins. Co., 851 F.Supp. 1546, 1553 (D.Wyo.1994) (quoting Axton Cross Co. v. Lumbermen's Mut. Cas. Co., 176 A.D.2d 482, 574 N.Y.S.2d 561, 562 (N.Y. App. Div. 1991)). If there be any doubt as to whether the insurance company need defend the insured, that doubt must be resolved in favor of the insured. First Wyoming Bank, 860 P.2d at 1095; see also 46 C.J.S. Ins. 1145(a). 42 The Berg complaint, naming Marathon as a defendant, alleged that Mr. Berg was hired as a summer laborer by [SSI], and that SSI paid his workers' compensation premiums. App., Vol. 1 at 33, 8. The complaint further alleged that SSI hired Mr. Berg pursuant to a contract with Marathon, whereby Marathon agreed to compensate [SSI] in exchange for the right to exclusive use of Berg's services throughout the summer of 1996. Id. at 9. Mr. Berg also asserted a claim for negligence against Marathon resulting in bodily injury during the course of his employment. Marathon argues that these allegations establish a potential for coverage under the additional insured endorsement and the SELI provision or, at the very least, that any doubts should have been resolved in its favor. We agree. 43 The policy provisions as set out above endorsed Marathon as an additional insured for its liability arising out of SSI's work for Marathon. The complaint alleges that SSI hired Mr. Berg and granted Marathon the exclusive use of his services pursuant to a contract with Marathon. These allegations certainly raised the strong possibility that any liability on the part of Marathon would arise out of SSI's operations for Marathon. The allegations also demonstrate that Mr. Berg was an employee of either Marathon, SSI, or both. Finally, the complaint stated that SSI paid Mr. Berg's workers' compensation premiums, thereby alerting Maryland Casualty that the workers' compensation exclusion might not apply to Marathon. Each of these claims is potentially covered under the policy. Shoshone First Bank, 2 P.3d at 514; First Wyoming Bank, 860 P.2d at 1099-1100. Since the claim, liberally construed, is within the embrace of the policy, the insurer must defend. Hutchinson Oil Co., 851 F. Supp. at 1553 (quoting Axtan Cross Co. Inc., 574 N.Y.S.2d at 562 (N.Y. App. Div. 1991)). 44 In a case somewhat similar to the instant one, the Wyoming Supreme Court recognized that as a general rule . . . the insurer is obligated to defend if there is potentially a case under the complaint within the coverage of the policy. Boston Ins. Co. v. Maddux Well Serv., 459 P.2d 777, 779 (Wyo. 1967). In that case, a fire broke out at a well which was owned by Belco but was being serviced by Maddux at the time of the fire. Two Maddux employees were injured and Maddux paid them workers' compensation as required by Wyoming law. Subsequently, the two employees sued Belco for negligence. Belco responded by filing a third-party claim against Maddux, seeking indemnification for any judgments against Belco obtained in the negligence case. Belco alleged that it was not negligent and that any negligence was due entirely to the actions of Maddux. Maddux's insurance company refused to defend Maddux against the third-party claim. The Wyoming Supreme Court examined the pleadings in the case and concluded that the third-party complaint was a case against Maddux, that the suit by the two employees against Belco alleged bodily injury, and that Belco claimed that Maddux alone was responsible for any injuries to the two employees. Id. at 778-79. The Court held that these three facts, when compared with the plain language of the insurance policy, were sufficient to trigger a duty to defend on the part of the insurance company, regardless of the ultimate merit outcome of the proceedings. Id. at 780. 45 Maryland Casualty argued to the district court that Mr. Berg's failure to allege SSI's negligence or to allege his injuries resulted from any activities associated with erecting buildings negated any potential for coverage. We have rejected this reading of the policy. See supra, Part I.A. While Maryland Casualty may have had doubts as to whether there was a duty to defend Marathon, those doubts should have been resolved in Marathon's favor in accordance with Wyoming law. See First Wyoming Bank, 860 P.2d at 1095. In light of the allegations in the Berg complaint, we conclude the potential for coverage was apparent and Maryland Casualty therefore had a duty to defend Marathon in the that suit. 46 Citing Glenn Estess, 763 F.2d 1237, Maryland Casualty argues alternatively that any duty to defend was discharged both by its offer on August 15 to defend Marathon under a reservation of rights, and by Marathon's subsequent failure to send its bills for costs incurred. Maryland Casualty's belated offer, five months after the Berg suit was filed against Marathon, was insufficient to discharge its duty to defend for the same reasons that its offer to fund the settlement did not discharge it of its duties under the SELI provision. See supra, Part I.C. This offer was made three weeks after Marathon had instituted the present suit seeking a declaration that Maryland Casualty had a duty to defend. Under all of these circumstances, Marathon was not forced to choose between forwarding all of its legal bills or facing termination of Maryland Casualty's defense duties. III BAD FAITH 47 In claims IV and V of the amended complaint, Marathon asserted a bad faith cause of action against Maryland Casualty for its handling of Marathon's claim. Marathon alleged two separate instances of bad faith. The first concerned Maryland Casualty's refusal to defend Marathon in the Berg case where its duty to do so was not fairly debatable. The second stemmed from Maryland Casualty's refusal to respond, in a timely manner, either to Marathon's repeated demands for a defense or to its numerous requests for a copy of the insurance policy, thereby forcing Marathon to sue SSI in the Berg litigation and to file the present action against Maryland Casualty. The district court granted summary judgment to Maryland Casualty on this cause of action, concluding that neither instance cited by Marathon constituted bad faith. Marathon contends the grant of summary judgment was in error, and we agree. 48 The district court did not deal squarely with the bad faith cause of action because it failed to recognize that this claim was distinct from Marathon's contractual claim against Maryland Casualty and accordingly required different legal analysis. Instead, the district court erroneously applied a contract analysis to the bad faith claim. Marathon's contractual claim was a coverage claim -- a claim that Maryland Casualty owed Marathon a defense because Marathon was an additional insured under the SSI policy. We dealt with that claim in Section II of this opinion. In its order disposing of the bad faith claim, the district court applied the analysis appropriate for a coverage dispute, comparing the allegations contained in the Berg complaint with the insurance policy provisions in order to determine whether Maryland Casualty had a contractual duty to defend Marathon. See App., vol. 4 at 961. Concluding that Maryland Casualty owed Marathon no contractual duty to defend, the district court held there was no bad faith. 49 As we have pointed out, however, a bad faith claim requires an entirely separate analysis from a contractual claim. Bad faith claims are a species of tort law, not of contract law. They constitute a violation of the insurer's separate, non-contractual, duty to process claims fairly and in good faith. 46A C.J.S. Ins. 1342. Under Wyoming law, a bad faith claim is an independent tort action based on the theory that insurers owe a duty of good faith to policyholders not to unreasonably deny a claim for benefits under the policy. See McCullough v. Golden Rule Ins. Co., 789 P.2d 855, 857-58 (Wyo. 1990); see also 46A C.J.S. Ins. 1580. That bad faith tort action is known in Wyoming as the tort of violation of the duty of good faith and fair dealing. Id. at 855; see also Herrig v. Herrig, 844 P.2d 487, 490 (Wyo. 1992). In order to prevail, the insured must prove that the denial of his claim by the insurer was not fairly debatable, which is an objective standard. McCullough, 789 P.2d at 860; see also 46A C.J.S. Ins. 1580. Namely, the insured must prove the insurer did not properly investigate and develop the claim or recklessly ignored or disregarded the claim. See McCullough, 789 P.2d at 860. Further, the insured must prove that there is no reasonable basis for denying the benefits of the policy, and that the insurer knew of or recklessly disregarded the lack of a reasonable basis for the denial. See id. The standard to be employed by a jury in evaluating the insured's argument that the claim was not fairly debatable is that of a reasonable insurer i.e., would a reasonable insurer under the circumstances have denied or delayed payment? Id.; See also 46A C.J.S. Ins. 1580. 50 Since its initial ruling in McCullough, the Wyoming Supreme Court has expanded its definition of this tort to include a second kind of bad faith described as oppressive or intimidating claims practices. Hatch v. State Farm Fire & Cas. Co., 842 P.2d 1089, 1099 (Wyo. 1992). In Hatch, the court held that even if the insurer can prove its denial of the claim was legitimate because the claim was fairly debatable, the insured may still prevail on its bad faith claim if he can demonstrate that the insurer's investigation, handling and denial of the claim violated the implied covenant of good faith and fair dealing. 51 Hatch underscores the difference between the bad faith tort and the contractual claims. Even if an insured loses the underlying contractual claim, he may still prevail on the bad faith tort claim because the tort claim is essentially a due process type of claim which is concerned with the insurer's conduct in handling the insured's claim. Id. at 1099. This is so because the duty of good faith and fair dealing emanates from the special relationship of the parties to the insurance contract, not from the express or implied provisions contained in the contract. Id. at 1099. Indeed, even if an insurer subsequently pays the claim in full, that does not extinguish the insured's bad faith tort claim. See Darlow v. Farmers Ins. Exch., 822 P.2d 820, 826 (Wyo. 1991). 52 In light of Wyoming law, it is apparent that the district court's grant of summary judgment to Maryland Casualty was based on an incorrect legal analysis. Moreover, we are persuaded that summary judgment was inappropriate given the facts pled by Marathon regarding Maryland Casualty's handling of its claim. We turn now to an analysis of this issue. 53 As we have discussed, the Wyoming Supreme Court has identified two ways by which an insurer can violate the duty of good faith and fair dealing: by unreasonable denial of a claim by an insurer where that claim is not fairly debatable, and by employement of oppressive or intimidating claims practices in handling the insured's claim. Marathon alleges that Maryland Casualty committed both kinds of bad faith. We deal with each in turn. 54 Marathon contends Maryland Casualty unreasonably denied its request to be provided with a defense in the Berg litigation. Since we have already determined that Maryland Casualty owed Marathon that defense, the question is whether that duty to defend was fairly debatable at the time. 10 One consideration is whether the insurer properly investigated and developed the claim or recklessly ignored and disregarded it. McCullough, 789 P.2d at 860. Here, Maryland Casualty repeatedly refused to respond to Marathon's tender of the Berg complaint and demands for a defense. Maryland Casualty's only response to this assertion is that Ms. Griffith, its claims adjuster, left a telephone message with Marathon's counsel. Several letters written by Marathon after its initial tender and demand for a defense did not mention this phone call and continuted to request a response from Maryland Casualty. These letters warned of an impending suit against SSI and Maryland Casualty if the latter's unresponsiveness continued. See App., vol. 1 at 110. These letters also informed Maryland Casualty that Marathon and Platte had no other insurers. It is undisputed that the letters went unanswered over a four-month period. Under these circumstances, we believe Marathon has, at minimum, raised a triable issue on whether Maryland Casualty recklessly ignored or disregarded its requests for a defense, in which event Maryland Casualty's duty to defend would not be fairly debatable. 55 Marathon's second bad faith argument concerns Maryland Casualty's oppressive or intimidating claims practices. Marathon asserts that Maryland Casualty's failure to respond to Marathon's repeated requests for a copy of the insurance policy and for a defense in the Berg suit forced Marathon to file suit against both SSI and Maryland Casualty. It is undisputed that Maryland Casualty failed to respond in writing to Marathon's tender until after Marathon filed suit. In Hatch, which dealt with this type of bad faith claim, the Wyoming Supreme Court listed several examples of oppressive or intimidating claims practices. These included delay of payment, an insurer's failure to respond to an insured's request for clarification of its rights under the policy, and conduct which forces insureds to litigate. See Hatch, 842 P.2d at 1097. Maryland Casualty engaged in exactly the kind of claims handling practices that the Hatch court found constituted bad faith. Maryland Casualty's only defense to this conduct is that it was pursuing a coverage opinion from its counsel before responding to Marathon. Aside from the fact that Maryland Casualty did not seek such an opinion for over a month after Marathon tendered its claim, Wyoming law plainly requires insurers to either accept and pay or reject an insured's claim within 45 days of receipt as we have said. See supra Part I.C. If an insurer does not comply with the statute, the insurer's actions are deemed a refusal to pay. 11 See Smith, 614 F.2d at 722. Given Maryland Casualty's violation of its statutory obligations as well as its conduct in handling Marathon's claim, the district court erred in granting summary judgment to it. 12 IV EIGHTH AND NINTH CLAIMS 56 After settlement of the Berg suit, Marathon amended its complaint to add an eighth and ninth claim against Maryland Casualty. The eighth claim was based on SSI's assignment of rights to Marathon and alleged that Maryland Casualty acted in bad faith toward SSI in the following ways: causing SSI to be sued by Marathon because of Maryland Casualty's lack of response to Marathon's requests; hiring a conflicted attorney to represent SSI without revealing that conflict; defending SSI without discussing the possible exclusions that would apply; and employing an expert to testify at trial which would increase SSI's potential liability. The ninth claim alleged Maryland Casualty acted in bad faith toward both SSI and Marathon in its conduct during the settlement conference. Specifically, Marathon alleged that Maryland Casualty acted in bad faith toward SSI by appointing a conflicted attorney to defend SSI and refusing to consent to SSI's settlement of the third-party complaint, and that it acted in bad faith toward Marathon by failing to offer the $1 million limits on the SELI coverage during the settlement conference. 57 Maryland Casualty filed a motion to dismiss these claims. Converting Maryland Casualty's dismissal motion into a motion for summary judgment, the district court granted Maryland Casualty summary judgment on both claims. On the eighth claim, the district court concluded that because Maryland Casualty defended SSI without any reservation of rights, SSI could not make out a bad faith claim against Maryland Casualty. See App., Vol. 4 at 955-56. As to the assigned portion of the ninth claim, the district court concluded that SSI's bad faith cause of action would not accrue until the confessed judgment was actually entered against it for an amount in excess of the policy limits. See id. at 958. Finally, as to Marathon's own claim of bad faith, the district court agreed with Marathon's concession that it could not establish this particular claim absent the existence of SELI coverage under the policy, and the court had already found in Maryland Casualty's favor on that issue. See id. at 958. Marathon appeals from these grants of summary judgment. A. The Assigned Claims
58 In its second amended complaint, Marathon asserted a new claim against Maryland Casualty on behalf of SSI. 13 Marathon asserted that Maryland is contractually obligated to indemnify Steel Structures, Inc. [and Maryland] breached its obligations to its insured, Steel Structures, Inc., and acted in bad faith. App., vol. 2 at 444. The district court asked Marathon to clarify its assigned claims. See App., vol. 4 at 952. Marathon filed a written clarification in response, stating that it was assert[ing] a claim for breach of contract as the assignee of SSI. See id. at 840. Specifically, Marathon cited Maryland Casualty's failure to communicate with Marathon, which resulted in Marathon's suit against SSI; Maryland Casualty's provision of an attorney to SSI who had an obvious conflict of interest; and Maryland Casualty's failure to inform SSI that certain claims made against it by Platte were specifically excluded from its insurance policy with Maryland Casualty. Id. 59 Marathon based most of this breach of contract argument on the case of Insurance Co. of North America v. Spangler, 881 F.Supp. 539 (D. Wyo. 1995). Spangler involved a lawsuit brought by the widow of a man killed in a bar brawl after both the deceased and his assailant had been drinking. The widow filed a negligence suit against the bar owner, among others. The insurance company who provided general liability insurance to the bar owner notified the bar owner that it was defending him under a reservation of rights. Simultaneously, the insurance company filed a declaratory judgment action against the bar owner, claiming that because the bar owner's insurance policy specifically excluded claims resulting from the consumption of alcohol, the insurer had no duty to indemnify the owner. On the eve of trial of the negligence suit, the bar owner entered into a settlement with the widow wherein he assigned his rights against the insurance company to her in exchange for her agreement not to execute against him personally. See id. at 541. The insurance company refused to ratify the settlement or to indemnify the bar owner because, the company contended, the bar owner violated the duty of cooperation by settling with the widow. See id. at 542. The insurer then added the widow as a party to its declaratory judgment action, seeking a declaration that it did not have to pay her the settlement amount. See id. The district court held that where the insurer [1] was defending under a reservation of rights and [2] had filed a declaratory judgment action contesting coverage, the insured's assignee is not barred from recovery from the insurer for a stipulated liability to which the insurer did not consent and the insured is not personally liable. Id. at 544 (numbers added). 60 In its clarification below, Marathon argued that Spangler applies to the case at hand because while Maryland Casualty did not file a declaratory judgment action against SSI, it did defend SSI under a reservation of rights. App., vol. 4 at 845. Alternatively, Marathon argued that even if there were no reservation of rights, the rationale of Spangler should be extended to this case because SSI was placed in a precarious position by Maryland Casualty, thus satisfying the policy rationale behind Spangler. App., vol. 4 at 846-47. 61 The district court rejected Marathon's argument. It found that Maryland Casualty defended SSI wholeheartedly, id. at 955, and that its July 25, 1997, letter to SSI, wherein it notified SSI of the amount of the policy limit and that liability in the Berg litigation could exceed that limit, did not constitute a reservation of rights. Id. at 956. The district court declined to extend the precarious position rationale of Spangler beyond the facts of that case and reaffirmed that the case only applied where there was a reservation of rights and a declaratory judgment action. Id. The court granted summary judgment to Maryland Casualty on the eighth claim. 62 We affirm the district court's ruling on this issue. It is plain to us that Maryland Casualty did not defend SSI under a reservation of rights; rather the letter sent by Maryland Casualty to SSI was merely a notification to the insured of the possibility of a judgment that would exceed policy limits. We are also persuaded that the holding of Spangler should not be extended beyond the very narrow facts of that case. To do otherwise would be to introduce an element of uncertainty and unpredictability into insurance law regarding the extent of the insured's duty of cooperation. 63 Alternatively, the district court noted that in addition to a contractual claim, Marathon appeared to be making a bad faith claim on SSI's behalf. Marathon contended that Maryland Casualty acted in procedural bad faith with regard to its defense of SSI. 14 Although Marathon styled its claim as one of bad faith, Marathon referred to it as a breach of contract claim in its clarification to the district court, thereby confusing the matter. Under Wyoming law bad faith is a tort, the violation of the duty of good faith and fair dealing. McCullough, 789 P.2d at 855; see also Herrig, 844 P.2d at 490. Marathon cited no case law to the district court in support of its argument that Maryland Casualty engaged in bad faith towards SSI. As a consequence, the district court construed Marathon's claim as one for third-party bad faith, i.e., Maryland Casualty's bad faith towards Marathon itself in the latter's settlement with SSI. Under Wyoming law, as the district court noted, a claim for third-party bad faith can only be brought where the insurer has failed to settle within policy limits. Here, there was no evidence of a judgment against SSI in excess of policy limits. App., vol. 4 at 957. Although we do not believe Marathon was limited, as the district court implied, to asserting only a third-party bad faith claim, we conclude that Marathon failed to coherently argue its first-party claim to the district court. Remand on this bad faith issue, therefore, would be inappropriate. We hold the district court did not err in dismissing the eighth claim.
64 Marathon also complains that Maryland Casualty unreasonably failed to consent to Marathon's settlement offer to SSI. As the district court recognized, this is a third-party bad faith cause of action. See Jarvis v. Farmers Ins. Exchange, 948 P.2d 898, 900 (Wyo. 1997) (stating that third-party bad faith cause of action lies when insurer refuses in bad faith to settle a third-party claim against its insured within policy limits). The Wyoming Supreme Court has held that such a claim will not accrue until after a judgment has been entered against the insured in excess of the policy limits. See id. at 902. Because it is undisputed that the judgment against SSI has not been enforced against it, we agree with the district court that Maryland Casualty was entitled to summary judgment on this claim, which constitutes part of the ninth claim in the complaint. 65 In sum, all of the assigned claims involving SSI were properly dismissed by the district court, including the entire eighth claim and a portion of the ninth claim. B. Bad faith refusal to offer SELI limits 66 As to its first-party bad faith claim, Marathon asserts that Maryland Casualty acted in bad faith towards it when it failed to offer the $1 million dollar SELI coverage limits during the Berg settlement conference. The district court held that this claim was dependent upon Marathon being covered and granted summary judgment to Maryland Casualty on that basis, see App., Vol. 4 at 958. However, we concluded above that Marathon has SELI coverage. 15 67 The Wyoming Supreme Court has recognized that where an insurer fails to accept a reasonable settlement offer within policy limits, that conduct is the basis of a bad faith cause of action. See Western Cas. & Surety Co. v. Fowler, 390 P.2d 602, 604 (Wyo. 1964). See also Eric Mills Holmes & Mark S. Rhodes, Appleman's on Insurance 2d 8.9 at 471 (2d ed. 1996) (citing cases that follow this rule). Since then, other courts have held an insurer's failure to offer the limits of the insurance policy during settlement may amount to bad faith when the claim against the insured has merit and the insured's potential liability exceeds the policy's limits, as was the case here. See, e.g., Courvoisier v. Harley Davidson of Trenton, Inc., 742 A.2d 542, 549, 550 (N.J. 1999) (insurer's offer of only a fifth of the policy limits where claim had merit and far exceeded the policy limits was remanded for trial on claims of bad faith); Opperman v. Nationwide Mut. Fire Ins. Co., 515 So.2d 263, 267 (Fla. Dist. Ct. App. 1987) (insurer's repeated refusal to offer full limits of policy in face of convincing evidence that value of plaintiff's case far exceeded those limits constituted sufficient allegations of bad faith to survive summary judgment); Rova Farms Resort, Inc. v. Investors Ins. Co., 306 A.2d 77, 78-79 (N.J. Super. Ct. App. Div. 1973) (insurer's failure to offer policy limits constituted bad faith notwithstanding there was no assurance from plaintiff that action could be settled within policy limits). In Ahrenholtz, 968 P.2d at 951, the Wyoming Supreme Court held that where the record shows any conduct which has been held to constitute bad faith, the claim must go to the jury. Indeed, in Jarvis, 958 P.2d at 902, the Wyoming Supreme Court recognized just this type of claim, although it held the claim would not accrue until a judgment in excess of the policy limits was entered against the insured. 68 Important here is the fact that the magistrate judge ordered Maryland Casualty to be at the settlement conference with full authority to offer the limits of the policy. Maryland Casualty claims this order did not include the SELI limits. Whether this belief was in good faith is a question of fact for the jury. 69 Consequently, we reverse the district court's grant of summary judgment regarding whether Maryland Casualty's failure to offer the limits of the SELI coverage during settlement amounted to bad faith as to Marathon. V DISCOVERY ISSUES 70 As set forth above, Maryland Casualty appointed the law firm of Murane & Bostwick on May 29, 1997, to defend SSI against Marathon's third-party complaint. On that same day, according to the deposition testimony of Maryland Casualty employees and an attorney at Murane & Bostwick, Maryland Casualty hired Murane & Bostwick to prepare a coverage opinion regarding whether Marathon and Platte were covered under SSI's policy as additional insureds, apparently finally acting on Marathon's initial tender from April 14. 71 Maryland Casualty received that coverage opinion on July 8, 1997, but it did not act upon it. A week later, on July 15, a month before the settlement conference in the Berg litigation and in the face of Maryland Casualty's unresponsiveness, Marathon filed this action. On July 25, Maryland Casualty retained litigation counsel from the Wyoming-based firm of Lathrop & Rutledge and the San Francisco-based firm of Wright, Robinson, Osthimer & Tatum to defend against Marathon's claims. At some point Ms. Griffith, Maryland Casualty's claims adjuster, asked James Nielsen, an attorney at the latter firm, to write Marathon's counsel and offer a defense to Marathon in the Berg litigation under a reservation of rights. He did so on August 15. 72 Maryland Casualty explains its failure to respond to Marathon's repeated tenders until August 15 with the assertion that it had been waiting for Murane & Bostwick's coverage opinion, and that Marathon filed this action before it had a chance to act upon that opinion. During discovery, Marathon sought production of the entire claims file for its claim, the coverage opinion from Murane & Bostwick, and any documents showing when Maryland Casualty requested a coverage opinion from Murane & Bostwick and when the policy and endorsements were provided to Mr. O'Neill to aid in that effort. Maryland Casualty resisted production of these documents, asserting attorney-client privilege. 73 Marathon filed a motion to compel. The magistrate judge ordered the production of several documents which he held were not privileged. In addition, he ordered production of all the documents he found were privileged, ruling that Maryland Casualty could not assert its privilege for several reasons. See App., Vol. 3 at 548. Among those reasons was the magistrate judge's conclusion that Maryland Casualty created a conflict of interest for Murane & Bostwick by hiring the firm to represent SSI against Marathon's third-party complaint while simultaneously representing Maryland Casualty for purposes of the coverage opinion. Citing no case law, the magistrate judge ruled that Maryland Casualty's claim to privilege would be inequitable under these circumstances. Continuing this reasoning and citing Shapiro v. Allstate Ins. Co., 44 F.R.D. 429 (E.D. Penn. 1968), the magistrate judge held that SSI's assignment of claims to Marathon permitted Marathon to learn all the information to which SSI was entitled. Id. at 549. He also said that because Maryland Casualty was relying on the advice of counsel as a defense to Marathon's claims of bad faith, it had waived its attorney-client privilege. The Magistrate Judge accordingly ordered Maryland Casualty to produce the documents. 74 Maryland Casualty appealed to the district court. The district court first concluded that any conflict which Murane & Bostwick might have had did not waive Maryland Casualty's attorney-client privilege. See App., Vol. 3 at 694, 702. The court then addressed Maryland Casualty's alleged reliance on the advice of counsel. Although the court cautioned that Maryland Casualty may have, under the tests discussed in Frontier Refining, [Inc. v. Gorman-Rupp Co., Inc., 136 F.3d at 695, 699 (10th Cir. 1998),] have [sic] waived its privilege, it would nonetheless accept Maryland Casualty's assertion that it was not relying on advice of counsel as a defense to the bad faith claims. Id. at 704. As a consequence, the district court ruled it would not allow Maryland Casualty to offer any advice-of-counsel defense at trial, or present any evidence relating to such a defense. See id. The court ordered Maryland Casualty to produce the documents for its in camera review to determine whether they showed when Maryland Casualty asked for and received legal advice relating to Marathon's claims of coverage. See id. at 705. After an in camera review, the district court held that Maryland Casualty had claimed a valid attorney-client privilege and was therefore not required to produce the materials. See App., Vol. 4 at 855. In denying Marathon's motion to reconsider, the district court pointed to its original ruling that Maryland Casualty was not relying on the advice of counsel and that it would not be allowed to use a privilege defense at trial. See id. at 911. 75 Marilyn Griffith, the adjuster who handled Marathon's claims for Maryland Casualty, ended her employment with Maryland Casualty during this litigation. On July 31, 1998, after the district court's rulings on the coverage issues but before its rulings on the bad faith claims, the magistrate judge ordered the production of Marilyn Griffith's personnel file. Maryland Casualty appealed this ruling to the district court. Not reaching the appeal until after its grant of summary judgment to Maryland Casualty on the bad faith claims, the court dismissed the appeal as moot. 76 Marathon appeals these various orders. 16 We will not reverse a trial court's order denying discovery absent an abuse of discretion. See Frontier Refining, 136 F.3d at 699. In this context, however, we review the court's underlying factual determinations for clear error and review de novo purely legal questions. Id. 77 A. Claims File Documents and Coverage Opinion 78 On appeal, Marathon encourages us to adopt the magistrate judge's reasoning and hold that Murane & Bostwick's conflict of interest waived Maryland Casualty's attorney-client privilege, or, alternatively, that Maryland Casualty's reliance on advice of counsel as a defense to the bad faith claims waives the privilege. We decline to adopt either conclusion. 1. Conflict as a waiver 79 Believing that Maryland Casualty created a conflict by hiring Murane & Bostwick to undertake both representations, the magistrate judge determined that [u]nder these circumstances, it would be inappropriate to allow Maryland Casualty to raise the attorney-client privilege and protect documents from discovery concerning the Marathon/Platte coverage issue. App., Vol. 3 at 549. To the extent the conflict argument relates to the assigned claims of SSI, the issue has become moot given our affirmance of the district court's dismissal of these claims. To the extent the conflict issue may impact any of Marathon's claims upon which we have reversed the district court, we remand any discovery issues to the district court for further consideration. 2. Reliance upon advice of counsel 80 The district court accepted Maryland Casualty's assertion 17 that it was not relying on the advice of counsel, but Marathon strenuously disagrees. After reviewing the record and Maryland Casualty's position throughout the litigation below and continuing here on appeal, we find this to be a close question because of Maryland Casualty's continued assertion that it was waiting for advice from counsel before acting. 81 Nevertheless, we have confidence that the district court will faithfully enforce its order that Maryland Casualty may not enter anything into evidence at trial concerning matters about which it claimed a privilege. After our own in camera review of these documents, we are convinced that the dates Maryland Casualty has admitted to concerning when it requested and received the coverage opinion are supported by the privileged documents. We therefore find no abuse of discretion in the district court's order. B. Marilyn Griffith's Personnel File 82 In its reply brief, Marathon urges us to rule on this issue because, although it became moot in the district court, it is squarely before this court. Because we are remanding in any event, we remand this issue as well for consideration by the district court in the first instance. 83 In summary, we affirm in part and remand in part the district court's discovery orders for further consideration. 18 VI COSTS 84 The district court, in its final order, granted Maryland Casualty's motion for deposition costs amounting to $1,114.75, without responding to Marathon's strenuous objection. Marathon appeals this grant of costs, asserting that the district court violated its local rule and therefore abused its discretion. As the district court's power to grant costs is discretionary, we accordingly review its grant for an abuse of that discretion. See Jones v. Unisys Corp., 54 F.3d 624, 633 (10th Cir. 1995). 85 Although a federal statute provides that a judge may tax deposition expenses as costs if the depositions are 'necessarily obtained for use in the case,' 28 U.S.C. 1920, a more stringent local district court rule allows costs only for depositions received in evidence. Hernandez v. George, 793 F.2d 264, 268-69 (10th Cir. 1986). Local Rule 54.2(f) addresses when the district court here will allow costs, and subsection (2)(D) sets forth the following: 86 Costs of depositions are taxable if the depositions or portions thereof were read into evidence at trial in lieu of the appearance of the deponent; or if the deposition is used at trial to impeach a witness on the witness stand with his/her prior testimony; or it is necessary during the course of trial that a witness's recollection be refreshed from his/her deposition testimony. 87 D. Wyo. L.R. 54.2(f)(2)(D). From this rule it is clear that the district court is only empowered under its own rules to grant costs in three separate situations, all of which involve using evidence from the deposition at trial. This case was decided prior to trial. The record does not reflect that the court was intentionally overlooking its local rule and exercising its more general statutory authority as Maryland Casualty suggests. In any event, since we are reversing the grant of summary judgment in favor of Maryland Casualty, the district court will need to redetermine costs when these proceedings become final. Consequently, we reverse the grant of deposition costs to Maryland Casualty. VII