Court Opinion

ID: 6353539
Source: CourtListenerOpinion
Date Created: 2022-06-24 16:00:24.420863+00
Date Added: 2024-06-11T09:14:35.124232
License: Public Domain

Appellate Case: 21-6143     Document: 010110701132       Date Filed: 06/24/2022    Page: 1
                                                                                   FILED
                                                                       United States Court of Appeals
                       UNITED STATES COURT OF APPEALS                          Tenth Circuit

                              FOR THE TENTH CIRCUIT                           June 24, 2022
                          _________________________________
                                                                          Christopher M. Wolpert
                                                                              Clerk of Court
  ANTHONY CLARENCE DESMET,

        Plaintiff - Appellant,

  v.                                                         No. 21-6143
                                                      (D.C. No. 5:20-CV-00330-J)
  SCOTTSDALE INSURANCE                                       (W.D. Okla.)
  COMPANY,

        Defendant - Appellee.
                       _________________________________

                              ORDER AND JUDGMENT*
                          _________________________________

 Before HARTZ, BALDOCK, and McHUGH, Circuit Judges.
                   _________________________________

       Anthony DeSmet appeals from the summary judgment granted to Scottsdale

 Insurance Company on his claim alleging that Scottsdale had acted in bad faith in

 refusing to fulfill its responsibilities under the excess uninsured-motorist coverage in

 its umbrella policy. Scottsdale invoked a provision in its policy that excused it from

 liability until DeSmet exhausted his uninsured-motorist coverage under his primary

 motor-vehicle liability policies. The United States District Court for the Western

       *
         After examining the briefs and appellate record, this panel has determined
 unanimously that oral argument would not materially assist in the determination of
 this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
 ordered submitted without oral argument. This order and judgment is not binding
 precedent, except under the doctrines of law of the case, res judicata, and collateral
 estoppel. It may be cited, however, for its persuasive value consistent with
 Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Appellate Case: 21-6143     Document: 010110701132         Date Filed: 06/24/2022     Page: 2

 District of Oklahoma held that the exhaustion provision in Scottsdale’s policy was

 valid and enforceable and that even if it was not, Scottsdale’s reliance on the

 provision was not in bad faith. Exercising jurisdiction under 28 U.S.C. § 1291, we

 agree and affirm.

        I.     BACKGROUND

        On March 5, 2018, DeSmet suffered severe bodily injuries when his vehicle

 was rear-ended by a vehicle driven by William Akehurst. Akehurst’s only

 automobile-liability coverage was a policy issued by State Farm Mutual Automobile

 Insurance Company, which promptly paid its $50,000 policy limit. This was

 insufficient to fully cover DeSmet’s damages.

        Under Oklahoma law, uninsured-motorist policies provide protection not only

 when the insured is injured by a tortfeasor-driver who has no liability insurance but

 also when the tortfeasor has such insurance but the coverage is less than the

 tortfeasor’s liability. See Okla. Stat. tit. 36, § 3636(C); Burch v. Allstate Ins. Co., 977

 P.2d 1057, 1064 (Okla. 1998) (“If the liability limits of a motor vehicle are less than

 the amount of the injured insured’s claim, that vehicle is classified as uninsured.”).

 Such tortfeasor-drivers are commonly referred to as underinsured motorists.

        At the time of the accident, DeSmet had three separate motor-vehicle liability

 policies covering several motor vehicles. Each policy provided $500,000 in

 uninsured/underinsured-motorist coverage.

        In addition, DeSmet had an umbrella policy with Scottsdale. An umbrella

 policy is a type of “excess insurance policy,” which is a policy that “by its terms

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 provides coverage that is secondary to the primary coverage; there is usually no

 obligation to the insured until after the primary coverage limits have been

 exhausted.” U.S. Fid. & Guar. Co. v. Federated Rural Elec. Ins. Corp., 37 P.3d 828,

 831 (Okla. 2001); see Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc.,

 747 P.2d 947, 954 (Okla. 1987) (“Excess coverage or secondary coverage is provided

 when, under the terms of the policy, the insurer is liable for a loss only after any

 primary coverage—other insurance—has been exhausted.”); Robert E. Keeton, Alan

 I. Widiss, & James M. Fischer, Insurance Law: A Guide to Fundamental Principles,

 Legal Doctrines, and Commercial Practices 220 n.524 (2d ed. 2017) (“[E]xcess

 insurance” is insurance that “overlies underlying coverage and provides additional

 indemnity for the underlying coverage.”). “Umbrella coverage . . . is distinguished

 from true excess coverage by its ‘umbrella,’ which extends to additional risks not

 within the underlying coverage and brings those additional risks into coverage.”

 Keeton, Widiss, & Fischer, supra, at 220 n.524. A core feature of umbrella (and true

 excess) policies is that they “require the existence of a primary policy as a condition

 of coverage.” 15A Steven Plitt et al., Couch on Insurance § 220:32 (3d ed. June 2022

 update). Excess and umbrella policies must be distinguished from “[e]xcess ‘other

 insurance’ clauses” in primary liability policies, which are “devices whereby a

 primary insurer attempts to limit or eliminate its liability where another primary

 policy covers the risk.” Id.

       The Scottsdale policy provided $2 million in excess liability coverage to

 supplement coverage provided in DeSmet’s automobile-liability and home-owner’s

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 policies (including liability not covered by automobile-liability or home-owner’s

 policies, with limited exceptions for such things as liability for sexual abuse) and

 provided $1 million in excess uninsured/underinsured-motorist coverage. An

 endorsement in the policy stated:

       It is expressly agreed that liability shall attach to [Scottsdale] only after the
       insurers of the “underlying insurance” have paid or have been held liable to
       pay (whether collectible or not) the full amount of their respective
       uninsured motorists and/or underinsured motorists liability[.]
 Aplt. App., Vol. 1 at 213. The term underlying insurance referred to existing motor-

 vehicle liability policies carried by DeSmet that were listed in the Scottsdale policy’s

 Declarations. As typical of an umbrella policy, maintenance of the underlying,

 primary insurance was a precondition for coverage; if that insurance was not

 maintained, the Scottsdale policy would, roughly speaking, be applied as if such

 coverage were still in force.

       DeSmet has not challenged Scottsdale’s interpretation of this language as

 providing that coverage would be triggered only when the total liability of the

 tortfeasor-driver exceeded the combined liability limits of the underlying

 uninsured/underinsured-motorist policies (plus the tortfeasor’s own liability

 coverage). As the district court put it, “[T]he Umbrella Policy was not triggered until

 all underlying insurance policies had paid or been held liable to pay the full amount

 of their respective [uninsured-motorist] coverages.” Aplt. App., Vol. 6 at 1052.

       On August 1, 2019, having grown unhappy with the handling of his claim by

 one of his motor-vehicle liability insurers, DeSmet requested that Scottsdale “step

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 down” and pay the claim itself. Aplt. App., Vol. 1 at 279. Scottsdale responded

 through counsel on August 21, 2019, informing DeSmet that per the terms of the

 policy, Scottsdale would pay only after the underlying insurance limits were

 exhausted. DeSmet filed a petition in Oklahoma state court on March 3, 2020,

 alleging that Scottsdale’s conduct surrounding its refusal to pay amounted to a breach

 of its implied duty of good faith and fair dealing. The petition did not bring a

 contractual claim under the Scottsdale policy. On the contrary, the petition included

 the following statement: “Plaintiff is not bringing an independent or separate cause of

 action for breach of contract, only the tort cause of action [for the breach of the

 implied duty of good faith and fair dealing].” Aplt. App., Vol. 1 at 18. At the time the

 petition was filed, DeSmet had received no payment on the uninsured/underinsured-

 motorist provisions of any of its three automobile-liability policies.1

       Scottsdale removed the case to federal court and moved for summary

 judgment, arguing that the bad-faith claim failed because the excess-coverage

 provisions were valid and enforceable, and that even if they were not, it had acted

 reasonably in relying on those provisions. DeSmet countered that the excess

 provision was unenforceable under Oklahoma’s uninsured-motorist statute, but he

       1
         DeSmet ultimately received payment from all three insurers with whom he
 held primary motor-vehicle coverage: (1) one tendered its $500,000 limit on March 9,
 2020; (2) a second tendered its $500,000 limit on March 12, 2020; and (3) after
 DeSmet obtained a default judgment against the third on March 26, 2020, it
 ultimately tendered its $500,000 limit on September 28, 2020. DeSmet argues that,
 for reasons we need not address, the second and third policies did not need to be
 exhausted before the Scottsdale policy applied. But even if only the first policy was
 relevant, it had not been exhausted when the petition was filed.
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 said that the issue was one of first impression and requested the court to certify the

 question to the Oklahoma Supreme Court.

       The district court ruled that Oklahoma caselaw was clear that the requirements

 of the uninsured-motorist statute did not apply to umbrella policies like the one

 issued by Scottsdale. It further held that because the underlying claims had not yet

 been paid at the time of the suit, there was no basis for DeSmet’s allegation that

 Scottsdale had been acting in bad faith and it granted Scottsdale’s motion for

 summary judgment. DeSmet disputes the district court’s reasoning and also argues

 that the court made procedural errors when dismissing his claim. We are not

 persuaded on any of his issues.

       II.    DISCUSSION

              A.     Bad-Faith Claim

       Oklahoma has “adopt[ed] the rule that an insurer has an implied duty to deal

 fairly and act in good faith with its insured and that the violation of this duty gives

 rise to an action in tort.” Christian v. Am. Home Assurance Co., 577 P.2d 899, 904

 (Okla. 1977). To show bad faith, however, it is not enough that an insurer “resists

 [or] litigates a claim.” Id. There must be “a clear showing that the insurer” was acting

 “unreasonably and in bad faith” by withholding payment. Id. at 905. Thus, DeSmet

 would need to show that Scottsdale had clearly violated its responsibilities under the

 umbrella policy; this is a standard he is far from meeting.

       DeSmet does not argue that Scottsdale violated any terms of its policy; he

 instead argues that the relevant policy provisions are invalid under Oklahoma law.
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 The State requires that all drivers carry automobile-liability insurance of at least

 certain minimum levels, see Okla. Stat. tit. 47, § 7-601, and these policies must

 include uninsured-motorist coverage unless the insured rejects that additional

 coverage in writing, see Okla. Stat. tit. 36, § 3636; Lane v. Progressive N. Ins. Co.,

 494 P.3d 345, 349 (Okla. 2021) (“§ 3636 . . . requires insurers to include uninsured-

 motorist coverage within or supplemental to all motor-vehicle-liability policies.”).

 DeSmet notes that Oklahoma courts have held that these statutory provisions can

 override uninsured/underinsured-motorist provisions in automobile-liability policies

 and argues that § 3636 likewise overrides Scottsdale’s excess-coverage provision

 with regard to its uninsured/underinsured-motorist coverage. We proceed to examine

 the governing law.

       The Oklahoma Supreme Court has held that an insurer that provides

 uninsured-motorist coverage as required and governed by § 3636 cannot rely on a

 provision in its policy that permits withholding payment under the coverage until the

 insured has exhausted all other uninsured/underinsured-motorist coverage. See

 Mustain v. U.S. Fid. & Guar. Co., 925 P.2d 533, 534 (Okla. 1996). It ruled that “as

 between the insurer and its insured[, uninsured-motorist] insurance is primary

 coverage,” id., that is, “the insurer is liable without regard to any other insurance

 coverage available,” Equity Mut. Ins. Co., 747 P.2d at 954. In other words, “an

 uninsured motorist carrier is liable for the entire amount of its insured’s loss from the

 first dollar up to the [uninsured-motorist] policy limits without regard to the presence

 of any other insurance.” Burch, 977 P.2d at 1058. The court explained that this

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 treatment is necessary to secure the legislative purpose of § 3636, which is “to

 protect insured persons who are injured by uninsured/underinsured motorists.”

 Mustain, 925 P.2d at 535. (When there are multiple insurers, the relative amounts

 ultimately due from each insurer can later be adjusted through litigation among the

 insurers. See id. at 536.)

        Unfortunately for DeSmet, § 3636 does not apply to the Scottsdale umbrella

 policy. The Oklahoma Supreme Court has repeatedly said that umbrella policies are

 not “motor vehicle liability policies” of the type governed by § 3636. The leading

 case is Moser v. Liberty Mutual Insurance Co., 731 P.2d 406 (Okla. 1986), where the

 court answered the certified question (from the United States District Court for the

 Western District of Oklahoma) “whether the provisions of Oklahoma’s uninsured

 motorist statute [§ 3636] apply to a policy of excess liability coverage, commonly

 referred to as an umbrella liability policy.” Id. at 407 (footnote omitted). The court

 responded that “[t]he uninsured motorist provisions [of § 3636] apply [only] to . . .

 automobile liability insurance policies . . . but not to ‘umbrella’ policies . . . .” Id. at

 409 (emphasis added). Any requirements imposed by § 3636 were accordingly

 “limited in application to policies insuring against primary liability,” whereas “excess

 coverage” in a broader policy was “beyond the contemplation, scope and intent of

 [§ 3636.]” Id. at 410.

        The court reasoned that “the intent of the uninsured motorist legislation” was

 to place an individual injured by an uninsured/underinsured motorist in the same

 position as “if the negligent motorist had carried liability insurance” meeting the

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 “minimum standards.” Id. at 408. That purpose is satisfied without extending its

 application beyond standard primary automotive liability policies. See id. at 408–09.

 This holding was reaffirmed in GEICO General Insurance Co. v. Northwest Pacific

 Indemnity Co., 115 P.3d 856, 859 (Okla. 2005) (“[I]n Moser we clearly stated there

 that § 3636 does not apply to excess liability policies.”), and Raymond v. Taylor, 412

 P.3d 1141, 1145 (Okla. 2017) (“This Court has also stated that . . . Section 3636’s

 provisions apply to all primary automotive liability insurance policies, but not to

 supplemental, excess, or umbrella policies.” (citing Moser, 731 P.2d at 409, and

 GEICO, 115 P.3d at 859, 860)).

       DeSmet does not contest that his policy with Scottsdale was an “umbrella”

 policy. By its terms, it was plainly not a “polic[y] insuring against primary liability.”

 Moser, 731 P.2d at 410. But DeSmet nevertheless argues that Mustain requires that,

 as between him and Scottsdale, the excess uninsured-motorist coverage must be

 treated as primary. In Mustain, however, the court was addressing a situation where

 the uninsured-motorist coverage in two primary automobile-liability policies applied,

 but one policy included an “other insurance” clause stating it would only pay the

 “excess” where a claimant was not the vehicle owner. Mustain, 925 P.2d at 535. As

 noted above, excess “other insurance” clauses in otherwise primary coverage are

 distinct from “true excess coverage” like that in an umbrella policy. See, e.g., Keeton,

 Widiss, & Fischer, supra, at 220 (“Care must be taken to distinguish these true

 excess insurance policies from insurance that is designed to be excess pursuant to an

 excess Other Insurance provision.”). We do not read Mustain as imposing any

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  requirements on umbrella policies, instead only prohibiting primary insurers from

  escaping from their uninsured-motorist coverage obligations.

         Scottsdale was entitled to rely upon the Moser line of cases and was not acting

  in bad faith when it assumed the legitimacy of the uninsured-motorist provisions of

  its umbrella policy. Additionally, DeSmet conceded that his view of § 3636 was not

  settled law when he argued below that this case presented “a matter of first

  impression” and therefore the issue was “well-suited for certification to the

  Oklahoma Supreme Court.” Aplt. App., Vol. 5 at 836. We have held that “[f]or bad

  faith liability to attach, the law at the time of the alleged bad faith must be settled.”

  Davis v. Mid-Century Ins. Co., 311 F.3d 1250, 1252 (10th Cir. 2002) (applying

  Oklahoma law). DeSmet has therefore essentially conceded that his bad-faith claim

  could not be meritorious.

                B.     Procedural Issues

         DeSmet also raises two procedural arguments: He claims the district court

  erred (1) by ruling his own motion for summary judgment moot after granting

  Scottsdale’s motion, and (2) by denying his request for leave to amend his petition to

  add a breach-of-contract claim. As to the former, DeSmet’s opening brief gives no

  explanation for why the motion should not have been held moot, instead merely

  restating his theory of the case; his reply brief does not mention the issue at all. True,

  were this court to reverse, the district court would then need to revive and address

  DeSmet’s own motion for summary judgment; but that motion could have no merit so

  long as Scottsdale’s summary judgment was undisturbed.
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        The argument that DeSmet should have been allowed to amend his petition

  likewise fails. In his original petition of March 3, 2020, DeSmet expressly stated that

  he was “not bringing an independent or separate cause of action for breach of

  contract.” Aplt. App., Vol. 1 at 18. More than 19 months later, however, in his

  Response to Scottsdale’s motion for summary judgment and just one week before the

  court’s entry of judgment, he requested leave to amend the petition and add this very

  same claim. The district court denied the request, citing a local court rule that does

  not allow “[a] response to a motion [to] also include a motion or a cross-motion made

  by the responding party.” W.D. Okla. Civ. R. 7.1(c). The district court also

  determined that even if the request were proper under the rule, DeSmet had failed to

  provide grounds to permit the amendment. It said that “the minimal reasons set forth

  in the Response neither indicate that justice requires such amendment nor constitute

  good cause or a showing of diligence.” Aplt. App., Vol. 6 at 1057. DeSmet does not

  confront these reasons on appeal, instead arguing that leave should have been freely

  given because no additional discovery was needed and his injuries were severe. We

  see no abuse of discretion by the district court. See Alpenglow Botanicals, LLC v.

  United States, 894 F.3d 1187, 1203 (10th Cir. 2018) (“[T]he decision to grant leave

  to amend the pleadings is within the discretion of the trial court, and we will not

  reverse the court’s decision absent an abuse of discretion.” (internal quotation marks

  omitted)). As we have stated previously:

        [P]laintiffs cannot wait until the last minute to ascertain and refine the
        theories on which they intend to build their case. We have repeatedly held
        that[] untimeliness alone is a sufficient reason to deny leave to amend when

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        the party filing the motion has no adequate explanation for the delay. And,
        where the party seeking amendment knows or should have known of the
        facts upon which the proposed amendment is based but fails to include
        them in the original complaint, the motion to amend is subject to denial.
  Id. (brackets, citations, and internal quotation marks omitted).

        III.   CONCLUSION

        We AFFIRM the judgment of the district court.

                                              Entered for the Court

                                              Harris L Hartz
                                              Circuit Judge

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