Court Opinion

ID: 155931
Source: CourtListenerOpinion
Date Created: 2010-08-14 04:26:34+00
Date Added: 2024-06-11T08:45:39.676233
License: Public Domain

F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                           FEB 3 1998
                             FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    WESTERN FARMERS ELECTRIC
    COOPERATIVE, an Oklahoma
    Cooperative,

                Plaintiff-Appellant,               Nos. 97-6005 & 97-6213
                                                    (D.C. No. 94-CV-641)
    v.                                                  (W.D. Okla.)

    ST. PAUL INSURANCE COMPANY,
    Houston Texas, a Texas Insurance
    corporation,

                Defendant-Appellee.

                            ORDER AND JUDGMENT *

Before ANDERSON, McKAY, and LUCERO, Circuit Judges.

         After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1.9. The case is therefore

ordered submitted without oral argument.

      This suit arises out of a three-year directors’ and officers’ liability

insurance policy (D & O policy) that defendant St. Paul Insurance Company

(St. Paul) issued to plaintiff Western Farmers Electric Cooperative (Western

Farmers) in October 1976. Western Farmers and its trustees were sued in 1977,

along with some other defendants. See Hargrave v. Canadian Valley Elec. Coop.,

No. C-77-179, District Court of Seminole County, Oklahoma. As a result,

Western Farmers sought reimbursement from St. Paul under its D & O policy.

The extent of St. Paul’s obligation to Western Farmers is the crux of these

appeals. At this point, suffice it to say that St. Paul made periodic payments to

Western Farmers as the Hargrave litigation progressed. After a lengthy history,

issues of rate discrimination and breach of fiduciary duties in the Hargrave action

were bifurcated for trial by an order dated August 28, 1992. The Western

Farmers’ trustees were voluntarily dismissed from the rate discrimination case

shortly after opening statements, and the trial court ultimately entered a directed

verdict of over $18 million against Western Farmers on the rate discrimination

claims. The Hargrave plaintiffs later also voluntarily dismissed their breach of

fiduciary duties claim against the Western Farmers trustees. The Hargrave suit

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was finally concluded in December 1994, when the judgment against Western

Farmers was reversed on appeal.

      St. Paul had stopped making payments to Western Farmers several years

before then. Dissatisfied with the amount St. Paul had paid, Western Farmers

filed this suit on May 3, 1994, before the Hargrave suit was ended, seeking

reimbursement for the multi-million dollar judgment against it, as well as its costs

of defending both the corporation and its trustees. St. Paul answered that it had

no additional liability to Western Farmers. The district court held this suit in

abeyance until the Hargrave litigation was concluded, which mooted Western

Farmers’ claim for reimbursement of the multi-million dollar judgment.

      On cross-motions for summary judgment, the district court determined that

St. Paul’s obligation under the D & O policy was limited to paying only the

defense costs of Western Farmers’ trustees, and not the corporation’s defense

costs. The district court also determined that Western Farmers and St. Paul,

through a series of letters exchanged at the outset of the Hargrave litigation, had

created a “cost sharing agreement” supplementing the D & O policy because

Western Farmers chose to be jointly defended with its trustees. See II Appellant’s

App. at 370, 376 (district court’s September 27, 1996 order granting summary

judgment to St. Paul). The court found that this agreement specified that St. Paul

would pay the trustees’ separately identifiable defense costs and half of Western

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Farmers’ and its trustees’ joint defense costs. See id. at 376. Finally, because the

August 1992 bifurcation of the issues for trial led almost immediately to the

dismissal of the trustees from the suit, the court determined that costs incurred

after that date should be allocated to Western Farmers. The district court entered

summary judgment in favor of St. Paul and denied Western Farmers’ motion for

partial summary judgment. This resulted in a determination in favor of Western

Farmers that St. Paul was liable to it for any unpaid costs under the cost-sharing

agreement. Based on the district court’s judgment, the parties later stipulated that

St. Paul owed Western Farmers an additional $65,000.00. The district court

denied Western Farmers’ subsequent motion for attorney’s fees and prejudgment

interest. Having expressly reserved its right to challenge the district court’s grant

of summary judgment to St. Paul, Western Farmers now appeals. We have

jurisdiction under 28 U.S.C. § 1291.

      On appeal, Western Farmers argues that the district court erred: (1) in

holding that the costs of Western Farmers’ defense of the Hargrave rate

discrimination claims did not fall within the terms of the D & O policy; (2) in

interpreting the terms and effect of the cost-sharing agreement; (3) in determining

that St. Paul did not have to pay the defense costs of Western Farmers’ trustees

past the date of bifurcation; and (4) by denying Western Farmers’ application for

attorney’s fees and prejudgment interest.

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      We review the grant of summary judgment de novo, applying the same

standard as that used by the district court. See Clemmons v. Bohannon, 956 F.2d
1523, 1525 (10th Cir. 1992). “Summary judgment is appropriate ‘if the

pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a matter of

law.’” Id. (quoting Fed. R. Civ. P. 56(c)). Under Oklahoma law, which governs

this diversity case, “‘[t]he interpretation of an insurance contract . . . is a matter

of law for the Court to determine and resolve accordingly.’” Kerr-McGee Corp.

v. Admiral Ins. Co., 905 P.2d 760, 762 (Okla. 1995) (quoting Dodson v. St. Paul

Ins. Co., 812 P.2d 372, 376 (Okla. 1991)).

      Regarding Western Farmers’ first three issues, we adopt the analysis of the

district court, which considered the evidence in detail. We agree that under either

the D & O policy or the series of letters exchanged between Western Farmers and

St. Paul after the Hargrave suit was filed (the “cost sharing agreement,” as termed

by the district court), St. Paul was obligated to pay only the trustees’ defense

costs, not the corporation’s defense costs as well. Because St. Paul was not

responsible for the entire cost of defense (which Western Farmers does not

argue), a method of allocating the costs was necessitated by Western Farmers’

decision to be jointly defended with its trustees. We agree with the district court

                                           -5-
that the correspondence between the parties constitutes their settlement of that

matter, and that it reflects their agreement that St. Paul would pay the trustees’

separately identifiable defense costs and half of joint defense costs. Western

Farmers did not specifically reserve the right to change the agreement expressed

in the parties’ correspondence. We hold that the district court’s construction of

the parties’ correspondence and their course of conduct was reasonable. In

addition, because the bifurcation of the issues for trial in the Hargrave action

led almost immediately to the dismissal of the trustees from the suit, it was

appropriate for the district court to allocate defense costs incurred after that date

exclusively to Western Farmers.

      Western Farmers’ final argument is that it is entitled to attorney’s fees and

prejudgment interest. We agree. Under Oklahoma law, attorney’s fees are not

recoverable as damages unless they are expressly provided for by contract or

statute. See Magnum Foods, Inc. v. Continental Cas. Co., 36 F.3d 1491, 1509

(10th Cir. 1994). Western Farmers claims it is entitled to attorney’s fees and

prejudgment interest under Okla. Stat. tit. 36, § 3629B, which requires it to show

that: (1) it made a proof of loss to St. Paul under an insurance policy; (2) St. Paul

failed to make a written offer of settlement or rejection of the claim within ninety

days; and (3) it is the prevailing party within the meaning of the statute.

                                          -6-
See Dayton-Hudson Corp. v. American Mut. Liab. Ins. Co., 526 F. Supp. 730,

733-34 (W.D. Okla. 1981).

      We believe Western Farmers has met its burden and should be awarded

attorney’s fees and prejudgment interest under § 3629B. St. Paul admits that it

was obligated by the D & O policy, as supplemented by the cost-sharing

agreement, to pay the Western Farmers’ trustees’ separately identifiable defense

costs and half of all joint defense costs. St. Paul further admits it made periodic

payments to Western Farmers as the Hargrave litigation progressed, based on that

obligation. This course of conduct did not change until Western Farmers retained

additional counsel in 1988, which mistakenly sent its bills to Western Farmers

instead of St. Paul for several years. When counsel realized its mistake, it sent

St. Paul’s counsel an explanation and a demand for additional payment. See

I Appellant’s App. at 105. St. Paul admits it received this letter but its counsel

lost it. See Appellee’s Br. at 13. St. Paul points to nothing in the record to

show that it ever responded to the letter, or to verify its professed willingness to

complete its obligation to Western Farmers before that company filed suit. In its

answer, St. Paul asserted it had no further liability at all to Western Farmers.

See I Appellant’s App. at 13-14, ¶¶ XV, XVI; cf. Ballinger v. Security

Connecticut Life Ins. Co., 862 P.2d 68, 71 (Okla. 1993) (holding insurer showed

willingness to pay beneficiary named on policy by tendering money to court).

                                          -7-
Thus, we conclude that Western Farmers’ counsel’s July 6, 1992 letter should be

construed as a proof of loss under the D & O policy for purposes of § 3629B.

See Dayton-Hudson, 526 F. Supp. at 734 (construing letter as proof of loss under

§ 3629B). St. Paul’s failure to respond satisfies the second statutory requirement.

Third, because Western Farmers was awarded a judgment against St. Paul, which

had made no settlement offer, Western Farmers is the prevailing party in this

action. See An-Son Corp. v. Holland-America Ins. Co., 767 F.2d 700, 703

(10th Cir. 1985) (holding insured is prevailing party under § 3629B unless

insured’s judgment is less than any settlement offer by insurer or insured receives

no judgment). Therefore, we remand the case for a determination of attorney’s

fees and prejudgment interest. It is within the district court’s discretion to

determine an appropriate amount, taking into account that Western Farmers did

not prevail on all of its claims. See Shadoan v. Liberty Mut. Fire Ins. Co.,

894 P.2d 1140, 1144 & n.10 (Okla. Ct. App. 1994).

      The judgment of the United States District Court for the Western District

of Oklahoma is AFFIRMED in part and REVERSED in part, and the case is

REMANDED for additional proceedings consistent with this order and judgment.

                                                     Entered for the Court

                                                     Monroe G. McKay
                                                     Circuit Judge

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