Federal Court In Oklahoma Held No Bad Faith Exists Where Insurer Had Insufficient Information With Which To Respond To Policy Limits Demand

Acting on a motion to reconsider, a federal court in Oklahoma conceded that it incorrectly analyzed an insured’s breach-of-contract and bad-faith claims stemming from an insurer’s failure to settle within policy limits. The district court withdrew its initial denial of summary judgment and entered summary judgment for the insurer. Dabbs v. Shelter Mutual Ins. Co., No. CIV-15-148-D, 2021 WL 5501777, 2021 U.S. Dist. LEXIS 225780 (W.D. Okla. Nov. 23, 2021). 

The insured caused an automobile accident involving two other vehicles, injuring three people.  Shortly after the accident, the insured’s insurer contacted the injured parties seeking information as to each person’s injuries. Approximately a month after the accident, an attorney representing two of the injured claimants made a policy-limits demand on behalf of one of the claimants; the insurer was given five days to respond to the demand. Because the insurer lacked material information as to the various claimants’ injuries, it requested additional time to consider the offer, during which time it sought additional information and consulted with outside counsel.  The claimant’s offer expired but the insurer nonetheless offered the requested policy limit three days after the expiration. The claimant rejected the offer, sued the insured, and was awarded well over policy limits in damages. 

The insured sued its insurer for failure to settle the claim within the policy limits. The district court initially held that genuine disputes of material fact precluded summary judgment for the insurer on the insured’s breach of contract claims. On reconsideration, however, the district court acknowledged error as to the proper standard under Oklahoma law regarding bad-faith claims. The district court noted that Oklahoma law provides that an insurer’s failure to accept a settlement offer within policy limits exposes an insurer to liability for the entire judgment rendered against its insured. However, it concluded that the insurer provided a competent defense to the insured through appeal and paid the policy limits following the appeal’s denial, and thus held that no breach of contract occurred as the insurer satisfied its defense and indemnity obligations under the policy and Oklahoma law. The district court went further, concluding that the insurer’s action did not equate to bad faith because the claimant’s offer deadline precluded a full investigation of the multiple claims against its insured. Therefore, the court held that the insurer’s actions were not tortious under Oklahoma law and the circumstances, as the insurer conducted a diligent investigation, earnest negotiation and competent defense of its insured in an attempt to avoid excess liability.