Comprehensive Guide to Auto Injury Litigation: NBI Section II Analysis

National Business Institute (NBI)

Auto Injury Litigation: The

Ultimate Guide

Section II

. In-Depth Coverage Analysis

Paul Kouri

May 2, 2019

Oklahoma City, Oklahoma

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Third-party rights under insurance contract

Third-party rights under insurance contract

Zahn v. General Ins. Co. of America,

 1980 OK 79, 611 P.2d 645

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In Federal Court this vested right may be enforced by third-party in declaratory judgment

action. See, e.g., 

United Services Auto. Ass'n v. Royal-Globe Ins. Co

., 511 F.2d 1094 (10th Cir.,

1975)(not really right to enforce contract, but “seeking a declaration of the relative rights” of

the parties

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No so in Oklahoma Court. 

Knight ex rel. Ellis v. Miller

, 195 P.3d 372, 2008 OK 81

Ambiguity

Ambiguity

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“We find that the reasonable expectations doctrine may apply to the construction of

ambiguous insurance contracts or to contracts containing exclusions which are masked by

technical or obscure language or which are hidden in policy provisions.” 

Max True Plastering

Co. v. U.S. Fid. & Guar. Co.,

 1996 OK 28, 912 P.2d 861, 863.

Ambiguity

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“Under the doctrine, if the insurer or its agent creates a reasonable expectation of coverage

[by] the insured which is not supported by policy language, [that] expectation will prevail over

the language of the policy.” 

Max True Plastering Co. v. U.S. Fid. & Guar. Co.,

 1996 OK 28, 912

P.2d 861, 864

Ambiguity

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“A policy term is ambiguous under the reasonable expectations doctrine [or under any

doctrine] if it is reasonably susceptible to more than one meaning. When defining a term

found in an insurance contract, the language is given the meaning understood by a person of

ordinary intelligence.” 

Max True Plastering Co. v. U.S. Fid. & Guar. Co.,

 1996 OK 28, 912 P.2d

861, 869

Let’s look at some ambiguity

Manchester v. OMAG

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Firefighter ran motorcycle off the roadway, ultimately losing leg.

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Had health insurance with a municipal association

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We argued they were insurance

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Denied coverage (about $500,000 in billing) because he “had been drinking” before driving

(DUI charges had been dropped) and was likely “speeding”

Manchester v. OMAG

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Policy excluded coverage for:

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There was no language defining the exclusion

Rules of Policy Construction

Words of coverage inclusion are broadly construed in favor of coverage

while words of exclusion are strictly construed against the insurance

company. 

Max True Plastering Co. v. U.S. Fid. & Guar. Co.,

 1996 OK 28,

912 P.2d 861, 869

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There was no language defining the exclusion

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Plan argued “illegal act” and “crime” were broad terms and included driving after drinking

and speeding

Ejusdem generis

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We argued “general terms” like “crime” and “illegal act” read in light of more descriptive

terms:

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“felonious act”

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Aggravated assault”

Side note:

Couch on Insurance on 

ejusdem generis:

Our argument:

Our argument:

Our argument:

What really makes it 

ambiguous:

Structural versus Factual Ambiguity (conveniently in the same

exclusion)

Claimed beating by licensed counselor

Case involved counselor who allegedly spanked some of his underage counselees

Counseling company policy exclusion:

Then followed exclusions “a.-v.”, all but one of which started with

“Arising out of . . .

Such we had, for instance:

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This insurance does not apply to 

claims 

or 

suits

 for 

damages

:

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a. Arising out of an occupation . . . other than [that] specified in the Declarations;

But when we got to the “pertinent” exclusion, we had this:

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This insurance does not apply to 

claims 

or 

suits

 for 

damages

:

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u.   Physical abuse, sexual abuse or licentious, immoral or sexual behavior whether or not intended

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to lead to, or culminating in any sexual act, whether caused by, or at the instigation of,  or at

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the direction of, or omission by any of you.  However, we will defend any civil suit against you

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seeking amounts that would be covered if this exclusion did not apply.  In such case, we will only

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pay fees, costs and expenses of such defense.  Our duty to defend will cease upon admission of

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guilt by you, or if you are adjudicated guilty or liable.  We will have no obligation to appeal any

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such judgment or adjudication;

Put the exclusion with the lead-in language and we had this:

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“This insurance does not apply to 

claims 

or 

suits

 for 

damages

:

Physical abuse . . . .”

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Can we agree this has no meaning?

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First problem: it’s incomprehensible (doesn’t that sound so much better than “incomplete

sentence” 

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First problem: it’s incomprehensible (doesn’t that sound so much better than “incomplete

sentence” 

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This is our structural ambiguity

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“Problem” two: it lacks the arising from language:

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Courts have interpreted “arising from” very broadly to include any

claim in any way tangentially related to the excluded act. E.g., 

Federal

Ins. Co. v. Tri-State Ins. Co.,

 157 F.3d 800 (10

th

 Cir. 1998). Very tough

language to get around.

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Factual ambiguity

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structurally ambiguous

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factually ambiguous

Ambiguity in the Application Process

Ambiguity in the Application Process

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This case involved a life insurance policy purchased by the insured online while in the

hospital.

Facts:

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Applicant was in hospital at time of application undergoing testing for flank pain

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Physicians strongly suspected cancer but had not made firm diagnosis

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Policy was issued

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Diagnosis confirmed

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Insured died from the cancer less than two years after policy issue

36 O.S. Section 4004 (life insurance only)

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There shall be a provision that the policy (exclusive of provisions relating to disability benefits

or to additional benefits in the event of death by accident or accidental means) shall be

incontestable, except for nonpayment of premiums, after it has been in force during the

lifetime of the insured for a period of two (2) years from its date of issue.

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So, by statute, life insurance company must rescind for misrepresentation in application

within 2 years of policy issue

And statements in application are deemed “representations”

not “warranties”:

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This becomes important as it renders an interesting interpretation of the misrepresentation

statute.

36 O.S. Section 3609:

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A. All statements and descriptions in any application for an insurance policy or in negotiations

therefor, by or in behalf of the insured, shall be deemed to be representations and not

warranties.

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Misrepresentations, omissions, concealment of facts, and incorrect statements 

shall not

prevent a recovery under the policy unless:

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1. Fraudulent;

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or

 2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer;

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or 

3. The insurer in good faith would either not have issued the policy, or would not have

issued a policy in as large an amount, or would not have provided coverage with respect to

the hazard resulting in the loss, if the true facts had been made known to the insurer as

required either by the application for the policy or otherwise

CASELAW ON 36 O.S. Section 3609 READS OR IN

CONJUNCTIVE:

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Misrepresentations, omissions, concealment of facts, and incorrect statements shall not

prevent a recovery under the policy unless:

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1. Fraudulent;

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AND

 2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer;

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AND 

3. The insurer in good faith would either not have issued the policy, or would not have

issued a policy in as large an amount, or would not have provided coverage with respect to

the hazard resulting in the loss, if the true facts had been made known to the insurer as

required either by the application for the policy or otherwise

e.g., Claborn v. Washington National Ins. Co., 910 P.2d 1046,

1996 OK 8

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 in order for an insurer to escape liability under this section for misrepresentation in the

application process

, the insurer bears the burden of proof to show not only that the

statements were untrue

,

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but also that the misrepresentations were either fraudulent

, material to the risks or hazards

assumed by the insurer,

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and

, in good faith, the insurer would not have issued the policy, or covered the hazard if the

true facts had been known in the application. Failure to disclose a latent condition of which

the person making application has no knowledge or reason to know does not constitute a

defense to an action on the policy.  Claborn v. Washington National Ins. Co., 910 P.2d 1046,

1996 OK 8 (Okla., 1996)

Hays v. Jackson National Life Ins. Co., 105 F.3d 583 (10th Cir.,

1997):

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 This interpretation is expressly set out in 10

th

 Circuit cases noted Oklahoma Court interprets this way.

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We find the dispositive … whether section 3609 requires Jackson National to prove that Mr. Hays

provided his application answers with an intent to deceive

.

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We begin with the language of the statute. As the district court noted, there is a disjunction between

subparagraphs (A)(1) and (A)(2)--the statute refers to misrepresentations and omissions that are

fraudulent or material. 

This might suggest that the insured's state of mind is irrelevant, so long as the

misrepresented or omitted information is material 

to the insurer's decision. Subparagraphs (A)(1) and

(A)(2),

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However . . . In Massachusetts Mutual Life Insurance Co. v. Allen, 416 P.2d 935 (Okla.1965), the insurer

sought to cancel a life insurance policy based on the fact that the insured did not disclose on the

application that he had had a lymph node removed for diagnostic tests. The insured defended by

arguing that he had not considered the biopsy serious

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In affirming a verdict for the insured, the court quoted the following definition of "misrepresentation“:

A misrepresentation in insurance is a 

statement as a fact of something which is untrue

, 

and which 

the

insured states with the knowledge that it is untrue 

and with an intent to deceive

, or which he states

positively as true without knowing it to be true, and which has a tendency to mislead, where such fact

in either case is material to the risk. Hays v. Jackson National Life Ins. Co., 105 F.3d 583 (10th Cir., 1997)

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A. All statements and descriptions in any application for an insurance policy or in negotiations

therefor, by or in behalf of the insured, shall be deemed to be representations and not

warranties

15 O.S. Section 235

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Rescission, when not effected by consent, can be accomplished only by the use, on the part of

the party rescinding, of reasonable diligence to comply with the following rules:

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1. 

He must rescind promptly

, upon discovering the facts which entitle him to rescind, if he is

free from duress, menace, undue influence, or disability, and is aware of his right to rescind;

and,

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2. 

He must restore to the other party everything of value which he has received 

from him

under the contract; or must offer to restore the same, upon condition that such party shall do

likewise, unless the latter is unable, or positively refuses to do so.

High Evidentiary Standard:

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This court has construed this section in a long line of cases, and uniformly held that where an

insurance company defends in suit on a policy on the ground that the insured made false

statements in an application, the company must not only prove the falsity of the statements,

but that they were made in bad faith and with the intent to deceive.  N.Y. Life Ins. Co. v.

Strong, 1937 OK 93, 65 P.2d 194, 179 Okla. 280 (Okla., 1937)

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Fraud is never presumed and the representations made by [applicant] carry a badge of good

faith until overcome by the sheer weight of evidence to the contrary. Farmers & Bankers Life

Ins. Co. v. Lemon, 228 P.2d 634, 204 Okla. 218 (Okla., 1951)

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In the past 7 years have you been:

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Diagnosed

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Treated

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Tested positive for

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Or been given medical advice by a member of the medical profession for:

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Cancer

Structural ambiguity

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Have you been diagnosed cancer

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Treated cancer

Factual ambiguity

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Tested positive 

for 

cancer

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Been given medical advice . . .  

for 

cancer

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Our applicant was in the hospital for testing and had been told 

cancer was 

a possibility

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And there was no real “

treatment” given 

other than aspirin

Factual ambiguity

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Is that:

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Tested positive 

for 

cancer

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or

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Been given medical advice . . .  

for 

cancer

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Our applicant was in the hospital for testing and had been told 

cancer was 

a possibility

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And there was no real “treatment” other than aspirin

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Unless “testing” is considered treatment

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This goes to the “intent to deceive” requirement

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survivor contended insured did not tell people she had cancer, but that that was suspected

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Given the nearly insurmountable burden on the insurance company to prove intent to deceive,

I felt good about the case

Mixed result

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

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Named Driver Exclusion 

Pierce v. Oklahoma Property

& Casualty Ins.

Co

., 1995 OK 78, 901 P.2d 819

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

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Drop-Down “Exclusion” 

Hartline v. Hartline,

 2001 OK

15, 39 P.3d 765

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

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Punitive Damages Exclusion 

Dayton Hudson Corp. v.

American Mut. Liability Ins. Co.,

 1980 OK 193, 621 P.2d

1155

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

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Criminal Acts Exclusion—

Illegal up to minimum limits,

except for liability for damages caused by someone

who has stolen the car

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

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Other Insurance Clauses—

Legal under some

circumstances.

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

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Other Insurance Clauses—

Legal under some circumstances.

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Beware, if the policy has (and it likely will) a “Limits of

Liability Clause,” restricting total coverage to the

“limits provided by the policy with the highest limits,”

that will be enforced. 

Gordon v. Gordon,

 2005 OK 5, 41

P.3d 391. That is because our compulsory insurance

laws mandate only one legal limit of coverage.

PERMISSIBLE EXCLUSIONS TO AUTO LIABILITY COVERAGE

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Other Insurance Clauses—

Legal under some circumstances. Say an employee who causes injury while

on the clock is insured under his own auto policy, as well as under the employer’s commercial auto

policy, as an “additional insured,” under the omnibus coverage provision. The coverage on the auto will

usually be primary, with the coverage on the “non-owned” policy being excess.

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Beware, if the policy has (and it likely will) a “Limits of Liability Clause,” restricting total coverage to the

“limits provided by the policy with the highest limits,” that will be enforced. 

Gordon v. Gordon,

 2005 OK

5, 41 P.3d 391. That is because our compulsory insurance laws mandate only one legal limit of coverage.

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But, if the policies have no “Limits of Liability Clause, but

both have “other insurance clauses” making each “excess,”

the provisions cancel each other out and both have pro rata

primary coverage up to the cumulative limit.

 Equity Mut.

Ins. Co., v. Spring Valley Wholesale Nursery, Inc., 

1987 OK

121, 747 P.2d 947.

National Business Institute (NBI)

Auto Injury Litigation: The

Ultimate Guide

Section II

. In-Depth Coverage Analysis

Paul Kouri

May 2, 2019

Oklahoma City, Oklahoma

72