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Impossible to sue insurers that are part of the same group of insurers
John R. Parrish brought claims for breach of contract, breach of the duty of good faith and fair dealing, and fraud against the three defendant insurance companies. The claims have arisen from the defendant’s handling of an insurance claim submitted by the plaintiff for storm damage to his residence.
IN John R. Parrish v. Liberty Mutual Insurance Company, et al., no. CIV-22-0802-HE, United States District Court, WD Oklahoma (Nov. 18, 2022) the homeowner’s policy relied upon by plaintiff was issued by defendant American Economy Insurance Company. The other two defendants, Liberty Mutual Insurance Company and Safeco Insurance Company of America, are alleged to have handled various business with the plaintiff and to have participated in the claims process.
All three defendants dismissed the alleged fraud claim, arguing that Oklahoma law does not recognize a fraud claim under the circumstances alleged. Defendants Liberty Mutual and Safeco also moved to dismiss the contract and bad faith claims against them because they did not insure Parrish.
A court will grant a motion to dismiss if the complaint does not contain sufficient facts to state a claim for relief that is reasonable. The court accepts as true all well-pleaded factual allegations of the complaint and views them in the light most favorable to the non-moving party. A claim is facially plausible when the plaintiff alleges factual content that allows the court to reasonably infer that the defendant is responsible for the alleged misconduct.
THE STATE OF FRAUD
Allegations of fraud in inducing the contract or as to the type and amount of coverage are examples of fraud allegations that are permissible with respect to insurance cases in Oklahoma. But that is not the circumstance that Parrish alleges. The petition raised no question of the formation of the insurance contract in question. Instead, Parrish focused entirely on how the plaintiff’s claim was handled when a claim was made under the policy. In that context, when claims handling practices under an insurance contract are at issue, Oklahoma does not recognize a fraud claim.
IN Lewis v. Farmers Ins. Co., Inc., 681 P.2d 67 (Okla. 1983), the Oklahoma Supreme Court, stated that Oklahoma law recognized the two causes of action that may be asserted based on the existence of an insurance contract:
- an action based on the contract; and
- action for breach of the implied duty to act fairly and in good faith.
The result is that here, where all claims are based on the existence of the contract, no fraud claim is available to the plaintiff.
The court concluded that Oklahoma law does not recognize a fraud claim where the challenged conduct is the handling of a claim under an otherwise valid policy. The defendants’ motions were therefore granted.
LIABILITY FOR LIBERTY MUTUAL AND SAFECO
Defendants Liberty Mutual and Safeco assert no claim against them at all, because they did not issue the homeowner’s policy involved here and therefore cannot be held liable for it or for the obligations arising therefrom. The plaintiffs argued that the extensive actions taken by Liberty Mutual and Safeco and their employees in handling the claims are sufficient to make them liable for the contract and bad faith claims, even though they were not parties to the contract.
The petition alleges that all three defendants are part of the same insurance group, that they advertise together in different ways, and that employees of Liberty Mutual and Safeco dealt directly with the plaintiff and handled most or all aspects of the claims settlement process. Plaintiffs argue that is enough to make them potentially liable.
The petition does not expressly allege that Liberty and/or Safeco are instrumental to the American economy and, more importantly, does not allege facts that would support such a conclusion. The petition alleges, indeed, significant involvement by employees of Liberty Mutual and Safeco in the handling of plaintiff’s claims.
Without more, the lawsuit merely suggests a basis for concluding that Liberty Mutual and Safeco were agents of the American economy, not instruments of it or each other. Because neither Liberty Mutual nor Safeco are alleged to be parties to the insurance contract, and because no reasonable basis has been alleged here to conclude that they were instrumentalities of the contracting party, the petition does not state a claim against either of them.
For the foregoing reasons, American Economy’s motion to dismiss in part and Liberty Mutual’s and Safeco’s motion to dismiss were granted. The fraud claims were dismissed for all defendants.
The contract and bad faith claims were dismissed as to Liberty Mutual and Safeco.
Due to mergers, consolidation and specialization, insurance holding companies operate several different insurance companies, with different names, different specialties and management. To save costs, the holding company will employ the same staff of underwriters and claims personnel to handle claims for all of the many insurance companies under the holding company’s control. Each insurer is a separate entity that shares staff with its sister insurers. In this case, only American Economy insured Parrish and only American Economy could be sued for breach of contract or bad faith. The lawsuit against the other insurance companies was simply an attempt to annoy and anger the holding company. It did not work. The claim of fraud could not be proven in Oklahoma because anything done in the adjustment of a claim can satisfy the need to prove all elements of fraud.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org
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