Bad Faith - Federal Court Rejects Negligence Cause Of Action Against Insurer Under Oklahoma Law
Last week, the U.S. District Court for the Eastern District of Oklahoma held that Oklahoma law does not recognize a cause of action for negligence based on an insurer’s failure to pay a claim. The court in Murchison v. Progressive Northern Insurance Co.,
No. CIV-08-108-RAW (July 22, 2008) determined that the insured’s claims in these circumstances were limited to breach of contract and bad faith.
Murchison arose from the plaintiff’s claim for uninsured/underinsured motorist coverage under a policy issued by Progressive Northern Insurance Company (“Progressive”). When the plaintiff initially made
her claim, Progressive advised her that her policy did not contain UM/UIM coverage. Six months later, Progressive tendered its policy limit. The insured nevertheless filed suit against the insurer, asserting causes of action for
negligence, breach of contract, and breach of the duty of good faith and fair dealing. Progressive filed a motion to dismiss the claims of negligence and breach of contract.
The district court held that plaintiff’s negligence claim failed to state a claim upon which relief could be granted. The court stated that it had “found nothing that might suggest that a common law action for negligence
exists based on an insurer’s failure to pay a claim for six months.” Rather, it noted, Oklahoma common law provides a bad faith action in such circumstances under which “more than simple negligence” is
required to prevail. The court refused to create a new common law action, observing that “[i]f every insured could bring a claim for negligence against the insurer under the insurance contract, there would be no need for claims
of breach of contract and bad faith,” and “[n]egligence actions would swallow insurance jurisprudence.”
The district court also considered Progressive’s argument that the plaintiff’s contract claim should be dismissed because, under Oklahoma law, an insured could never recover more than the policy limits on a contract
claim – and because those limits had been paid by Progressive prior to the lawsuit. Noting that certain Oklahoma Supreme Court case law had indicated that UM/UIM insurers could be liable for interest pursuant to 23 O.S. 1981
§22 where they confessed the liability of the underinsured motorist at a date earlier than judgment, the court decided that it did not have enough information to determine whether plaintiff had a claim for interest beyond the
policy limits. It accordingly declined to dismiss the contract claim, although it observed that it did “agree with Defendant that it is unlikely that Defendant will be liable to Plaintiff beyond the policy limits under the
breach of contract claim.”