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Magallan v. Zurich American Insurance Co.

United States District Court, N.D. Oklahoma

September 12, 2017

ASHLEY NICHOLE MAGALLAN, individually, and as surviving spouse and next friend of Jesus Magallan, Jr., deceased, Plaintiff,
v.
ZURICH AMERICAN INSURANCE COMPANY, Defendant, and ZURICH AMERICAN INSURANCE COMPANY, Third-Party Plaintiff,
v.
WYOMING CASING SERVICE, INC., Third-Party Defendant.

          OPINION AND ORDER

          CLAIRE V.EAGAN UNITED STATES DISTRICT JUDGE

         Now before the Court are Ashley Nichole Magallan's (Magallan) motion for partial summary judgment (Dkt. # 74), and Zurich American Insurance Company's (Zurich) motion for summary judgment (Dkt. # 80). In order to fully address Zurich's motion (Dkt. # 80), the Court must first rule on Zurich's Daubert[1] motion regarding plaintiff's proposed expert Diane Luther (Dkt. # 85).

         I.

         This case arises from an automobile accident that resulted in the death of Magallan's husband, Jesus Magallan, Jr. Dkt. # 2-1, at 6. Magallan is, and Jesus Magallan, Jr. was, a resident of Texas. On February 17, 2015, Jesus Magallan, Jr. and Pedro Ochoa were passengers in a pickup truck being driven by Robert Kirk and owned by Wyoming Casing Service, Inc. (Wyoming Casing). Dkt. # 74, at 12-13; Dkt. # 80, at 5. All three men were employees of Wyoming Casing, and were acting within the scope of their employment. Dkt. # 74, at 13; Dkt. # 80, at 5. Wyoming Casing is a North Dakota corporation, with its principal place of business in North Dakota. The pickup truck was involved in an automobile accident with another vehicle in Freedom, Oklahoma, resulting in injuries to Ochoa and Kirk and the death of Jesus Magallan, Jr. Dkt. # 74, at 13; Dkt. # 80, at 5. Zurich determined that Kirk caused the accident by turning in front of the other vehicle. Dkt. # 80-2, at 2. Magallan does not now dispute that Kirk caused the accident. Dkt. # 80, at 5; Dkt. # 93, at 10. At the time of the accident, Wyoming Casing had purchased workers' compensation insurance and business automobile insurance policies issued by Zurich or its affiliate.[2] Dkt. ## 71-12, 80-5. Zurich is an Illinois corporation, with its principal place of business in Illinois.

         The named insured of the business automobile insurance policy is Wyoming Casing, and the policy period is September 1, 2014 to September 1, 2015. Dkt. # 80-4. The policy includes a business auto coverage form that describes Wyoming Casing's “covered autos liability” coverage. Dkt. # 80-5. The business auto coverage form states that Zurich “will pay all sums an ‘insured' legally must pay as damages because of ‘bodily injury' or ‘property damage' to which this insurance applies, caused by an ‘accident' and resulting from the ownership, maintenance or use of a covered ‘auto.'” Dkt. # 80-5, at 2. According to the policy's declarations, “any auto” is covered under the covered autos liability coverage. Dkt. # 80-4, at 2; Dkt. # 80-5, at 1. The business auto coverage form includes sections titled “Who Is An Insured” and “Exclusions.” Dkt. # 80-5, at 2-3. Three exclusions are relevant to this case. First, the workers' compensation exclusion, which excludes “[a]ny obligation for which the ‘insured' or the ‘insured's' insurer may be held liable under any workers' compensation . . . law.” Id. at 3. Second, the employee indemnification and employer's liability exclusion, which excludes bodily injury to an employee that “aris[es] out of and in the course of . . . [e]mployment by the ‘insured.'” Id. at 4. Third, the fellow employee exclusion, which excludes bodily injury to “[a]ny fellow ‘employee' of the ‘insured' arising out of and in the course of the fellow ‘employee's' employment.” Id.

         The business automobile insurance policy contains several endorsements, three of which are relevant to this case: the Oklahoma uninsured motorists (UM) coverage endorsement (Dkt. # 80-6), the auto medical payments coverage endorsement (Dkt. # 80-7), and the broadened coverage for named individuals endorsement (Dkt. # 80-10). The UM endorsement has a coverage limit of $1, 000, 000 “per accident.” Dkt. # 80-6, at 1. In addition, it states that it modifies the business auto coverage form, and the provisions of that coverage form apply unless modified by the UM endorsement. Id. According to the UM endorsement, Zurich “will pay, in accordance with Title 36, Oklahoma Statutes, all sums the ‘insured' is legally entitled to recover as compensatory damages from the owner or driver of an ‘uninsured motor vehicle.'” Id. at 1. The endorsement defines “uninsured motor vehicle” as a land motor vehicle or trailer:

a. For which no liability bond or policy at the time of an ‘accident' provides at least the amounts required by the applicable law where a covered ‘auto' is principally garaged;
b. That is an underinsured motor vehicle. An underinsured motor vehicle is a motor vehicle or ‘trailer' for which there is a liability bond or policy at the time of an accident, the liability limits of which are less than the amount of the claim of the person or persons making such a claim, regardless of the amount of coverage of either of the parties in relation to each other;
c. For which an insuring or bonding company denies coverage or is or becomes insolvent; or
d. That is a hit-and-run vehicle and neither the driver nor owner can be identified.

Id. at 4. The UM coverage endorsement also contains sections titled “Who Is An Insured” and “Exclusions.” The UM endorsement states that “[a]nyone ‘occupying' a covered ‘auto'” is an insured. According to the business auto declarations, only automobiles owned by Wyoming Casing are “covered autos” under the UM endorsement. Dkt. # 80-4, at 2; Dkt. # 80-5, at 1. It is undisputed that Magallan, Kirk, and Ochoa were defined first party insureds under the UM endorsement, as they were occupants of a covered auto. Dkt. # 80-6, at 1-2. The UM endorsement lists five exclusions to the coverage. The most relevant to this case is the direct or indirect benefit exclusion, which states that UM coverage “does not apply to . . . [t]he direct or indirect benefit of any insurer or self-insurer under any workers' compensation . . . law.” Id., at 2.

         The auto medical payments endorsement also modifies the business auto coverage form. Dkt. # 80-7, at 1. This endorsement states that Zurich “will pay reasonable expenses incurred for necessary medical and funeral services to or for an ‘insured' who sustains ‘bodily injury' caused by ‘accident.'” Id. The auto medical payments endorsement contains an employee bodily injury exclusion, which excludes any bodily injury to an employee “arising out of and in the course of employment by [Wyoming Casing].” Id.

         The broadened coverage for named individuals endorsement also modifies the business auto coverage form. Dkt. # 80-10, at 1. This endorsement states that the following is added to the “Who Is An Insured” sections of the UM and auto medical payments endorsements: “[a]ny individual named in the Schedule and his or her ‘family members' are ‘insureds' while ‘occupying' or while a pedestrian when being struck by any ‘auto' you don't own except . . . [a]ny ‘auto owned by that individual or by any ‘family member.'” Id. at 2. The individuals listed in the schedule are Steve Halvorson and Londa Halverson.[3] Steve Halvorson is the owner and president of Wyoming Casing. Dkt. # 80, at 22.

         After the automobile accident, Magallan, individually and as surviving spouse of Jesus Magallan, Jr., filed a first party UM claim with Zurich on or about July 7, 2015. Id.; Dkt. # 93, at 10. Zurich denied her UM claim on or about February 8, 2016. Dkt. # 80, at 6; Dkt. # 93, at 10. Magallan also filed a workers' compensation claim in Oklahoma on December 7, 2015. Dkt. # 80, at 5. Magallan was awarded benefits for her workers' compensation claim in June 2016. Id. Magallan filed this suit in Delaware County District Court on October 3, 2016. Dkt. # 2-1, at 1. Her petition alleges claims for breach of contract, bad faith, and declaratory relief against Zurich, and negligence and wrongful death against John Christopher Crelia, the driver of the other automobile involved in the accident.[4] Id. The suit was filed in Delaware County because Crelia was at the time a resident there. Zurich removed the suit to this Court (Dkt. # 2) and filed a counterclaim (Dkt. # 11) against Magallan and a third-party complaint (Dkt. # 15) against Wyoming Casing, both seeking declaratory judgment regarding Zurich's obligations under the business automobile insurance policy.[5]

         Paula Nevin is the Zurich claims handler who processed Magallan's UM claim. Dkt. # 80, at 13. Prior to writing her denial letter, in addition to her investigation, Nevin reviewed the claims file and business automobile insurance policy, and requested and received the Oklahoma workers' compensation statute from one of Zurich's Oklahoma lawyers. Her denial was approved by her team manager, who was designated within Zurich as a “coverage champion, ” or expert. Dkt # 93, at 17. She did not, however, seek the advice of an Oklahoma attorney, or ask Zurich's underwriting department for a coverage opinion. Id.

         Nevin's denial letter-which can only be described as convoluted-lists a mix of policy exclusions as the bases for denying Magallan's claim, including: (1) workers' compensation is the exclusive remedy for auto liability and medical payments coverage; (2) auto liability and medical payments coverages do not apply to workers who suffer bodily injury caused by a fellow employee in the course of employment; (3) Crelia was not at fault, so Magallan is not entitled to UM coverage; and (4) Magallan is also not entitled to UM coverage because any award would benefit an insurer under Oklahoma's workers' compensation laws. Dkt. # 74-4. Importantly, although she does not explain this in her letter, Nevin never considered whether Magallan might be entitled to UM coverage as against Kirk, who was an insured under the policy and at fault for the accident, but excluded from liability under the fellow employee exclusion. At her deposition, Nevin explained that she did not consider Kirk uninsured or underinsured, despite the fact that Magallan was precluded from recovering against him. Dkt # 74-2, at 34-35.

         II.

         Summary judgment pursuant to Federal Rule of Civil Procedure 56 is appropriate where there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Kendall v. Watkins, 998 F.2d 848, 850 (10th Cir. 1993). The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. Celotex, 477 U.S. at 317. “Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy, and inexpensive determination of every action.'” Id. at 327 (quoting Fed.R.Civ.P. 1).

         “When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.'” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citations omitted). “The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the [trier of fact] could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252. In essence, the inquiry for the Court is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that the party must prevail as a matter of law.” Id. at 251-52. In its review, the Court construes the record in the light most favorable to the party opposing summary judgment. Garratt v. Walker, 164 F.3d 1249, 1251 (10th Cir. 1998).

         “The interpretation of an insurance contract is governed by state law and, sitting in diversity, we look to the law of the forum state.” Hous. Gen. Ins. Co. v. Am. Fence Co., Inc., 115 F.3d 805, 806 (10th Cir. 1997) (applying Oklahoma law). In Oklahoma, interpretation of an insurance contract is a matter of law. Max True Plastering Co. v. U.S. Fid. and Guar. Co., 912 P.2d 861, 869 (Okla. 1996). The insured has the burden of showing that his or her claim is covered under the policy. See U.S. Fid. and Guar. Co. v. Briscoe, 239 P.2d 754, 756 (Okla. 1952) (noting that “the contractor must bring himself within the terms of the policy, before he can establish insurer's liability thereon”); see also Pitman v. Blue Cross and Blue Shield of Okla., 217 F.3d 1291, 1298 (10th Cir. 2000) (explaining that, under Oklahoma law, “the insured has the burden of showing that a covered loss occurred”). Once the insured establishes coverage, “the insurer has the burden of showing that a loss falls within an exclusionary clause of the policy.” Pitman, 217 F.3d at 1298. Therefore, summary judgment in favor of the insurer is proper when the undisputed facts show that the insured has failed to establish a covered claim under its insurance policy. See, e.g., VBF, Inc. v. Chubb Grp. of Ins. Cos., 263 F.3d 1226 (10th Cir. 2001) (affirming the district court's grant of summary judgment to the insurers where the undisputed facts established that, under Oklahoma law, the insured's claims were not covered). Conversely, summary judgment in favor of the insured is proper when the undisputed facts show the insured has established a covered claim. See id.

         III.

         Magallan and Zurich have filed cross-motions for summary judgment regarding Magallan's breach of contract claim. Dkt. ## 74, 80. Zurich also seeks summary judgment on Magallan's bad faith claim and request for punitive damages. Dkt. # 80, at 23-28. In response to Zurich's motion, plaintiff relied in its response on an affidavit of her proposed expert Diane Luther (Dkt. # 93-4). Although Zurich did not file a motion to strike the affidavit, it did file a Daubert motion to exclude her testimony (Dkt. # 85). To determine if the Court may consider that affidavit in ruling on summary judgment, it must resolve Zurich's Daubert motion (Dkt. # 85) seeking to exclude the testimony of the expert.

         A.

         Magallan argues that she is entitled to recover on her UM claim under the unambiguous terms of the insurance policy. Zurich argues that the unambiguous language of the policy excludes Magallan's UM claim. In interpreting the policy, the Court applies the Oklahoma rules of construction. See VBF, Inc., 263 F.3d at 1230. Under Oklahoma law, an insurance contract should be construed according to the terms set out within the four corners of the document. First Am. Kickapoo Operations, L.L.C. v. Multimedia Games, Inc., 412 F.3d 1166, 1173 (10th Cir. 2005); Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017, 1020 (Okla. 2002); London v. Farmers Ins. Co., Inc. 63 P.3d 552, 554 (Okla.Civ.App. 2002). If the terms of the contract are “unambiguous, clear and consistent, they are to be accepted in their ordinary sense and enforced to carry out the expressed intention of the parties.” Roads West, Inc. v. Austin, 91 P.3d 81, 88 (Okla.Civ.App. 2003). Ambiguities in an insurance contract are construed against the insurer. Max True, 912 P.2d at 865. A court should not create an ambiguity in the policy by “using a forced or strained construction by taking a provision out of context, or by narrowly focusing on a provision.” Wynn v. Avemco Ins. Co., 963 P.2d 572, 575 (Okla. 1998). A policy term will be considered ambiguous only if it can be interpreted as having two different meanings. Equity Ins. Co. v. City of Jenks, 184 P.3d 541, 544 (Okla. 2008); Osprey L.L.C. v. Kelly-Moore Paint Co., 984 P.2d 194, 199 (Okla. 1999). However, the Oklahoma courts “will not impose coverage where the policy language clearly does not intend that a particular individual or risk should be covered, ” and neither a “split in authority over whether a certain term is ambiguous, ” nor “the fact that the parties disagree” alone is sufficient to establish an ambiguity. BP Am., Inc. v. State Auto Prop. & Cas. Ins. Co., 148 P.3d 832, 835-36 (Okla. 2005).

         Jesus Magallan, Jr. was an insured under the definition contained in the UM endorsement, because it is undisputed that he was a passenger in a vehicle owned by Wyoming Casing when the accident occurred. Moreover, it is undisputed that Kirk caused the accident. The vehicle Kirk was driving is an underinsured motor vehicle under the policy because there was liability insurance for the vehicle under the Wyoming Casing business automobile policy, but the liability insurance precludes a claim by Magallan because Jesus Magallan, Jr. was a fellow employee of Kirk. See Dkt. # 80-5, at 2-4. Therefore, Magallan is entitled to recover on her UM claim unless it is excluded. Zurich argues that five exclusions in the policy preclude Magallan's UM claim: (1) the workers' compensation exclusion in the business auto coverage form, (2) the employee indemnification and employer's liability exclusion in the business auto coverage form, (3) the fellow employee exclusion in the business auto coverage form, (4) the employee bodily injury exclusion in the auto medical payments endorsement, and (5) the direct or indirect benefit exclusion in the UM endorsement. Dkt. # 80, at 14.

         i.

         The first three exclusions that Zurich asserts apply to Magallan's UM claim are found in the business auto coverage form. Dkt. # 80-5). Zurich argues that these exclusions apply because the business auto liability exclusions apply to all claims and that the UM endorsement exclusions supplement the business auto liability exclusions. Magallan argues that the business auto liability exclusions do not apply here because the UM endorsement exclusions supplant the business auto liability exclusions for UM claims. The Court agrees with Magallan; Zurich's interpretation of the policy is unsupportable as a matter of contract law.

         First, the structure of the policy indicates that the business auto liability exclusions apply only to liability coverage (as opposed to UM coverage). The business auto liability exclusions are contained in “Section II - Covered Autos Liability Coverage.” The section is divided into three subsections: “Coverage, ” which includes a description of the auto liability coverage and “Who Is An Insured”; “Exclusions”; and “Limit of Insurance.” See Dkt. # 80-5, at 2-6. The UM endorsement is structured in a similar manner, with sections for “Coverage, ” “Who Is An Insured, ” “Exclusions, ” “Limits Of Insurance, ” “Changes of Conditions, ” and “Additional Definitions.” See Dkt. # 80-6. Because the policy is structured so that the exclusions appear separately under each type of insurance coverage, the logical interpretation is that the exclusions apply only to the insurance coverage under which they are listed. This distinction is reinforced by the fact that these are entirely different types of insurance. Liability coverage provides compensation to third parties on behalf of the insured for damage and injuries incurred when the insured driver is at fault. See 6 New Appleman on Insurance Law Library Edition § 61.03[2] (Jeffrey E. Thomas ed., 2017). Whereas UM coverage provides compensation to the insured for damage and injuries incurred when an uninsured or underinsured motorist is at fault. See id. at § 61.03[3].

         Second, if the business auto liability exclusions are applied to UM claims, it would violate the well established rule that contracts should be read to give meaning to each provision. See BP Am., 148 P.3d at 835; see also Appleman § 5.03[1] (“To the extent an interpretation makes another term or provision meaningless, that interpretation should be rejected in favor of an interpretation that preserves meaning.”). Both the business auto liability form and UM endorsement contain identical exclusions for bodily injuries arising out of war, other military action, or government insurrection. See Dkt. # 80-5, at 5; Dkt. # ...


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