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James River Insurance Co. v. Blue Ox Dance Hall, LLC

United States District Court, N.D. Oklahoma

November 9, 2017

BLUE OX DANCE HALL, LLC d/b/a Legend's Dance Hall & Saloon, LLC et al., Defendants.



         Now before the Court is Plaintiff James River Insurance Co.'s Second Motion for Partial Summary Judgment and Brief in Support (Dkt. #101). In a prior opinion and order (Dkt. # 98), the Court found that claims alleged in state court against Blue Ox Dance Hall, LLC (Blue Ox) by defendants Michael Sanchez, John Jeffrey Peterson, Jr., Johnny Dale Croney, II, and John Phillip Hughes fell within an Assault and Battery Endorsement (A & B Endorsement) to an insurance policy issued by James River Insurance Co. (James River) to Blue Ox. The Court authorized James River to file a second motion for summary judgment on the issue of whether claims expenses could be considered in determining whether the limits of insurance had been paid to the insured. James River has filed a second motion for summary judgment and the motion is fully briefed.


         On October 25, 2013, James River issued a liquor liability and general commercial liability insurance policy to Blue Ox, which was in effect from October 25, 2013 to October 25, 2014. Dkt. # 101-1, at 1, 3. The policy has a $1 million aggregate limit for claims under the liquor liability provisions and an aggregate limit of $2 million for claims falling within the general commercial liability section of the policy. Id. However, an A & B Endorsement is attached to the policy which significantly limits the policy limits as to liquor liability and general commercial liability for acts of assault or battery. Id. at 41-42. The A & B Endorsement limits coverage to $25, 000 per occurrence and $50, 000 in the aggregate for claims caused by acts of assault or battery. Id. at 41. The policy also includes the following provision further limiting payments to the insured under the A & B Endorsement:

Any “claims expense” arising from any claim of “suit” to which this endorsement applies and incurred by us shall be included within the Limits of Insurance in the above SCHEDULE and shall not be paid in addition to such Limits of Insurance. Our duty to defend any claim or “suit” or to pay any settlement or judgment of defense costs ends after we have paid our applicable Limits of Insurance as forth in the above SCHEDULE. All “claims expense” shall first by subtracted from the Limits of Insurance with the remainder, if any, being the amount available to pay damages. If the applicable Limit of Insurance is exhausted by the payment of settlements, judgments, awards and/or defense costs prior to final settlement, judgment or award, we shall have the right to withdraw from any further defense by tendering control of the defense of the “suit” to you. . . .

Id. at 42. The term “claims expense” includes “investigations, adjustment and legal expenses, interests and fees, including court costs and premiums on bond.” Id. This type of provision allowing an insurer to deduct claims expenses from the limits of insurance is known as a defense within limits provision.

         Blue Ox was named as a defendant in three separate lawsuits filed in Tulsa County District Court arising out of incidents in which physical force was used against patrons of Blue Ox. James River filed this case seeking, inter alia, a declaratory judgment that the A & B Endorsement applied to the claims against Blue Ox, and James River sought a ruling that claims expenses should be deducted from the limits of insurance. James River filed a motion for summary judgment, and defendants Blue Ox, Michael Sanchez, and John Jeffrey Peterson, Jr. filed responses. The Court entered an opinion and order (Dkt. # 98) finding that the claims against Blue Ox fell within the scope of the A & B Endorsement. However, the Court found that it could not rule on the issue of whether claims expenses could be deducted from the limits of insurance, because James River raised an issue in its reply to which defendants were entitled to an opportunity to respond. Dkt. # 98, at 13.


         Summary judgment pursuant to Fed.R.Civ.P. 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.

         “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 one party must prevail as a matter of law.” Id. at 250. 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).


         James River argues that the A & B Endorsement expressly allows it to deduct claims expenses from the limits of insurance, and that the legal authority cited by defendants suggesting that a defense within limits provision is unenforceable does not apply to a surplus lines insurer. Dkt. # 101. Defendants Sanchez and Peterson argue that the defense within limits provision of the A & B endorsement is unenforceable under Oklahoma Administrative Code (OAC) § 365:15-1-15. Dkt. # 105. Blue Ox also asserts that the defense within limits is unenforceable, and it further argues that the Oklahoma Insurance Commissioner has not granted a waiver to surplus lines insurers that would exempt James River from compliance with § 365:15-1-15. Dkt. # 104.

         This is a diversity case requiring the Court to construe disputed terms of an insurance policy as required by state law. See Zurich American Ins. Co. v. O'Hara Reg'l Ctr. for Rehabilitation, 529 F.3d 916, 920 (10th Cir. 2008); Houston General Ins. Co. v. American Fence Co., Inc., 115 F.3d 805, 806 (10th Cir. 1997). Under Oklahoma law, an insurance contract should be construed according to the terms set out within the four corners of the document. First American 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. 2004). 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 susceptible to more than one reasonable interpretation. Max True Plastering Co. v. U.S. Fidelity & Guar. Co., 912 P.2d 861, 869 (Okla. 1996). If an insurance contract contains an ambiguous term, the Court may refer to extrinsic evidence to interpret the insurance policy. Gable, Simmons & Co. v. Kerr-McGee Corp., 175 F.3d 762, 767 (10th Cir. 1999) (citing Pierce Couch Hendrickson Baysinger & Green v. Freede, 936 P.2d 906, 912 (Okla. 1997)).

         The parties do not dispute that the A & B Endorsement contains a defense within limits provisions allowing James River to deduct claims expenses from the limits of insurance owed to its insured, and defendants do not argue that the defense within limits provision is ambiguous. The Court has reviewed the defense within limits provision, and it clearly permits James River to include claims expenses within the limits of insurance. Dkt. # 101-1, at 42. The issue raised by defendants is whether ...

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