Insured’s Failure to Cooperate Dooms Action against Insurer, Tenth Circuit Rules

January 31, 2015 | Insurance Coverage

The U.S. Court of Appeals for the Tenth Circuit has affirmed a district court’s decision granting summary judgment in favor of an insurance carrier where the insured had not cooperated with the insurer as required by his policy.

The Case

A father insured his automobiles with Sagamore Insurance Company under a policy containing a named-driver exclusion (“NDE”) specifically excluding coverage for his minor daughter. After the daughter was involved in an accident while driving one of her father’s insured vehicles, he contacted Sagamore through his insurance broker.

Sagamore sent the father a reservation-of-rights letter and attempted to contact him numerous times. When he failed to respond, Sagamore sent him a second reservation-of-rights letter noting his failure to respond, requesting that he contact Sagamore immediately, and warning him that Sagamore could decline coverage under the terms of the policy based on his failure to cooperate in its investigation.

When the father again failed to respond, Sagamore sent a third letter, noting his continued failure to cooperate and requesting that he and his daughter appear for an examination under oath. After they failed to appear for their scheduled examinations, Sagamore declined coverage, citing both the NDE and the father’s failure to cooperate in its investigation of his claim.

Sometime thereafter, the driver of the vehicle involved in the accident obtained a default judgment against the daughter for $694,726.23. That driver sought coverage from Sagamore, which responded that it already had declined coverage based on the NDE and the father’s non-cooperation.

The father and his daughter then sued Sagamore for breach of contract and bad faith, and the parties moved for summary judgment. The district court granted Sagamore’smotion, concluding that Sagamore had not breached the contract and had not acted in bad faith.

The father and his daughter appealed to the Tenth Circuit.

The Tenth Circuit’s Decision

The Tenth Circuit affirmed.

In its decision, the circuit court, applying Oklahoma law, explained that it did not have to address arguments related to whether Sagamore had breached the contract or had acted in bad faith in declining coverage on the basis of the policy’s NDE provision because there was an “independent and sufficient ground” for affirming the district court’s decision granting summary judgment to Sagamore:  the father’s failure to cooperate with Sagamore as required by the policy terms.

The Tenth Circuit found that the “material, undisputed facts” established that Sagamore had demonstrated that it diligently had attempted to contact the father. The circuit court noted that the father admitted that he had received at least one letter from Sagamore directing him to contact the insurer but that he had failed to do so.

The Tenth Circuit rejected the father’s argument that he had no duty to cooperate after Sagamore advised him that his daughter was not covered under the policy, observing that the father’s policy obligated him to cooperate in accordance with its terms while “claiming any coverage.” The circuit court added that there was no evidence in the record indicating that the father had ever withdrawn his request for coverage.

Finally, the Tenth Circuit rejected the father’s argument that even if he had breached his duty to cooperate, the district court had erred in granting Sagamore summary judgment because Sagamore had failed to demonstrate any prejudice from the breach. The circuit court reasoned that because of the father’s non-cooperation, Sagamore did not know whether he had given his daughter permission to drive the insured vehicle; because the policy excluded coverage for non-permissive use, Sagamore demonstrated that it had been prejudiced, at a minimum, by its inability to investigate this issue.

The Tenth Circuit concluded that the policy required the father to cooperate with Sagamore’s investigation and he had failed to do so. Thus, Sagamore had not breached the contract by denying coverage on this basis and the district court properly had granted summary judgment to Sagamore.

The case is Bryant v. Sagamore Ins. Co., No. 14-7039 (10th Cir. Jan. 6, 2015).

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