Summary
The United States District Court for the Western District of Oklahoma denied The Standard Fire Insurance Company’s Rule 12(b)(6) motion to dismiss claims brought by the trustee of Daniel Robert Gresham’s bankruptcy estate. The court held that the trustee plausibly alleged damages arising from Standard Fire’s alleged failure to settle an underlying personal-injury action within policy limits and rejected the argument that bankruptcy or public policy barred the bad-faith claim. The court also declined to dismiss the breach-of-contract claim.
Topics
Practice areas
Questions Presented
- Whether the trustee plausibly alleged damages sufficient to support an Oklahoma insurer bad-faith claim when the insured had filed for bankruptcy and the judgment debt may have been discharged.
- Whether filing for bankruptcy, failing to list a claim against the insurer in the bankruptcy petition, or failing to complain about the insurer's conduct before bankruptcy bars the bankruptcy trustee from pursuing the insurer bad-faith claim as contrary to Oklahoma public policy.
- Whether the trustee adequately alleged damages for the breach-of-contract claim.
Holdings
- The trustee plausibly alleged damages directly caused by Standard Fire's alleged failure to settle, and the possibility that the judgment debt was discharged in bankruptcy did not require dismissal at the pleading stage.
- Under the circumstances presented, filing bankruptcy did not constitute an election of remedies that barred the insured or the bankruptcy estate from pursuing relief based on the insurer's alleged failure to settle.
- The trustee adequately alleged damages resulting from Standard Fire's alleged breach of the insurance policy.
Key quotations
“Neither Badillo nor any authority cited by Standard Fire holds that an insured’s declaration of bankruptcy precludes the insured (or the insured’s bankruptcy estate) from seeking relief due to the insurer’s failure to settle.” (at 8)
“For the foregoing reasons, the Motion to Dismiss (Doc. No. 7) filed by Defendant The Standard Fire Insurance Company is DENIED.” (at 10)
Factual background
In an Oklahoma personal-injury action, a jury found Gresham liable and the state trial court entered a judgment exceeding $3.1 million, plus costs and postjudgment interest. Before trial, Davis's counsel made a time-limited demand to Standard Fire to settle for the $100,000 policy limit, which Standard Fire allegedly rejected. Gresham later filed Chapter 7 bankruptcy, and the bankruptcy trustee alleged that Standard Fire's failure to settle caused the excess judgment and resulting losses. The trustee asserted breach-of-contract and insurer bad-faith claims against Standard Fire.
Procedural history
Christopher John Davis obtained a judgment against Daniel Robert Gresham in an Oklahoma state-court personal-injury action. After Gresham filed for Chapter 7 bankruptcy, the Bankruptcy Court lifted the automatic stay to permit Davis to seek recovery from Gresham's liability insurer. Davis initiated a garnishment proceeding, the bankruptcy trustee intervened and asserted contract and bad-faith claims against Standard Fire, and Standard Fire removed the matter to federal court based on diversity jurisdiction. Standard Fire then moved to dismiss the trustee's claims under Rule 12(b)(6).