Hayes Family Trust v. State Farm Fire & Casualty Co.
688 F. App'x 551
| 10th Cir. | 2017Background
- Plaintiffs (Hayes Family Trust and two individuals) sued State Farm after storm damage to a building, alleging breach of contract and bad faith for delaying appraisal and inadequately investigating the claim.
- Plaintiffs demanded appraisal under a statutorily-mandated appraisal clause in standard Oklahoma fire policies; State Farm initially resisted, arguing the dispute was over coverage, not amount of loss.
- Plaintiffs filed two actions (both removed to federal court); in the first, an umpire was appointed and an appraisal award was rendered, which State Farm paid and plaintiffs accepted.
- In this appeal (the second case), plaintiffs alleged bad faith based on (1) State Farm’s delay/decline to initiate appraisal when first demanded and (2) an inadequate investigation.
- The district court granted summary judgment for State Farm and stayed discovery; plaintiffs appealed both the summary judgment and the stay of discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer acted in bad faith by declining/delaying appraisal | Massey and policy language ("shall") compel immediate appraisal; refusal was unreasonable | Appraisal not required when the dispute is over coverage; legitimate dispute justified delay | Court: No bad faith — insurer reasonably disputed coverage; insured must present extra evidence to overcome legitimate dispute |
| Whether insurer’s investigation was inadequate (bad faith) | State Farm ignored relevant facts and performed an inadequate investigation that caused refusal to pay | State Farm inspected multiple times, prepared estimates, and appraisal award included items from its estimate; no evidence additional investigation would change outcome | Court: No bad faith — plaintiffs failed to show overlooked material facts or that further investigation would have produced new relevant information |
| Whether district court abused discretion by staying discovery while summary judgment pending | Plaintiffs lacked time to respond and needed discovery to oppose summary judgment | Court had broad discretion; plaintiffs did not specify what discovery or evidence they would obtain | Court: No abuse of discretion — plaintiffs failed to show what additional evidence discovery would produce |
Key Cases Cited
- Massey v. Farmers Ins. Grp., 837 P.2d 880 (Okla. 1992) (appraisal clause compels appraisal where coverage is not disputed)
- Newport v. USAA, 11 P.3d 190 (Okla. 2000) (insurer’s implied duty to act in good faith and deal fairly)
- Skinner v. John Deere Ins. Co., 998 P.2d 1219 (Okla. 2000) (bad faith does not bar insurer from contesting a legitimate coverage dispute)
- Oulds v. Principal Mut. Life Ins. Co., 6 F.3d 1431 (10th Cir. 1993) (bad faith judged by facts known when insurer acted)
- Bannister v. State Farm Mut. Auto. Ins. Co., 692 F.3d 1117 (10th Cir. 2012) (legitimate dispute shields insurer from bad faith absent additional evidence)
- Sims v. Great Am. Life Ins. Co., 469 F.3d 870 (10th Cir. 2006) (insurer entitled to summary judgment where additional investigation would not likely yield new information)
- Regan-Touhy v. Walgreen Co., 526 F.3d 641 (10th Cir. 2008) (district court discovery rulings reviewed for abuse of discretion)