HENSLEY v. STATE FARM FIRE AND CASUALTY CO.
2017 OK 57
| Okla. | 2017Background
- Douglas bought property from Hensley by contract for deed (equitable title); contract required Douglas to keep property insured and to include premiums in payments to Hensley; Hensley remained named insured on a State Farm policy.
- State Farm knew of the contract-for-deed status for years; Hensley continued to pay premiums and the policy was renewed in Hensley’s name; Douglas reported losses and submitted proof of loss; State Farm corresponded referring to both Hensley and Douglas as “Our Insured.”
- State Farm adjusted and paid certain amounts; dispute over amount of loss persisted and counsel exchanged estimates and correspondence about supplemental payments.
- Hensley and Douglas sued State Farm for breach of contract and breach of the insurer’s implied-in-law duty of good faith; State Farm moved for summary judgment arguing Douglas was a stranger to the insurance contract and lacked standing for a bad-faith claim.
- Trial court granted summary judgment for State Farm; Court of Civil Appeals affirmed; Supreme Court granted certiorari and reversed summary judgment as to Douglas on the issue of third‑party beneficiary/insured status because material facts were disputed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Is Douglas entitled to sue for insurer bad faith as an insured or intended third‑party beneficiary? | Douglas: policy was obtained to insure both interests; State Farm treated him as insured; therefore he is an intended third‑party beneficiary/insured. | State Farm: Douglas is a stranger to the policy; named insured is Hensley; no contractual duty owed to Douglas. | Court: Equitable title from a contract for deed alone is insufficient; but factual disputes exist whether parties intended Douglas as an intended third‑party beneficiary/insured — remand. |
| 2) Does the loss‑payment clause create a direct contractual duty to Douglas and thereby support a bad‑faith claim? | Douglas: loss‑payment language and practice of payment give him standing and expectation of good faith. | State Farm: clause pays the named insured or a named lienholder; Douglas is not named so clause does not create a contractual duty to him. | Court: Whether loss‑payment language and surrounding conduct created an enforceable third‑party right is a question of intent and fact for the trier of fact. |
| 3) Does Douglas’s equitable title (contract for deed) alone make him a lienholder or loss payee under the policy? | Douglas: contract for deed treated as mortgage; his equitable interest makes him legally entitled to proceeds. | State Farm: insurance is a personal contract; absent naming/endorsement, equitable title does not create a policy‑based insured/lienholder status. | Court: Equitable title alone is insufficient to confer policy‑created insured status. |
| 4) Can extrinsic evidence (insurer’s conduct) create ambiguity allowing third‑party beneficiary status? | Douglas: State Farm’s conduct (calling him insured, handling his proof of loss) shows intent to benefit him; latent ambiguity permits extrinsic evidence. | State Farm: parol evidence cannot alter clear written policy terms; no patent ambiguity exists. | Court: Extrinsic evidence may show latent ambiguity and intent; because facts are disputed, this is for the factfinder, not summary judgment. |
Key Cases Cited
- Trinity Baptist Church v. Brotherhood Mut. Ins. Servs., 341 P.3d 75 (Okla. 2014) (insurer’s duty of good faith attaches to insured; duty generally not owed to strangers)
- May v. Mid‑Century Ins. Co., 151 P.3d 132 (Okla. 2006) (loss‑payment clauses can negate third‑party beneficiary rights when contract expressly reserves insurer’s payment discretion)
- Shebester v. Triple Crown Insurers, 826 P.2d 603 (Okla. 1992) (elements of actions ex contractu: express promise, implied‑in‑fact promise, or promise implied‑in‑law)
- Roach v. Atlas Life Ins. Co., 769 P.2d 158 (Okla. 1989) (entitlement to insurance proceeds alone does not automatically create an implied‑in‑law duty of good faith)
- Brown v. First Nat. Bank of Dewey, 617 F.2d 581 (10th Cir. 1980) (equitable lien may arise for mortgagee when mortgagor promises to insure for mortgagee’s benefit; distinguishes contractual naming vs. equitable rights)