247 P.3d 1173
Okla.2011Background
- McMullan purchased a 2004 Ford Mustang Cobra and a vehicle service contract for $1,800 from Enterprise.
- The service contract indemnified against certain repair costs for up to 48 months or 50,000 miles.
- The Mustang suffered a mechanical breakdown six months after purchase; McMullan claimed under the contract, which Enterprise denied.
- McMullan sued for breach of contract and bad-faith breach; Enterprise moved for partial summary judgment arguing the contract was not insurance.
- The trial court granted the partial summary judgment; this interlocutory order was certified for immediate appeal.
- The Supreme Court held that vehicle service contracts meet the definition of insurance contracts and that bad-faith liability may apply; the case was reversed and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a vehicle service contract qualifies as insurance | McMullan: contract constitutes insurance because it indemnifies against risk and shifts loss. | Enterprise: contract is a warranty, not insurance, and not regulated as such. | Yes; the contract meets the definition of insurance. |
| Whether bad-faith breach of contract is available for vehicle service contracts | McMullan: bad faith claim should be available because the contract functions like insurance. | Enterprise: bad-faith liability does not apply absent insurance labeling and applicable regulation. | Bad-faith claim may be available where the contract functions as insurance. |
| What regulatory framework applies to vehicle service contracts labeled as insurance | McMullan: statutes governing insurance support treating service contracts as insurance support the bad-faith theory. | Enterprise: regulatory distinctions justify treating service contracts separately from insurance. | Service contracts meeting insurance-like function should be treated like insurance for purposes of duty of good faith. |
Key Cases Cited
- Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205 (U.S. 1979) (insurance characterized by risk spreading and underwriting)
- Griffin Systems, Inc. v. Ohio Department of Insurance, 61 Ohio St.3d 552 (Ohio 1991) (five elements of insurance contract; insurable interest, risk, assumption, distribution, premium)
- Pugh v. North American Warranty Services, 1 P.3d 570 (Utah App. 2000) (contract shifts risk of financial loss; insurance-like consequence for good-faith breach)
- Mid-Continent Life Ins. Co. v. Atlas Life Ins. Co., 54 P.2d 601 (Okla. 1936) (reinsurance concept; indemnity contract framing insurance-like obligations)
- Pistone v. Superior Court of Contra Costa County; New Car Dealer Associates, 228 Cal. App. 3d 672 (Cal. App. Dist. 1991) (fact-intensive inquiry on whether service provider sold insurance)