Schwegman v. CNA Financial Corporation, 4:16-cv-00730

Background

Schwegman, an insurance agent, was insured under a professional liability policy issued by Continental Casualty Company (Continental).
Schwegman and Brook Trotter entered an oral business partnership; Trotter previously had a long-term disability policy with Fort Dearborn that later lapsed.
Trotter sued Schwegman in Oklahoma state court asserting dissolution/accounting/injunction and breach of contract; in interrogatory answers Trotter sought damages attributable to alleged professional negligence relating to the Fort Dearborn policy.
Schwegman notified Continental of the Trotter suit and attached Trotter’s interrogatory responses; Continental denied a defense, concluding the petition sought non‑monetary relief and a breach claim arising from a partner contract, not professional services.
Trotter later dismissed his suit after settlement; Schwegman sued Continental in state court for breach of contract and breach of the duty of good faith and fair dealing; case was removed to federal court and Continental’s dismissal motion was treated as summary judgment.
The district court denied summary judgment: it held that, under Oklahoma law, Continental could have a duty to defend because Trotter’s pleadings and discovery produced a possibility of recovery under the professional‑liability policy.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Duty to defend under policy	Trotter’s interrogatory answers and deposition show he sought damages for Schwegman’s alleged professional negligence, creating potential coverage.	No professional negligence claim was pleaded; suit sought partner-related contract/non‑monetary relief outside policy coverage.	Court: Continental may have had a duty to defend—facts beyond the petition (interrogatories, deposition) created a possibility of recovery under the policy.
Construction of policy and scope of coverage	Policy covers negligent acts in rendering professional services as an agent; evidence linked Trotter’s damages to such negligence.	Plaintiff’s breach arose from partnership contract, not professional services, so policy doesn’t apply.	Court: Under Oklahoma precedent, ambiguities and facts favor insured; evidence supported potential coverage.
Breach of implied duty of good faith and fair dealing	Continental’s denial of defense lacked reasonable basis given possibility of coverage, supporting bad‑faith claim.	Continental contends no coverage, so bad‑faith claim fails as a matter of law.	Court: Because a triable issue exists on coverage, bad‑faith claim survives summary judgment.
Whether insurer may rely solely on petition (four‑corners)	Plaintiff: insurer must look beyond complaint to other available information.	Defendant: reliance on petition is appropriate to deny duty to defend.	Court: Oklahoma law permits looking beyond the petition; insurer must consider other pleadings and information available when defense is demanded.

Key Cases Cited

Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard and "scintilla" rule)
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (nonmoving party must show genuine issue)
First Bank of Turley v. Fidelity & Deposit Ins. Co. of Md., 928 P.2d 298 (Okla. 1996) (insurer’s duty to defend is broader than indemnify; look beyond petition)
Cont’l Cas. Co. v. Beaty, 455 P.2d 684 (Okla. 1969) (ambiguities construed for insured)
Automax Hyundai S., L.L.C. v. Zurich Am. Ins. Co., 720 F.3d 798 (10th Cir. 2013) (elements of Oklahoma bad‑faith claim)
Badillo v. Mid Century Ins. Co., 131 P.3d 1080 (Okla. 2005) (insurer’s implied duty of good faith and fair dealing)