SILOAM SPRINGS HOTEL, LLC v. CENTURY SURETY COMPANY
2017 OK 14
Okla.2017Background
- Century Surety issued a Commercial General Liability policy to Siloam Springs Hotel for 11/13/2012–11/13/2013; policy included an Arkansas endorsement adding an Indoor Air Exclusion.
- The Indoor Air Exclusion barred coverage for bodily injury, property damage, or personal/advertising injury “arising out of, caused by, or alleging to be contributed to in any way by any toxic, hazardous, noxious, irritating pathogenic or allergen qualities or characteristics of indoor air regardless of cause.”
- On Jan. 17, 2013 hotel guests allegedly suffered carbon monoxide poisoning from a sudden leak in the indoor pool heater; Century denied coverage under the Indoor Air Exclusion.
- District court granted summary judgment for Century, finding the exclusion unambiguous and applicable; Siloam appealed.
- The Tenth Circuit remanded on diversity-jurisdiction grounds and suggested certification of insurance/ public-policy questions to the state supreme court; the Western District then certified the public‑policy question to the Oklahoma Supreme Court.
- Oklahoma Supreme Court answered: Oklahoma public policy does not prohibit enforcement of the Indoor Air Exclusion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Oklahoma public policy forbids enforcement of the Indoor Air Exclusion | The exclusion (as applied to a sudden CO leak) would deny compensation victims reasonably expect and thus violates public policy | Parties are free to contract for coverage limits; no Oklahoma statute or controlling precedent prohibits such an exclusion | Held: Public policy does not prohibit enforcement of the Indoor Air Exclusion |
| Whether a court should reformulate the certified question to address coverage/ambiguity first | (Siloam) Public‑policy analysis depends on whether the exclusion covers sudden events; ambiguity question must be decided | (Century) The certified narrow public‑policy question can be answered directly | Court (lead opinion): refused to reformulate; answered the certified public‑policy question. (Concurring opinion: would reformulate and find the exclusion ambiguous in favor of insured.) |
| Whether freedom of contract is constrained by public policy to invalidate coverage exclusions | (Siloam) When an exclusion thwarts reasonable expectations of victims (esp. for sudden accidents), public policy can limit freedom to contract | (Century) Absent statutory mandate like compulsory auto-liability laws, freedom to contract governs insurance coverage limits | Held: Freedom to contract stands unless a specific statutory/constitutional/controlling precedent establishes contrary public policy |
| Whether the Indoor Air Exclusion clearly tends to injure public health, morals, or confidence in law enforcement | (Siloam) Applying the exclusion to sudden CO leaks undermines victims’ protection and public confidence | (Century) The exclusion does not clearly tend to injure public health/morals; it merely allocates risk between insurer and insured | Held: No clearly articulated Oklahoma public policy (statutory or decisional) invalidates the exclusion |
Key Cases Cited
- Ball v. Wilshire Ins. Co., 221 P.3d 717 (Okla. 2009) (insurance exclusion void where it conflicted with Oklahoma compulsory motor‑vehicle insurance public policy)
- Haworth v. Jantzen, 172 P.3d 193 (Okla. 2007) (ambiguous policy language construed against insurer)
- Shepard v. Farmers Ins. Co., Inc., 678 P.2d 250 (Okla. 1983) (insurers and insureds free to agree coverage limits; courts should not rewrite contracts)
- Burk v. K‑Mart Corp., 770 P.2d 24 (Okla. 1989) (public‑policy exception to at‑will employment doctrine; illustrates limits on freedom of contract when statutes/decisional law articulate policy)
- Century Surety Co. v. Casino West, Inc., 329 P.3d 614 (Nev. 2014) (construed identical Indoor Air Exclusion as ambiguous and in favor of insured for CO deaths)
- Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233 (10th Cir. 2015) (remanded on diversity grounds and recommended certifying insurance coverage/public‑policy questions to state supreme court)