Lane v. Progressive N. Ins. Co.

ELISSA LANE; KYLE STONE, as father and next friend of L.S., a minor, Plaintiffs - Appellants, v. PROGRESSIVE NORTHERN INSURANCE COMPANY, Defendant-Appellee.

No. 19-6085

United States Court of Appeals, Tenth Circuit

October 6, 2021

(D.C. No. 5:19-CV-00005-F) (W.D. Okla.)

Before HARTZ, BALDOCK, and EID, Circuit Judges.

ORDER AND JUDGMENT^[*]

Bobby R. Baldock United States Circuit Judge.

The parties are familiar with the historical facts and procedural history of this case. Following a one-car automobile accident, Plaintiffs Lane and L.S., both passengers in the automobile, sought uninsured/underinsured motorist (UM) coverage under an insurance policy issued by Defendant Progressive to the driver's parents. After Progressive paid Plaintiffs the liability limits of the policy, it denied Plaintiffs' UM claims based upon a policy exclusion. That exclusion operated to deny UM coverage to Plaintiffs because they had recovered at least the Oklahoma statutorily- mandated minimum of $25, 000 under the liability portion of the policy.

Plaintiffs subsequently brought this diversity action under 28 U.S.C § 1332 alleging two causes of action against Progressive: (1) breach of an insurance contract premised upon a violation of Oklahoma public policy, and (2) breach of the implied-in-law duty of good faith and fair dealing premised upon bad faith settlement of insurance claims. The district court granted Progressive judgment on the pleadings. In a thorough written order, the district court first rejected Plaintiffs' argument that the UM exclusion violated the State's public policy: "Lacking clear guidance from statutory or judicial sources, the court concludes that the parties to the insurance policy were free to agree to the exclusion, and that this court should not disallow their bargain." Lane v. Progressive N. Ins Co., No. 19-CV-5-F, 2019 WL 11276759, at *11 (W.D. Okla. Apr. 30, 2019) (unpublished). Having held that Progressive as a matter of law, had not breached the policy's terms the court then necessarily held Progressive had not acted in bad faith in denying Plaintiffs' UM claims. Lastly, as to Plaintiffs' second cause of action, the district court held in the alternative:

Alternatively, with respect to the bad faith claim, the court concludes that if this order is incorrect and the exclusion is not allowed as a matter of law, plaintiffs' bad faith claims still fail. The tort of bad faith does not prevent an insurer from denying any claim as to which the insurer has a reasonable defense. There was a legitimate dispute concerning coverage, and there is no conclusive precedent indicating that the exclusion is not permitted.

Id. at *12 (citation omitted).

Plaintiffs timely appealed to this Court challenging the district court's dispositive rulings. Following oral argument, we certified the following question to the Oklahoma Supreme Court: "Does Progressive's UM exclusion-which operates to deny uninsured motorist coverage to insureds who recover at least the statutorily mandated minimum in the form of liability coverage-contravene Oklahoma's Unisured Motorist Statute, codified at Okla Stat. tit. 36, § 3636?" Lane v. Progressive N. Ins. Co., 800 Fed.Appx. 662, 663 (10th Cir. 2020) (unpublished). The Oklahoma Supreme Court accepted our certification, describing this question as "one of first impression and . . . governed by no controlling Oklahoma precedent" Lane v. Progressive N. Ins. Co., 2021 WL 2658997, at *2, 494 P.3d 345, (Okla. June 29, 2021) (internal quotations omitted).

In Lane, the Oklahoma Supreme Court, in a five to three decision, held the UM exclusion contained in the Progressive policy violated the State's public policy and was unenforceable:

Progressive's UM Exclusion violates [Oklahoma] public policy because an insurer in Oklahoma cannot deprive its policyholder of uninsured-motorist coverage for which a premium has been paid through an exclusion that effectively erases its policyholder's choice to purchase that coverage in the first place. We conclude that Progressive's UM Exclusion contravenes section 3636 and is therefore void as against public policy.

Id. at *1 (emphasis in original). In other words, the Oklahoma Supreme Court reasoned that because of the sweeping nature of the UM exclusion contained in the Progressive policy at issue here, Progressive effectively sought to avoid affording Plaintiffs the UM coverage for which the policyholder had paid. Id.

All parties agree in their recent supplemental briefing that given the Oklahoma's Supreme Court's answer to our certified question in this case, the district court...