Appellate Case: 21-6143 Document: 010110701132 Date Filed: 06/24/2022 Page: 1 FILED United States Court of Appeals UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT June 24, 2022 _________________________________ Christopher M. Wolpert Clerk of Court ANTHONY CLARENCE DESMET,
Plaintiff - Appellant,
v. No. 21-6143 (D.C. No. 5:20-CV-00330-J) SCOTTSDALE INSURANCE (W.D. Okla.) COMPANY,
Defendant - Appellee. _________________________________
ORDER AND JUDGMENT* _________________________________
Before HARTZ, BALDOCK, and McHUGH, Circuit Judges. _________________________________
Anthony DeSmet appeals from the summary judgment granted to Scottsdale
Insurance Company on his claim alleging that Scottsdale had acted in bad faith in
refusing to fulfill its responsibilities under the excess uninsured-motorist coverage in
its umbrella policy. Scottsdale invoked a provision in its policy that excused it from
liability until DeSmet exhausted his uninsured-motorist coverage under his primary
motor-vehicle liability policies. The United States District Court for the Western
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist in the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. Appellate Case: 21-6143 Document: 010110701132 Date Filed: 06/24/2022 Page: 2
District of Oklahoma held that the exhaustion provision in Scottsdale’s policy was
valid and enforceable and that even if it was not, Scottsdale’s reliance on the
provision was not in bad faith. Exercising jurisdiction under 28 U.S.C. § 1291, we
agree and affirm.
I. BACKGROUND
On March 5, 2018, DeSmet suffered severe bodily injuries when his vehicle
was rear-ended by a vehicle driven by William Akehurst. Akehurst’s only
automobile-liability coverage was a policy issued by State Farm Mutual Automobile
Insurance Company, which promptly paid its $50,000 policy limit. This was
insufficient to fully cover DeSmet’s damages.
Under Oklahoma law, uninsured-motorist policies provide protection not only
when the insured is injured by a tortfeasor-driver who has no liability insurance but
also when the tortfeasor has such insurance but the coverage is less than the
tortfeasor’s liability. See Okla. Stat. tit. 36, § 3636(C); Burch v. Allstate Ins. Co., 977
P.2d 1057, 1064 (Okla. 1998) (“If the liability limits of a motor vehicle are less than
the amount of the injured insured’s claim, that vehicle is classified as uninsured.”).
Such tortfeasor-drivers are commonly referred to as underinsured motorists.
At the time of the accident, DeSmet had three separate motor-vehicle liability
policies covering several motor vehicles. Each policy provided $500,000 in
uninsured/underinsured-motorist coverage.
In addition, DeSmet had an umbrella policy with Scottsdale. An umbrella
policy is a type of “excess insurance policy,” which is a policy that “by its terms
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provides coverage that is secondary to the primary coverage; there is usually no
obligation to the insured until after the primary coverage limits have been
exhausted.” U.S. Fid. & Guar. Co. v. Federated Rural Elec. Ins. Corp., 37 P.3d 828,
831 (Okla. 2001); see Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc.,
747 P.2d 947, 954 (Okla. 1987) (“Excess coverage or secondary coverage is provided
when, under the terms of the policy, the insurer is liable for a loss only after any
primary coverage—other insurance—has been exhausted.”); Robert E. Keeton, Alan
I. Widiss, & James M. Fischer, Insurance Law: A Guide to Fundamental Principles,
Legal Doctrines, and Commercial Practices 220 n.524 (2d ed. 2017) (“[E]xcess
insurance” is insurance that “overlies underlying coverage and provides additional
indemnity for the underlying coverage.”). “Umbrella coverage . . . is distinguished
from true excess coverage by its ‘umbrella,’ which extends to additional risks not
within the underlying coverage and brings those additional risks into coverage.”
Keeton, Widiss, & Fischer, supra, at 220 n.524. A core feature of umbrella (and true
excess) policies is that they “require the existence of a primary policy as a condition
of coverage.” 15A Steven Plitt et al., Couch on Insurance § 220:32 (3d ed. June 2022
update). Excess and umbrella policies must be distinguished from “[e]xcess ‘other
insurance’ clauses” in primary liability policies, which are “devices whereby a
primary insurer attempts to limit or eliminate its liability where another primary
policy covers the risk.” Id.
The Scottsdale policy provided $2 million in excess liability coverage to
supplement coverage provided in DeSmet’s automobile-liability and home-owner’s
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policies (including liability not covered by automobile-liability or home-owner’s
policies, with limited exceptions for such things as liability for sexual abuse) and
provided $1 million in excess uninsured/underinsured-motorist coverage. An
endorsement in the policy stated:
It is expressly agreed that liability shall attach to [Scottsdale] only after the insurers of the “underlying insurance” have paid or have been held liable to pay (whether collectible or not) the full amount of their respective uninsured motorists and/or underinsured motorists liability[.] Aplt. App., Vol. 1 at 213. The term underlying insurance referred to existing motor-
vehicle liability policies carried by DeSmet that were listed in the Scottsdale policy’s
Declarations. As typical of an umbrella policy, maintenance of the underlying,
primary insurance was a precondition for coverage; if that insurance was not
maintained, the Scottsdale policy would, roughly speaking, be applied as if such
coverage were still in force.
DeSmet has not challenged Scottsdale’s interpretation of this language as
providing that coverage would be triggered only when the total liability of the
tortfeasor-driver exceeded the combined liability limits of the underlying
uninsured/underinsured-motorist policies (plus the tortfeasor’s own liability
coverage). As the district court put it, “[T]he Umbrella Policy was not triggered until
all underlying insurance policies had paid or been held liable to pay the full amount
of their respective [uninsured-motorist] coverages.” Aplt. App., Vol. 6 at 1052.
On August 1, 2019, having grown unhappy with the handling of his claim by
one of his motor-vehicle liability insurers, DeSmet requested that Scottsdale “step
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down” and pay the claim itself. Aplt. App., Vol. 1 at 279. Scottsdale responded
through counsel on August 21, 2019, informing DeSmet that per the terms of the
policy, Scottsdale would pay only after the underlying insurance limits were
exhausted. DeSmet filed a petition in Oklahoma state court on March 3, 2020,
alleging that Scottsdale’s conduct surrounding its refusal to pay amounted to a breach
of its implied duty of good faith and fair dealing. The petition did not bring a
contractual claim under the Scottsdale policy. On the contrary, the petition included
the following statement: “Plaintiff is not bringing an independent or separate cause of
action for breach of contract, only the tort cause of action [for the breach of the
implied duty of good faith and fair dealing].” Aplt. App., Vol. 1 at 18. At the time the
petition was filed, DeSmet had received no payment on the uninsured/underinsured-
motorist provisions of any of its three automobile-liability policies.1
Scottsdale removed the case to federal court and moved for summary
judgment, arguing that the bad-faith claim failed because the excess-coverage
provisions were valid and enforceable, and that even if they were not, it had acted
reasonably in relying on those provisions. DeSmet countered that the excess
provision was unenforceable under Oklahoma’s uninsured-motorist statute, but he
1 DeSmet ultimately received payment from all three insurers with whom he held primary motor-vehicle coverage: (1) one tendered its $500,000 limit on March 9, 2020; (2) a second tendered its $500,000 limit on March 12, 2020; and (3) after DeSmet obtained a default judgment against the third on March 26, 2020, it ultimately tendered its $500,000 limit on September 28, 2020. DeSmet argues that, for reasons we need not address, the second and third policies did not need to be exhausted before the Scottsdale policy applied. But even if only the first policy was relevant, it had not been exhausted when the petition was filed. 5 Appellate Case: 21-6143 Document: 010110701132 Date Filed: 06/24/2022 Page: 6
said that the issue was one of first impression and requested the court to certify the
question to the Oklahoma Supreme Court.
The district court ruled that Oklahoma caselaw was clear that the requirements
of the uninsured-motorist statute did not apply to umbrella policies like the one
issued by Scottsdale. It further held that because the underlying claims had not yet
been paid at the time of the suit, there was no basis for DeSmet’s allegation that
Scottsdale had been acting in bad faith and it granted Scottsdale’s motion for
summary judgment. DeSmet disputes the district court’s reasoning and also argues
that the court made procedural errors when dismissing his claim. We are not
persuaded on any of his issues.
II. DISCUSSION
A. Bad-Faith Claim
Oklahoma has “adopt[ed] the rule that an insurer has an implied duty to deal
fairly and act in good faith with its insured and that the violation of this duty gives
rise to an action in tort.” Christian v. Am. Home Assurance Co., 577 P.2d 899, 904
(Okla. 1977). To show bad faith, however, it is not enough that an insurer “resists
[or] litigates a claim.” Id. There must be “a clear showing that the insurer” was acting
“unreasonably and in bad faith” by withholding payment. Id. at 905. Thus, DeSmet
would need to show that Scottsdale had clearly violated its responsibilities under the
umbrella policy; this is a standard he is far from meeting.
DeSmet does not argue that Scottsdale violated any terms of its policy; he
instead argues that the relevant policy provisions are invalid under Oklahoma law. 6 Appellate Case: 21-6143 Document: 010110701132 Date Filed: 06/24/2022 Page: 7
The State requires that all drivers carry automobile-liability insurance of at least
certain minimum levels, see Okla. Stat. tit. 47, § 7-601, and these policies must
include uninsured-motorist coverage unless the insured rejects that additional
coverage in writing, see Okla. Stat. tit. 36, § 3636; Lane v. Progressive N. Ins. Co.,
494 P.3d 345, 349 (Okla. 2021) (Ҥ 3636 . . . requires insurers to include uninsured-
motorist coverage within or supplemental to all motor-vehicle-liability policies.”).
DeSmet notes that Oklahoma courts have held that these statutory provisions can
override uninsured/underinsured-motorist provisions in automobile-liability policies
and argues that § 3636 likewise overrides Scottsdale’s excess-coverage provision
with regard to its uninsured/underinsured-motorist coverage. We proceed to examine
the governing law.
The Oklahoma Supreme Court has held that an insurer that provides
uninsured-motorist coverage as required and governed by § 3636 cannot rely on a
provision in its policy that permits withholding payment under the coverage until the
insured has exhausted all other uninsured/underinsured-motorist coverage. See
Mustain v. U.S. Fid. & Guar. Co., 925 P.2d 533, 534 (Okla. 1996). It ruled that “as
between the insurer and its insured[, uninsured-motorist] insurance is primary
coverage,” id., that is, “the insurer is liable without regard to any other insurance
coverage available,” Equity Mut. Ins. Co., 747 P.2d at 954. In other words, “an
uninsured motorist carrier is liable for the entire amount of its insured’s loss from the
first dollar up to the [uninsured-motorist] policy limits without regard to the presence
of any other insurance.” Burch, 977 P.2d at 1058. The court explained that this
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treatment is necessary to secure the legislative purpose of § 3636, which is “to
protect insured persons who are injured by uninsured/underinsured motorists.”
Mustain, 925 P.2d at 535. (When there are multiple insurers, the relative amounts
ultimately due from each insurer can later be adjusted through litigation among the
insurers. See id. at 536.)
Unfortunately for DeSmet, § 3636 does not apply to the Scottsdale umbrella
policy. The Oklahoma Supreme Court has repeatedly said that umbrella policies are
not “motor vehicle liability policies” of the type governed by § 3636. The leading
case is Moser v. Liberty Mutual Insurance Co., 731 P.2d 406 (Okla. 1986), where the
court answered the certified question (from the United States District Court for the
Western District of Oklahoma) “whether the provisions of Oklahoma’s uninsured
motorist statute [§ 3636] apply to a policy of excess liability coverage, commonly
referred to as an umbrella liability policy.” Id. at 407 (footnote omitted). The court
responded that “[t]he uninsured motorist provisions [of § 3636] apply [only] to . . .
automobile liability insurance policies . . . but not to ‘umbrella’ policies . . . .” Id. at
409 (emphasis added). Any requirements imposed by § 3636 were accordingly
“limited in application to policies insuring against primary liability,” whereas “excess
coverage” in a broader policy was “beyond the contemplation, scope and intent of
[§ 3636.]” Id. at 410.
The court reasoned that “the intent of the uninsured motorist legislation” was
to place an individual injured by an uninsured/underinsured motorist in the same
position as “if the negligent motorist had carried liability insurance” meeting the
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“minimum standards.” Id. at 408. That purpose is satisfied without extending its
application beyond standard primary automotive liability policies. See id. at 408–09.
This holding was reaffirmed in GEICO General Insurance Co. v. Northwest Pacific
Indemnity Co., 115 P.3d 856, 859 (Okla. 2005) (“[I]n Moser we clearly stated there
that § 3636 does not apply to excess liability policies.”), and Raymond v. Taylor, 412
P.3d 1141, 1145 (Okla. 2017) (“This Court has also stated that . . . Section 3636’s
provisions apply to all primary automotive liability insurance policies, but not to
supplemental, excess, or umbrella policies.” (citing Moser, 731 P.2d at 409, and
GEICO, 115 P.3d at 859, 860)).
DeSmet does not contest that his policy with Scottsdale was an “umbrella”
policy. By its terms, it was plainly not a “polic[y] insuring against primary liability.”
Moser, 731 P.2d at 410. But DeSmet nevertheless argues that Mustain requires that,
as between him and Scottsdale, the excess uninsured-motorist coverage must be
treated as primary. In Mustain, however, the court was addressing a situation where
the uninsured-motorist coverage in two primary automobile-liability policies applied,
but one policy included an “other insurance” clause stating it would only pay the
“excess” where a claimant was not the vehicle owner. Mustain, 925 P.2d at 535. As
noted above, excess “other insurance” clauses in otherwise primary coverage are
distinct from “true excess coverage” like that in an umbrella policy. See, e.g., Keeton,
Widiss, & Fischer, supra, at 220 (“Care must be taken to distinguish these true
excess insurance policies from insurance that is designed to be excess pursuant to an
excess Other Insurance provision.”). We do not read Mustain as imposing any
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requirements on umbrella policies, instead only prohibiting primary insurers from
escaping from their uninsured-motorist coverage obligations.
Scottsdale was entitled to rely upon the Moser line of cases and was not acting
in bad faith when it assumed the legitimacy of the uninsured-motorist provisions of
its umbrella policy. Additionally, DeSmet conceded that his view of § 3636 was not
settled law when he argued below that this case presented “a matter of first
impression” and therefore the issue was “well-suited for certification to the
Oklahoma Supreme Court.” Aplt. App., Vol. 5 at 836. We have held that “[f]or bad
faith liability to attach, the law at the time of the alleged bad faith must be settled.”
Davis v. Mid-Century Ins. Co., 311 F.3d 1250, 1252 (10th Cir. 2002) (applying
Oklahoma law). DeSmet has therefore essentially conceded that his bad-faith claim
could not be meritorious.
B. Procedural Issues
DeSmet also raises two procedural arguments: He claims the district court
erred (1) by ruling his own motion for summary judgment moot after granting
Scottsdale’s motion, and (2) by denying his request for leave to amend his petition to
add a breach-of-contract claim. As to the former, DeSmet’s opening brief gives no
explanation for why the motion should not have been held moot, instead merely
restating his theory of the case; his reply brief does not mention the issue at all. True,
were this court to reverse, the district court would then need to revive and address
DeSmet’s own motion for summary judgment; but that motion could have no merit so
long as Scottsdale’s summary judgment was undisturbed. 10 Appellate Case: 21-6143 Document: 010110701132 Date Filed: 06/24/2022 Page: 11
The argument that DeSmet should have been allowed to amend his petition
likewise fails. In his original petition of March 3, 2020, DeSmet expressly stated that
he was “not bringing an independent or separate cause of action for breach of
contract.” Aplt. App., Vol. 1 at 18. More than 19 months later, however, in his
Response to Scottsdale’s motion for summary judgment and just one week before the
court’s entry of judgment, he requested leave to amend the petition and add this very
same claim. The district court denied the request, citing a local court rule that does
not allow “[a] response to a motion [to] also include a motion or a cross-motion made
by the responding party.” W.D. Okla. Civ. R. 7.1(c). The district court also
determined that even if the request were proper under the rule, DeSmet had failed to
provide grounds to permit the amendment. It said that “the minimal reasons set forth
in the Response neither indicate that justice requires such amendment nor constitute
good cause or a showing of diligence.” Aplt. App., Vol. 6 at 1057. DeSmet does not
confront these reasons on appeal, instead arguing that leave should have been freely
given because no additional discovery was needed and his injuries were severe. We
see no abuse of discretion by the district court. See Alpenglow Botanicals, LLC v.
United States, 894 F.3d 1187, 1203 (10th Cir. 2018) (“[T]he decision to grant leave
to amend the pleadings is within the discretion of the trial court, and we will not
reverse the court’s decision absent an abuse of discretion.” (internal quotation marks
omitted)). As we have stated previously:
[P]laintiffs cannot wait until the last minute to ascertain and refine the theories on which they intend to build their case. We have repeatedly held that[] untimeliness alone is a sufficient reason to deny leave to amend when
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the party filing the motion has no adequate explanation for the delay. And, where the party seeking amendment knows or should have known of the facts upon which the proposed amendment is based but fails to include them in the original complaint, the motion to amend is subject to denial. Id. (brackets, citations, and internal quotation marks omitted).
III. CONCLUSION
We AFFIRM the judgment of the district court.
Entered for the Court
Harris L Hartz Circuit Judge