F I L E D United States Court of Appeals Tenth Circuit PUBLISH NOV 19 1999 UNITED STATES COURT OF APPEALS PATRICK FISHER Clerk TENTH CIRCUIT
FIRST NATIONAL BANK OF TURLEY,
Plaintiff-Appellant and Cross- Appellee, v. Nos. 98-5064, 98-5082 FIDELITY & DEPOSIT INSURANCE COMPANY OF MARYLAND,
Defendant-Appellee and Cross- Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA (D.C. No. 93-C-284-E)
Jerry Reed (Joseph R. Farris and Jody R. Nathan with him on the brief), Tulsa, Oklahoma, for Plaintiff-Appellant.
Robert L. Magrini (John B. Hayes and Evan B. Gatewood with him on the brief), of Hayes & Magrini, Oklahoma City, Oklahoma, for Defendant-Appellee.
Before BALDOCK, PORFILIO, and EBEL, Circuit Judges.
BALDOCK, Circuit Judge. Plaintiff First National Bank of Turley appeals (1) the district court’s denial of its
application for attorney’s fees under Oklahoma law from Defendant Fidelity & Deposit
Insurance Company of Maryland, and (2) the district court’s grant of Fidelity & Deposit’s
motion to modify the judgment finding that First National is not entitled to post-offer
costs under Fed. R. Civ. P. 68. Exercising jurisdiction under 28 U.S.C. § 1291, we vacate
and remand.
I.
Fidelity & Deposit issued First National an insurance policy that provided liability
coverage for personal injuries caused by breach of privacy. The policy defined “personal
injury” as “oral or written publication of material that violates a person’s right to
privacy.” The policy excluded from coverage acts “arising out of the willful violation of
a penal statute or ordinance committed by or with the consent of the insured.”
In 1988, First National President Mikel Hoffman called an IRS agent to report that
he suspected bank customers Buel and Peggy Neece were violating the income tax laws.
The Neeces sued First National for breach of privacy under the Right to Financial Privacy
Act, 12 U.S.C. §§ 3401-3422. First National requested that Fidelity & Deposit defend it
against the Neeces’ suit. Fidelity & Deposit refused on the ground that the policy
specifically excluded from coverage Hoffman’s willful disclosure to the IRS.
In September, 1992, First National requested that Fidelity& Deposit reevaluate
First National’s coverage under the policy. First National pointed out to Fidelity &
-2- Deposit that the Neeces’ most recent amended complaint contained allegations of
negligent as well as willful conduct. In response, Fidelity & Deposit sent First National a
reservation of rights letter, in which Fidelity & Deposit agreed to defend First National in
the Neeces’ suit from that point forward. The letter stated, “Due to the fact that Mr. and
Mrs. Neece’s First Amended Complaint may conceivably be read as alleging both an
unintentional and a willful violation under the Financial Right to Privacy Act, Fidelity &
Deposit Company has agreed to assume First National Bank of Turley’s defense.” First
National turned down Fidelity & Deposit’s offer because it did not cover expenses before
the September, 1992, reevaluation of coverage. Fidelity & Deposit, however, began
paying First National’s defense costs in the ongoing Neece suit. First National accepted
the payments.
Shortly after turning down Fidelity & Deposit’s reservation of rights letter because
it did not extend coverage for all of its defense costs since 1988, First National filed suit
against Fidelity & Deposit. In its complaint, First National demanded $125,000.00 in
defense costs that it had incurred so far in the Neece suit, “additional damages as a result
of the breach, including additional attorney’s fees and indemnity for any judgment
rendered against it in the Neece action,” and $5 million in punitive damages for bad faith
refusal to defend.
In a letter dated June 10, 1994, Fidelity & Deposit made an offer to confess
judgment under Fed. R. Civ. P. 68 in the amount of $67,333.49, intended to cover First
-3- National’s defense costs incurred before December 31, 1991.1 The letter notes that
Fidelity & Deposit had already paid First National’s 1992 expenses and was ready to pay
the 1993 expenses. First National rejected the offer of judgment.
In its pretrial order, the district court noted that Fidelity & Deposit “has now
agreed to assume the Bank’s defense under reservation of rights.” The remaining factual
issues at trial included whether Fidelity & Deposit acted in bad faith in initially refusing
to defend First National and whether Fidelity & Deposit was responsible for First
National’s defense costs incurred before the September, 1992, reevaluation request. The
district court submitted to the jury the questions of Fidelity & Deposit’s liability for bad
faith and its liability for First National’s defense costs incurred before September, 1992.
The jury returned a verdict for First National in the amount of $20,000.00, and the district
court entered judgment for that amount.
After the district court entered judgment, First National filed an application for
attorney’s fees under Okla. Stat. tit. 36, § 3629(B) to recover its fees in its lawsuit against
Fidelity & Deposit. The district court denied First National’s motion. Fidelity & Deposit
filed a motion to amend the judgment to reflect that pursuant to Fed. R. Civ. P. 68, First
National was not entitled to recover its post-offer costs from Fidelity & Deposit. The
1 As First National pointed out in its letter rejecting the offer of judgment, the correct amount was actually $52,429.29. Fidelity & Deposit had already paid about $15,000 in defense costs that First National incurred during 1991 and 1992.
-4- district court granted Fidelity & Deposit’s motion, and entered an amended judgment that
did not award any costs to First National.
The Neece suit did not settle until one year after the district court entered judgment
in First National’s suit against Fidelity & Deposit. Fidelity & Deposit paid all of the fees
and costs First National incurred in defending the Neeces’ suit, except those incurred
before June 1, 1991. Fidelity & Deposit paid the Neeces $84,813.00 to settle their breach
of privacy suit.
II.
First National first argues that the district court erred in denying its application for
attorney’s fees under Oklahoma statutory and common law. The Oklahoma statute
awards attorney’s fees to prevailing parties in suits on insurance policies:
It shall be the duty of the insurer, receiving a proof of loss, to submit a written offer of settlement or rejection of the claim within 90 days of receipt of proof of that loss. Upon a judgment rendered to either party, costs and attorney fees shall be allowable to the prevailing party.
Okla. Stat. tit. 36, § 3629(B).
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F I L E D United States Court of Appeals Tenth Circuit PUBLISH NOV 19 1999 UNITED STATES COURT OF APPEALS PATRICK FISHER Clerk TENTH CIRCUIT
FIRST NATIONAL BANK OF TURLEY,
Plaintiff-Appellant and Cross- Appellee, v. Nos. 98-5064, 98-5082 FIDELITY & DEPOSIT INSURANCE COMPANY OF MARYLAND,
Defendant-Appellee and Cross- Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA (D.C. No. 93-C-284-E)
Jerry Reed (Joseph R. Farris and Jody R. Nathan with him on the brief), Tulsa, Oklahoma, for Plaintiff-Appellant.
Robert L. Magrini (John B. Hayes and Evan B. Gatewood with him on the brief), of Hayes & Magrini, Oklahoma City, Oklahoma, for Defendant-Appellee.
Before BALDOCK, PORFILIO, and EBEL, Circuit Judges.
BALDOCK, Circuit Judge. Plaintiff First National Bank of Turley appeals (1) the district court’s denial of its
application for attorney’s fees under Oklahoma law from Defendant Fidelity & Deposit
Insurance Company of Maryland, and (2) the district court’s grant of Fidelity & Deposit’s
motion to modify the judgment finding that First National is not entitled to post-offer
costs under Fed. R. Civ. P. 68. Exercising jurisdiction under 28 U.S.C. § 1291, we vacate
and remand.
I.
Fidelity & Deposit issued First National an insurance policy that provided liability
coverage for personal injuries caused by breach of privacy. The policy defined “personal
injury” as “oral or written publication of material that violates a person’s right to
privacy.” The policy excluded from coverage acts “arising out of the willful violation of
a penal statute or ordinance committed by or with the consent of the insured.”
In 1988, First National President Mikel Hoffman called an IRS agent to report that
he suspected bank customers Buel and Peggy Neece were violating the income tax laws.
The Neeces sued First National for breach of privacy under the Right to Financial Privacy
Act, 12 U.S.C. §§ 3401-3422. First National requested that Fidelity & Deposit defend it
against the Neeces’ suit. Fidelity & Deposit refused on the ground that the policy
specifically excluded from coverage Hoffman’s willful disclosure to the IRS.
In September, 1992, First National requested that Fidelity& Deposit reevaluate
First National’s coverage under the policy. First National pointed out to Fidelity &
-2- Deposit that the Neeces’ most recent amended complaint contained allegations of
negligent as well as willful conduct. In response, Fidelity & Deposit sent First National a
reservation of rights letter, in which Fidelity & Deposit agreed to defend First National in
the Neeces’ suit from that point forward. The letter stated, “Due to the fact that Mr. and
Mrs. Neece’s First Amended Complaint may conceivably be read as alleging both an
unintentional and a willful violation under the Financial Right to Privacy Act, Fidelity &
Deposit Company has agreed to assume First National Bank of Turley’s defense.” First
National turned down Fidelity & Deposit’s offer because it did not cover expenses before
the September, 1992, reevaluation of coverage. Fidelity & Deposit, however, began
paying First National’s defense costs in the ongoing Neece suit. First National accepted
the payments.
Shortly after turning down Fidelity & Deposit’s reservation of rights letter because
it did not extend coverage for all of its defense costs since 1988, First National filed suit
against Fidelity & Deposit. In its complaint, First National demanded $125,000.00 in
defense costs that it had incurred so far in the Neece suit, “additional damages as a result
of the breach, including additional attorney’s fees and indemnity for any judgment
rendered against it in the Neece action,” and $5 million in punitive damages for bad faith
refusal to defend.
In a letter dated June 10, 1994, Fidelity & Deposit made an offer to confess
judgment under Fed. R. Civ. P. 68 in the amount of $67,333.49, intended to cover First
-3- National’s defense costs incurred before December 31, 1991.1 The letter notes that
Fidelity & Deposit had already paid First National’s 1992 expenses and was ready to pay
the 1993 expenses. First National rejected the offer of judgment.
In its pretrial order, the district court noted that Fidelity & Deposit “has now
agreed to assume the Bank’s defense under reservation of rights.” The remaining factual
issues at trial included whether Fidelity & Deposit acted in bad faith in initially refusing
to defend First National and whether Fidelity & Deposit was responsible for First
National’s defense costs incurred before the September, 1992, reevaluation request. The
district court submitted to the jury the questions of Fidelity & Deposit’s liability for bad
faith and its liability for First National’s defense costs incurred before September, 1992.
The jury returned a verdict for First National in the amount of $20,000.00, and the district
court entered judgment for that amount.
After the district court entered judgment, First National filed an application for
attorney’s fees under Okla. Stat. tit. 36, § 3629(B) to recover its fees in its lawsuit against
Fidelity & Deposit. The district court denied First National’s motion. Fidelity & Deposit
filed a motion to amend the judgment to reflect that pursuant to Fed. R. Civ. P. 68, First
National was not entitled to recover its post-offer costs from Fidelity & Deposit. The
1 As First National pointed out in its letter rejecting the offer of judgment, the correct amount was actually $52,429.29. Fidelity & Deposit had already paid about $15,000 in defense costs that First National incurred during 1991 and 1992.
-4- district court granted Fidelity & Deposit’s motion, and entered an amended judgment that
did not award any costs to First National.
The Neece suit did not settle until one year after the district court entered judgment
in First National’s suit against Fidelity & Deposit. Fidelity & Deposit paid all of the fees
and costs First National incurred in defending the Neeces’ suit, except those incurred
before June 1, 1991. Fidelity & Deposit paid the Neeces $84,813.00 to settle their breach
of privacy suit.
II.
First National first argues that the district court erred in denying its application for
attorney’s fees under Oklahoma statutory and common law. The Oklahoma statute
awards attorney’s fees to prevailing parties in suits on insurance policies:
It shall be the duty of the insurer, receiving a proof of loss, to submit a written offer of settlement or rejection of the claim within 90 days of receipt of proof of that loss. Upon a judgment rendered to either party, costs and attorney fees shall be allowable to the prevailing party.
Okla. Stat. tit. 36, § 3629(B). The district court found that First National was not entitled
to attorney’s fees under § 3629 because the statute does not apply to suits which allege
only the tort of bad faith refusal to defend and do not allege any contract claim on the
insurance policy itself. The scope of the attorney’s fee statute is a question of law which
we review de novo. See Driver Music Co. v. Commercial Union Ins. Cos., 94 F.3d 1428,
1432 (10th Cir. 1996).
-5- Under Oklahoma law, attorney’s fees are available in any suit on an insurance
policy “so long as the ‘core element’ of the damages sought and awarded is composed of
the insured loss.” Taylor v. State Farm Fire & Casualty Co., 981 P.2d 1253, 1256 (Okla.
1999). The decision in Taylor, answering certified questions from this court, clarified
that § 3629 does in fact apply to bad faith suits such as First National’s, regardless of any
contract claim on the policy itself. The “core element” of the damages First National
sought was in fact the insured loss: the expenses incurred in defending the Neece suit.
Although the district court did not have the benefit of the decision in Taylor, which
appeared two years after it ruled on First National’s application for attorney’s fees, this
court is nevertheless bound to apply Taylor because it is the law in effect at the time we
issue our decision. See Saint Francis College v. Al-Khazraji, 481 U.S. 604, 608-09
(1987).
Because the district court found that the Oklahoma attorney’s fee statute did not
apply to First National’s case, it did not reach the issue of whether First National was a
prevailing party under the Oklahoma statute. The plaintiff is a prevailing party if the
plaintiff gets a judgment that is larger than the settlement offer it rejected:
For purposes of this section, the prevailing party is the insurer in those cases where judgment does not exceed the written offer of settlement. In all other judgments the insured is the prevailing party.
Okla. Stat. tit. 36, § 3629(B). We remand the case to the district court to determine who
the prevailing party is. See Stichting Mayflower Recreational Fonds v. Newpark
-6- Resources Inc., 917 F.2d 1239, 1248 (10th Cir. 1990) (remanding an attorney’s fee issue
to the district court to determine who the prevailing party is).
Similarly, in its order denying attorney’s fees, the district court did not rule on
whether First National is entitled to attorney’s fees under Oklahoma common law. See
Christian v. American Home Assurance Co., 577 P.2d 899, 906 (Okla 1977) (holding
that, in a case where an insured successfully sued its insurer for bad faith, “the trial court,
in exercise of its equitable power, may award attorney’s fees” under the common law).
The creation of the statutory right to recover attorney’s fees from an insurance company
did not abrogate the common law right to attorney’s fees where bad faith is shown. See
Brashier v. Farmer’s Ins. Co., 925 P.2d 20, 23-24 (Okla 1996). The common law right
does not depend on prevailing party status. See id. at 24. The district court should also
consider this issue on remand.
III.
First National also appeals the district court’s grant of Fidelity & Deposit’s motion
to amend the judgment finding that First National is not entitled to post-offer costs
-7- pursuant to Fed. R. Civ. P. 68.2 We review the district court’s refusal to grant costs under
Rule 68 for abuse of discretion, and review its underlying factual findings for clear error.
See Arkla Energy Resources v. Roye Realty & Developing Inc., 9 F.3d 855, 866 (10th
Cir. 1993).
Generally, “costs other than attorneys’ fees shall be allowed as of course to the
prevailing party unless the court otherwise directs.” Fed. R. Civ. P. 54(d)(1). “Rule 68
permits a party defending against a claim to recover all costs incurred after the making of
an offer of judgment if the offeree rejected the settlement offer and ultimately was
awarded less at trial.” American Ins. Co. v. El Paso Pipe & Supply Co., 978 F.2d 1185,
1193 (10th Cir. 1992). The Rule provides:
At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money . . . specified in the offer, with costs then accrued. . . . If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.
2 In its brief, First National phrased its argument as: “Whether the Rule 68 offer of judgment changes the Appellant’s status as prevailing party?” (Aplt. Br. at 1.) This claim is not cognizable for two reasons. First, pursuant to its plain language, the only possible effect of Rule 68 is to shift Fidelity & Deposit’s post-offer costs to First National. Also, Rule 68 cannot shift attorney’s fees because there is no applicable substantive law–not even § 3629–that awards attorney’s fees as costs. See Knight v. Snap-On Tools Corp., 3 F.3d 1398, 1405 (10th Cir. 1993) (holding that the prevailing plaintiff is not entitled to attorney’s fees under Rule 68 because the state fee-shifting statute does not “define ‘costs’ to include ‘attorney’s fees’”).
-8- Fed. R. Civ. P. 68. In order to determine whether the judgment finally obtained is greater
than the offer, the offer is compared with the sum of the jury award and the pre-offer
costs. See Knight v. Snap-On Tools Corp., 3 F.3d 1398, 1405 (10th Cir. 1993).
The district court granted Fidelity & Deposit’s motion to amend the judgment to
find that First National was not entitled to post-offer costs, and amended the judgment to
award no costs to First National. The district court accepted Fidelity & Deposit’s
reasoning that First National was not the prevailing party because the judgment it
received, $20,000.00, is not more favorable than the $67,333.49 settlement offer. The
district court, however, made no findings regarding whether Fidelity & Deposit or First
National was the prevailing party. Accordingly, we remand this issue for the district court
to decide which party, if any, is entitled to costs under Rule 68.
VACATED and REMANDED for further proceedings consistent with this
opinion.
-9-