F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
FEB 3 1998
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
WESTERN FARMERS ELECTRIC
COOPERATIVE, an Oklahoma
Cooperative,
Plaintiff-Appellant, Nos. 97-6005 & 97-6213
(D.C. No. 94-CV-641)
v. (W.D. Okla.)
ST. PAUL INSURANCE COMPANY,
Houston Texas, a Texas Insurance
corporation,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before ANDERSON, McKAY, and LUCERO, Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1.9. The case is therefore
ordered submitted without oral argument.
This suit arises out of a three-year directors’ and officers’ liability
insurance policy (D & O policy) that defendant St. Paul Insurance Company
(St. Paul) issued to plaintiff Western Farmers Electric Cooperative (Western
Farmers) in October 1976. Western Farmers and its trustees were sued in 1977,
along with some other defendants. See Hargrave v. Canadian Valley Elec. Coop.,
No. C-77-179, District Court of Seminole County, Oklahoma. As a result,
Western Farmers sought reimbursement from St. Paul under its D & O policy.
The extent of St. Paul’s obligation to Western Farmers is the crux of these
appeals. At this point, suffice it to say that St. Paul made periodic payments to
Western Farmers as the Hargrave litigation progressed. After a lengthy history,
issues of rate discrimination and breach of fiduciary duties in the Hargrave action
were bifurcated for trial by an order dated August 28, 1992. The Western
Farmers’ trustees were voluntarily dismissed from the rate discrimination case
shortly after opening statements, and the trial court ultimately entered a directed
verdict of over $18 million against Western Farmers on the rate discrimination
claims. The Hargrave plaintiffs later also voluntarily dismissed their breach of
fiduciary duties claim against the Western Farmers trustees. The Hargrave suit
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was finally concluded in December 1994, when the judgment against Western
Farmers was reversed on appeal.
St. Paul had stopped making payments to Western Farmers several years
before then. Dissatisfied with the amount St. Paul had paid, Western Farmers
filed this suit on May 3, 1994, before the Hargrave suit was ended, seeking
reimbursement for the multi-million dollar judgment against it, as well as its costs
of defending both the corporation and its trustees. St. Paul answered that it had
no additional liability to Western Farmers. The district court held this suit in
abeyance until the Hargrave litigation was concluded, which mooted Western
Farmers’ claim for reimbursement of the multi-million dollar judgment.
On cross-motions for summary judgment, the district court determined that
St. Paul’s obligation under the D & O policy was limited to paying only the
defense costs of Western Farmers’ trustees, and not the corporation’s defense
costs. The district court also determined that Western Farmers and St. Paul,
through a series of letters exchanged at the outset of the Hargrave litigation, had
created a “cost sharing agreement” supplementing the D & O policy because
Western Farmers chose to be jointly defended with its trustees. See II Appellant’s
App. at 370, 376 (district court’s September 27, 1996 order granting summary
judgment to St. Paul). The court found that this agreement specified that St. Paul
would pay the trustees’ separately identifiable defense costs and half of Western
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Farmers’ and its trustees’ joint defense costs. See id. at 376. Finally, because the
August 1992 bifurcation of the issues for trial led almost immediately to the
dismissal of the trustees from the suit, the court determined that costs incurred
after that date should be allocated to Western Farmers. The district court entered
summary judgment in favor of St. Paul and denied Western Farmers’ motion for
partial summary judgment. This resulted in a determination in favor of Western
Farmers that St. Paul was liable to it for any unpaid costs under the cost-sharing
agreement. Based on the district court’s judgment, the parties later stipulated that
St. Paul owed Western Farmers an additional $65,000.00. The district court
denied Western Farmers’ subsequent motion for attorney’s fees and prejudgment
interest. Having expressly reserved its right to challenge the district court’s grant
of summary judgment to St. Paul, Western Farmers now appeals. We have
jurisdiction under 28 U.S.C. § 1291.
On appeal, Western Farmers argues that the district court erred: (1) in
holding that the costs of Western Farmers’ defense of the Hargrave rate
discrimination claims did not fall within the terms of the D & O policy; (2) in
interpreting the terms and effect of the cost-sharing agreement; (3) in determining
that St. Paul did not have to pay the defense costs of Western Farmers’ trustees
past the date of bifurcation; and (4) by denying Western Farmers’ application for
attorney’s fees and prejudgment interest.
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We review the grant of summary judgment de novo, applying the same
standard as that used by the district court. See Clemmons v. Bohannon, 956 F.2d
1523, 1525 (10th Cir. 1992). “Summary judgment is appropriate ‘if the
pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of
law.’” Id. (quoting Fed. R. Civ. P. 56(c)). Under Oklahoma law, which governs
this diversity case, “‘[t]he interpretation of an insurance contract . . . is a matter
of law for the Court to determine and resolve accordingly.’” Kerr-McGee Corp.
v. Admiral Ins. Co., 905 P.2d 760, 762 (Okla. 1995) (quoting Dodson v. St. Paul
Ins. Co., 812 P.2d 372, 376 (Okla. 1991)).
Regarding Western Farmers’ first three issues, we adopt the analysis of the
district court, which considered the evidence in detail. We agree that under either
the D & O policy or the series of letters exchanged between Western Farmers and
St. Paul after the Hargrave suit was filed (the “cost sharing agreement,” as termed
by the district court), St. Paul was obligated to pay only the trustees’ defense
costs, not the corporation’s defense costs as well. Because St. Paul was not
responsible for the entire cost of defense (which Western Farmers does not
argue), a method of allocating the costs was necessitated by Western Farmers’
decision to be jointly defended with its trustees. We agree with the district court
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that the correspondence between the parties constitutes their settlement of that
matter, and that it reflects their agreement that St. Paul would pay the trustees’
separately identifiable defense costs and half of joint defense costs. Western
Farmers did not specifically reserve the right to change the agreement expressed
in the parties’ correspondence. We hold that the district court’s construction of
the parties’ correspondence and their course of conduct was reasonable. In
addition, because the bifurcation of the issues for trial in the Hargrave action
led almost immediately to the dismissal of the trustees from the suit, it was
appropriate for the district court to allocate defense costs incurred after that date
exclusively to Western Farmers.
Western Farmers’ final argument is that it is entitled to attorney’s fees and
prejudgment interest. We agree. Under Oklahoma law, attorney’s fees are not
recoverable as damages unless they are expressly provided for by contract or
statute. See Magnum Foods, Inc. v. Continental Cas. Co., 36 F.3d 1491, 1509
(10th Cir. 1994). Western Farmers claims it is entitled to attorney’s fees and
prejudgment interest under Okla. Stat. tit. 36, § 3629B, which requires it to show
that: (1) it made a proof of loss to St. Paul under an insurance policy; (2) St. Paul
failed to make a written offer of settlement or rejection of the claim within ninety
days; and (3) it is the prevailing party within the meaning of the statute.
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See Dayton-Hudson Corp. v. American Mut. Liab. Ins. Co., 526 F. Supp. 730,
733-34 (W.D. Okla. 1981).
We believe Western Farmers has met its burden and should be awarded
attorney’s fees and prejudgment interest under § 3629B. St. Paul admits that it
was obligated by the D & O policy, as supplemented by the cost-sharing
agreement, to pay the Western Farmers’ trustees’ separately identifiable defense
costs and half of all joint defense costs. St. Paul further admits it made periodic
payments to Western Farmers as the Hargrave litigation progressed, based on that
obligation. This course of conduct did not change until Western Farmers retained
additional counsel in 1988, which mistakenly sent its bills to Western Farmers
instead of St. Paul for several years. When counsel realized its mistake, it sent
St. Paul’s counsel an explanation and a demand for additional payment. See
I Appellant’s App. at 105. St. Paul admits it received this letter but its counsel
lost it. See Appellee’s Br. at 13. St. Paul points to nothing in the record to
show that it ever responded to the letter, or to verify its professed willingness to
complete its obligation to Western Farmers before that company filed suit. In its
answer, St. Paul asserted it had no further liability at all to Western Farmers.
See I Appellant’s App. at 13-14, ¶¶ XV, XVI; cf. Ballinger v. Security
Connecticut Life Ins. Co., 862 P.2d 68, 71 (Okla. 1993) (holding insurer showed
willingness to pay beneficiary named on policy by tendering money to court).
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Thus, we conclude that Western Farmers’ counsel’s July 6, 1992 letter should be
construed as a proof of loss under the D & O policy for purposes of § 3629B.
See Dayton-Hudson, 526 F. Supp. at 734 (construing letter as proof of loss under
§ 3629B). St. Paul’s failure to respond satisfies the second statutory requirement.
Third, because Western Farmers was awarded a judgment against St. Paul, which
had made no settlement offer, Western Farmers is the prevailing party in this
action. See An-Son Corp. v. Holland-America Ins. Co., 767 F.2d 700, 703
(10th Cir. 1985) (holding insured is prevailing party under § 3629B unless
insured’s judgment is less than any settlement offer by insurer or insured receives
no judgment). Therefore, we remand the case for a determination of attorney’s
fees and prejudgment interest. It is within the district court’s discretion to
determine an appropriate amount, taking into account that Western Farmers did
not prevail on all of its claims. See Shadoan v. Liberty Mut. Fire Ins. Co.,
894 P.2d 1140, 1144 & n.10 (Okla. Ct. App. 1994).
The judgment of the United States District Court for the Western District
of Oklahoma is AFFIRMED in part and REVERSED in part, and the case is
REMANDED for additional proceedings consistent with this order and judgment.
Entered for the Court
Monroe G. McKay
Circuit Judge
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