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APPEAL FROM THE UNITED STATES DISTRICT COURT
Eric S. Eissenstat (Burck Bailey and Dino E. Viera with him on the briefs) of Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Oklahoma, for Defendants-Appellants.
John T. Edwards and Shannon L. Edwards of Monnet, Hayes, Bullis, Thompson & Edwards, Oklahoma City, Oklahoma, for Plaintiffs-Appellees.
Before EBEL, McKAY, and CUDAHY,(1) Circuit Judges.
McKAY, Circuit Judge.
(1) Honorable Richard D. Cudahy, Senior Circuit Judge, United States Court of Appeals for the Seventh Circuit, sitting by designation.
Appellees Mr. Davis and Ms. Calame jointly owned real estate damaged by a hail storm. In its March 26, 1998 Order, the district court for the Western District of Oklahoma granted summary judgment to Appellees holding that the cost to remove damaged shingles and the labor cost involved in installing new shingles were not subject to depreciation under the actual cash value provision of Appellees' dwelling policy.
Prior to submitting Appellees' bad faith insurance claim to a jury, the parties stipulated Appellees' damages to be $439.50. Aplt. App. at 1215. Appellants, however, retained the right to challenge the district court's holdings that the cost to remove damaged shingles and the labor cost involved in installing new shingles were not subject to depreciation. At trial, the jury awarded Appellees $40,000 in damages on Appellees' bad faith claim and awarded Appellees $17,000,000 in punitive damages.
On appeal, Appellants contest the district court's holdings that the cost of removing damaged shingles and the labor cost involved in installing new shingles cannot be depreciated. Other issues on appeal include whether the district court erred in failing to grant Appellants' Judgment as a Matter of Law on Appellees' bad faith claim, whether the district court erred in allowing the issue of punitive damages to reach the jury, and whether the district court erred in allowing Appellees to pierce the corporate veil making Appellant Farmers
Group, Inc., liable for the punitive damages assessed against Appellant Mid-Century Insurance.
On appeal, we companioned this case with Branch v. Farmers Insurance Co. (Appeal No. 00-6385). We then abated both cases pending a response from the Oklahoma Supreme Court to three certified questions. The Oklahoma Supreme Court's response is attached to our decision in Branch and by reference is made a part of this opinion. We issue this opinion simultaneously with the Branch decision and in accordance with the Oklahoma Supreme Court's holdings.
The Oklahoma Supreme Court's answers to our certified questions resolve the underlying issues for us. The cost of removing damaged shingles is not subject to depreciation. However, the labor cost of installing new shingles is subject to depreciation. The Oklahoma Supreme Court's answers indirectly resolve the bad faith and punitive damages issues as well.
"[A]n insurer has an implied duty to deal fairly and act in good faith withits insured[,] and . . . the violation of this duty gives rise to an action in tort . . . ." Christian v. American Home Assurance Co., 577 P.2d 899, 904 (Okla. 1977). However, "the tort of bad faith does not prevent the insurer from resisting payment or resorting to a judicial forum to resolve a legitimate dispute." Skinner v. John Deere Ins. Co., 998 P.2d 1219, 1223 (Okla. 2000).
For bad faith liability to attach, the law at the time of the alleged bad faith must be settled. See id. at 1224.
The law was not settled at the time of Mid-Century's actions. "There was no conclusive precedential legal authority on the issue" of whether the costs associated with the removal of damaged shingles or the labor costs incurred in installing new shingles were properly subject to depreciation under the actual cash value provision of a dwelling policy. See id. at 1223. Furthermore, the Oklahoma Supreme Court ultimately found Mid-Century's position regarding the issues to be partially correct. (Cost of labor to install new shingles is depreciable, cost to remove damaged shingles is not). As a matter of law, Appellants' litigation of this legitimate coverage dispute cannot constitute bad faith because Appellants' position in the litigation was reasonable. See Thompson v. Shelter Mut. Ins., 875 F.2d 1460, 1462 (10th Cir. 1989).
We affirm the district court's holding that the cost of removing damaged shingles is not subject to depreciation. We reverse the district court's holding that the labor cost incurred to install new shingles is not depreciable.
Accordingly we direct the district court to amend the amount of damages awarded to Appellee from $439.50 to $165.00. Furthermore, we reverse the district court's denial of Mid-Century's Motion for Judgment as a Matter of Law on Appellees' bad faith claim. Because Mid-Century did not act in bad faith as a matter of law, we also reverse the jury's award of punitive damages against Mid-Century. We need not consider the piercing of the corporate veil issue as our decision renders it moot.
AFFIRMED in part, REVERSED in part, and REMANDED to the district court for entry of judgment consistent with this opinion.
Copr. _ West 2002 No Claim to Orig. U.S. Govt. Works
55 P.3d 1023
Insureds brought federal court actions against property insurers to challenge depreciation of tear-off and labor costs in calculating payment for hail damage to roof. The United States District Court for the Western District of Oklahoma, Miles-LaGrange, J., 123 F.Supp.2d 590, and Ralph Thompson, J., permitted depreciation of labor costs in one case. Appeals were taken. The Court of Appeals, McKay, J., certified questions. The Supreme Court, Winchester, J., held that: (1) actual cash value (ACV) is not replacement cost less depreciation, but is determined by the broad evidence rule; (2) labor costs for a new roof were "replacement costs" and, therefore, could be depreciated when using the replacement costs less depreciation method of valuing a loss; (3) layer of roofing to be torn off was "debris" within the meaning of policy provision requiring the insurer to pay reasonable expenses to remove debris caused by a covered loss; and (4) the labor cost to tear off the shingles was not subject to depreciation.
Questions answered.
West Headnotes
[1] Insurance k2181
[1] Insurance k2182
"Actual cash value" (ACV) is not replacement cost less depreciation; rather, ACV is determined by the broad evidence rule requiring consideration of all relevant factors and circumstances existing at the time of loss, including purchase price, replacement cost, appreciation or depreciation, the age of the building, the condition in which it has been maintained, and market value.
[2] Insurance k2172
[2] Insurance k2185
"Replacement cost" is the sum of those costs an insured No. 96,790. is reasonably likely to incur in replacing his covered loss.
[3] Insurance k2182
Labor costs for a new roof were "replacement costs" and, therefore, could be depreciated when using the replacement costs less depreciation method of valuing a loss covered by a homeowners' insurance policy.
[4] Insurance k2140
Layer of roofing to be torn off was "debris" within the meaning of homeowners' policy provision requiring the insurer to pay reasonable expenses to remove debris caused by a covered loss, and, thus, the labor cost to tear off the shingles was not subject to depreciation.
[5] Insurance k1713
An insurance policy is a contract.
[6] Insurance k1806
The same principles generally apply to the construction of a policy of insurance as apply to any adhesion contract.
*1024 Federal Certified Question.
0 The United States Court of Appeals for the Tenth Circuit has certified questions of law pursuant to the Oklahoma Uniform Certification of Questions of Law Act, 20 O.S.1991, 1601-1611. The plaintiff, Eldon Carl Branch, purchased a homeowner's policy from the defendant, Farmers Insurance Company, Inc., which provided for payment of replacement cost in the event of a covered loss. The plaintiff's roof was damaged during a storm. The Tenth Circuit certified the following questions: "(1) In determining actual cash value, using the replacement costs less depreciation method, may labor costs be depreciated? (2) In determining replacement cost less depreciation, are labor costs of removing a damaged roof necessarily included or may roof tear-off be separately covered as 'debris removal?' (3) If tear-off costs are properly included as necessary replacement costs and labor costs are depreciable generally, may the labor costs incurred during tear-off also be depreciated?"not dispute coverage. The insurers determined replacement cost, including materials and labor, and reduced that those components of the total that neither the labor associated nor the labor incurred during tear-off of damaged roofs are depreciable. The Tenth
Gary B. Homsey, Kevin Hill, Homsey, Cooper, Hill & Associates; Shannon L. Edwards, Monnet, Hayes, Bullis, Thompson & Edwards, Oklahoma City, OK; for Plaintiff. amount by depreciating both
Burck Bailey, Eric S. Eissenstat, Dino E. Viera, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, OK, for Defendants. cost. The plaintiffs contend
Richard C. Ford, Rustin J. Strubhar, Crowe & Dunlevy, Attorneys for Amici Curiae State Farm Fire & Casualty Company, and State Farm General Insurance Company.with installing a new roof,
WINCHESTER, J.
**1 1 The United States Court of Appeals for the Tenth Circuit has certified three questions of law pursuant to the Oklahoma Certification of Questions of Law Act, 20 O.S.1991, 1601-1611. The court states that it has heard oral arguments in two substantially *1025 similar diversity cases appealed from the United States District Court for the Western District of Oklahoma, Branch v. Farmers Ins. Co., 123 F.Supp.2d 590 (W.D.Okla.2000), and Davis v. Mid-Century Ins. Co., CIV-96-2070-T (W.D.Okla. March 26, 1998) (Westlaw 1998 WL 1285714). The federal court informs us that it is aware of the case of Redcorn v. State Farm Fire and Casualty Co., 55 P.3d 1017 (2002) where the United States District Court for the Western District of Oklahoma has certified a question substantially similar to the first question certified by the Tenth Circuit. The answer to the certified question in Redcorn is being handed down contemporaneously with the answers to those presently before us.Circuit has certified the following questions:
"(1) In determining actual cash value, using the replacement costs less depreciation method, may labor costs be depreciated?
"(2) In determining replacement cost less depreciation, are labor costs of removing a damaged roof necessarily included or may roof tear-off be separately covered as 'debris removal?'
"(3) If tear-off costs are properly included as necessary replacement costs and labor costs are depreciable generally, may the labor costs incurred during tear-off also be depreciated?"
3 In the Davis case, the insurer figured the cost to tear off and replace the old damaged roof. The insurer then reduced this total amount by fifty percent for depreciation based on the roof's age in ratio to its estimated life. The plaintiffs argued that neither the labor for the tear-off, nor the labor for replacement should be subject to depreciation. In construing the plaintiffs' policy, the federal district court in Davis found that both the plaintiffs and the insurers suggested reasonable interpretations of the provisions regarding depreciation of labor. As a result, the court determined that an ambiguity existed in the policy as to whether the cost of labor associated with replacement of the roof was subject to depreciation. In that regard, the court concluded that the materials were properly subject to depreciation, but labor costs to replace the roof should not have been depreciated. Concerning the question of debris removal, representatives of the insurer testified that the damage caused to the plaintiffs' roof in this case resulted in the roof surfacing becoming debris. The court found that the plaintiffs' policy regarding debris removal was unambiguous, and that it was a separate item of coverage not subject to depreciation.
**2 4 Like the Davis case, the insurer in Branch depreciated the tear-off cost and the labor cost for installing a new roof to replace one that had been destroyed by wind and hail. The insurer paid the balance to the plaintiff, who was the insured. He sued, alleging that the insurer breached the terms of the insurance policy by depreciating the labor for tear off and installation. The federal district court in Branch found that tear-off costs and installation costs were reasonably likely in replacing a roof and therefore were included within the meaning of "replacement cost." The court further found that the term "replacement cost" was unambiguous, and it was proper to depreciate the cost of labor.
2002 OK 16
(Cite as: 55 P.3d 1023, 2002 WL 378169 (Okla.))
Supreme Court of Oklahoma.
Eldon Carl BRANCH, Plaintiff,
v.
FARMERS INSURANCE COMPANY,
INC., and Farmers Group, Inc.,
Defendants.
March 12, 2002.
Rehearing Denied Sept. 9, 2002.
217k2181
217k2182
217k2172
217k2185
217k2182
(Formerly 217k2181)
217k2140
[4] Insurance k2182
217k2182
(Formerly 217k2181)
217k1713
217k1806
CERTIFIED QUESTIONS ANSWERED
2 The facts reported by the Tenth Circuit are as follows. The plaintiffs in these cases purchased homeowner's policies from various insurance companies. Those policies provide for roof surface repair and replacement coverage and separate coverage for "debris removal" following a covered loss. Hail and wind damaged the plaintiffs' roofs causing a total loss. The insurers do