By William T. Barker, Partner, SNR Denton LLP
The Estate of Aurora Espinal-Cruz obtained a $20 million wrongful-death judgment against Deanza Jones, who had been Aurora's foster parent, after Jones's insurers had refused a $600,000 policy limits demand. Jones agreed to pursue the insurers and split the proceeds with the Estate. After Jones did so, the Estate made a direct claim against the insurance. In Colony Insurance Co. v. Burke, the Tenth Circuit held that the Estate had no right to do so.
As the Tenth Circuit explained, the case arose from
a particularly sad and gruesome death. In January 2002, the Oklahoma Department of Human Services ("DHS") placed then-six-month-old Aurora Espinal-Cruz ("Aurora") and her four-year-old sister Cassandra into the foster care of Deanza Jones. Less than one month later, Aurora was found dead in her crib, killed by an untreated respiratory illness. Aurora had suffered greatly in the days before her death, having been left to lie in her own waste and vomit, while her skin was eaten by cockroaches.
The state had provided liability insurance for Jones through United National Insurance Co. and Colony Insurance Co. United provided a defense and Colony denied coverage. Four days before trial United and Colony made a joint offer of $300,000. The Estate rejected that and made a policy-limits demand of $600,000, which the insurers refused. The verdict was $20 million and prejudgment interest brought the judgment to over $24 million. Jones appealed.
Coverage litigation ensued. United settled by paying the estate $2.75 million. Jones settled with the Estate, promising to pursue Colony and give 75% of any recovery to the Estate. She did so, and Colony agreed to pay Jones $4 million (including $300,000 designated as the limits of the policy insuring Jones). Jones paid almost $3 million to the Estate.
The Estate attempted to assert a direct claim against Colony, but the district court granted Colony judgment on the pleadings, concluding that, under Oklahoma law, the Estate was not a third-party beneficiary of the policy. The Tenth Circuit affirmed.
As the commentary points out, a key to the ruling was the fact that this was a liability insurance policy:
The court noted the distinction between first-party insurance policies, which protect an insured against the insured's own losses, and third-party insurance policies, which protect against the insured's liability for the losses of third parties. In all relevant respects, this was third-party insurance. Even if Aurora had been an insured, it would only have insured her against liability to others, not against injuries to herself. As to any claim she made against her foster parents, she would have been a third party, even if she otherwise qualified as an insured. As such, she (and the Estate as her successor) had no claim as an insured for the handling of her claim against Jones.
The court rejected various arguments that Aurora should be considered a third-party beneficiary.
This commentary shows that this decision accords with decisions elsewhere and with generally accepted public policies, though noting that some disagree with those policies. Nor should it matter if Aurora was herself an insured under the Colony policy. While she was a third-party beneficiary of the policy in some respects, that did not entitle her to make the type of claim the Estate asserted here.
William T. Barker is a member of SNR Denton's Insurance Litigation & Coverage Practice Group and practices in the firm's Chicago office. He has a nationwide practice in the area of complex commercial insurance litigation, including coverage, claim practices, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author, with Ronald D. Kent of The New Appleman Insurance Bad Faith Litigation, Second Edition and with Charles Silver of the forthcoming Professional Responsibilities of Insurance Defense Counsel; he has written over 100 published articles on insurance and litigation subjects. He has been described as "[t]he leading lawyer commentator" on the relationships between insurance and civil procedure. Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 & n.4 (1995). He is an Adviser to the American Law Institute project on Principles of the Law of Liability Insurance. He is a member of the Editorial Board of The New Appleman on Insurance Law Library Edition and The New Appleman Insurance Law Practice Guide. He is Editorial Board Director and Senior Contributing Editor of Insurance Litigation Reporter and a member of the Board of Editors of Defense Counsel Journal.
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