FEDERATED RURAL ELECTRIC INS. CORP. v. WILLIAMS

FEDERATED RURAL ELECTRIC INS. CORP. v. WILLIAMS
2002 OK CIV APP 78
52 P.3d 1043
Case Number: 97043, 97051
Decided: 04/26/2002
Modified: 07/12/2002
Mandate Issued: 08/09/2002
Supplemental Opinion Issued: July 12, 2002
DIVISION III
THE COURT OF CIVIL APPEALS OF THE STATE OF OKLAHOMA, DIVISION III

FEDERATED RURAL ELECTRIC INSURANCE CORPORATION, Plaintiff/Appellant
v.
MARK WILLIAMS d/b/a CHERRY TREE SERVICE, Defendant/Appellee
And
FEDERATED RURAL ELECTRIC INSURANCE CORPORATION, Plaintiff/Appellee
v.
COLONY INSURANCE COMPANY, Defendant/Appellant

APPEAL FROM THE DISTRICT COURT OF PONTOTOC COUNTY, OKLAHOMA

HONORABLE THOMAS S. LANDRITH, TRIAL JUDGE

AFFIRMED IN PART, REVERSED IN PART AND REMANDED WITH DIRECTIONS

[52 P.3d 1042]

James W. Dobbs, CHUBBUCK, SMITH, RHODES, STEWART & ELDER, P.L.L.C, for Plaintiff/Appellant, Oklahoma City, Oklahoma, Federated Rural Electric, Insurance Corp.
June E. Matchette, Shannon K. Emmons, MANCHESTER & PIGNATO, Oklahoma City, Oklahoma, for Defendant/Appellee, Mark Williams d/b/a Cherry Tree Service
Michael C. Stewart, CHUBBUCK, SMITH, RHODES, STEWART & ELDER, P.L.L.C., Oklahoma City, Oklahoma, for Plaintiff/Appellee, Federated Rural Electric Insurance Corp.
James L. Gibbs, II, COLLINS, ZORN, WAGNER & GIBBS, Oklahoma City, Oklahoma, for Defendant/Appellant, Colony Ins. Co.

OPINION BY CAROL M. HANSEN, Presiding Judge:

¶1 In November 1993, Peoples' Electric Cooperative (PEC) entered into a Right of Way Control Contract ( the contract) with Cherry Tree Service (Cherry Tree)1 for Cherry Tree to perform tree trimming and maintenance on trees near PEC power lines. A provision in the contract required Cherry Tree to indemnify PEC ". . . from all claims . . . arising out of or as a result of any act or failure to act, whether or not negligent, in connection with the performance of the work to be performed pursuant to this contract by [Cherry Tree] . . . [Cherry Tree] agrees to defend and pay all costs of defending these claims, including attorney fees." The contract also required that PEC " . . . be listed as an additional insured on [Cherry Tree's] policy [of insurance]."

¶2 Beginning in July of 1993, Cherry Tree had been insured by Colony Insurance Company (Colony). In December 1993, pursuant to the terms of the contract, Cherry Tree's policy with Colony was amended to include PEC as an additional insured. In the additional insured indorsement, PEC was insured "with respect to liability arising out of [Cherry Tree's] work for [PEC] by or for [Cherry Tree]." Through Cherry Tree's insurance agent, Moon-Baker Agency, Cherry Tree renewed the policy for the period 7/24/94 - 7/24/95. Apparently, Moon-Baker had requested Select Underwriters, Inc., operating as R & R Select, Inc., to renew the policy containing PEC as an additional insured "as is" prior to the expiration of the policy. 2 Although the renewal certificate issued by R & R to Moon-Baker reflected the 7/24/94 -7/24/95 renewal period, the Schedule of Forms and Endorsements submitted along with the renewal certificate by R & R did not contain an additional insured endorsement, and Cherry Tree was not charged the premium and fee for the additional insured. PEC was never again added to the policy as an additional insured. The policy was eventually canceled in May 1997.

¶3 In September 1995, Alvin Wells (Wells) was in his yard burning web worms out of a tree with a twenty-one foot long aluminum pole. Wells came into contact with an electrical line owned by PEC and received severe injuries as a result of his electrocution. Wells and his wife filed a lawsuit (the underlying case) against both Cherry Tree and PEC. In Wells' petition, they alleged "PEC contracted with Defendant, Cherry Tree Service, to examine and trim trees away from the lines. They did so negligently, as a result of which Plaintiff, Alvin Wells, was electrocuted while tending a tree on his property." The case was litigated, and on December 6, 1996, a mediation conference was held. Colony, Cherry Tree, and their counsel were present at the mediation conference. At the mediation conference, Wells' claims against PEC were settled for $150,000.00. Federated Rural Electric Insurance Corporation, (Federated), PEC's liability insurer, paid the settlement amount. Prior to PEC's settling the claims, PEC made a specific request to Colony, pursuant to the policy, and to Cherry Tree, pursuant to the contract, to defend PEC and to indemnify PEC for any claims made against PEC in the case.3 Both Colony and Cherry Tree refused to defend or indemnify PEC.

¶4 Federated, as subrogee to PEC's rights, filed the instant lawsuit against Colony and Cherry Tree,4 seeking indemnification from both. Federated filed a motion for summary judgment against Colony, and Colony filed a cross motion for summary judgment against Federated. On August 6, 2001, in its journal entry of judgment, the trial court denied Colony's cross-motion for summary judgment and granted Federated's motion for summary judgment. In doing so, the trial court found that pursuant to 36 O.S. 1991 §3639(E), PEC is an insured under Colony's policy and that no notice was given of PEC's removal from the policy. It further found that claims against PEC in the underlying case arose out of Cherry Tree's relationship with PEC, and that Colony had a duty to defend PEC. The trial court also found the settlement of $150,000.00 in the underlying case was in good faith and ordered Colony to pay one-half ($75,000.00) of the settlement.

¶5 Federated also filed a motion for summary judgment against Cherry Tree, and Cherry Tree filed a cross-motion for summary judgment against Federated. On October 22, 2001, in its Journal Entry of Judgment, the trial court denied Federated's motion for summary judgment and granted Cherry Tree's motion for summary judgment. In doing so, it found that, "[t]hese motions [for summary judgment] must be read in light of the Court's ruling of August 6, 2001, as it related to this Defendant and Defendant, Colony Insurance Company." It also found, "[t]hat the indemnity portion of the contract between the parties is not enforceable." Colony appeals [Supreme Court #97,051] the August 6, 2001, judgment, and Federated appeals [Supreme Court #97,043] the October 22, 2001, judgment. The appeals have been consolidated under the surviving Supreme Court #97,043.

I

¶6 Although the appeals have been consolidated, this Court initially will discuss the case bearing the former Supreme Court #97,051 wherein Colony appeals the August 6, 2001, judgment rendered in favor of Federated.

¶7 In its petition in error, Colony argues PEC was not an insured under the policy because PEC had been removed as an additional insured when the policy was renewed. A review of the renewal certificate for the policy period 7/24/93 -7/24/94 contains the following provision:

The following changes apply to the renewal of this policy (if none, so state):

Deleting CG2116 (11-85) & WHS112(8-91)

Adding WH375 (3-92) & WHS112 (9-92)

¶8 No other changes are noted, particularly the removal of the additional insured endorsement (form CG20101185). FormWH361 indicates endorsements possibly applicable to the policy; therein, an "X" is used to mark any listed endorsements applicable to the policy. If there is no X placed near the listed endorsement, the endorsement is not applicable to the policy. However, on Form WH361, the additional insured endorsement (form CG20101185) is not even listed so that an X could be placed beside it. An insured could not ascertain by viewing Form WH361 whether PEC had been removed as an additional insured.

¶9 However, Colony argues that pursuant to 36 O.S. 1991 §3639(E), even if PEC is an additional insured, Colony did not have a duty to notify Cherry Tree of a change of coverage in the policy because PEC is not a "named insured." Section 3639(E) provides that "[a]n insurer shall give to the named insured at the mailing address shown on the policy, written notice of . . . change in . . . coverage . . . at least forty-five (45) days prior to the expiration date of the policy." Colony did not clearly or conspicuously notify either Cherry Tree, the named insured on the policy, or PEC, specifically named as an insured on the additional insured endorsement. Both PEC's name and address were on the endorsement. Moreover, pursuant to §3639(E), coverage to Cherry Tree was, in fact, changed. With PEC named on the additional insured endorsement, the policy provided coverage to defend and indemnify PEC for claims arising out of the work to be performed by Cherry Tree. This coverage protected Cherry Tree from potential contribution and/or indemnification claims by PEC. Notification pursuant to §3639(E) was required of Colony. Any notice to an insured, advising him of any changes in the insurance policy, must be clear and conspicuous. Wynn v. Avemco Ins. Co., 1998 OK 75, 963 P.2d 572. There was no clear and conspicuous notice; thus, PEC remained an additional insured until the 1997 cancellation of the policy. 5

¶10 Colony complains PEC is not covered under the policy because the additional insured endorsement language, which provides that PEC is insured with respect to liability arising out of Cherry Tree's work for PEC., indicates liability on the part of PEC must be proved before coverage exists. Because the parties settled the underlying case, no liability was proved. We disagree. Whether coverage exists is a question of law for the Court. Dodson v. St. Paul Ins. Co., 1991 OK 24, 812 P.2d 372. PEC had coverage for claims which allege liability arising out of Cherry Tree's work for PEC.

¶11 Finally, Colony argues that even if PEC is an additional insured and is covered under the policy, Federated must establish it is entitled to indemnity because the policy states that "[w]e will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." (Emphasis added). In Chicago , R.I. & P.R. Co. v. Dobry Flour Mills, 211 F2d 785 (10th Cir. 1954), the Tenth Circuit Court of Appeals held that "[i]n Oklahoma and elsewhere in indemnity cases, where the indemnitor denies liability under the indemnity contract, and refuses to assume the defense of the claim, then the indemnitee is in full charge of the matter, and may make a good faith settlement without assuming the risk of being able to prove absolute legal liability or the actual amount of the damage."

¶12 However, Colony complains it did not have an opportunity to control the litigation because PEC did not formally demand Colony defend and indemnify it until the December 6, 1996 mediation conference. See 15 O.S. 1991 §427(6).6If the person indemnifying, whether he is a principal or a surety in the agreement, has not reasonable notice of the action or proceedings against the person indemnified or is not allowed to control its defense, judgment against the latter is only presumptive evidence against the former. Evidence reveals, however, that on October 29, 1996, PEC made written demand upon Colony's and Cherry Tree's counsel to defend and indemnify it. Additionally, a Colony claims adjuster 's December 4, 1996 log note states "[Co-defendant] has formerly requested we defend and indemnify them. However, the negligence alleged against PEC is separate and distinct from the liability against the insured and the insured's operation. Defense counsel is to write back rejecting PEC's request." It is undisputed that from the inception of the underlying case, Colony provided a defense to Cherry Tree and was aware of and involved in the defense of the claims being made in that case. In its June 3, 1996 litigation report, Colony acknowledged that "[PEC] is an additional insured under the policy." Because Colony refused to defend and indemnify PEC, Federated was not required to prove PEC was legally obligated to pay the underlying settlement.

¶13 The trial court did not err in denying Colony's motion for summary judgment or in granting PEC's motion for summary judgment. The trial court's August 6, 2001 judgment is AFFIRMED.

II

¶14 The remaining appeal, initially bearing the now surviving Supreme Court #97,043, involves Federated's appeal from the October 22, 2001, judgment wherein the trial court granted Cherry Tree's motion for summary judgment and denied Federated's motion for summary judgment.

¶15 In its petition in error, Federated contends the trial court erred in finding the indemnity provision of the contract between Cherry Tree and PEC was not enforceable. The indemnity provision provides: "[Cherry Tree] agrees to indemnify and hold harmless [PEC] . . . from all claims of whatsoever nature or kind . . . arising out of or as a result of any act or failure to act, whether or not negligent, in connection with the performance of the work to be performed pursuant to this contract by [Cherry Tree]. . . . [Cherry Tree] agrees to defend and pay all costs in defending these claims, including attorney fees." The language clearly indicates Cherry Tree will indemnify PEC for all claims connected with the underlying tree trimming claim, even claims against PEC for its own negligence.

¶16 Below, Cherry Tree argued contractual exculpatory clauses are viewed with disfavor, but to be enforceable, such clauses must meet three conditions: (1) the parties must express their intent to exculpate in unequivocally clear language; (2) the agreement must result from an arm's length transaction between parties of equal bargaining power; and, (3) the exculpation must not violate public policy. See Schmidt v. U.S., 1996 OK 29, 912 P.2d 871. Cherry Tree further argued the indemnification clause in the contract did not meet the above-mentioned three conditions.

¶17 The indemnification clause in the contract is not to be confused with an exculpatory clause. An exculpatory clause releases in advance the second party for any harm the second party might cause the first party after the contract is entered. The indemnification clause in the contract protects against claims made by parties outside the contract. In Elsken v. Network Multi-Family Security Corp., 1992 OK 136, 838 P.2d 1007, a case which involved an agreement containing both an limitation of liability clause7 and an indemnification clause, the Supreme Court found the indemnification clause in the agreement clearly expressed an intention to indemnify a party to the agreement from its own negligence. The Supreme Court found the agreement enforceable. The Court emphasized that in Fretwell v. Protection Alarm Co. ,1988 OK 84, 764 P.2d 149, ". . . we rejected . . . the argument that the indemnity clause was unenforceable because it sought to indemnify the appellant from its own negligence. We said that where the intention to indemnify is unequivocally clear from an examination of the contract, such agreement is enforceable." The intention to indemnify PEC is unequivocally clear from an examination of the indemnity clause. As a matter of law, the indemnification clause is enforceable. The trial court erred in granting summary judgment for Cherry Tree on the ground the indemnification clause was not enforceable.

¶18 Federated asserted the indemnification clause is enforceable. In addition, it argued other grounds which the trial court did not address. Accordingly, we choose not to do so in this decision. The trial court's October 22, 2001, judgment is REVERSED AND REMANDED for proceedings consistent with this decision.

¶19 AFFIRMED IN PART, REVERSED IN PART AND REMANDED WITH DIRECTIONS.

ADAMS, J., and MITCHELL, J., concur.

FOOTNOTES

1Defendant, Mark Williams, was doing business as Cherry Tree Service. The defendant herein will be referred to as Cherry Tree.

2R & R is a broker/agent who writes insurance in Oklahoma for various insurance companies. At all times relevant, Select Underwriters and R & R were general agents for Colony.

3In February 1997, the Wells reached a settlement with Cherry Tree in which Colony agreed to pay $15,000.00 on Cherry Tree's behalf to settle all claims against it.

4Federated also sued the Moon-Baker Agency and Select Underwriters, Inc. and R & R Select. During the course of this lawsuit, the trial court granted Moon-Baker's motion for summary judgment. Moon-Baker is not a party to this appeal. Also, during the course of this lawsuit, Federated dismissed its claims against R & R Select, Inc., without prejudice.

536 O.S. 1991 section 3639(E) provides, in part, that if an insurer does not give the named insured written notice of a change in coverage, the "coverage provided to the named insured prior to the change shall remain in effect until notice is given or until the effective date of replacement coverage obtained by the named insured, whichever first occurs."

6Section 427(6) provides:

7A limitation of liability clause "limits" rather than "releases" the contracting party from its own liability.

SUPPLEMENTAL OPINION ON REHEARING

CAROL M. HANSEN, Presiding Judge:

¶1 Rehearing was granted this same day by order to address the correctness of the trial court's award of attorney fees and costs to Appellee, Federated Rural Electric Insurance Co. (Federated), and the denial of prejudgment interest and to determine whether Federated is entitled to appellate attorney fees.

¶2 On January 4, 2002, the trial court awarded attorney fees in the amount of $18,567.00 and costs in the amount of $798.88 against Appellant, Colony Insurance Co. (Colony). The trial court denied Federated prejudgment interest.

¶3 Federated argues the trial court abused its discretion in "prorating" its award of attorney fees attributed to its claims against Colony on the basis it only recovered 50% of the total recovery sought in the indemnification case.1 In its Motion for Attorney Fees, Interest, and Costs Against Defendant Colony Insurance Company, Federated [52 P.3d 1043] contends that, pursuant to 36 O.S. 2001§3629(B), attorney fees, costs, and interest shall be allowable to the prevailing party.2

¶4 Federated made a demand on Colony to pay that portion of the settlement covered under its insurance policy. Colony denied coverage, and made no offer of settlement within 90 days receipt of the demand. Federated submits the attorney fees incurred in enforcing the insurance coverage provided by the Colony insurance policy total $37,134.00. Attached to Federated's motion are the affidavits of its counsel, Mr. Dobbs and Mr. Stewart, setting forth the time and labor required in the matter. These affidavits detail the number of hours of work and the rate charged for the legal services. However, the affidavits also state, "There is still a pending claim in this lawsuit, and the judgment against Colony Insurance Company is still subject to appeal, therefore, in accordance with State ex rel. Burk v. City of Oklahoma City, 1979 OK 115, 598 P.2d 659, the time and labor required to date in this matter can be verified by detailed contemporaneous time records which are available for in camera review so as to protect and preserve attorney client privileges."

¶5 Colony argues Federated's counsel has not submitted an itemized statement for services rendered. In Burk, supra, the Supreme Court specified that "... attorneys in this state should be required to present to the trial court detailed time records showing the work performed and offer evidence as to the reasonable value for the services performed for different types of legal work...." Because detailed time records were not a part of the record on appeal, this Court cannot say the trial court abused its discretion in awarding Federated $18,567.00 in attorney fees.

¶6 Federated also contends the trial court abused its discretion in "prorating" its award of costs against Colony on the basis Federated only recovered 50% of the total recovery sought in the indemnification case. It argues that pursuant to §3629(B) and 12 O.S. 2001§928, it is entitled to recover its costs. It is undisputed Federated has incurred costs in the amount of $1,597.75 in this action which are directly related to the claims against Colony. Colony cites this Court to no authority which would indicate an award of costs must be reduced by one-half of such costs incurred because the prevailing party was awarded one-half of the recovery sought in the lawsuit. The trial court abused its discretion in awarding only $798.88 in costs.

¶7 Next Federated submits that pursuant to §3629(B), Colony is liable for interest in the amount of 15% per year from the date the loss was payable until the date of the trial court's judgment against Colony. However, Colony argues that to be entitled to prejudgment interest, the trial court must be able to determine the date from which the defendant's liability for prejudgment interest begins.

¶8 The purpose of prejudgment interest is to make the plaintiff whole by repayment of interest for loss of the use of the money to which the plaintiff was entitled. See Woolard v. JLG Industries, Inc., 210 F.3d 1158, (10th Cir. 2000). Pursuant to §3629(B), prejudgment interest begins from the date the loss was payable. In Taylor v. State Farm Fire and Casualty Co.,1999 OK 44, 981 P.2d 1253, an insurance bad faith case, the Supreme Court held that if a "demand's value is unascertainable until its quantum is judicially settled, no prejudgment interest is the victor's due. But if the value of the demand is fairly ascertainable before its settlement by judgment, prejudg- [52 P.3d 1044] ment interest will accrue." Although Colony argues the loss was not ascertainable until judgment, when the trial court determined Federated should be awarded $75,000.00, Federated's demand of $150,000.00 was ascertainable at mediation, on December 6, 1996, before judgment, even though the amount awarded at judgment was a setoff of the ascertainable amount demanded.

¶9 Federated calculates that 15% interest on the $75,000.00 award from the December 6, 1996, mediation until the August 6, 2001, judgment is $59,208.91 ($770.55 for 1996; $11,250 per year for 1997, 1998, 1999, 2000, and $6,719.18 for 2001 until the August 6, 2001 judgment). Colony does not dispute these calculations, only that Federated is not entitled to prejudgment interest in the first instance. The trial court abused its discretion in denying Federated prejudgment interest in the amount of $59,208.91.

¶10 Federated's request for appellate attorney fees is granted and remanded to the trial court for a Burk hearing [52 P.3d 1045].

¶11 AFFIRMED IN PART, REVERSED IN PART, AND REMANDED FOR PROCEEDINGS CONSISTENT WITH THIS OPINION.

¶12 ADAMS, J., and MITCHELL, J., concur.

FOOTNOTES

1In the underlying case (the Wells case), Federated as the insurer of Peoples' Electric Cooperative (PEC) settled with the plaintiffs, Mr. and Mrs. Wells, for $150,000.00. After Colony refused to defend and indemnify PEC for any claims made against PEC, Federated, as subrogee to PEC's rights, filed a lawsuit against Colony and others seeking indemnification. The trial court found the settlement of $150,000.00 was in good faith and ordered Colony to pay one-half ($75,000.00) of the settlement. The Court of Appeals affirmed.

2Section 3629(B) provides:
B. 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 to the insured within ninety (90) days of receipt of that proof of loss. Upon a judgment rendered to either party, costs and attorney fees shall be allowable to the prevailing party. For purposes of this section, the prevailing party is the insurer in those cases where judgment does not exceed written offer of settlement. In all other judgments the insured shall be the prevailing party. If the insured is the prevailing party, the court in rendering judgment shall add interest on the verdict at the rate of fifteen percent (15%) per year from the date the loss was payable pursuant to the provisions of the contract to the date of the verdict. This provision shall not apply to uninsured motorist coverage.