O’Keefe v State Farm was briefly introduced at the end of February in Katrina insurance litigation – selected Nationwide and State Farm cases.
O’Keefe, as you may recall from the earlier post, was initially filed in State court. As reported in that post, the O’Keefe’s legal fees increased dramatically once the case was moved to federal court. Given the cause for complaint at that point were the 17 motions in limine that had been filed since the move, I can only imagine how frustrated they are at this point after all the twists and turns the case has taken since that post was written.
State Farm must be frustrated, too, because they’ve lost their grip on this one. See if you don’t agree as we examine recent filings in the case on the dispute over Scope of Coverage; i.e. State Farm’s insistence the Plaintiffs’ business expenses for Dancel were not covered in the O’Keefe’s homeowner’s coverage.
The title quote – long on argument but light on facts – comes from Plaintiff’s Rebuttal in Opposition to Defendants’ Response in Opposition to Plaintiffs’ Motion for Declaratory Judgment/Partial Summary Judgment RE Scope of Coverage.
…contrary to State Farm’s argument, the pertinent facts in this issue include: a. State Farm’s agent was expressly asked to provide business interruption coverage for Dancel through the subject policy;
b. State Farm’s agent represented to the Plaintiffs that the subject business policy would and did provide coverage for loss of business income sustained as a result of a necessary interruption of the business operations of Dancel, the primary business owned by the O’Keefes and operated out of the premises described on the Declarations page of the subject business policy;
c. The application for the subject policy was filled out by the agent, and states that the named insureds owned the business interests sought to be insured for at least 10 years, and that the named insureds have been operating the business interests sought to be insured for 3 ½ years;
d. At the time the application for the subject policy was signed on June 23, 1999, the only business Celeste Foster O’Keefe was seeking to insure that she had owned for at least 10 years was Dancel;
e. At the time the application for the subject policy was signed on June 23, 1999, the business Celeste O’Keefe sought to insure, Dancel, had been operating out of 10265 Rodriguez Street for 3 ½ years;
f. The Plaintiffs did not even own the premises at 10265 Rodriguez Street at the time the application for the subject policy was signed on June 23, 1999, thus it would have been impossible for Plaintiffs to buy, and for State Farm to sell the Plaintiffs loss of business income insurance to cover loss of rents for the subject premises at that time;
g. Premium payments for the subject policy were made by Dancel, and accepted and negotiated by State Farm with knowledge they were being made by Dancel;
h. Plaintiffs understood the clear and unambiguous terms of the policy to say that they were covered for loss of business income sustained due to necessary interruption of the business operations conducted out of the premises identified on the policy, including the business operations of Dancel; and at all material times the business operations of Dancel were the primary business operations conducted out of the premises described on the subject business policy; and
i. State Farm, by and through Eleuterius, knew at all material times that Dancel was owned by he O’Keefes, and that the business operations of Dancel were the primary business activities conducted out of the premises described on the Declarations page for the subject business policy, because Celeste Foster O’Keefe told them so.
Eleuterius, the State Farm agent who sold the O’Keefe policy, is also a named defendant in the case. Ambiguity in the policy language, or lack thereof, is also an issue in the dispute.
State Farm devotes a large part of its response to arguing that Plaintiffs cannot prove the subject policy of insurance is ambiguous as to what business activities it covers. State Farm’s argument is misplaced, however; and State Farm fails to acknowledge that Plaintiffs’ position, first and foremost, is that the policy is not ambiguous, but that the loss of business income suffered as a result of the interruption of Dancel’s business activities conducted out of the premises identified on the Declarations are covered pursuant to the clear and unambiguous terms thereof. The Affidavit of Celeste Foster O’Keefe further confirms this position, and that the Plaintiffs understood the words of the policy to mean exactly what they say.
The O’Keefe’s later point out the alternative to their claim the terms of the policy are unambiguous is – if you guessed ambiguous, you got it. Obviously, State Farm didn’t:
Plaintiffs contend that the interpretation of the subject contract advanced by the Plaintiffs, set forth above and in their  Memorandum, is a reasonable interpretation of the clear and unambiguous terms of the contract. Should the Court conclude that the contrary interpretation urged by State Farm is also reasonable (a conclusion belied by State Farm’s own actions as set forth above), then the relevant terms of the subject contract are ambiguous, and must be construed in favor of the Plaintiffs.
In the final section of the Rebuttal, the O’Keefe’s claim State Farm’s other arguments are “Red Herrings”.
This case does not turn on an analysis of corporate law, as suggested by State Farm. The Court is not presented with issues of piercing the corporate veil, nor of protecting or delineating Dancel’s corporate identity. Rather, this case turns solely on the interpretation of an insurance contract; and whether State Farm may avoid coverage for loss of income suffered as a result of interruption of Dancel’s business activities at premises identified on State Farm’s policy, where Dancel is solely owned by the “individuals” named on the policy; where the agent knew Dancel was the business entity to be insured, and made direct indications of same on the application he filled out; and where State Farm, the drafter of the policy, did not write the policy to explicitly limit or exclude such coverage (as discussed and set forth above).
Whether, and to what extent the Plaintiffs may have insurance for the business operations of Dancel under a separate policy of insurance with a separate insurance company has absolutely no relevance to the issue before this Court. Regardless of whether issues pertaining to “other insurance” clauses may ultimately come into effect with regard to the amount of coverage recoverable by the Plaintiffs4, the only question currently before this Court is whether the State Farm policy, as written and under the facts before this Court, extends coverage (in an amount to be proved at trial and subject to any set-offs directed by the Court) for the loss of income suffered by the Plaintiffs as a result of the interruption of Dancel’s business activities necessitated by Hurricane Katrina’s destruction of the premises at 10265 Rodriguez Street.
The emphasis in the text above was in the document; and, the reason for that emphasis is that the Plaintiffs obtained a second business location insured by another company. The O’Keefe’s Motion for Declaratory Judgment / Partial Summary Judgment is here and State Farm’s opposition is here.
A nagging aspect of the litigation has been State Farm’s repeated attempt to go beyond the simple issue of coverage and the Company’s related effort to depose representative of various entities, such as the O’Keefe’s insurer mortgage holder, or what State Farm believes is the mortgage holder.
State Farm recently withdrew the most recent such an attempt before the Court could consider the O’Keefe’s challenge to the deposition – then filed the most peculiar Motion to Join Interested Parties or in the Alternative, Motion to Dismiss.
State Farm issued to Daniel B. O’Keefe and Celeste A. Foster O’Keefe (hereinafter “the O’Keefes”) homeowners policy number 24-CD-9277-6, business policy 99-B5-9935-5 and flood policy 24-RC-0482-5 providing insurance, subject to the terms and conditions stated in the policies… The policies include additional insureds, mortgagees, having an interest in the property insured by the policies… It is believed that at the time of the loss the mortgagees held an interest in the subject properties…
…it appears that if the O’Keefes were found to have erroneously obtained flood insurance proceeds the United States would have a viable claim to recover such funds from the O’Keefes and the mortgagees. Such a recovery would render the mortgagees’ lien unsatisfied, thus restoring its insurable interest in the property at issue here and reviving State Farm’s obligations under the loss payable provisions of the homeowners policy. As a result, and for the reasons addressed in State Farm’s moving papers, the mortgagees are necessary and indispensable parties to this litigation because there cannot be a full adjudication of State Farm’s obligations under the policies in their absence.
The bottom line in this motion – actually the one sentence paragraph that follows the one above – reveals Judge Ozerden actually granted this motion once before.
As a result of the foregoing, State Farm seeks an order similar to that which was entered in Flettrich v. State Farm.
What you see is Judge Ozerden over-thinking and totally missing the absurdity of what State Farm was proposing – and, having been successful once, is proposing again. Maybe everyone was embarrassed for Sul or just stunned; but, for whatever reason, it appears little was said about it. The Fletterishes, instead, responding by strengthening/increasing their legal team and then agreeing to a settlement.
When State Farm tossed the threat at the O’Keefes, on the other hand, they strengthened their position instead and filed an Amended Complaint. Locked and loaded, I believe is the appropriate expression – although I’m not certain if it applies when what’s loaded is a cannon.
State Farm Mutual and State Farm Fire entered into, and were governed at all times relevant to this Complaint, by a “Master Services and Facilities Agreement” whereby State Farm Mutual assumed the position as a co-principal with State Farm Fire for the purpose of marketing, selling and adjusting claims under State Farm Fire insurance policies, including but not limited to the subject homeowner’s and business policies.
Under the Agreement, State Farm Mutual assumed virtually all duties related to the subject policies, including but not limited to responsibility to provide underwriting advice and services, policy issuing and billing services, actuarial services, internal auditing and record retention services, collection of premiums, provision of policies and other printed supplies used in the conduct of the specific insurance business, office space and accommodations, qualified personnel to perform the services and their salaries and expenses, marketing services, and legal services.
Although the Agreement states State Farm Fire is to retain “ultimate control and responsibility” over the services provided by State Farm Mutual, and gratuitously asserts it is not meant to “create a joint venture or partnership,” these purported restrictions on State Farm Mutual’s ability to act with regard to issues pertaining to the subject policies of insurance are illusory.
Pursuant to the terms of the Agreement, State Farm Fire is prohibited from making any claim against State Farm Mutual for alleged errors in judgment or acts or omissions of State Farm Mutual, and from objecting to any expenditure by State Farm Mutual (which State Farm Fire must also reimburse under the Agreement), so long as State Farm Mutual’s conduct and expenditures were “made in good faith.”
Upon information and belief, the ultimate control and authority about how to adjust the subject Hurricane Katrina claims lay with State Farm Mutual, not State Farm Fire.
Pursuant to the terms of the Agreement, and in actual operation, State Farm Fire did not have or exercise insurmountable control over State Farm Mutual’s operations and obligations under the contract. Rather, State Farm Mutual enjoyed considerable autonomy in devising the means to adjust, and overseeing the actual adjustment of Plaintiffs’ Hurricane Katrina claims.
Under controlling Mississippi law, State Farm Mutual acted in the capacity of co-principal with State Farm Fire with regard to the subject policies of insurance and the adjustment of claims thereunder, and thus may be held individually liable to the Plaintiffs for simple negligence. (all emphasis by SLABBED)
After the O’Keefes fired their cannon of an Amended Complaint, State Farm responded with a request for extended time to respond. We’re waiting and will let you know when it’s posted.
In the meantime, be sure and read the Complaint. All I’ve given you is one example and there are many, many more booms to come in the document.