First National Bank of Turley, and Cross v. Fidelity & Deposit Insurance Company of Maryland,defendant-Appellee and Cross

Citations: 196 F.3d 1186; 2000 Colo. J. C.A.R. 6732; 1999 U.S. App. LEXIS 30223; 1999 WL 1048675Docket: 98-5064

Court: Court of Appeals for the First Circuit; November 18, 1999; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

First National Bank of Turley appealed two decisions from the district court: the denial of its request for attorney's fees under Oklahoma law from Fidelity Deposit Insurance Company of Maryland and the court's modification of the judgment regarding First National's entitlement to post-offer costs under Fed. R. Civ. P. 68. The Tenth Circuit Court of Appeals, exercising jurisdiction under 28 U.S.C. § 1291, vacated and remanded the case. 

The case arose from an insurance policy issued by Fidelity Deposit, which provided liability coverage for personal injuries related to privacy violations. The policy excluded coverage for acts resulting from willful violations of laws. In 1988, First National's president reported customers Buel and Peggy Neece to the IRS, leading the Neeces to sue First National for breach of privacy under the Right to Financial Privacy Act. Fidelity Deposit initially refused to defend First National, citing the exclusion for willful disclosure. 

After the Neeces amended their complaint to include allegations of negligent behavior, First National requested a reevaluation of its coverage, which prompted Fidelity Deposit to issue a reservation of rights letter agreeing to defend First National moving forward. However, First National rejected this offer because it did not cover prior defense costs. Fidelity Deposit subsequently began paying for First National's defense in the ongoing lawsuit. 

Following this, First National filed a suit against Fidelity Deposit seeking $125,000 in defense costs, additional damages, and $5 million in punitive damages for bad faith refusal to defend. Fidelity Deposit later offered to confess judgment for $67,333.49 to cover defense costs incurred before December 31, 1991, but First National rejected this offer.

Fidelity Deposit agreed to defend First National under a reservation of rights, with key trial issues centering on Fidelity Deposit's potential bad faith in initially refusing defense and its responsibility for defense costs incurred before September 1992. The jury found Fidelity Deposit liable, awarding First National $20,000, which the district court formalized in a judgment. Following the judgment, First National sought attorney's fees under Oklahoma law, asserting its right as the prevailing party. However, the district court denied this request, concluding that the Oklahoma attorney's fee statute did not apply to cases alleging only bad faith refusal to defend without contract claims. Fidelity Deposit subsequently amended the judgment to reflect that First National could not recover post-offer costs under Fed. R. Civ. P. 68. Fidelity Deposit later settled the related Neece suit, covering all defense costs except those incurred before June 1, 1991. The court referenced a precedent in Taylor, which established that the attorney's fee statute applies to bad faith suits if the core damages relate to insured losses. Although the district court was unaware of Taylor's ruling at the time of its decision, this court is bound to apply the legal principles established therein, indicating that the district court failed to determine whether First National qualified as a prevailing party under the statute.

The plaintiff qualifies as the prevailing party if the judgment awarded exceeds the rejected settlement offer, while the insurer is considered the prevailing party if the judgment does not exceed the settlement offer. The case is remanded to the district court to identify the prevailing party. The court previously did not determine if First National was entitled to attorney's fees under Oklahoma law, which allows such fees if bad faith is proven, a right that exists alongside statutory rights and does not depend on prevailing party status. First National is appealing the district court’s decision to amend the judgment, which found it not entitled to post-offer costs under Federal Rule of Civil Procedure 68. This rule allows a defending party to recover costs incurred after an offer of judgment if the offeree receives a less favorable judgment. The district court amended the judgment based on Fidelity Deposit’s argument that First National's award of $20,000 was less favorable than the settlement offer of $67,333.49. However, the court did not determine which party was the prevailing party, necessitating a remand for this decision. Additionally, First National's argument regarding the impact of the Rule 68 offer on its prevailing party status is not valid, as Rule 68 primarily shifts post-offer costs and does not apply to attorney's fees, which are not classified as costs under the relevant state law.