No Right to Sue Insurer for Fraud in Claims Handling
Impossible to Sue Insurers who are Part of the Same Group of Insurers
Barry Zalma
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John R. Parrish sued alleging claims for breach of contract, breach of the duty of good faith and fair dealing, and fraud against the three defendant insurance companies. The claims arose out of defendants’ handling of an insurance claim submitted by plaintiff for storm damage to his home.
In John R. Parrish v. Liberty Mutual Insurance Company, et al., No. CIV-22-0802-HE, United States District Court, W.D. Oklahoma (November 18, 2022) the homeowner’s policy that plaintiff relies on was issued by defendant American Economy Insurance Company. The other two defendants, Liberty Mutual Insurance Company and Safeco Insurance Company of America, are alleged to have handled various dealings with plaintiff and to have participated in the claims handling process.
All three defendants moved to dismiss the purported fraud claim arguing that Oklahoma law does not recognize a fraud claim in the alleged circumstances. Defendants Liberty Mutual and Safeco also moved to dismiss the contract and bad faith claims as to them since they did not insure Parrish.
A court will grant a motion to dismiss if the complaint fails to allege enough facts to state a claim to relief that is plausible on its face. The court accepts all well-pleaded factual allegations of the complaint as true and views them in the light most favorable to the nonmoving party. A claim is facially plausible when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
THE FRAUD CLAIM
Claims for fraud in the inducement of the contract or as to the types and amount of coverage are examples of fraud allegations allowed with regard to insurance matters in Oklahoma. But that is not the circumstance alleged by Parrish. The petition raised no issue as to the formation of the insurance contract involved. Instead, Parrish, focused entirely on how plaintiff’s claim was handled once a claim was made under the policy. In that context, where claims handling practices under an insurance contract are at issue, Oklahoma does not recognize a fraud claim.
In Lewis v. Farmers Ins. Co., Inc., 681 P.2d 67 (Okla. 1983), the Oklahoma Supreme Court, stated that Oklahoma law recognized the two causes of action which may be asserted premised on the existence of an insurance contract:
1 an action based on the contract; and
2 an action for breach of the implied duty to deal fairly and in good faith.
The result is that here, where all the claims are premised on the existence of the contract, no fraud claim is available to the plaintiff.
The court concluded that Oklahoma law does not recognize a claim for fraud where the challenged conduct is the handling of a claim under an otherwise valid policy. Defendants’ motions were, therefore, granted.
LIABILITY OF LIBERTY MUTUAL AND SAFECO
Defendants Liberty Mutual and Safeco contend no claim is stated against them at all, as they did not issue the homeowner’s policy involved here and therefore cannot be liable on it or as to the duties arising out of it. Plaintiffs argued the extensive actions of Liberty Mutual and Safeco, and their employees, in handling the claims are sufficient to make them liable on the contract and bad faith claims, even though they were not a party to the contract.
The petition alleges that all three defendants are part of the same insurance group, that they advertise together in various ways, and that employees of Liberty Mutual and Safeco dealt directly with plaintiff and handled most or all aspects of the claims adjustment process. Plaintiff contends that is enough to make them potentially liable.
The petition does not explicitly allege that Liberty and/or Safeco are instrumentalities of American Economy nor, more importantly, does it allege facts that would support such a conclusion. The petition does, to be sure, allege substantial involvement by employees of Liberty Mutual and Safeco in handling plaintiff’s claim.
Without more, the suit only suggests a basis for concluding that Liberty Mutual and Safeco were agents of American Economy, not instrumentalities of it or of each other. Since neither Liberty Mutual nor Safeco are alleged to be parties to the insurance contract and since no plausible basis has been alleged here for concluding they were instrumentalities of the contracting party, the petition does not state a claim against either of them.
For the foregoing reasons, American Economy’s Partial Motion to Dismiss and Liberty Mutual and Safeco’s Motion to Dismiss were granted. The fraud claims were dismissed as to all defendants.
The contract and bad faith claims were dismissed as to Liberty Mutual and Safeco.
ZALMA OPINION
Because of mergers, consolidation, and specialization insurance holding companies operate multiple different insurance companies, with different names, different specialties, and management. To save expenses the holding company will employ the same staff of underwriters and claims personnel to handle claims for all of the many insurers under the control of the holding company. Each insurer is an individual entity that shares personnel with its sister insurers. In this case only American Economy insured Parrish and only American Economy could be sued for failure to fulfill the terms of the contract or for the tort of bad faith. The suit against the other insurers was simply an attempt to annoy and vex the holding company. It didn’t work. The claim for fraud couldn’t be proved in Oklahoma since anything done in the adjustment of a claim could fulfill the need to prove all of the elements of fraud.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at
Zalma on Insurance
Insurance, insurance claims, insurance law, and insurance fraud .
By Barry Zalma
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...