Oklahoma Supreme Court Rules on Questions Regarding Accrual of Certain Claims

On Tuesday, May 25, 2021, the Oklahoma Supreme Court answered two questions certified by the U.S. Court of Appeals for the Tenth Circuit, resulting in the following first impression holdings by the Court:

(1)   A bad faith tort action for an injury resulting from an adverse or excess judgment does not accrue until the judgment is final and non-appealable.

(2)   A breach of contract action accrues when the contract is breached, not when damages result. And the discovery rule does not apply to breach of contract claims, except in instances of fraudulent concealment.

In Morgan v. State Farm Mutual Automobile Insurance Co., 2021 OK 27, No. 118,881 (Okla. 2021), a defendant in an automobile accident case, Morgan, sued his insurer, State Farm, for failure to obtain a release from the workers’ compensation insurer when obtaining a release from the automobile accident plaintiff. Morgan alleged State Farm’s breach of implied duty of good faith and breach of contract resulted in the workers’ compensation insurer obtaining a judgment against Morgan for reimbursement of amounts paid to the auto accident plaintiff. The U.S. District Court for the Western District Court of Oklahoma held, however, that Morgan’s claims had accrued in 2010—when State Farm negotiated the original settlement—and that Morgan’s claims were therefore barred by the applicable two- and five-year statutes of limitations. Morgan appealed and the Tenth Circuit certified these two questions to the state Supreme Court.

Question 1:  In addressing the first question regarding the accrual of a bad faith action in which the alleged injury is an adverse or excess judgment, the Oklahoma Supreme Court noted it was a question of first impression. As such, the Court looked to Oklahoma case law regarding analogous claims, e.g., legal malpractice, and other jurisdictions’ analysis of the accrual of bad faith tort actions arising from a failure to settle. The Court concluded that “the injury upon which Morgan’s bad faith action can proceed is an adverse judgment.” The judgment must be “final and non-appealable” in order for such claims to accrue. In its reasoning, the Court stated: “[a] tort is not complete until there is an injury”, and precedent requires such injuries be “certain and not merely speculative” to be actionable.

Question 2: With regard to the second question on the accrual of a breach of contract claim, the Court held that such a claim accrues at the time of the breach, not at the time the plaintiff incurs damages. In so holding, the Court stated that “unlike a tort claim, a breach of contract is a legal wrong independent of the existence of actual damages.” The Court noted that, under Oklahoma law, a plaintiff need demonstrate only that a contract existed and was breached to maintain an action.  The Court stated: “A plaintiff can maintain a breach of contract action to a successful conclusion without proof of actual damages, because nominal damages are all that is required.”

Further, the Court determined that the “discovery rule” (i.e. the rule in tort that a plaintiff’s claim does not accrue until the plaintiff knew or should have known of her injury), does not apply to a breach of contract claim. As stated by the Court: “The claim accrues when the contract is breached, regardless of whether the plaintiff knows, or in the exercise of reasonable diligence, should have known of the breach.” The only exception to this is where the defendant fraudulently conceals the breach, which will toll the accrual of plaintiff’s breach of contract claim.

Oklahoma Supreme Court Justice Kane authored the opinion. Justices Kauger, Combs, and Gurich concurred in part and dissented in part, though no separate opinion was issued. This opinion has not yet been released for publication and is therefore still subject to revision or withdrawal.

The Oklahoma Supreme Court’s clarification regarding the accrual of these two types of claims—(1) bad faith tort claims in which the alleged injury is an adverse or excess judgment, and (2) breach of contract claims—provides clarification regarding the start of the clock for Oklahoma statutes of limitations. For more information on this ruling, or for questions on how this developing law may affect your company’s claims or potential claims, contact Leah Rudnicki.

Oklahoma Supreme Court Rules on Waiver of Arbitration Provision

In an opinion issued Tuesday, May 19, 2021, the Oklahoma Supreme Court overturned the decision of the Oklahoma Court of Civil Appeals and held that the defendant did not waive its right to arbitrate pursuant to a term in its contract with the plaintiff.

In Howell’s Well Service v. Focus Group Advisors, 2021 OK 25, No. 117804 (Okla. 2021), the Oklahoma Supreme Court addressed the issue of whether a defendant waived its right to compel arbitration by not including it as an affirmative defense in its responsive pleading. Alternatively, the Court also considered whether the defendant had waived its right to arbitrate according to the equitable balancing test as outline in Oklahoma Supreme Court precedent.

The Plaintiffs in Howell Well Servicers were investors at the Defendant investment firm. The agreement between Plaintiffs and Defendant contained an arbitration provision. The Plaintiff filed suit in May 2013—the specifics of which claims were not included in the appellate opinion—but did not serve Defendant until nearly one and a half years later. Defendant answered in February 2015, but did not raise the arbitration provision in its answer.

The case fell mostly silent for another seventeen months, at which time Defendant filed a motion to compel arbitration. A status conference was set regarding the motion, but was stricken in favor of mediation. Mediation ultimately failed, however, and the case date dormant for another two years until Plaintiffs against requested the setting of a status conference on Defendant’s motion to compel arbitration.

After a hearing on Defendant’s motion, the trial court held: 1) Defendants waived the right to arbitration by not raising in their Answer, and (2) the late assertion of the right would be prejudicial to the Plaintiffs. The Court of Civil Appeals affirmed the trial court and the Supreme Court granted Certiorari.

In reviewing on appeal, the Supreme Court firstly considered whether the Oklahoma pleading statutes required a defendant to plead the right to arbitrate as an affirmative defense in its responsive pleading. The Court looked to Oklahoma’s strong public policy in favor of arbitration, as well as Tenth Circuit case law applicable to the federal counterpart of the Oklahoma Uniform Arbitration Act. The Supreme Court further noted prior opinions from the same division of the Court of Civil Appeals which the Supreme Court read as running contrary to the Court of Civil Appeal’s holding in this case. All these considered, the Supreme Court held that Oklahoma law did not require Defendant to plead the arbitration provision in order to avoid waiver.

The Supreme Court secondly considered whether the Defendant waived its right to compel arbitration according to the equitable factors put forth by the Court of Civil Appeals in Northland Ins. Co. v. Kellogg, 1995 OK CIV APP 84, ¶ 8, 897 P.2d 1161, 1162. After applying the fact-intensive, six-factored balancing test to the facts at hand, the Court concluded that the Northland factors weighed against a finding of waiver by the Defendants. In so holding, the Supreme Court noted such things as the Defendant’s inactive role in the litigation, lack of discovery, lack of trial dates or scheduling order, and the Plaintiff’s own lengthy delays.

This decision by the Oklahoma Supreme Court on the first impression issue of the inclusion of a right to arbitrate within a responsive pleading indicates a refusal by the Court to read an additional requirement into the Oklahoma pleading statutes. Further, the application of the Northland factors indicates the Court’s approval of this equitable analysis in determining whether a party waived its right to arbitrate and confirms Oklahoma’s strong favor of arbitration.