Wyoming Supreme Court Allows Insured to Seek Bad Faith Damages - Construction and Procurement Law News, Q3 2021

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In May of this year, the Supreme Court of Wyoming held that a subsidiary of Sinclair Oil could invoke statutory bad faith damages after prevailing in a coverage dispute with its insurer, Infrassure. The court rejected the district court’s analysis that accepted the insurer’s narrow interpretation of Wyoming’s insurance code. On certification from the 10th Circuit, the court found that a policy was “delivered” in Wyoming—and therefore, Wyoming insurance code applied—because the policyholder and the covered risk were in Wyoming. Per the court’s decision, proof of physical delivery beyond the stated headquarters’ address, to a Wyoming address, was not required.

After a 2013 fire and explosion at its petroleum refinery in Sinclair, Wyoming, Sinclair sought business interruption insurance recovery from Infrassure and other insurers. Infrassure rejected a settlement among Sinclair and the market of quota share participants and instead sought to litigate the loss. Subsequently, a panel of appraisers affirmed that the loss value was higher than the settlement that Infrassure rejected, and Sinclair sought to recover its attorney’s fees and enhanced interest at 10% under Wyoming Insurance Code. The policy insured a Wyoming company as additional insured and covered refining facilities located in Wyoming. Yet, Infrassure argued that Sinclair could not invoke Wyoming insurance code’s bad faith remedies because the code excludes policies not “issued for delivery” or “delivered” in Wyoming. The Wyoming federal district court agreed with Infrassure’s contention that because there was no proof of physical delivery to the insured in Wyoming, Wyoming law did not apply. On appeal, the 10th Circuit accepted the suggestion from Sinclair’s appellate counsel (Marc James Ayers, with Bradley’s Appellate Practice Group), that the court certify the unsettled and novel question to Wyoming’s highest court to determine the applicability of the statute.

The Wyoming Supreme Court rejected the insurer’s strict interpretation, finding that the purpose of Wyoming’s insurance laws was to “protect public welfare and Wyoming residents…” and that achieving this purpose mandated a liberal interpretation of the law’s application to Wyoming interests. The court adopted a rule articulated by the New York courts, holding that a policy is “delivered or issued for delivery” in a state when it “covers both insureds and risks” located in that state. Thus, because the Sinclair subsidiary and the insured refinery were in Wyoming, Sinclair was entitled to the protections mandated by the insurance law.

Bad faith disputes arise in the context of construction as well. When negotiating first party insurance coverage—such as builders risk policies—insureds should pay close attention to the choice of law provisions in the policy to ensure the applicable jurisdiction recognizes first party bad faith claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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