Mahalxmi Hospitality, LLC v. Steadfast Insurance Company

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OKLAHOMA

MAHALXMI HOSPITALITY, LLC, )

)

Plaintiff, )

)

v. ) Case No. 19-CV-00591-GKF-CDL

)

STEADFAST INSURANCE COMPANY; )

STARR SURPLUS LINES )

INSURANCE COMPANY; )

CERTAIN UNDERWRITERS AT )

LLOYD’S, LONDON SUBSCRIBING TO )

POLICY NO. B1230AP04534A17; )

NTX COMMERCIAL AGENCY, INC. )

d/b/a TEXAS COMMERCIAL AGENCY; )

BURNS & WILCOX, LIMITED; and )

MCDERMOTT ROAD PARTNERS, LLC, )

)

Defendants. )

OPINION AND ORDER

This matter comes before the court for decision on plaintiff Mahalxmi Hospitality, LLC’s

breach of contract claim—specifically, the issue of insurance coverage under policies issued by

Steadfast Insurance Company and Starr Surplus Lines Insurance Company.

I. Factual Background and Procedural History

Defendants Steadfast, Starr, and Certain Underwriters at Lloyd’s, London Subscribing to

Policy No. B1230AP04534A17 (“Lloyd’s”) issued a market insurance policy to McDermott Road

Partners, LLC. [Doc. 106-1; Doc. 106-2; Doc. 106-3; Doc. 68-1]. Steadfast issued the Zurich

EDGE Policy designated number CPP0274226-00 for the policy period beginning December 15,

2017 at 12:01 a.m. and ending December 15, 2018 at 12:01 a.m. (Steadfast Policy). [Doc. 106-1;

Doc. 106-2, p. 30]. Steadfast was the lead insurer and participated at fifty percent (50%). [Doc.

106-1; Doc. 106-2, p. 30; Doc. 112, p. 2]. Starr issued an insurance policy designated no.

SLSTPTY11012417 for the policy period beginning on December 15, 2017 and ending December

15, 2018 (Starr Policy). [Doc. 106-1; Doc. 106-3, pp. 1, 19]. Starr participated at thirty percent

(30%). [Doc. 106-1; Doc. 106-3, pp. 1, 20; Doc. 112, p. 2]. Lloyd’s issued an insurance policy

designated no. B1230AP04534A17 for the policy period beginning from December 15, 2017 to

December 15, 2018. [Doc. 68-1]. Lloyd’s participated at the remaining twenty percent (20%).

[Doc. 108, p. 7; Doc. 112, p. 2; Doc. 68-1]. The market policy was developed by defendant Burns

& Wilcox, Ltd. (B&W) and sold by defendant NTX Commercial Agency, Inc. d/b/a Texas

Commercial Agency. [Doc. 112-1; Doc. 106-2, p. 30; Doc. 106-3, p. 1; Doc. 68-1, p. 27; Doc.

108-1]. The Garnett Inn, located at 1011 S. Garnett Road, Tulsa, Oklahoma, 74128, was an insured

location under the Policy.

The Starr Policy contains the following provision:

APPLICATION OF LEAD POLICY PROVISIONS

In respect of the perils hereby insured against this Policy is subject to the same

warranties, terms and conditions (except as regards the premium, the amount and

Limits of Liability and the renewal agreement, if any, AND EXCEPT AS

OTHERWISE PROVIDED HEREIN) as are contained in or as may be added to

the Policy(ies) of the Lead Primary Insurer(s) prior to the happening of a loss for

which claim is made hereunder and should any alteration be made in the premium

for the Policy(ies) of the Lead Primary Insurer(s), then the premium hereon may be

adjusted accordingly.

[Doc. 106-3, p. 16, ¶ 2]. The Starr Policy defines “Lead Primary Policy” as “the policy form

including all endorsements attached there to, issued by the Lead Primary Insurer, as designated

and identified in The Schedule under 8(a), effective and concurrent with the term term [sic] of this

policy.” [Id. at p. 16, ¶ 6(c)]. The Schedule under paragraph 8(a) identifies the Steadfast Policy

as the Lead Primary Policy. [Id. at p. 20, ¶ 8(a)].

On or about January 3, 2018, a water line burst, causing water damage to the Garnett Inn.

[Doc. 106-4, pp. 2, 4, 10]. Mahalxmi reported the loss to Steadfast and Starr in early January of

2018. [Doc. 106-4, p. 1; Doc. 106-7, p. 3]. Steadfast, Starr, and Lloyd’s retained Engle Martin &

Associates, an adjusting firm, to assist them relative to plaintiff’s claim. [Doc. 106-4, p. 5; Doc.

106-7].

On February 19, 2018, Engle Martin issued a Reservation of Rights letter on behalf of

Steadfast, Starr, and Lloyd’s.1 [Doc. 106-7]. Therein, Engle Martin stated that, based on its

investigation, the claim may implicate Property Coverage Form, IL 1201 (11/85), which it set forth

as follows:

Vacancy endorsement is as follows:

a. Vacancy Clause:

i. Vacancy Exclusion applies to all properties not being

operated for their reported purpose, 75% for all occupancies

except 60% for Hotels occupied for more than 30 continuous

days.

AND

b. Coverage is excluded for Hotel/Motels as follows:

i. If the Location is not open 24 hours per day; or

ii. There is not a paid employee managing the Front Desk.

[Doc. 106-7, p. 3 (Vacancy Exclusion)]. Engle Martin informed Mahalxmi that its investigation

to date had indicated that the Garnett Inn “may not have been at the required 60% at the time of

the loss.” [Id. at p. 4].

1 Engle Martin issued the relevant correspondence to McDermott Road Partners, the Policies’

Named Insured. [Doc. 106-7; Doc. 106-8]. However, it appears to be undisputed that Mahalxmi

qualified as an insured under the Policies. [Doc. 112-3, p. 4; Doc. 112-4, p. 4]. For ease of

reference, the court will reference the Engle Martin correspondence as being issued to Mahalxmi

unless specifically noted.

On May 1, 2018, Engle Martin sent correspondence to Mahalxmi stating that its

investigation had revealed an occupancy rate of 43.64% for the month of December 2017 and a

occupancy rate of 39.80% for the entire year of 2017. [Doc. 106-8, p. 2]. Engle Martin notified

Mahalxmi that the claim had been denied based on the Vacancy Exclusion. [Id.].

On October 2, 2019, Mahalxmi filed a lawsuit in the District Court of Tulsa County, State

of Oklahoma against Steadfast, Starr, Lloyd’s, and Texas Commercial Agency, asserting claims

for breach of contract, fraud, and bad faith. [Doc. 106-10]. On November 4, 2019, Lloyd’s

removed the case to this court pursuant to the court’s diversity jurisdiction, 28 U.S.C. § 1332.

[Doc. 2]. Lloyd’s subsequently amended its pleading to assert claims against Burns & Wilcox and

McDermott Road Partners. [Doc. 49].

On February 14, 2020, Mahalxmi filed a jury demand. [Doc. 48]. Lloyd’s, Steadfast, and

Starr moved to strike the jury demand. [Doc. 51; Doc. 54]. On April 3, 2020, the court granted

the motion to strike, as Mahalxmi’s right to jury had been waived. [Doc. 70]. Thus, insofar as

plaintiff’s claims are tried, the court will conduct a bench trial.

Shortly after removal, Lloyd’s moved to bifurcate discovery related to Mahalxmi’s breach

of contract claim and its tort claims. [Doc. 38]. On February 11, 2020, the court held a Scheduling

Conference. [Doc. 47]. The court granted the motion to bifurcate and directed the parties to submit

the issue of insurance coverage under the policies, including the existence of any ambiguity, for

decision by the court outside of Federal Rule of Civil Procedure 56. [Doc. 81; Doc. 100; Doc.

102; Doc. 104]. Steadfast and Starr jointly submitted an Opening Brief on the Phase One issues

[Doc. 106], Mahalxmi filed a response directed to the Steadfast/Starr brief as well as the Opening

Brief filed by Lloyd’s [Doc. 112], and Steadfast/Starr filed a reply brief. [Doc. 115]. Thus, the

First Phase is ripe for the court’s determination.

The court’s coverage determination in this matter does not include any opinion as to

whether Steadfast or Starr acted in bad faith or committed fraud. Nor does the court consider

coverage under the Lloyd’s insurance policy or the potential liability of Burns & Wilcox, Limited;

McDermott Road Partners, LLC; or NTX Commercial Agency, Inc. d/b/a Texas Commercial

Agency.

II. Applicable Oklahoma Law2

General principles of contractual interpretation govern the construction of an insurance

policy. Dodson v. St. Paul Ins. Co., 812 P.2d 372, 376 (Okla. 1991). Thus, “[a]n insurance policy,

like any other contract of adhesion, is liberally construed, consistent with the object sought to be

accomplished, so as to give a reasonable effect to all of its provisions, if possible.” Id. (footnote

omitted). “When policy provisions are unambiguous and clear, the employed language is accorded

its ordinary, plain meaning; and the contract is enforced carrying out the parties’ intentions.” BP

America, Inc. v. State Auto Prop. & Cas. Ins. Co., 148 P.3d 832, 835 (Okla. 2005) (footnote

omitted). “[N]either forced nor strained construction will be indulged, nor will any provision be

taken out of context and narrowly focused upon to create and then construe an ambiguity so as to

2 “A federal court sitting in diversity applies the substantive law, including choice of law rules, of

the forum state.” Barrett v. Tallon, 30 F.3d 1296, 1300 (10th Cir. 1994). Under Oklahoma choice-

of-law principles, “[a] contract is to be interpreted according to the law and usage of the place

where it is to be performed, or, if it does not indicate a place of performance, according to the law

and usage of the place where it is made.” Okla. Stat. tit. 15, § 162. “[E]ven where no place of

performance is expressly stated in a contract, the controlling issue is whether the contract indicates

a place of performance.” ROC ASAP, L.L.C. v. Starnet Ins. Co., No. CIV-12-461-D, 2014 WL

667833, at *2 (W.D. Okla. Feb. 20, 2014) (emphasis in original). Here, the parties agree that the

Garnett Inn, located at 1011 S. Garnett Road, Tulsa, Oklahoma, 74128, was an insured property

under the Steadfast Policy and Starr Policy. Thus, the insurance policies indicate that Oklahoma

constitutes the place of performance with respect to claims arising from the Garnett Inn. Further,

Steadfast, Starr, and Mahalxmi all rely on Oklahoma law in the First Phase briefs. Under the

circumstances, the court applies Oklahoma law to determine coverage under the Steadfast and

Starr insurance policies.

import a favorable consideration to either party than that expressed in the contract.” Dodson, 812

P.2d at 376 (footnote omitted). However, when the policy language is susceptible to two

constructions, without resort to rules of construction, a genuine ambiguity exists and the contract

must be construed in favor of the insured and against the insurance carrier. Id. at 376-77.

Oklahoma law “upholds coverage exclusions where policy language is clear and

unambiguous.” BP America, Inc., 148 P.3d at 837; see also Haworth v. Jantzen, 172 P.3d 193,

197 (Okla. 2006) (“When an insurer desires to limit its liability under a policy, it must employ

language that clearly and distinctively reveals its stated purpose.”). Of policy exclusions, the

Oklahoma Supreme Court has stated:

The policy exclusions are read seriatim; each exclusion eliminates coverage and

operates independently against the general declaration of insurance coverage and

all prior exclusions by specifying other occurrences not covered by the policy.

Thus, subsequent exclusions can further limit or even remove a covered risk from

the general declaration of insurance coverage. In case of doubt, exclusions

exempting certain specified risks are construed strictly against the insurer.

Dodson, 812 P.2d at 377 (internal footnotes omitted).

III. Analysis

Steadfast and Starr raise two primary arguments in the First Phase. First, Steadfast/Starr

argue that Mahalxmi’s breach of contract claim is time-barred. Second, the insurers contend that

the Vacancy Exclusion precludes coverage. The court separately considers each argument.

A. Time Bar

Steadfast and Starr argue that Mahalxmi’s breach of contract claim is time barred by both

statute and contract. With respect to the statutory limitation, the insurers direct the court to title

36, section 4803 of the Oklahoma Insurance Code. As for the contractual limitation, the Steadfast

Policy includes the following provision:

6.13.05 SUIT AGAINST THE COMPANY

No suit, action or proceeding for the recovery of any claim will be

sustained in any court of law or equity unless the Insured has fully

complied with all the provisions of this Policy. Legal action must

be started within (12) twelve months after the date of direct physical

loss or damage to Covered Property or to other property as set forth

herein.

If under the laws of the jurisdiction in which the property is located,

such twelve months’ limitation is invalid, then, any such legal action

needs to be started within the shortest limit of time permitted by such

laws.

[Doc. 106-2, p. 70]. The court first considers the statutory bar.

Section 4803 applies to standard fire insurance policies and states “no policy or contract of

fire insurance shall be made, issued or delivered by any insurer or by any agent or representative

thereof, on any property in the state, unless it shall conform as to all provisions, stipulations,

agreements and conditions, with such form of policy.” Okla. Stat. tit. 36, § 4803(B). One such

provision requires that “[n]o suit or action on this policy for the recovery of any claim shall be

sustainable in any court of law or equity unless all the requirements of this policy shall have been

complied with, and unless commenced within twelve months next after inception of the loss.” Okla.

Stat. tit. 36, § 4803(G) (emphasis added). Thus, “[s]ection 4803 mandates the terms to be

contained in all policies of fire insurance, including a one year statute of limitation.” Walton v.

Colonial Penn Ins. Co., 860 P.2d 222, 224 (Okla. 1993); see also Ins. Co. of N. Am. v. Bd. of Educ.

of Ind. Sch. Dist. No. 12, 196 F.2d 901, 903 (10th Cir. 1952) (“In Oklahoma the parties to a fire

insurance policy are not free to contract as to the period of time within which an action must be

brought. The one year statutory period of limitation is by operation of law made a part of the

contract.”); Miller v. St. Paul Fire & Marine Ins. Co., 480 F. Supp. 32, 33 (W.D. Okla. 1979)

(“The twelve-month limitation provided in the standard fire insurance policy for Oklahoma is a

statutory rather than contractual period of limitation.”). However, the statute is inapplicable to

“vehicle insurance, casualty insurance or inland marine insurance, []or to reinsurance.” Okla. Stat.

tit. 36, § 4801(A).

Mahalxmi argues that § 4803 is inapplicable because the claimed loss is a casualty loss

and, further, the Steadfast and Starr Policies are not standard fire insurance policies. At the outset,

it is not certain that the Steadfast/Starr insurance policies qualify as standard fire insurance

policies. The insurers do not direct the court to any form in the policies designating them as such.

Cf. Okla. Stat. tit. 36, §§ 4803(E), (G). Further, the form standard fire insurance policy is a “named

perils” policy whereas, with respect to the coverage at issue, the Standard/Starr policies are “all-

risk” policies.3 See generally 10A Steven Plitt, et al., COUCH ON INSURANCE § 148:50 (3d ed. June

2021 update); Okla. Schs. Risk Mgmt. Tr. v. McAlester Pub. Schs., 457 P.3d 997, 1002 (Okla.

2019) (“Generally, most property insurance is often classified as (1) An ‘all-risk’ policy covering

a loss when caused by any fortuitous peril not specifically excluded by the policy; or (2) A ‘named-

perils’ policy covering only losses suffered from a peril enumerated in the policy.”). The appraisal

provisions differ significantly. See generally Wagnon v. State Farm Fire & Cas. Co., 951 P.2d

641, 643 (Okla. 1997) (“An examination of the policy reveals that it bears little, if any, resemblance

to the ‘Standard Fire Insurance Policy’ found in 36 O.S.1991, § 4803(G).”).

Regardless, it is clear that, as permitted by § 4803, the Steadfast/Starr policies provide

coverage for perils other than those expressly contemplated in the Oklahoma standard fire

insurance policy—that is, fire and lightning. See Okla. Stat. tit. 36, §§ 4803(C), (G). In Wagnon

3 The Steadfast and Starr policies provide coverage for “direct physical loss of or damage caused

by a Covered Cause of Loss to Covered Property, at an Insured Location described in Section II-

2.01.” [Doc. 106-2, p. 31]; see also [Doc. 106-3, pp. 16, 19]. “Covered Cause of Loss” means

“[a]ll risks of direct physical loss of or damage from any cause unless excluded.” [Doc. 106-2, p.

76].

v. State Farm Fire and Casualty Co., the Oklahoma Supreme Court considered the applicability

of § 4803’s one-year statute of limitations under factually analogous circumstances. There, the

insureds purchased a homeowners insurance policy that provided coverage for “accidental direct

physical loss to property” caused by seventeen specified perils, including fire or lightning and

theft. 951 P.2d at 643, 643 n.3. The insureds made a claim under the policy’s coverage for theft,

which the insurer denied. The insureds sued for breach of contract and the insurer sought summary

judgment arguing that the insureds failed to bring suit within one year as required by § 4803(G).

Id. at 642. The court denied the motion, awarded judgment to the insureds, and the insurer

appealed. Id. On appeal, the Tenth Circuit certified the following question to the Oklahoma

Supreme Court:

Whether theft coverage in a homeowners/renters’ insurance policy, which also

insures against loss by fire and lightning, is subject to the one-year statute of

limitations prescribed for fire insurance policies under section 4803(G) of title 36

of the Oklahoma Statutes, in light of the restrictions found in title 36, section 3617

of the Oklahoma Statutes, when such coverage falls both within the definition of

property insurance under title 36, section 704 of the Oklahoma Statutes, and the

definition of casualty insurance under title 36, section 707 of the Oklahoma statutes.

Id. at 642 n.1.

To answer the certified question, the court first recognized that Oklahoma title 36, § 707’s

definition of “casualty insurance” specifically includes burglary and theft insurance, whereas fire

falls within “property insurance.” Id. at 643-44. The court then looked to section 3617 of title 36,

which provides, in relevant part:

No policy delivered or issued for delivery in Oklahoma and covering a subject of

insurance resident, located, or to be performed in Oklahoma, shall contain any

condition, stipulation or agreement . . . (3) limiting the time within which an action

may be brought to a period of less than two (2) years from the time the cause of

action accrues in connection with all insurances other than property and marine and

transportation insurances; in property and marine and transportation policies such

time shall not be limited to less than one (1) year from the date of occurrence of the

event resulting in the loss. Any such condition, stipulation or agreement shall be

void, but such voidance shall not affect the validity of the other provisions of the

policy.

Id. at 644 (quoting Okla. Stat. tit. 36, § 3617). Thus, applying section 3617, “a fire policy, being

property insurance, can be limited to a one-year period in which to file an action. But theft is

covered as casualty insurance, which according to § 3617, cannot be limited to less than two years

for bringing a court action.” Wagnon, 951 P.2d at 644. As to the insurer’s argument that § 4803’s

statute of limitation applied to a theft claim made under a fire insurance policy, the Oklahoma

Supreme Court concluded:

[W]e are not convinced that simply because the insurer is permitted to include

coverage for perils listed under casualty insurance, that the legislature has intended

the specific statute of limitations for casualty perils be ignored. If the mandates of

36 O.S.1991, § 3617 can be so easily circumvented, why would the legislature even

provide for two separate statutes of limitation? We resolve the doubt in favor of

the longer statute of limitation. Theft is casualty insurance and even if it is included

in a “fire insurance policy,” the statute of limitations for theft cannot be limited to

less than two years, pursuant to 36 O.S.1991, § 3617. [The insurer] cannot, by

labeling the homeowner’s policy a “fire insurance policy” circumvent the

legislature’s specific directive forbidding insurers from limiting filing suit on

casualty policies to less than two years.

Wagnon, 951 P.2d at 646-47 (internal footnotes omitted). Oklahoma courts have interpreted

Wagnon “to stand for the proposition that, where the insurance policy covers losses from multiple

perils, and the multiple perils are subject to different commencement-of-action periods, an action

against the insurer must be commenced within the period prescribed for the particular peril causing

the claimed loss.” Burwell v. Mid-Century Ins. Co., 142 P.3d 1005, 1008 (Okla. Civ. App. 2006).4

4 Opinions of the Oklahoma Court of Civil Appeals released for publication by that court are not

precedential, but “shall be considered to have persuasive effect.” Okla. Sup. Ct. R. 1.200(d)(2).

In this case, Mahalxmi has made a claim for water damage caused by a burst water line.

[Doc. 106-4, pp. 2, 4]. Pursuant to Wagnon, the court must determine the applicable limitation

period for that particular peril.

As previously stated, Mahalxmi argues that the claim constitutes a “casualty” claim and

therefore § 4803’s one-year statute of limitation is inapplicable. Section 707 defines “casualty

insurance” to include the following:

Leakage and fire extinguishing equipment insurance, which is insurance against

loss or damage to any property or interest caused by the breakage or leakage of

sprinklers, hoses, pumps, and other fire extinguishing equipment or apparatus,

water pipes and containers, or by water entering through leaks or openings in

buildings, and insurance against loss or damage to such sprinklers, hoses, pumps,

and other fire extinguishing equipment or apparatus.

Okla. Stat. tit. 36, § 707(7). The insurers assert that § 707(7) is limited to loss or damage caused

by water from the equipment or systems used to extinguish fires. [Doc. 115, p. 11]. However,

Steadfast/Starr offer no case law in support of their interpretation. Rather, based on the court’s

research, the only court to have considered the issue concluded that a claim for damage due to the

breakage of a sewer pipe causing by settling and leaking water pipes constituted a casualty claim,

not a property claim. See Thompson v. Shelter Mut. Ins. Co., No. CIV-06-0757-HE, 2007 WL

9710847, at *4 (W.D. Okla. July 23, 2007). Thus, application of a one-year statute of limitation

under § 3617 was not permissible. Id. Although not binding, the decision is persuasive.

Judge Heaton’s decision in Thompson is consistent with general rules of statutory

construction. Under Oklahoma law, “the plain meaning of statutory language is conclusive, except

in a rare case when literal construction produces a result which is demonstrably at odds with

legislative intent.” Johnson v. CSAA Gen. Ins. Co., 478 P.3d 422, 432 (Okla. 2020). “There is no

room for construction or provision for further inquiry when the Legislature plainly expresses its

intent.” Gilbert Cent. Corp. v. Oklahoma, 716 P.2d 654, 658 (Okla. 1986).

Section 707(7) first defines “casualty insurance” to include “leakage and fire extinguishing

equipment insurance.” Okla. Stat. tit. 36, § 707(7) (emphasis added). “And” is a coordinating

conjunction that links “two independent ideas.” Bruesewitz v. Wyeth LLC, 562 U.S. 223, 236

(2011). Thus, casualty insurance includes “leakage” insurance separate and apart from “fire

extinguishing equipment” insurance. That is, the leakage need not be tied to equipment or systems

used to extinguish fires.

The statute goes on to define “leakage and fire equipment insurance,” in part, as “insurance

against loss or damage to any property or interest caused by the breakage or leakage of sprinklers,

hoses, pumps, and other fire extinguishing equipment or apparatus, water pipes and containers, or

by water entering through leaks or openings in buildings . . . .” Okla. Stat. tit. 36, § 707(7)

(emphasis added). “In determining the meaning of an unambiguous statute, the ordinary rules of

grammar must be applied unless they lead to an absurd result.” Gilbert Cent. Corp., 716 P.2d at

658. Applying ordinary rules of grammar, § 707’s definition is best read as a series utilizing serial,

or Oxford, commas. The Chicago Manual of Style explains: “When a conjunction joins the last

two elements in a series of three or more, a comma—known as the serial or series comma or the

Oxford comma—should appear before the conjunction. Chicago strongly recommends this widely

practiced usage . . . since it prevents ambiguity.” The Chicago Manual of Style, § 6.19 (17th ed.

2017). When viewed as such, “leakage and fire extinguishing equipment insurance” means

“insurance against loss or damage to any property or interest caused by the [1] breakage or leakage

of sprinklers, hoses, pumps, and other fire extinguishing equipment or apparatus, [or] [2] water

pipes and containers, or [3] by water entering through leaks or openings in buildings.” Neither

the second nor the third cause require that the damage relate to a fire extinguishing equipment.

This interpretation is further supported by the serial comma in the first cause, which includes “other

fire extinguishing equipment or apparatus,” clearly in reference only to those three items

previously listed (sprinklers, hoses, pumps). For these reasons, the court concurs with Judge

Heaton that, based on the plain meaning of the statutory language, “[t]here is nothing in the words

used or in the sentence structure to support an inference that the Legislature meant to refer to water

pipes or leaks only in the context of firefighting equipment.” Thompson, 2007 WL 9710847, at

*3.

For the foregoing reasons, the court concludes that Mahalxmi’s claim is a casualty claim.

Accordingly, § 4803’s one-year statute of limitations is inapplicable, regardless of whether the

policies qualify as standard fire insurance policies. See Wagnon, 951 P.2d at 646-47. Nor can the

one-year statute of limitation included in the Steadfast Policy (and incorporated into the Starr

Policy) apply as § 3617 prohibits casualty insurance policies from including a condition that suit

be brought within a period of less than two years. See Okla. Stat. tit. 36, § 3617; Wagnon, 951

P.2d at 647 (“[Steadfast] cannot, by labeling the . . . policy a ‘fire insurance policy’ circumvent

the legislature’s specific directive forbidding insurers from limiting filing suit on casualty policies

to less than two years.”). The court concludes that Mahalxmi’s breach of contract claim is not

barred by limitations—either statutory or contractual.

B. Vacancy Exclusion

Steadfast/Starr argue that Mahalxmi’s claim was properly denied pursuant to the Vacancy

Exclusion included in the Steadfast and Starr Policies.

The loss occurred on January 3, 2018, on which date neither Steadfast nor Starr had issued

a formal policy. [Doc. 115-21; Doc. 115-22]. But Steadfast and Starr had issued binders. See

generally 1A Steven Plitt, et al., COUCH ON INSURANCE § 13:1 (3d ed. June 2021 update (internal

footnote omitted) (“[A] binder is a written contract by a duly authorized agent of an insurance

company recognizing liability on a forthcoming contract during negotiations for the contract, and

assuming that a valid or legally operative binder has been executed, it is immaterial that a loss

covered by the binder occurs before the formal policy of insurance is issued.”); Midwestern Ins.

Co. v. Rapp, 296 P.2d 770, 774 (Okla. 1956). And Steadfast issued its formal policy on January

16, 2018. [Doc. 115-21; Doc. 115-22; Doc. 106-2].

Steadfast and Starr argue that the court must consider the formal Steadfast policy as

amended, rather than the binder or the formal policy as issued on January 16, 2018. The amended

Steadfast policy included the following Vacancy Exclusion purporting to be retroactive to the

Steadfast Policy’s inception date of December 15, 2017:

Vacancy endorsement is as follows:

A. Vacancy Clause:

i. Vacancy Exclusion applies to all properties not being

operated for their reported purpose, or an average occupancy

rate of less than 75% for all occupancy types except 60% for

hotels/motels for more than 30 continuous days.

AND:

B. Coverage is excluded for Hotel/Motels as follows:

i. If the Location is not open 24 hours per day; or

ii. There is not a paid employee managing the Front Desk.

[Doc. 106-2, p. 104 (emphasis added)]. In response, Mahalxmi argues that an insurance company

cannot change a policy to exclude coverage after a loss.

As previously stated, general principles of contract construction govern the interpretation

of an insurance policy. Dodson, 812 P.2d at 376. Thus, “[m]odification of insurance contracts is

governed by rules applicable to contracts generally.” Christian v. Metro. Life Ins. Co., 566 P.2d

445, 448 (Okla. 1977). Under Oklahoma law, “[a] written contract may be discharged, rescinded,

altered, or changed at any time before the performance thereof is due, by the execution of a new

agreement in writing; and, when such is done, the terms and provisions of the new agreement

govern as to the rights of the parties thereto.” Gladys Belle Oil Co. v. Clark, 296 P. 461, 462

(Okla. 1931) (emphasis added). That is, a contractual modification must precede an obligation to

perform under the contract. In the insurance context, this means that “[t]he acceptance of an

alteration or modification of the original contract, to be effective, must precede loss.” 2 Couch on

Insurance § 25:8 (3d ed. June 2021 update); 8 Appleman on Ins. Law § 50.10 (“Nor can the insurer

unilaterally alter the coverage without giving any notice until after the loss occurs.”); see generally

Christian, 566 P.2d at 448.

Further, contractual modification under Oklahoma law requires mutual consent of the

parties. Indiana Nat’l Bank v. State Dep’t of Human Servs., 857 P.2d 53, 63 (Okla. 1993); Watt

Plumbing, Air Conditioning & Elec. Inc. v. Tulsa Rig, Reel & Mfg. Co., 533 P.2d 980, 983 (Okla.

1975). Steadfast offers no evidence that Mahalxmi consented to a retroactive 60% vacancy

exclusion.5 Steadfast directs the court to a series of emails dated January 20, 2018 from Dallas

Bacon of B&W to Jeff Davis of Texas Commercial, Mahalxmi’s agent. See generally [Doc. 115-

27]. However, there is no indication in any of the emails of consent that the endorsement would

apply retroactively. Steadfast directs the court to no additional evidence.6 Accordingly, based on

5 In fact, the only evidence that anyone questioned the vacancy exclusion prior to the date of loss

is an email from Dickerson asking Starr to “revisit the Vacancy Clause” and noting that the prior

policy included a 40% vacancy exclusion. [Doc. 115-15].

6 The court notes that a January 19-20, 2018 email exchange between Dallas Bacon and Erica

Dickerson of B&W, and Artis Kitchen of Zurich, includes the following in the subject line: “Endt

Req Eff: 12.15.17.” [Doc. 115-17]. Under Oklahoma law, “[a]s many jurisdictions have said, it

is a factual question as to whether a broker is the agent of the insured or of the insurer, and will be

resolved according to the circumstances of each particular case.” McFarling v. Demco, Inc., 546

P.2d 625, 628 (Okla. 1976). The parties offer no evidence or argument as to whether Burns &

the evidence submitted, Mahalxmi did not consent to modify the Steadfast Policy to retroactively

include the 60% vacancy exclusion.

Steadfast/Starr contend that the court should nevertheless enforce the 60% vacancy

exclusion because it “was agreed upon and intended to be effective at policy renewal.” [Doc. 115,

p. 16]. It is well-established under Oklahoma law that “unless fraud or mistake is involved pre-

contract negotiations and oral discussions are merged into, and superseded by, the terms of the

executed written agreement.” Mercury Inv. Co. v. F.W. Woolworth Co., 706 P.2d 523, 529 (Okla.

1985). Even assuming the Steadfast/Starr policies are ambiguous, the terms of the oral

negotiations are superseded by the formal policy as issued. Steadfast and Starr do not allege fraud.

Nor do they point to any mistake of law. And, insofar as Steadfast/Starr would rely on mistake of

fact, no mistake exists. Oklahoma statutes define mistake of fact as follows:

Mistake of fact is a mistake not caused by the neglect of a legal duty on the part of

the person making the mistake, and consisting in:

1. An unconscious ignorance or forgetfulness of a fact past or present,

material to the contract; or,

2. Belief in the present existence of a thing material to the contract,

which does not exist, or in the past existence of such a thing, which

has not existed.

Okla. Stat. tit. 15, § 63. Mutual mistake “requires both parties to labor under the same

misconception as to the past or present existence of a fact material to the offer.” Allison v. City of

El Reno, 894 P.2d 1133, 1136 (Okla. Civ. App. 1994). As previously stated, Steadfast/Starr offer

no evidence that Mahalxmi believed the Steadfast Policy or Starr Policy included a 60% vacancy

Wilcox constituted Mahalxmi’s agent. Thus, based on the evidence and briefs submitted, Burns

& Wilcox’s knowledge of the endorsement’s purported retroactivity does not warrant judgment in

Steadfast/Starr’s favor.

exclusion.7 Further, prior to the loss, the evidence suggests that Steadfast at least understood the

policy included a 40% vacancy exclusion, not a 60% exclusion. [Doc. 115-13, p. 11 (Steadfast

Binder including 40% exclusion); Doc. 115-15 (requesting 40% vacancy exclusion and stating

“[a]ll of these items have been agreed upon by Zurich and London)]. There being no evidence of

fraud or mutual mistake, the policies supersede any alleged prior oral agreement.

Further, Steadfast and Starr’s request amounts to a request for reformation. But Steadfast

has not sought reformation in this case. And even if Steadfast had pled reformation, it is not

warranted. Reformation requires evidence of fraud or mutual mistake that is “clear, satisfactory,

[and] free from doubt.” Nat’l Fire Ins. Co. of Hartford v. McCoy, 239 P.2d 428, 430 (Okla. 1951).

For the reasons discussed above, Steadfast/Starr submit no such evidence. Accordingly, the court

is bound to consider the Steadfast/Starr binders in effect on the date of loss.

The Steadfast Binder included the following vacancy provision:

a. Vacancy Clause

i. Vacancy Exclusion applies to all properties not being operated for

their reported purpose, or less than 40% occupied for more than 30

continuous days.

AND:

b. Coverage is excluded for Hotel/Motels as follows:

i. If the Location is not open 24 hours per day; or

ii. There is not a paid employee managing the Front Desk.

[Doc. 115-13, p. 11 (emphasis added)]. The Steadfast Binder also included the following

provision: “In the event of any inconsistencies between the binder and the policy form referenced,

7 Insofar as Steadfast/Starr would rely on statements by Dickerson of Burns & Wilcox that “all

markets agreed to 60%,” [Doc. 115-16, p. 2], Dickerson’s statements are hearsay.

the policy language controls.” [Doc. 115-13, p. 3]. The formal policy issued by Steadfast on

January 16, 2018 did not include a vacancy exclusion. See [Doc. 106-2]. The parties have not

sufficiently briefed whether the 40% Vacancy Exclusion controls or whether no Vacancy

Exclusion applies.

Prior to the date of loss, Starr issued a binder that included a vacancy exclusion applicable

to “all properties not being operated for their reported purpose, or less than 75% occupied for more

than 30 continuous days.” [Doc. 115-14, p. 7]. However, the Starr Binder included the following

provision: “In the event of any inconsistency between the binder and the policy, the policy

language shall control unless the parties agree to an amendment.” [Id. at p. 8]. The formal Starr

Policy issued included the following provision:

APPLICATION OF LEAD POLICY PROVISIONS:

In respect of the perils hereby insured against this Policy is subject to the same

warranties, terms and conditions (except as regards the premium, the amount and

Limits of Liability and the renewal agreement, if any, AND EXCEPT AS

OTHERWISE PROVIDED HEREIN) as are contained in or as may be added to

the Policy(ies) of the Lead Primary Insurer(s) prior to the happening of a loss for

which claim is made hereunder and should any alteration be made in the premium

for the Policy(ies) of the Lead Primary Insurer(s), then the premium hereon may be

adjusted accordingly.

[Doc. 106-3, p. 16, ¶ 2].

Assuming the 40% Vacancy Exclusion applies, the court notes that the evidence submitted

indicates that Garnett Inn’s occupancy rate was 43.64% during December of 2017. [Doc. 106-6].

However, the evidence submitted is insufficient for the court to determine whether the Garnett Inn

had an average occupancy rate of less than 40% for more than 30 continuous days.

For these reasons, questions of fact remain as to Mahalxmi’s breach of contract claim for

which additional evidence is required. Thus, judgment on the briefs and evidentiary materials that

have been submitted is not appropriate.

IV. Conclusion

WHEREFORE, the court concludes that Mahalxmi’s breach of contract claim is not time

barred. Further, the court concludes that Steadfast and Starr incorrectly denied Mahalxmi’s claim

on the ground that the loss is not covered under the terms of the Vacancy Exclusion that precluded

coverage for hotel/motel properties with an average occupancy rate of less than 60% for more than

30 continuous days. Thus, judgment on the briefs is not appropriate.

IT IS FURTHER ORDERED that the parties shall appear before the court for a status

conference on January 14, 2022 at 1:30 p.m.

DATED this 23rd day of December, 2021.