When Ralph and Myrna Lightfoot suffered hail damage to their house, they claimed on their homeowner's insurance policy with American Economy Insurance Company. American Economy Insurance Company is a subsidiary of Liberty Mutual Insurance and operates as part of the Safeco Insurance brand. Even though their policy was with AEIC, which operates as a distinct underwriting entity, the Lightfoots sued Safeco and Liberty as they claimed that the two were an integral part of their claim’s processing. They alleged that the insurers did not properly investigate the damage and failed to pay an adequate amount to cover the necessary repairs.
In April 2024, they filed a lawsuit in Oklahoma County District Court, accusing the insurance companies of breach of contract and bad faith.
After the case was moved to federal court, Liberty Mutual and Safeco filed a motion to dismiss, arguing that they were not parties to the insurance contract and could not be sued for breach of contract.
The court ruled that neither Liberty Mutual nor Safeco was directly named in the insurance policy issued to the Lightfoots. Oklahoma law requires that for a breach of contract claim to succeed, the suing party must be in a direct contractual relationship with the defendant.
Although the policy contained Safeco branding, including a letter signed by a Safeco executive and customer service references to Safeco’s website, the court determined that these details did not create a binding contract between the Lightfoots and the two companies. As a result, the judge dismissed the breach of contract claim against Liberty Mutual and Safeco.
Safeco and Liberty links in the policy included;
(1) the policy's title (“Safeco Premier Homeowners Policy”);
(2) the logo used throughout the policy (“Safeco Insurance - A Liberty Mutual Company”);
(3) a letter signed by the president of Safeco, thanking the Lightfoots for renewing the policy;
(4) references to American Economy as “A Safeco Company”;
(5) references to “www.safeco.com” for policy service information, online account services, and information on Safeco's “website specific privacy and security practices”;
However, the court ruled that the claim for bad faith could proceed. Oklahoma law recognizes an exception where a non-party to an insurance contract can be held accountable if it acts as though it were the insurer, particularly in processing claims. The Lightfoots alleged that Liberty Mutual and Safeco were involved in handling their claim, making coverage decisions, training adjusters, and sharing financial risk with American Economy Insurance. The judge found that if these claims were proven true, they could establish a "special relationship" between the companies and the policyholders, making them subject to liability for bad faith insurance practices.
“If “a non-party to the insurance contract . . . engages in activities or conduct such that it may be found to be acting sufficiently like an insurer so that a special relationship can be said to exist between the entity and the insured,” then “the same duty of good faith and fair dealing as that imposed on the actual insurer issuing the insurance policy” is imposed on that non-party. Such a relationship “essentially giv[es] the third party the power, motive, and opportunity to act unscrupulously.”
The Lightfoots also requested permission to amend their lawsuit, but the court denied their request. The judge ruled that any amendment would not change the fact that Safeco and Liberty Mutual were not direct parties to the insurance policy, making revisions to the claim ineffective.
This ruling represents a partial victory for both sides. While Safeco and Liberty Mutual successfully avoided the breach of contract claim, they will now have to defend against the bad faith claim, which could result in liability if the Lightfoots can prove their allegations.
The case highlights the complexity of insurance agreements when multiple affiliated companies are involved and serves as a reminder that insurers can still be held accountable for improper claims handling, even if they are not the direct issuers of a policy.
As the lawsuit moves forward, both sides will have the opportunity to present evidence regarding Safeco and Liberty Mutual’s role in the claim denial. If the Lightfoots successfully demonstrate that the companies were directly involved in the decision-making process, they may hold them responsible for improper insurance practices. The case remains ongoing in the United States District Court for the Western District of Oklahoma.
