                                                                            F I L E D
                                                                     United States Court of Appeals
                                                                             Tenth Circuit
                                        PUBLISH
                                                                             NOV 19 1999
                     UNITED STATES COURT OF APPEALS
                                                                        PATRICK FISHER
                                                                                 Clerk
                                  TENTH CIRCUIT


 FIRST NATIONAL BANK OF
 TURLEY,

       Plaintiff-Appellant and Cross-
       Appellee,
 v.                                                   Nos. 98-5064, 98-5082
 FIDELITY & DEPOSIT INSURANCE
 COMPANY OF MARYLAND,

       Defendant-Appellee and Cross-
       Appellant.



             APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE NORTHERN DISTRICT OF OKLAHOMA
                           (D.C. No. 93-C-284-E)


Jerry Reed (Joseph R. Farris and Jody R. Nathan with him on the brief), Tulsa, Oklahoma,
for Plaintiff-Appellant.

Robert L. Magrini (John B. Hayes and Evan B. Gatewood with him on the brief), of
Hayes & Magrini, Oklahoma City, Oklahoma, for Defendant-Appellee.


Before BALDOCK, PORFILIO, and EBEL, Circuit Judges.


BALDOCK, Circuit Judge.
       Plaintiff First National Bank of Turley appeals (1) the district court’s denial of its

application for attorney’s fees under Oklahoma law from Defendant Fidelity & Deposit

Insurance Company of Maryland, and (2) the district court’s grant of Fidelity & Deposit’s

motion to modify the judgment finding that First National is not entitled to post-offer

costs under Fed. R. Civ. P. 68. Exercising jurisdiction under 28 U.S.C. § 1291, we vacate

and remand.

                                              I.

       Fidelity & Deposit issued First National an insurance policy that provided liability

coverage for personal injuries caused by breach of privacy. The policy defined “personal

injury” as “oral or written publication of material that violates a person’s right to

privacy.” The policy excluded from coverage acts “arising out of the willful violation of

a penal statute or ordinance committed by or with the consent of the insured.”

       In 1988, First National President Mikel Hoffman called an IRS agent to report that

he suspected bank customers Buel and Peggy Neece were violating the income tax laws.

The Neeces sued First National for breach of privacy under the Right to Financial Privacy

Act, 12 U.S.C. §§ 3401-3422. First National requested that Fidelity & Deposit defend it

against the Neeces’ suit. Fidelity & Deposit refused on the ground that the policy

specifically excluded from coverage Hoffman’s willful disclosure to the IRS.

       In September, 1992, First National requested that Fidelity& Deposit reevaluate

First National’s coverage under the policy. First National pointed out to Fidelity &


                                              -2-
Deposit that the Neeces’ most recent amended complaint contained allegations of

negligent as well as willful conduct. In response, Fidelity & Deposit sent First National a

reservation of rights letter, in which Fidelity & Deposit agreed to defend First National in

the Neeces’ suit from that point forward. The letter stated, “Due to the fact that Mr. and

Mrs. Neece’s First Amended Complaint may conceivably be read as alleging both an

unintentional and a willful violation under the Financial Right to Privacy Act, Fidelity &

Deposit Company has agreed to assume First National Bank of Turley’s defense.” First

National turned down Fidelity & Deposit’s offer because it did not cover expenses before

the September, 1992, reevaluation of coverage. Fidelity & Deposit, however, began

paying First National’s defense costs in the ongoing Neece suit. First National accepted

the payments.

       Shortly after turning down Fidelity & Deposit’s reservation of rights letter because

it did not extend coverage for all of its defense costs since 1988, First National filed suit

against Fidelity & Deposit. In its complaint, First National demanded $125,000.00 in

defense costs that it had incurred so far in the Neece suit, “additional damages as a result

of the breach, including additional attorney’s fees and indemnity for any judgment

rendered against it in the Neece action,” and $5 million in punitive damages for bad faith

refusal to defend.

       In a letter dated June 10, 1994, Fidelity & Deposit made an offer to confess

judgment under Fed. R. Civ. P. 68 in the amount of $67,333.49, intended to cover First


                                              -3-
National’s defense costs incurred before December 31, 1991.1 The letter notes that

Fidelity & Deposit had already paid First National’s 1992 expenses and was ready to pay

the 1993 expenses. First National rejected the offer of judgment.

       In its pretrial order, the district court noted that Fidelity & Deposit “has now

agreed to assume the Bank’s defense under reservation of rights.” The remaining factual

issues at trial included whether Fidelity & Deposit acted in bad faith in initially refusing

to defend First National and whether Fidelity & Deposit was responsible for First

National’s defense costs incurred before the September, 1992, reevaluation request. The

district court submitted to the jury the questions of Fidelity & Deposit’s liability for bad

faith and its liability for First National’s defense costs incurred before September, 1992.

The jury returned a verdict for First National in the amount of $20,000.00, and the district

court entered judgment for that amount.

       After the district court entered judgment, First National filed an application for

attorney’s fees under Okla. Stat. tit. 36, § 3629(B) to recover its fees in its lawsuit against

Fidelity & Deposit. The district court denied First National’s motion. Fidelity & Deposit

filed a motion to amend the judgment to reflect that pursuant to Fed. R. Civ. P. 68, First

National was not entitled to recover its post-offer costs from Fidelity & Deposit. The




       1
         As First National pointed out in its letter rejecting the offer of judgment, the
correct amount was actually $52,429.29. Fidelity & Deposit had already paid about
$15,000 in defense costs that First National incurred during 1991 and 1992.

                                              -4-
district court granted Fidelity & Deposit’s motion, and entered an amended judgment that

did not award any costs to First National.

       The Neece suit did not settle until one year after the district court entered judgment

in First National’s suit against Fidelity & Deposit. Fidelity & Deposit paid all of the fees

and costs First National incurred in defending the Neeces’ suit, except those incurred

before June 1, 1991. Fidelity & Deposit paid the Neeces $84,813.00 to settle their breach

of privacy suit.

                                              II.

       First National first argues that the district court erred in denying its application for

attorney’s fees under Oklahoma statutory and common law. The Oklahoma statute

awards attorney’s fees to prevailing parties in suits on insurance policies:

       It shall be the duty of the insurer, receiving a proof of loss, to submit a
       written offer of settlement or rejection of the claim within 90 days of receipt
       of proof of that loss. Upon a judgment rendered to either party, costs and
       attorney fees shall be allowable to the prevailing party.

Okla. Stat. tit. 36, § 3629(B). The district court found that First National was not entitled

to attorney’s fees under § 3629 because the statute does not apply to suits which allege

only the tort of bad faith refusal to defend and do not allege any contract claim on the

insurance policy itself. The scope of the attorney’s fee statute is a question of law which

we review de novo. See Driver Music Co. v. Commercial Union Ins. Cos., 94 F.3d 1428,

1432 (10th Cir. 1996).



                                              -5-
       Under Oklahoma law, attorney’s fees are available in any suit on an insurance

policy “so long as the ‘core element’ of the damages sought and awarded is composed of

the insured loss.” Taylor v. State Farm Fire & Casualty Co., 981 P.2d 1253, 1256 (Okla.

1999). The decision in Taylor, answering certified questions from this court, clarified

that § 3629 does in fact apply to bad faith suits such as First National’s, regardless of any

contract claim on the policy itself. The “core element” of the damages First National

sought was in fact the insured loss: the expenses incurred in defending the Neece suit.

Although the district court did not have the benefit of the decision in Taylor, which

appeared two years after it ruled on First National’s application for attorney’s fees, this

court is nevertheless bound to apply Taylor because it is the law in effect at the time we

issue our decision. See Saint Francis College v. Al-Khazraji, 481 U.S. 604, 608-09

(1987).

       Because the district court found that the Oklahoma attorney’s fee statute did not

apply to First National’s case, it did not reach the issue of whether First National was a

prevailing party under the Oklahoma statute. The plaintiff is a prevailing party if the

plaintiff gets a judgment that is larger than the settlement offer it rejected:

       For purposes of this section, the prevailing party is the insurer in those cases
       where judgment does not exceed the written offer of settlement. In all other
       judgments the insured is the prevailing party.

Okla. Stat. tit. 36, § 3629(B). We remand the case to the district court to determine who

the prevailing party is. See Stichting Mayflower Recreational Fonds v. Newpark


                                              -6-
Resources Inc., 917 F.2d 1239, 1248 (10th Cir. 1990) (remanding an attorney’s fee issue

to the district court to determine who the prevailing party is).

       Similarly, in its order denying attorney’s fees, the district court did not rule on

whether First National is entitled to attorney’s fees under Oklahoma common law. See

Christian v. American Home Assurance Co., 577 P.2d 899, 906 (Okla 1977) (holding

that, in a case where an insured successfully sued its insurer for bad faith, “the trial court,

in exercise of its equitable power, may award attorney’s fees” under the common law).

The creation of the statutory right to recover attorney’s fees from an insurance company

did not abrogate the common law right to attorney’s fees where bad faith is shown. See

Brashier v. Farmer’s Ins. Co., 925 P.2d 20, 23-24 (Okla 1996). The common law right

does not depend on prevailing party status. See id. at 24. The district court should also

consider this issue on remand.

                                              III.

       First National also appeals the district court’s grant of Fidelity & Deposit’s motion

to amend the judgment finding that First National is not entitled to post-offer costs




                                              -7-
pursuant to Fed. R. Civ. P. 68.2 We review the district court’s refusal to grant costs under

Rule 68 for abuse of discretion, and review its underlying factual findings for clear error.

See Arkla Energy Resources v. Roye Realty & Developing Inc., 9 F.3d 855, 866 (10th

Cir. 1993).

       Generally, “costs other than attorneys’ fees shall be allowed as of course to the

prevailing party unless the court otherwise directs.” Fed. R. Civ. P. 54(d)(1). “Rule 68

permits a party defending against a claim to recover all costs incurred after the making of

an offer of judgment if the offeree rejected the settlement offer and ultimately was

awarded less at trial.” American Ins. Co. v. El Paso Pipe & Supply Co., 978 F.2d 1185,

1193 (10th Cir. 1992). The Rule provides:

       At any time more than 10 days before the trial begins, a party defending
       against a claim may serve upon the adverse party an offer to allow judgment
       to be taken against the defending party for the money . . . specified in the
       offer, with costs then accrued. . . . If the judgment finally obtained by the
       offeree is not more favorable than the offer, the offeree must pay the costs
       incurred after the making of the offer.




       2
          In its brief, First National phrased its argument as: “Whether the Rule 68 offer
of judgment changes the Appellant’s status as prevailing party?” (Aplt. Br. at 1.) This
claim is not cognizable for two reasons. First, pursuant to its plain language, the only
possible effect of Rule 68 is to shift Fidelity & Deposit’s post-offer costs to First
National. Also, Rule 68 cannot shift attorney’s fees because there is no applicable
substantive law–not even § 3629–that awards attorney’s fees as costs. See Knight v.
Snap-On Tools Corp., 3 F.3d 1398, 1405 (10th Cir. 1993) (holding that the prevailing
plaintiff is not entitled to attorney’s fees under Rule 68 because the state fee-shifting
statute does not “define ‘costs’ to include ‘attorney’s fees’”).

                                             -8-
Fed. R. Civ. P. 68. In order to determine whether the judgment finally obtained is greater

than the offer, the offer is compared with the sum of the jury award and the pre-offer

costs. See Knight v. Snap-On Tools Corp., 3 F.3d 1398, 1405 (10th Cir. 1993).

       The district court granted Fidelity & Deposit’s motion to amend the judgment to

find that First National was not entitled to post-offer costs, and amended the judgment to

award no costs to First National. The district court accepted Fidelity & Deposit’s

reasoning that First National was not the prevailing party because the judgment it

received, $20,000.00, is not more favorable than the $67,333.49 settlement offer. The

district court, however, made no findings regarding whether Fidelity & Deposit or First

National was the prevailing party. Accordingly, we remand this issue for the district court

to decide which party, if any, is entitled to costs under Rule 68.

       VACATED and REMANDED for further proceedings consistent with this

opinion.




                                             -9-
