Vining Ex Rel. Vining v. Enterprise Financial Group, Inc. , 148 F.3d 1206 ( 1998 )

UNITED STATES COURT OF APPEALS
Tenth Circuit
Byron White United States Courthouse
1823 Stout Street
Denver, Colorado 80294
(303) 844-3157
Patrick J. Fisher, Jr. Elisabeth A. Shumaker
Clerk Chief Deputy Clerk
July 24, 1998
TO: ALL RECIPIENTS OF THE AMENDED OPINION
RE: 96-6254, 96-6267, 97-6082, Vining v. Enterprise Fin. Group, Inc.
Amended opinion filed on July 22, 1998.
The amended opinion filed on July 22, 1998, contains a clerical error. The
error is located on page three of the opinion, the last sentence of the paragraph
continued from page two, immediately before the BACKGROUND section. The last
sentence of the paragraph should now read as follows:
We affirm on all issues, except we retain jurisdiction and do not now
decide the issues raised on appeal pertaining to prejudgment interest and
attorneys’ fees.
A corrected copy of page three is attached for your convenience.
Very truly yours,
Patrick Fisher, Clerk
Keith Nelson
Deputy Clerk
encl.
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
BILLIE VINING, surviving spouse
and next of kin on behalf of Milford
Vining deceased,
Plaintiff-Appellee-Cross-
Appellant,
Nos. 96-6254, 96-6267,
v. and 97-6082
ENTERPRISE FINANCIAL GROUP,
INC., a foreign corporation,
Defendant-Appellant-Cross-
Appellee.
ORDER
Filed July 22, 1998
Before SEYMOUR, Chief Judge, EBEL, and BRISCOE, Circuit Judges.
This matter is before the court on its own motion to vacate the opinion and
judgment issued on July 6, 1998 and to reissue an amended opinion and partial
judgment. The attached opinion constitutes the decision of the court. A forthwith
partial mandate and partial judgment are issued with respect to the issues addressed
in today’s amended opinion. The court retains jurisdiction to address the issues of
prejudgment interest and attorneys’ fees. We will issue a supplemental decision on
those issues following the Oklahoma Supreme Court’s resolution of the certified
questions submitted in appeal number 95-5207, Taylor v. State Farm Fire and
Casualty Company. The order submitting those certified questions was filed in this
court on June 19, 1997. The parties to this appeal shall monitor the proceedings in
the Taylor matter and submit notice to this court immediately upon its resolution in
the Oklahoma Supreme Court. Pending that disposition, the portion of these appeals
concerning the issues of prejudgment interest and attorneys' fees is abated.
Entered for the Court
PATRICK FISHER, Clerk of Court
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F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH JUL 22 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
TENTH CIRCUIT Clerk
BILLIE VINING, surviving spouse
and next of kin on behalf of Milford
Vining, deceased,
Plaintiff-Appellee-Cross-
Appellant,
Nos. 96-6254, 96-6267,
v. and 97-6082
ENTERPRISE FINANCIAL GROUP,
INC., a foreign corporation,
Defendant-Appellant-Cross-
Appellee.
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. CIV-95-1149-M)
Jared D. Giddens, Self, Giddens & Lees, Inc., Oklahoma City, Oklahoma (Bryan J.
Wells with him on the brief) for defendant-appellant-cross-appellee.
Mark A. Engel, Mansell & Engel, Oklahoma City, Oklahoma (Steven S. Mansell with
him on the brief) for plaintiff-appellee-cross-appellant.
Before SEYMOUR, Chief Judge, and EBEL and BRISCOE, Circuit Judges.
EBEL, Circuit Judge.
Plaintiff-Appellee Billie Vining brought a bad faith insurance claim as
surviving spouse and next of kin on behalf of her deceased husband Milford Vining. 1
Vining claimed that defendant-appellant Enterprise Financial Group, Inc. acted
improperly in rescinding a credit life insurance policy after Vining made a claim
under the policy as a result of her husband’s death. At trial, the jury found in favor
of Vining and awarded her compensatory and punitive damages. Enterprise appeals
the judgment of the district court on the grounds of insufficient evidence, improper
consideration of inadmissable evidence, improper jury instructions, failure to order
a remittitur based on an excessive damage award, failure to order a new trial because
the jury verdict was the product of passion and prejudice, improper award of
prejudgment interest, and improper award of attorneys’ fees. Vining cross-appeals,
1
The opinion in these appeals was originally filed on July 6, 1998, but the
mandate was not issued. Upon order of the panel, that opinion is vacated and
this new amended opinion is filed in its place. The amended version is identical
to the original opinion with the exception of the deletion of Section V.,
Prejudgment Interest, and Section VI., Attorneys’ Fees. Those two issues have
not been addressed pending receipt of a ruling from the Oklahoma Supreme
Court on certified questions that we submitted to that court on June 19, 1997, in
the case of Taylor v. State Farm Fire and Casualty Company, No. 95-5207. The
questions certified to the Oklahoma Supreme Court in that case may be
dispositive of the issues of prejudgment interest and attorneys’ fees in this case.
In accord with the separate order entered with this amended opinion, we shall
issue a partial mandate, forthwith, with reference to those issues addressed in this
amended opinion. The court will retain jurisdiction over the remaining issues of
prejudgment interest and attorneys’ fees and will issue a supplemental opinion
disposing of those issues after we receive the opinion from the Oklahoma
Supreme Court answering the certified questions in Taylor.
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arguing that in the event a new trial is ordered, the court should award additional
punitive damages based on Enterprise’s willful conduct. We affirm on all issues,
except we retain jurisdiction and do not now decide the issues raised on appeal
pertaining to prejudgment interest and attorneys’ fees.
BACKGROUND
On March 9, 1992, Milford Vining (“Milford”), now deceased husband of
plaintiff-appellee Billie Vining (“Vining”), purchased a Jeep at Crown Auto
World in Tulsa, Oklahoma. Defendant-Appellant Enterprise Financial Group
(“Enterprise”), through a wholly owned subsidiary ELIC, had appointed Nancy
Sidler (“Sidler”) as its finance and insurance representative at the car dealership.
Enterprise sold credit life insurance policies as a way for customers to insure that
car payments would be covered in the event of death. Sidler offered and Milford
elected to buy an Enterprise credit life insurance policy (the “Policy”) in
connection with the purchase of the vehicle. Sidler had never been trained in any
way by Enterprise, including training on what constituted “good health” under
Enterprise’s definition.
Milford died on May 28, 1993 of an acute myocardial infarction (sudden
heart attack). At the time of his death, Milford’s Policy had a pay-out value of
$10,046. Vining made a claim for death benefits under the Policy, and Enterprise
subsequently rescinded the Policy, claiming that Milford had misrepresented
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material health history in his insurance application and that the Policy was issued
in reliance upon this misrepresentation. Vining unsuccessfully contested the
rescission and sent letters to the Oklahoma Insurance Department complaining of
Enterprise’s conduct. On July 27, 1995, Vining brought an action for breach of
contract and for bad faith in the United States District Court for the Western
District of Oklahoma. Enterprise defended on the grounds that it had a legitimate
basis for contesting Vining’s claim, and thus did not act in bad faith. Enterprise
also raised the affirmative defense of rescission, arguing that Milford made
material misrepresentations in the insurance application which justified a
rescission of the Policy pursuant to Okla. Stat. tit. 36, § 3609 (1990).
During trial, Vining proved the following facts. 2 Milford had suffered from
coronary artery disease which resulted in a triple coronary bypass operation in
1983. After the surgery, Milford underwent a series of post-bypass tests and
procedures and began taking heart maintenance medication to prevent the
occurrence of angina. Milford complained of no chest pains or other symptoms
from the time immediately following the operation up until the time of his death.
Milford visited Dr. Michael Sullivan (“Dr. Sullivan”) on February 12, 1992, for a
2
Because this case involves an appeal of the district court’s denial of
Enterprise’s motion for judgment as a matter of law, we review the evidence in
the light most favorable to Vining as the non-moving party. See Doan v. Seagate
Technology, Inc., 82 F.3d 974, 976 (10th Cir. 1996), cert. denied, 117 S. Ct. 684
(1997).
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get-acquainted visit because he recently had moved and wanted to find a new
doctor nearer to his home. Milford’s visit was not precipitated by any symptoms
or medical reasons. In fact, Milford led a very active life. Dr. Sullivan continued
Milford on his heart maintenance medications as a preventive measure. At the
time of Milford’s visit with Dr. Sullivan, Milford suffered from little, if any,
angina.
The insurance application Milford signed included a disclaimer that stated:
I HEREBY CERTIFY THAT I AM IN GOOD HEALTH AS OF THE
EFFECTIVE DATE ABOVE. I FURTHER CERTIFY THAT I DO NOT
PRESENTLY HAVE, NOR HAVE I EVER HAD, NOR HAVE I BEEN
TOLD I HAVE, NOR HAVE I BEEN TREATED WITHIN THE
PRECEDING 12 MONTHS FOR ANY OF THE FOLLOWING: ANY
HEART DISEASE, OR OTHER CARDIOVASCULAR DISEASES. . . .
Both parties agree that Milford did not intentionally attempt to mislead Enterprise
by signing the disclaimer, that Milford’s appointment with Dr. Sullivan was his
only medical visit in the twelve months preceding the Policy purchase date, and
that under Oklahoma Insurance Regulations, an insurance company may only
consider the last twelve months of an insured’s medical history to evaluate an
insurance application.
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After Milford’s death, Enterprise sought all of Milford’s medical records,
including Dr. Sullivan’s notes. On the same day it received Dr. Sullivan’s notes,
Enterprise rescinded the Policy. Enterprise routinely contests all claims on life
insurance policies made within two years of a policy’s effective date and
investigates to find misrepresentations in the insurance application. 3 Debbie
Cluck (“Cluck”), Enterprise’s claims examiner, denies four out of every ten
claims that she reviews. Enterprise does not have a claims manual or any written
guidelines specifying when a claim is payable or not, and it never informed Cluck
of any applicable Oklahoma law or regulation pertaining to when a policy may be
rescinded. Enterprise had no system of tracking whether any of its agents
routinely sold policies to ineligible applicants.
Cluck felt it appropriate to rescind a policy even if the agent issued the
policy with full knowledge of an applicant’s medical history. Cluck’s beliefs
comport with Enterprise company philosophy. Cluck never paid a claim if she
had any reason to doubt whether a person’s medical history was inconsistent with
the health disclaimer included on the insurance application. Cluck rescinded
Milford’s Policy because she considered the office visit with Dr. Sullivan and the
continuation of his angina medication by Dr. Sullivan to constitute treatment for
3
Both parties agree that under Oklahoma law a claim made more than two
years after the effective date of a life insurance policy is generally uncontestable
by the insurer.
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triple bypass surgery. Cluck did not investigate whether Sidler was informed of
Milford’s medical history, did not contact either Sidler or Vining, and did not
contact Dr. Sullivan to discuss his notes before rescinding the Policy.
Enterprise’s training manual for its agents (the “Manual”) emphasizes that
applicants only need to be between the ages of 18 and 65 to purchase insurance.
The Manual does not discuss the health disclaimer or in any way suggest that the
agent is supposed to ask the customer about his health or that health is relevant in
issuing the policy. The Manual also encourages agents to maximize profit by
overstating the actual monthly premium that should be charged and by secretly
increasing the actual amount of monthly payments the customer agrees to pay, for
example, raising a payment from $78.22 to $78.99 because customers look more
closely at dollars than cents. The Manual informs agents that the life insurance
policies they sell are guaranteed issue polices, which means that the coverage is
in force immediately as compared to ordinary life insurance applicants who first
must be approved by the insurer before coverage takes effect. Enterprise objected
to the introduction of the Manual into evidence.
John Myerson (“Myerson”) was Enterprise’s representative to agents at
automobile dealerships that sell Enterprise life insurance policies, including
Sidler. Myerson testified that he did not know what the terms used in the health
disclaimer statement meant and that he did not know how Enterprise processed
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claims. Myerson also testified that he does not train agents to ask about doctor
visits or medication.
In response to numerous complaints against Enterprise for improper
rescission of life insurance policies, the Oklahoma Insurance Department
conducted an investigation of Enterprise’s business practices. The Department
published the results of its investigation in a 1992 Market Conduct Examination
Report (the “Report”). The Report criticized Enterprise for requiring applicants
to sign a disclaimer stating that they had never had any health problems. The
Report sharply criticized Enterprise’s loss ratios, the ratio of benefits paid to
premiums received, as being unreasonably below accepted levels due to a large
number of policy rescissions. Specifically, Enterprise only paid out in benefits
about 16% of premiums received. Oklahoma Insurance Department regulations
require a 50% loss ratio for credit life insurance companies. The Report also
noted that in numerous cases Enterprise used unlicensed agents to sell insurance
policies. Based on the Report, the Oklahoma Insurance Commissioner issued an
Order levying a $15,000 fine against Enterprise for various violations and
mandating that Enterprise lower its premiums to produce an acceptable loss ratio
level. Enterprise made no changes in light of the Report’s criticisms. In fact,
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loss ratios for the two years following the Report continued to remain below
18%. 4 Enterprise objected to the introduction of the Report into evidence.
Numerous witnesses testified that their decedent spouses had bought life
insurance from Enterprise in circumstances similar to the Vinings. Enterprise
summarily rescinded these life insurance policies after the survivors made claims
on the policies. In each case, Enterprise cited evidence of an insured’s health
problems that existed at the time the insured signed a health disclaimer statement
in the insurance application as the grounds for rescission. Enterprise objected to
the introduction of the evidence regarding other claimants.
Finally, John Hammond (“Hammond”) testified as an expert on the
handling and management of insurance claims. Hammond expressed his opinion
that Enterprise’s conduct was “completely inappropriate.” He stated that
Enterprise investigated Vining’s claim by looking for a reason to rescind the
Policy. Hammond added that Enterprise erred by not contacting either Sidler, the
agent who sold the Policy, or Vining before rescinding the Policy. Hammond also
criticized Enterprise for not providing claims manuals detailing credit life
insurance policy eligibility requirements to its claims examiners who were
charged with investigating claims on those policies.
4
Enterprise’s rescission conduct and loss ratios bear some resemblance to
those of the fictional insurance company portrayed in John Grisham’s novel The
Rainmaker and in the motion picture of the same name.
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The district court gave a series of instructions to the jury on the issue of
bad faith, which Enterprise objected to on several grounds. The district court also
instructed the jury that it could not award punitive damages in an amount greater
than whatever amount, if any, it awarded in actual damages because Vining had
not presented sufficient evidence to allow additional punitive damages.
A jury verdict was rendered for Vining in March of 1996 in the amount of
$800,000: $400,000 in actual damages and $400,000 in punitive damages. The
district court also awarded $163,000 in prejudgment interest at the statutory rate
and $94,223.75 in attorneys’ fees to Vining. The district court denied
Enterprise’s motion for judgment as a matter of law under Federal Rules of Civil
Procedure 50(b), its motion for a remittitur to reduce an excessive damage award,
and its motions to deny the award of prejudgment interest and attorneys’ fees.
Enterprise now appeals. Enterprise also appeals numerous evidentiary rulings and
the district court’s instructions to the jury. Vining cross-appeals that in the event
a retrial is ordered, the district court should be instructed to remove any
limitations on the jury’s punitive damage award.
DISCUSSION
The district court exercised jurisdiction pursuant to 28 U.S.C. § 1332(a)
(1994) (diversity jurisdiction). We have appellate jurisdiction pursuant to 28
U.S.C. § 1291 (1994) and F.R.A.P. 4(a). We apply the forum state’s choice of
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law rules. See Trierweiler v. Croxton & Trench Holding Corp., 90 F.3d 1523,
1532 (10th Cir. 1996). Both parties agree, and we concur, that under Oklahoma
choice of law rules, Oklahoma substantive law applies.
I. Rule 50 Motion
We consider de novo a district court’s denial of a motion for judgment as a
matter of law under Rule 50, see Haines v. Fisher, 82 F.3d 1503, 1510 (10th Cir.
1996), using the same standard as the district court, see Harolds Stores, Inc. v.
Dillard Dep’t Stores, Inc., 82 F.3d 1533, 1546 (10th Cir.), cert. denied, 117 S. Ct.
297 (1996). “[W]e may find error in the denial of such a motion only if the
evidence points but one way and is susceptible to no reasonable inferences
supporting the party opposing the motion.” Haines, 82 F.3d at 1510. “We
construe the evidence and inferences most favorably to the nonmoving party.”
Doan v. Seagate Technology, Inc., 82 F.3d 974, 976 (10th Cir. 1996), cert.
denied, 117 S. Ct. 684 (1997).
A. Bad Faith
Under Oklahoma law, an insurer has a legal duty to “deal fairly and act in
good faith with its insured[s]. . . .” Christian v. American Home Assurance Co.,
577 P.2d 899, 904 (Okla. 1977) (citations omitted). An insured may bring a cause
of action in tort for bad faith if the insurer breaches this duty. See id. at 904-05.
The essence of a bad faith claim centers on the unreasonableness of the insurer’s
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conduct. See Conti v. Republic Underwriters Ins. Co., 782 P.2d 1357, 1360
(Okla. 1989). An insurer does not breach the duty of good faith to pay a claim
“by litigating a dispute with its insured if there is a ‘legitimate dispute’ as to
coverage or amount of the claim, and the insurer’s position is ‘reasonable and
legitimate.’” Oulds v. Principal Mut. Life Ins. Co., 6 F.3d 1431, 1436 (10th Cir.
1993) (applying Oklahoma law) (internal citations and quotations omitted). Using
the standard for summary judgment of a bad faith claim, a plaintiff may defeat a
motion for judgment as a matter of law by presenting enough evidence so that an
“insurer’s conduct may be reasonably perceived as tortious.” Id. at 1436-37.
Essentially, Enterprise argues on appeal that because it in fact had a
legitimate reason for rescinding Milford’s Policy based on his medical history and
heart condition, Enterprise is entitled as a matter of law to a verdict in its favor
on the claim of bad faith. An insurer does not act in bad faith if it had a “‘good
faith belief, at the time its performance was requested, that it had justifiable
reason for withholding payment under the policy.’” Buzzard v. Farmers Ins. Co.,
824 P.2d 1105, 1109 (Okla. 1991) (quoting Buzzard v. McDanel, 736 P.2d 157,
159 (Okla. 1987)). An insurer may legitimately and in good faith dispute a claim
based on material misrepresentations in the insured’s application for insurance.
See Oulds, 6 F.3d at 1437-39; see also Claborn v. Washington Nat’l Ins. Co., 910
P.2d 1046, 1051 (Okla. 1996).
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Vining does not dispute that her husband had a heart condition and that the
insurance application he signed included a disclaimer signed by Milford certifying
that he was in good health and had not been treated within the preceding 12
months for heart disease or any other cardiovascular disease. As a result,
Enterprise could contest liability on the basis of a misrepresentation if it had a
good faith belief that the misrepresentation was intentional. See Hays v. Jackson
Nat’l Life Ins. Co., 105 F.3d 583, 588 (10th Cir. 1997) (applying Oklahoma law)
(rescission must be predicated on intentional misrepresentation). Here, Enterprise
reasonably could have determined that by signing the disclaimer, Milford
materially misrepresented the condition of his health. In addition, Enterprise
might have been able to defend against a bad faith claim based upon the conduct
of its agent, Sidler, in selling or issuing the policy because the tort of bad faith
“must be based upon an insurer’s wrongful denial of a claim; it cannot be based
upon the conduct of the insurer in selling and issuing the policy.” Id. at 590.
However, even a “legitimate dispute as to coverage will not act as an
impenetrable shield against a valid claim of bad faith” where the insured presents
“sufficient ‘evidence reasonably tending to show bad faith’” or unreasonable
conduct. Timberlake Constr. Co. v. U.S. Fidelity & Guar. Co., 71 F.3d 335, 343
(10th Cir. 1995) (applying Oklahoma law) (quoting Oulds, 6 F.3d at 1440). That
is, a plaintiff may bring a bad faith cause of action even though a legitimate
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defense to a breach of contract claim exists if the defendant did not actually rely
on that defense to deny payment under the policy.
Vining demonstrated at trial a deliberate, willful pattern of abusive conduct
by Enterprise in handling claims under its life insurance policies. Vining offered
evidence that as a matter of course Enterprise would rescind life insurance
policies issued on a guaranteed basis as soon as claims were made. Enterprise
based these rescissions on the grounds that the insured had made material
misrepresentations on the insurance application regardless of whether Enterprise
in fact would have declined to write the policy had it known of that information at
the time the policy was written. Vining presented evidence that Enterprise
engaged in a systematic, bad faith scheme of canceling policies without
determining whether it had good cause to do so. Such conduct constitutes bad
faith regardless of whether Enterprise legitimately might have been able to
contest Vining’s claim based on Milford’s heart condition, because the evidence
showed that Enterprise, in fact, did not dispute coverage in good faith based on
Milford’s heart condition.
Enterprise suggests that it would have prevailed on a breach of contract
action against it and makes much of Vining’s decision to abandon the breach of
contract action as helping to demonstrate that fact. However, the jury instructions
specifically mandated a finding that Enterprise was required to pay Vining under
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the policy before the jury could conclude that Enterprise acted in bad faith. 5
Because the jury found Enterprise liable, we must assume that the jury found that
Enterprise had a duty to pay Vining under the policy.
No court has held that an insured must actually prevail on a separate
underlying breach of contract claim in order to maintain a successful bad faith
5
The instructions read in full:
BAD FAITH FAILURE TO PAY CLAIMS OF INSURED
ESSENTIAL ELEMENTS
Plaintiff, Billie Vining, claims that defendant, Enterprise Financial
Group, Inc., violated its duty of good faith and fair dealing by
unreasonably, and in bad faith, refusing to pay plaintiff, Billie Vining, the
proper amount for a valid claim under the insurance policy. In order for
plaintiff, Billie Vining, to recover damages in this case, she must show by
the greater weight of evidence that:
1. Defendant, Enterprise Financial Group, Inc., was required under the
insurance policy to pay plaintiff, Billie Vining’s, claim;
2. Defendant, Enterprise Financial Group, Inc.’s, refusal to pay the claim
in full was unreasonable under the circumstances, because a) it did not
perform a proper investigation, or b) it did not evaluate the results of the
investigation properly, or c) it had no reasonable basis for the refusal;
3. Defendant, Enterprise Financial Group, Inc., did not deal fairly and in
good faith with plaintiff, Billie Vining; and
4. The violation by defendant, Enterprise Financial Group, Inc., of its duty
of good faith and fair dealing was the direct cause of the injury sustained
by plaintiff, Billie Vining.
With respect to element number one above, you are instructed that
the insurance company has raised the affirmative defense of rescission.
Thus, if the defendant proves it was entitled to “rescind” the policy, then
you must find in favor of the defendant, Enterprise Financial Group, Inc.
The elements of the affirmative defense of rescission are defined later in
these instructions.
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claim, and we cannot predict that Oklahoma would impose such a condition
precedent to a bad faith claim.
B. Rescission Defense
Enterprise also raises the affirmative defense of rescission. Under Okla.
Stat. tit. 36, § 3609 (1990), an insurer properly may rescind an insurance policy
when the application contains a misrepresentation that (1) is fraudulent; (2) is
material to the insurance company’s acceptance of the risk; or (3) induced the
insurer to issue the policy where it would not have done so had it known the true
facts. However, Enterprise concedes that “section 3609 requires a finding of
intent to deceive before an insurer can avoid the policy . . . . [A] statement made
without intent to deceive is not a misrepresentation at all, and thus does not
invoke section 3609.” Hays , 105 F.3d at 588. Because Enterprise also admits
that Milford did not willfully or intentionally misrepresent his health history on
the application, Enterprise cannot rely on the affirmative defense of rescission.
II. Jury Instructions
Enterprise challenges the district court’s instructions to the jury regarding
legitimate disputes between an insurer and its insured, the definition of material
misrepresentations by an insured on an insurance application, and the imputation
of knowledge by an insurance agent to the insurance company.
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We review the district court’s refusal to give a particular jury instruction
for abuse of discretion. In assessing whether the court properly exercised
that discretion, a reviewing court must examine the instructions as a whole
to determine if they sufficiently cover the issues in the case on the facts
presented by the evidence. The question of whether a jury was properly
instructed is a question of law, and thus, our review is de novo.
United States v. Voss, 82 F.3d 1521, 1529 (10th Cir.), cert. denied, 117 S. Ct. 226
(1996) (quoting United States v. Lee, 54 F.3d 1534, 1536 (10th Cir. 1995)).
A. Legitimate Disputes
The district court utilized the Oklahoma Uniform Jury Instruction (OUJI)
for bad faith when submitting the case to the jury. The instructions stated that the
jury could find bad faith if, inter alia, the insurer “had no reasonable basis” for
refusing the Policy. Enterprise complains that the jury instruction improperly
suggests that bad faith may occur even if a reasonable basis for refusing to pay
the claim might exist. Although Enterprise correctly reads the instruction, it does
not follow that the instruction failed correctly to state Oklahoma law. Bad faith
may be established by showing an “unreasonable” refusal to pay a claim, and the
instructions set forth three alternative scenarios which are deemed to be
unreasonable: (1) the insurance company “had no reasonable basis for the
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refusal,” (2) the insurance company did not perform a proper investigation, or (3)
the insurance company did not evaluate the results of the investigation properly.
As we pointed out earlier, merely because there is a reasonable basis that an
insurance company could invoke to deny a claim does not necessarily immunize
the insurer from a bad faith claim if, in fact, it did not actually rely on that
supposed reasonable basis and instead took action in bad faith. Timberlake, 71
F.3d at 343. Because the jury instruction correctly stated the applicable law, we
review the instruction for abuse of discretion in the particulars of its wording.
We do not believe that the use of the standard Oklahoma instructions for bad faith
cases constitutes an abuse of discretion.
B. Material Misrepresentations and Rescission
The district court quoted verbatim the language of the Oklahoma statute
regarding an insurer’s ability to rescind an insurance contract to instruct the jury
on the affirmative defense of rescission. See Okla. Stat. tit. 36, § 3609(A) (1990)
(allowing rescission where applicant misrepresents material facts on an insurance
application). Enterprise contends that the court also should have included an
instruction quoting a Tenth Circuit case defining the term “material” for the
purposes of instructing the jury how to identify what constitutes a material
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misrepresentation on an insurance application. 6 Enterprise’s challenge to this jury
instruction is now moot given Enterprise’s admissions that the statute only applies
if the insured intentionally deceived the insurer and that Milford did not possess
any such intent in this case.
C. Imputed Knowledge
The district court instructed the jury using an OUJI instruction that notice
of information conveyed to the agent by the insured is imputed to the insurer
under agency principles. 7 Enterprise challenges this instruction in light of settled
law that a bad faith action against an insurance company cannot rest on the
actions of that company’s agent. See Oulds, 6 F.3d at 1440. As a result,
Enterprise complains, the instruction misstated the law by allowing the jury to
find that Enterprise acted in bad faith based on knowledge it should have had
6
Specifically, Enterprise wished to quote Long v. Insurance Co., 670 F.2d
930, 934 (10th Cir. 1982), as follows: “A misrepresented fact is material if a
reasonable insurance company in determining its course of action would attach
importance to the fact misrepresented.”
7
The instructions read as follows:
KNOWLEDGE OF AGENT IMPUTABLE TO PRINCIPAL
Knowledge, or notice possessed by an agent while acting within the
scope of his authority, is the knowledge of, or notice to, his principal.
ACTS OF AN AGENT AS ACTS OF PRINCIPAL
Nancy Sidler was the agent of defendant, Enterprise Financial Group,
Inc., at the time she sold the insurance policy to plaintiff’s husband,
Milford Vining. Therefore, an act or omission of Nancy Sidler within the
scope of her authority at the time was in law the act or omission of
defendant, Enterprise Financial Group, Inc.
. (Appellant App. Vol. III at 773 & 774).
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because of information communicated to Sidler by Milford about his condition.
However, Vining never introduced any testimony regarding Milford’s disclosures
to Sidler. In fact, Vining concurred in Enterprise’s Motion in Limine to exclude
as hearsay any evidence regarding communications between Milford and Sidler.
As a result, Sidler’s knowledge of Milford’s condition was never at issue at trial.
Vining’s claim rests on her showing that Enterprise operated a bad faith insurance
scheme and denied her claim as a matter of course without any investigation or
justification. Sidler’s knowledge is irrelevant to that showing. In other words,
even if the instruction was in error, it could not have affected the verdict, and
Enterprise was not prejudiced thereby. 8 See Osteguin v. Southern Pac. Trans.
Co., ___ F.3d ___, 1998 WL 257224, at *2 (10th Cir. May 21, 1998); see also
Fed. R. Civ. P. 61 (the court “must disregard any error or defect . . . which does
not affect the substantial rights of the parties”).
8
Enterprise also cannot complain about any prejudicial effect of the jury
instruction on its claimed rescission defense because, as discussed above, it has
conceded that defense away on appeal.
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III. Remittitur on Damage Award
Enterprise challenges the damages awarded to Vining as excessive and as
lacking sufficient evidentiary support. 9 First, we review a damage award
challenged on the basis of insufficient evidence under a clearly erroneous
standard, “viewing the evidence in the light most favorable to the prevailing
party.” Rainbow Travel Serv., Inc. v. Hilton Hotels Corp., 896 F.2d 1233, 1239
(10th Cir. 1990). We affirm the judgment below if there is substantial evidence
tending to support the jury’s damage award. Rainbow Travel, 896 F.2d at 1239.
Second, we review for “manifest abuse of discretion” a court’s disposition of a
motion for remittitur or new trial on damages to reduce an excessive award.
Malloy v. Monahan, 73 F.3d 1012, 1017 (10th Cir. 1996). The award must be so
excessive that it shocks the judicial conscience and raises “‘an irresistible
inference that passion, prejudice, corruption, or other improper cause invaded the
trial. . . .’” Fitzgerald v. Mountain States Tel. & Tel. Co., 68 F.3d 1257, 1261
(10th Cir. 1995) (quoting Malandris v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 703 F.2d 1152, 1168 (10th Cir. 1981)).
9
Enterprise sought a remittitur of not less than $350,000 in actual
damages, which would reduce the actual damages to $50,000 and consequentially
also reduce the punitive damages, which the district court ruled could not exceed
actual damages, to $50,000.
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Given the special nature of an insurer’s relation to its insureds, recovery for
mental suffering in a bad faith insurance claim does not require either severe
mental distress or outrageous conduct. See Timmons v. Royal Globe Ins. Co.,
653 P.2d 907, 916 (Okla. 1982). Vining testified at trial regarding the distress
she experienced as a result of Enterprise’s conduct towards her during the three
years she spent fighting the insurance company over the claim. Such evidence is
sufficient in a bad faith claim to support an award for emotional distress.
In addition, $400,000 for mental pain and suffering, financial losses,
embarrassment, and loss of reputation in the context of bad faith insurance claims
is not excessive on this record. See, e.g. Buzzard, 824 P.2d at 1116 (noting that
the district court awarded $200,000 for mental distress caused by delay in
withholding a $10,000 insurance payment over seven and one half months).
Enterprise also claims in the alternative that the jury verdict was the result
of undue passion and prejudice based on its consideration of certain evidence
erroneously admitted by the district court. Because we do not believe the district
court abused its discretion on the challenged evidentiary rulings (see discussion
below), we reject Enterprise’s prejudice claim. In addition, Enterprise did not
contest the punitive damage award directly. Rather, Enterprise sought to reduce
the amount of punitive damages by seeking a reduction in actual damages, noting
that the district court limited punitive damages to an amount not to exceed actual
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damages. Because we uphold the $400,000 actual damage amount, the $400,000
in punitive damages does not exceed actual damages and need not be adjusted.
Therefore, by affirming the actual damage award, we also necessarily affirm the
punitive damage award.
IV. Evidentiary Rulings
Enterprise appeals a number of the district court’s rulings admitting various
evidence unfavorable to Enterprise, contending that the evidence unfairly
poisoned the well against it. We review a district court’s ruling on the admission
or exclusion of evidence for abuse of discretion. See Cartier v. Jackson, 59 F.3d
1046, 1048 (10th Cir. 1995).
A. Market Conduct Examination Report
The district court allowed into evidence the 1992 Market Conduct
Examination Report (the “Report”) prepared by the Oklahoma Insurance
Department concerning Enterprise’s business practices. Enterprise challenges the
admission of the evidence on both hearsay and relevance grounds. Enterprise
argues that a report prepared for a state agency does not meet the hearsay
exception in Fed. R. Evid. 803(8)(C) for factual findings resulting from an
investigation made pursuant to authority granted by law unless and until the
agency actually adopts the findings in the report. Specifically, Enterprise quotes
Brown v. Sierra Nevada Mem’l Miners Hosp. 849 F.2d 1186 (9th Cir. 1988):
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“where ‘a staff report is submitted to a commission or other public agency
charged with making formal findings, only those factual statements from the staff
reports that are approved and adopted by the agency will qualify as 803(8)(C)
findings.’” Id. at 1189 (quoting Zenith Radio Corp. v. Matsushita Elec. Ind. Co.,
505 F. Supp. 1125, 1145 (E.D. Pa. 1980)); see also City of New York v. Pullman,
Inc., 662 F.2d 910, 914-15 (2d Cir. 1981) (interim reports subject to revision and
review, tentative results of an incomplete staff inspection, and preliminary
recommendations not yet accepted or adopted by the agency do not constitute
factual findings under Rule 803(8)(C)).
Enterprise concludes that the agency did not adopt the Report in this case
because the Oklahoma Insurance Commissioner subsequently issued an Order
with respect to Enterprise following the Report. The Order states that “the
violations described herein at paragraph 7 (Findings of Fact) shall be incorporated
into the examination Report as if expressly set forth therein, and shall constitute
the only legal violations set forth in the Examination Report.” However, the
Order also states under a section entitled “Conclusions of Law” that “the
Examination Report of Enterprise Life Insurance Company shall be and hereby is
adopted as modified in this Order by the Insurance Commissioner, pursuant to 36
O.S. § 309.4(C) (Supp. 1992), with actions to be taken by Enterprise Life
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Insurance Company to cure the violations noted therein.” In addition, the Report
was attached and incorporated into the Order as “Exhibit A” of the Order.
Just because the Order did not characterize all of Enterprise’s business
practices documented in the Report as legal violations does not mean that the
Order did not incorporate the factual findings contained in the Report. Instead, a
more reasonable interpretation is that the Order relies on and adopts all of the
factual findings in the Report but only characterizes certain of those findings as
constituting a violation of law. Moreover, Enterprise does not dispute and indeed
fully supports the position that the Order was admissible, arguing only that the
Order and not the Report should have been admitted. Because the Report is
attached and incorporated by reference into the Order, the Report would have
been properly admitted as part of the Order even if the Report by itself were
inadmissible.
On the question of relevance, Enterprise claims the Report was not relevant
because the evidence it revealed regarding Enterprise’s general conduct was not
specific to this case. Enterprise also argues that the Report unfairly prejudiced
the jury against it. Determinations of relevance and prejudice under Rule 403 lie
within the discretion of the district court. See United States v. Wacker, 72 F.3d
1453, 1468-69 (10th Cir. 1995), cert. denied, 117 S. Ct. 136 (1996). Vining
sought to prove that Enterprise engaged in a pervasive, consistent pattern of
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abusive rescissions. Such evidence is clearly relevant to the question of how
Enterprise acted in this case under Federal Rule of Evidence 406 (habit). While
the evidence may have worked to prejudice the jury against Enterprise, such
prejudice did not substantially outweigh the relevance of the evidence to the
inquiry of Enterprise’s general business practices. Thus, we find that the district
court did not abuse its discretion by admitting the Report into evidence.
B. Expert Witness
Enterprise challenges the district court’s decision to allow Hammond to
testify as an expert witness. The admission of expert testimony is left to the
sound discretion of the trial court. See Daubert v. Merrell Dow Pharmaceuticals,
Inc., 509 U.S. 579 (1993). Enterprise’s main challenge to the admission of expert
witness Hammond’s testimony seems to stem from the fact that Hammond
routinely testifies in bad faith insurance cases. See, e.g. Timberlake, 71 F.3d at
345; Thompson v. State Farm Fire and Cas. Co., 34 F.3d 932, 941 (10th Cir.
1994). Enterprise also argues that Hammond’s testimony should have been
excluded because he made conclusions of fact properly reserved for the jury,
specifically his conclusion that Enterprise did not have appropriate grounds to
rescind the Policy. However, because the rescission defense is a moot point, we
do not see how Hammond’s testimony on that issue matters in this case. In
addition, this court in Thompson, 34 F.3d at 941, ruled that “it is plainly within
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the trial court’s discretion” to determine whether expert testimony is admissible
when the expert offers to testify on an issue that a jury is capable of assessing for
itself. Thus, the district court did not abuse its discretion by allowing Hammond
to testify.
C. Other Evidence
Enterprise challenges the introduction of Enterprise’s Training Manual (the
“Manual”) and the testimony of other Enterprise credit life insurance claimants on
grounds that such evidence was irrelevant, unduly prejudicial, and confusing
under Federal Rules of Evidence 403 & 404. Relevance and prejudice are matters
within the discretion of the district court. See Wacker, 72 F.3d at 1468-69.
Enterprise argues that the Manual should not have been admitted because Vining
did not show that Sidler, the agent in this case, ever read or even saw a copy of
the Manual. In addition, Enterprise contests the admissibility of the testimony of
other claimants. The other claimants testified about their purchase of life
insurance policies and the subsequent rescission of those policies by Enterprise
despite their disclosures to Enterprise agents concerning prior health problems.
Enterprise argues that such testimony was not relevant because Vining did not
show in this case that Milford actually disclosed his medical condition.
Nevertheless, Vining’s case of bad faith was based on demonstrating a
pervasive, consistent pattern of abuse by Enterprise. Clearly, the Manual and
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evidence regarding how Enterprise treated other claimants were all relevant to
that exercise. Such evidence is expressly allowed under Federal Rule of Evidence
406. The only impact such evidence might have had on the jury was to convince
them that Enterprise habitually denied claims in bad faith, precisely the point
Vining wished to prove. Allowing such evidence to be admitted, therefore, did
not constitute an abuse of discretion.
V. Additional Punitive Damages for Willful Conduct
Finally, we dispose of Vining’s cross-appeal. Vining argues that if the case
is retried for any reason, the district court should lift the limitation on punitive
damages imposed by the court on any jury award. Because we affirm the district
court’s denial of Enterprise’s motion for judgment as a matter of law, the cross-
appeal has become moot.
CONCLUSION
Vining presented sufficient, admissible evidence showing that Enterprise
willfully engaged in a bad faith, abusive scheme of issuing guaranteed insurance
policies and then routinely denying coverage to its insureds regardless of whether
it had reasonable grounds for the rescission. Vining also showed that Enterprise
acted unreasonably in this case and that such bad faith conduct caused her
emotional distress, pain, and anguish. Therefore, we AFFIRM the jury verdict
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finding that Enterprise acted in bad faith, AFFIRM the jury verdict awarding
damages to Vining, and REMAND for the entry of judgment consistent with this
opinion.
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