Wichita Firemen's Relief v. Kansas City Life Insurance

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT June 12, 2018
_________________________________
Elisabeth A. Shumaker
Clerk of Court
WICHITA FIREMEN’S RELIEF
ASSOCIATION,
Plaintiff - Appellant,
v. Nos. 17-3047 & 17-3128
(D.C. No. 6:11-CV-01029-KGG)
KANSAS CITY LIFE INSURANCE (D. Kan.)
COMPANY,
Defendant - Appellee.
_________________________________
ORDER AND JUDGMENT
_________________________________
Before MATHESON, PHILLIPS and MCHUGH, Circuit Judges.
_________________________________
These appeal concern a dispute about attorney fees and costs. They stem from a
breach of contract suit about insurance coverage and benefits.
In 2010, Captain Urban Eck, a firefighter for the City of Wichita, Kansas, suffered
an anatomical heart rupture while fighting a fire. After several weeks of worsening
conditions, he required surgery. Shortly after, he died due to complications from surgery.
Captain Eck was a member of Wichita Fireman’s Relief Association (“WFRA”),
an organization established to receive and disburse funds for the benefit of its members

This order and judgment is not binding precedent, except under the doctrines of law of
the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive
value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
and their beneficiaries under the Firefighters Relief Act, K.S.A. § 40-1701, et seq.
WFRA contracted with Kansas City Life Insurance Co. (“KCL”) for a life insurance
policy to benefit its members. As a named beneficiary, WFRA sued KCL for breach of
contract after KCL denied WFRA’s application for a $100,000 accidental death and
dismemberment (“AD&D”) benefit for Captain Eck. The district court granted summary
judgment to KCL, but the Tenth Circuit reversed and remanded. KCL offered to settle
under Federal Rule of Civil Procedure 68, but WFRA proceeded to trial and won a jury
verdict on the issue of coverage, entitling it to the value of the AD&D benefit plus
interest.
WFRA moved for attorney fees under K.S.A. § 40-256, which authorizes attorney
fees when an insurance company has denied a benefit “without just cause or excuse”—or
in “bad faith.” The magistrate judge held a bench trial on the motion and denied attorney
fees to WFRA. Both parties then filed bills of costs. KCL moved for post-settlement
offer costs, arguing under Rule 68 that WFRA had refused a settlement offer that was
worth more than its jury award. The magistrate judge granted costs to KCL and not to
WFRA.
WFRA now appeals the attorney fees and costs rulings. Exercising jurisdiction
under 28 U.S.C. § 1291, we affirm the denial of attorney fees to WFRA and the award of
post-settlement costs to KCL. First, because a reasonable person could have determined
that Captain Eck’s claim should be denied, there was “just cause or excuse” for KCL’s
denial and thus no basis for awarding attorney fees to WFRA under K.S.A. § 40-256.
2
Second, because KCL’s settlement offer to WFRA was valid under Rule 68, KCL was
entitled to costs.
I. BACKGROUND
A. Factual Background
1. The Insurance Contract and the AD&D Rider
WFRA’s group insurance policy with KCL included an AD&D rider. The rider’s
“Benefit” section provided that the AD&D benefit would be paid upon satisfactory proof
that:
(1) a loss “results directly and independently of all other causes from
accidental bodily injuries,”
(2) the “accident which caused the loss” happened while the person
suffering the loss was insured under the rider, and
(3) the loss happened within 180 days “after the accident.”
App. At 130. The terms “accident” and “accidental bodily injury” were not defined in
the policy or its rider.
The “Exclusions” section in the rider stated that:
“No amount will be payable for loss caused by, contributed to or resulting
from . . . (5) bodily or mental illness or disease of any kind, or medical or
surgical treatment of the illness or disease[.]” (“Exclusion 5”).
Id. at 131.
3
2. The Fire and Captain Eck’s Medical Condition
According to the magistrate judge, the parties “were essentially in agreement”
regarding the following description of Captain Eck’s medical condition:1
[Captain Eck] was in apparent good health with no history of
heart problems when, on December 13, 2009, he participated
in fighting a large fire. He exerted himself physically in that
activity, but there is no evidence this exertion was out of the
ordinary for a firefighter. Immediately following the fire on
December 13, he participated in routine medical monitoring.
He uncharacteristically required a longer time to return to
baseline vital signs. At his next duty shift on December 16,
2009, he reported feeling unusually tired and congested and
could not recover as he normally did after exertion. He told
others he felt he had never fully recovered from the
December 13th fire.
On December 18 and 19, 2009, Captain Eck sought medical
care for these and other progressive symptoms of shortness of
breath, chest tightness, and difficulty breathing while lying
flat. He visited his physician and a cardiac specialist.
Physicians concluded that Captain Eck had ruptured chordae
tendineae, which are the parachute-string-like structures
supporting a heart valve leaflet. This caused mitral valve
insufficiency, which required surgery. It was found that
Captain Eck had a pre-existing condition called myxomatous
degeneration, a progressive condition which compromises the
strength of the chordae. This condition, although
asymptomatic, predisposed his heart to the rupture suffered
when fighting the fire.
Captain Eck was placed on medication, hospitalized and
released, and surgery was scheduled for December 29, 2009.
He returned to the hospital to undergo surgery to repair the
1
On appeal, KCL contests the district court’s finding that “exertion while fighting
the fire” caused the chordal rupture, arguing that this is a “matter of opinion” rather than
a “‘fact’ that could be directly verified.” Aplee. Br. at 42-43. The parties do not
otherwise contest the district court’s factual findings.
4
rupture. During the surgery, the surgeon inadvertently kinked
an artery, which caused a heart attack. The heart attack
directly resulted in Captain Eck’s death. The physicians
concluded that the rupture of the chordae was an acute event
which happened as a result of extreme physical exertion while
fighting the fire. The documents included the death
certificate signed by his physician Dr. Koehler certifying that
the “manner of death” was “natural.” Dr. Koehler could have
chosen “accident” on that form.
Wichita Firemen’s Relief Ass’n v. Kansas City Life Ins. Co., 237 F. Supp. 3d 1135, 1137-
38 (D. Kan. 2017) (footnote omitted).
3. WFRA’s Submission of AD&D Claim
Shortly after Captain Eck’s passing, WFRA submitted a claim to KCL on his
behalf for the full amount of coverage under the policy—$100,000 for life insurance and
$100,000 for AD&D insurance. KCL’s senior claims examiner requested further
information from WFRA. In addition to the required insurance forms, WFRA responded
by providing a death certificate; a report from Dr. Timothy Koehler, Captain Eck’s
primary care physician; and a report from Dr. Paul Uhlig, his cardiologist.
a. Death certificate
The death certificate, signed by Dr. Koehler, listed the “Immediate Cause” of
death as “[m]assive acute myocardial infarct” from “[c]omplications from mitral valve
annulus placement.” App. at 7692. It said that “[s]evere mitral regurgitation aggravated
by smoke/chemical inhalation” necessitated the surgery. Id. Under “Manner of Death,”
the death certificate listed “Natural.” Id.5
b. Dr. Koehler’s report
Dr. Koehler’s report said that Captain Eck’s “extreme physical exertion” during
the firefight led to “damage to chordae structures.” App. at 3283. He also noted a
cardiac condition found during the examination of Captain Eck before the surgery—sinus
tachycardia—suggestive of a chronic heart issue.
c. Dr. Uhlig’s report
Dr. Uhlig’s report also identified exertion during the fire as the immediate cause of
the chordal rupture, which then caused the mitral valve prolapse. He noted that Captain
Eck had “myxomatous degeneration,” “a condition of weakening and elongation of heart
valve tissues,” which was found during surgery. App. at 3399. He stated, “[m]any
patients with myxomatous degeneration live normal lives despite this condition, however
rupture of chordae tendineae can happen. In the case of Captain Eck, myxomatous
degeneration was an unrecognized predisposing condition making rupture of the chordae
tendineae more likely.” Id. As the condition can be asymptomatic, Dr. Uhlig concluded
that the “rupture of Captain Eck’s chordae tendineae could [not] have been foreseen or
prevented.” Id.
4. KCL’s Denial of WFRA’s AD&D Claim
a. KCL committee
Upon receiving these documents, KCL promptly paid the $100,000 life insurance
benefit to WFRA. It decided the AD&D claim needed further review and convened a
committee consisting of (1) Dr. Charlotte Lee, KCL’s medical director; (2) Matthew
O’Connor, legal counsel; (3) Dale Dake, assistant vice president of new business; (4)
6
Anne Snoddy, vice president of claims; and (5) Donna Shields, manager of customer
service and claims.
The committee’s analysis of the AD&D claim focused on two key provisions in
the insurance policy described above: (1) the benefit description in the policy’s AD&D
rider, stating that benefits are payable when the loss “results directly and independently
of all other causes from accidental bodily injuries”; and (2) Exclusion 5 of the rider,
stating that “[n]o amount will be payable for loss caused by, contributed to or resulting
from: . . . bodily or mental illness or disease of any kind, or medical or surgical treatment
of the illness or disease.” App. at 130-31. KCL’s committee thus considered whether the
firefighting was the direct and independent cause of Captain Eck’s death and whether
other contributing illness or disease factors rendered the claim ineligible.
KCL had no official policies or guidelines to evaluate Captain Eck’s AD&D
claim. The committee met twice before unanimously denying it.2
2
The parties dispute what took place during the committee’s deliberations.
WFRA argues, based on witness testimony at trial, that the committee members were
inexperienced, only Dr. Lee consulted the medical record, Mr. O’Connor did not do
sufficient legal research, and the committee did not fully understand Dr. Lee’s
conclusions regarding the cause of Captain Eck’s death. See, e.g., Aplt. Br. at 10-14.
KCL argues that the committee members had significant relevant experience and
understood Dr. Lee’s conclusions. See, e.g., Aplee. Br. at 3-11. The magistrate judge, in
the attorney fees order, did not explicitly credit either account, finding them not relevant
to whether WFRA should be awarded attorney fees. Wichita Firemen’s Relief Ass’n, 237
F. Supp. 3d at 1141 . (“This case is [] not about a failure to perform an adequate fact
investigation. Plaintiff’s complaints concerning the quality of the factual investigation
are illogical in light of the fact, as recognized in Plaintiff’s memorandum, that KCL’s
medical director agreed with Captain Eck’s physicians on the key medical facts and on
causation.”) (citations and quotations omitted).
7
b. Dr. Lee’s statement
After the first meeting, Dr. Lee was asked to submit her written conclusions. She
prepared a “Medical Director Statement” on the “question of whether or not the deceased
died from an accidental cause of death.” App. at 7397, 7472. She recommended denying
Captain Eck’s AD&D claim because it did not satisfy the two provisions quoted above.
In her opinion, the surgical error made Captain Eck’s death ineligible for the AD&D
benefit:
Even though extreme exertion can contribute to rupturing of a
chorda in someone who has pre-existing valvular or coronary
artery disease, I do not consider his death as having been
caused by bodily injuries suffered while acting as a fire
fighter . . . [T]he fact that the immediate cause of death was
the heart attack that was suffered as a result of
compr[om]ising the coronary artery during surgical treatment
of his valve, this death is considered a direct result of that
surgery and hence is an excludable event.
Id. at 4709.3
3
Dr. Lee also stated that “[t]he [chordal] rupture was felt to have been acute and
likely a result of extreme exertion during his fire-fighting activities on December 13. I do
not have access to his medical records [covering the period] prior to his death, so will not
comment on his previous cardiac status.” App. at 4709. In her deposition, Dr. Lee stated
that she meant to say she did not have access to his medical records covering the period
“prior to the fire.” Id. at 2980.15. She did not use Captain Eck’s “previous cardiac
status” as a reason for denial in her letter, but noted “[t]here is reportedly a family history
of coronary artery disease. He was found at autopsy to have myxomatous degeneration
of the mitral valve, but it is not known whether this was known prior to death. Such a
change in the valve is not an acute change, rather is either present [at] birth or comes
about gradually over time.” Id. at 4709.
8
c. Mr. O’Connor’s role
Based on his legal and medical research, Mr. O’Connor concluded the claim
should be denied. At his deposition, he could not specify what sources he consulted or
weighed. Mr. O’Connor drafted the first denial letter to WFRA.
d. First denial letter
KCL’s first denial letter to WFRA cited the relevant portions of the rider and
stated its reasons to deny coverage: “the death was not caused directly and independently
of all causes from accidental injury as the insured’s underlying heart condition, as well as
circumstances surrounding the surgery, contributed to his death and therefore, the
applicable exclusions of the policy apply.” App. 2174. KCL gave WFRA 60 days to
appeal.
e. WFRA’s appeal and KCL’s second denial letter
WFRA appealed and provided further medical documentation. Mr. O’Connor, in
consultation with Ms. Snoddy and Ms. Shields, denied the appeal. The second denial
letter cited the two passages from the rider—the “direct and independent” requirement
and Exclusion 5—to support that “at least two other factors contributed to [Captain
Eck’s] death, precluding the payment of the ADB [(Accidental Death Benefit)]”:
(1) First, Mr. Eck suffered from an underlying medical
condition, namely myxomatous degeneration of the
mitral valve in his heart. Such a change in one’s heart
valve is not an acute change; rather, it is either present at
birth or comes about gradually over time. Indeed, Mr.
Eck may not have known that he suffered from this
underlying condition. This condition contributed to Mr.
Eck’s death. As a result, under the terms of the ADB
9
rider quoted above, KCL is not obligated to pay the ADB
benefits.
(2) Second, the actions of the surgeon in the attempted repair
of Mr. Eck’s degenerative heart condition appear to have
contributed to his death. Specifically, during the surgery,
Mr. Eck’s coronary artery was compromised causing him
to suffer a heart attack which contributed to his death.
The compromising occurred as a result of surgical
treatment of Mr. Eck’s underlying degenerative heart
condition. As your letter acknowledges, ‘[Eck]
ultimately died from complications arising from surgical
treatment of the physical injury he sustained fighting the
fire.’ As such, under the terms of the ADB rider quoted
above, KCL is not obligated to pay the ADB benefits.
App. at 4920-21 (formatting altered).
B. Procedural Background
1. Removal and Consent to Magistrate
WFRA sued in state court for breach of contract. KCL removed the case to
federal court based on diversity jurisdiction. See 28 U.S.C. §§ 1332, 1441. The parties
consented to the magistrate judge’s “conduct[ing] all proceedings in this case, including
trial, the entry of final judgment, and all post-trial proceedings.” App. at 175; see 28
U.S.C. § 636(c) (allowing parties to consent to having a United States magistrate judge
conduct proceedings and enter judgment).
2. KCL’s Rule 68 Settlement Offer
Under Federal Rule of Civil Procedure 68(a), “a party defending against a claim
may serve on an opposing party an offer to allow judgment on specified terms, with the
costs then accrued.” If the opposing party obtains a judgment “not more favorable than
10
the unaccepted offer,” it “must pay the costs incurred [by the offeror] after the offer was
made.” Fed. R. Civ. P. 68(d).
On October 10, 2011, KCL made the following Rule 68 offer of judgment to
WFRA: “(1) The principal amount of $101,000, such amount to include WFRA’s
request for attorneys’ fees; plus (2) Prejudgment interest . . . from January 25, 2010
through October 10, 2011, such interest being in the amount of $17,266.85; plus (3)
WFRA’s costs now accrued, not to include attorneys’ fees.” App. at 214.
WFRA moved to clarify KCL’s offer, asking for “a ruling by the court on the issue
of whether or not costs including attorneys’ fees pursuant to K.S.A. § 40-256, are fairly
and reasonably included in the offer.” App. at 178. The motion continued: “If the court
finds that they are, then plaintiff rejects the [offer]. If the court finds they are not, and
that the acceptance of the [offer] will result in a hearing on the reasonable amount of
costs to be awarded, including attorneys’ fees, then [WFRA] accepts the offer.” Id. at
178-79. In response to the motion, KCL explained that the $101,000 offer included any
attorney fees but did not include “costs.”4 The magistrate judge found KCL’s
explanation sufficiently clear. WFRA thus declined the offer.
3. Summary Judgment for KCL
Both parties filed cross motions for summary judgment. The magistrate judge
granted summary judgment to KCL, stating that the “undisputed material facts establish
4
KCL explained that the offer “pays a specified sum for [WFRA’s] claim for
breach of contract and request for attorney’s fees [clause 1] and then pays all of WFRA’s
non-attorney’s fees [clause 3] . . . .” App. at 241 (brackets altered).
11
that the decedent’s death did not ‘result directly and independently of all other causes
from accidental bodily injuries’ within the meaning of the policy coverage provision.”
Wichita Firemen’s Relief Ass’n v. Kansas City Life Ins. Co., No. 11-1029-KGG, 2014
WL 588064, at *1 (D. Kan. Feb. 14, 2014) (quoting insurance policy rider).
WFRA thus could not establish an “accident” or “accidental bodily injury”
“pursuant to the terms of the insurance contract.” Id. at *5 (capitalization altered).
“[T]here was no ‘accident’ as that term is defined by the relevant case law.” Id. at *8.
The magistrate judge said that, “[n]o matter how extreme the conditions [of
fighting the fire], the fact remains that [Captain Eck] was performing the job for which he
was trained and employed. By fighting a fire, [he] was not subjected to an ‘unexpected
event’ accompanied by a ‘manifestation of force.’” Id. at *9 (quoting the definition of
“accident” in Gilliland v. Ash Grove Lime & Portland Cement Co., 180 P. 793, 794 (Kan.
1919)).
Even taking WFRA’s view of the medical issues—that the Captain’s death “was
the result of an acute rupture of the chordae tendineae caused by extreme physical
exertion while fighting the fire,” id. at *4—the magistrate judge said there was no
“unexpected manifestation of force” like “a portion of the [building] structure
collaps[ing] on him or under him,” and there was thus no “accident” under Kansas law,
id. at *3.
4. Tenth Circuit Reversal
On appeal, this court reversed and remanded, concluding summary judgment was
inappropriate because “genuine issues of material fact exist as to whether the rupture of
12
chordal structures within Mr. Eck’s heart, brought upon by extreme exertion in fighting a
fire, constituted ‘accidental bodily injury.’” Wichita Firemen’s Relief Ass’n v. Kansas
City Life Ins. Co., 609 F. App’x 530, 535 (10th Cir. 2015) (unpublished).
5. Jury Trial
At trial after remand, the jury found for WFRA on the coverage issue, awarding it
the $100,000 AD&D benefit.
6. Post-Trial Orders on Attorney Fees and Costs
After the jury trial, WFRA moved for attorney fees under K.S.A. § 40-256,
arguing that KCL’s denial of Captain Eck’s claim was made in bad faith—“without just
cause or excuse.” The magistrate judge conducted a bench trial and denied WFRA’s
attorney fees motion. The court found KCL had just cause or excuse to deny coverage on
three “good-faith” grounds:
(1) Captain Eck’s loss does not qualify under the policy’s
“Benefits” section because the chordal ruptures leading to
his death are not an “accidental bodily injury.” Wichita
Firemen’s Relief Ass’n, 237 F. Supp. 3d at 1142.
(2) Captain Eck’s loss does not qualify under the policy’s
“Benefits” section because fighting the fire did not
“directly and independently” cause his death. Captain
Eck’s “predisposing and progressive condition
(myxomatous degeneration)” was also a cause. Id.
(3) Captain Eck’s loss triggers the policy’s “Exclusion 5,”
since the progressive deterioration of his heart structures
is a “bodily . . . illness or disease” that contributed to or
caused the loss. Relatedly, the surgery to repair Captain
Eck’s heart was a “surgical treatment of the illness or
disease” that contributed to or caused the loss. Id. at
1142-43.
13
KCL filed a bill of costs requesting post-settlement-offer costs under Federal Rule
of Civil Procedure 68(d) because its unaccepted offer was more favorable to WFRA than
the final judgment. The court granted KCL’s motion, awarding it costs of $24,527.11.
II. DISCUSSION
The magistrate judge did not abuse his discretion when he (1) denied WFRA’s
motion for attorney fees under K.S.A. § 40-256 because a reasonably prudent person
facing the same facts as KCL could have denied Captain Eck’s AD&D coverage with just
cause, or (2) awarded post-offer-of-judgment costs to KCL because KCL’s Rule 68 offer
was not ambiguous or a sham.
A. Attorney Fees Under K.S.A. § 40-256
This section discusses whether the magistrate judge erred when he denied
WFRA’s motion for attorney fees under K.S.A. § 40-256. After describing our standard
of review and relevant legal background, we explain why the magistrate judge did not
abuse his discretion in deciding KCL had just cause to deny Captain Eck’s claim.
1. Standard of Review
We review the magistrate judge’s attorney fees decision for abuse of discretion.
We review the legal analysis de novo and factual findings for clear error. See Hofer v.
Unum Life Ins. Co. of Am., 441 F.3d 872, 884 (10th Cir. 2006) (applying this standard of
review to an attorney fees award under K.S.A. § 40-256 in a diversity case); see M.D.
Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753, 768 (10th Cir. 2009); Parks v. Am.
Warrior, Inc., 44 F.3d 889, 892 (10th Cir 1995). “Under the abuse of discretion standard,
the decision of a trial court will not be disturbed unless the appellate court has a definite
14
and firm conviction that the lower court made a clear error of judgment or exceeded the
bounds of permissible choice in the circumstances.” In re Nat. Gas Royalties Qui Tam
Litig., 845 F.3d 1010, 1017 (10th Cir. 2017) (quotation omitted).
2. K.S.A. § 40-256 and Reasonable Person Standard
Under Kansas law, courts determine whether an insurance company has denied a
claim in bad faith under a reasonable person standard.
K.S.A. § 40-256 provides that after a judgment for policy coverage against an
insurance company, “if it appear[s] from the evidence that such company . . . has refused
without just cause or excuse to pay the full amount of such loss, the court . . . shall allow
the plaintiff a reasonable sum as an attorney’s fee for services in such action, including
proceeding upon appeal, to be recovered and collected as a part of the costs.” (emphasis
added).
“[T]he phrase ‘without just cause or excuse’ as used in K.S.A . . . 40-256, means a
frivolous and unfounded denial of liability.” Koch v. Prudential Ins. Co. of Am., 470
P.2d 756, 760 (Kan. 1970); see also Clark Equip. Co. v. Hartford Accident & Indem. Co.,
608 P.2d 903, 907 (Kan. 1980) (“[D]enial of liability must be patently without any
reasonable foundation [to find for attorney fees.]”); Allied Mut. Ins. Co. v. Gordon, 811
P.2d 1112, 1125 (Kan. 1991) (“Denial of payment that is not arbitrary, capricious, or in
bad faith will not give rise to an award of attorney fees.”) (citation omitted).
“[I]f there is a bona fide and reasonable factual ground for contesting the insured’s
claim, there is no failure to pay ‘without just cause or excuse.’” Koch, 470 P.2d at 760;
accord Glickman, Inc. v. Home Ins. Co., 86 F.3d 997, 1002 (10th Cir. 1996) (“There can
15
be no dispute that under Kansas law the accepted test for determining the existence of
‘just cause or excuse’ for purposes of § 256 is whether the insurance company’s refusal is
based on a bona fide controversy over policy coverage.”). “[W]hether there was any
reasonable ground for contesting the claim depends upon circumstances existing when
payment is withheld or liability is declined.” Koch, 470 P.2d at 760.
The Kansas courts have recognized an objective reasonable person test to
determine whether an insurance company has denied a claim without just cause or
excuse. “The circumstances confronting the insurer when payment of loss is denied
determines the question, and the circumstances are to be judged as they would appear to a
reasonably prudent man having a duty to investigate in good faith and to determine the
true facts of the controversy.” Watson v. Jones, 610 P.2d 619, 626 (Kan. 1980); see also
Friedman v. Alliance Ins. Co., 729 P.2d 1160, 1167 (Kan. 1986). “An imperfect
investigation, standing alone, is not sufficient cause for recovery [of attorney fees] where
the insurer, in fact, has objectively reasonable basis to deny coverage.” Wiles v. Am.
Family Life Assur. Co., 350 P.3d 1071, 1082 (Kan. 2015) (quoting Steven Plitt et al., 14
Couch on Insurance § 207:25 (3d ed. 2005)).
Whether there was a reasonable and non-frivolous ground for denying a claim is
“not necessarily determined by the outcome of the ensuing litigation.” Brown v.
Combined Ins. Co. of Am., 597 P.2d 1080, 1084 (Kan. 1979) (quoting Koch, 470 P.2d at
760). “The statutory penalty is not to be imposed merely for the reason that it turned out
at the trial in the district court, there was, in reality, no reason for denial of liability.”
Koch, 470 P.2d at 760.
16
In sum, so long as an insurer had a reasonable, non-frivolous basis to deny a claim
for insurance benefits, it cannot be liable for attorney fees under K.S.A. § 40-256.
3. Analysis
As set forth above, the district court listed three grounds to deny WFRA’s motion
for attorney fees. We need rely only on the following ground to affirm: A reasonable
person could have denied the AD&D claim based on Captain Eck’s pre-existing
condition having contributed to his cause of death. This ground is neither “frivolous,”
Koch, 470 P.2d at 760, nor “patently without any reasonable foundation,” Clark Equip.
Co., 608 P.2d at 907, nor “arbitrary, capricious, or in bad faith,” Allied Mut. Ins. Co., 811
P.2d at 1125.
a. Preexisting condition as contributing cause
According to the magistrate judge, the parties agreed that “Captain Eck had a pre-
existing condition called myxomatous degeneration, a progressive condition which
compromises the strength of the chordae.” Wichita Firemen’s Relief Ass’n, 237 F. Supp.
3d at 1138. This condition “predisposed his heart to the rupture suffered when fighting
the fire.” Id. Even though the “physicians concluded that the rupture of the chordae was
an acute event which happened as a result of extreme physical exertion while fighting the
fire,” id., a reasonable person could conclude the preexisting condition contributed to the
rupture.
The preexisting condition weakened Captain Eck’s chordae, making them more
prone to rupture. A “reasonably prudent man,” Watson, 610 P.2d at 626, could determine
that (1) Captain Eck’s loss did not result “directly and independently of all other causes,”
17
as required by the policy’s benefit definition; or (2) Captain Eck’s claim was ineligible
under Exclusion 5 because his preexisting condition was a “bodily . . . illness or disease”
that contributed to the loss.5
The magistrate judge’s rejection of WFRA’s attorney fees motion was not an
abuse of discretion. The court did not make a “clear error of judgment” or “exceed[] the
bounds of permissible choice in the circumstances” in finding that KCL had “just cause
or excuse” for its coverage denial. In re Nat. Gas Royalties, 845 F.3d at 1017.6
5
As Watson explains, the reasonable person standard is not tied to the insurer’s
rationale to deny a claim. 610 P.2d at 626. Although KCL, in its two denial letters,
justified its denial on much the same basis we identify here, the test is what a reasonable
person could have decided.
6
WFRA points out that Kansas courts, when reading insurance policies requiring
coverable accidents to be the sole cause of a loss, do not always read exclusivity in the
strict sense. Aplt. Br. at 42. In Continental Casualty Co. v. Colvin, 95 P. 565 (1908), the
Kansas Supreme Court held that:
An injury may be said to be the sole producing cause of death
when it stands out as the predominating factor in the
production of the result. It need not be so violent and virulent
as to have necessarily and inevitably produced the result
regardless of all other circumstances and conditions. The
active efficient cause that sets in motion a train of events
which bring about a result without the intervention of any
force from a new and independent source may be regarded as
the direct and proximate cause.
Id. at 569 (emphasis added). Under this view, it is still reasonable to conclude that
Captain Eck’s “accidental bodily injury” did not occur “directly and independently of all
other causes.” It is not frivolous to determine that Captain Eck’s acute chordal rupture
during the firefighting was not the “predominating factor” in his death, given that his
preexisting condition made him vulnerable to the rupture.
18
b. WFRA’s arguments
WFRA’s arguments that KCL denied coverage in bad faith based on Captain
Eck’s preexisting condition are unavailing.
i. KCL knowingly included false statements in its denial letters
WFRA asserts that the magistrate judge’s order rejecting its attorney fees motion
“contravenes Kansas law” because the order credited “facts that . . . [KCL] knew to be
untrue at the time of the denial.” Aplt. Br. at 26. It alleges that the magistrate judge
could not find “just cause or excuse” based on KCL’s statements in its denial letters
because, according to WFRA, KCL knew its statements were false. WFRA argues the
committee understood, based on Dr. Lee’s written opinion, that an acute event—Captain
Eck’s physical reaction while firefighting—caused Captain Eck’s death, not the
preexisting condition.
This argument fails because the test is not what the committee may have
understood but what a reasonably prudent person in the insurer’s position could have
decided based on the medical evidence presented to KCL. Moreover, assuming an acute
event (the chordal rupture) caused Captain Eck’s death, it would still be reasonable to
conclude that the preexisting condition was also a contributing cause.
ii. The KCL committee’s investigation was deficient
WFRA contends that KCL used substandard methods to evaluate the claim,
including lack of formal guidance or expertise, and that these deficiencies (1) cannot
satisfy the “good faith” investigation requirement articulated in Foster v. Stonebridge Life
19
Insurance. Co., 327 P.3d 1014 (Kan. Ct. App. 2012), see Aplt. Br. at 40-41; and (2) ran
afoul of Kansas public policy, id. at 47-49.
The KCL committee’s alleged mistakes do not warrant attorney fees for WFRA.
“An imperfect investigation, standing alone, is not sufficient cause for recovery [of
attorney fees] where the insurer, in fact, has an objectively reasonable basis to deny
coverage.” Wiles, 350 P.3d at 1082. Here, as previously discussed, there was at least one
reasonable ground for denial.
WFRA’s public policy argument also lacks merit. It cites sections of the Kansas
Firefighters Relief Act and Kansas Administrative Regulations. See K.S.A. § 40-
1707(a); K.A.R. § 40-10-5. Neither addresses an insurer’s investigation of a claim.
WFRA also cites the Kansas Uniform Trade Practices Act (“KUTPA”), which states that
“failing to adopt and implement reasonable standards for the prompt investigation of
claims arising under insurance policies” is an “unfair method of competition and unfair
deceptive act or practice.” K.S.A. § 40-2404(9)(c). The magistrate judge found that
“there was no violation of those standards which was logically and [causally] related to a
bad faith denial of the claim or which is relevant to the bad faith issue in this particular
case.” Wichita Firemen’s Relief Ass’n, 237 F. Supp. 3d at 1143. We agree. WFRA does
not adequately brief an argument to hold otherwise, see Aplt. Br. at 48-49, particularly in
view of our foregoing conclusion that KCL had a reasonable, good-faith basis to deny the
AD&D claim.7
7
WFRA also argues the magistrate judge’s rejection of its attorney fees motion
“contravenes Kansas law” because it “credit[s] a legal argument not raised at the time the
20
****
The magistrate judge did not abuse his discretion when he denied WFRA’s motion
for attorney fees.
B. Costs
The magistrate judge did not abuse his discretion when he awarded costs to KCL
under Federal Rule of Civil Procedure 68. WFRA contends that costs should have been
denied because KCL’s Rule 68 settlement offer was either ambiguous or a sham. We
disagree because KCL sufficiently clarified its offer and the offer was not a sham.
1. Standard of Review
“We review an award of costs [under Rule 68(d)] for an abuse of discretion.”
Marx v. Gen. Revenue Corp., 668 F.3d 1174, 1178 (10th Cir. 2011), aff’d, 568 U.S. 371(2013).
2. Federal Rule of Civil Procedure 68
Federal Rule of Civil Procedure 68 states in relevant part:
(a) Making an Offer; Judgment on an Accepted Offer. At
least 14 days before the date set for trial, a party
defending against a claim may serve on an opposing
party an offer to allow judgment on specified terms, with
the costs then accrued . . . .
(b) Unaccepted Offer. An unaccepted offer is considered
withdrawn, but it does not preclude a later offer.
Evidence of an unaccepted offer is not admissible except
claim was denied.” See Aplt. Br. at 26. WFRA contends that KCL did not argue that
there was no “accident” until litigation ensued, so KCL cannot use the “no-accident”
ground as a good faith reason for its denial of Captain Eck’s AD&D claim. See Aplt.
Reply Br. at 7-8. Because we affirm on the different ground of the preexisting condition
constituting a contributing cause, we need not address this argument.
21
in a proceeding to determine costs . . . .
(d) Paying Costs After an Unaccepted Offer. If the judgment
that the offeree finally obtains is not more favorable than
the unaccepted offer, the offeree must pay the costs
incurred after the offer was made.
a. Ambiguous offers
Rule 68 does not apply when an offer is ambiguous. Arkla Energy Res. v. Roye
Realty & Developing, Inc., 9 F.3d 855, 867 (10th Cir. 1993) (“Roye cannot invoke Rule
68 with an ambiguous offer.”). “[An] offeree must know what is being offered in order
to be responsible for refusing the offer.” Id. Sufficient clarification of an ambiguous
offer, however, can make the offer valid. See Radecki v. Amoco Oil Co., 858 F.2d 397,
403 (8th Cir. 1988) (stating that an offeror may clarify an ambiguous Rule 68 offer);
Garayalde-Rijos v. Municipality of Carolina, 799 F.3d 45, 48 n.3 (1st Cir. 2015) (citing
Radecki for the proposition that “an offeror may in some circumstances clarify a [Rule
68] offer after making it.”).
b. Sham offers
Courts rarely have addressed whether there was a “sham offer” in the context of
Rule 68 litigation. WFRA cites one case related to sham offers, Delta Air Lines v.
August, 450 U.S. 346 (1981) (cited in Aplt. Br. at 55). But the Supreme Court in that
case mentions “sham offers” only to describe the Seventh Circuit holding below, and then
decided the case on a different ground. Id. at 355. The Seventh Circuit had held that a
defendant’s settlement offer of $500 was too low “to [have] justif[ied] serious
consideration by the plaintiff” and that only reasonable offers should count for Rule 68
22
purposes. August v. Delta Air Lines, Inc., 600 F.2d 699, 701 (7th Cir. 1979). The court
said “a minimal Rule 68 offer made in bad faith could become a routine practice by
defendants seeking cheap insurance against costs” and “damage[]” the “useful vitality” of
the Rule. Id. The Supreme Court did not adopt the Seventh Circuit’s reading of a
reasonableness requirement into Rule 68 to avoid sham offers in litigation. Instead, it
said: “it is clear that [Rule 68] applies only to offers made by the defendant and only to
judgments obtained by the plaintiff.” Delta Air Lines, Inc., 450 U.S. at 352. Delta does
not affect cases like the one here in which the plaintiff prevailed.8
3. Analysis
The magistrate judge did not abuse his discretion in awarding post-settlement-
offer costs to KCL. KCL’s Rule 68 offer was not ambiguous or a sham. WFRA does not
8
See also S.G.C. v. Penn-Charlotte Assocs., 116 F.R.D. 284, 287 (W.D.N.C.
1987) (in a case where plaintiff prevailed, defendant’s previous Rule 68 offer had not
been a “sham offer” because it was “made in good faith in an attempt to dispose of the
case on a reasonable basis” and plaintiff “had an inflated, arbitrary and completely
unrealistic view as to the value of the case”); Chesny v. Marek, 547 F. Supp. 542, 545-46
(N.D. Ill. 1982), rev’d on other grounds in 720 F.2d 474 (7th Cir. 1983), rev’d on other
grounds in 473 U.S. 1, 105 (1985) (citing Supreme Court’s Delta decision to call into
doubt a Rule 68 “sham offer” argument: “[a sham offer argument] is dubious at best in
light of the Supreme Court’s treatment of the issue. If a plaintiff wins at trial, but is
awarded a judgment for less than the earlier Rule 68 offer, it is really a contradiction in
terms to label that offer a sham”); Tompkins v. Rex, No. 92 C 0910, 1993 WL 553709, at
*1 (N.D. Ill. Dec. 28, 1993) (unpublished) (citing the Supreme Court’s Delta holding for
the proposition that Rule 68 as written already guards against “sham offer[s]”).
23
otherwise contest on appeal the district court’s application of Rule 68(d) to award costs to
KCL.9
a. The offer was not ambiguous
In response to WFRA’s motion to clarify the offer, KCL did so to the magistrate
judge’s satisfaction and cured any ambiguity to make its offer valid under Rule 68.
WFRA mistakenly argues that an offer may never be clarified. See, e.g., Radecki,
858 F.2d at 403. Indeed, Arkla itself suggests otherwise. In Arkla, the offer was invalid
under Rule 68 because the offeror did not satisfy a clarification request. 9 F.3d at 867.
Here, KCL clarified its offer.
WFRA also contends that the clarified offer remained ambiguous, due to the
“internal inconsistency” as to whether attorney fees were included in KCL’s offer. Aplt.
Br. at 53. The magistrate judge did not err, however, when he found no inconsistency
after KCL’s clarification: “[KCL] explains that its offer ‘pays a specified sum for
[WFRA’s] claim for breach of contract and request for attorney’s fees [paragraph 1] and
then pays all of WFRA’s non-attorney’s fees [paragraph 3] . . . .’ This, in the Court’s
opinion, adequately explains any ambiguity in the offer that may have existed.” App. at
241. We agree there was no internal conflict or ambiguity in light of KCL’s explanation.
b. The offer was not a sham
WFRA argues that KCL’s offer was a sham because it
9
In particular, WFRA does not contest that the judgment it obtained was “not
more favorable than the unaccepted offer.” Fed. R. Civ. P. 68(d). We therefore do not
address that issue.
24
did nothing more than hedge against its downside risks.
[KCL] knew that its offer would not—and could not—be
accepted because, at the time it was made the legal fees
incurred by [WFRA] were nearly twice as much as the offer.
[KCL], therefore, risked nothing in order to claim the
avoidance of its costs should the jury—as it did—render a
verdict in the [WFRA’s] favor.
Aplt. Br. at 54.
WFRA misunderstands the risk calculus involved in a prejudgment offer. KCL
did not “risk[] nothing” by making its offer. Id. Indeed, it risked the prospect of having
its $101,000 settlement offer accepted when a jury might eventually have found in its
favor (meaning KCL would owe nothing to WFRA). Having put its money at risk, KCL
is entitled to the protection of the rule. That the jury ended up awarding WFRA $100,000
has no bearing on whether KCL’s prejudgment offer was a sham. WFRA’s argument on
this ground fails.
III. CONCLUSION
For the foregoing reasons, we affirm the magistrate judge’s orders on attorney fees
and costs.
Entered for the Court
Scott M. Matheson, Jr.
Circuit Judge
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