Northwestern Mutual Life Insur v. Richard Koch

FILED
NOT FOR PUBLICATION MAR 23 2011
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
NORTHWESTERN MUTUAL LIFE No. 10-35145
INSURANCE COMPANY,
D.C. No. 3:08-cv-05394-BHS
Plaintiff-counter-defendant -
Appellee,
MEMORANDUM *
v.
RICHARD L. KOCH,
Defendant-counter-claimant -
Appellant.
NORTHWESTERN MUTUAL LIFE No. 10-35185
INSURANCE COMPANY,
D.C. No. 3:08-cv-05394-BHS
Plaintiff-counter-defendant -
Appellant,
v.
RICHARD L. KOCH,
Defendant-counter-claimant -
Appellee.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Appeal from the United States District Court
for the Western District of Washington
Benjamin H. Settle, District Judge, Presiding
Argued and Submitted March 9, 2011
Seattle, Washington
Before: McKEOWN, FISHER, and GOULD, Circuit Judges.
This appeal arises from the rescission of Richard L. Koch’s three disability
insurance policies by Northwestern Mutual Life Insurance Company. While
investigating Koch’s claim for coverage, Northwestern Mutual discovered that
Koch had made false statements about past treatment for bipolar depression in
connection with his policy applications. Northwestern Mutual filed this action
seeking ratification of its decision to rescind Koch’s policies; Koch answered with
counterclaims for breach of contract, violation of Washington’s Insurance Fair
Conduct Act (“IFCA”), and bad faith. The district court granted motions by
Northwestern Mutual for summary judgment as to two of the policies. Then, at
trial, the district court granted a motion for judgment as a matter of law on Koch’s
IFCA and bad faith counterclaims. The jury returned a verdict in Koch’s favor on
the remaining claims, which related to one policy. Both parties appealed. We have
jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.
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I
We reject Koch’s challenge to the district court’s partial grant of summary
judgment in favor of Northwestern Mutual. Washington law permits rescission of
a disability insurance policy on account of oral false statements. Wash. Rev. Code
§ 48.18.090(1); see Cutter & Buck, Inc. v. Genesis Ins. Co., 306 F. Supp. 2d 988,
1001 (W.D. Wash. 2004). Koch argues that § 48.18.090(2) governs all statements
made in connection with disability insurance policies, requiring any actionable
misrepresentation to be in writing, but we read that subsection to govern only
statements made in writing on applications for life or disability insurance.
The district court also correctly held that Northwestern Mutual had
established the elements of materiality and deceptive intent because Koch did not
adduce sufficient evidence to show a genuine issue for trial. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). While the fact that an insured had
preexisting coverage when applying for new policies may, considered with other
evidence, support a finding that the insured’s misstatements were innocent, Kay v.
Occidental Life Ins. Co., 183 P.2d 181, 184 (Wash. 1947), this fact is not alone
sufficient to create a jury question, particularly where, as here, obtaining better
coverage gave the insured an incentive to lie, and a presumption is present that the
insured’s intent was deceptive, id. at 302.
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II
We reject Northwestern Mutual’s challenge to the district court’s rulings
regarding admissibility of evidence and jury instructions. The district court did not
abuse its discretion when it excluded evidence of its summary judgment ruling
while admitting evidence of the false statements at issue on summary judgment.
Although evidence of prior wrongs is normally admissible to show intent, Fed. R.
Evid. 404(b), it is inadmissible if it may be substantially more prejudicial than
probative, Fed. R. Evid. 403. See United States v. Curtin, 489 F.3d 935, 944 (9th
Cir. 2007) (en banc). Evidence of a trial judge’s interlocutory ruling may be
highly prejudicial, see Quercia v. United States, 289 U.S. 466, 470 (1933) (“The
influence of the trial judge on the jury is necessarily and properly of great weight
and his lightest word or intimation is received with deference, and may prove
controlling.”), and the district court did not abuse its discretion by excluding such
evidence here.
We need not decide if the district court erred by omitting a jury instruction
about a presumption of deceptive intent; any error was harmless. See Caballero v.
City of Concord, 956 F.2d 204, 206 (9th Cir. 1992) (“An error in instructing the
jury in a civil case requires reversal unless the error is more probably than not
harmless.”). Had the jury been instructed to determine whether Koch had
4
overcome a presumption of deceptive intent on Northwestern Mutual’s rescission
claim, the jury’s intent inquiry would have been substantially the same as it was for
Koch’s breach of contract claim. As to the breach of contract claim, the jury found
that Koch proved innocent intent.
III
We reject challenges by Koch and Northwestern Mutual to the district
court’s resolution of Northwestern Mutual’s motion for judgment as a matter of
law. The district court properly granted judgment as a matter of law on Koch’s
counterclaims for bad faith and violation of the IFCA. See Wash. Rev. Code
§ 48.30.015. At trial, Koch produced no evidence that Northwestern Mutual’s
decision to rescind Koch’s policies was based on an unreasonable interpretation of
the policies or controlling law. See Overton v. Consol. Ins. Co., 38 P.3d 322, 329
(Wash. 2002) (“If the insurer’s denial of coverage is based on a reasonable
interpretation of the insurance policy, there is no action for bad faith.”).
The district court correctly denied judgment as a matter of law on the
rescission and breach of contract claims. Koch’s testimony, in which he presented
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a plausible account of his innocent intent, provides an adequate evidentiary basis
for the jury’s verdict.1
IV
Finally, we reject Koch’s challenge to the district court’s denial of his
motion for Olympic Steamship attorneys’ fees. See Olympic S.S. Co., Inc. v.
Centennial Ins. Co., 811 P.2d 673, 681 (Wash. 1991) (“[A]n award of fees is
required in any legal action where the insurer compels the insured to assume the
burden of legal action, to obtain the full benefit of his insurance contract.”). The
district court did not abuse its discretion when it concluded that: (1) an award of
Olympic Steamship fees is an equitable remedy, Polygon Nw. Co. v. Am. Nat’l Fire
Ins. Co., 189 P.3d 777, 799 (Wash. Ct. App. 2008); (2) equitable remedies are not
available to parties with unclean hands, Income Investors v. Shelton, 101 P.2d 973,
1
The district court’s denial of judgment as a matter of law as to the 1994
policy is not inconsistent with it grant of summary judgment as to the 1992
policies. The grant of summary judgment was based on (1) Koch’s false statement
during the oral interview for which he had no plausible innocent account, and (2)
Koch’s failure to adduce sufficient circumstantial evidence of his innocent intent.
By contrast, at trial, Koch did present a plausible innocent account of his 1994
misstatements and Koch presented supporting circumstantial evidence that he had
not adduced at summary judgment, including that his answers to the insurance
application questions were consistent with his answers to questions in unrelated
patient questionnaires.
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974 (Wash. 1940); and (3) Koch, although prevailing in part of this action, was
adjudicated at summary judgment as having acted with unclean hands.
The parties shall bear their own costs on appeal.
AFFIRMED.
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FILED
Northwestern Mut. Life Ins. Co. v. Koch, 10-35145+ MAR 23 2011
MOLLY C. DWYER, CLERK
U .S. C O U R T OF APPE ALS
FISHER, J., dissenting in part:
I respectfully dissent from that portion of Section I of the disposition
affirming the district court’s partial grant of summary judgment in favor of
Northwestern Mutual. The district court’s conclusion, on summary judgment, that
there was no genuine issue of material fact as to Koch’s intent to deceive is in
tension with its later ruling on Northwestern Mutual’s motion for judgment as a
matter of law that there was sufficient evidence to support a jury finding in Koch’s
favor on that element. Koch already had insurance at the time he obtained the
1992 policies, creating a question of fact (and credibility) whether he had a motive
to deceive Northwestern Mutual. The jury should have been allowed to decide
whether Koch acted with deceptive intent in obtaining the 1992 policies, just as it
was regarding the 1994 policy. See Kay v. Occidental Life Ins. Co., 183 P.2d 181,
182 (Wash. 1947).
Accordingly, I would also remand for reconsideration Koch’s entitlement to
attorney’s fees (Section IV), in light of the incorrect summary judgment on the
claim for rescission of the 1992 policy.