Royal Maccabees Life Ins. Co. v. Choren

• Decision Date: 03 January 2005
• Docket Number: No. 03-1154.,No. 03-1142.,03-1142.,03-1154.
• Citation: 393 F.3d 1175
• Parties: ROYAL MACCABEES LIFE INSURANCE COMPANY, Plaintiff-Counter-Defendant — Appellant — Cross-Appellee, v. Stephen J. CHOREN, Defendant-Counter-Claimant — Appellee — Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1175

393 F.3d 1175

ROYAL MACCABEES LIFE INSURANCE COMPANY, Plaintiff-Counter-Defendant — Appellant — Cross-Appellee, v. Stephen J. CHOREN, Defendant-Counter-Claimant — Appellee — Cross-Appellant.

No. 03-1142.

No. 03-1154.

United States Court of Appeals, Tenth Circuit.

January 3, 2005.

COPYRIGHT MATERIAL OMITTED

Jean E. Dubofsky (and Dean Neuwirth, Burke & Neuwirth, P.C., Denver, CO, on the briefs), Jean E. Dubofsky, P.C., Boulder, CO, for Plaintiff-Counter-Defendant — Appellant — Cross-Appellee.

Thomas L. Roberts (and Laura E. Schwartz, with him on the briefs), Roberts, Levin & Patterson, P.C., Denver, CO, for Defendant-Counter-Claimant — Appellee — Cross-Appellant.

Before TACHA, Chief Judge, KELLY, and McCONNELL, Circuit Judges.

PAUL KELLY, JR., Circuit Judge.

Plaintiff-Appellant/Cross-Appellee Royal Maccabees Life Insurance Company ("Royal") appeals from a judgment on a jury verdict in favor of Defendant-Appellee/Cross-Appellant Dr. Stephen J. Choren on a bad faith breach of insurance contract counterclaim. The jury awarded $425,000 in damages. Our jurisdiction arises under 28 U.S.C. § 1291, and we affirm.

Background

Prior to the incidents giving rise to this suit, Dr. Choren engaged in the general practice of dentistry in Colorado. Beginning in 1994, he experienced hand numbness and other symptoms that were diagnosed as consistent with nerve abnormalities. Over time, these symptoms worsened. In February 1997, Dr. Choren lacerated his left index finger to the bone while removing packing materials from a chair, necessitating surgery to reattach a severed nerve. During subsequent examination, he was diagnosed as suffering from bilateral carpal tunnel syndrome, tremors, and neck and shoulder pain. Although he attempted to return to his practice, by April 1997 Dr. Choren reached the conclusion, after consultation with his physician, that he was no longer able to practice dentistry.

Prior to the onset of his disability, Dr. Choren purchased an "own occupation" disability income insurance policy from Royal. He subsequently exercised an option in the contract to purchase additional coverage on four occasions between 1984 and 1992. Dr. Choren also purchased a business overhead policy from Royal. Royal's policies provided that, if the insured could not perform the material and substantial duties of his profession, benefits would be payable over the insured's lifetime.

Dr. Choren submitted a claim under the policies for total disability in April 1997, dating back to February 1997. A neurologist subsequently certified Dr. Choren as disabled from practicing dentistry because his condition prevented him from safely performing fine motor work in a patient's mouth. In July 1997, Royal began making total disability payments of $9,000 per month to Dr. Choren.

In August 1997, the Colorado Division of Insurance forwarded to Royal an anonymous letter (written by Dr. Choren's office manager and dental assistant) alleging that Dr. Choren was engaged in insurance fraud. Receipt of the letter prompted a covert investigation of Dr. Choren's claims that culminated in the filing of this diversity suit in June 1999. During the course of its two-year investigation, Royal assembled evidence, including video surveillance of Dr. Choren windsurfing in Venezuela, that the insurer viewed as inconsistent with a claim of total disability. While engaging in this lengthy and expansive investigation, Royal at no time informed Dr. Choren that his claim was under investigation and continued to pay benefits under the policies.

In its complaint, Royal alleged that Dr. Choren had submitted a fraudulent insurance claim for total disability on the basis that he continued to practice dentistry after filing the claim and that he engaged in recreational activities that were inconsistent with his claim. Dr. Choren counterclaimed for breach of contract, bad faith breach of contract, outrageous conduct, violation of the Colorado Consumer Protection Act ("CCPA"), and institution of a vexatious action. The district court granted summary judgment to Royal on Dr. Choren's outrageous conduct and breach of contract counterclaims. The case was later tried in January 2002 and submitted to the jury on Royal's fraud claim and Dr. Choren's bad faith and CCPA counterclaims.

Through a series of special verdicts, the jury found that Dr. Choren was totally disabled under the terms of the policies and had not sought to defraud Royal. The jury further found that Royal acted in bad faith in the investigation and handling of Dr. Choren's claim and awarded him $225,000 in unspecified economic damages and $200,000 in unspecified non-economic damages. The jury rejected Dr. Choren's CCPA claim, finding that Royal did not engage in a deceptive trade practice. Following the jury's verdict, both parties filed several post-trial motions. The district court disposed of the motions in its Order on Post-Trial Motions of March 26, 2003, denying Royal's motion for a new trial on the issue of bad faith and dismissing Dr. Choren's counterclaim that the lawsuit was vexatious. The district court also denied Dr. Choren's motion to alter or amend the judgment to award him tort damages for the present value of future disability benefits. On March 28, 2003, the district court entered judgment on the jury verdicts and this appeal followed.

Discussion

On appeal, Royal asserts that the district court (1) erred in giving three bad faith jury instructions; and (2) committed plain error in failing to instruct the jury that (a) attorney fees were not compensable damages for bad faith breach of insurance contract, and (b) in the absence of other economic damages the jury could not award the insured non-economic damages for bad faith. Dr. Choren argues on cross-appeal that the district court erred (1) in treating the recovery of future benefits as a contract remedy (rather than as a remedy for bad faith breach of insurance contract), and (2) in excluding evidence on the CCPA claim of representations made at the time of sale of the insurance policies and by failing to instruct that post-sale claims handling could properly be considered as deceptive trade practices. We discuss each of these arguments in turn.

A. Bad Faith Jury Instructions

We review legal challenges to tendered jury instructions de novo. Garrison v. Baker Hughes Oilfield Operations, Inc., 287 F.3d 955, 964 (10th Cir.2002). We review a challenge to a district court's decision to give an instruction for abuse of discretion. Elliot v. Turner Constr. Co., 381 F.3d 995, 1004-05 (10th Cir.2004). Our inquiry in either case embraces a de novo review of the instructions in their entirety, judging not whether the instructions were flawless, but whether taken as a whole they accurately informed the jury of the issues before it and the governing legal principles by which to reach a decision. See Hardeman v. City of Albuquerque, 377 F.3d 1106, 1123 (10th Cir.2004). If having engaged in this inquiry we determine that a district court has tendered a legally erroneous instruction, we must reverse if we find that the jury might have based its decision on the instruction. Wankier v. Crown Equip. Corp., 353 F.3d 862, 867 (10th Cir.2003) (quoting Townsend v. Lumbermens Mut. Cas. Co., 294 F.3d 1232, 1242 (10th Cir.2002)).

1. Coverage Investigation and Notification of the Insured of Coverage Issues

This case was tried in January 2002. Under the then existing rule, "[n]o party may assign as error the giving or the failure to give an instruction unless that party objects thereto before the jury retires to consider its verdict, stating distinctly the matter objected to and the grounds of the objection." Fed.R.Civ.P. 51 (2002). The current rule retains the dual requirements of objecting on the record with sufficient specificity. See Fed.R.Civ.P. 51(c)(1) (2003). To preserve the objection, a party must proffer the same grounds raised on appeal, Reed v. Landstar Ligon, Inc., 314 F.3d 447, 452 (10th Cir.2002) (quoting Comcoa, Inc. v. NEC Tels., Inc., 931 F.2d 655, 660 (10th Cir.1991)), with sufficient clarity to render the grounds "`obvious, plain, or unmistakable.'" Comcoa, 931 F.2d at 660 (quoting Aspen Highlands Skiing Corp. v. Aspen Skiing Co., 738 F.2d 1509, 1514 (10th Cir.1984)). Absent a proper objection, a party's argument is deemed waved. Hardeman, 377 F.3d at 1118.

Dr. Choren originally proffered Instruction 26, which read:

Proceeding with a coverage investigation covertly to gain advantage over an insured is improper. When the interests of the insurer and the insured conflict as a result of the discovery of coverage issues, the insurer may not covertly build a case against its insured, but should promptly take steps to see that the insured is made fully aware of and understands the problem.

App. Vol. IV at 1066. At the jury instruction conference, Royal objected to this proposed instruction, stating: "It's not Colorado law. It doesn't state Colorado law. It shouldn't be given." App. Vol. XI at 3214. However, Royal conceded during the ensuing colloquy that "proceeding with [a] coverage investigation to gain advantage over an insured is improper" and that "the insurer has a duty to notify the insured once [a] problem is discovered by it as to coverage." App. Vol. XI at 3215-16. These two concessions provide the substantive basis for Instruction 43A as tendered by the court. While it is true that the court noted a continuing objection to "giving [Instruction 43A] at all," App. Vol. XI at 3218, we believe Royal has waived its legal argument, having conceded the validity of the duties encompassed by Instruction 43A. Accordingly, we review Royal's challenge to Instruction 43A for plain error. Hardeman, 377 F.3d at 1118.

To succeed on a plain error review, the challenging party must demonstrate (1) an error (2) that is plain, meaning clear or obvious under current law, and (3) affecting substantial rights. Id. If these elements are...