Mali v. Fed. Ins. Co.

• Citation: 720 F.3d 387
• Decision Date: 13 June 2013
• Docket Number: Docket Nos. 11–5413–cv (Lead); 12–0174–cv (XAP).
• Parties: Lucretia MALI, Estate of Frederick J. Mali, Plaintiff–Appellants–Cross–Appellees, v. FEDERAL INSURANCE COMPANY, Defendant–Appellee–Cross–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

720 F.3d 387

Lucretia MALI, Estate of Frederick J. Mali, Plaintiff–Appellants–Cross–Appellees,

v.FEDERAL INSURANCE COMPANY, Defendant–Appellee–Cross–Appellant.

Docket Nos. 11–5413–cv (Lead); 12–0174–cv (XAP).

United States Court of Appeals,Second Circuit.

Argued: Jan. 24, 2013.

Decided: June 13, 2013.

David N. Rosen, David Rosen & Associates, P.C., New Haven, CT, for Plaintiff–Appellants–Cross–Appellees.

Robert D. Laurie (Elizabeth F. Ahlstrand, on the brief) Seiger Gfeller Laurie, LLP, West Hartford, CT, for Defendant–Appellee–Cross–Appellant.

Before: LEVAL, RAGGI, LIVINGSTON, Circuit Judges.

LEVAL, Circuit Judge:

Plaintiffs Lucretia Mali and the estate of Frederick Mali (hereinafter “Plaintiffs” or “the Malis”) appeal from the judgment of the United States District Court for the District of Connecticut (Ellen Bree Burns, J.), entered after trial on the jury's verdict in favor of defendant Federal Insurance Company (hereinafter “Defendant,” the “insurer,” or “Federal”). The verdict and judgment denied the Malis indemnification under their insurance policy for the destruction of their barn by fire. The jury found the Plaintiffs had forfeited coverage under the terms of the policy by submitting fraudulent claims relating to the value of the barn and its contents. The Plaintiffs contend that the court abused its discretion in authorizing the jury to draw an adverse inference against them by reason of their failure to make disclosures demanded by the Defendant during the pre-trial discovery proceedings. Federal cross appeals, demanding attorney fees and the return of a partial payment it made to the Plaintiffs on their claim. On Plaintiffs' appeal, we find no error in the instruction given to the jury. As for Defendant's cross appeal, we conclude Federal's claims are either forfeited or without merit.

BACKGROUND

A. The Malis' claim for destruction of their barn

The Malis owned property in Winsted, Connecticut, which included a barn converted for use as a residence. On April 1, 2005, the barn was destroyed by fire. The barn and its contents were covered by an insurance policy issued to the Plaintiffs by Federal. The Malis filed a claim with Federal for the loss of the barn and its contents. The policy included a provision denying recovery in the event the insured commits fraud in the assertion of a claim.

In July 2005, the Malis submitted to Federal an estimate of their claim, showing a loss of $1.325 to $1.5 million. Federal made three payments to the Malis totaling $72,665.48, for the loss of books, jewelry, a piano, and other items. Subsequently, in support of their claim, the Malis submitted a sketch of the layout of the barn showing that it had fourteen rooms, including a second floor with four rooms and a bathroom, and four skylights on the roof. Federal questioned the validity of the sketch as well as other factual predicates of the Malis' estimate, such as copper gutters, pine hardwood floors in the living room, a Garland stove in the kitchen, and four refrigerators. Federal declined to make further payments.

B. The Malis' suit on the claim

In August 2006, the Malis brought this suit. During pre-trial discovery Federal demanded, inter alia, that the Plaintiffs produce the names of household help who could furnish information as to the layout and contents of the barn, as well as any photographs of the interior of the barn, and in particular of the second floor. The Malis responded that they had no photographs of the second floor. They also did not identify any household help. The Malis meanwhile increased their loss estimate to $2.299 million, based on their assertion that the barn contained $632,137.65 worth of ceramic tile.

At trial, Lucretia Mali testified, consistent with the Plaintiffs' earlier submission, that the barn had fourteen rooms, including four rooms on the second floor, and that the barn contained four skylights, ceramic tiling, a Garland stove, four refrigerators, a back room, and wide plank wood floors in the main living space.

Among the witnesses called by the Plaintiffs in support of their claim was Helaine Fendelman, an antiques appraiser whom Lucretia Mali had hired to estimate the value of various items that were allegedly destroyed in the fire. Fendelman testified that in the course of her work, she was shown photographs depicting both the items and the interior of the barn. Her direct testimony included the following:

Q: Do you recall what type of photographs you saw?

A: They were, you know, (indicating)—what is this—four-by-six photographs.

Q: Of what kind of things?

A: Of the fireplace of the living room, of the kitchen, of the patio, the hallway, the stairway, the upstairs.

Federal's cross-examination of Fendelman on the same day included the following:

Q: Now, I understand from what you said, you had a limited number of photographs to look at; am I correct?

A: Yes.

Q: And one of the photographs you referenced was of the upstairs?

A: Yes, sir.

....

Q: Okay. Do you remember any detail about that photograph of the second floor?

A: I remember generally. I do not remember details.

Fendelman's testimony that she was shown a photograph of the second floor was apparently contradictory to the Malis' earlier assertion during pre-trial discovery that they had no such photographs.

Lucretia Mali later testified that she did not possess any photographs of the second floor. She explained that she had provided Fendelman with photographs of items that were on the second floor at the time of the fire, but that those photographs had been taken long before the objects were moved to the barn, and did not show the barn's second floor.

After the parties rested, Federal moved for an adverse inference jury instruction as a sanction for the Plaintiffs' discovery misconduct, arguing that Fendelman's testimony showed that the Malis had withheld a photograph of the second floor of the barn. The Plaintiffs responded that Fendelman was mistaken in testifying that she had seen photographs of the upstairs of the barn. The Plaintiffs then sought leave to recall Fendelman to correct her testimony, asking alternatively that the court not give the requested adverse inference instruction,or that, if given, the instruction not state that the evidence “tended to show” that Plaintiffs withheld evidence. The court denied the Plaintiffs' application to recall Fendelman (in part because such testimony would not be appropriate rebuttal) and expressed the view that an adverse inference instruction was “appropriate,” explaining that “there is evidence, which, if believed by the jury, tends to show that there was a photo of the upstairs of the barn house, that such photo would be relevant to issues in the case and that such photo was in the exclusive possession and control of Lucretia Mali at the time when it was clear litigation was likely. Ms. Mali has failed to produce any such photo.”

On summation, both sides presented arguments concerning whether the jury should draw an inference against the Plaintiffs based on Fendelman's testimony that she saw a photograph of the upstairs of the barn. The Plaintiffs pointed out that the existence of an upstairs photograph had been expressly refuted by Lucretia Mali, and argued that no such photograph exists. Federal argued that the jury should credit Fendelman's testimony that she had been shown such a photograph, and on that basis should draw an adverse inference against the Plaintiffs to the effect that the upstairs of the barn consisted of only one room (and not four as the Plaintiffs contended).

In the course of its jury instructions, as part of the instruction on circumstantial evidence, the court charged the jury as follows (substantially in the form suggested by the Plaintiffs):

In this case, evidence has been received which the Defendant contends shows that a photograph exists or existed of the upstairs of what had been referred to as the barn house, but no such photograph has been produced. If you find that the Defendant has proven by a preponderance of the evidence, one, that this photograph exists or existed, two, that the photograph was in the exclusive possession of the Plaintiffs, and, three, that the non-production of the photograph has not been satisfactorily explained, then you may infer, though you are not required to do so, that if the photograph had been produced in court, it would have been unfavorable to the Plaintiffs. You may give any such inference, whatever force or effect as you think is appropriate under all the facts and circumstances.

The jury, as noted above, found for the Defendant Federal. On a Special Verdict form, the court asked the jury, “Do you find that the Defendant proved, by a preponderance of the evidence, that the Plaintiffs violated the fraud and misrepresentation clause of the Policy?” The jury answered, “Yes.”

Following trial, Federal moved for attorney fees and for equitable relief in the form of a refund of the $72,665.48 it had paid out to the Malis in September 2005. The court denied both motions. It determined that attorney fees were not appropriate because the alleged bad faith conduct was not sufficient to warrant fee shifting. As for the return of the moneys paid, the court concluded that Federal's claim should have been pled as a compulsory counterclaim and could not be brought as a post-trial motion.

DISCUSSION

A. The permissive adverse inference instruction was appropriate

The Malis contend the judgment should be vacated and a new trial ordered because the court imposed a sanction without first making the findings necessary to justify the sanction. Their argument is based on a faulty premise. The court did not impose a sanction on the Plaintiffs. It merely instructed the jury, as a part of its explanation of circumstantial evidence, on inferences the jury was free to draw depending on the jury's findings. The court was not required to make any predicate findings to give such an instruction.

The Malis correctly...