Suggs v. State Farm Fire and Cas. Co., s. 85-1637

Citation833 F.2d 883
Decision Date18 November 1987
Docket Number85-1853 and 85-2238,Nos. 85-1637,s. 85-1637
Parties24 Fed. R. Evid. Serv. 78 Jackie D. SUGGS and Debra Suggs, Plaintiffs/Appellees/Cross-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY and State Farm General Insurance Company, Defendants/Appellants/Cross-Appellees. Jackie D. SUGGS and Debra Suggs, Plaintiffs/Appellees, v. STATE FARM FIRE AND CASUALTY COMPANY and State Farm General Insurance Company, Defendants/Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Dick A. Blenden (Jeffrey B. Diamond, with him on the briefs), Paine, Blenden, & Diamond, Carlsbad, N.M., for plaintiffs, Jackie D. and Debra Suggs.

Eric S. Jeffries (Matthew P. Holt and Howard R. Thomas, with him on the briefs), Sager, Curran, Sturges & Tepper, P.C., Albuquerque, N.M., for defendants, State Farm Fire and Cas. Co. and State Farm Gen. Ins. Co.

Before MOORE, McWILLIAMS and STEPHEN H. ANDERSON, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

Defendants State Farm Fire and Casualty Company and State Farm General Insurance Company (collectively "State Farm") appeal the denial of various post-trial motions following a judgment entered on a jury verdict awarding plaintiffs Jackie and Debra Suggs $176,530.01 in damages arising from State Farm's denial of an insurance claim. 1 The Suggs appeal the judgment entered on the jury verdict finding for State Farm on the Suggs' punitive damages claim. In a separate case consolidated on appeal, State Farm appeals the district court's order awarding the Suggs attorney's fees of $180,631.64. We affirm in part, reverse in part and remand.

BACKGROUND

This case arises from the destruction by fire, on September 17, 1982, of a mobile home in which the Suggs had been living and which was insured by State Farm. The Suggs had wanted to purchase the home from Jackie Suggs' sister, Cynthia Hennington, but had been unable to obtain financing for the purchase. Accordingly, the Suggs agreed orally with Ms. Hennington to purchase the home and, in June, 1982 they became the co-obligors along with Ms. Hennington on a $13,500.00 note secured by the mobile home, with the understanding that the Suggs would refinance the home in early 1983 and pay Ms The fire occurred on September 17, 1982. Jackie Suggs testified at trial that he had been the last person in the mobile home, having left ten to fifteen minutes before the fire. He informed those investigating the fire that he thought he had turned off all electrical appliances in the mobile home before the fire.

Hennington $10,000. The Suggs then informed State Farm that they were the new owners of the home and they had their name substituted for Cynthia Hennington's as the named insureds. The insurance policy provided limits of $23,000 for the mobile home, $11,500 for its contents and $6,900 for additional living expenses incurred as a result of damage to or loss of the home. All payments relating to the mobile home, including insurance premiums, for the months of June through September, 1982 when it was destroyed by the fire, were made by Cynthia Hennington or Jackie Suggs' parents.

The Suggs presented a claim to State Farm for the loss of the mobile home and its contents, as well as for additional living expenses incurred because of the fire. State Farm paid $13,783.37 to the holder of the mortgage on the mobile home. It also paid the Suggs $1,086.62 for living expenses, but has refused to make any further payments.

After receipt of the Suggs' claim, State Farm hired a private investigating firm to investigate the fire. In addition, the State Fire Marshall's office investigated the fire. Both investigators concluded that the fire was intentionally set. 2 On March 9, 1983 the State Fire Marshall concluded that Jackie Suggs had intentionally set fire to the mobile home in order to obtain the insurance proceeds. Suggs was arrested and charged with arson and insurance fraud. A magistrate thereafter determined that there was probable cause to believe that Suggs was guilty of the charged offenses and bound him over for trial. State Farm denied coverage on March 25, 1983, on the grounds, among others, that the fire had been intentionally set by, or on behalf of, Suggs, that the Suggs did not have an insurable interest in the mobile home, and that the Suggs had made material misrepresentations to State Farm. 3 The determination to bind Suggs over for trial was affirmed by the Eddy County, New Mexico district court on March 28. On August 15, 1983 the Eddy County assistant district attorney entered a "nolle prosequi" in the criminal arson case against Suggs stating that the matter required "further investigation to insure that prosecution is appropriate." R. Vol. I at 355. Meanwhile, in May 1983, the Suggs hired two experts of their own who investigated the fire and concluded that the fire was probably caused by an electrical malfunction.

On September 9, 1983 Jackie and Debra Suggs filed a complaint in state court, subsequently removed to the United States District Court for the District of New Mexico, seeking payment of insurance benefits under their insurance contract with State Farm and alleging that State Farm had denied them benefits in bad faith. They sought the face amount of the policy with interest. They further alleged that State Farm had acted "willfully, with actual malice, wantonly and in bad faith," thereby entitling them to $500,000 in compensatory damages and punitive damages of $20,000,000.

R. Vol. I at 121-24. State Farm asserted numerous defenses, including arson, misrepresentation of material facts and lack of an insurable interest. In October, 1983 the Suggs presented the information derived from their own investigators to State Farm. State Farm then hired an electrical expert who concluded that the fire was not of electrical origin. At some point after the law suit was filed, the Suggs presented a settlement offer of $200,000, which State Farm declined.

At the conclusion of an eleven-day trial to a jury, the jury concluded that the Suggs were entitled to $26,530.01 for breach of the insurance contract and $150,000 in compensatory damages, based on its determination that State Farm had acted in bad faith. The jury declined to award any punitive damages. The district court denied State Farm's post-trial motions for judgment n.o.v., for a new trial and for a remittitur.

State Farm appeals, alleging that the jury award of $176,530.01 was unsupported by the evidence. It also argues that the district court erred in excluding certain testimony and in denying its motions for dismissal as to the punitive damages claim, for a directed verdict and judgment n.o.v. on the bad faith issue and for a new trial. The Suggs appeal alleging that the district court erred in instructing the jury that it could only award punitive damages if it found, in addition to bad faith, that State Farm acted in a malicious, willful, wanton or reckless manner. 4

After the appeals in this case were filed, the district court awarded the Suggs $180,631.64 in attorney's fees pursuant to N.M.Stat.Ann. Sec. 39-2-1, which permits an award of reasonable attorney's fees and costs to an insured if a court determines that the insurer acted unreasonably in failing to pay a claim. State Farm appeals that award.

Jurisdiction is based on diversity of citizenship. New Mexico law governs.

DISCUSSION

I.

State Farm challenges the sufficiency of the evidence supporting the award of $26,530.01 in contractual and $150,000 in compensatory damages. With regard to the $26,530.01 award for breach of contract, State Farm argues either that the award should be reversed in its entirety because the Suggs lacked any insurable interest in the mobile home and because the Suggs made material misrepresentations to State Farm or that it should be reduced. It thus challenges the denial of its motion for judgment n.o.v. or for a remittitur on the breach of contract claim. State Farm further argues that the trial court erred in refusing to find, as a matter of law, that State Farm had not acted in bad faith in denying the Suggs' claim. It accordingly challenges the denial of its motion for judgment n.o.v. on the $150,000 jury award predicated on a finding of bad faith. Finally, State Farm challenges the denial of its motion for a new trial.

"In reviewing the grant or denial of a motion for judgment n.o.v., 'we employ the same standard of review as does the trial court.' " Trujillo v. Goodman, 825 F.2d 1453, 1456 (10th Cir.1987) (quoting Ryder v. City of Topeka, 814 F.2d 1412, 1418 (10th Cir.1987)). The trial court should only grant a judgment n.o.v. "when the evidence so strongly supports an issue that reasonable minds could not differ." Ryder, 814 F.2d at 1418 (quoting Delano v. Kitch, 663 F.2d 990, 1002 (10th Cir.1981), cert. denied, 456 U.S. 946, 102 S.Ct. 2012, 72 L.Ed.2d 468 (1982)). We must view the evidence and all reasonable inferences to be derived from that evidence in the light most favorable to the party opposing the motion. Trujillo, 825 F.2d at 1456; Ryder, 814 F.2d at 1418; Brown v. McGraw-Edison Co., 736 F.2d 609, 613 (10th Cir.1984); Jamaica Time Petroleum, Inc. v. Federal

                Ins. Co., 366 F.2d 156, 159 (10th Cir.1966), cert. denied, 385 U.S. 1024, 87 S.Ct. 753, 17 L.Ed.2d 674 (1967).  The decision of a trial court to grant or deny a motion for a new trial will only be overturned on appeal upon a showing of a "clear abuse of discretion."    Trujillo, 825 F.2d at 1461;  United States v. Draper, 762 F.2d 81, 83 (10th Cir.1985);  United States v. Ramsey, 726 F.2d 601, 604 (10th Cir.1984). 5
                
A. Breach of Contract

In an action by an insured for failure to pay under an insurance contract "damages recoverable under this theory are those damages contemplated by the parties at the time of making the contract." State Farm General Ins. Co. v. Clifton, 86 N.M. 757, 527 P.2d 798, 799 (1974). The Suggs sought only the face amount of the...

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