Deland v. Old Republic Life Ins. Co.

• Decision Date: 24 April 1985
• Docket Number: No. 83-4010,83-4010
• Citation: 758 F.2d 1331
• Parties: , 17 Fed. R. Evid. Serv. 1306 Nile T. DELAND, Plaintiff-Appellant, v. OLD REPUBLIC LIFE INSURANCE COMPANY, Defendant-Appellee. C.A.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1331

758 F.2d 1331

1 Fed.R.Serv.3d 1277, 17 Fed. R. Evid. Serv. 1306

Nile T. DELAND, Plaintiff-Appellant, v. OLD REPUBLIC LIFE INSURANCE COMPANY, Defendant-Appellee.

C.A. No. 83-4010.

United States Court of Appeals Ninth Circuit.

Argued May 11, 1984.

Submitted May 21, 1984.

Decided April 24, 1985.

Noel H. Kopperud, Wasilla, Alaska, for plaintiff-appellant.

Matthew Peterson, Hughes, Thorsness, Gantz, Powell & Brundin, Anchorage, Alaska, for defendant-appellee.

Appeal from the United States District Court for the District of Alaska.

Before FLETCHER and FARRIS, Circuit Judges, and JAMESON, ^* District Judge.

JAMESON, Senior District Judge:

Nile T. DeLand appeals from a judgment, following a jury verdict, denying him coverage under a disability insurance policy issued by Old Republic Life Insurance Co. DeLand contends, inter alia, that the district court erred by instructing the jury in effect to interpret the contract. We agree that the district court erred but find that DeLand invited the error and therefore affirm.

I. Factual Background

On November 24, 1975, Nile T. DeLand, an employee of Johnson Fuel Service, injured his back while on the job. He was covered by a group disability policy procured by his employer from Old Republic Life Insurance Co. The parties agree that he was totally disabled as a result of his injury, that the policy covered his disability, and that he consequently received long-term disability payments under the policy until he returned to work on May 3, 1976. DeLand's attempt to work, however, proved unsuccessful. He alleges that "he was unable to perform the heavy lifting and pulling involved in his regular duties.... He encountered increasing pain and co-workers undertook many of his regular tasks." Nevertheless, DeLand received his regular full-time wages from May 3 until June 14, 1976 (approximately five weeks) when he stopped working. On July 9, he contacted Old Republic seeking resumption of his disability benefits.

In the meantime, the Old Republic policy had terminated on April 30, 1976, and a new policy issued by Equitable Life Assurance Co. had taken its place. According to the terms of the termination, Old Republic was not responsible for any new claims arising after April 30, 1976. The policy contained a clause, the center of this dispute, defining new periods of disability. ¹ When DeLand requested resumption of benefits on July 9, Old Republic treated the request as a new claim, but did not reject it immediately. Instead, it requested DeLand to have his physician complete a claim form. For a time DeLand chose to pursue his claim with Equitable. When he again sought coverage under the Old Republic policy, the company notified him on March 14, 1978 that it would deny his claim because the policy had terminated prior to his submission of the new claim.

II. Proceedings in District Court

On November 2, 1978 DeLand filed a complaint in Alaska state court against Old Republic, Equitable, and the administrator of the disability plans, Healy Petroleum Insurance Agency, Inc. The case was removed to federal court and the complaint was amended to allege, inter alia, that Old Republic had wrongfully denied coverage under the policy and had engaged in bad faith conduct "calculated to reduce or defeat plaintiff's rightful claims." DeLand's claims against Equitable and Healy were subsequently dismissed without prejudice.

Both parties moved for summary judgment on the coverage issue. The district court initially granted Old Republic's motion but later vacated its order to permit DeLand additional time to oppose the motion. DeLand argued below, as he does here, that the disputed clause defining separate periods of disability "creates a presumption of one, not two, periods of disability" and is "designed to prevent an insured person from collecting the maximum benefit twice by returning to work briefly, though disabled, leaving work, and then claiming that a second period of disability has commenced...." Old Republic argued that the policy language unambiguously provides "that the insured may not claim benefits for an earlier disability period where he has returned to his regular job or taken any other occupation for wages or profit for a period of more than three weeks." Both parties attempted to rely on controlling Alaska law governing the interpretation of insurance policies, and each moved the court to construe the language of the policy as a matter of law. On October 23, 1981, however, the district court denied both motions because it found "that questions of fact exist regarding both motions for summary judgment." Specifically, the court held:

Alaska law, which must be applied in this diversity of citizenship case, establishes that insurance contracts are to be construed to provide coverage a layman would reasonably expect. Further, "[i]t is not required that ambiguities be found in the policy language as a condition precedent for such construction." Mr. DeLand's reasonable expectations regarding insurance coverage in light of his attempt to resume employment, involve questions of fact.

(citations omitted).

Old Republic moved for reconsideration of the court's order on November 12 and DeLand filed a written opposition to the motion. The court denied Old Republic's motion and its subsequent motions for summary judgment and reconsideration, each of which DeLand opposed.

The case was tried between February 7 and 15, 1983. The court instructed the jury on "[c]ertain principles and rules of law govern[ing] the general interpretation of the terms of an insurance policy." In particular, the court gave instruction No. 17 which reads:

If you find that Mr. DeLand's reasonable expectation at the time he attempted to return to work was that his disability insurance benefits would be available and continue then you must find that Mr. DeLand is entitled to exactly those benefits, and all of those benefits, that he reasonably expected were provided by his Old Republic disability insurance policy.

DeLand did not object to this pattern of jury instruction which in effect directs the jury to interpret the policy. The jury returned a verdict for Old Republic. Alleging error in submitting the interpretation of the policy to the jury, DeLand moved alternatively for judgment notwithstanding the verdict or a new trial. The court denied the motion in part because it was "unable to conclude that there is only one reasonable conclusion regarding the verdict" and because "plaintiff did not object to jury instruction # 17, which allowed the jury to determine the factual question surrounding plaintiff's reasonable expectation regarding insurance coverage."

III. Contentions on Appeal

DeLand contends that the district court erred in (1) permitting the jury to interpret the contract; (2) permitting Old Republic to present evidence suggesting Equitable's liability for DeLand's claim; (3) submitting evidence of Mrs. DeLand's business activities; (4) finding that the verdict denying coverage under the policy was supported by the weight of the competent evidence; and (5) dismissing DeLand's claim for punitive damages.

IV. Standard of Review

Alaska law governs this diversity case. We review the district court's interpretation of state law de novo. Matter of McLinn, 739 F.2d 1395, 1403 (9th Cir.1984) (en banc). In diversity cases, whether an issue is one of law for the court to decide or one of fact for the jury to determine is governed by federal law. Gillespie v. Travelers Insurance Co., 486 F.2d 281, 283 n. 1 (9th Cir.1973).

V. Interpretation of the Policy by the Jury

Under Alaska law, "[t]he construction of an insurance contract is a matter for the court, unless its interpretation is dependent upon the resolution of controverted facts." O'Neill Investigations, Inc. v. Illinois Emp. Ins. of Wausau, 636 P.2d 1170, 1173 (Alaska 1981). In Alaska, interpretation of the coverage provided by an insurance policy is governed principally by the following rule:

An insurance policy may be considered a contract of adhesion, and as such, should be construed to provide the coverage which a layperson would have reasonably expected, given a lay interpretation of the policy language. It is not required that ambiguities be found in the policy language as a condition precedent for such construction.

Puritan Life Insurance Co. v. Guess, 598 P.2d 900, 904 (Alaska 1979) (quoting Stordahl v. Government Employees Insurance Co., 564 P.2d 63, 65-66 (Alaska 1977) ).

The Alaska case law establishes that the standard of what "a layperson would reasonably have expected" is an objective standard based on the expectations of a hypothetical layperson. See Starry v. Horace Mann Insurance Co., 649 P.2d 937, 939 (Alaska 1982); INA Life Insurance Co. v. Brundin, 533 P.2d 236, 241-43 (Alaska 1975). In some cases the Alaska Supreme Court has phrased the standard as a test of whether the insured's expectations of coverage were reasonable under the circumstances. See, e.g., O'Neill Investigations v. Illinois Employers Insurance of Wausau, 636 P.2d 1170, 1177 (Alaska 1981) ("The insured must demonstrate ... that its expectation of coverage was based on specific facts which make these expectations reasonable.") The standard, however, remains objective regardless of whether it asks (1) if a reasonable lay person would expect coverage under the policy or (2) if the insured's expectations of coverage under the circumstances are those of a reasonable lay person. Because this "rule of interpretation" is applicable to the policy language even when the language is clear and unambiguous, it has been routinely applied by the trial courts in summary judgment proceedings. See, e.g., Starry v. Horace Mann Insurance Co., 649 P.2d at 939-40 (summary judgment); O'Neill Investigations v. Illinois Employers Insurance of Wausau, 636 P.2d at 1175-77 (summary judgment); U.S. Fire Insurance Co. v. Colver, 600 P.2d 1, 3 (Alaska 1979) (declaratory...