deVries v. St. Paul Fire and Marine Ins. Co.
| Decision Date | 14 September 1983 |
| Docket Number | No. 82-1672,82-1672 |
| Parties | 13 Fed. R. Evid. Serv. 1486 Hugh deVRIES, et al., Plaintiffs, Appellees, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant, Appellant. |
| Court | U.S. Court of Appeals — First Circuit |
Eugene M. Van Loan, III, Manchester, N.H., with whom Wadleigh, Starr, Peters, Dunn & Chiesa, Manchester, N.H., was on brief, for defendant, appellant.
Bruce W. Felmly, Manchester, N.H., with whom Robert E. Jauron, and McLane, Graf, Raulerson & Middleton, P.A., Manchester, N.H., were on brief, for plaintiffs, appellees.
Before COFFIN and BREYER, Circuit Judges, and BONSAL, * Senior District Judge.
The defendant, St. Paul Fire and Marine Insurance Co. ("St. Paul"), appeals from a judgment entered following a jury trial in the United States District Court for the District of New Hampshire, Devine, C.J., in favor of plaintiffs Hugh and Elizabeth deVries for $404,592.50 and in favor of Plaintiff Bubbling Brook School, Inc. for $75,000. The plaintiffs brought this diversity action to recover the proceeds of a fire insurance policy issued by St. Paul and to recover damages beyond the policy limits by reason of St. Paul's alleged bad faith in denying the plaintiffs' claim to the proceeds. The issues raised by St. Paul in this appeal are whether the district court erred in: (1) charging the jury on the issue of St. Paul's breach of its implied obligation of good faith and fair dealing, (2) denying St. Paul's motions for a directed verdict and judgment notwithstanding the verdict, and (3) excluding evidence of the plaintiffs' refusal to take a polygraph examination. Finding no error, we affirm the judgment of the district court.
From 1978 to 1980, plaintiffs Hugh and Elizabeth deVries ran the Bubbling Brook School, a private school for disturbed adolescent males in Deerfield, New Hampshire. The deVries owned the school building, which they leased to Bubbling Brook School, Inc., a not-for-profit corporation formed by them to operate the school. A fire insurance policy purchased by the deVries from St. Paul covered the building, its On April 6, 1980, while the students were away for Easter vacation, a fire destroyed the school building. Immediately thereafter, the deVries notified St. Paul through their insurance agent and filed proofs of loss seeking the maximum amount of coverage under their policy. Investigations by St. Paul and law enforcement authorities determined that the fire was caused by arson. On July 9, 1980 the attorney conducting the investigation for St. Paul informed the deVries by letter that their claim was disallowed. In the fall of 1980, following further inquiry into the causes of the fire, St. Paul made a final determination that the deVries' proofs of loss should be rejected, on the ground that the deVries had set the fire themselves.
contents, and business interruption caused by fire damage.
On February 20, 1981 the deVries filed this diversity suit for the proceeds of their insurance policy and for further damages allegedly suffered as a result of St. Paul's breach of the covenant of good faith and fair dealing implied in its contract with the plaintiffs. St. Paul's answer alleged that the plaintiffs had violated the terms of their policy by "willfully concealing and/or misrepresenting material facts ... concerning the circumstances of the loss" and by "willfully causing or contributing to cause the loss."
On May 19, 1981 the plaintiffs filed a motion in limine for an order prohibiting St. Paul from introducing evidence of the deVries' refusal to take a polygraph test during the course of the investigation. St. Paul countered that such evidence should be admissible on the issue of the company's alleged bad faith in denying the plaintiffs' claim. A magistrate granted the plaintiffs' motion and the district court upheld the magistrate's decision.
Twice during the trial St. Paul moved for a directed verdict on the ground that the evidence was insufficient to find the defendant liable for acting in bad faith. The district court denied both motions. Following the jury's return of a verdict for Mr. and Mrs. deVries in the amount of $578,750 1 and for the Bubbling Brook School in the amount of $75,000, St. Paul moved for judgment notwithstanding the verdict and/or a new trial. St. Paul contended that the district court had erred in charging the jury with respect to the elements to be considered in determining whether there was a breach of the company's implied obligation of good faith and fair dealing. On July 8, 1982 the district court denied St. Paul's motion, holding that its charge was consistent with the law in New Hampshire. Judgment was entered on the verdicts on July 9, 1982.
Simultaneous with the filing of this appeal, St. Paul moved this court to certify to the New Hampshire Supreme Court the question of what constitutes "bad faith" in violation of the implied covenant of good faith and fair dealing. That motion is also before us.
St. Paul's first contention is that the district court's charge to the jury concerning the covenant of good faith and fair dealing implied in the deVries' insurance contract was erroneous. The relevant portion of the charge follows:
"If, however, you find that the defendant, St. Paul Fire & Marine Insurance Company, has failed in its burden of proof by a preponderance of the evidence, that the plaintiffs wrongfully and intentionally caused or procured the fire to be caused, then the plaintiffs would be entitled to recover on the policy, and you would then turn your attention to their second claim, which is a claim that the defendant, in its approach to adjustment of these losses, violated the obligation of good faith and fair dealing which the applicable rules of law imply in every contract, including contracts of insurance.
Here the plaintiffs must prove by a preponderance of the evidence that the defendant's failure or delay to make payment under the policy to them constituted a breach of the insurance contract, for not every delay or refusal to settle or to pay a claim under the policy constitutes such a breach of the insurance contract. It is only where the acts of the insurance company investigating the claim amount to an unreasonable denial to the insured of the benefits of the policy that such breach of contract exists.
Thus only if you are satisfied that the plaintiffs have proved by a preponderance of the evidence that the acts of St. Paul Fire & Marine Insurance Company in investigating and adjusting the claim here amounted to a calculated and not inadvertent unreasonable denial of payment, may you find the insurance company to be responsible for alleged breach of the contractual obligation of good faith and fair dealing."
Pointing to the language of "reasonableness" employed by the district court, St. Paul argues that the charge failed to require evidence of malice or ill will, which it claims are necessary elements of "bad faith".
At the outset, we note that St. Paul devotes considerable space in its brief to demolishing what is essentially a straw man. It argues at length that New Hampshire, like other jurisdictions, has interpreted "bad faith" to mean more than mere negligence. Therefore, it concludes, the district court was wrong to charge that an "unreasonable" denial of the plaintiffs' claim was sufficient to establish a breach of the covenant of good faith and fair dealing. However, a reading of the charge plainly shows that the district court never equated bad faith with negligence. The court told the jury that it could find the insurance company responsible for violating the covenant of good faith and fair dealing only if it was satisfied that St. Paul's conduct "amounted to a calculated and not inadvertent unreasonable denial of payment." (Emphasis added). According to the court's instructions, then, the jury had to find that St. Paul's actions were more than simply unreasonable in order for it to conclude that bad faith existed.
The record reveals that the district court chose the wording in its charge carefully. The plaintiffs' requested instruction on the good faith issue implied that negligent conduct on the part of the insurer was sufficient to constitute a breach of its implied obligation of good faith and fair dealing. 2 St. Paul's requested instruction, on the other hand, required the jury to find that the insurer's conduct had been malicious or reckless. 3 In a colloquy at the bench following the charge, the attorneys for both parties objected to the court's instruction on this issue. Counsel for the plaintiffs stated:
The Court responded: "I'm satisfied it's proper, but your objection is noted." Soon after this, counsel for St. Paul stated "I specifically take objection to the failure of the Court to give my several written requests regarding the bad faith claim in which bad faith is defined as being something more than simply negligent, or, as the Court indicated unreasonable conduct, and in particular the failure of the Court to add some mental element to the content of bad faith, and that being some element of insincerity and malice."
The court replied: "That's why I used the terms calculated and inadvertent, but I don't think you're entitled to malicious." Thus, the court deliberately chose a standard in between negligence and malice.
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