Fireman's Fund Ins. Companies v. Alaskan Pride Partnership, s. 95-35551

• Decision Date: 13 February 1997
• Docket Number: 95-35579,Nos. 95-35551,s. 95-35551
• Parties: , 46 Fed. R. Evid. Serv. 531, 97 Cal. Daily Op. Serv. 1027, 97 Daily Journal D.A.R. 1517 FIREMAN'S FUND INSURANCE COMPANIES; Switzerland General Insurance Company; Continental Insurance Company; C.A.M.A.T.; Samvirke Insurance; Highlands Insurance; New York Marine & General Insurance Company; Lloyd's of New York; Royal Insurance Company of America; Great American Insurance Company; St. Paul Fire & Marine Insurance Company, Plaintiffs-Appellants-Cross-Appellees, v. ALASKAN PRIDE PARTNERSHIP, as Trustee; Key Bank, as Trustee; Christiania Bank of Seattle, Beneficiary, Defendants-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1465

106 F.3d 1465

1997 A.M.C. 1217, 46 Fed. R. Evid. Serv. 531,

97 Cal. Daily Op. Serv. 1027,

97 Daily Journal D.A.R. 1517

FIREMAN'S FUND INSURANCE COMPANIES; Switzerland General

Insurance Company; Continental Insurance Company;

C.A.M.A.T.; Samvirke Insurance; Highlands Insurance; New

York Marine & General Insurance Company; Lloyd's of New

York; Royal Insurance Company of America; Great American

Insurance Company; St. Paul Fire & Marine Insurance

Company, Plaintiffs-Appellants-Cross-Appellees, v. ALASKAN PRIDE PARTNERSHIP, as Trustee; Key Bank, as

Trustee; Christiania Bank of Seattle,

Beneficiary,

Defendants-Appellees-Cross-Appellants.

Nos. 95-35551, 95-35579.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 5, 1996.

Memorandum filed Jan. 6, 1997.

Decided Feb. 13, 1997.

Stanley L. Gibson, G. Geoffrey Robb, Derby, Cook, Quinby & Tweedt, San Francisco, California, for plaintiffs-appellants.

Douglas M. Fryer, Mikkelborg, Broz, Wells & Fryer, Seattle, Washington, for defendants-appellees.

Appeal from the United States District Court for the Western District of Washington, Thomas S. Zilly, District Judge, Presiding. D.C. No. CV-93-00463-TSZ.

Before: WRIGHT, BRUNETTI and O'SCANNLAIN, Circuit Judges.

ORDER

The Memorandum disposition filed January 6, 1997, is redesignated as an authored Opinion by Judge Wright.

OPINION

EUGENE A. WRIGHT, Circuit Judge.

Plaintiff Fireman's Fund ("Insurer") insured defendant Alaskan Pride Partnership's fishing vessel, the Alaskan Pride. The vessel sank in the Bering Sea in February 1993, after inexplicably taking on water. Insurer denied coverage for the loss and sued for a declaratory judgment that the loss was not covered, and the Partnership counterclaimed for coverage and for bad faith. The jury found for the Partnership on both claims, but neither party was able to establish a cause for the sinking.

On appeal, Insurer challenges several evidentiary rulings and jury instructions, and it argues that the jury could not have found bad faith because the cause of the sinking was unknown. The Partnership cross-appeals the court's denial of prejudgment interest at the contract rate. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.

I. Evidentiary Rulings

We review evidentiary rulings for abuse of discretion. Masson v. New Yorker Magazine, Inc., 85 F.3d 1394, 1399 (9th Cir.1996). Even upon a finding of abuse, reversal is warranted only if the error was prejudicial. Id.; Fed.R.Evid. 103(a).

A. Testimony of David Holden

At trial, the Partnership presented testimony from David Holden, a claims manager for one of the subscribing underwriters on the policy. He testified that, in his opinion, the claim was "a legitimate loss" and that he "was very upset" about the denial of coverage. Insurer argues that this testimony: constituted improper lay opinion; lacked relevance; and was unduly prejudicial. ¹

1. Lay Opinion

Lay opinion is admissible only if it is (1) rationally based on the perception of the witness and (2) helpful to a clear understanding of the testimony or a fact in issue. Fed.R.Evid. 701. Insurer has failed to show that Holden's testimony was not based on his own perception. There is no evidence that he relied on a report from "the Insurers." ² Even if he did, his recollection that he believed the loss was legitimate was "his own perception." Presumably an underwriter develops an opinion about whether a loss should be paid based on all the evidence before him, including legal advice or other insurers' reports. Further, the court instructed him "not to give an opinion based on what he learned from someone else." Insurer does not show that Holden disregarded this instruction.

Insurer also fails to show that Holden's opinion was not "helpful." Lay opinion is appropriate when a witness cannot explain through factual testimony the combination of circumstances that led him to formulate that opinion. United States v. Skeet, 665 F.2d 983, 985 (9th Cir.1982) (lay opinion may be admitted when it is "difficult to reproduce the data observed by the witnesses, or the facts are difficult of explanation, or complex, or are of a combination of circumstances ... which cannot be adequately described and presented with the force and clearness as they appeared to the witness"); see also United States v. Yazzie, 976 F.2d 1252, 1255 (9th Cir.1992) (court should have permitted witnesses to give opinions as to how old statutory rape victim looked); United States v. Young Buffalo, 591 F.2d 506, 513 (9th Cir.) (witnesses could testify that photo of robbery suspect looked like defendant, even though jury could have made this comparison), cert. denied, 441 U.S. 950, 99 S.Ct. 2178, 60 L.Ed.2d 1055 (1979).

Holden's testimony meets this standard. His reasons for treating the Partnership's claim as he did may well have been based on factors too numerous and complex to develop in trial testimony. In arguing that the opinion was not helpful, Insurer relies primarily on cases dealing with expert witnesses, which apply a different standard.

2. Relevance and Prejudice

Holden's opinion tended to make more probable the Partnership's allegation that Insurer denied its claim too hastily. It therefore was relevant under Rule 401. Rule 403 permits a court to exclude evidence "if its probative value is substantially outweighed by the danger of unfair prejudice." District courts enjoy "wide latitude" in applying this rule. United States v. Joetzki, 952 F.2d 1090, 1094 (9th Cir.1991).

That Holden's testimony embraced the ultimate issues of coverage and bad faith does not make it unduly prejudicial. Kostelecky v. NL Acme Tool/NL Indus., Inc., 837 F.2d 828, 830 (8th Cir.1988). ³ Holden did not say that the policy provided coverage or that Insurer acted in bad faith. In fact, he refrained from using the term "bad faith" when invited to do so. And, the court instructed the jury: "The fact that any of the insurers on this risk paid their portion of the Policy is not to be considered by you as evidence on the issue of coverage." Insurer offers no evidence that the jury did not follow this instruction. Finally, Insurer cross-examined Holden about other reasons he might have had for paying the Partnership's claim, thus reducing the possibility of prejudice.

B. Admission of Fax, Exhibit A-53

The Partnership also introduced a fax that Holden sent to Insurer's claims supervisor, Ed Thiemann, in which he called the denial of coverage "precipitous" and said that he doubted American courts would agree with Insurer's reasons for the denial. Like Holden's testimony, the fax represented information that Insurer might have considered before it decided to deny coverage and showed how other insurers handled the Partnership's claim. It was probative on the bad faith issue. Moreover, Insurer failed to object to admission of a second fax from Holden, Exhibit A-137, which restated Holden's conviction that the claim should be paid. With Exhibit A-137 in evidence, Exhibit A-53 could not have prejudiced Insurer unduly.

II. Jury Instructions

We review de novo whether the instructions misstated the law, Masson v. New Yorker Magazine, Inc., 85 F.3d 1394, 1397 (9th Cir.1996), and review the formulation of the instructions for abuse of discretion, Fikes v. Cleghorn, 47 F.3d 1011, 1013 (9th Cir.1995).

A. Proposed Instruction No. 14

Instruction No. 14 provided that, under § 45 of the Norwegian Insurance Plan, Insurer bore the initial burden of proving that the vessel sprang a leak while afloat. If that was proven, the vessel would be presumed unseaworthy and the burden would shift to the Partnership to establish coverage. Insurer argues that these shifting burdens apply to the bad faith claim. It reasons that, once the burden of proving coverage had shifted to the Partnership, its duty to investigate the claim ended. It proposed language for Instruction No. 14 incorporating this theory, which the court rejected. Insurer's objection goes to the legal requirements of the bad faith claim, so review is de novo.

Norwegian law governs the policy and establishes the shifting burdens described in Instruction No. 14. Insurer's proposed language improperly attempted to apply Norwegian law to the bad faith claim by using the policy to define its duty to investigate. Washington law, however, governs bad faith. That is a tort, and its elements are defined by law, not by contract. Safeco Ins. Co. v. Butler, 118 Wash.2d 383, 392, 823 P.2d 499 (1992). Insurer has relied on Washington law in all its arguments relating to bad faith.

Even if the policy could define the duty to investigate, the proposed instruction would be improper. The policy incorporates Washington Administrative Code § 289-30-330. See Keller v. Allstate Ins. Co., 81 Wash.App. 624, 632, 915 P.2d 1140 (1996). This provision imposes strict duties on insurers, including the duty to conduct a reasonable investigation. To the extent that the policy language conflicts with the code provision, it does not apply. As in any insurance case, the policy must be interpreted in favor of the insured. Pub. Util. Dist. No. 1 v. Int'l Ins. Co., 124 Wash.2d 789, 799, 881 P.2d 1020 (1994). Therefore, Insurer's proposed language did not accurately reflect its duty to investigate under the policy.

B. Instruction No. 25

Court's Instruction No. 25 provided that insurers "must conduct a reasonable investigation of a claim before denying coverage, and must have a reasonable basis for denying coverage.... An insurer does not have a reasonable basis for denying coverage when its denial is based on suspicion and conjecture." (Emphasis added). Insurer's argument that the instruction should have defined "reasonable basis" has been waived. Fed.R.Civ.P. 51. It did not object to Instruction No. 25 on this basis, nor did it propose a jury instruction defining this term. In fact, its proposed instructions 18 and 20 used the term "reasonable justification" without defining it....