Home Loan Inv. Co. v. St. Paul Mercury Ins. Co.

• Decision Date: 05 July 2016
• Docket Number: No. 15-1018,15-1018
• Citation: 827 F.3d 1256
• Parties: The Home Loan Investment Company, a Colorado corporation, Plaintiff–Appellee, v. The St. Paul Mercury Insurance Company, d/b/a or a/k/a Travelers, a Connecticut corporation, Defendant–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

827 F.3d 1256

The Home Loan Investment Company, a Colorado corporation, Plaintiff–Appellee

v.The St. Paul Mercury Insurance Company, d/b/a or a/k/a Travelers, a Connecticut corporation, Defendant–Appellant.

No. 15-1018

United States Court of Appeals, Tenth Circuit.

FILED July 5, 2016

John M. Palmeri (John R. Mann with him on the briefs), Gordon & Rees, LLP, Denver, Colorado, for Defendant–Appellant.

Laurin D. Quiat (Nathan A. Schacht with her on the brief), Baker & Hostetler LLP, Denver, Colorado, for Plaintiff–Appellee.

Before BACHARACH, EBEL, an d McHUGH, Circuit Judges.

McHUGH, Circuit Judge.

I. INTRODUCTION

This appeal is from a jury verdict finding that Defendant St. Paul Mercury Insurance Company (St. Paul) unreasonably delayed or denied payment of insurance benefits to Plaintiff Home Loan Investment Company (Home Loan) in violation of Colorado law. Following trial, St. Paul moved for judgment as a matter of law (JMOL) under Rule 50(b) or, alternatively, for a new trial under Rule 59(a) of the Federal Rules of Civil Procedure. The district court denied relief, and St. Paul filed a timely appeal. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.

II. BACKGROUND

The facts of this case are largely undisputed. Home Loan, a financial institution, held a deed of trust on a property in Grand Junction, Colorado, known as White Hall. The owner had stopped making payments on the loan and offered Home Loan a deed to White Hall in lieu of foreclosure. Home Loan opted instead to work with the owner in selling the property, with the hope of being paid out of the proceeds of the sale. Because the owner indicated she could no longer pay insurance premiums on White Hall, Home Loan contacted St. Paul to obtain coverage for the value of its loan.

St. Paul and Home Loan had an existing business relationship through which St. Paul provided foreclosed property protection to Home Loan. Upon receiving Home Loan's request to add the White Hall loan to its policy, St. Paul agreed to bind the property for ten days but indicated it would need additional information to complete the underwriting process. St. Paul then sent Home Loan a questionnaire, asking it to identify the nature of its interest in White Hall. The questionnaire provided four options to describe the nature of Home Loan's interest:

a) Bank has actual title to the property.

b) Bank is holding the property during the statutory period of redemption.

c) Bank is the mortgagee in possession of real property with the agreement or consent of the borrower.

d) Bank is in the process of foreclosing—formal proceedings have been started and papers have been filed in the proper legal jurisdiction.

Because Home Loan did not have title, was not holding the property in a period of redemption, and was not in the formal process of foreclosing, it chose option “c.”

Based on this representation, St. Paul issued an endorsement effective January 1, 2011, adding White Hall to Home Loan's Foreclosed Property Protection policy with a coverage limit of $471,483, the value of the White Hall loan. Home Loan's foreclosed property protection policy defined “foreclosed property” as:

any building or structure that you:

• acquire by legal enforcement of a lien through a foreclosure proceeding;

• acquire by obtaining a deed in lieu of foreclosure; or

• hold as a mortgagee in possession.

The policy further defined “mortgagee in possession” as “a mortgagee of a building or structure who is in possession of it or who has assumed the care, custody, or control of such building or structure on behalf of the mortgagor with the agreement or assent of the mortgagor.” However, the policy did not define “possession” or “care, custody, or control.”

On September 15, 2011, White Hall was nearly destroyed in a fire. Home Loan tendered a claim to St. Paul for the loss, equal to the outstanding loan balance. On October 12, 2011, St. Paul requested additional information and documentation relating to White Hall. Specifically, St. Paul asked, “Who has possession of property or care, custody or control of the property?” Eric Daugherty, a loan officer with Home Loan, responded that Rosemarie–Glas, the owner of White Hall, had possession.

On October 19, 2011, St. Paul sent Home Loan a reservation of rights letter in which it raised “an issue that may affect coverage for [the] claim.” St. Paul identified the issue as “the definition of foreclosed property and whether the property in question qualifies under the policy as a ‘Foreclosed Property’ for the purposes of coverage.” The parties also exchanged emails on October 19. St. Paul's claims adjuster reported that St. Paul's review, “seems to indicate that no foreclosure proceedings had started on this property as of the time of the loss.” In response, Home Loan indicated it had selected “mortgagee in possession” on the questionnaire “mainly due to a process of elimination” because the other choices were inapplicable.

On November 21, 2011, St. Paul denied Home Loan's claim because White Hall did not meet the definition of “foreclosed property” in Home Loan's policy. The denial letter stated:

Because the property was not 1) acquired by legal enforcement of a lien through a foreclosure proceeding, 2) acquired by obtaining a deed in lieu of foreclosure, or 3) held as a mortgagee in possession, the property does not meet the definition of a Foreclosed Property under the policy. As such, we regret that we will be unable to issue any payment on your claim.

St. Paul determined Home Loan had never been a mortgagee in possession of the property and therefore White Hall did not qualify as a Foreclosed Property under the policy. With its denial letter, St. Paul included a check refunding Home Loan's premium payment. St. Paul also amended Home Loan's policy to remove White Hall from the list of Foreclosed Properties.

Home Loan filed suit in Colorado state court, alleging claims for common-law breach of contract and violations of sections 10-3-1115 and 10-3-1116 of the Colorado Code, which provide a statutory remedy for unreasonable delay or denial of insurance benefits. St. Paul removed the action to federal court, invoking diversity jurisdiction. Prior to trial, St. Paul moved for summary judgment, but the district court denied the motion. At trial, St. Paul argued Home Loan never had “possession” or “care, custody, or control” of White Hall sufficient to trigger coverage under the policy. St. Paul further maintained that, because its coverage decision was “fairly debatable,” it could not have acted unreasonably for purposes of the Colorado statutes.

After Home Loan rested, St. Paul renewed its summary judgment motion and also moved for JMOL on the grounds that: (1) Home Loan had not established it had possession or care, custody, or control of White Hall; (2) Home Loan had not established St. Paul acted unreasonably in denying the claim; and (3) Home Loan's claim under section 10-3-1116 applied only to claims handling, not underwriting activities. The district court denied St. Paul's motions.

The jury returned a verdict in favor of Home Loan and against St. Paul on both the common-law breach of contract claim and the statutory claim. Following the verdict, St. Paul moved for JMOL under Rule 50(b) or, alternatively, for a new trial under Rule 59(a) of the Federal Rules of Civil Procedure. The district court denied both motions. St. Paul now appeals. St. Paul does not challenge the jury's verdict on Home Loan's breach of contract claim. Thus, the only questions before this court concern Home Loan's statutory bad faith claim under Colorado law.

III. DISCUSSION

St. Paul raises three arguments on appeal. First, St. Paul asserts the district court erred in denying its motion for JMOL because the denial of Home Loan's claim was reasonable as a matter of law. Alternatively and relatedly, St. Paul contends the district court erroneously instructed the jury on the standard for assessing the reasonableness of St. Paul's denial of Home Loan's claim, thereby warranting a new trial. Second, St. Paul argues sections 10-3-1115 and 10-3-1116 of the Colorado Code provide a remedy only for unreasonable claims-handling activity. And because Home Loan's allegations implicated only St. Paul's underwriting practices, St. Paul claims the district court should have granted JMOL. In the alternative, St. Paul argues it is entitled to a new trial because the overwhelming evidence introduced at trial related to its underwriting practices, not its claims-handling practices. Finally, St. Paul argues the district court erred in calculating the amount of damages recoverable under section 10-3-1116. Specifically, St. Paul asserts that section 1116 entitles plaintiffs to a recovery totaling two times the covered benefit and the district court erroneously awarded Home Loan a total of three times the covered benefit. We address each argument in turn. We then explain why we part from the position advanced by the dissent: that St. Paul is entitled to JMOL because the evidence was insufficient as a matter of law to support a finding that it acted unreasonably in denying Home Loan's claim. Although we agree with the dissent that the resolution of this issue is difficult, we ultimately conclude that St. Paul did not raise in the district court or on appeal a general sufficiency of the evidence argument. As a result, we do not reach this issue.

A. Issues on Appeal

1. Under Colorado law, denial of a fairly debatable claim may nonetheless be unreasonable.

St. Paul's first argument on appeal is that, because its coverage decision was “fairly debatable,” it was, as a matter of law, not unreasonable. Specifically, St. Paul argues a claim's fair debatability is outcome determinative because, under Colorado law, an insurer cannot act unreasonably in denying a fairly debatable claim. In response, Home Loan argues that a claim's “fair debatability” is merely one factor in the overall analysis of whether the insurer acted reasonably in delaying or...