F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JAN 3 2005
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
ROYAL MACCABEES LIFE
INSURANCE COMPANY,
Plaintiff-Counter-Defendant -
Appellant - Cross-Appellee,
v. Nos. 03-1142 & 03-1154
STEPHEN J. CHOREN,
Defendant-Counter-Claimant -
Appellee - Cross-Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. No. 99-WM-1031 (PAC))
Jean E. Dubofsky (and Dean Neuwirth, Burke & Neuwirth, P.C., Denver,
Colorado, on the briefs), Jean E. Dubofsky, P.C., Boulder, Colorado, for Plaintiff-
Counter-Defendant - Appellant - Cross-Appellee.
Thomas L. Roberts (and Laura E. Schwartz, with him on the briefs), Roberts,
Levin & Patterson, P.C., Denver, Colorado, for Defendant-Counter-Claimant -
Appellee - Cross-Appellant.
Before TACHA, Chief Judge, KELLY, and McCONNELL, Circuit Judges.
KELLY, Circuit Judge.
Plaintiff-Appellant/Cross-Appellee Royal Maccabees Life Insurance
Company (“Royal”) appeals from a judgment on a jury verdict in favor of
Defendant-Appellee/Cross-Appellant Dr. Stephen J. Choren on a bad faith breach
of insurance contract counterclaim. The jury awarded $425,000 in damages. Our
jurisdiction arises under 28 U.S.C. § 1291, and we affirm.
Background
Prior to the incidents giving rise to this suit, Dr. Choren engaged in the
general practice of dentistry in Colorado. Beginning in 1994, he experienced
hand numbness and other symptoms that were diagnosed as consistent with nerve
abnormalities. Over time, these symptoms worsened. In February 1997, Dr.
Choren lacerated his left index finger to the bone while removing packing
materials from a chair, necessitating surgery to reattach a severed nerve. During
subsequent examination, he was diagnosed as suffering from bilateral carpal
tunnel syndrome, tremors, and neck and shoulder pain. Although he attempted to
return to his practice, by April 1997 Dr. Choren reached the conclusion, after
consultation with his physician, that he was no longer able to practice dentistry.
Prior to the onset of his disability, Dr. Choren purchased an “own
occupation” disability income insurance policy from Royal. He subsequently
-2-
exercised an option in the contract to purchase additional coverage on four
occasions between 1984 and 1992. Dr. Choren also purchased a business
overhead policy from Royal. Royal’s policies provided that, if the insured could
not perform the material and substantial duties of his profession, benefits would
be payable over the insured’s lifetime.
Dr. Choren submitted a claim under the policies for total disability in April
1997, dating back to February 1997. A neurologist subsequently certified Dr.
Choren as disabled from practicing dentistry because his condition prevented him
from safely performing fine motor work in a patient’s mouth. In July 1997, Royal
began making total disability payments of $9,000 per month to Dr. Choren.
In August 1997, the Colorado Division of Insurance forwarded to Royal an
anonymous letter (written by Dr. Choren’s office manager and dental assistant)
alleging that Dr. Choren was engaged in insurance fraud. Receipt of the letter
prompted a covert investigation of Dr. Choren’s claims that culminated in the
filing of this diversity suit in June 1999. During the course of its two-year
investigation, Royal assembled evidence, including video surveillance of Dr.
Choren windsurfing in Venezuela, that the insurer viewed as inconsistent with a
claim of total disability. While engaging in this lengthy and expansive
investigation, Royal at no time informed Dr. Choren that his claim was under
investigation and continued to pay benefits under the policies.
-3-
In its complaint, Royal alleged that Dr. Choren had submitted a fraudulent
insurance claim for total disability on the basis that he continued to practice
dentistry after filing the claim and that he engaged in recreational activities that
were inconsistent with his claim. Dr. Choren counterclaimed for breach of
contract, bad faith breach of contract, outrageous conduct, violation of the
Colorado Consumer Protection Act (“CCPA”), and institution of a vexatious
action. The district court granted summary judgment to Royal on Dr. Choren’s
outrageous conduct and breach of contract counterclaims. The case was later
tried in January 2002 and submitted to the jury on Royal’s fraud claim and Dr.
Choren’s bad faith and CCPA counterclaims.
Through a series of special verdicts, the jury found that Dr. Choren was
totally disabled under the terms of the policies and had not sought to defraud
Royal. The jury further found that Royal acted in bad faith in the investigation
and handling of Dr. Choren’s claim and awarded him $225,000 in unspecified
economic damages and $200,000 in unspecified non-economic damages. The jury
rejected Dr. Choren’s CCPA claim, finding that Royal did not engage in a
deceptive trade practice. Following the jury’s verdict, both parties filed several
post-trial motions. The district court disposed of the motions in its Order on
Post-Trial Motions of March 26, 2003, denying Royal’s motion for a new trial on
the issue of bad faith and dismissing Dr. Choren’s counterclaim that the lawsuit
-4-
was vexatious. The district court also denied Dr. Choren’s motion to alter or
amend the judgment to award him tort damages for the present value of future
disability benefits. On March 28, 2003, the district court entered judgment on the
jury verdicts and this appeal followed.
Discussion
On appeal, Royal asserts that the district court (1) erred in giving three bad
faith jury instructions; and (2) committed plain error in failing to instruct the jury
that (a) attorney fees were not compensable damages for bad faith breach of
insurance contract, and (b) in the absence of other economic damages the jury
could not award the insured non-economic damages for bad faith. Dr. Choren
argues on cross-appeal that the district court erred (1) in treating the recovery of
future benefits as a contract remedy (rather than as a remedy for bad faith breach
of insurance contract), and (2) in excluding evidence on the CCPA claim of
representations made at the time of sale of the insurance policies and by failing to
instruct that post-sale claims handling could properly be considered as deceptive
trade practices. We discuss each of these arguments in turn.
A. Bad Faith Jury Instructions
We review legal challenges to tendered jury instructions de novo. Garrison
v. Baker Hughes Oilfield Operations, Inc., 287 F.3d 955, 964 (10th Cir. 2002).
-5-
We review a challenge to a district court’s decision to give an instruction for
abuse of discretion. Elliott v. Turner Constr. Co., 381 F.3d 995, 1004-05 (10th
Cir. 2004). Our inquiry in either case embraces a de novo review of the
instructions in their entirety, judging not whether the instructions were flawless,
but whether taken as a whole they accurately informed the jury of the issues
before it and the governing legal principles by which to reach a decision. See
Hardeman v. City of Albuquerque, 377 F.3d 1106, 1123 (10th Cir. 2004). If
having engaged in this inquiry we determine that a district court has tendered a
legally erroneous instruction, we must reverse if we find that the jury might have
based its decision on the instruction. Wankier v. Crown Equip. Corp., 353 F.3d
862, 867 (10th Cir. 2003) (quoting Townsend v. Lumbermens Mut. Cas. Co., 294
F.3d 1232, 1242 (10th Cir. 2002)).
1. Coverage Investigation and Notification of the Insured of Coverage Issues
This case was tried in January 2002. Under the then existing rule, “[n]o
party may assign as error the giving or the failure to give an instruction unless
that party objects thereto before the jury retires to consider its verdict, stating
distinctly the matter objected to and the grounds of the objection.” Fed. R. Civ.
P. 51 (2002). The current rule retains the dual requirements of objecting on the
record with sufficient specificity. See Fed. R. Civ. P. 51(c)(1) (2003). To
preserve the objection, a party must proffer the same grounds raised on appeal,
-6-
Reed v. Landstar Ligon, Inc., 314 F.3d 447, 452 (10th Cir. 2002) (quoting
Comcoa, Inc. v. NEC Tels., Inc., 931 F.2d 655, 660 (10th Cir. 1991)), with
sufficient clarity to render the grounds “‘obvious, plain, or unmistakable.’”
Comcoa, 931 F.2d at 660 (quoting Aspen Highlands Skiing Corp. v. Aspen Skiing
Co., 738 F.2d 1509, 1514 (10th Cir. 1984)). Absent a proper objection, a party’s
argument is deemed waved. Hardeman, 377 F.3d at 1118.
Dr. Choren originally proffered Instruction 26, which read:
Proceeding with a coverage investigation covertly to gain
advantage over an insured is improper. When the interests of the
insurer and the insured conflict as a result of the discovery of
coverage issues, the insurer may not covertly build a case against its
insured, but should promptly take steps to see that the insured is
made fully aware of and understands the problem.
App. Vol. IV at 1066. At the jury instruction conference, Royal objected to this
proposed instruction, stating: “It’s not Colorado law. It doesn’t state Colorado
law. It shouldn’t be given.” App. Vol. XI at 3214. However, Royal conceded
during the ensuing colloquy that “proceeding with [a] coverage investigation to
gain advantage over an insured is improper” and that “the insurer has a duty to
notify the insured once [a] problem is discovered by it as to coverage.” App. Vol.
XI at 3215-16. These two concessions provide the substantive basis for
Instruction 43A as tendered by the court. While it is true that the court noted a
continuing objection to “giving [Instruction 43A] at all,” App. Vol. XI at 3218,
we believe Royal has waived its legal argument, having conceded the validity of
-7-
the duties encompassed by Instruction 43A. Accordingly, we review Royal’s
challenge to Instruction 43A for plain error. Hardeman, 377 F.3d at 1118.
To succeed on a plain error review, the challenging party must demonstrate
(1) an error (2) that is plain, meaning clear or obvious under current law, and (3)
affecting substantial rights. Id. If these elements are satisfied, “‘we may exercise
discretion to correct the error if it seriously affect[s] the fairness, integrity, or
public reputation of judicial proceedings.’” Id. (quoting United States v. Ruiz-
Gea, 340 F.3d 1181, 1185 (10th Cir. 2003)). Under this standard, we will not
disturb a district court’s action absent exceptional circumstances. No such
circumstances are demonstrated here.
Royal’s challenge to Instruction 43A necessarily depends on the assertion
that the Colorado Supreme Court would not impose requirements on insurers to
promptly notify insureds of coverage disputes and abstain from engaging in
investigations to gain an advantage over the insured. Both parties concede that
the Colorado Supreme Court has yet to pronounce such rules. Aplt. Opening Br.
at 12 n.6; Aplee. Opening/Response Br. at 22. In a diversity suit, the content of
substantive jury instructions is derived from controlling state law. Elliott, 381
F.3d at 1004 (citing Blanke v. Alexander, 152 F.3d 1224, 1232 (10th Cir. 1998)).
A federal court sitting in diversity must apply state law as propounded by the
forum’s highest court. Rancho Lobo, Ltd. v. Devargas, 303 F.3d 1195, 1202 n.2
-8-
(10th Cir. 2002). Absent controlling precedent, the federal court must attempt to
predict how the state’s highest court would resolve the issue. 1 F.D.I.C. v.
Schuchmann, 235 F.3d 1217, 1225 (10th Cir. 2000).
While we realize that uncertainty inheres in every Erie prediction made in
federal court, we do not believe that the district court’s resolution of this issue
arises to a clear or obvious error under current law, especially since Royal
specifically agreed that each sentence of the instruction was correct. Royal has
neither pointed us to, nor have we found, contradictory Colorado law specifically
barring the duties enunciated in Instruction 43A. Under our limited review, we
will not disturb the district court’s determination under these circumstances. The
district court did not commit plain error in tendering Instruction 43A to the jury.
2. Duties of IME Physicians and Presumption that Injuries Are Not Self-Inflicted
Royal next argues that Instructions 46B and 46C, while properly stating
Colorado law, prejudicially bolstered Dr. Choren’s case because the jury did not
have to decide the issues raised by the instructions. Aplt. Opening Br. at 21.
1
Royal makes much of the fact that during the course of the instruction
conference the district court remarked in reference to Instruction 43A: “I don’t
know whether that’s the law or not. I am relying on you people.” App. Vol. XI at
3217. Whether the district court was being facetious is not clear. Of course, the
district court has an independent duty to determine or predict state law. We do
not believe the district court failed in the exercise of that duty. The district court
heard the parties on the issue, including Royal’s objections, and resolved the issue
independently after Royal had conceded the legal obligations encompassed by
Instruction 43A.
-9-
Royal further argues that Instruction 46B conflicted with Instructions 7, 8, and
10, telling the jurors that they are the sole arbiters of witness credibility and of
the weight of the testimony. Aplt. Opening Br. at 17. Instruction 46B stated:
The physician who conducts an independent medical
examination (an “IME”) does not owe the insured a duty of care to
diagnose his condition correctly.
On the other hand, a treating physician owes a duty of care in
diagnosing a patient’s condition and may be liable to the patient for
an incorrect diagnosis.
App. Vol. VI at 1432. Instruction 46C stated: “The law presumes that injuries
are not intentionally self-inflicted.” App. Vol. VI at 1433.
As a preliminary matter, Dr. Choren argues that Royal failed to preserve the
issues noted above for appeal. Aple. Opening/Response Br. at 17. Having
reviewed the record, we find that Royal preserved the issues for appeal. Dr.
Choren misconstrues Royal’s argument regarding the instructions, characterizing
it as asserting that the instructions “unduly dignified what should have been mere
factual arguments.” Aple. Opening/Response Br. at 21. In so doing, Dr. Choren
converts the argued effect of the instructions into Royal’s principal grounds on
appeal. Royal clearly objected during the instruction conference on the grounds
that the issues raised by the instructions were not properly before the jury, App.
Vol. XI at 3223-24, 3226, and that Instruction 46B would lead to confusion in the
jury, App. Vol. XI at 3224. These are precisely the issues before us. The
language employed by Royal was sufficiently clear to raise the issue before the
- 10 -
district court and permit it to alter the instructions accordingly. See Rogers v. N.
Rio Arriba Elec. Coop., Inc., 580 F.2d 1039, 1042 (10th Cir. 1978).
Returning to the principal argument before us, the jury in this case heard
conflicting evidence concerning the existence and extent of Dr. Choren’s
disability, offered by both treating physicians and independent medical experts. It
also heard evidence about Royal’s suspicion that Dr. Choren’s finger laceration
was self-inflicted. The parties agree that the statements of law are correct. We
think it was within the district court’s discretion to inform the jury of factors that
might be considered in evaluating this evidence. Contrary to Royal’s argument,
these instructions do not amount to an endorsement of Dr. Choren’s theory of bad
faith. They in no way contravene or diminish the court’s general instructions that
the jurors are the sole arbiters of credibility and decide what weight to accord
witness testimony. We find no reversible error. The instructions taken as a whole
adequately instructed the jury. See Hardeman, 377 F.3d at 1123.
B. Damage Instructions
Royal’s final argument is that the district court committed plain error in
failing to instruct the jury that attorney’s fees could not be construed as economic
damages under Dr. Choren’s bad faith counterclaim and that non-economic
damages could not be awarded in the absence of economic damages. Aplt.
Opening Br. at 23. Royal concedes that it did not request such instructions, and
- 11 -
therefore did not preserve the error below. Aplt. Opening Br. at 25.
“A court may consider a plain error in the instructions affecting substantial
rights that has not been preserved.” Fed. R. Civ. P. 51(d)(2). We have
consistently noted that the plain error standard in civil cases is limited to errors
that “‘seriously affect the fairness, integrity or public reputation of judicial
proceedings.’” Phillips v. Hillcrest Med. Ctr., 244 F.3d 790, 802 (10th Cir. 2001)
(quoting Polys v. Trans-Colorado Airlines, Inc., 941 F.2d 1404, 1408 (10th Cir.
1991)). Plain error review presents “an extraordinary, nearly insurmountable
burden.” Id. To mount a successful plain error challenge, a party must
demonstrate (1) an error, (2) that is plain or obvious under existing law, and (3)
that affects substantial rights. Beaudry v. Corr. Corp. of Am., 331 F.3d 1164,
1168 (10th Cir. 2003). Finally, we view instructions as a whole to determine
whether the jury might have been misled. Id. We will uphold the verdict in the
“‘absence of substantial doubt that the jury was fairly guided.’” Id. (quoting
United States v. Wiktor, 146 F.3d 815, 817 (10th Cir. 1998)).
1. Attorneys Fees as Economic Damages
Royal first asserts that the district court’s failure to instruct the jury that
attorneys fees could not be considered economic damages under Colorado law
constituted plain error. Royal relies on Bernhard v. Farmers Insurance Exchange,
915 P.2d 1285 (Colo. 1996). In Bernhard, the plaintiff brought a bad faith breach
- 12 -
of insurance contract claim against her insurer for failing to settle a third-party
claim within her insurance limits. Id. at 1286-87. The Colorado Court of
Appeals had previously set aside the trial court’s award of attorneys fees in the
action. Id. at 1287. In affirming the decision, the Colorado Supreme Court
propounded an unequivocal rule: “[U]nless specifically provided for in the
insurance contract, attorney fees are not recoverable upon successful litigation of
a bad faith breach of insurance contract claim.” Id.; Allstate Ins. Co. v. Huizar,
52 P.3d 816, 818 (Colo. 2002).
Royal contends that failing to give the instruction was highly prejudicial in
that the only evidence Dr. Choren presented concerning economic damage was
personal testimony that he had paid his attorneys in excess of $200,000. Aplt.
Opening Br. at 24-25. The jury subsequently returned an award of $225,000 in
unspecified economic damages. Dr. Choren counters that the jury heard evidence
that he suffered economic loss from Royal’s failure to make timely payment of
business overhead expenses (total payment on that policy was $6,900 with a
maximum of $23,000 possible, App. Vol. IX at 2524) and that he suffered further
economic damage from the loss of use of policy benefits. Aple.
Opening/Response Br. at 36-37.
Royal admits that it did not object to the testimony about attorney’s fees at
trial. Aplt. Opening Br. at 25. Nor did it request either a limiting instruction or
- 13 -
an interrogatory, the latter as contemplated by Federal Rule of Civil Procedure
49(b) whereby issues of fact necessary to a decision could be recorded by the jury
and compared to the verdict. On direct, Royal’s claims investigator testified why
Royal decided to file this action against Dr. Choren and in the process stated “we
decided that we could continue to make payment so as not to harm him so he had
the funds to live, but we decided to present the matter to the Court and let the
Court decide.” App. Vol. IX at 2516. Dr. Choren’s counsel asked Dr. Choren
whether he had been able to use the monthly benefits to live on. Dr. Choren
responded no because he had to pay over $200,000 in attorney’s fees to defend.
App. Vol. X at 2955. On cross examination, Royal’s counsel pursued the matter,
bringing out that part of those attorney’s fees were for counterclaims. App. Vol.
X at 2963.
After examining Royal’s role in inducing the testimony, and the presence
of some evidence suggesting economic damages, we conclude that Royal cannot
demonstrate plain error. We can hardly say that it should have been obvious to
the trial judge that a Bernhard instruction was necessary, given the manner in
which the evidence about attorney’s fees came in. A limiting instruction tendered
by the parties would have been preferable. But the jury heard testimony relevant
to Royal’s untimely payment of business overhead expenses. App. Vol. IX at
2524, 2593-94. The jury also might have inferred that Dr. Choren suffered
- 14 -
economic damage from his inability to fully utilize the benefits provided under
the policy once coverage was contested. Having agreed to a general form of
verdict as to the extent of economic damages, Royal cannot now speculate as to
what elements made up that verdict.
2. Non-Economic Damages in the Absence of Economic Damages
Royal further argues that the district court committed plain error in failing
to instruct the jury that in an action for bad faith breach of an insurance contract
Colorado law precludes an award for non-economic damages in the absence of
economic damages. Aplt. Opening Br. at 25. Royal’s argument is foreclosed by
the Colorado Supreme Court’s decision in Goodson v. American Standard
Insurance Co. of Wisconsin, 89 P.3d 409 (Colo. 2004). 2 In Goodson, the
Colorado Supreme Court overruled a court of appeals decision requiring a
showing of substantial property or economic loss as a prerequisite for an award of
emotional damages in a bad faith breach of insurance contract. Id. at 412.
Positing that an insured “purchases insurance in the first place so as not to suffer .
. . anxiety, fear, stress, and uncertainty,” the court held that damages for
emotional distress are available in bad faith insurance contract cases on a showing
of the insurer’s liability, as opposed to the insured’s economic loss. See id. at
417. Irrespective of our finding that the jury’s damage verdict with respect to
2
The decision in Goodson was rendered after final briefing of this appeal.
- 15 -
economic damages was supported by a basis in the record, Goodson controls our
consideration of Royal’s claim. We find that the district court did not commit
plain error in concluding that Colorado law permits an award of non-economic
damages in the absence of economic damages.
C. Recovery of Future Benefits
On cross-appeal, Dr. Choren argues that the district court erred in
precluding evidence concerning future benefits and failing to alter or amend the
judgment to include the present value of future benefits, some $2,491,851. App.
Vol. VI at 1564. The district court determined, after balancing several
considerations, that an award of future benefits was not appropriate in this case.
The district court treated Dr. Choren’s motion to alter or amend as a motion for
reconsideration because it would have required reversal of pretrial rulings. App.
Vol. VI at 1564, 1567. We ordinarily review motions for reconsideration for
abuse of discretion. Matosantos Commercial Corp. v. Applebee’s Int’l, Inc., 245
F.3d 1203, 1213 (10th Cir. 2001). However, underpinning the district court’s
decision was a prior determination that Colorado law would not permit a lump-
sum award of future benefits under the facts present here. App. Vol. VIII at
2374-76. We review the district court’s determinations of state law de novo.
Cooper, 271 F.3d at 1251.
As recently as its decision in Goodson, the Colorado Supreme Court has
- 16 -
reiterated the general principle that “[a]n insured can recover damages for bad
faith breach of insurance contract based on traditional tort principles.” 89 P.3d at
415 (citing Lira v. Shelter Ins. Co., 913 P.2d 514, 517 (Colo. 1996)). Further, the
court has refused to limit the available categories of damages in bad faith claims.
Id. at 416. However, the precise question of whether lump-sum awards for future
benefits are available in such actions remains unresolved. As a federal court
sitting in diversity, we must predict how the Colorado court would decide this
issue. Schuchmann, 235 F.3d at 1225.
At the outset, we note certain facts that informed the district court’s
decision on this legal issue and that we believe are pertinent to our own
determination. First, the district court found that Royal had not repudiated the
contract in question. App. Vol. VI at 1565, VIII at 2376. Second, the
expectations under the contract embraced the possibility that benefits would cease
should Dr. Choren recover from his disability. App. Vol. VI at 1566, VIII at
2375. Third, the expectations under the contract were payments for present
disability, not future disability. App. Vol. VI at 1565; App. Vol. VIII at 2375.
Finally, we note the jury’s finding that Royal had acted in bad faith in the
“investigation and handling” of Dr. Choren’s claim. App. Vol. VI at 1457.
Our evaluation, like the district court’s, begins with the United States
Supreme Court’s decision in New York Life Insurance Co. v. Viglas, 297 U.S.
- 17 -
672 (1936). In Viglas, the plaintiff brought suit after being denied disability
payments from his insurer. Id. at 675. He sought the award of future benefits as
measured under the contract. Id. at 675-76. In denying the plaintiff future
benefits as the measure of recovery, Justice Cardozo, writing for a unanimous
court, focused on the fact that the insurer had not repudiated the policy in
question. Id. at 676. Instead, the insurer had sought protection under the contract
terms, arguing that the plaintiff was no longer disabled. Id. Finding no
repudiation of the contract, the court refused to impose an award of future
benefits where there was no allegation that the insurer had made its claim under
the contract in bad faith or as a “disingenuous pretense.” Id. at 678.
In discussing Viglas, the district court noted correctly that Royal had not
repudiated the contract in question here. Rather, Royal had chosen to seek
enforcement of the contract terms, terms it felt supported its claim against Dr.
Choren. Dr. Choren argues on appeal that Royal’s initial claim for rescission,
abandoned at the court’s insistence that Royal choose one claim for relief,
functioned as a repudiation of the contract. Thus, according to Dr. Choren, the
instant case falls well outside the orbit of Viglas. We do not believe the Colorado
cases cited by Dr. Choren support this assertion. See, e.g. Schneiker v. Gordon,
732 P.2d 603, 611 (Colo. 1987) (describing anticipatory repudiation as occurring
when a party makes a communication rendering performance impossible or
- 18 -
evidences a determination not to continue in performance). In this case, Royal
continued to make payments under the policy and elected, whether at the court’s
insistence or not, to seek to enforce the terms of the contract. Royal at no time
preemptively denied coverage to Dr. Choren, but instead chose to have the issue
of coverage adjudicated. These circumstances do not amount to an obvious
repudiation of the contract.
Irrespective of this argument, the Supreme Court’s decision in Viglas
informs but does not conclude our consideration of the present issue. In Viglas,
the Court was careful not to craft “an invariable rule whereby the full value of a
bargain may never be recovered for any breach of contract falling short of
repudiation or intentional abandonment.” Id. at 679. We also note that Viglas did
not involve a bad faith breach of insurance contract claim. On these bases, we do
not believe that Viglas forecloses an award of future benefits in a bad faith breach
of contract claim, nor do we find that the district court made such a determination
below. Instead, the district court considered, as do we, decisions outside the
forum and the factual circumstances of the instant case in reaching its
determination.
Dr. Choren directs us to decisions outside Colorado where courts have
permitted the award of future benefits in actions involving insurance contract
disputes. See, e.g. DeChant v. Monarch Life Ins. Co., 554 N.W.2d 225, 228 (Wis.
- 19 -
Ct. App. 1996) (holding that lump-sup award for future benefits is permissible in
a suit against insurer on a finding of repudiation based on terminating disability
payments in bad faith); Lone Star Life Ins. Co. v. Griffin, 574 S.W.2d 576, 579
(Tex. App. 1978) (finding repudiation of contract where insurer communicated
that payment of benefits would cease and affirming, without discussion, an award
for future benefits); Cont’l Cas. Co. v. Vaughn, 407 S.W.2d 818, 822-23 (Tex.
App. 1966) (finding anticipatory breach where insurer had denied liability without
just cause and holding that a suit for future benefits arises not under the contract
but at law for damages resulting from the breach). Royal, in contrast, points to
cases precluding an award of future benefits under disability contracts, although
none of the cases upon which Royal relies involved a finding of bad faith breach
of contract. See Rahman v. Paul Revere Life Ins. Co., 684 F. Supp. 192 (N.D. Ill.
1988); Teague v. Springfield Life Ins. Co., 285 S.E.2d 860 (N.C. Ct. App. 1982).
We believe the categorical rules urged upon us by the parties are not
supported by either the cases cited or the circumstances of the instant dispute.
Dr. Choren’s authorities depend, either explicitly or implicitly, on a finding of
repudiation or anticipatory breach. As explained above, the evidence here does
not support such a finding. Royal’s authorities, on the other hand, did not arise in
the context of bad faith breach of contract claims, and thus offer little guidance
on how to balance the conflicting policy considerations underlying tort and
- 20 -
contract disputes. We do find, however, one aspect of the Wisconsin appellate
court’s decision in DeChant persuasive. After reviewing existing case law, the
Wisconsin court concluded, and we agree, that trial judges enjoy broad discretion
to shape remedies in bad faith insurance cases to ensure that successful parties
receive compensation in accordance with their legitimate expectations under the
contract as determined by the court. DeChant, 554 N.W.2d at 228.
Given its reticence in precisely defining the types of relief available to
successful parties in bad faith breach of insurance contract claims, we do not
believe the Colorado Supreme Court would embrace a categorical rule mandating
that an award of future benefits be available in every action involving a bad faith
breach. Nor do we believe that the court would preclude such an award in all
cases involving benefits contingent on continuing disability. Rather, we believe
the Colorado Supreme Court would hold, as did the court in DeChant, that the
determination of whether or not an award of future benefits is available lies in the
discretion of the trial court after considering such factors as the relationship of
the parties, the nature of the contract, and all other relevant factors present in the
case.
Under the facts of the instant dispute, we believe the district court did not
err in precluding Dr. Choren from presenting evidence with respect to the present
value of future benefits or in refusing to alter or amend the judgment to include
- 21 -
an award of future benefits. Royal did not repudiate the contract in the instant
case. While the jury found that Royal had acted in bad faith in handling and
investigating Dr. Choren’s claim, there was no evidence introduced at trial to
suggest that Royal had brought suit under a “disingenuous pretense.” See Viglas,
297 U.S. at 678. Rather, Royal sought to have adjudicated whether Dr. Choren’s
claims were encompassed by the contract’s terms. Furthermore, we agree with
the district court that the possibility of Dr. Choren’s recovery, coupled with the
legitimate expectations under the contract including payments for present
disability (not future disability), militate against such an award. Thus, we hold
that Colorado law would recognize a trial court’s discretion to consider an award
of future benefits. The district court exercised that discretion with careful
reasoning. Having done so, the district court did not err in denying Dr. Choren’s
motion to alter or amend the judgment.
D. CCPA Claim
Dr. Choren’s arguments on the CCPA are conditional on a remand on
liability and damages. Because we do not find error that would necessitate a
remand, we do not reach Dr. Choren’s arguments.
Dr. Choren’s motion to certify (to the Colorado Supreme Court) the
question of whether the present value of potential future benefits is available if an
- 22 -
insurer denies benefits in bad faith is DENIED and the judgment is
AFFIRMED.
- 23 -
Royal MacCabees Life Insurance v. Choren
Court: Court of Appeals for the Tenth Circuit
Date filed: 2005-01-03
Citations: 393 F.3d 1175
Copy Citations