Bennett v. USAA Casualty Insurance Co.

            IN THE SUPREME COURT OF THE STATE OF DELAWARE


DEBRA BENNETT & WILLIAM                §
BENNETT,                               §     No. 144, 2016
    Plaintiff-Below,                   §
    Appellant,                         §     Court Below: Superior Court
                                       §     of the State of Delaware
      v.                               §
                                       §     C.A. No. S10C-02-010
USAA CASUALTY INSURANCE                §
COMPANY,                               §
    Defendant-Below,                   §
    Appellee.                          §

                          Submitted: February 15, 2017
                          Decided:   March 13, 2017

Before STRINE, Chief Justice; VALIHURA, and SEITZ, Justices.

                                       ORDER

      This 13th day of March, 2017, having considered the briefs and the record

below, it appears to the Court that:

      (1)    On February 12, 2009, the Bennetts’ toilet cracked causing water

damage to their condominium as well as their belongings. The property was

governed by a condominium association, which had insurance with Philadelphia

Indemnity Insurance Company (“PIIC”).          The Bennetts also had their own

insurance policy with USAA. After the condominium association, USAA, and

PIIC refused to cover the loss, the Bennetts filed suit against them alleging breach
of contract and bad faith denial of insurance coverage. This appeal involves only

the suit against USAA.

       (2)    At trial, USAA moved for a directed verdict on the bad faith claim,

contending that the Bennetts failed to present evidence that USAA lacked a

reasonable justification to deny their claim.          The Superior Court granted the

motion, and instructed the jury that the bad faith claim was no longer in the case.

After trial, the jury returned a verdict in favor of USAA on the breach of contract

claim. In this appeal, the Bennetts raise two arguments. First, they contend that

the Superior Court improperly required them to produce evidence that USAA did

not have a reasonable justification for denying their claim. Second, they argue that

the court should not have told the jury that the bad faith claim was no longer in the

case. For the reasons stated below, we affirm the decision of the Superior Court.

       (3)    William and Debra Bennett owned a condominium in Lewes,

Delaware.1 On February 12, 2009, the property manager of their condominium

association, Plantations East Condominium Association (the “Association”), called

them and told them that neighbors had reported water gushing out of the walls of

their home. The Bennetts called ServPro of Sussex County at the Association’s

recommendation. ServPro determined that the source of the leak was a broken

toilet in the Bennetts’ condominium.

1
  The Bennetts’ primary home is in Ashburn, Virginia, but they stayed in the condominium year
round.

                                             2
       (4)    The Bennetts sustained major water damage to their condominium

and their personal property inside the home.         They filed a claim with their

insurance company, USAA. The USAA policy contained an “other insurance”

provision, which stated that if the condominium was covered by other insurance

“in the name of a corporation or association of property owners covering the same

policy,” the USAA policy would be secondary to that policy.2 USAA requested

that the Bennetts provide a copy of the Association’s bylaws so that it could

determine who was responsible for the repairs. Mr. Bennett forwarded them to

USAA.3       The Bennetts also filed a claim with the Association and the

Association’s insurance carrier, PIIC.4       The Bennetts later hired an attorney,

Georjan Overman, to handle the claims against the Association and PIIC.

       (5)    There were significant delays in getting PIIC and the Association to

pay for repairs to the property. On May 21, 2009, Mr. Bennett sent an e-mail to

USAA stating “[a]s you were informed by our attorney, Georjan Overman, the

actual repair to our property is presently in limbo despite the [Association’s]

insurer, [PIIC], accepting the claim to repair the damaged structure.”5 In the

summer of 2009, the Bennetts agreed to mediate their claim with the Association



2
  App. to Answering Br. at 369-70.
3
  Id. at 79.
4
  Id. at 137.
5
  Id. at 142.

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and PIIC to move the repair process along.6 USAA was not involved in the

mediation.7 During that time, the Bennetts did not request that USAA pay for

repairs to the condominium.

       (6)    While the Bennetts were pursuing their claims against the Association

and PIIC, USAA requested that the Bennetts provide a list of items damaged by the

leak.8 On October 19, 2009, the Bennetts first mailed USAA their list.9 On

December 17, 2009, a USAA adjuster inspected the condominium and prepared an

estimate of the loss. USAA paid a portion of the amount the Bennetts requested

for their damaged personal property. On January 28, 2010, the Bennetts contacted

USAA to inform them that PIIC and the Association had not paid any benefits for

their unit repairs, and demanded benefits under their dwelling coverage with

USAA. On January 29, 2010, USAA sent a denial letter to the Bennetts, informing

them that USAA’s coverage was secondary to that of the Association, and

requested that if their claim was denied by PIIC, that they forward the denial letter

to it for review.10




6
  Id. at 144-45.
7
  Id. at 145.
8
  App. to Answering Br. at 145.
9
  Id. at 159.
10
   App. to Opening Br. at 1.

                                         4
       (7)      On February 9, 2010, the Bennetts filed suit against USAA for breach

of contract and bad faith.11 At their jury trial, the Bennetts testified in their case-in-

chief regarding the damages to their condominium and personal property.                       A

contractor witness also testified. The Bennetts did not call a representative from

USAA to explain what information USAA knew or considered in rendering its

decision to deny the claim.12

       (8)      At the conclusion of the Bennetts’ case, USAA moved for a directed

verdict on the bad faith claim, arguing that the Bennetts failed to present sufficient

evidence to support the claim. Specifically, USAA argued that the Bennetts had

the burden to produce some evidence to show that USAA lacked a reasonable

justification to deny primary dwelling coverage. During argument on the motion,

the court asked why the Bennetts did not call a USAA representative as a witness:

       Court:         Let me just – let me ask one thing. I would have thought
                      that you would have had Ms. Johnson testify to explain
                      why she did what she did. Was there any reason why
                      you didn’t do that, Mr. Schaffer?
       Counsel:       Yeah, Your Honor. There are risks, of course, that she
                      could get on the stand and say, I did do that.13

                                              ...



11
   The Bennetts filed a separate lawsuit against the Association and PIIC seeking payment for the
same repairs. App. to Answering Br. at 169-70.
12
   A USAA claims representative, Lisa Johnson (formerly Lisa Bowman), testified during
USAA’s case-in-chief. She was not asked why she denied the claim.
13
   App. to Answering Br. at 287.

                                               5
Court:     Your – Ms. Bennett did say that Ms. Bowman did not ask
           for the insurance policy and I think she said she didn’t
           look at it or that she was surprised that Ms. Bowman did
           not look at it. I don’t know how Ms. Bennett would have
           actual knowledge of that. She may. Someone could
           have told her. Ms. Bowman could have told her. I doubt
           that, but she could have learned it through the litigation
           . . . But I’m certainly very troubled that we didn’t have
           Ms. Bowman on the stand to say why she did what she
           did or why she didn’t do what she didn’t do and, you
           know – but what I’m left with right now is USAA paid
           on the personal property; the condo docs were sent to
           USAA; USAA, through great effort by Mr. Greenberg,
           was aware of the lawsuits against both the condo
           association and the Philadelphia Indemnity Insurance
           Company, but I – as I sit here, I don’t know at all why
           Ms. Bowman did or [did] not do anything. I mean, I
           don’t know.
Counsel:   Well, I believe the burden is that . . . someone at USAA
           . . . has to testify that she had a reasonable basis for
           denying these claims. And if she didn’t read the
           insurance policy, I don’t see how that is reasonable.

Court:     I mean, I think you have the burden to say they denied it
           without any reasonable justification.

Counsel:   Which we did.
Court:     I really have no information as to why she denied it.

Counsel:   So then how do we know whether their excuse is
           reasonable or not?

Court:     Well, you put her on the stand and ask her, [w]hy did you
           deny it? And she says, [w]ell, I did 10 things, or, [e]very
           29th, I deny all the claims that come in just as a matter of
           company policy. That’s just what I do and I get a bonus
           for doing that. I’m being facetious, but I don’t—

Counsel:   Yeah.


                                 6
          Court:        —know. I mean, I just don’t know.

          Counsel:      No, it was a good example.

          Court:        I don’t know why she did what she did.

                                            ...

          Court:        There’s a complete absence of — like I said, you’ve got
                        the burden. You’ve got the burden.14
          (9)      On February 18, 2016, the trial court granted USAA’s motion for a

directed verdict on the bad faith claim, finding that the Bennetts failed to provide

legally sufficient evidence to support their claim that USAA did not have a

reasonable justification when it denied their coverage. Specifically, the court held

that because the Bennetts did not call USAA to explain why it denied the Bennetts’

coverage, a jury could not find that USAA lacked a reasonable basis to deny their

claim. Thus, they failed to meet their burden of production on the issue.

          (10) On February 19, 2016, the Bennetts requested that the Superior Court

reconsider its directed verdict ruling, which the court denied. The court held that

the Bennetts had made a strategic decision not to call anyone from USAA because

they might provide an adequate explanation for why they denied the claim, and

without that testimony the claim failed.15 On February 23, 2016, the Bennetts

renewed the motion to reconsider the directed verdict.           The court denied the



14
     Id. at 289-92.
15
     Id. at 313.

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motion, holding that the Bennetts “simply failed on this burden of proof to show

those things, and so I ruled against [them] on bad faith.”16

      (11) On February 23, 2016, the court instructed the jury. Because counsel

had discussed the bad faith claim in opening statements, and the court had granted

a directed verdict on the claim, the court instructed the jury that the claim was no

longer in the case:

      During opening statements, the attorneys discussed the parties’ claims
      which you may need to decide in this case. The plaintiffs have the
      burden of proof for each and every claim they assert against the
      defendant. Based on the evidence presented by the plaintiffs in this
      case, I have ruled as a matter of law that the plaintiffs failed to meet
      their burden of proof on their claim that the defendant acted in bad
      faith. Therefore, this claim is not for you to decide and is no longer in
      this case.17

On the same day, the jury returned a verdict in favor of USAA on the breach of

contract claim. This appeal followed.

      (12) The Bennetts first argue that the Superior Court improperly granted a

directed verdict on the bad faith claim. According to the Bennetts, USAA, not

they, were required to provide evidence that the denial was not arbitrary, and thus a

directed verdict was improper. A claim that the trial court applied an incorrect

legal standard is a question of law that we review de novo.18 Under Superior Court

Civil Rule 50(a), the Superior Court may grant judgment as a matter of law when
16
   Id. at 328.
17
   Id. at 338-39.
18
    MCA, Inc. v. Matsushita Elec. Indus. Co., Ltd., 785 A.2d 625, 638 (Del. 2001) (internal
citation omitted).

                                            8
the plaintiff “has been fully heard on an issue and there is no legally sufficient

evidentiary basis for a reasonable jury to find for that party on that issue.” On

appeal from the Superior Court’s grant of a directed verdict, we must determine

“whether the evidence and all reasonable inferences that can be drawn therefrom,

taken in a light most favorable to the nonmoving party, raise[s] an issue of material

fact for consideration by the jury.”19

       (13) An insured has a cause of action for bad faith against an insurer

“when the insurer refuses to honor its obligations under the policy and clearly lacks

reasonable justification for doing so.”20 To state a bad faith claim, the plaintiff

must show that the insurer failed to honor its contractual obligations without

reasonable justification.21        When evaluating whether there was a reasonable



19
   Fritz v. Yeager, 790 A.2d 469, 470-71 (Del. 2002) (internal citations omitted).
20
   Enrique v. State Farm Mut. Auto. Ins. Co., 142 A.3d 506, 511 (Del. 2016).
21
   Id. (affirming summary judgment because the plaintiff did not meet his burden to show that
the insurance company acted in bad faith); Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434,
440 (Del. 2005); Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254, 264 (Del. 1995) (“A
lack of good faith, or the presence of bad faith, is actionable where the insured can show that the
insurer’s denial of benefits was clearly without any reasonable justification.”) (emphasis added);
Lewis v. Am. Indep. Ins. Co., 2004 WL 1426964, at *10 (Del. Super. June 22, 2004) (stating that
plaintiff must show that the insurer’s refusal to comply with contractual obligation was clearly
without any reasonable justification) (quoting Casson v. Nationwide Ins. Co., 455 A.2d 361, 365
(Del. Super. 1982)); Thomas v. Harford Mut. Ins. Co., 2003 WL 220511, at *3 (Del. Super. Jan.
31, 2003) (“In order to establish bad faith breach of contract in the insurance context, the plaintiff
must show that the insurer failed to honor its contractual obligations without reasonable
justification.”) (emphasis added); Casson, 455 A.2d at 365 (Del. Super. 1982) (“In order for an
insured to establish the contractual liability of an insurer for an alleged breach of an insurance
agreement, he must show that (1) there was a valid contract of insurance in force at the time of
the loss, (2) the insured has complied with all conditions precedent to the insurer’s obligation to
make payment, and (3) the insurer has failed to make payment as required under the policy.”)
(emphasis added).

                                                  9
justification for denying the claim, “the strategy, mental impressions and opinion

of the insurer’s agents concerning the claim . . .” are of central importance.22

       (14) Giving the Bennetts all reasonable inferences drawn from the

evidence, and viewing the evidence in a light most favorable to them, they failed to

raise a material fact for consideration by the jury on their bad faith claim. The only

evidence the Bennetts presented on the bad faith claim was that they never gave a

copy of the PIIC insurance policy to USAA. But that is insufficient evidence to

prove that USAA failed to honor its contractual obligations without reasonable

justification. The Bennetts notified USAA that PIIC and the Association were

going to cover the claim, which would relieve USAA of secondary liability for the

claim.23   When the claim had not been paid nearly a year after the loss, the

Bennetts asked USAA to cover the claim. USAA denied coverage because “the

Insured’s policy is a secondary policy to the Association’s insurance coverage. If

you have a denial letter from the Association’s insurance carrier, please forward it

to USAA for review.”24 The Bennetts did not admit PIIC’s denial letter into



22
   Tackett, 653 A.2d at 263 (quoting Holmgren v. State Farm Mut. Auto. Ins. Co., 976 F.2d 573,
577 (9th Cir. 1992)); see also Desrivieres v. Richard, 2016 WL 241373, at *4 (Del. Super. Jan.
14, 2016) (“A first-party insured may establish a claim of bad faith in a first-party insured-
insurer contractual relationship if they show that the insurer lacked reasonable justification in
delaying or refusing payment of a claim. In this context, the mental impressions, strategy, and
opinions of the insurer’s agents concerning the handling of the claim are directly at issue.”)
(internal quotations omitted).
23
   App. to Answering Br. at 142.
24
   Id. at 1.

                                               10
evidence and it is not in the record. In fact, it is unclear whether the Bennetts ever

gave USAA the PIIC denial letter.

      (15) Additionally, the Bennetts both testified that they were unaware of

why USAA denied the claim, and they did not call a representative from USAA to

give an explanation. Nor did the Bennetts call an insurance expert to opine on the

arbitrariness of USAA’s action.      Further, when the Superior Court asked the

Bennetts’ counsel why he did not call a USAA representative to elicit their

explanation, counsel said he did not want to risk presenting evidence that USAA

had a reasonable basis for the denial. Although the Superior Court incorrectly held

that the Bennetts had to call a representative from USAA to explain the basis for

the denial, the court properly granted a directed verdict in USAA’s favor because

the Bennetts did not produce any evidence in their case-in-chief to support a bad

faith claim.

      (16) Next, the Bennetts challenge the Superior Court’s jury instructions on

two grounds. First, the Bennetts argue that the instruction improperly placed the

burden of proof on them to show that USAA’s denial of the claim was

unreasonable.   We have already determined that the Superior Court properly

assessed the burden of proof against the Bennetts, and thus this claim is without

merit. Second, the Bennetts argue that the instruction was prejudicial because it




                                         11
did not clarify that the breach of contract claim was still alive. We review a

challenged jury instruction de novo.25

       (17) This Court determines whether, reading a jury instruction as a whole,

the instruction “correctly stated the law and enabled the jury to perform its duty.”26

Further, an instruction will not be cause for reversible error if it is “reasonably

informative and not misleading, judged by common practices and standards of

verbal communication.”27 A jury instruction is not a ground for reversal if “it is

reasonably informative, not misleading and does not undermine the jury’s ability to

intelligently perform its duty.”28

       (18) In opening statements, counsel for the Bennetts and USAA told the

jury that the case was about a bad faith insurance claim and breach of contract

claim. The Superior Court therefore determined that an instruction was needed to

clarify that the bad faith claim was no longer in the case so that the jury would not

be confused. The court may properly inform the jury that a claim is no longer part

of a case to avoid confusion.29 The instruction addressed a logical question that the

jury might have had given that the attorneys explained the claims in opening

25
   Chrysler Corp v. Chaplake Holdings, Ltd., 822 A.2d 1024, 1034 (Del. 2003).
26
   Id. (citing Russell v. K-Mart Corp., 761 A.2d 1, 4 (Del. 2000)).
27
    Sammons v. Doctors for Emerg. Servs., P.A., 913 A.2d 519, 540 (Del. 2006) (internal
quotations omitted).
28
   Koutoufaris v. Dick, 604 A.2d 390, 399 (Del. 1992) (citing Sirmans v. Penn, 588 A.2d 1103
(Del. 1991)).
29
   See Capital Mgmt. Co. v. Brown, 813 A.2d 1094, 1101 (Del. 2002) (“Simply telling the jury
that a party is no longer part of the case for the purpose of avoiding confusion about the
alignment of the parties does not violate [Delaware law].”).

                                            12
statements. Further, the jury was properly instructed on the claim of breach of

contract after the court gave the clarifying instruction.          Thus, viewing the

instruction as a whole, the instruction correctly stated the law and enabled the jury

to perform its duty.

      NOW, THEREFORE, IT IS HEREBY ORDERED that the judgment of the

Superior Court is AFFIRMED.

                                              BY THE COURT:

                                              /s/ Collins J. Seitz, Jr.
                                                     Justice




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