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McElgunn v. Cuna Mutual Group

May 22, 2009

SHARON MCELGUNN, AS PERSONAL REPRESENTATIVE OF THE ESTATE OF TERI POWELL, PLAINTIFF,
v.
CUNA MUTUAL GROUP; CUNA MUTUAL LIFE INSURANCE COMPANY; AND CUNA MUTUAL INSURANCE SOCIETY, DEFENDANTS.



The opinion of the court was delivered by: Karen E. Schreier Chief Judge

ORDER ON DEFENDANTS' MOTION IN LIMINE #6

The court reserved ruling on defendants' motion in limine #6 at the pretrial conference and indicated it would issue a written opinion in relation to that motion. The motion is granted in part and denied in part.

DISCUSSION

Defendants argue that the records from other claims that CUNA*fn1 has handled are irrelevant to the issue in this case, namely, whether CUNA appropriately handled Powell's claim pursuant to the policy in question. Defendants also argue CUNA's acts, which are factually distinguishable from the instant case, may not serve as the basis for punitive damages.

Defendants further argue that evidence of other claim files should be excluded because their probative value is outweighed by the risk of confusing the issue, misleading the jury, and unduly delaying the trial. Plaintiff responds that evidence of other acts is admissible to show that defendants' misconduct in relation to Powell's claim was intentional and not the result of mistake or accident. Plaintiff emphasizes that this evidence shows defendants' intentional or reckless behavior, which is necessary to establish that defendants acted in bad faith. Plaintiff also contends that evidence of defendants' other acts is admissible because it is critical to her punitive damages claim.

Federal Rule of Evidence 404(b) "applies in both civil and criminal cases." See Huddleston v. United States, 485 U.S. 681, 685 (1988). While Rule 404(b) does contain a notice requirement specific to criminal cases, the official note to the 2006 amendments to Rule 404 explains that 404(b) also applies to civil cases: "Nothing in the amendment is intended to affect the scope of Rule 404(b). While Rule 404(b) refers to the 'accused,' the 'prosecution,' and a 'criminal case,' it does so only in the context of a notice requirement. The admissibility standards of Rule 404(b) remain fully applicable to both civil and criminal cases."

Rule 404(b) provides: "[e]vidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident . . . ." The Eighth Circuit uses a four-part test to determine whether evidence of extrinsic acts is admissible. Such evidence is admissible if (1) it is relevant to a material issue, (2) the extrinsic acts are similar in kind and reasonably close in time to the crime charged, (3) the evidence is sufficient to support a jury finding that the defendant committed the extrinsic acts, and (4) the potential prejudice of the evidence does not substantially outweigh its probative value. See United States v. Turner, 104 F.3d 217, 222 (8th Cir. 1997) and United States v. Perkins, 94 F.3d 429, 434 (8th Cir. 1996).

"Rule 404(b) is one of inclusion because it admits evidence of other crimes, wrongs, or acts relevant to an issue in the trial, unless it tends only to prove criminal disposition." United States v. Wagoner, 713 F.2d 1371, 1375 (8th Cir. 1983). "The trial court is vested with broad discretion in determining whether to admit wrongful act evidence." Id. "This discretion will be disturbed and a case reversed only when the evidence in question clearly has no bearing upon any of the issues involved." Id.

Before conducting its 404(b) analysis on other acts, the court must examine Teri Powell's factual situation so that it is able to compare other claims to Powell's claim. In November 2001, Powell obtained credit disability insurance from CUNA. Docket 290-6. When Powell submitted a claim for disability benefits, CUNA informed her that it was unable to consider the claim because it was filed outside the time frame specified within the certificate of insurance. Docket 290-11. Powell retained an attorney. On March 8, 2006, her attorney wrote a letter to CUNA, stating that its denial of Powell's claim was improper because Powell timely filed her claim and even if she did not timely file her claim, such untimely filing did not prejudice CUNA. Docket 290-13. Under South Dakota law, "[i]f delayed notification has not prejudiced the insurer's ability to defend a claim, then there is no reason to strictly enforce the notice requirement." Auto-Owners Ins. Co. v. Hansen Housing, Inc., 604 N.W.2d 504, 513 (S.D. 2000). Subsequently, on March 30, 2006, CUNA overturned its initial decision not to consider Powell's claim based on untimely filing. Docket 290-58. On April 4, 2006, CUNA then sent Powell a letter advising her that "[b]ased on additional information received, [it had] overturned [its] decision [and would] review [her] claim to determine if benefits are payable as if it had been timely filed." Docket 290-15. After considering her claim, CUNA paid benefits to Powell for the first 12 months of her disability, from May 16, 2002, until May 15, 2003, in the amount of $3,080.61. Docket 186 at ¶ 10, ¶ 12. CUNA discontinued Powell's benefits after 12 months because her file indicated that she was capable of returning or had returned to the same type of work. Id. at ¶ 13. As such, CUNA determined that Powell was not "totally disabled" as defined in the insurance policy. Id. at ¶ 14.

A. David Stultz - Pennsylvania

David Stultz obtained credit disability insurance from CUNA. He submitted a claim to CUNA and CUNA informed him that it was unable to consider his claim because it was filed after the time frame specified within his certificate of insurance. Docket 290-8. Stultz retained an attorney. On June 22, 2002, his attorney wrote a letter to CUNA, noting that the language of the time filing provision within the certificate of insurance did not support CUNA's denial of Stultz's claim. Docket 290, Exhibit 10. Subsequently, on November 18, 2002, Stultz initiated a lawsuit against CUNA, alleging CUNA breached its contract and engaged in bad faith. Docket 290-17. Under Pennsylvania law, "unless the insurer is actually prejudiced by the insured's failure to give notice immediately, the insurer cannot defeat its liability under the policy because of the non-prejudicial failure of its insured to give immediate notice of an accident or claim as stipulated by a policy provision." Brakeman v. Potomac Ins. Co., 371 A.2d 193, 197 (Pa. 1977). Almost a year later, on November 13, 2003, Stultz settled the lawsuit with CUNA for $45,000. Docket 290-18.

First, the information surrounding Stultz's claim is relevant to the material issues of CUNA's intent and knowledge, that is whether CUNA knew that it was improperly denying claims on the basis of its time filing provision. Second, Stultz's claim was similar in kind and close in time to Powell's claim. Like Powell's claim, Stultz's claim was initially denied on the basis of untimely filing. Additionally, like Powell, Stultz retained an attorney to assist him with obtaining benefits from CUNA. Similar to South Dakota, Pennsylvania has a law that prohibits insurance companies from denying claims solely on the basis of timeliness of a submitted claim; the insurance company must have suffered some prejudice before being able to justify a denial on untimely notification of a claim. Further, the Stultz claim was reasonably close in time, occurring approximately four years prior to Powell's claim. See United States v. Wint, 974 F.2d 961, 967 (8th Cir. 1992) (five years is acceptable); United States v. Burkett, 821 F.2d 1306, 1309-10 (8th Cir. 1987) (seven years is acceptable).

Third, the denial letter from CUNA to Stultz, the letter from Stultz's attorney to CUNA, Stultz's complaint, and the parties' settlement constitute sufficient evidence to support a jury determination that CUNA committed this prior act. But as to the fourth requirement, the court finds that the evidence is more prejudicial than probative. CUNA settled Stultz's claim for reasons unknown to the court. For the court to find that CUNA settled Stultz's claim based solely on issues regarding the time filing provision within the insurance policy is speculative at best. Parties take into account a variety of considerations when determining whether to settle a lawsuit. Therefore, the court finds that Stultz's claim is inadmissible under Rule 404(b) because it is more prejudicial than probative.

B. Catherine Savage - Arizona

Catherine Savage obtained credit disability insurance from CUNA. Savage submitted a claim to CUNA but CUNA denied her claim. CUNA's denial of Savage's claim was based in part on the fact that she untimely filed her claim. In response to CUNA's denial, Savage hired an attorney. On March 25, 2003, her attorney wrote a letter to CUNA, noting that neither the insurance policy nor the certificate of insurance stated what CUNA stated in its denial letter. Docket 290-19. Subsequently, Savage commenced a lawsuit against CUNA. Docket 290-21. Under Arizona law, failure of an insured to give notice within the time required by an insurance policy does not itself relieve an insurer from liability, unless the insurer was prejudiced by such failure. Massachusetts Bonding & Ins. Co. v. Arizona Concrete Co., 56 P.2d 188, 192 (Ariz. 1936). On April 22, 2003, the parties settled the claim for $50,000. Docket 290-21 and Docket 290-28.

Again, the information relating to Savage's claim is relevant to the material issues of CUNA's intent and knowledge, that is whether CUNA knew that it was improperly denying claims on the basis of its time filing provision. Additionally, Savage's claim was similar in kind and close in time to Powell's claim. Savage's claim was initially denied on the basis of untimely filing, like Powell's claim. Further, like Powell, Savage retained an attorney to assist her in pursuing benefits from CUNA after its initial denial of her claim. Like South Dakota law, under Arizona law, an insurance company is liable even if the insured does not timely file his claim, unless the insurance company is prejudiced. The Savage claim was also reasonably close in time, occurring approximately three years prior to Powell's claim. See Wint, 974 F.2d at 967 (five years is acceptable); United States v. Burkett, 821 F.2d at 1309-10 (seven years is acceptable).

Moreover, the letter from Savage's attorney to CUNA and the parties' settlement constitute sufficient evidence to support a jury determination that CUNA committed this prior act. Notwithstanding this, the court finds that the evidence is more prejudicial than probative. Like Stultz, CUNA settled Savage's claim for reasons unknown to the court. For the court to find that CUNA settled Savage's claim solely because of the time filing provision is conjecture. As noted above, parties take into account a variety of considerations when determining whether to settle a lawsuit. Therefore, the court finds that Savage's claim is also inadmissible under Rule 404(b) because it is more prejudicial than probative.

C. Ted Wierzbicki - West Virginia

Ted Wierzbicki obtained credit disability insurance from CUNA. He submitted a claim to CUNA and CUNA denied his claim because he did not timely file his claim. Consequently, Wierzbicki retained an attorney. On March 28, 2003, his attorney wrote a letter to CUNA, stating that CUNA's denial of Wierzbicki's claim was not justified by the language contained within the certificate of insurance. Docket 290-29. Under West Virginia law, if the insured's delay in notifying the insurer does not prejudice the insurer, then the insured's claim is not barred by the insured's failure to timely notify. See Colonial Ins. Co. v. Barrett, 542 S.E.2d 869, 875 (W. Va. 2000). CUNA reconsidered Wierzbicki's claim and overturned its initial decision on April 10, 2003. Docket 290-30. Subsequently, on May 15, 2003, CUNA sent a letter to Wierzbicki explaining that "[u]pon review of additional information received [it had] overturned the denial [and would] continue with the normal review process for possible benefits according to the remaining terms of [his] Credit Disability Insurance Certificate." Docket 290-31. First, the circumstances related to Wierzbicki's claim are relevant to the material issues of CUNA's intent and knowledge, that is whether CUNA knew that it was improperly denying claims on the basis of its time filing provision. Second, Wierzbicki's claim was similar in kind and close in time to Powell's claim. Like Powell's claim, Wierzbicki's claim was initially denied on the basis of untimely filing. Additionally, like Powell, Wierzbicki retained an attorney to assist him with obtaining benefits from CUNA. Also, like Powell, Wierzbicki received a letter from CUNA that explained that upon review of additional information, it overturned its initial denial. Similar to South Dakota law, the law in West Virginia states that an insurance company must be prejudiced by an insured's late filing of a claim in order to be relieved from liability under the policy. Further, the Wierzbicki claim was reasonably close in time, occurring approximately three years prior to Powell's claim. See Wint, 974 F.2d at 967 (8th Cir. 1992) (five years is acceptable); Burkett, 821 F.2d at 1309-10 (8th Cir. 1987) (seven years is acceptable).

Third, the letter from Wierzbicki's attorney to CUNA, CUNA's appeal summary form, and CUNA's letter to Wierzbicki constitute sufficient evidence to support a jury determination that CUNA committed this prior act. Fourth, the court finds that the evidence is more probative than prejudicial. Significantly, the Wierzbicki claim demonstrates that CUNA overturned a denial based upon untimely filing almost three years before it acted in the same manner with regards to Powell. This evidences a pattern of behavior on the part of CUNA. Further, the court will limit the potential prejudicial effect of Wierzbicki's claim by giving an appropriate limiting instruction in its final jury instructions if requested by CUNA. Accordingly, the court finds that evidence regarding Wierzbicki's claim is admissible under Rule 404(b).*fn2

D. Richard Thornton - Mississippi

Richard Thornton obtained credit disability insurance from CUNA. He submitted a claim to CUNA and CUNA denied his claim because he did not timely file his claim. As a result, Thornton contacted the Mississippi Department of Insurance. On June 25, 2003, the Mississippi Department of Insurance called CUNA and informed CUNA that its certificate language regarding when an insured was supposed to file a claim was confusing. Docket 290-32. On that same day, as a follow-up to the telephone conversation, the Mississippi Department of Insurance faxed CUNA three questions about the time filing provision located within its insurance policy. Docket 290-33. Under Mississippi law, "where an insurance policy requires notice as a condition precedent to coverage, coverage may still be allowed unless the insurer suffered prejudice due to delay." Jackson v. State Farm Mut. Auto. Ins. Co., 880 So. 2d 336, 341 (Miss. 2004). Later, on July 7, 2003, CUNA sent a letter to Thornton explaining that "[b]ased on subsequent information received, [it] overturned its decision [and had] reviewed the claim for benefits based on the remaining terms of the Credit Disability Insurance Certificate." Docket 290-34 CUNA informed Thornton that benefits would be extended to him for the period of December 13, 2001, through April 3, 2002. Docket 290-34.

The events regarding Thornton's claim are relevant to the material issues of CUNA's intent and knowledge, that is whether CUNA knew that it was improperly denying claims on the basis of its time filing provision. Thornton's claim was similar in kind and close in time to Powell's claim. Like Powell's claim, Thornton's claim was initially denied on the basis of untimely filing. In addition, like Powell, Thornton sought help from someone with knowledge of insurance law to dispute CUNA's denial of his claim. Importantly, like Powell, Thornton received a letter from CUNA that explained that upon review of additional information, it overturned its initial denial. Similar to South Dakota, under Mississippi law, to justify denial of a claim based on late filing, an insurance company must be prejudiced by the insured's late filing of the claim. Further, the Thornton claim was reasonably close in time, occurring less than three years prior to Powell's claim. See Wint, 974 F.2d at 967 (8th Cir. 1992) (five years is acceptable); Burkett, 821 F.2d at 1309-10 (8th Cir. 1987) (seven years is acceptable).

Third, the notations made by CUNA's staff in relation to the Mississippi Department of Insurance telephone inquiry, the fax CUNA received from the Mississippi Department of Insurance, and CUNA's letter to Thornton constitute sufficient evidence to support a jury determination that CUNA committed this prior act. Fourth, the court finds that the evidence is more probative than prejudicial. Significantly, the Thornton claim demonstrates that CUNA overturned a denial based upon untimely filing less than three years before it acted in the same manner with regards to Powell. This evidences a pattern of behavior on the part of CUNA. Further, the court will limit the potential prejudicial effect of Thornton's claim by giving an ...


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