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McElgunn v. Cuna Mutual Insurance Society

March 22, 2010

SHARON MCELGUNN, AS PERSONAL REPRESENTATIVE OF THE ESTATE OF TERI POWELL, PLAINTIFF,
v.
CUNA MUTUAL INSURANCE SOCIETY, DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

Defendant, Cuna Mutual Insurance Society, moves for a new trial, or in the alternative, a remittitur of the compensatory damages award and a reduction of the punitive damages award. Plaintiff, Sharon McElgunn, as personal representative of the estate of Teri Powell, resists defendant's motion.

BACKGROUND

Teri Powell purchased a credit disability insurance policy from defendant. Powell became disabled and filed a claim with defendant on January 29, 2006. The insurance policy set forth the deadline for filing a claim as follows: "You must send proof to us within 90 days after your Total Disability stops. If you cannot send proof to us within 90 days, you must do so as soon as you can. Unless you have been legally incapable of filing proof of Total Disability, we won't accept it if it is filed after one (1) year from the time it should have been filed." Defendant initially denied Powell's claim on the basis that the claim was untimely filed.

Powell then hired an attorney, Jim Leach, to address the denial of her claim. Leach wrote defendant and explained that the claim was timely because Powell was still disabled and the policy says that proof must be sent within 90 days after the disability stops. Leach also explained that under South Dakota law, the late filing of a claim does not bar a claim unless the insurer can show that it has been prejudiced. On April 4, 2006, defendant's Appeals Committee reversed the denial without explanation. Defendant paid benefits to Powell for one year, from May 2002 to May 2003. Powell did not receive any further benefits until after she died.

On June 9, 2006, defendant sent Leach a letter stating that "after 12 months of disability, the definition of disability changes to capability of working any occupation for 20 hours or more per week." The letter asked various questions about Powell's part-time work, which involved making hats and petsitting. Leach responded to the letter by answering that Powell worked 15-20 hours a week at her home petsitting and making hats.*fn1 Leach also asked for a copy of the policy with the 20-hour provision. Defendant sent a copy of Powell's policy to Leach, but the policy did not contain a provision disqualifying an insured from being deemed totally disabled if she was capable "of working any occupation for 20 hours or more per week."

On July 8, 2006, defendant wrote Leach and asked for information that Leach had already provided. Leach responded that he had already sent the requested information and that defendant had acknowledged receipt of it. Nonetheless, Leach provided the same information once again and informed defendant that its delay was particularly hard on Powell because she had recently been diagnosed with a recurrence of cancer. Defendant denied Powell's claim for total disability because she was "capable of returning or ha[s] returned to some type of work." In September of 2006, defendant was provided with additional medical records that showed Powell was suffering from terminal cancer. Defendant failed to pay Powell's benefits until approximately two weeks after her death on January 7, 2007.

On August 15, 2006, Powell brought suit against defendant for breach of contract and bad faith. The court granted plaintiff's motion to dismiss the breach of contract claim because defendant paid Powell's benefits on January 20, 2007. Thus, only the bad faith insurance claim remained. After an extensive trial, the jury found in favor of plaintiff and awarded compensatory damages in the amount of $200,000 and punitive damages in the amount of $6 million. The court entered judgment in favor of plaintiff. Defendant's motion followed in a timely manner.

DISCUSSION

A. New Trial

Under Rule 59(a), the court may grant a motion for a new trial to all or any of the parties on all issues or on particular issues. See Fed. R. Civ. P. 59(a). The standard for granting a new trial is whether the verdict is "against the great weight of the evidence." Butler v. French, 83 F.3d 942, 944 (8th Cir. 1996). In evaluating a motion for a new trial under Rule 59(a), the court must determine "whether a new trial is necessary to prevent a miscarriage of justice." Maxfield v. Cintas Corp., No. 2, 563 F.3d 691, 694 (8th Cir. 2009). Further guidance is provided by Rule 61, which provides that "[u]nless justice requires otherwise, no error in admitting or excluding evidence--or any other error by the court or a party--is ground for granting a new trial[.] . . . At every stage of the proceeding, the court must disregard all errors and defects that do not affect any party's substantial rights." Fed. R. Civ. P. 61.

A new trial may be necessary because of trial error, verdicts against the weight of the evidence, or damage awards that are excessive or inadequate. Gray v. Bicknell, 86 F.3d 1472, 1480 (8th Cir. 1996). When a district court applies the proper legal standard and finds that the verdict is not against the weight of the evidence, the district court's denial of a Rule 59 motion is virtually unassailable. Pulla v. Amoco Oil Co., 72 F.3d 648, 656 (8th Cir. 1995).

1. Testimony Regarding Powell's Past Experiences

Defendant argues that testimony about Powell's background, including problems with her feet and the loss of her family members in a flood, was improper under Rule 401, 402, and 403 because it invoked sympathy from the jury and was otherwise irrelevant to the issues in this case. Relevant evidence "means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Fed. R. Evid. 401. "All relevant evidence is admissible, except as otherwise provided by the Constitution of the United States, by Act of Congress, by these rules, or by other rules prescribed by the Supreme Court pursuant to statutory authority. Evidence which is not relevant is not admissible." Fed. R. Evid. 402. "Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." Fed. R. Evid. 403.

The only testimony identified by defendant that involved a relevancy objection was where plaintiff was asked to describe the "physical changes or problems that [Powell] went through over the years[.]" (Unofficial Transcript at 848-49.)*fn2 And plaintiff answered, "Well, in the late '90s when we went to movies, we had to be in the back of the theater so she could stand up, move around." (UTr. at 849.) The other testimony identified by defendant was not objected to based on relevancy.*fn3 The testimony was relevant to this case because it explained the extent of Powell's disabilities and why Powell purchased insurance from defendant. And the extent of Powell's disabilities was relevant for purposes of determining whether defendant acted unreasonably in denying her disability claim.

Moreover, it is unlikely that defendant was prejudiced by this type of testimony on the basis of jury sympathy for Powell or plaintiff. And defendant was insulated from any unfair prejudice because the jury was instructed by the court prior to trial that it was "not [to] allow sympathy or prejudice to influence you." (Preliminary Instructions to the Jury, Docket 438, at 2.) Thus, the testimony does not support defendant's motion for a new trial.

2. Plaintiff's Testimony

Defendant argues that while the court had previously ruled that medical testimony by lay witnesses was not allowed, the court nonetheless allowed plaintiff to provide medical testimony related to Powell. The testimony identified by defendant involved the following exchange between plaintiff's attorney and plaintiff:

Q: Did you also know at the time that -- did you also have any information at the time that [Powell] was struggling financially?

A: Yes.

Q: What kind of problems was she having?

A: She had no money. She wasn't able to do her pet care much. She had doctor bills. She was trying very hard to eat organic food which is very expensive.

Q: Why was she interested in organic food as opposed to something else? . . .

A: She was trying to not heal herself, but prolong her life by taking the best care of herself that she could because she couldn't take medications. She didn't have many options. . . .

Q: Do you know anything about -- do you know why she chose not to take chemotherapy?

A: She was convinced it would have killed her. . . .

Q: Did you ever see her do anything that suggests to you she had trouble taking medications? . . .

A: I saw [Powell] with hives many times. She one time was taking a new medication she hadn't tried before and she asked me to stay with her for a few hours because she didn't know what the reaction was going to be. And I saw her gasping for air and that sounds a little dramatic[.]

(UTr. at 862-63.)

Defendant did not object during trial to this testimony on the basis that it was improper medical testimony. And while the testimony touched on Powell's medical condition, it only did so to explain the extent of Powell's financial vulnerability and explained why she was financially vulnerable. Powell's financial vulnerability was relevant as evidence to be considered by the jury in determining the amount of punitive damages, should any be awarded. Thus, it was not error to allow this testimony.

3. Insurance Expert's Testimony

Defendant also argues that the court erred in allowing plaintiff to offer medical testimony through an insurance expert. (UTr. at 438, 540-41, and 545.) This testimony, however, is not properly construed as being medical testimony because it was offered for purposes of explaining to the jury the significance of certain information found in a medical report in the context of claims determination. The testimony explained to the jury how the medical information was significant for purposes of determining whether Powell's claim should be denied or paid.*fn4 Therefore, there was no error in allowing this testimony.

4. Evidence of Defendant's Failure to Produce Documents

Defendant argues that the court erred in allowing testimony and exhibits to be presented to the jury showing that defendant untruthfully answered "none" to several of plaintiff's requests for production of documents. (UTr. at 228-298; Ex. 41; Ex. 44; and Ex. 53.)*fn5 Defendant also argues that it suffered unfair prejudice when the court allowed the exhibits to represent that defendant's attorney's signature was directly below the answer "none" when the signature was actually on another page in defendant's discovery response.

The exhibits and testimony showed that defendant had answered "none"*fn6 in response to the request for production of documents that related to "[a]ny excel spreadsheets of time filing claims prepared by . . . Helen Koppes; Lezlee Collier; [or] Vicki Fredrickson" and "[a]ny communications either to or from the Internal Appeals Committee, or its members, relating to the time filing rule." (Ex. 41; Ex. 44.) Exhibit 53 showed that defendant had answered "none" to the request for production of documents that related to "[a]ny documents that identify past litigation involving claims of breach of contract or bad faith against Defendant under its policies of credit disability insurance." Leach testified, however, that those responses were untrue because defendant did have those documents and that they were eventually produced.

The response of "none" was admissible because it is a statement made by a party opponent. See Fed. R. Evid. 801(d)(2)(A), (C), & (D). The testimony that the response was untrue directly related to defendant's credibility. The evidence was therefore properly admitted because it went towards defendant's credibility. And defendant's credibility was significant because the jury had to determine the truthfulness of defendant's explanations about why it denied and delayed Powell's claim.

Defendant cites Waters v. Genesis Health Ventures, Inc., 400 F. Supp. 2d 814 (E.D. Pa. 2005), for the proposition that "[e]vidence of Counsel's hostility or disputes surrounding production of documents is entirely irrelevant to the Plaintiff's race discrimination claim." Id. at 818. Waters, however, is not pertinent to this issue because the testimony and exhibits in this case were not admitted for purposes of showing any discovery disputes or the attorney's hostility toward one another.*fn7 Rather, the exhibits and testimony reflect defendant's responses to interrogatories and document requests. This is not evidence of a discovery dispute. It is evidence of a discovery response.

Defendant also argues that the evidence should be excluded because it was unfairly prejudiced by the evidence. Under Rule 403, "evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice[.]" Fed. R. Evid. 403. Here, the evidence was highly probative of defendant's credibility. Moreover, the court finds that any prejudice experienced by defendant on account of its untrue response to a clear discovery request cannot be considered "unfair" because it was an admission that was subject to explanation by defendant. Thus, there was no error in allowing the testimony and exhibits to be presented to the jury.

Defendant also argues that Rule 403 prohibited the exhibit from showing its attorney's signature directly below the answer "none." Defendant fails, however, to explain how it was unfairly prejudiced by the signature being on the exhibit. Moreover, the attorney's signature was relevant because it demonstrated to the jury that the response, "none," was made by defendant.*fn8

See Fed. R. 801(d)(2)(A), (C), & (D). And the signature was at the bottom of the page because the pages in between the answer and the signature were redacted to eliminate irrelevant information.*fn9 If the pages had not been redacted, the signature still would have been seen with the response. Therefore, there was no unfair prejudice because there is no dispute that the attorney's signature belonged to the discovery response, and the jury would have therefore seen the signature even if it was not moved. Thus, Rule 403 did not preclude the exhibit from being admitted into evidence as it was.

5. Evidence Related to Delayed Payment

Defendant also argues that evidence about how it delayed its payments after Powell had brought suit was also improperly allowed. Defendant identifies exhibits 10 through 14, 18 through 25, 27, 29, and 32 through 33 as being irrelevant and unfairly prejudicial.*fn10 These exhibits consisted of the following: information, which included Powell's medical records, sent from Powell's attorneys to defendant and sent from defendant's local attorneys to defendant's in-house attorneys, (Exs. 10-14, 19, 25, 27, 29, and 32-33); a motion to set a trial date at an early date on account of Powell's terminal illness, (Ex. 18); and email exchanges between defendant and plaintiff's attorneys about scheduling Powell's deposition and a trial date before Powell died from her terminal illness, (Exs. 20-24).

Exhibits 10 through 14, 19, 25, 27, 29, and 32 through 33 were properly admitted because they tended to prove that defendant had knowledge of Powell's terminal illness and still delayed paying Powell's benefits until after her death.*fn11 This is relevant to the issue of defendant's knowledge that it did not have a reasonable basis for delaying Powell's policy benefits. The exhibits were also relevant for purposes of responding to defendant's argument that the delayed payment of Powell's benefits was because defendant did not have all of the information that it needed to determine her eligibility for insurance benefits.

Exhibit 18 was relevant to prove that defendant had notice of Powell's terminal illness but still delayed paying Powell's benefits for several months until after her death. Thus, it was admitted, with the second paragraph redacted, because it pertained to the issue of whether defendant knew that it did not have a reasonable basis for delaying Powell's policy benefits.

Exhibits 21 and 22 were emails from plaintiff's attorney to defendant's attorney that were attempts to discuss scheduling issues on account of Powell's impending death. Exhibit 21 related to Leach's testimony about his attempt to follow up after he received no response to an email that informed defendant's attorney of scheduling issues in light of Powell's cancer. (UTr. at 167.) This evidence was relevant because it tended to disprove defendant's evidence and argument that the delay of Powell's payments was caused by Leach. Moreover, the testimony associated with the exhibit was not objected to, and the exhibit itself only corroborated the testimony. Thus, even if it was error to admit the exhibit into evidence, there was little or no prejudice to defendant.

Exhibit 22 related to Leach's testimony about his attempts to provide any additional information that defendant might have needed for trial. (UTr. at 167-68.) The testimony and the supporting exhibit refuted defendant's argument that the delay in paying Powell's benefits was because Leach failed to provide all of the appropriate information. Exhibit 22 also tended to prove that defendant knew that it did not have a reasonable basis for delaying Powell's policy benefits until after her death.

Thus, exhibits 10 through 14, 18, 19, 21, 22, 25, 27, 29, and 32 through 33 were properly admitted into evidence because they directly related to whether defendant knew that it did not have a reasonable basis for the delayed payment of Powell's policy benefits. See Dakota, Minnesota & Eastern R.R. Corp. v. Acuity, 771 N.W.2d 623, 635 (S.D. 2009) ("The appropriate inquiry for the [trial] court in determining the relevance of such evidence is whether the insurer's post-filing conduct sheds light on the reasonableness of the insurer's decision or conduct in denying insurance benefits." (emphasis added)). They also refuted defendant's argument that it had a reasonable basis for the delayed payments because it did not have sufficient information about Powell's condition. See id.

6. Evidence Regarding Powell's Income

Defendant argues that it was error to admit evidence about Powell's income. (UTr. at 199-206.) Evidence about Powell's income is relevant for purposes of determining the amount of punitive damages, if any. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 419 (2003) (discussing punitive damages and stating that "[w]e have instructed courts to determine the reprehensibility of a defendant by considering whether: . . . the target of the conduct had financial vulnerability" (citation omitted)). Thus, this evidence was properly admitted.

Defendant also argues that the definition of total disability, as the term was used in the insurance policy, was a matter of first impression under South Dakota law. And defendant argues that under South Dakota law, an insurer cannot be liable when dealing with matters of first impression. See Mudlin v. Hills Materials Co., 742 N.W.2d 49, 54 (S.D. 2007). ...


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