We do not ordinarily address trial and appellate practice in this space, but a recent decision from the Eighth Circuit makes such commentary unavoidable. Moore v. American Family Mut. Ins. Co., 2009 WL 2476689 (8th Cir. August 14, 2009) affirms a $2.3 million judgment on a claim for bad faith. Much of the decision is given over to findings that AFMI failed to preserve for appellate review instructional and evidentiary error. The decision thus provides a rather useful primer on the preservation of trial error.
Moore purchased from Walsh County, North Dakota, an unoccupied duplex located in a flood plain, on condition that it be moved by a date certain. AFMI insured the property for $50,000. Five weeks before the deadline for moving the duplex had expired, a fire destroyed the building. AFMI denied coverage for the claim on the ground that the fire was the result of arson, for which Moore was responsible. Moore brought suit against AFMI for breach of contract and bad faith. A jury awarded Moore $48,414.97 on his contract claim, $1,150,000.00 in actual damages, and $1,150,000.00 in punitive damages on his bad-faith claim. The court affirmed the judgment.
North Dakota law provides that an insurance company is not guilty of bad faith when it denies a claim that is “fairly debatable.” 2009 WL 2476689, at *1. AFMI contended that, because the district court had held that there was a fact question as to whether AFMI had breached the contract by refusing to pay Moore’s claim, the claim was necessarily fairly debatable and thus could not form the basis for a claim for bad faith. Unfortunately, the court concluded that AFMI had failed to preserve the issue for appellate review by failing to include the argument in its Rule 50(b) motion. Id.
The court further rejected AFMI’s argument that “the district court committed plain error in instructing the jury that it could consider as evidence of bad faith AFMI’s violations of the North Dakota Prohibited Practices Insurance Business Act. “At a minimum, we believe that evidence that an insurer’s conduct violates the statute prohibiting unfair settlement practices is relevant to whether the insurer acted in bad faith.” 2009 WL 2476689, at*3.
The court further rejected AFMI’s argument that, because of juror misconduct, the district court should have declared a mistrial. As is becoming distressingly common, one enterprising juror had done some extracurricular Internet research on the earnings of AFMI. The district court determined that the other jurors had in fact prevented the juror from reciting the results of his research and that these jurors appeared to be following the district court’s admonitions not to consider extraneous information. The court agreed with the district court that “the juror’s statement that American Family could afford to pay did not show prejudice since it was ‘not likely to be a major revelation’ to members of the jury.” 2009 WL 2476689, at *4. The court remarked that “we think the misconduct here bordered on the innocuous, since people know that insurance companies can generally afford to pay settlements.” Id.
The court further rejected AFMI’s challenge to the damage award on the bad-faith claim as excessive. Moore claimed damages for uninsurability, economic loss, loss of reputation in the community, and emotional distress. The court determined that “there was indeed evidence that American Family submitted information to the Property Insurance Loss Register, a database to which all insurance companies report, indicating that Mr. Moore’s claim had been denied for arson and fraud.” 2009 WL 2476689, at *5. What is more, the court noted that “there was testimony that, once information is submitted to this database, it can never be removed and that insurance companies do not insure arsonists.” Id. “Since Mr. Moore was a farmer with multiple vehicles that needed to be insured in order for him to earn an income, a loss of insurance might well cause him ruinous economic injury.” Id. On this basis, the court concluded that “this evidence made a submissible case on the issue of insurability.” Id.
The court further rejected AFMI’s objections to the punitive damages award. The court concluded that the award was not so excessive as to be unconstitutional. As to reprehensibility, the court remarked that Moore had “presented evidence that American Family, without first conducting an adequate investigation, not only accused Mr. Moore of arson but sent documents that included the accusation to the State Insurance Commissioner and reported to the PILR that Mr. Moore’s claim was denied because of arson and fraud.” 2009 WL 2476689, at*7. The court pointedly noted that the “decision to accuse someone of a serious felony such as arson should not be made lightly, and significant harm to the accused is foreseeable.” Id. “We thus conclude that American Family’s ‘tortious conduct’—labeling Mr. Moore an arsonist based on insufficient grounds—‘evinced an indifference to or disregard’ of the Moores’ financial, emotional, and physical well-being.” Id.
