United States Court of Appeals for the Ninth Circuit
October 6, 2023, Argued and Submitted, Pasadena, California; October 23, 2023, Filed
No. 22-55356, No. 22-55414
BARBARA STEIN, an individual, Plaintiff-Appellee, and STUART STEIN, an individual, Plaintiff, v. FARMERS INSURANCE COMPANY OF ARIZONA, a corporation, Defendant-Appellant, and FARMERS INSURANCE EXCHANGE; et al., Defendants.BARBARA STEIN, an individual, Plaintiff-Appellant, and STUART STEIN, an individual, Plaintiff, v. FARMERS INSURANCE COMPANY OF ARIZONA, a corporation, Defendant-Appellee, and FARMERS INSURANCE EXCHANGE; et al., Defendants.
Notice: PLEASE REFER TO FEDERAL RULES OF APPELLATE PROCEDURE RULE 32.1 GOVERNING THE CITATION TO UNPUBLISHED OPINIONS.
Prior History: [*1] Appeal from the United States District Court for the Southern District of California. D.C. No. 3:19-cv-00410-DMS-AHG, D.C. No. 3:19-cv-00410-DMS-AHG. Dana M. Sabraw, Chief District Judge, Presiding.
Disposition: AFFIRMED.
Core Terms
injuries, insured, unfounded, bad faith, district court
Case Summary
Overview
HOLDINGS: [1]-Substantial evidence supported that defendant engaged in unfounded delay, where immediately after the accident, plaintiff gave defendant a medical authorization, allowing it to obtain her medical records. Defendant, however, did almost nothing in investigating plaintiff’s injuries for the first five months after the accident.
Outcome
Judgment affirmed.
LexisNexis® Headnotes
Civil Procedure > Appeals > Standards of Review > De Novo Review
Civil Procedure > Trials > Judgment as Matter of Law > Postverdict Judgment
HN1[] Standards of Review, De Novo Review
The appellate court reviews de novo the district court’s denial of a motion for judgment as a matter of law, construing the evidence in the nonmoving party’s favor. A jury’s verdict must be upheld if it is supported by substantial evidence. Substantial evidence is evidence adequate to support the jury’s conclusion, even if it is also possible to draw a contrary conclusion from the same evidence.
Insurance Law > Liability & Performance Standards > Bad Faith & Extracontractual Liability > Elements of Bad Faith
Insurance Law > Liability & Performance Standards > Bad Faith & Extracontractual Liability > Payment Delays & Denials
Insurance Law > Liability & Performance Standards > Good Faith & Fair Dealing > Payments
HN2[] Bad Faith & Extracontractual Liability, Elements of Bad Faith
Under New Mexico law, an insurer who fails to pay a first-party claim has acted in bad faith where its reasons for denying or delaying payment of the claim are frivolous or unfounded. Frivolous or unfounded means arbitrary or baseless conduct, lacking any support in the wording of the insurance policy or the circumstances surrounding the claim. Where an insurer fails to make an adequate investigation, its coverage position is unfounded, and it thus may be liable for bad faith denial of a claim.
Business & Corporate Compliance > … > Industry Practices > Unfair Business Practices > Claims Investigations & Practices
Insurance Law > Liability & Performance Standards > Settlements > Good Faith & Fair Dealing
Insurance Law > Liability & Performance Standards > Settlements > Reasonable Basis
HN3[] Unfair Business Practices, Claims Investigations & Practices
A violation occurs when an insurer knowingly and with such frequency as to indicate a general business practice does not attempt in good faith to effectuate prompt, fair and equitable settlements of an insured’s claims in which liability has become reasonably clear. N.M. Stat. Ann. § 59A-16-20(E).
Civil Procedure > Appeals > Standards of Review > Abuse of Discretion
Civil Procedure > … > Grounds for Relief from Final Judgment, Order or Proceeding > Excusable Mistakes & Neglect > Mistake
Civil Procedure > Judgments > Entry of Judgments > Nunc Pro Tunc Relief
Civil Procedure > Judgments > Relief From Judgments > Altering & Amending Judgments
HN4[] Standards of Review, Abuse of Discretion
The appellate court reviews for abuse of discretion a district court’s denial of a Fed. R. Civ. P. 60(a) motion. Under Fed. R. Civ. P. 60(a), the district court may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment. Fed. R. Civ. P. 60(a). Errors correctable under Fed. R. Civ. P. 60(a) include those where what is written or recorded is not what the court intended to write or record.
Civil Procedure > Appeals > Standards of Review > De Novo Review
Civil Procedure > Remedies > Judgment Interest > Postjudgment Interest
Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > Erie Doctrine
HN5[] Standards of Review, De Novo Review
The appellate court reviews de novo whether the district court properly applied federal law in awarding postjudgment interest. When the issue is whether to apply a federal statute in a diversity action, the appellate court’s analysis involves a considerably less intricate analysis than that which governs the relatively unguided Erie choice. When the federal law sought to be applied is a congressional statute, the first and chief question for the court’s determination is whether the statute covers the point in dispute. If it does, the court proceeds to inquire whether the statute represents a valid exercise of Congress’ authority under the Constitution. If Congress intended to reach the issue before the court, and if it enacted its intention into law in a manner that abides with the Constitution, that is the end of the matter. A court sitting in diversity must apply a federal statute that controls the issue before the court and that represents a valid exercise of Congress’ constitutional powers.
Civil Procedure > Remedies > Judgment Interest
HN6[] Remedies, Judgment Interest
28 U.S.C.S. § 1961(a) is constitutional under binding precedent.
Counsel: For BARBARA STEIN, an individual, Plaintiff – Appellant (22-55356, 22-55414): Michael Nello Poli, Attorney, Poli, Moon & Zane, PLLC, Phoenix, AZ; Linda G. Workman, Attorney, DICKS & WORKMAN, APC, San Diego, CA.
For FARMERS INSURANCE COMPANY OF ARIZONA, a corporation, Defendant – Appellee (22-55356, 22-55414): Curt Cutting, Mitchell C. Tilner, Horvitz & Levy, LLP, Burbank, CA; Andrew S. Hollins, Esquire, Attorney, Messner Reeves, LLP, Costa Mesa, CA.
Judges: Before: BYBEE, BENNETT, and MENDOZA, Circuit Judges.
Opinion
MEMORANDUM*
In this diversity action, a jury found that Farmers Insurance Company of Arizona (“FICA”) breached its contract, engaged in bad faith, and violated New Mexico’s Unfair Insurance Practices Act (“UIPA”) in handling Barbara Stein’s personal injury claim under her auto insurance policy. FICA appeals from the district court’s denial of its motion for directed verdict on the bad faith and UIPA claims. It also appeals from the district court’s denial of its Federal Rule of Civil Procedure (“Rule”) 60(a) motion to correct the judgment. [*2] Stein cross-appeals from the district court’s decision to apply the federal postjudgment interest rate statute.1
1. HN1[] We review “de novo the district court’s denial of a motion for judgment as a matter of law,” construing the evidence in the nonmoving party’s favor. Castro v. County of Los Angeles, 833 F.3d 1060, 1066 (9th Cir. 2016) (en banc). “A jury’s verdict must be upheld if it is supported by substantial evidence.” Wallace v. City of San Diego, 479 F.3d 616, 624 (9th Cir. 2007). “Substantial evidence is evidence adequate to support the jury’s conclusion, even if it is also possible to draw a contrary conclusion from the same evidence.” Johnson v. Paradise Valley Unified Sch. Dist., 251 F.3d 1222, 1227 (9th Cir. 2001).
a. FICA argues that substantial evidence does not support the jury’s bad faith finding. HN2[] “Under New Mexico law, an insurer who fails to pay a first-party claim has acted in bad faith where its reasons for denying or delaying payment of the claim are frivolous or unfounded.” Sloan v. State Farm Mut. Auto. Ins. Co., 2004- NMSC 004, 135 N.M. 106, 85 P.3d 230, 236 (N.M. 2004). Frivolous or unfounded means “arbitrary or baseless” conduct, “lacking any support in the wording of the insurance policy or the circumstances surrounding the claim.” Id. at 237. “Where an insurer fails to make an adequate investigation, its coverage position is unfounded, and it thus may be liable for bad faith denial of a claim.” Haygood v. United Servs. Auto. Ass’n, 2019- NMCA 074, 453 P.3d 1235, 1241 (N.M. Ct. App. 2019).
Substantial evidence supports that FICA engaged in unfounded delay. Immediately after [*3] the accident, Stein gave FICA a medical authorization, allowing it to obtain her medical records. FICA, however, did almost nothing in investigating Stein’s injuries for the first five months after the accident. In April 2019, Stein sent FICA a detailed, twenty-eight-page letter explaining her physical and mental injuries caused by the accident and related medical procedures. FICA made a partial payment in May 2019 and continued its investigation, but it did not conduct an independent medical examination (“IME”) to determine Stein’s injuries caused by the accident until September 2020—nearly two years after the accident. Stein’s insurance claims expert testified that FICA’s delay in investigating Stein’s claim and conducting an IME was unfounded.
Based on this evidence, the jury could have reasonably found that FICA’s two-year-long investigation amounted to an unfounded delay, and thus FICA acted in bad faith.2
Substantial evidence also supports that FICA failed to conduct an adequate investigation, rendering its coverage position unfounded. Stein’s April 2019 letter to FICA claimed that she sustained post-traumatic stress disorder (“PTSD”) and traumatic brain injury (“TBI”) from the [*4] accident. Although she never provided FICA with medical records supporting these injuries, they were plausible given the circumstances, including: the extremely violent nature of the crash, the resulting bruise on Stein’s head, and Stein’s subsequent vision problems. The evidence at trial showed that the accident caused Stein’s TBI and PTSD.
FICA, however, conducted no investigation into these injuries. Indeed, the doctor it hired to conduct the IME only evaluated Stein’s “orthopedic abnormalities” and was not qualified to evaluate PTSD or behavioral health. FICA also admitted that it had no written information suggesting that these injuries were preexisting. Thus, the jury could also have found that FICA acted in bad faith because it had no basis for excluding these injuries from its coverage determination.
b. FICA argues that there was insufficient evidence to support a UIPA violation. HN3[] As relevant here, a violation occurs when an insurer “knowingly . . . [and] with such frequency as to indicate a general business practice” does “not attempt[] in good faith to effectuate prompt, fair and equitable settlements of an insured’s claims in which liability has become reasonably clear.” N.M. Stat. Ann. § 59A-16-20(E).
[*5] Viewing the evidence in Stein’s favor, the jury could have concluded that FICA had a general business practice of failing to effectuate prompt, fair, and equitable settlements. FICA’s claims adjuster testified that he has worked for FICA for twenty-seven years and adjusted thousands of liability claims. He explained that he generally calculates a dollar-value range for claims, and his “custom and practice” is to start negotiations at the “low end of the range.” He also testified that sometimes he does not pay out a claim for ten or fifteen years. And he may withhold payment until an insured is ready to settle and sign a release, even if the insured suffers severe injuries like brain damage, the insured believes that FICA’s offer is too low, and the insured is under financial pressure.
Based on this evidence, the jury could have reasonably found that FICA’s settlement practices—starting at the low end of its calculated dollar-value range and withholding payment for over a decade, even for insureds who suffer severe injuries and are under extreme financial stress—showed that, even when liability is reasonably clear, FICA waits out its insureds to obtain a release rather than trying to [*6] achieve a prompt and fair settlement in violation of the UIPA.
2. The district court denied FICA’s Rule 60(a) motion to alter the judgment’s damages award by subtracting FICA’s post-verdict payment to Stein. HN4[] We review for abuse of discretion a district court’s denial of a Rule 60(a) motion. See Blanton v. Anzalone, 813 F.2d 1574, 1577 (9th Cir. 1987). Under Rule 60(a), the district court “may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment.” Fed. R. Civ. P. 60(a). “Errors correctable under Rule 60(a) include those where what is written or recorded is not what the court intended to write or record.” Blanton, 813 F.2d at 1577.
The record shows that Stein’s proposed judgment reflected a damages amount that did not deduct the post-verdict payment, and FICA expressly agreed with Stein’s damages calculation. The district court therefore reasonably determined that no mistake had been made because, consistent with the parties’ filings, the court intended to enter the damages amount reflected in the judgment.3
3. HN5[] We review de novo whether the district court properly applied federal law in awarding postjudgment interest. See In re Cnty. of Orange, 784 F.3d 520, 525 n.3 (9th Cir. 2015). When, as here, the issue is whether to apply a federal statute in a diversity action, our analysis “involves a considerably less intricate analysis [*7] than that which governs the ‘relatively unguided Erie choice.'” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 26, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988) (quoting Hanna v. Plumer, 380 U.S. 460, 471, 85 S. Ct. 1136, 14 L. Ed. 2d 8 (1965)).4 “[W]hen the federal law sought to be applied is a congressional statute, the first and chief question for the . . . court’s determination is whether . . . the statute covers the point in dispute.” Id. at 26. If it does, the court “proceeds to inquire whether the statute represents a valid exercise of Congress’ authority under the Constitution.” Id. at 27. “If Congress intended to reach the issue before the [court], and if it enacted its intention into law in a manner that abides with the Constitution, that is the end of the matter . . . .” Id. A court “sitting in diversity must apply a federal statute that controls the issue before the court and that represents a valid exercise of Congress’ constitutional powers.” Id.
The federal postjudgment interest rate statute, 28 U.S.C. § 1961(a), covers the dispute. HN6[] The statute is constitutional under binding precedent. See Northrop Corp. v. Triad Int’l Marketing S.A., 842 F.2d 1154, 1156 (9th Cir. 1988). Thus, the district court properly applied § 1961(a). See Stewart Org., 487 U.S. at 27.
AFFIRMED.
End of Document
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.
1 Stein’s request for attorneys’ fees included in her brief (Dkt. No. 28) is denied without prejudice to her filing a separate motion that complies with 9th Cir. R. 39-1.6. Each party shall bear its own costs on appeal.
2 FICA argues that the COVID-19 pandemic caused part of the delay. We do not doubt that, but the jury was apprised of the relevant facts, and, as noted, the evidence supports the jury’s finding.
3 During oral argument, Stein’s counsel made an enforceable judicial admission that Stein would never seek to double recover the post-verdict payment. Oral Arg. at 31:10-31:35. Thus, even aside from our finding that the district court did not err in denying the motion, we also fail to see any possible future harm to FICA.
4 Stein’s arguments rest on the incorrect premise that we must conduct an Erie analysis.
