Unpublished Disposition, 872 F.2d 428 (9th Cir. 1989)

MEMORANDUM^* 

Billie T. Cotney appeals the district court's judgment following a bench trial in favor of John Hancock Mutual Life Insurance Company (Hancock) in Hancock's declaratory relief action. Cotney contends that there was not substantial evidence to support the district court's findings of fact, that Hancock's agents' knowledge of the alleged fraud was imputable to Hancock, and that the district court should have allowed Cotney to present evidence on the issues of waiver and estoppel at trial.

A. Alleged Lack of Substantial Evidence to Support District Court's Findings of Fact

Cotney first contends that there is not substantial evidence to support the district court's findings of fact. Cotney specifically argues that the district court committed clear error in believing the testimony of Demag (the Hancock insurance agent) and disbelieving the testimony of Cotney. When a trial court's findings depend on the credibility of witnesses, Fed. R. Civ. P. 52(a) requires that great deference be given to those findings.¹  See Johnson v. United States Postal Service, 756 F.2d 1461, 1464 (9th Cir. 1985) (special deference is given to a district court's credibility findings). In the instant case, there is ample basis in the record for the district court's conclusion that Hancock's witnesses, including Demag, were more credible than were Cotney's. Thus, Cotney has failed to demonstrate that the district court's findings of fact were clearly erroneous.

B. Imputability of Hancock's Agents' Alleged Knowledge to Hancock

Cotney next contends that the district court erred in concluding that the acts of Hancock's agents were not imputable to Hancock. The district court found that Demag fraudulently colluded with Watson in backdating the policy application. While the general rule is that an agent's knowledge is imputable to its principal, such is not the case when the agent is colluding with another party to defraud the principal. Mutual Life Insurance Co. v. Hilton-Green, 241 U.S. 613, 622-23 (1916). Here, Demag's fraudulent collusion with Watson precludes us from imputing Demag's knowledge to Hancock.

Cotney also argues that because Demag allegedly told Joseph Persekian, a Hancock manager, of her plan to backdate the policy, Hancock is charged with Persekian's knowledge. At trial, Demag's testimony was not clear as to whether she told Persekian that she was definitely planning to backdate the application. Persekian, however, clearly testified that Demag did not tell him of the backdating plan. The district court was not clearly erroneous in construing Demag's ambiguous testimony as it did or in believing the testimony of Persekian. Based on its findings of fact, the district court's refusal to impute Persekian's alleged knowledge to Hancock was not error.

C. District Court's Alleged Error in Refusing to Admit Evidence on the Issues of Waiver and Estoppel

Finally, Cotney contends that the district court erred in refusing to allow him to introduce evidence on the issues of waiver and estoppel at trial. The district court found that a contract of insurance never came into existence between Hancock and Cotney and that, therefore, the issues of waiver and estoppel were irrelevant. See Miller v. Elite Insurance Co., 100 Cal. App. 3d 739, 754-55 (1980); cf. Aetna Casualty and Surety Co. v. Richmond, 76 Cal. App. 3d 645, 653 (1977). Specifically, the district court held that (1) the policy lapsed as not taken due to the untimely payment of the initial premium, (2) the policy was void ab initio because of the fraudulent, collusive backdating of the application, see Standard Accident Insurance Co. v. Pratt, 130 Cal. App. 2d 151, 156 (1955), and (3) no offer and acceptance of a contract took place between Hancock and Cotney, as Watson was not authorized to enter into a personal health insurance contract on behalf of Cotney. See Vyn v. Northwest Casualty Co., 47 Cal. 2d 89, 93 (1956) (en banc). We agree with the district court that the policy never took effect.

Cotney contends that even if there was fraud in the inception of the insurance contract, the district court should have allowed Cotney to present evidence on the issues of estoppel and waiver because those defenses are available when the insurer's actions subsequent to the issuance of the policy "ratify" the fraud. Hancock argues that even if the district court should have admitted evidence on this question, we may not address the issue on appeal because Cotney failed to either make an offer of proof at trial or to sufficiently apprise the district court of the substance of the alleged evidence to preserve the issue on appeal. See Fed.R.Evid. 103(a) (2) (district court's exclusion of evidence is reviewable on appeal only if substance of evidence was made known to court by offer of proof or was apparent from context within which questions were asked).

Based on a review of the record, we conclude that Cotney did not adequately make the substance of the evidence on estoppel and waiver or his theory of admissibility known to the district court during the trial. See Maddox v. Los Angeles, 792 F.2d 1408, 1412-13 (9th Cir. 1986); Coursen v. A.H. Robins Co., Inc., 764 F.2d 1329, 1333 (9th Cir. 1985). Therefore, we do not address the underlying issue of whether the district court should have admitted evidence on the issues of estoppel and waiver.

Hancock argues that Cotney's appeal is wholly without merit and requests that sanctions be imposed on Cotney under Fed. R. App. P. 38, 28 U.S.C. §§ 1912 and 1927, and Fed. R. Civ. P. 11. Viewed as a whole, Cotney's legal arguments are not so unreasonable, harassing, or without basis in law as to warrant the imposition of sanctions. See, e.g., Golden Eagle Distributing Corp. v. Burroughs Corp., 801 F.2d 1531, 1538 (9th Cir. 1986). Hancock's request for sanctions is therefore denied.

The judgment of the district court is AFFIRMED.