Unpublished Disposition, 852 F.2d 1290 (9th Cir. 1988)

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US Court of Appeals for the Ninth Circuit - 852 F.2d 1290 (9th Cir. 1988)

No. 86-2396.

United States Court of Appeals, Ninth Circuit.

July 22, 1988.

Before GOODWIN and FLETCHER, Circuit Judges and SAMUEL P. KING, District Judge* .


On July 21, 1982, Jim Duckett's restaurant in Bullhead City, Arizona, was severely damaged by fire. At the time of the loss, Duckett had been insured personally by Appellant Safeco Insurance Company of America ("Safeco") for 15 years and his restaurant, Trader Dick's, had been insured with them for six and one half years. The restaurant policy provided for stated value business interruption payments of seventy dollars per day commencing the tenth day after the loss, for repairs of structural damage to the property, and for payment of the actual cash value of the lost contents of the restaurant.

Because there were multiple points of origin and signs of a burglary, the fire was believed by the insurance carrier to have been caused by arson. There is, however, no agreement as to its origin. After initial investigation, Safeco revealed that it suspected Duckett of setting the blaze. Duckett has consistently denied any culpability.

Safeco stresses a number of facts which it contends point to Duckett's involvement in the fire. Trader Dick's had been offered for sale on and off for a number of years. Duckett had recently suffered a heart attack and wanted to retire from the business. Safeco's fire investigator, Thomas Pugh, reported that Duckett had been in the area of the restaurant at the time of the fire, that Duckett had instructed his employees not to set the burglar alarm the night of the fire, that Duckett was significantly in debt, that while some money was stolen from the restaurant, many valuables were left behind, and that more time was spent setting the fire than taking the money. Pugh concluded that there was strong evidence of Duckett's involvement in the fire. Safeco elected not to make payment under the business interruption coverage pending completion of its investigation.

Duckett has consistently maintained that he did not cause the fire. Although the restaurant had been up for sale, he had recently turned down a $280,000 offer and was in the process of revitalizing the business. He testified that on the night of the fire he left the restaurant at 9:40 p.m. Because he expected to return, he asked his managers, as he had similarly done in the past, not to set the burglar alarm when they closed the restaurant. He drove across the river to the Edgewater Casino to meet someone who was interested in buying the restaurant. While he never met up with the prospective buyer, he waited at the Edgewater until 11:00 p.m., drinking and playing Keno. He saved his keno tickets, as he always has for tax purposes, and returned to Trader Dick's just as the fire department was breaking down the door.

In October 1982, Safeco asked Duckett to file a sworn proof of loss and submit to an examination under oath as required by the policy. Duckett provided the proof of loss but filled out only the space in the form calling for replacement value of the restaurant contents, leaving blank the line for actual cash value. Although Safeco had earlier told him that the company would provide an adjuster to help determine actual cash value, it never did so. Duckett submitted to the examination under oath and provided all the requested information about the restaurant. However, he refused to provide his personal financial records or answer any questions about his personal financial status. The insurance company refused to disclose at that time whether it still suspected Duckett of the arson.

Duckett also submitted to a polygraph test at Safeco's request, which he passed. No criminal charges were ever brought against Duckett, and recommendations were made by at least one Safeco employee that the claim be paid.

Safeco commenced a declaratory action against Duckett on November 15, 1987, advancing three reasons why it believed Duckett was not entitled to recover under the policy: 1) Duckett was responsible for the fire; 2) Duckett had submitted a false proof of loss; and 3) Duckett had refused to provide information during his examination under oath.

Duckett filed counterclaims for breach of contract, bad faith, intentional infliction of emotional distress, common law fraud, statutory consumer fraud, unfair insurance claim practices, libel and slander.

The case was bifurcated, Safeco's claims and Duckett's breach of contract counterclaim to be tried in Phase I and the remaining issues to be tried in Phase II. Phase I resulted in a jury verdict in favor of Duckett for $133,870. Subsequently a number of Duckett's remaining claims were either dismissed or voluntarily withdrawn, and Phase II proceeded to trial on the sole issue of Safeco's bad faith. The jury returned a verdict for Duckett in the amount of $402,143.00. Safeco now appeals on a number of grounds, and we affirm.

A. Denial of Safeco's Motion for New Trial Based Upon Attorney Misconduct in Final Argument.

Safeco asserts that T. Gale Dake, Duckett's attorney, committed prejudicial acts of misconduct during final argument to the jury in the Phase II proceedings. Safeco specifically contends that Dake improperly commented on the evidence, interjected his own personal belief in his client's position, and urged the jury to return a verdict based upon compromise. The district court denied Safeco's motion for a new trial.

We review for abuse of discretion the denial of a post-trial motion for a new trial. Kehr v. Smith Barney, Harris Upham & Co., Inc., 736 F.2d 1283, 1286 (9th Cir. 1984). "To warrant reversal on grounds of attorney misconduct, the 'flavor of misconduct must sufficiently permeate an entire proceeding to provide conviction that the jury was influenced by passion and prejudice in reaching its verdict.' " Kehr, 736 F.2d at 1286, quoting Standard Oil Co. of California v. Perkins, 347 F.2d 379, 388 (9th Cir. 1965); McKinley v. City of Eloy, 705 F.2d 1110, 1117 (9th Cir. 1983). Thus the question before us is not whether the closing argument comments were improper, but whether any such impropriety reached the level set out in Kehr.

Safeco first complains of Dake's use of his own personal opinions and beliefs during closing argument. Dake informed the jury that: " [a]ll I know, and all I've ever known in this case, is that Jim Duckett didn't do it"; that he usually represents insurance companies but took Duckett's case because he "didn't think they had anything, and I think that they had mistreated him...."; and that Safeco's expert witness, Pugh, "will say whatever the insurance company wants him to say." He also commented that he had refused to work with Pugh in other cases because of his low opinion of the witness.

Safeco cites further misconduct in counsel's commenting on his personal knowledge of the contents of Safeco's claims file: "I don't need to bring [a polygraph expert] in because I know what is in their file. And their file says that he passed [the polygraph test], and that's what they relied on. That's what this file says."

Lastly, Safeco contends that Dake acted improperly in suggesting to the jury that "... if there's any way that without doing an injustice to your conscience that you can compromise this claim, please do it."

Reviewing these comments in light of the Kehr standard set out above, we do not find that the district court abused its discretion in denying the motion for a new trial. We noted in Kehr that the trial court is in a far better position to gauge any prejudicial effect of improper comments than is the appellate court, which must decide upon the cold record. 736 F.2d at 1286; see also, County of Maricopa v. Maberry, 555 F.2d 207, 223 (9th Cir. 1977). Here, the court was cognizant of the challenged comments. In denying Safeco's motion for a new trial, the court described the presentation as "inappropriate, unwarranted and prejudicial and ... in the aggregate, of such a nature and degree as to invoke this court's censure of counsel". Thus it is clear that the court accorded significant gravity to counsel's conduct in assessing the question of jury prejudice.

Moreover, the court instructed the jury that:

Lawyers are not permitted to present or argue facts which are not supported by evidence in the case, nor are they permitted to interject or argue their personal opinions as to any fact or other aspect of the case. Accordingly, you are not--you are instructed to disregard any such statements of counsel that may have occurred during closing argument.

In other cases, courts have held that curative instructions given after improper comments by counsel during closing argument may render the comments harmless. Lincoln v. Sunn, 807 F.2d 805, 809-11 (9th Cir. 1987); Ramsey v. American Air Filter Co., Inc., 772 F.2d 1303, 1311 (7th Cir. 1985); Lenard v. Argento, 699 F.2d 874 (7th Cir. 1983), cert. denied, 464 U.S. 815 (comments regarding religious affiliations and veracity of witness not reversible error in context of evidence and cautionary instructions). We also note that the comments complained of were confined to the closing argument which comprised approximately one and a half to two hours of a trial spanning three months.

We therefore find no abuse of discretion and accordingly affirm the district court's denial of the motion for a new trial.

B. Denial of Safeco's Motions For Judgment As a Matter of Law on the Cooperation Issue

Safeco argues that it is entitled to judgment as a matter of law because Duckett refused to provide certain information during the examination under oath. It now appeals the district court's denial of its motions for summary judgment, directed verdict, and judgment notwithstanding the verdict.

1. Directed Verdict and Judgment Notwithstanding the Verdict.

We review the district court's denial of motions for a directed verdict and judgment notwithstanding the verdict de novo. See In re Matter of Yagman, 796 F.2d 1165, 1171 (9th Cir. 1986), amended, 803 F.2d 1085 (9th Cir. 1986) (directed verdict); Chalmers v. Los Angeles, 762 F.2d 753, 756 (9th Cir. 1985) (judgment notwithstanding the verdict). The motions should not be granted unless the evidence permits only one reasonable conclusion as to the verdict. Id.

The parties have stipulated that Arizona law governs this case. In Arizona "the law is well settled that a failure or refusal of the insured to comply with his obligation of cooperation under [an examination under oath] provision will constitute a bar to any recovery against the insurance company." Warrilow v. Arizona Superior Court, 142 Ariz. 250, 689 P.2d 193, 196 (Ariz.Ct.App.1984). The information sought, however, must be "material to the circumstances surrounding the insurer's liability and the extent thereof." Id.

The facts of this case support more than one possible reasonable conclusion as to whether the information sought by Safeco was material. The information sought at the examination under oath which Duckett refused to provide pertained to Duckett's personal financial affairs, e.g., his income tax returns and his bank statements. On the one hand, this information might be considered material in determining whether Duckett's personal financial position gave him motivation to commit arson. On the other hand, Safeco refused to confirm, upon repeated inquiries by Duckett's counsel, whether it did in fact consider Duckett a suspect in the arson by the time of the examination. Furthermore, Safeco failed to review the disputed documentation when they eventually obtained it, casting further into doubt the materiality of such information to the claim.

Given these two plausible but conflicting characterizations of the information sought by Safeco, we do not find error in the court's denying motions for directed verdict and judgment notwithstanding the verdict.

We review the denial of a motion for summary judgment de novo. McCarthy v. Mayo, 827 F.2d 1310, 1314 (9th Cir. 1987); Intern. Broth. of Elec. Wrkrs, Local 532 v. Brink Const., 825 F.2d 207, 214 (9th Cir. 1987). Rule 56(c), Federal Rules of Civil Procedure, provides that summary judgment shall be rendered:

if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

A material fact is one that is relevant to an element of a claim or defense and whose existence might affect the outcome of the suit. T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Association, 809 F.2d 626, 630 (9th Cir. 1987).

There is no dispute that Duckett refused to provide information about his personal finances during the examination under oath. Safeco argues that summary judgment in its favor therefore should have been granted. However, as noted above, Safeco's refusal to indicate whether it still considered Duckett a suspect by the time of the examination under oath gave rise to a dispute as to whether or not the information sought was material. Beyond that, there was an issue of material fact as to whether the failure to provide the disputed information prejudiced the insurer.

Because of the existence of these issues of fact, we find that the district court did not err in denying Safeco's motion for summary judgment.

C. Refusal to Instruct the Jury on Safeco's Second and Third Grounds for Relief.

Safeco next argues that it was error for the district court to have failed to instruct the Phase I jury on Safeco's second and third grounds for declaratory relief. Safeco's complaint framed three grounds for denying coverage to Duckett: 1) Duckett was responsible for the fire; 2) Duckett had submitted a false proof of loss; and 3) Duckett had refused to provide information during his examination under oath. While the court permitted the parties to introduce evidence going to the issues of failure to cooperate and false proof of loss as indicia that Duckett was responsible for the actual arson, it found insufficient evidence of the latter two issues to warrant submitting them to the jury as independent grounds justifying denial of payment. He therefore refused to give any instruction on the second and third grounds at the close of the Phase I trial. We affirm.

The trial court has broad discretion in formulating jury instructions and will be reversed only upon a showing of abuse of discretion. United States v. Wellington, 754 F.2d 1457, 1463 (9th Cir. 1985), cert. denied, 474 U.S. 1032. The trial court must instruct the jury on any legitimate legal theory supported by the evidence. Id. "A party is not entitled to an instruction on its theory of the case if that theory lacks support either in law or in the record." Los Angeles Memorial Coliseum Commission v. National Football League, 791 F.2d 1356, 1360 (9th Cir. 1986) cert. denied, 108 S. Ct. 92 (1987); United States v. Candelaria, 704 F.2d 1129, 1132 (9th Cir. 1983). No particular formulation is necessary. Los Angeles Memorial Coliseum Commission v. National Football League, 726 F.2d 1381, 1398 (9th Cir. 1984), cert. denied, 469 U.S. 990.

Safeco correctly argues that certain evidence supporting its theories was introduced. However, a review of the lengthy record of the Phase I trial does not convince us that the trial court abused its discretion in finding insufficient evidence that Duckett knowingly or willfully submitted a false proof of loss. Safeco contends that Duckett knowingly misrepresented the replacement value of damaged and destroyed goods as the actual cash value covered under the policy.1  On the contrary, the evidence strongly indicated that Duckett submitted the replacement value because Safeco's proof of loss form specifically directed that he do so, and that Duckett identified the figure he submitted as such. As for Duckett's failure to report actual cash value, it appears from the record that Safeco informed Duckett that it would provide an adjuster to help come up with that figure, and that Safeco knew that Duckett, a lay person, could not be expected to determine the actual cash value. However, that help was never forthcoming. In light of the record, we do not find the district court's refusal to instruct on Safeco's false claim theory to be an abuse of discretion.

The district court also declined to instruct on Safeco's theory that Duckett was not entitled to collect because he had refused to turn over information pertaining to his personal finances. The rule in Arizona is that failure to produce material information does not bar coverage unless the insurer is substantially prejudiced thereby. Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 650 P.2d 441, 445 n. 6 (Ariz.1982) (en banc) ; Baumler v. State Farm Mut. Auto Ins. Co., 493 F.2d 130, 134 (9th Cir. 1974) [applying Arizona law]. As we have previously noted, the record is at best slim with respect to evidence of any prejudice to Safeco, particularly in light of evidence that Safeco did not review the disputed documentation when it was finally turned over. We find no abuse of the court's discretion in refusing to instruct on this theory.

Moreover, during the Phase II trial, the court allowed Safeco to use the alleged falsification and noncooperation as defenses to Duckett's bad faith counterclaim.2  Again, the jury decided against Safeco, finding in essence that Safeco had no reasonable basis for denying or delaying coverage. The Phase II verdict would clearly be inconsistent with a finding that the alleged falsification and noncooperation barred Duckett from recovering under the policy. In light of the Phase II verdict, any error which might have occurred would have been harmless. See Coursen v. A.H. Robins Co., Inc., 764 F.2d 1329, 1337 (9th Cir. 1985), opinion corrected, 773 F.2d 1049 (9th Cir. 1985).

D. Safeco's Motion for New Trial on Grounds of Excessive Damages

Safeco argues that the Phase I jury award of $133,870 was not supported by the record. The standard of review in this situation is narrow; we review the excessiveness of a jury's damage award for an abuse of the district court's discretion in denying a motion for a new trial. Kotz v. Bache Halsey Stuart, Inc., 685 F.2d 1204, 1208 (9th Cir. 1982); Porterfield v. Burlington Northern, Inc., 534 F.2d 142, 146 (9th Cir. 1976). "Only where the reviewing court is left with a 'definite and firm conviction that a mistake has been committed' will the damage award be disturbed." Kotz, 685 F.2d at 1208, quoting Bechtel v. Liberty National Bank, 534 F.2d 1335, 1342 (9th Cir. 1976).

Safeco complains that Duckett presented evidence only of the cost of replacing damaged and destroyed restaurant contents with new items, whereas under the policy Duckett was entitled to recover only the actual cash value of the property at the time of the loss. Safeco also argues that, even if replacement value were an appropriate measure of damages, the amount of the award is not supported by the evidence. We address these arguments in turn.

Duckett does not dispute that the policy entitles him only to actual cash value at the time of the fire. However, under Arizona law the finder of fact is given wide latitude in determining actual cash value. Depending upon the particular conditions and circumstances, it is appropriate to consider

the cost of the property when new, the length of time it was used, its condition at the time of loss or injury, the expense to the owner of replacing it with another item of like kind and in a similar condition, and any other factors that will assist in assessing the value to the owner at the time of the loss or injury.

Devine v. Buckler, 124 Ariz. 286, 603 P.2d 557, 558 (Ariz.Ct.App.1979). During the Phase I trial, a witness for Safeco testified that actual cash value can be determined by deducting depreciation from replacement cost. The jury was instructed that Duckett was entitled to recover only actual value, not replacement cost, and that in determining actual value it was appropriate to consider any evidence which might assist them, including the fair market value and the replacement cost at the time of the loss.3  Evidence of replacement value was appropriate under these circumstances.

As to the amount of damages, Safeco's comparison of the $54,256.73 figure contained in the proof of loss and the jury verdict of $133,870 is misleading in that the latter amount included compensation for damage to the building itself and for business interruption coverage under the policy's business interruption endorsement. Moreover, the jury heard testimony that restaurant equipment had been subject to 20 to 25% inflation since Duckett had submitted the proof of loss. Under Arizona law the factfinder may take inflation into account in measuring damages for breach of contract where doing so will put the damaged party in as good a position as if the contract had been fully performed and will avoid an otherwise unjust result. Fairway Builders, Inc. v. Malouf Towers Rental Co., 124 Ariz. 242, 603 P.2d 513, 526 (Ariz.Ct.App.1979). On this record, we do not find that the district court abused its discretion in denying Safeco's motion for a new trial on grounds of an excessive verdict.

E. Denial of Judgment as Matter of Law on Bad Faith Issue

Safeco argues that the district court erred in denying its motions for summary judgment, directed verdict and judgment notwithstanding the verdict on Duckett's bad faith counterclaim, which was tried in Phase II. We review denial of each of these motions de novo. McCarthy v. Mayo, 827 F.2d 1310, 1314 (9th Cir. 1987) (summary judgment); In re Matter of Yagman, 796 F.2d 1165, 1171 (9th Cir. 1986) (directed verdict); Chalmers v. Los Angeles, 762 F.2d 753, 756 (9th Cir. 1985) (judgment notwithstanding the verdict).

Summary judgment is appropriate only where there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Rule 56(c), Fed. R. Civ. P. ; Ybarra v. Reno Thunderbird Mobile Home Village, 723 F.2d 675 (9th Cir. 1984). Similarly, directed verdict and judgment n.o.v. may not be granted unless the evidence permits only one reasonable conclusion as to the verdict. Yagman, supra; Chalmers, supra. In reviewing denial of a motion for judgment notwithstanding the verdict " [t]he evidence must be viewed in the light most favorable to the prevailing party and all inferences must be drawn in that party's favor." Chalmers, 762 F.2d at 756, quoting Flores v. Pierce, 617 F.2d 1386, 1389 (9th Cir. 1980), cert. denied, 449 U.S. 875.

Safeco argues that, because there was evidence introduced in the Phase II trial from which a jury could have deduced that Safeco had a reasonable basis for denying coverage, as a matter of law the claim was "fairly debatable" and therefore Safeco's conduct did not amount to bad faith. We recently had cause to consider the governing principles of Arizona law in Lange v. Penn Mutual Life Ins. Co., 843 F.2d 1175, 1182 (9th Cir. 1988), where we wrote:

In Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986), the Arizona Supreme Court stated that in order for an insurer to be liable for bad faith tort damages, it need only have acted intentionally without a founded belief that its conduct was permitted under the terms of the policy. Id., 151 Ariz. at 160, 726 P.2d at 576. 'The founded belief is absent when the insurer either knows that its position is groundless or when it fails to undertake an investigation adequate to determine whether its position is tenable.' Id. In Farr v. Transamerica Occidental Life Ins. Co., 145 Ariz. 1, 699 P.2d 376 (App.1984), cited with approval in Rawlings, Arizona's appellate court stated: 'The prohibition against challenging a claim unless it is fairly debatable merely expresses the obligation to give equal consideration to the insured's interests.' Rawlings, 151 Ariz. at 156, 726 P.2d at 572. See also Tank v. State Farm Fire & Casualty Co., 105 Wash. 2d 381, 715 P.2d 1133 (1986) (" 'an insurance company's duty of good faith [means] an insurer must deal fairly with an insured, giving equal consideration in all matters to the insured's interests' ") (quoted with approval in Rawlings, 151 Ariz. at 157, 726 P.2d at 573).


With these principles in mind, we find that there was sufficient evidence to submit the issue of bad faith to the jury. During the Phase II trial Duckett produced evidence which raised a factual issue as to whether Safeco knew that its denial of benefits to Duckett was groundless. While there is no need to attempt to list comprehensively all of the evidence supporting Duckett's position, Duckett presented evidence to show that his alibi was for all practical purposes substantiated; that the suspicion of Duckett's involvement in the fire was, at best, supported by circumstantial evidence; that Safeco's fire expert testified that, on different occasions, he had determined that having or lacking alibis can both implicate the owner in a business fire; that Safeco was aware of investigative reports concluding that Duckett did not cause the fire; and that Duckett had taken and passed a polygraph test at Safeco's request. Therefore, a genuine issue of material fact existed which the jury was entitled to decide and which the jury could reasonably have decided in favor of Duckett.

Safeco advances the additional argument that the Phase II court wrongly precluded the insurer from introducing evidence bearing upon facts discovered after the declaratory action was filed, particularly respecting the extent of Duckett's financial difficulties. These facts, it contends, would have supported its entitlement to judgment as a matter of law on the issue of bad faith. We disagree. The reasonableness of Safeco's conduct must be judged in light of the facts and circumstances as they existed and were known to Safeco at the time of the denial. See Wetherbee v. United Ins. Co. of America, 95 Cal. Rptr. 678, 680-81, 18 Cal. App. 3d 266 (App.1971); see also Brown v. Superior Court of and for Maricopa County, 137 Ariz. 327, 670 P.2d 725, 734 (Ariz.1983) (en banc.). Even if the district court erred in identifying the time of the denial as the date Safeco filed its action, an issue we need not reach, we find the evidence which was excluded by the ruling would not have dispensed with the issue of fact which Duckett raised regarding Safeco's bad faith.4  Therefore, introduction of the excluded evidence would not have affected the outcome of Safeco's motions.

Accordingly, we affirm the district court's denial of summary judgment, directed verdict and judgment notwithstanding the verdict on the issue of bad faith.

Safeco complains that the district court improperly instructed the Phase II jury on the measure of damages to be applied and, in light of the instruction given, improperly refused to give additional limiting instructions offered by Safeco. In addition, Safeco contends that the court erred in declining to give a laundry list of proposed limiting instructions. We review the district court's formulation of jury instructions for abuse of discretion. United States v. Wellington, 754 F.2d 1457, 1463 (9th Cir. 1985), cert. denied, 474 U.S. 1032. Only those instructions regarding the measure of damages merit substantial discussion.

The district court charged the Phase II jury that, if it decided in favor of Duckett on his bad faith claim, it must ascertain the amount of damages which would fairly and reasonably compensate Duckett for mental and emotional distress and economic loss proximately caused by Safeco's bad faith conduct in denying or delaying payment of Duckett's claims. Safeco now contends that this instruction was erroneously broad and that the trial court compounded the error by refusing a number of proposed instructions explicitly limiting the types of damages available.5 

We agree with Duckett that the instruction as given is supported by the law. See Farr v. Transamerica Occidental Life Insurance Co., 145 Ariz. 1, 699 P.2d 376, 382 (Ariz.Ct.App.1984); see also Appleman, Insurance Law and Practice Secs. 8878.25, 8878.35. We share appellant's concern that such a broad formulation of bad faith damages might in some cases lead to speculative and excessive jury awards; however, Safeco has not convinced us that this is such a case.

Safeco itself points out that there was little evidence to support, and indeed that there was evidence to foreclose, a jury award including compensation for impermissible items of damages. For example, Safeco points to evidence that Duckett would have lost his business even if Safeco had paid the claim on demand, and to an absence of medical evidence upon which a jury could base a finding that Safeco had been responsible for any medical expenses or damage to Duckett's health. Moreover, the jury was instructed not to speculate and to award only damages which were proximately caused by Safeco's bad faith conduct, if any. The district court is not required to instruct the jury on the potentially infinite number of damage items which the defendant may not recover. We do not find that the damages instructions as given amount to an abuse of discretion.

The court also refused a list of other proposed instructions, to which Safeco now objects without analysis. We find that these were either covered by other instructions or lack support in the law.

Accordingly, we hold that the jury instructions given in the Phase II trial were not an abuse of discretion.

Safeco next argues that it was error for the court to inform the jury at the commencement of the Phase II trial that there had been previous proceedings in which "a determination has been made in favor of Mr. Duckett on the issue of arson and that his claims for fire loss and for payment under his policy of business interruption insurance should have been made within a reasonable period of time after July 21, 1982, the date of the fire". Safeco argues that it was error for the district court to inform the jury of the prior proceedings because the legal issues of breach of contract and bad faith tried respectively in Phase I and Phase II were distinctly different from each other, and hence there was no reason to have advised the Phase II jury of the Phase I proceedings. Even assuming the correctness of Safeco's position, we are aware of no authority which would make such a comment by a judge grounds for reversal.

Safeco next argues that the instruction was highly prejudicial in that it may have led the jury to speculate that Safeco had previously lost on the bad faith issue or on its defenses of failure to cooperate and false proof of loss. Duckett counters that breach of contract is a legal prerequisite for bad faith and therefore that omitting to inform the jury of the Phase I result would have caused considerable confusion.

We agree with Duckett that the comments did not constitute abuse of discretion. The only issue left to be resolved in the second half of the bifurcated trial was whether Safeco had acted without a reasonable basis when it failed to make the payments which it was obligated under the contract to make; the fact that Safeco had already been found in breach of contract would not seem to muddy the waters or prejudice the jury. Moreover, the trial court gave a curative instruction at the end of the Phase II trial which would have cleared up any confusion that the commentary might have engendered:

In your deliberations in this case, you are not to consider either the fact that there were prior proceedings in this case, or the result of those prior proceedings. As I have told you, the issue in this case is different than the issue in those prior proceedings. You will decide the issues in this case based solely upon the evidence and testimony before you in this case. And wholly apart from whatever occurred before you became jurors in this case.

Mere speculation that the trial court's formulation of jury instructions and explanatory comments to the jury may potentially have resulted in confusion is not enough to find an abuse of discretion. We find that the complained of comments withstand review, and affirm.


The Honorable Samuel P. King, Senior United States District Judge, District of Hawaii, sitting by designation


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3


At the close of Phase II, the court instructed the jury that:

[a]ctual cash value means the fair market value of damaged or destroyed property immediately before the occurrence, or replacement cost less depreciation, or the fair value of the property established by any other evidence in the case.


The jury was instructed that:

Duckett was required by the insurance policy to submit to an examination under oath and to answer all questions and submit all documents material to the circumstances surrounding the insurer's liability and the extent thereof. An insurer may deny coverage on the basis of the insured's refusal to cooperate at an examination under oath if it is substantially prejudiced by the refusal.

A fire insurance policy may be voided and an insurer may deny payment of a claim under a fire policy where the insured has misrepresented any material fact in connection with the submitted proofs of loss or where he has intentionally and deliberately submitted false statements as to the amount of loss. However, where the insured is honestly and in good faith mistaken as to the amount or extent of the loss, or where he does not deliberately try to deceive the insurer on any material facts, the policy is not voided and the insurer does not have a basis upon which to deny coverage.


We also note that the damages evidence introduced at trial was largely garnered from the proof of loss form which Duckett originally prepared for Safeco. There was evidence that Duckett submitted the proof of loss reflecting replacement value rather than actual cost on the understanding that Safeco would provide a trained adjuster to calculate actual value, a task which Safeco concedes is beyond the skill of a layman. Safeco did not do so. Therefore, any uncertainty as to the precise amount of Duckett's loss occasioned by relying on replacement cost to determine actual value should be laid on Safeco's doorstep, not Duckett's


Safeco does not argue that this evidentiary ruling tainted the jury verdict or in any other way prejudiced the insurer. Therefore we examine the ruling only for its impact on these motions


For example, Safeco argues that the instruction as given wrongly encompasses such things as future lost income from the restaurant and certain medical costs