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IDS Property and Casualty Insurance Co. v. Fellows

United States District Court, W.D. Washington, Seattle

June 15, 2017

IDS PROPERTY AND CASUALTY INSURANCE COMPANY, Plaintiff,
v.
CHARLES H. FELLOWS, Defendant.

          ORDER

          Thomas S. Zilly United States District Judge.

         THIS MATTER comes before the Court on a motion for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(b) or, in the alternative, a new trial pursuant to Federal Rule of Civil Procedure 59 or remittitur, docket no. 214, and a motion to stay execution on the judgment pending resolution of post-judgment motions, docket no. 231, brought by plaintiff IDS Property and Casualty Insurance Company (“IDS”). Having reviewed all papers filed in support of, and in opposition to, each motion, the Court enters the following order.

         Background

         Defendant Charles H. Fellows was previously married to Michaela Osborne. See Pretrial Order at 3 (docket no. 153). During the course of dissolution proceedings, Osborne obtained a no-contact or protection order and, as a result, Fellows was required to move out of their residence located at 10021 SE 192nd Place in Renton, Washington. See id. In April 2015, for purposes of the dissolution proceedings, the house was appraised and assessed to be in good condition. Id. At the conclusion of the dissolution proceedings, Fellows was awarded the home, and Osborne was directed to vacate the residence by the end of August 2015. See id. Upon his return to the residence on August 31, 2015, Fellows discovered a substantial amount of damage, including graffiti, holes in the walls, and other vandalism. Id. at 4. Fellows immediately reported the damage to the Renton Police Department, which performed an investigation. Id. On the following day, September 1, 2015, Fellows made a claim against a homeowners' policy issued by IDS.

         IDS initiated this declaratory judgment action to obtain a ruling that, under the homeowners' policy, which was in effect from May 10, 2015, through May 10, 2016, it did not owe coverage for the following losses: (i) damage to the residence, (ii) additional living expenses (“ALE”) necessarily incurred by Fellows to reside elsewhere while the dwelling was uninhabitable, and (iii) theft or other improper disposition of Fellows's personal property, including business attire and formal wear. IDS asserted that the losses were excluded under the policy because they resulted from intentional acts of an insured, namely Osborne and/or her children, and that the vandalism to the dwelling was not the product of domestic violence. Fellows brought six counterclaims, two of which (for constructive fraud and negligence) were dismissed with prejudice on IDS's oral motion pursuant to Federal Rule of Civil Procedure 50(a). See Minute Order at ¶¶ 1(a) & (b) (docket no. 198). With respect to the remaining four counterclaims, to the extent they were premised on the lost business attire and formal wear, they were dismissed in part. See id. at ¶ 1(c).

         As to the damage to the residence and the ALE, the jury reached a verdict in favor of Fellows on his counterclaims for (i) breach of contract, (ii) violation of the Insurance Fair Conduct Act (“IFCA”), (iii) violation of Washington's Consumer Protection Act (“CPA”), and (iv) insurance bad faith. See Verdict (docket no. 201). Judgment was entered on April 7, 2017, in favor of Fellows and against IDS in the following amounts: (i) $164, 798.24 in contract damages; (ii) $494, 394.72 in increased damages under IFCA; (iii) $102, 600 in actual damages on the CPA and insurance bad faith counterclaims; (iv) $10, 000 in increased damages under the CPA; and (v) $145, 000 in noneconomic damages on the bad faith counterclaim, for a total of $916, 792.96, together with costs and post-judgment interest. Judgment (docket no. 205). Within 28 days after entry of the judgment, IDS filed its motion for judgment under Rule 50(b), new trial under Rule 59, or remittitur, but it did not file its motion to stay execution on the judgment until over three weeks after Fellows commenced garnishment proceedings, naming as garnishee defendants, in three separate actions, Costco Insurance Agency, Inc., Ameriprise Financial Services, Inc., and Ameriprise Auto & Home Insurance Agency, Inc. See Applications for Writ of Garnishment (docket no. 1 in Case Nos. 17-mc-39, 17-mc-40, & 17-mc-41).

         Discussion

         A. Rule 50(b) Motion

         IDS has moved for judgment as a matter of law on “those matters” as to which it “moved for directed verdict.” Pla.'s Mot. at 15:4-5 (docket no. 214). By framing its Rule 50(b) motion in this manner, IDS acknowledges that it cannot base its post-judgment motion on any argument not raised pursuant to Rule 50(a) before the matter was submitted to the jury. See Fed.R.Civ.P. 50(b). IDS's Rule 50(a) motion was limited to the following issues: (i) alleged insufficiency of the evidence concerning Fellows's emotional distress; and (ii) alleged failure by Fellows to establish a negligence, constructive fraud, CPA, and/or IFCA claim.[1] See Tr. (Mar. 31, 2017), Ex. 2 to Thenell Decl. (docket no. 215-2); Minutes (docket no. 195). The Court granted IDS's Rule 50(a) motion with regard to negligence and constructive fraud, and therefore, the only motions that IDS can now present under Rule 50(b) relate to emotional distress damages and whether the counterclaims under the CPA and/or IFCA lack merit for the reason asserted by IDS in its Rule 50(a) motion, namely that no reasonable jury could find that IDS engaged in an unreasonable denial of coverage. IDS has not renewed the latter of its pre-verdict motions, which bordered on being frivolous, [2] and thus, the only issue before the Court on IDS's Rule 50(b) motion concerns emotional distress damages. To the extent that IDS seeks judgment as a matter of law under Rule 50(b) as to the amount of contract damages (i.e., the cost to repair the home and the ALE) or the amount of actual damages (i.e., interest on a home equity line of credit and lost wages), IDS's motion is precluded because IDS did not timely raise, pursuant to Rule 50(a), any contention that such amounts should be limited in accordance with, or were unsupported by, the evidence.

         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. 2006). Evidence is substantial if it is adequate to support the jury's conclusions even if drawing a contrary conclusion from the evidence is possible. Id. In ruling on a motion for judgment as a matter of law, the Court may not make credibility determinations or weigh the evidence. EEOC v. Go Daddy Wn.2d 907, 920-25, 792 P.2d 520 (1990). Indeed, the authority cited by IDS in its objection to the instructions concerning Fellows's CPA counterclaim, namely Hell Yeah Cycles v. Ohio Sec. Ins. Co., 16 F.Supp.3d 1224 (E.D. Wash. 2014) (cited in Pla.'s Obj. at 3 (docket no. 183)), provided no support for, and actually contradicted, IDS's position. See id. at 1230-31 (“A violation of WAC 284-30-330 constitutes a violation of RCW 48.30.010(1), which in turn constitutes a per se unfair trade practice by virtue of the legislative declaration in RCW 19.86.170.” (quoting Indus. Indem., 114 Wn.2d at 923)). The observation in Hell Yeah Cycles that a reasonable denial of coverage is not an unfair practice, id. at 1231, does not in any way indicate that an insured must demonstrate an unreasonable denial of coverage, as opposed to a violation of the insurance regulations, to prevail on a CPA claim. The Court is satisfied that Instructions Nos. 15, 15A, and 15B, which track the Washington Pattern Instructions regarding CPA claims, correctly stated the law. IDS's separate contention that Fellows somehow failed, for purposes of his IFCA counterclaim, to make the requisite showing of an unreasonable denial of coverage simply ignored the evidence. From the outset, IDS was on notice, via the police report generated shortly after Fellows discovered the damage to his residence, that Osborne's children had participated in the vandalism, and that they were of an age rendering doubtful their ability to formulate the requisite “intent to cause a loss” to trigger the “intentional loss” exclusion of the policy. See Ex. R to Smart Decl. (docket no. 51-2) (Tr. Ex. 111). The jury also heard testimony from Fellows's former attorney that, even before Fellows's examination under oath had been taken by IDS, its counsel intimated that IDS would not provide coverage, derogatorily referring to Fellows as a “scumball” or “scumbucket” because of his criminal history. IDS's mishandling of this matter was always in focus during the trial, from its self-induced confusion about whether Fellows was an “insured” to its filing of this declaratory judgment action without ever making a coverage decision. See Order at 8 (docket no. 98) (directing IDS, after almost 11 months of litigation and resolution of cross-motions for summary judgment, to provide Fellows with a coverage decision). IDS's assertion that no reasonable jury could find an unreasonable denial of coverage was simply specious. Software, Inc., 581 F.3d 951, 961 (9th Cir. 2009). Rather, the Court must draw all inferences from the evidence in the light most favorable to the nonmoving party, and it must disregard all evidence favorable to the moving party that the jury was not required to believe. Winarto v. Toshiba Am. Elecs. Components, Inc., 274 F.3d 1276, 1283 (9th Cir. 2001). The Court must accept the jury's credibility findings consistent with the verdict, and it may not substitute its view of the evidence for that of the jury. Id. Judgment as a matter of law may be granted only when the evidence, as appropriately viewed, permits only one reasonable conclusion and such conclusion runs contrary to the jury's verdict. A.D. v. Cal. Highway Patrol, 712 F.3d 446, 453 (9th Cir. 2013). Having applied these standards, the Court concludes that the jury's award of emotional distress damages is supported by substantial evidence, and IDS's Rule 50(b) motion is DENIED.

         B. Motion for New Trial

         IDS moves, in the alternative, for a new trial pursuant to Rule 59, arguing that the Court's instructions to the jury were erroneous in multiple ways and that the Court erred in excluding evidence regarding Fellows's prior felony conviction. IDS's contentions lack merit. On a motion for a new trial, the Court's inquiry is whether, giving full respect to the jury's findings and considering all of the evidence, the Court is left with “the definite and firm conviction that a mistake has been committed.” Landes Constr. Co. v. Royal Bank of Canada, 833 F.2d 1365, 1371-72 (9th Cir. 1987); see 11 Charles Alan Wright, et al., Fed. Prac. & Proc. § 2806 & n.26 (3d ed. 2012) (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948) (applying a similar test for when a reviewing court may upset a trial court's finding of fact in a nonjury case)). IDS does not come close to meeting this standard.

         1. Jury Instructions

         IDS complains about instructions the Court gave, namely Instructions Nos. 7 (concerning Osborne's credibility) and 11 (setting forth the elements of IDS's claim for declaratory judgment), and about instructions the Court refused to give, specifically IDS's Proposed Instructions Nos. 62 and 63 and an unnumbered proposed instruction concerning the Court's dismissal of the portions of Fellows's counterclaims that were premised on the loss of personal property.

         a. Instruction No. 7 (Osborne's Credibility)

         After IDS had completed its direct examination of Michaela Osborne, and after Fellows's attorneys had cross-examined her, IDS for the first time disclosed, during the course of redirect, that it had reached an agreement with Osborne, shortly before trial began, to forego its subrogation rights against her.[3] Until the moment in redirect when IDS broached the subject of subrogation, IDS had not bothered to tell Fellows's lawyers about the agreement with Osborne. The failure to timely disclose such information was a substantial breach of the discovery rules, as well as strong evidence that IDS knew the waiver of its subrogation rights undermined Osborne's credibility and that it intentionally tried to hide the agreement from Fellows. At Fellows's request, see Def.'s 2d Supp. Jury Instructions (docket no. 185 at 8), the Court added the following language to the standard instruction regarding the credibility of witnesses:

In considering the testimony of Michaele Osborne, you may take into account that she received favored treatment from IDS in connection with this case. In evaluating Osborne's testimony, you should consider whether and, if so, the extent to which, her testimony might have been influenced by this factor.

         Instruction No. 7 (docket no. 196).

         IDS's contention that the above-quoted portion of Instruction No. 7 “told the jury to discount Osborne's testimony, ” Pla.'s Mot. at 7:13-14 (docket no. 214), ignores the words the Court actually used. The Court's phrasing is entirely permissive (“may”) and conditional (“whether”), and in no way mandatory. IDS's further argument that, because the parties elicited testimony from Osborne about her “deal” with IDS, Instruction No. 7 placed undue emphasis on the subrogation waiver disregards both (i) IDS's role in surprising Fellows's attorneys and rendering them unprepared to examine Osborne on the subject, and (ii) the Court's duty to provide the jury with guidance about how to consider the evidence once so elicited. Finally, IDS's repetitious assertion that it suffered prejudice unjustifiably attempts to appeal to sympathy. IDS made a strategic decision to waive its subrogation rights against Osborne, to keep the agreement secret until redirect, and then to inquire about the “deal” in an unsuccessful effort to introduce self-serving hearsay articulating IDS's view that Osborne did not commit any acts of domestic abuse. IDS's tactics backfired, and it will not now be heard to complain about any prejudice.

         b. Instruction No. 11 (Elements of ...


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