Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-05-07055/USCOURTS-ca10-05-07055-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

---

This order and judgment is not binding precedent except under the *

doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,

however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th

Cir. R. 32.1.

FILED

United States Court of Appeals

Tenth Circuit

October 12, 2007

Elisabeth A. Shumaker

Clerk of Court

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

PAUL ROESLER; PAUL ROESLER,

CRNA, INC.,

Plaintiffs - Appellees,

No. 05-7055

v. E. D. Okla.

TIG INSURANCE COMPANY,

Defendant - Appellant.

(D.C. No. 02-CV-576-W)

ORDER AND JUDGMENT

*

Before HARTZ, EBEL, and O’BRIEN, Circuit Judges.

Paul Roesler, a Certified Registered Nurse Anesthetist (doing business as

Paul Roesler CRNA, Inc.), purchased professional liability insurance through TIG

Insurance Company in May 2002. In August 2002, Roesler was sued for his

involvement in the June 1998 cesarian section birth of a severely brain-damaged

infant. Roesler notified TIG of the suit on August 19, 2002.. On September 27,

2002, TIG informed Roesler it had rescinded his policy based on his failure to

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 1 
-2-

include information of the surgical incident in his insurance application. On

October 17, 2002, Roesler filed suit for breach of contract and breach of the

implied duty of good faith and fair dealing. A jury found in favor of Roesler and

awarded him $60,072 for TIG’s breach of the insurance contract and $2.31

million in compensatory damages for TIG’s bad faith. In addition, the jury

awarded Roesler $2.3 million in punitive damages. TIG appeals claiming, inter

alia, the district court erred in denying its motion for judgment as a matter of law

and its motion for a new trial. Exercising jurisdiction pursuant to 28 U.S.C.

§ 1291, we conclude the trial court failed to correctly instruct the jury. 

Accordingly, we affirm in part, reverse in part, and remand for further

proceedings.

I. BACKGROUND

Roesler is a certified registered nurse anesthetist (CRNA) and the sole

employee of Paul Roesler, CRNA Inc. He and his company held a professional

liability insurance policy with St. Paul Fire and Marine Insurance Company from

1989 to 2002. In 2002, St. Paul ceased offering CRNA professional liability

coverage. Roesler applied to TIG for a liability insurance policy which provided

retroactive coverage for claims from 1989 forward. Roesler considered

retroactivity critical because approximately twenty percent of his work involved

the delivery of babies and malpractice liability continues until the child turns

nineteen.

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 2 
 Apgar score is “an index used to evaluate the condition of a newborn 1

infant based on a rating of 0, 1, or 2 for each of the five characteristics of color,

heart rate, response to stimulation of the sole of the foot, muscle tone, and

respiration with 10 being a perfect score.” Merriam-Webster’s Collegiate

Dictionary (10th ed. 1998). 

-3-

On June 22, 1998, Roesler administered anesthesia during the emergency

cesarean section birth of fourteen-year-old Amanda Burton’s daughter, Tala. The

baby was born with signs of severe hypoxia, a lack of oxygen in utero which may

result in brain damage, and scored a bare minimum on the Apgar tests. Roesler 1

testified it was a night he was “never going to forget.” (R. Vol. IV at 1045a.) He

described the child’s condition as “the worst one that I had seen . . . where the

baby was still alive.” (Id. at 1053a.) He was aware at that time there was a

problem with the baby and the outcome could be bad. He was correct; Tala had

profound, permanent neurological damage.

Two days after the Burton birth, the hospital asked Roesler to write a

narrative of the events. Although Roesler had been verbally consulted postsurgery on prior occasions, this was his first request for a written narrative.

Roesler knew there was a controversy as to whether the other members of the

team had timely responded and whether Dr. Claypool, the leading physician, had

advised the team it must come to the hospital immediately. Roesler wrote a

narrative addressing those points.

In August 2001, the Burtons filed suit against Dr. Claypool and the

hospital, but did not name Roesler as a defendant. Roesler testified that shortly

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 3 
 At the time Roesler filled out the application, the underwriters were 2

working on revisions to question 9. Later applications phrased the question, (now

# 2), “Are you aware of any facts or circumstances (including a request for

records from a patient or their family, an Attorney or Risk Manager) that might

give rise to a claim against you?” (R. Vol. VI at 1734a.)

 At trial, the testimony indicated Roesler may have misplaced the original 3

supplemental application form, requested another and later sent it to TIG.

-4-

before the August suit was filed, he spoke with Claypool about its likelihood. He

stated Claypool told him the Burtons would probably sue the doctor and the

hospital, but not Roesler. Several days later, Roesler read in the newspaper the

suit had been filed, but other than the names of the parties, no details were

provided. In September 2001, Roesler met with the hospital’s attorney, Leah

Kinsey, to discuss his knowledge of the relevant events. Roesler testified he did

not receive a copy of the complaint, nor did he seek to obtain one.

Prior to receiving TIG coverage in May 2002, Roesler was asked to fill out

an application and a supplementary application, also known as a “no-known-loss

letter.” The application form, completed in March 2002, contained question #9

which asked: “Are you aware of any facts or circumstances (including a request

for records) that might give rise to a claim against you?” (R. Vol. VI at 1722a.) 2

Roesler checked “no.” 

The no-known-loss letter, completed in May 2002, contained the following 3

language:

Except that which is described below, I the undersigned have no:

. . . . 

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 4 
 TIG has two departments with separate duties regarding TIG’s insurance 4

policies. The underwriting department drafts and approves applications after an

-5-

[Bullet Point 2] knowledge of information relating to the providing

or withholding of professional services which might result in a claim;

and/or

 . . . .

[Bullet Point 6] knowledge or information relating to the providing

or withholding of past professional services that resulted in . . . a

patient’s death or neurological injury.

(Id. at 1719a.) Roesler signed the supplemental application without mentioning

the Burton birth or lawsuit in the “Exceptions” section. 

TIG issued the requested policy on May 22, 2002. The policy contained a

“prior knowledge exclusion” barring coverage for claims arising from

professional services that “could reasonably have been expected to result in a

Claim, Incident or Suit, as of the date the Insured applied for this policy.” (Id. at

1838a.) Because he received a retroactive policy from TIG dating back to 1989,

Roesler did not purchase “tail” coverage (permanent coverage for the periods he

was insured by St. Paul) from St. Paul. (Id. at 1721a.)

Less than three months after Roesler secured his policy, on August 12,

2002, the Burtons filed suit against Roesler. In this second suit, the Burtons

claimed “Amanda Burton was not taken to the operating room until after 2 a.m.,

due to the late arrival of the ‘delivery team,’ including Paul Roesler, CRNA.” 

(Id. at 1771a.) On Monday, August 19, 2002, Roesler telephoned TIG to report

the lawsuit. He spoke with claims adjuster, Jennifer Williams. Williams’ 4 5

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 5 
evaluation of risk. The claims department deals with the insured under the policy. 

Thus, the decision to defend and pay claims, disclaim an insured’s claim or

provide a defense under a reservation of rights is made within the claims

department. The decision to rescind a policy is within the jurisdiction of the

underwriting department. The TIG witnesses in the claims department were

Jennifer William, her supervisor, Eugenia Mulhern, and Mulhern’s supervisor,

Lauree Barreca. The underwriters were Jeff McDonald and Mark Brostowitz. 

Although the decision to rescind Roesler’s policy was made by the underwriters,

it was based on discussions between the two departments.

 Williams spoke with Roesler twice between August 19 and August 30, 5

2002, when she left town to participate in an unrelated mediation.

-6-

contemporaneous notes reflect that Roesler told her about the events of June 28,

1998, and insisted the call that night was not a “stat” request. (Id. at 1821a.) The

notes also indicate Roesler told her he wrote a detailed report of the events of that

night “because it seemed like a situation where there could potentially be a

lawsuit.” (Id.) The notes mark this statement with quotations and an asterisk. 

Williams stated she did so because it “raised a red flag.” (R. Vol. III at 800a.) 

Williams testified she asked Roesler when he first learned the baby was brain

damaged and noted Roesler responded, “about six months ago when [the] doc[tor]

& hosp[ital] were sued.” (R. Vol. VI at 1821a.) 

Williams then spoke with Leah Kinsey, the attorney representing the

hospital in the Burton lawsuit. Her notes of this conversation state Kinsey had

spoken with Roesler “on several occasions as his dep[osition] has been requested”

and “additionally [Kinsey] had contact [with] him during [the] peer review

process.” (Id. at 1823a.) During this investigation, Williams recognized Roesler’s

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 6 
-7-

retroactive policy had been written recently, in May 2002, and he had not

reported the incident to his former insurer. Williams spoke with her supervisor,

Eugenia Mulhern, because she was concerned Roesler’s claim may not be covered

under the “prior knowledge exclusion” of the policy. Mulhern advised Williams

to contact Donald Dorfman, an insurance attorney in California, to ask him to

examine the file for potential policy coverage issues.

On August 23, 2002, Dorfman e-mailed Williams a preliminary coverage

opinion. Based on Roesler’s statements to Williams, Dorfman suggested the

“prior knowledge” exclusion may apply and that there may be grounds for

rescission based upon material nondisclosure. Dorfman also stated, “TIG will

want to be confident that it has done what it reasonably can do to corroborate the

facts as reflected in the interview notes before disclaiming and perhaps rescinding

the policy.” (Id.) These preliminary comments were provided to Jeff McDonald

of the underwriting division. McDonald asked Lauree Barreca to contact attorney

Savannah Sellman for an opinion on whether rescission would be appropriate. 

During Williams’ next conversation with Roesler she informed him there

may be some question regarding his coverage due to possible misrepresentations

about his knowledge of a potential lawsuit. Roesler replied that he did not

mention the incident on his application because he did not believe he would be

sued. Suit had already been filed against the doctor and the hospital and he was

not a named party. Williams left town after this conversation on another matter

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 7 
-8-

and Mulhern took the lead on the Roesler claim. 

On September 3, 2002, Mulhern spoke with Roesler about his apparent

expectation of the lawsuit against him. He explained the allegations in the suit

were groundless and again explained that once the first lawsuit was filed without

naming him, he assumed he would not be sued. Mulhern’s notes also indicate

Roesler told her he learned of Tala Burton’s brain damage “when the suit was

filed.” (R. Vol. VI at 1952a.) Mulhern then telephoned Dorfman and relayed the

substance of her conversation with Roesler. They determined Dorfman would

draft questions for Roesler while Mulhern would investigate the first lawsuit’s

allegations and early discovery.

The next day, Mulhern spoke with Kinsey. Kinsey explained the basis of

the original lawsuit and told Mulhern there was no issue with the administration

of anesthesia. Rather, the claim involved the timing of the operating room crew’s

response. After her conversation with Kinsey, Mulhern retained attorney Steve

Peterson to represent Roesler.

At approximately the same time, TIG received a letter from Roesler faxed

to Williams and Mulhern. The letter stated:

When I filled out the application for coverage, I did have knowledge

of the suit by Amanda Burton against the hospital and the

obstetrician; but I did not know, nor should I have known, that I

might be a party to that suit. The allegations made by the plaintiff

had nothing to do with my performance and I could not reasonably

foresee that I might be named as a party to the suit some six months

later.

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 8 
-9-

(Id. at 1730a.) However, approximately one hour later, TIG received a copy of

the original lawsuit which did contain an allegation implicating Roesler.

Paragraph 6 of the Complaint alleged, inter alia:

The nurses providing the intrapartum nursing care and nursing

obstetrical anesthesia care breached their duties with respect to

Amanda Burton’s intrapartum labor and delivery nursing care and

obstetrical anesthesia.

(Id. at 1768a.) At trial, Roesler conceded the discrepancies between these two

documents could raise a legitimate question regarding his veracity.

On September 5, Mulhern requested Dorfman write a formal coverage

opinion. He sent his opinion on September 12, 2002, stating Roesler’s

explanation of why he did not expect a lawsuit raised a “credible factual basis for

the insured to avoid the prior knowledge exclusion based on an objectively

reasonable belief that no potential claim was presented.” (Id. at 1749a.) Dorfman

offered to address the issue of rescission separately if TIG wished, but at that

point recommended TIG defend with a reservation of rights under the policy

while investigation continued.

TIG received Sellman’s formal opinion the next day. Even though Sellman

had not reviewed Dorfman’s letter, she agreed Roesler’s explanation for his

answers regarding his knowledge of a potential lawsuit was “plausible” and did

not suggest the prior knowledge exclusion be invoked (Id. at 1757a.) 

Nonetheless, she concluded Roesler’s answer to bullet point 6 was cause for

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 9 
-10-

rescission. She opined TIG had a legitimate dispute as to coverage because it

could reasonably believe he intentionally misrepresented his “knowledge or

information relating to the providing or withholding of past professional services

that resulted in a patient’s neurological injury.” Because Roesler knew of Tala

Burton’s brain injury and subsequent lawsuit at the time he answered the

question, Sellman advised TIG that it could reasonably believe Roesler intended

to deceive the insurance company under Oklahoma law. Had TIG known of the

Burton incident, it could have independently evaluated the possibility of a claim

before issuing coverage and, at the least, carved out an exception to the claim. 

Based on Roesler’s misrepresentation by failing to provide the Burton information

in response to bullet point 6, Sellman recommended TIG rescind the policy. She

concluded, at a minimum, TIG had a “legitimate dispute as to coverage.” (Id. at

1757a.) Sellman also recommended TIG continue defending Roesler for 30 days

so he could make alternative arrangements for his defense.

At this point, TIG had three options. It could (1) disallow Roesler’s claim,

(2) continue defending under a reservation of rights and later rescind if warranted,

or (3) rescind. On September 27, with no further investigation, TIG sent Roesler

a rescission letter drafted by Sellman. The letter identified Roesler’s answer to

Bullet Point 6 as the basis for the rescission but also referenced potential

difficulties with Question # 9 and Bullet Point 2. After acknowledging Roesler’s

explanation for his answers to Question # 9 and Bullet Point 2, the letter

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 10 
 An insurer in the “secondary” or “non-admitted” market accepts 6

applicants who do not meet normal underwriting guidelines. These insurers do

not need to meet the stringent rate requirements of admitted insurers regulated by

state departments of insurance.

 Throughout the trial, TIG officials conceded they knew the effect of 7

rescission would be to void all coverage for Roesler back to 1989. They also

knew securing new insurance would be more difficult because the application for

-11-

continued as follows:

However, you learned that Tala Burton suffered brain damage and

was mentally retarded at the time you learned of the suit against the

hospital and Dr. Claypool, no later than “early 2002,” and before you

completed the supplemental declaration to your application for

insurance on May 3, 2002. You failed to reveal Tala Burton’s

neurological injuries in response to the question whether you had

knowledge of information relating to professional services that

resulted in a patient’s neurological injury. This question on the

application was not based on whether you subjectively believed a

claim would be asserted, only whether you knew of any neurological

injuries to a patient.

The omission of this information is a material misrepresentation

under Oklahoma law. See Wagnon v. State Farm Fire and Casualty

Co., 146 F.3d 764, 768 (10th Cir. 1998) (applying Oklahoma law) (“a

misrepresentation will be considered material if a reasonable

insurance company, in determining its course of action, would attach

importance to the fact misrepresented.”) If TIG had known of the

incident involving Ms. Burton, TIG could have conducted its own

evaluation and investigation of whether a claim was likely to be

asserted against you before issuing the Policy; at the very least, TIG

could have carved out an exception from coverage for the Burton

claim.

(Id. at 1707-08a). Roesler received the letter while at work on October 1, 2002. 

On October 14, 2002, Roesler received approval from an insurer in the secondary

market for a non-retroactive policy at a premium approximately $6,000 more per 6

year than TIG’s policy.7

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 11 
every insurer asked whether the applicant ever had a policy rescinded.

-12-

Roesler filed suit against TIG on October 17, 2002, for breach of contract

and bad faith seeking compensatory and punitive damages. Shortly thereafter, the

Burton’s voluntarily dismissed the lawsuit against Roesler. On January 4, 2003,

after the dismissal of the Burton suit, TIG mistakenly sent Roesler a Reservation

of Rights letter informing him TIG would conduct his defense subject to its

continuing investigation of possible misrepresentation.

On August 1, 2003, Brostowitz sent Roesler a letter informing him his

policy had been formally reinstated and no premium was requested. However, the

Burton claim was excluded from the new policy. Brostowitz testified this was a

business decision intended to limit damages in the event Roesler’s suit was

successful.

Less than six months after TIG reinstated Roesler’s policy, TIG decided to

cease offering professional liability insurance to CRNAs. Therefore, it notified

Roesler and its other customers that it would not be renewing their policies. 

However, it did offer “tail” coverage for its customers at a cost of approximately

$4,000. Roesler declined this offer because he “didn’t want to do business with a

company that treated [him] like that.” (R. Vol. IV at 1040a.) As a result, Roesler

remained uninsured for events occurring between 1989 and October 1, 2002. 

Roesler’s claims were presented to a jury in April 2004. At the close of

Roesler’s evidence, TIG moved for judgment as a matter of law. The trial court

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 12 
 “Because this is a diversity action, we apply the substantive law of the 8

forum state . . . .” Advantage Homebuilding, LLC. v. Maryland Cas. Co., 470

F.3d 1003, 1007 (10th Cir. 2006) (citation and quotations omitted). In this case,

we apply Oklahoma law.

-13-

denied the motion. TIG renewed its motion at the close of all evidence and also

moved for a new trial. These motions were also denied. The jury awarded

Roesler $60,072 for TIG’s breach of contract. For TIG’s bad faith, the jury

awarded Roesler $2.31 million in compensatory damages and $2.3 million in

punitive damages. This timely appeal followed. 

II. DISCUSSION

TIG claims it is entitled to judgment as a matter of law on Roesler’s bad

faith claim because it had a reasonable, good faith basis to believe there was a

legitimate dispute as to whether Roesler made a material misrepresentation on his

insurance application with TIG. In the alternative, TIG maintains it is entitled to

a new trial because the trial court erroneously instructed the jurors that it must

find TIG acted in bad faith if it found Roesler had not intended to deceive TIG in

his application. Finally, TIG claims it is entitled to a remittitur or a new trial

because the award of over $2 million for emotional distress is clearly excessive.8

A. Judgment as a Matter of Law

TIG maintains the court erred in denying its motion for judgment as a

matter of law on Roesler’s bad faith claim. “A judgment as a matter of law is

warranted only if the evidence points but one way and is susceptible to no

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 13 
 For example, Sellman was one of the last witnesses to testify. During 9

cross-examination, plaintiff’s counsel asked, “Did you know that the claims

people in this case have all testified they made the decision to rescind this man’s

insurance policy before they hired either you or Mr. Dorfman; did you know

that?” (Vol. V at 1459a.) This question misrepresented the previous testimony. 

In fact, the uncontested testimony established rescission was an option being

considered but no final decision had been made until after TIG received Sellman’s

-14-

reasonable inferences which may support the opposing party’s position.” Herrera

v. Lufkin Indus., Inc., 474 F.3d 675, 685 (10th Cir. 2007) (citation and quotations

omitted). We review the district court’s decision de novo, considering the entire

record in the light most favorable to the non-moving party. Id. “The question is

not whether there is literally no evidence supporting the nonmoving party but

whether there is evidence upon which a jury could properly find for that party. 

For a jury to properly find for a party, the party must present more than a scintilla

of evidence supporting its claim.” Id.

TIG asserts the evidence was insufficient to support the bad faith and

punitive damages awards. Roesler argues there was abundant evidence TIG

manufactured the alleged legitimate dispute in bad faith. Unfortunately, before

we can discuss the issues and evidence, we must take a moment to debunk many

of Roesler’s arguments which are unsupported by law or fact. We are mindful we

must allow all reasonable inferences in favor of the non-moving party. However,

we need not endorse inferences premised on deliberate confusion, inaccurate

hypothetical questions, or misstatements of earlier testimony to induce misleading

testimony from a later witness. Therefore, we must separate concocted or 9

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 14 
opinion. Moreover, the evidence consistently revealed TIG’s claims department

employees provided input but the underwriters made the decision to rescind

Roesler’s policy after Sellman provided her legal opinion. 

 Every witness with knowledge of the matter so testified. In addition, 10

Dorfman’s final opinion, sent on September 12, 2002, specifically recognized he

had not been retained to opine on rescission. Indeed, even though he

recommended more investigation before refusing to cover the claim, he further

stated: “There are also grounds to consider a policy rescission based on the same

failure to disclose this C section delivery as a potential claim at the time of

application for coverage. We can address this separately should you wish to

assess this further.” (R. Vol. VI at 1750a.) The fact that Dorfman commented on

rescission does not lead to an inference he was retained to provide an opinion on

the matter.

-15-

irrelevant “evidence” from evidence actually presented to the jury.

1. Sham or Irrelevant Evidence

a) Lawyer-Shopping 

Roesler argues evidence of bad faith can be inferred from TIG’s “lawyershopping” based on Jeff McDonald’s request that Barrecca hire Sellman shortly

after Dorfman rendered his informal opinion. Roesler alleges it established an

inference TIG went to Sellman because it did not like Dorfman’s advice. There is

no evidence supporting such an inference. 

Uncontested evidence established Dorfman was retained to opine solely on

the policy coverage issue, not rescission. His informal opinion arrived via e-mail

to Williams on August 23, 2002. Williams forwarded the e-mail to McDonald 10

the same day. Dorfman’s informal opinion, rendered before knowledge of

Roesler’s explanation, stated he believed the Burton suit was excluded from

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 15 
-16-

coverage under the prior knowledge exclusion, and separately, there may be

grounds for rescission of the policy based upon material nondisclosure.” (R. Vol.

VI at 1800a.) He recommended further investigation. 

Uncontradicted testimony further established it was at this point TIG hired

Sellman to address the rescission issue. Thus, at the time TIG hired Sellman,

Dorfman was recommending coverage be denied. It was only after Sellman was

retained that Dorfman learned of Roesler’s September 4, 2002, explanation. 

While Dorfman changed his opinion regarding the prior knowledge exclusion,

there is no evidence TIG contacted Sellman to report Dorfman’s final conclusions

or gave any other direction to Sellman’s formal opinion, sent the day after

Dorfman’s. Indeed, Sellman agreed Roesler offered a “plausible” position as to

his prior knowledge of a lawsuit against him. However, Sellman concluded

Roesler’s admission he knew of Burton’s injuries before he completed his

application was sufficient evidence of misrepresentation as to Bullet Point 6. (R.

Vol. VI at 1757a.) The timing and substance of the two legal opinions provide no

basis for Roesler’s insinuation TIG went “lawyer-shopping” in bad faith or that

the two legal opinions were contradictory.

b) Knowledge of Brain Injury

Roesler also argues TIG’s bad faith is demonstrated by its failure to resolve

whether Roesler knew Tala Burton suffered brain injuries prior to completing his

application for insurance. The evidence allows no question of fact on this issue. 

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 16 
 Plaintiff’s counsel deftly managed to confuse Mulhern during cross11

examination by insisting her failure to note which specific lawsuit Roesler was

referring to during their conversation (the one against the hospital or the later suit

against Roesler) raised a question of fact as to when Roesler knew of Burton’s

injuries. However, Mulhern consistently testified Roesler told her he knew of

Burton’s injuries at the time of the lawsuit against the doctor and the hospital.

-17-

Williams’ notes specifically state Roesler told her he learned of Tala Burton’s

injuries when he heard about the lawsuit against the doctor and the hospital. 

Mulhern’s notes do not contradict this statement, but merely state Roesler told her

he learned of the injuries at “the time of the lawsuit.” In fact, Roesler never 11

denied this knowledge. When asked at trial why he answered Bullet Point 6 in

the negative, Roesler did not say he did not know about Tala Burton’s injuries. 

Rather, he explained he believed the question asked whether his administration of

anesthesia caused Tala Burton’s brain damage and, because he did not believe it

did, he did not mention the incident. Given the uncontested evidence, all

reasonable inferences necessarily lead to the conclusion Roesler learned about

Tala Burton’s neurological injuries, at the latest, in August 2001. Therefore,

there can be no inference TIG acted in bad faith by declining to further

investigate this issue.

c) Post-Litigation Conduct

Roesler argues TIG’s post-litigation conduct – the post-rescission

Reservation of Rights letter, reinstatement of the policy and the offer of a tail

policy – is evidence of bad faith. He asserts this evidence was appropriately

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 17 
-18-

considered by the jury “in determining the reasonableness of TIG’s initial

decision to rescind the policy in light of its attempt after litigation to somehow

‘cure’ its conduct.” (Appellee’s Br. at 44.)

These post-litigation activities have no relevance to TIG’s alleged bad

faith. Hale v. A.G. Ins. Co., 138 P.3d 567, 571-72 (Okla. Civ. App. 2006) (“[T]he

analysis in bad faith cases indicates the cutoff for relevant evidence is the date of

payment or denial of the claim.”). The duty of good faith and fair dealing exists

during the time the claim is being reviewed. Once a lawsuit is filed, to hold an

insurer’s acceptable litigation tactics as evidence of bad faith would be to deny

the insurer a complete defense. See Timberlake Const. Co. v. U.S. Fid. & Guar.

Co., 71 F.3d 335, 340 (10th Cir. 1995) (“[s]uch evidence should rarely, if ever, be

allowed to serve as proof of bad faith.”). “[A]llowing litigation conduct to serve

as evidence of bad faith would undermine an insurer’s right to contest

questionable claims and to defend itself against such claims resulting in a chilling

effect on insurers, which could unfairly penalize them by inhibiting their lawyers

from zealously and effectively representing their clients within the bounds

permitted by law.” Sims v. Travelers Ins. Co., 16 P.3d 468, 471 (Okla. Civ. App.

2000). 

Even if the post-litigation events are considered, there is no inference of

bad faith. TIG readily admitted the decision to reinstate Roesler’s policy was

intended to mitigate damages and, as such, is not evidence of prior bad faith. As

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 18 
-19-

to the January 2003, reservation of rights letter, Barreca testified she sent the 

letter by mistake. Even so, at the time the letter was sent, the underlying suit had

already been resolved and nothing could be gained by this mistake. 

d) Attorney Opinion Letters 

Finally, Roesler repeatedly insinuated at trial that TIG’s failure to provide

him the letters from Dorfman and Sellman with the letter of the rescission is

evidence of bad faith. For example, in the examination of Jeff McDonald, the

following colloquy occurred:

Q. Are you proud that your company has taken the position that they’re

proud of how they treated [Roesler] because they treated him in good

faith?

A. I, I’m aware that we don’t feel we’ve acted in bad faith here.

Q. Well, if your company is satisfied they’ve treated him fairly, don’t

you think one of the things they should do is be proud to show Mr.

Roesler those two legal opinions from the beginning?

TIG Counsel: Objection, your honor, argumentative and object under

Timberlake.

Court: Overruled.

* * * *

A. I just, I don’t know that we were ever asked to do that.

Q. Well, does this man, who is not a lawyer, does he have to ask you

specific little questions after you’ve denied his claim and say, Guys,

did you up in Chicago hire a couple of lawyers that told you that you

could, you could rescind this policy; does he have to ask that before

you’ll give it to him?

TIG Counsel: Objection, relevance your Honor.

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 19 
-20-

Court: Overruled.

(Vol. III at 662-663a). The same type of questioning continued with Williams

and Barrecca. Roesler also testified TIG never told him before the lawsuit it was

relying on opinions from lawyers to rescind the policy. In closing, plaintiff’s

counsel told the jury that good faith required TIG “to tell [Roesler] everything.” 

(R. Vol. V at 1545a.)

TIG maintains its failure to provide Roesler its lawyers’ opinions at the

time of rescission is irrelevant to bad faith. Moreover, it contends the trial

court’s admission of counsel’s insinuations through this line of questioning is an

abuse of discretion, or in the alternative, plain error. In response, Roesler asserts

that “simply because there is not a law holding it is bad faith for an insurer not to

inform an insured about evidence it obtains from a lawyer, this does not mean it is

not unreasonable in one case or another to fail to do so.” (Appellee’s Br. at 64.) 

Roesler’s response ignores basic concepts of attorney-client privilege. 

The attorney-client privilege is codified at Okla. Stat. tit. 12, § 2502. It

protects communications between an attorney and the client “who consults an

attorney with a view towards obtaining legal services or is rendered professional

legal services by an attorney.” Id. at § 2502 (A)(2). The client retains the

“privilege to refuse to disclose and to prevent any other person from disclosing

confidential communications made for the purpose of facilitating the rendition of

professional legal services to the client.” Id. at § 2502 B; see also, Scott v.

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 20 
 “A ‘client’ is a person, public officer, or corporation, association, or 12

other organization or entity, either public or private . . . .” Okla. Stat. tit. 12 §

2502 2.A.

-21-

Peterson, 126 P.3d 1232, 1235 n.3 (Okla. 2005). As a general matter, “the client

has a reasonable expectation that . . . disclosure of such information may be

judicially compelled only in accordance with recognized exceptions to the

attorney-client and work product privileges.” Okla. Stat. Ann. tit. 5, Ch. 1, App.

3-A (Rules of Prof’l Conduct (Scope)). Consequently, TIG had no duty to

expressly waive its privilege. 

An insurance company, just as any other individual or entity, has the right

to seek confidential legal advice. See Sims v. Travelers Ins. Co., 16 P.3d at 471 12

(documents relating to communications between the insurer and its attorneys were

subject to attorney-client privilege); see also Twin City Fire Ins. Co. v. Burke, 63

P.3d 282, 285-86 (Ariz. 2003); Boone v. Vanliner Ins. Co., 744 N.E.2d 154, 155

n.2 (Ohio 2000); Dion v. Nationwide Mut. Ins. Co., 185 F.R.D. 288, 294 (D.

Mont. 1998). It is only when such advice becomes at issue in a legal proceeding

that the client may be required to disclose the advice of counsel under a theory of

implied waiver. Roesler does not claim there was any implied waiver of attorneyclient privilege at the time TIG rescinded his policy.

The letters from Dorfman and Sellman were privileged communications

given in response to TIG’s request for professional advice. Roesler fails to

identify any case law where a party, including an insurance company, acted

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 21 
 Oklahoma’s Unfair Claims Settlement Practices Act, Okla. Stat. tit. 36 § 13

1250.7, provides a casualty insurer’s notification of a claim denial must include

“reference to [the specific] policy provision, condition, or exclusion” that is the

basis for denial. The Act does not afford a private right of action for a violation

of its provisions. Lewis v. Aetna Health Care, Inc., 78 F.Supp.2d 1202, 1206

(N.D. Okla. 1999). However, “the Insurance Code in general, and the Act in

particular, reflect a clear State policy of regulating insurance in part by

prohibiting the bad faith failure by insurers to pay promptly the rightful claims of

insureds.” Id.

 TIG complains that Roesler spent a substantial amount of time at trial 14

focusing on Question # 9 and confused the jury by implying TIG decided to

rescind based on Roesler’s response to Question # 9 and Bullet Point 2 as well as

Bullet Point 6. The bulk of the language in the rescission letter suggests

Roesler’s answer to Bullet Point 6 is the reason for rescission. However, the

rescission letter is unclear whether Roesler’s answers to all these provisions

influenced TIG’s decision. Therefore, Roesler did not unfairly explore TIG’s

reference in the letter to Question # 9 and Bullet Point 2. On remand, TIG can

present evidence clarifying its position and the jury can reach its own

conclusions.

-22-

unreasonably or in bad faith by failing to voluntarily sacrifice its attorney-client

privilege prior to litigation. Oklahoma law certainly does not imply such action

might be necessary. He makes no attempt to explain why it was unreasonable for

TIG to maintain its attorney-client privilege nor does he claim TIG did not fully

comply with Oklahoma law regarding notice to him of its decision. Thus, the 13

district court erred in allowing Roesler to argue TIG’s retention of its attorneyclient privilege was evidence of bad faith.14

2. Legitimate Dispute/Inadequate Investigation

Having addressed the “facts” we will not consider in support of the jury’s

finding of TIG’s bad faith, we turn to TIG’s contention the district court

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 22 
-23-

erroneously denied its motion for judgment as a matter of law. TIG claims the

uncontroverted evidence established its good faith belief of a legitimate coverage

dispute. Roesler argues the failure to conduct an adequate investigation negates

the legitimacy of the coverage dispute.

a) Applicable Law

Under Oklahoma law, “an insurer has an implied duty to deal fairly and act

in good faith with its insured.” Christian v. Am. Home Assur. Co., 577 P.2d 899,

904 (Okla. 1977). If an insurer fails to fulfill this duty, the insured can bring a

bad faith action in tort. Id. Insurers are statutorily barred from declining

coverage on the basis of their insured’s misrepresentations and omissions except

in limited circumstances. Those circumstances are set out in Okla. Stat. tit. 36,

§ 3609, which provides in part: 

All statements and descriptions in any application for an insurance

policy or in negotiations therefor, by or in behalf of the insured, shall

be deemed to be representations and not warranties. 

Misrepresentations, omissions, concealment of facts, and incorrect

statements shall not prevent a recovery under the policy unless: 

1. Fraudulent; or 

2. Material either to the acceptance of the risk, or to the hazard

assumed by the insurer; or

3. The insurer in good faith would either not have issued the policy,

or would not have issued a policy in as large an amount, or would not

have provided coverage with respect to the hazard resulting in the

loss, if the true facts had been made known to the insurer as required

either by the application for the policy or otherwise. 

 Okla. Stat. tit. 36, § 3609(A). 

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 23 
-24-

Oklahoma defines insurance misrepresentation as follows:

A ‘misrepresentation’ in insurance is a statement as a fact of

something which is untrue, and which the insured states with the

knowledge that it is untrue and with an intent to deceive, or which he

states positively as true without knowing it to be true, and which has

a tendency to mislead, where such fact in either case is material to

the risk.

Scottsdale Ins. Co. v. Tolliver, 127 P.3d 611, 613 (Okla. 2005). An “omission” is

“an intentional omission to disclose a fact or condition which is material to the

acceptance of the risk or the hazard assumed.” Id. at 613-14. An “incorrect

statement” is “a statement of fact which is untrue and known to be untrue, or so

carelessly made that an intent to deceive may be inferred.” Id. at 614. 

 TIG maintains it reasonably believed Roesler intended to deceive the

company when he did not disclose the Burton case in response to the question

regarding neurological injuries to a patient in Bullet Point 6. Therefore, TIG

maintains it had a legitimate dispute as to coverage vitiating a bad faith claim. 

The Oklahoma Supreme Court has recognized “[l]egitimate disagreements can

arise concerning the amount of coverage, cause of loss, and breach of policy

conditions, and the tort of bad faith does not prevent the insurer from resisting

payment or resorting to a judicial forum to resolve a legitimate dispute.” Brown

v. Patel, 157 P.3d 117, 126 (Okla. 2007); see also Christian, 577 P.2d at 905;

Timberlake Constr. Co. v. U.S. Fid. & Guar. Co., 71 F.3d 335, 343 (10th Cir.

1995) (applying Oklahoma law). In such cases, “[r]esort to a judicial forum is not

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 24 
-25-

per se bad faith or unfair dealing on the part of the insurer regardless of the

outcome of the suit.” Christian, 577 P.2d at 905. “The decisive question is

whether the insurer had a good faith belief, at the time its performance was

requested, that it had justifiable reason for withholding payment under the

policy.” Buzzard v. Farmers Ins. Co., 824 P.2d 1105, 1109 (Okla. 1991)

(quotation omitted). Evidence leading to different inferences requires the jury to

resolve the reasonableness of insurer’s conduct, “by a consideration of the

circumstances in each case.” Badillo v. Mid-Century Ins. Co., 121 P.3d 1080,

1093 (Okla. 2005). At a minimum, an insurer’s culpability must be “more than

simple negligence, but less than the reckless conduct necessary to sanction a

punitive damage award . . . .” Id. at 1094. 

The existence of a legitimate dispute does not, by itself, resolve a bad faith

claim. Rather, “it shifts the burden to the insured to present additional evidence

of bad faith.” Sims v. Great Am. Life Ins. Co., 469 F.3d 870, 891 (10th Cir. 2006)

(applying Oklahoma law). “Most commonly, the insured asserts an insurer's

failure to conduct an investigation reasonably appropriate under the

circumstances.” Id. This is exactly what Roesler claims here. To defeat TIG’s

affirmative defense, he must demonstrate “(1) the manner of [TIG’s] investigation

hints at a sham defense or otherwise suggests that material facts were overlooked,

or (2) [TIG] intentionally disregarded undisputed facts supporting the insured’s

claim.” Id.; see also Oulds v. Principal Mut. Life Ins. Co., 6 F.3d 1431, 1442

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 25 
-26-

(10th Cir. 1993) (applying Oklahoma law). 

b) Parties’ Contentions

TIG contends an evaluation of the evidence necessarily leads to the

conclusion it had a good faith belief Roesler made a material misrepresentation

when answering Bullet Point 6. The undisputed evidence revealed Roesler knew

of Tala Burton’s severe neurological injury prior to completing TIG’s application. 

Therefore, he knew he had professionally participated in a procedure which

resulted in severe neurological damage prior to his negative response to Bullet

Point 6 in the supplemental application. TIG witnesses testified the only

reasonable response would have been to report the Burton incident because every

CRNA knows his professional services are provided as part of a team, not as an

individual. Therefore, Bullet Point 6 referred to Roesler’s professional services

as part of a surgical team where the procedure resulted in neurological injury. In

addition, Roesler had stated in writing the Complaint against the hospital did not

contain allegations against him, but when TIG received a copy of the Complaint a

short time later, it specifically referred to the nurse anesthetist. TIG contends no

additional investigation was necessary because it would not change these facts. 

TIG claims it further demonstrated good faith by contacting attorneys to

seek legal input on the issues. “[R]eliance on the advice of counsel can be a

defense to a bad faith suit, [but] the reliance on counsel's advice must be

reasonable.” Barnes v. Okla. Farm Bureau Mut. Ins. Co., 11 P.3d 162, 174 (Okla.

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 26 
-27-

2000). “The advice of counsel is but one factor to be considered in deciding

whether the carrier’s reason for denying a claim was arguably reasonable.” Id. 

“The ultimate question is whether sufficient evidence was presented to show

insurer's purported reliance on its attorney's advice was unreasonable.” Id. TIG

claims the uncontested evidence demonstrated it consulted two attorneys on

independent questions of coverage. They followed the advice of both by

accepting Roesler’s explanation to his answers to question # 9 and Bullet Point 2. 

TIG further asserts, given the facts it knew at the time, it was not unreasonable to

proceed on Sellman’s opinion that Roesler’s answer to Bullet Point 6 indicated an

intent to deceive which legally justified the decision to rescind the policy. TIG

maintains there was no evidence it intentionally overlooked evidence in Roesler’s

favor or that counsel’s advice was unreasonable.

Roesler contends TIG failed to properly investigate because it never asked

him why he answered Bullet Point 6 in the negative. Roesler testified he

understood the question to be limited to whether his past professional services

caused death or neurological damage, not whether he was part of a team where

such a result occurred. According to Roesler, because there was no evidence

Burton’s injuries were caused by his administration of anesthesia, his answer to

Bullet Point 6 was not a misrepresentation nor was his interpretation of the

question unreasonable. 

Roesler points to TIG’s modified application which was in use after he

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 27 
-28-

completed his application, but prior to the rescission, as evidence that TIG knew

there could be more than one understanding of Bullet Point 6. The new

application asked whether the applicant has “attended any cases where a medical

error was made by you or another practitioner, which resulted in an incident

report or investigation, that you have not yet reported to your insurance carrier.”

(Question 10, Application dated May, 10, 2002, Vol. VI at 1740a) (emphasis

added). He contends this modified language demonstrates TIG knew Bullet Point

6 should have been more specific if it wanted to discover facts regarding cases in

which he “attended,” or results involving “another practitioner.” In essence,

Roesler claims TIG’s failure to ask him a simple question creates a question of

fact as to whether TIG inadequately investigated his claim and, in turn, whether it

unreasonably relied on Sellman’s advice because it did not provide her with all

relevant facts.

c) Adequate Investigation of Intent 

The intent underlying the validity of the claim can be determined only after

an insurer conducts “an investigation reasonably appropriate under the

circumstances.” Buzzard, 824 P.2d at 1109. “When a bad faith claim is premised

on inadequate investigation, the insured must make a showing that material facts

were overlooked or that a more thorough investigation would have produced

relevant information.” Timberlake, 71 F.3d at 345. Several Oklahoma cases have

addressed the adequacy of an investigation into the insured’s knowledge or

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 28 
-29-

motivation in completing an application or claim. 

In Brunson v. Mid-Western Life Insurance Company, the insurer refused to

make medical payments alleging Brunson made false representations in his

insurance application. 547 P.2d 970, 972, 973 (Okla. 1976). While filling out the

health insurance application with the insurance agent, Mr. and Mrs. Brunson were

asked “whether Brunson or any family member ever had or been told that they

had any disease of kidney, bladder, prostate or female organs, or were now

pregnant.” Id at 970. Mrs. Brunson and the agent laughed at the question

regarding Mr. Brunson’s possible disease of female organs or pregnancy and the

agent answered the question in the negative. Later, the insurer discovered Mr.

Brunson had been treated for prostatitis over eight years previously but had not

had trouble with this condition since. 

At trial, Mr. Brunson testified he understood that the medical questions

asked subsequent to a question dealing with ailments and treatments within past

five years limited later questions to the same time period. Brunson further

testified the agent did not question him concerning his prostate and he understood

the question to deal with female organs and pregnancies. The Oklahoma Supreme

Court affirmed the district court’s conclusion that Brunson had not intended to

deceive the insurer and laid the fault at the feet of the agent. Id. at 973. While

this case did not address bad faith or reasonable investigation, the court clearly

considered the insured’s explanation of his subjective motivations when

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 29 
-30-

answering the questions to be of substantial weight.

In Hall v. Globe Life and Accident Insurance Company, Mrs. Hall applied

for a life insurance policy for her husband, naming herself as beneficiary. 968

P.2d 1263, 1264-65 (Okla. Civ. App. 1998). She checked “no” to the question

whether Mr. Hall had been treated for cirrhosis within the preceding twelve

months but told the agent that Mr. Hall had chronic hepatitis. Upon Mr. Hall’s

death about ten months later, the death certificate identified the cause of death as

“hepatorenal syndrome, primary biliary cirrhosis.” Id. at 1265. Globe Life also

received a report from Mercy Hospital, signed by Mr. Hall’s treating physician,

which had a hand-written note “cirrhosis non A or B.” Based on this information,

Globe denied payment due to Mrs. Hall’s alleged misrepresentation in the

application. 

Mrs. Hall filed a claim for bad faith, arguing her statement in the

application “was a representation based upon the knowledge of the applicant, not

a warranty that the insured does not, in fact, have the specified illnesses.” Id. at

1265. The court concluded the jury could find Globe Life’s investigation

improperly focused on determining whether Mr. Hall in fact had cirrhosis more

than twelve months prior to the application and did not investigate the “critical

fact” – Mrs. Hall’s knowledge of Mr. Hall’s illness. Id. at 1265-66. The court

concluded the evidence created a jury question. Id. at 1266.

In Crews v. Shelter General Insurance Company, the insurer made the

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 30 
-31-

decision to void Mr. Crews’ home insurance policy because he allegedly

misrepresented his criminal history when he denied a prior felony conviction. 

393 F.Supp.2d at 1170 (W.D. Okla. 2005). After Crews’s home was destroyed by

fire, he told the adjuster he had been convicted of a felony. In determining

whether to void the policy, the insurer relied “exclusively on the insurance

application, Mr. Crews’s answer to [the] criminal history question during the

taking of the recorded statement, and the court documents indicating that Mr.

Crews had, in fact, been convicted of a felony in 1979.” Id. at 1173. No one

asked Crews to explain the apparent inconsistency prior to rescinding his policy. 

Id. at 1174. 

When finally asked, Crews contended his answer in the insurance

application was due to his honest belief his felony conviction resulted in a

deferred sentence, as opposed to a suspended sentence. He further testified he

never saw the Judgment and Sentence that indicated he received a suspended

sentence, but learned of his mistake only after the insurer's rescission of his

policy. The district court refused to grant summary judgment in favor of the

insurer because the insurer “failed to investigate the possibility that Mr. Crews

may have misrepresented his criminal history without any intent to deceive.” Id.

at 1178. Specifically, the district court stated:

The [insurer’s] employees who examined whether (and eventually

decided that) [the] policy should be voided . . . testified that they

made no effort to determine whether Mr. Crews misrepresented

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 31 
-32-

himself with an intent to deceive, which they could have

accomplished by simply asking Mr. Crews about the apparent

inconsistency between the insurance application and his recorded

statement. Instead, they focused their attention on the mere fact that

a misrepresentation was made, and then made the assumption that the

misrepresentation was made willfully and intentionally based on Mr.

Crews’s acknowledgment of his criminal history during the recorded

statement. Plaintiffs argue that [the insurer] essentially ignored the

intent to deceive requirement in contravention of Oklahoma law and

to their detriment. They further argue that had [the insurer]

investigated Mr. Crews’s state of mind, they would have been alerted

to the obvious fact that Mr. Crews did not willfully misrepresent

himself.

Id. at 1178-79.

Most recently, in Sims v. Great American Life Insurance Company, the

district court reviewed the adequacy of an investigation into the insured’s cause

of death. 469 F.3d at 892-893. There, the insurer was not required to directly ask

Mrs. Sims why she did not believe her husband’s death in a single car crash was a

suicide. Instead, the insurer was entitled to rely on Mrs. Sims’s sworn (but

recanted) statement to the police regarding her husband’s mental state that night

and the fact every official report listed suicide as the cause of death. “The

conclusions in these reports were not made at the behest of Great American -- the

medical examiner and investigating officer had no connection with Great

American.” Id. at 892. The insurer was aware of the family’s rejection of

suicide, the lack of depression in Mr. Sims’s medical history and the fact he was

intoxicated when he left in the car. Although the insurer could have further

investigated by asking Mrs. Sims about the obvious inconsistency between her

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 32 
 A breach of the duty of good faith and fair dealing “may be shown 15

without proving conduct on the part of an insurer that was intended to harm,

injure or deceive its insured.” Badillo, 121 P.3d at 1093 n.6. In contrast,

punitive damages are available only when a jury finds by clear and convincing

evidence the insurer acted in reckless disregard of its duty or intentionally and

with malice. Id. at 1105-06; Okla. Stat. tit. 23, § 9.1. Thus, a finding of breach

of the duty of good faith and fair dealing does not necessarily imply punitive

damages are appropriate. Id. TIG does not separately seek a directed verdict on

the submission of punitive damages to the jury. Therefore, we need not address

-33-

sworn police statement and her later statements, her response “would not have

changed the underlying facts upon which Great American was entitled to rely: 

the missing persons report, the death certificate, the medical examiner's report,

and the accident report.” Id. at 893. As a result, we determined the district court

improperly submitted the issue of bad faith to the jury. Id.

Applying the reasoning of these cases to the facts before us, we conclude

the district court did not err in denying TIG a directed verdict. As in Hall,

Roesler presented sufficient evidence to conclude TIG may have failed to

investigate a critical fact. As in Crews, Roesler’s understanding of the question

may have been clarified had TIG only asked him. Although the insurer in Sims

was not investigating an insured’s intent to deceive where the motivation of the

insured is the ultimate question, at the very least TIG would have had to show

some independent documentation from several sources verifying the facts it relied

upon. This it cannot do. Thus, the district court correctly presented the jury with

the questions regarding the reasonableness of TIG’s investigation and, in turn,

whether a legitimate dispute existed.15

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 33 
the heightened standard necessary for punitive damages as applied to the facts of

this case.

-34-

B. Jury Instructions

TIG claims two jury instructions incorrectly stated the law of Oklahoma. 

We review challenges to jury instructions de novo. Garrison v. Baker Hughes

Oilfield Operations, Inc., 287 F.3d 955, 964 (10th Cir. 2002). We consider the

jury instructions “as a whole to determine whether they cover the issues presented

by the evidence and accurately state the [applicable] law.” United States v.

Schuler, 458 F.3d 1148, 1155-56 (10th Cir. 2006) (quotation omitted). “The

appellate court must consider all that the jury heard and, from the standpoint of

the jury, decide not whether the charge was faultless in every particular but

whether the jury was misled in any way and whether it had an understanding of

the issues and its duty to determine these issues.” White v. Am. Airlines, Inc., 915

F.2d 1414, 1420 (10th Cir. 1990) (quotation omitted). 

TIG maintains Instruction 23 improperly required the jury to find if TIG’s

coverage position was wrong, TIG must have acted in bad faith. It further

contends Instruction 24, while stating the correct law in the first sentence,

contains the same flaw as Instruction 23 in the second sentence. TIG contends

these flaws were prejudicial to its case warranting a new trial. Roesler maintains

a new trial is not necessary because (1) TIG did not raise these objections at trial,

(2) TIG invited the error by submitting a proposed instruction with the same flaw,

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 34 
 Roesler half-heartedly argues the instructions were correct when taken as

16

a whole, but does not point to any instruction that cures the misstatement of law

found in both Instruction 23 and 24. No instruction informed the jury it could

find TIG had a legitimate dispute as to coverage even if Roesler did not have an

intent to deceive when completing the application.

-35-

and (3) the error did not prejudice TIG when viewed in light of the entire record.16

We disagree with Roesler.

Instruction 23 stated in relevant part:

[I]f you find plaintiffs . . . did not make a material misrepresentation

in the policy application with an intent to deceive, defendant, TIG

Insurance Company, was not justified under the law in rescinding the

policy it issued to plaintiffs and the rescission breached the implied

duty of good faith and fair dealing.

(R. Vol. I at 229a.) Instruction 24 provided:

An insurer does not breach the duty of good faith to pay a claim by

litigating a dispute with its insured if there is a legitimate dispute as

to coverage or the amount of the claim and the insurer’s position is

reasonable and legitimate. An insurer may legitimately and in good

faith dispute a claim based on a material misrepresentation in the

insured’s application for insurance so long as the misrepresentations

were made with an intent to deceive by the insured in applying for

the policy.

(Id. at 230a.) Oklahoma law does not require the insurer’s position in a dispute to

be correct to avoid liability. Even if the jury finds for the plaintiff on the dispute

and renders a verdict for breach of an insurance contract, this does not mean the

insurer acted in bad faith. Bailey v. Farmers Ins. Co., 137 P.3d 1260, 1264 (Okla.

Civ. App. 2006) (“Insurers are free to make legitimate business decisions (and

mistakes) regarding payment, as long as they act reasonably and deal fairly with

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 35 
-36-

their insureds.”); see also Hays v. Jackson Nat’l. Life Ins. Co., 105 F.3d 583, 584

(10th Cir. 1997) (Breach of contract claim wrongly dismissed because a genuine

issue of material fact existed with respect to insurer’s intent when making

representation.); Oulds, 6 F.3d at 1442-45 (Rejecting insurer’s rescission position

but affirming summary judgment on bad faith claim because “the denial of a

claim based upon a legitimate dispute does not imply bad faith.”); City Nat’l Bank

& Trust Co. v. Jackson Nat’l Life Ins., 804 P.2d 463, 469 (Okla. Civ. App. 1990)

(Insurer’s good faith belief of material misrepresentations of fact, if accepted by

the jury, is sufficient to avoid liability even if the jury returned a verdict against

Insurer for breach of contract.). However, dismissal of insured’s bad faith claim

affirmed.)

Although TIG did not object to Instructions 23 and 24 at its first

opportunity, it did raise specific objections to both instructions to the trial court. 

As to Instruction 23, TIG objected “because even if we improperly rescinded the

policy, that [does not] automatically mean that it was in bad faith. . . . [U]nder

Oklahoma law . . . there is a two-step process; there’s a breach and then there’s

bad faith.” (R. Vol. V at 1508a.) TIG proposed the instruction read “if you find

plaintiffs . . . did not make a material misrepresentation in the policy application

with an intent to deceive, Defendant, TIG Insurance Company, was not justified

under the law in rescinding the policy” and removing the remainder of the

language. The district court overruled the objection. TIG then proposed the

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 36 
 TIG also asked for an instruction on bad faith investigation which stated: 17

“In order to recover for bad faith for failure to investigate a claim plaintiff must

show that a more thorough investigation would have uncovered additional facts,

which would have resulted in a favorable determination for the insured.” (R. Vol.

V at 1509-10a) (citing Timberlake and Fulz). The court “overruled” the request.

-37-

following language be added to Instruction 24:

An insurer may legitimately and in good faith dispute a claim based

on material misrepresentations in the insured’s application for

insurance so long as there is evidence, which if believed would

support a finding that the misrepresentations were made with an

intent to deceive by the insured in applying for the policy.

(Id. at 1509a, addition in bold.) Consequently, there is no question TIG clearly 17

made the specific objections it now argues on appeal. 

Moreover, contrary to Roesler’s assertion, the proposed Instructions 23 and

24, together, do not make the same mistake found in the instructions as given. 

Had the district court accepted the proposed instructions, Instruction 23 would

preclude a finding of bad faith triggered solely by a finding Roesler did not have

an intent to deceive. Proposed Instruction 24 would have explained the

circumstances allowing the insurer’s actions even if there was no intent to

deceive. While not a model of clarity, the proposed instructions did not invite

error. 

Roesler further claims the jury instructions, even if erroneous, did not

prejudice TIG. “Faulty jury instructions require reversal when (1) we have a

substantial doubt whether the instructions, considered as a whole, properly guided

the jury in its deliberations; and (2) when a deficient jury instruction is

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 37 
-38-

prejudicial.” McInnis v. Fairfield Communities Inc., 458 F.3d 1129, 1141 (10th

Cir. 2006) (quoting Townsend v. Lumbermens Mut. Cas. Co., 294 F.3d 1232, 1242

(10th Cir. 2002)). “Thus, where a jury instruction is erroneous, we reverse if the

jury might have based its verdict on the erroneously given instruction.” Coleman

v. B-G Maint. Mgmt. of Colo., Inc., 108 F.3d 1199, 1201 (10th Cir. 1997).

Roesler contends the central issue was the reasonableness of TIG’s

investigation, not TIG’s reasonable belief based on the investigation it made. He

argues that, even if the correct instruction had been given, the outcome would be

the same. According to Roesler, because the punitive damages award establishes

the jury found the investigation unreasonable, it thereby rendered TIG’s beliefs

regarding Roesler’s intent without justification. Consequently, the jury would

still find TIG acted in bad faith because it failed to determine Roesler’s subjective

intent via a reasonable investigation. 

We cannot agree. Instructions 23 and 24 denied TIG the full benefit of the

legitimate dispute defense under Oklahoma law. TIG presented evidence from

which a jury could find TIG reasonably believed it need not further investigate

Roesler’s subjective intent because any reasonable CRNA would have reported

the Burton incident in response to Bullet Point 6. In addition, it sought

independent legal advice. We are not persuaded that the jury necessarily found

reckless bad faith based solely on TIG’s failure to investigate Roesler’s subjective

intent. Under the erroneous instructions, the jury just as easily could have found

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 38 
 TIG also claims the amount of $2 million dollars as compensatory 18

damages for pain and suffering is excessive. It points to the uncontested facts

that Roesler sought no medical treatment, was out of work for only two weeks

and presented no evidence the rescission had affected his earning or reputation. 

TIG argues the damages are far above any awarded under comparable

circumstances. See Wulf v. City of Witchita, 883 F.2d 842, 875 (10th Cir. 1989)

(“[A] review of awards granted in other comparable cases, indicates that the

award should have been no greater than $50,000.”). Because we remand for a

new trial, we need not decide this issue. However, we caution Roesler that the

judgments he cites in his brief to support the award were based on substantially

more egregious injuries. Such cases are irrelevant to whether an award is

excessive in this case.

-39-

bad faith because it determined Roesler had not intended to deceive TIG. 

Moreover, punitive damages could have been based on the unsupported

allegations of lawyer-shopping, the insinuation Roesler did not know of the

neurological damage prior to his application, the improper argument of bad faith

stemming from failing to waive attorney-client privilege or post-litigation

conduct. We conclude the erroneous instructions were prejudicial; we vacate the

verdict and remand for a new trial.18

III. CONCLUSION

The district court did not err in denying TIG’s motion for a directed

verdict. However, the court erroneously instructed the jury that a finding of bad

faith was warranted based solely on a finding that Roesler did not intend to

deceive the insurer when completing his application. The error in instruction

prejudiced TIG and, consequently, we must remand for a new trial. We therefore,

AFFIRM in part, REVERSE in part and REMAND for a new trial in accord

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 39 
-40-

with this Order and Judgement.

ENTERED FOR THE COURT

Terrence L. O’Brien

Circuit Judge

Appellate Case: 05-7055 Document: 010149449 Date Filed: 10/12/2007 Page: 40