IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 06-40827

LUIS C. MUNOZ AND CARMELA MUNOZ

Plaintiffs-Appellees-Cross-Appellant

v.

STATE FARM LLOYDS

Defendant-Appellant-Cross-Appellee

Appeals from the United States District Court 

for the Southern District of Texas

Before REAVLEY, BENAVIDES, and ELROD, Circuit Judges.

BENAVIDES, Circuit Judge:

This case involves the recovery of funds under a fire insurance policy. The

jury found in favor of Appellees and awarded them in excess of $250,000. We

find thatthe district court committed reversible error when it admitted evidence

that a grand jury did not indict Appellee Luis Muñoz for arson. Therefore, we

REVERSE and REMAND for a new trial. 

I. 

Appellant State Farm Lloyds (“State Farm”) provided a homeowners

insurance policy, including fire insurance coverage, to Appellees Carmella

Villarreal–formally known as Carmella Muñoz–and Luis Muñoz (collectively,

“the Muñozes”). On January 2, 2003, the Muñozes sought coverage for loss to

United States Court of Appeals

Fifth Circuit

F I L E D

March 28, 2008

Charles R. Fulbruge III

Clerk
No. 06-40827

2

their home and its contents, that resulted from an undisputedly intentionally set

fire. There was evidence to suggest that the Muñozes intentionally set the fire.

The Muñozes claimed that the fire was set by their next-door neighbors, the

Cavazoses. The police regarded both Mr. Muñoz and the Cavazoses as suspects.

State Farm investigated the claim and believed that the Muñozes might

have had a financial incentive to set the fire. Pursuant to the policy’s condition

precedent that an insured provide requested documents, on January 8, 2003,

State Farm requested that the Muñozes fill out a Personal Property Inventory

Form, which the Muñozes returned on January 13. On January 28, Tom Reed,

an adjuster from State Farm’s Special Investigation Unit, told Mr. Muñoz that

an additional investigation was necessary, including reviewing the Muñozes’

financial condition. On March 18, Mr. Reed sent a letter requesting records that

would show Mr. Muñoz’s income for 2001 through 2003. The Muñozes delivered

some financial documents in April and June 2003. However, State Farm claimed

that it never received all the necessary financial documents, so it was unable to

grant or deny coverage. Thus, the claim remained open and the Muñozes did not

receive money under the policy, exceptfor a monthly stipend for living expenses.

The Muñozes filed suit in Texas state court on May 11, 2004, alleging

breach of contract, violations of the insurance code, and breach of the duty of

good faith and fair dealing. State Farm removed the case to federal court,

asserting: (1) the Muñozes had not complied with the policy’s condition

precedent of providing requested documents; and (2) the Muñozes could not

recover because they had set fire to their house. Before trial, the parties

stipulated that the fire was intentionally set. During trial, State Farm

presented evidence that Mr. Muñoz failed a polygraph exam. Subsequently, the

Muñozes presented evidence that a grand jury did not indict Mr. Muñoz for
No. 06-40827

1 Over objection by State Farm, the district court admitted testimony that the grand

jury did not indict Mr. Muñoz and in fact returned a “no-bill.” 

2 State Farm also filed a motion to alter or amend the judgment and a motion for

judgment as a matter of law. The district court denied these motions. Because we find that

a new trial is warranted under Rule 59, we do not address the merits of these two motions.

3

arson.1 State Farm timely objected to the non-indictment evidence under

Federal Rules of Evidence 401 and 403. At the close of evidence, the district

court orally granted State Farm’s motion for directed verdict on the issue of

malice and punitive damages. 

On February 22, 2006, the jury found that: (1) the Muñozes had complied

with the condition precedent; (2) State Farm breached the policy; (3) the

Muñozes were not responsible for starting the fire; (4) the Muñozes sustained

$148,000 in damages for repairs to their home and $82,700 for

repairing/replacing the contents; (5) State Farm breached the duty of good faith

and fair dealing because it failed to conduct a reasonable investigation, failed to

provide a reasonable explanation of the factual or legal bases for denying the

claim, and failed to affirm or deny coverage within a reasonable time; (6) the

Muñozes were entitled to $10,000 each in mental anguish damages; and (7)

State Farm engaged in the conduct knowingly–although the jury did not award

extra damages based on this finding. 

State Farm filed a Rule 59 motion for new trial, arguing that “the

admission of evidence regarding the grand jury ‘no bill’ of Mr. Muñoz was an

erroneous ruling which substantially prejudiced State Farm, and was so

prejudicial that it was not curable by instruction or otherwise.”2 The district

court denied State Farm’s motion for new trial, and State Farm timely appeals.

The Muñozes cross-appeal the district court’s grant of State Farm’s motion for

directed verdict on the issue of malice and punitive damages. 

II.
No. 06-40827

4

“We will reverse the trial court’s denial of a motion for new trial only when

there is a clear showing of an abuse of discretion.” Dawsey v. Olin Corp., 782

F.2d 1254, 1261 (5th Cir. 1986). “An abuse of discretion exists if we are firmly

convinced that the district court made a mistake in admitting challenged

evidence.” Stockman v. Oakcrest Dental Ctr., P.C., 480 F.3d 791, 797 (6th Cir.

2007).

III. 

A. Evidence of a Grand Jury’s Decision Not to Indict Mr. Muñoz

State Farm argues thatthe district court committed reversible error when

it admitted evidence of a grand jury’s decision not to indict Mr. Muñoz for arson.

We agree.

Several of our sister circuits have considered the issue of introducing

evidence of non-prosecution or acquittal of arson in a civil case regarding

insurance proceeds. They have uniformly held that such evidence is

impermissible because itis highly prejudicial. As the Fourth Circuit stated: “We

adopt and apply here the rule that a federal trial court commits reversible error

when it permits the plaintiff in a suit for fire insurance proceeds to present

evidence of his nonprosecution or acquittal on related criminal arson charges.”

Rabon v. Great Sw. Fire Ins. Co., 818 F.2d 306, 309 (4th Cir. 1987); see also

Kelly’s Auto Parts, No. 1, Inc. v. Boughton, 809 F.2d 1247, 1253 (6th Cir. 1987);

Am. Home Assurance Co. v. Sunshine Supermarket, Inc., 753 F.2d 321, 325 (3d

Cir. 1985); Galbraith v. Hartford Fire Ins. Co., 464 F.2d 225, 227-28 (3d Cir.

1972). The Sixth Circuit found that “[j]ury instructions are inadequate . . . to

cure the inherent prejudice involved” in improperly admitted evidence of nonprosecution for arson. Kelly’s Auto Parts, 809 F.2d at 1254. These holdings rely

upon the fact that “such evidence goes directly to the principal issue before the

jury and is highly prejudicial.” Rabon, 818 F.2d at 309. Furthermore, “[t]he

inadmissibility of evidence of non-prosecution . . . comports with the general rule
No. 06-40827

3

In this case, the jury was told that a grand jury had considered a charge of arson and

“Mr. Munoz was not charged as a criminal on this offense.” The fact that this case involves

non-indictment of arson–rather than non-prosecution or acquittal–does not change our

conclusion. “[P]rosecutorial discretion may take into account many other factors not relevant

in a civil suit.” Am. Home Assur. Co., 753 F.2d at 325. Similarly, a grand jury’s decision not

to indict is not authoritative in a civil suit:

One grand jury’s refusal to indict does not conclusively establish that there is

insufficient evidence to warrant a trial. There are many reasons why the

prosecution may present an insufficient case before the grand jury even though

there is ample evidence to sustain a conviction. The prosecutor is not required

to present his or her entire case before the grand jury. When an abbreviated

version of the government’s case is presented for the sake of efficiency and

convenience, the grand jury may conclude that the evidence before it is not

sufficient to support an indictment. In other cases an investigation continues

after the grand jury rejects an indictment, and additional evidence is discovered

to make a stronger case against the accused.

Beale et al., Grand Jury Law and Practice § 8.6 (2d ed. 2007). Therefore, the logic of our sister

circuits applies with equal force here. 

5

that evidence of an acquittal in a criminal arson case is inadmissible in a civil

arson case.”3 Am. Home Assurance Co., 753 F.2d 325. We agree with our sister

circuits and find that the court below committed reversible error. 

The Muñozes present two theories under which they contend–even if the

non-indictment evidence was improperly introduced–a remand is unnecessary.

First, the Muñozes argue that State Farm “opened the door” to evidence of Mr.

Muñoz’s non-indictment because State Farm presented inadmissible evidence

that Mr. Muñoz failed a polygraph exam. Second, the Muñozes argue that State

Farm waived any error under the “invited error” doctrine. Both arguments lack

merit. 

The Muñozes’ first argument fails because “this Court has denounced the

per se rule that polygraph examinations are inadmissible.” Gibbs v. Gibbs, 210

F.3d 491, 500 (5th Cir. 2000); see also United States v. Posado, 57 F.3d 428, 434

(5th Cir. 1995). Rather, “the standards announced in Daubert control the

admissibility of such results.” Gibbs, 210F.3d at 500. Neither party alleges that
No. 06-40827

6

the polygraph results were improperly admitted under Daubert, and the

Muñozes did not even object to the introduction of such evidence at trial.

Therefore,there is no supportfor the contention that the polygraph evidence was

inadmissible, and the door was not opened to evidence of Mr. Muñoz’s nonindictment. 

The Muñozes’ second argument stems from the district court judge’s

acknowledgment that she “made a mistake” in admitting the non-indictment

evidence. Specifically, the Muñozes rely upon the following colloquy, which

occurred at the close of evidence before sending the case to the jury:

The Court: Now, are [you] going to mention the no bill in your

closing?

Mr. Garza [counsel for the Muñozes]: I intended to. 

The Court: Okay. What is the language of the instruction that you

would ask me to give to the jury?

[State Farm counsel]: First of all, I would ask that [Mr. Garza] be

instructed not to mention it. If he does mention it, I would ask the

Court at that time to instruct the jury not to consider the absence

of prosecution or the no bill for any purpose.

The district court judge then ordered Mr. Garza not to mention the nonindictment evidence in his closing argument, and he complied. The Muñozes

argue that State Farm received the exact relief it requested–an order not to

mention the evidence during closing argument–and thereby waived any error

under the invited error doctrine. The invited error doctrine provides that “a

party may not complain on appeal of errors that he himself invited or provoked

the court . . . to commit.” United States v. Sharpe, 996 F.2d 125, 129 (6th Cir.

1993) (internal quotation marks and citation omitted); United States v. Green,

272 F.3d 748, 754 (5th Cir. 2001) (“The doctrine of invited error provides that

when injection of inadmissible evidence is attributable to the actions of the
No. 06-40827

7

defense, the defense cannot later object to such invited error.”) (internal

quotation marks omitted). 

We find that the invited error doctrine does not apply to State Farm

because it did not “invite” the error below, and it has not otherwise waived its

claim for relief. State Farm timely objected to the impermissible evidence. After

the district court realized its mistake, State Farm was presented with the fact

that Mr. Garza intended to reference the non-indictment evidence during closing

argument. The district court asked State Farm for “the language of the

instruction” it desired. In requesting that Mr. Garza not be permitted to

mention the evidence, State Farm was merely attempting to prevent further

prejudicial error. To say that State Farm “invited” or “provoked” the error below

would impermissibly stretch the doctrine of invited error beyond its traditional

scope. State Farm did not abandon, waive, or otherwise sanction the district

court’s initial error of admitting the non-indictment evidence–StateFarm timely

objected and was overruled. Given the highly prejudicial nature of the nonindictment evidence, we find that the district court abused its discretion and

committed reversible error, notwithstanding its good faith attemptto remedy its

mistake. Accordingly, State Farm is entitled to a new trial. 

Because the evidence with respect to arson was relevant to the core issue

of coverage (i.e., if the Muñozes set the fire then they are not entitled to

coverage), and that coverage issue is also a necessary component of any bad faith

claim, we must also vacate and remand the jury’s finding that State Farm

breached the duty of good faith and fair dealing. 

B. The Muñozes Cross-Appeal

In their cross-appeal, the Muñozes argue that the district court erred in

granting State Farm’s motion for directed verdict on the issue of malice and

punitive damages. The standard of review for a motion for a directed verdict is

outlined in Boeing Company v. Shipman: “If the facts and inferences point so
No. 06-40827

8

strongly and overwhelmingly in favor of one party that the Court believes that

reasonable men could not arrive at a contrary verdict, granting of the motion[]

is proper.” 411 F.2d 365, 374-75 (5th Cir. 1969) (en banc), overruled on other

grounds by Gautreaux v. Scurlock Marine, Inc., 107 F.3d 331 (5th Cir. 1997).

The standard governing directed verdicts remains the same on appeal. Tutor v.

Ranger Ins. Co., 804 F.2d 1395, 1398 (5th Cir. 1986). 

Under Texas law, punitive damages may be awarded “only if the claimant

proves by clear and convincing evidence that the harm . . . results from: (1)

fraud; (2) malice; or (3) gross negligence.” TEX. CIV. PRAC. & REM. CODE §

41.003(a). “Even if the insurer has no reasonable basis to deny or delay payment

ofthe claim,the plaintiff may not recover punitive damages on that basis alone.”

Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 18 (Tex. 1994) (internal quotation

marks omitted). Punitive damages are justified only when bad faith is

“accompanied by malicious, intentional, fraudulent, or grossly negligent

conduct.” Id. The insured must demonstrate that the insurer “‘was actually

aware thatits action would probably resultin extraordinary harm not ordinarily

associated with breach of contract or bad faith denial of a claim-such as death,

grievous physical injury, or financial ruin.’” State Farm Fire & Cas. Co. v.

Simmons, 963 S.W.2d 42, 47 (Tex. 1998) (quoting Moriel, 879 S.W.2d at 24).

The Muñozes claim that evidence presented at trial demonstrates an

intentional and fraudulent campaign to have Mr. Muñoz arrested for arson,

despite State Farm’s knowledge that there was no supporting evidence–either

direct or circumstantial. This assertion lacks merit. As the district court found,

there is no evidence that State Farm’s demands for financial documents were

fraudulent, grossly negligent, or resulted in extraordinary harm. Thus, the

district court properly granted State Farm’s motion for directed verdict as to

punitive damages. 

IV. 
No. 06-40827

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Therefore, the judgment of the court below is REVERSED and

REMANDED for proceedings not inconsistent with this opinion. The judgment

as to the Muñozes’ cross-appeal is AFFIRMED.