### UNITED STATES COURT OF APPEALS Tenth Circuit Byron White United States Courthouse

1823 Stout Street Denver, Colorado 80294 (303) 844-3157 Patrick J. Fisher, Jr. Elisabeth A. Shumaker Clerk Chief Deputy Clerk July 24, 1998

TO: ALL RECIPIENTS OF THE AMENDED OPINION
RE: 96-6254, 96-6267, 97-6082, Vining v. Enterprise Fin. Group, Inc. Amended opinion filed on July 22, 1998.
The amended opinion filed on July 22, 1998, contain s a clerical error. The error is located on page three of the opinion, the last sentence of the paragraph continued from page two, immediately before the BAC KGROUND section. The last sentence of the paragraph should now read as follow s:

We affirm on all issues, except we retain jurisdict ion and do not now decide the issues raised on appeal pertaining to pr ejudgment interest and attorneys’ fees. A corrected copy of page three is attached for yourconvenience. Very truly yours, Patrick Fisher, Clerk

Keith Nelson Deputy Clerk

encl.UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

BILLIE VINING, surviving spouse and next of kin on behalf of Milford Vining deceased,Plaintiff-Appellee-CrossAppellant,

v. ENTERPRISE FINANCIAL GROUP, INC., a foreign corporation,Defendant-Appellant-CrossAppellee. Nos. 96-6254, 96-6267, and 97-6082

ORDER Filed July 22, 1998

Before SEYMOUR , Chief Judge, EBEL , and BRISCOE, Circuit Judges.

This matter is before the court on its own motion t o vacate the opinion and judgment issued on July 6, 1998 and to reissue an amended opinion and partial judgment. The attached opinion constitutes the dec ision of the court. A forthwith partial mandate and partial judgment are issued with re spect to the issues addressed in today’s amended opinion. The court retains juri sdiction to address the issues of prejudgment interest and attorneys’ fees. We will issue a supplemental decision on-2-

those issues following the Oklahoma Supreme Court’s resolution of the certified questions submitted in appeal number 95-5207, Taylor v. State Farm Fire and Casualty Company. The order submitting those certified questions was f iled in this court on June 19, 1997. The parties to this appeal shall monitor the proceedings in the Taylormatter and submit notice to this court immediately upon its resolution in the Oklahoma Supreme Court. Pending that dispositi on, the portion of these appeals concerning the issues of prejudgment interest and attorneys' fees is abated.

Entered for the Court PATRICK FISHER, Clerk of Court

## F I L E D United States Court of Appeals Tenth Circuit 

### JUL 22 1998 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT
BILLIE VINING, surviving spouse and next of kin on behalf of Milford Vining, deceased,Plaintiff-Appellee-CrossAppellant,

v. ENTERPRISE FINANCIAL GROUP, INC., a foreign corporation,Defendant-Appellant-CrossAppellee. Nos. 96-6254, 96-6267, and 97-6082

Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. CIV-95-1149-M)

Jared D. Giddens, Self, Giddens & Lees, Inc., Oklah oma City, Oklahoma (Bryan J. Wells with him on the brief) for defendant-appellan t-cross-appellee. Mark A. Engel, Mansell & Engel, Oklahoma City, Okla homa (Steven S. Mansell with him on the brief) for plaintiff-appellee-cross-appe llant.

Before SEYMOUR, Chief Judge, andEBEL and BRISCOE , Circuit Judges.

EBEL , Circuit Judge.1 The opinion in these appeals was originally filed o n July 6, 1998, but the

mandate was not issued. Upon order of the panel, t hat opinion is vacated and this new amended opinion is filed in its place. Th e amended version is identical to the original opinion with the exception of the d eletion of Section V., Prejudgment Interest, and Section VI., Attorneys’ F ees. Those two issues have not been addressed pending receipt of a ruling from the Oklahoma Supreme Court on certified questions that we submitted to that court on June 19, 1997, in the case of Taylor v. State Farm Fire and Casualty Company , No. 95-5207. The questions certified to the Oklahoma Supreme Court i n that case may be dispositive of the issues of prejudgment interest and attorneys’ fees in this case. In accord with the separate order entered with this amended opinion, we shall issue a partial mandate, forthwith, with reference to those issues addressed in this amended opinion. The court will retain jurisdictio n over the remaining issues of prejudgment interest and attorneys’ fees and will i ssue a supplemental opinion disposing of those issues after we receive the opin ion from the Oklahoma Supreme Court answering the certified questions in Taylor

. -2- Plaintiff-Appellee Billie Vining brought a bad fait h insurance claim as surviving spouse and next of kin on behalf of her d eceased husband Milford Vining. 1 Vining claimed that defendant-appellant Enterprise Financial Group, Inc. acted improperly in rescinding a credit life insurance po licy after Vining made a claim under the policy as a result of her husband’s death . At trial, the jury found in favor of Vining and awarded her compensatory and punitive da mages. Enterprise appeals the judgment of the district court on the grounds o f insufficient evidence, improper consideration of inadmissable evidence, improper ju ry instructions, failure to order a remittitur based on an excessive damage award, fa ilure to order a new trial because the jury verdict was the product of passion and pre judice, improper award of prejudgment interest, and improper award of attorneys’ f ees. Vining cross-appeals,-3-

arguing that in the event a new trial is ordered, t he court should award additional punitive damages based on Enterprise’s willful cond uct. We affirm on all issues, except we retain jurisdiction and do not now decide the issues raised on appeal pertaining to prejudgment interest and attorneys’ f ees. BACKGROUND On March 9, 1992, Milford Vining (“Milford”), now d eceased husband of plaintiff-appellee Billie Vining (“Vining”), purcha sed a Jeep at Crown Auto World in Tulsa, Oklahoma. Defendant-Appellant Ente rprise Financial Group (“Enterprise”), through a wholly owned subsidiary E LIC, had appointed Nancy Sidler (“Sidler”) as its finance and insurance repr esentative at the car dealership. Enterprise sold credit life insurance policies as away for customers to insure that car payments would be covered in the event of death . Sidler offered and Milford elected to buy an Enterprise credit life insurance policy (the “Policy”) in connection with the purchase of the vehicle. Sidle r had never been trained in any way by Enterprise, including training on what const ituted “good health” under Enterprise’s definition. Milford died on May 28, 1993 of an acute myocardial infarction (sudden heart attack). At the time of his death, Milford’s Policy had a pay-out value of $10,046. Vining made a claim for death benefits un der the Policy, and Enterprise subsequently rescinded the Policy, claiming that Mi lford had misrepresented2 Because this case involves an appeal of the distr ict court’s denial of

Enterprise’s motion for judgment as a matter of law , we review the evidence in the light most favorable to Vining as the non-movin g party. See Doan v. Seagate Technology, Inc. , 82 F.3d 974, 976 (10th Cir. 1996), cert. denied , 117 S. Ct. 684 (1997). -4- material health history in his insurance applicatio n and that the Policy was issued in reliance upon this misrepresentation. Vining un successfully contested the rescission and sent letters to the Oklahoma Insuran ce Department complaining of Enterprise’s conduct. On July 27, 1995, Vining bro ught an action for breach of contract and for bad faith in the United States Dis trict Court for the Western District of Oklahoma. Enterprise defended on the g rounds that it had a legitimate basis for contesting Vining’s claim, and thus did n ot act in bad faith. Enterprise also raised the affirmative defense of rescission, arguing that Milford made material misrepresentations in the insurance applic ation which justified a rescission of the Policy pursuant to Okla. Stat. ti t. 36, § 3609 (1990). During trial, Vining proved the following facts. 2 Milford had suffered from coronary artery disease which resulted in a triple coronary bypass operation in 1983. After the surgery, Milford underwent a serie s of post-bypass tests and procedures and began taking heart maintenance medic ation to prevent the occurrence of angina. Milford complained of no che st pains or other symptoms from the time immediately following the operation up until the time of his death. Milford visited Dr. Michael Sullivan (“Dr. Sullivan ”) on February 12, 1992, for a-5-

get-acquainted visit because he recently had moved and wanted to find a new doctor nearer to his home. Milford’s visit was notprecipitated by any symptoms or medical reasons. In fact, Milford led a very ac tive life. Dr. Sullivan continued Milford on his heart maintenance medications as a p reventive measure. At the time of Milford’s visit with Dr. Sullivan, Milford suffered from little, if any, angina. The insurance application Milford signed included adisclaimer that stated:
I HEREBY CERTIFY THAT I AM IN GOOD HEALTH AS OF THE
EFFECTIVE DATE ABOVE. I FURTHER CERTIFY THAT I DO NOT PRESENTLY HAVE, NOR HAVE I EVER HAD, NOR HAVE I BEEN TOLD I HAVE, NOR HAVE I BEEN TREATED WITHIN THE
PRECEDING 12 MONTHS FOR ANY OF THE FOLLOWING: ANY HEART DISEASE, OR OTHER CARDIOVASCULAR DISEASES. .

. .

Both parties agree that Milford did not intentional ly attempt to mislead Enterprise by signing the disclaimer, that Milford’s appointme nt with Dr. Sullivan was his only medical visit in the twelve months preceding t he Policy purchase date, and that under Oklahoma Insurance Regulations, an insur ance company may only consider the last twelve months of an insured’s med ical history to evaluate an insurance application.3 Both parties agree that under Oklahoma law a claim made more than two

years after the effective date of a life insurance policy is generally uncontestable by the insurer. -6- After Milford’s death, Enterprise sought all of Mil ford’s medical records, including Dr. Sullivan’s notes. On the same day itreceived Dr. Sullivan’s notes, Enterprise rescinded the Policy. Enterprise routin ely contests all claims on life insurance policies made within two years of a polic y’s effective date and investigates to find misrepresentations in the insu rance application. 3 Debbie Cluck (“Cluck”), Enterprise’s claims examiner, deni es four out of every ten claims that she reviews. Enterprise does not have a claims manual or any written guidelines specifying when a claim is payable or no t, and it never informed Cluck of any applicable Oklahoma law or regulation pertai ning to when a policy may be rescinded. Enterprise had no system of tracking wh ether any of its agents routinely sold policies to ineligible applicants. Cluck felt it appropriate to rescind a policy even if the agent issued the policy with full knowledge of an applicant’s medica l history. Cluck’s beliefs comport with Enterprise company philosophy. Cluck never paid a claim if she had any reason to doubt whether a person’s medical history was inconsistent with the health disclaimer included on the insurance app lication. Cluck rescinded Milford’s Policy because she considered the office visit with Dr. Sullivan and the continuation of his angina medication by Dr. Sulliv an to constitute treatment for-7-

triple bypass surgery. Cluck did not investigate w hether Sidler was informed of Milford’s medical history, did not contact either S idler or Vining, and did not contact Dr. Sullivan to discuss his notes before re scinding the Policy. Enterprise’s training manual for its agents (the “M anual”) emphasizes that applicants only need to be between the ages of 18 a nd 65 to purchase insurance. The Manual does not discuss the health disclaimer o r in any way suggest that the agent is supposed to ask the customer about his hea lth or that health is relevant in issuing the policy. The Manual also encourages age nts to maximize profit by overstating the actual monthly premium that should be charged and by secretly increasing the actual amount of monthly payments th e customer agrees to pay, for example, raising a payment from $78.22 to $78.99 be cause customers look more closely at dollars than cents. The Manual informs agents that the life insurance policies they sell are guaranteed issue polices, wh ich means that the coverage is in force immediately as compared to ordinary life i nsurance applicants who first must be approved by the insurer before coverage tak es effect. Enterprise objected to the introduction of the Manual into evidence. John Myerson (“Myerson”) was Enterprise’s represent ative to agents at automobile dealerships that sell Enterprise life in surance policies, including Sidler. Myerson testified that he did not know what the terms used in the health disclaimer statement meant and that he did not know how Enterprise processed-8-

claims. Myerson also testified that he does not tr ain agents to ask about doctor visits or medication. In response to numerous complaints against Enterpri se for improper rescission of life insurance policies, the OklahomaInsurance Department conducted an investigation of Enterprise’s business practices. The Department published the results of its investigation in a 199 2 Market Conduct Examination Report (the “Report”). The Report criticized Enterprise for requiring applicants to sign a disclaimer stating that they had never ha d any health problems. The Report sharply criticized Enterprise’s loss ratios, the ratio of benefits paid to premiums received, as being unreasonably below acce pted levels due to a large number of policy rescissions. Specifically, Enterp rise only paid out in benefits about 16% of premiums received. Oklahoma Insurance Department regulations require a 50% loss ratio for credit life insurance companies. The Report also noted that in numerous cases Enterprise used unlice nsed agents to sell insurance policies. Based on the Report, the Oklahoma Insura nce Commissioner issued an Order levying a $15,000 fine against Enterprise forvarious violations and mandating that Enterprise lower its premiums to pro duce an acceptable loss ratio level. Enterprise made no changes in light of the Report’s criticisms. In fact,4 Enterprise’s rescission conduct and loss ratios b ear some resemblance to

those of the fictional insurance company portrayed in John Grisham’s novel The Rainmakerand in the motion picture of the same name. -9- loss ratios for the two years following the Report continued to remain below
18%. 4 Enterprise objected to the introduction of the Re port into evidence. Numerous witnesses testified that their decedent spouses had bought life insurance from Enterprise in circumstances similar to the Vinings. Enterprise summarily rescinded these life insurance policies a fter the survivors made claims on the policies. In each case, Enterprise cited ev idence of an insured’s health problems that existed at the time the insured signe d a health disclaimer statement in the insurance application as the grounds for res cission. Enterprise objected to the introduction of the evidence regarding other cl aimants. Finally, John Hammond (“Hammond”) testified as an e xpert on the handling and management of insurance claims. Hammo nd expressed his opinion that Enterprise’s conduct was “completely inappropr iate.” He stated that Enterprise investigated Vining’s claim by looking f or a reason to rescind the Policy. Hammond added that Enterprise erred by notcontacting either Sidler, the agent who sold the Policy, or Vining before rescind ing the Policy. Hammond also criticized Enterprise for not providing claims manu als detailing credit life insurance policy eligibility requirements to its cl aims examiners who were charged with investigating claims on those policies

.-10-

The district court gave a series of instructions to the jury on the issue of bad faith, which Enterprise objected to on several grounds. The district court also instructed the jury that it could not award punitiv e damages in an amount greater than whatever amount, if any, it awarded in actual damages because Vining had not presented sufficient evidence to allow addition al punitive damages. A jury verdict was rendered for Vining in March of 1996 in the amount of $800,000: $400,000 in actual damages and $400,000 in punitive damages. The district court also awarded $163,000 in prejudgmentinterest at the statutory rate and $94,223.75 in attorneys’ fees to Vining. The d istrict court denied Enterprise’s motion for judgment as a matter of law under Federal Rules of Civil Procedure 50(b), its motion for a remittitur to red uce an excessive damage award, and its motions to deny the award of prejudgment in terest and attorneys’ fees. Enterprise now appeals. Enterprise also appeals nu merous evidentiary rulings and the district court’s instructions to the jury. Vin ing cross-appeals that in the event a retrial is ordered, the district court should be instructed to remove any limitations on the jury’s punitive damage award.
DISCUSSION The district court exercised jurisdiction pursuant to 28 U.S.C. § 1332(a) (1994) (diversity jurisdiction). We have appellate jurisdiction pursuant to 28 U.S.C. § 1291 (1994) and F.R.A.P. 4(a). We apply t he forum state’s choice of-11-

law rules. See Trierweiler v. Croxton & Trench Holding Corp. , 90 F.3d 1523, 1532 (10th Cir. 1996). Both parties agree, and we concur, that under Oklahoma choice of law rules, Oklahoma substantive law appli es. I. Rule 50 Motion We consider de novo a district court’s denial of a motion for judgment as a matter of law under Rule 50, see Haines v. Fisher , 82 F.3d 1503, 1510 (10th Cir. 1996), using the same standard as the district court, see Harolds Stores, Inc. v. Dillard Dep’t Stores, Inc. , 82 F.3d 1533, 1546 (10th Cir.), cert. denied , 117 S. Ct. 297 (1996). “[W]e may find error in the denial of such a motion only if the evidence points but one way and is susceptible to n o reasonable inferences supporting the party opposing the motion.” Haines , 82 F.3d at 1510. “We construe the evidence and inferences most favorablyto the nonmoving party.” Doan v. Seagate Technology, Inc. , 82 F.3d 974, 976 (10th Cir. 1996), cert. denied , 117 S. Ct. 684 (1997).
A. Bad Faith Under Oklahoma law, an insurer has a legal duty to “deal fairly and act in good faith with its insured[s]. . . .” Christian v . American Home Assurance Co. , 577 P.2d 899, 904 (Okla. 1977) (citations omitted). An insured may bring a cause of action in tort for bad faith if the insurer brea ches this duty. See id . at 904-05. The essence of a bad faith claim centers on the unr easonableness of the insurer’s-12-

conduct. See Conti v. Republic Underwriters Ins. Co. , 782 P.2d 1357, 1360 (Okla. 1989). 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 amount of the claim, and the insurer’s position is ‘reasonable and legitimate.’” Oulds v. Principal Mut. Life Ins. Co

. , 6 F.3d 1431, 1436 (10th Cir. 1993) (applying Oklahoma law) (internal citations and quotations omitted). Using the standard for summary judgment of a bad faith cl aim, a plaintiff may defeat a motion for judgment as a matter of law by presentin g enough evidence so that an “insurer’s conduct may be reasonably perceived as t ortious.” Id. at 1436-37. Essentially, Enterprise argues on appeal that becau se it in fact had a legitimate reason for rescinding Milford’s Policy b ased on his medical history and heart condition, Enterprise is entitled as a matterof law to a verdict in its favor on the claim of bad faith. An insurer does not actin bad faith if it had a “‘good faith belief, at the time its performance was reque sted, that it had justifiable reason for withholding payment under the policy.’” Buzzard v. Farmers Ins. Co. , 824 P.2d 1105, 1109 (Okla. 1991) (quoting Buzzard v . McDanel , 736 P.2d 157, 159 (Okla. 1987)). An insurer may legitimately and in good faith dispute a claim based on material misrepresentations in the insured ’s application for insurance.
See Oulds , 6 F.3d at 1437-39; see also Claborn v. Washington Nat’l Ins. Co. , 910 P.2d 1046, 1051 (Okla. 1996).-13-

Vining does not dispute that her husband had a heart condition and that the insurance application he signed included a disclaim er signed by Milford certifying that he was in good health and had not been treated within the preceding 12 months for heart disease or any other cardiovascular disease. As a result, Enterprise could contest liability on the basis of a misrepresentation if it had a good faith belief that the misrepresentation was in tentional. See Hays v. Jackson Nat’l Life Ins. Co. , 105 F.3d 583, 588 (10th Cir. 1997) (applying Oklahoma law) (rescission must be predicated on intentional misre presentation). Here, Enterprise reasonably could have determined that by signing th e disclaimer, Milford materially misrepresented the condition of his heal th. In addition, Enterprise might have been able to defend against a bad faith claim based upon the conduct of its agent, Sidler, in selling or issuing the pol icy because the tort of bad faith “must be based upon an insurer’s wrongful denial of a claim; it cannot be based upon the conduct of the insurer in selling and issu ing the policy.” Id. at 590. However, even a “legitimate dispute as to coverage will not act as an impenetrable shield against a valid claim of bad fa ith” where the insured presents “sufficient ‘evidence reasonably tending to show ba d faith’” or unreasonable conduct. Timberlake Constr. Co. v. U.S. Fidelity & Guar. Co. , 71 F.3d 335, 343 (10th Cir. 1995) (applying Oklahoma law) (quoting O ulds , 6 F.3d at 1440). That is, a plaintiff may bring a bad faith cause of acti on even though a legitimate-14-

defense to a breach of contract claim exists if the defendant did not actually rely on that defense to deny payment under the policy. Vining demonstrated at trial a deliberate, willful pattern of abusive conduct by Enterprise in handling claims under its life ins urance policies. Vining offered evidence that as a matter of course Enterprise woul d rescind life insurance policies issued on a guaranteed basis as soon as cl aims were made. Enterprise based these rescissions on the grounds that the ins ured had made material misrepresentations on the insurance application reg ardless of whether Enterprise in fact would have declined to write the policy had it known of that information at the time the policy was written. Vining presented evidence that Enterprise engaged in a systematic, bad faith scheme of cancel ing policies without determining whether it had good cause to do so. Su ch conduct constitutes bad faith regardless of whether Enterprise legitimatelymight have been able to contest Vining’s claim based on Milford’s heart con dition, because the evidence showed that Enterprise, in fact, did not dispute co verage in good faith based on Milford’s heart condition. Enterprise suggests that it would have prevailed ona breach of contract action against it and makes much of Vining’s decisi on to abandon the breach of contract action as helping to demonstrate that fact . However, the jury instructions specifically mandated a finding that Enterprise was required to pay Vining under5 The instructions read in full: BAD FAITH FAILURE TO PAY CLAIMS OF INSURED

ESSENTIAL ELEMENTS Plaintiff, Billie Vining, claims that defendant, En terprise Financial Group, Inc., violated its duty of good faith and fa ir dealing by unreasonably, and in bad faith, refusing to pay pla intiff, Billie Vining, the proper amount for a valid claim under the insurance policy. In order for plaintiff, Billie Vining, to recover damages in thi s case, she must show by the greater weight of evidence that: 1. Defendant, Enterprise Financial Group, Inc., wa s required under the insurance policy to pay plaintiff, Billie Vining’s, claim; 2. Defendant, Enterprise Financial Group, Inc.’s, refusal to pay the claim in full was unreasonable under the circumstances, b ecause a) it did not perform a proper investigation, or b) it did not e valuate the results of the investigation properly, or c) it had no reasonable basis for the refusal; 3. Defendant, Enterprise Financial Group, Inc., di d not deal fairly and in good faith with plaintiff, Billie Vining; and 4. The violation by defendant, Enterprise Financia l Group, Inc., of its duty of good faith and fair dealing was the direct cause of the injury sustained by plaintiff, Billie Vining. With respect to element number one above, you are i nstructed that the insurance company has raised the affirmative de fense of rescission. Thus, if the defendant proves it was entitled to “r escind” the policy, then you must find in favor of the defendant, Enterprise Financial Group, Inc. The elements of the affirmative defense of rescissi on are defined later in these instructions. -15- the policy before the jury could conclude that Enterprise acted in bad faith. 5 Because the jury found Enterprise liable, we must a ssume that the jury found that Enterprise had a duty to pay Vining under the polic y. No court has held that an insured must actually pre vail on a separate underlying breach of contract claim in order to mai ntain a successful bad faith-16-

claim, and we cannot predict that Oklahoma would impose such a condition precedent to a bad faith claim.
B. Rescission Defense Enterprise also raises the affirmative defense of r escission. Under Okla. Stat. tit. 36, § 3609 (1990), an insurer properly m ay rescind an insurance policy when the application contains a misrepresentation t hat (1) is fraudulent; (2) is material to the insurance company’s acceptance of t he risk; or (3) induced the insurer to issue the policy where it would not have done so had it known the true facts. However, Enterprise concedes that “section 3609 requires a finding of intent to deceive before an insurer can avoid the p olicy . . . . [A] statement made without intent to deceive is not a misrepresentatio n at all, and thus does not invoke section 3609.” Hays , 105 F.3d at 588. Because Enterprise also admits that Milford did not willfully or intentionally mis represent his health history on the application, Enterprise cannot rely on the affi rmative defense of rescission. II. Jury Instructions Enterprise challenges the district court’s instruct ions to the jury regarding legitimate disputes between an insurer and its insu red, the definition of material misrepresentations by an insured on an insurance ap plication, and the imputation of knowledge by an insurance agent to the insurance company.-17-

We review the district court’s refusal to give a pa rticular jury instruction for abuse of discretion. In assessing whether the court properly exercised that discretion, a reviewing court must examine the instructions as a whole to determine if they sufficiently cover the issues in the case on the facts presented by the evidence. The question of whethera jury was properly instructed is a question of law, and thus, our revi ew is de novo.

United States v. Voss , 82 F.3d 1521, 1529 (10th Cir.), cert. denied , 117 S. Ct. 226 (1996) (quoting United States v. Lee , 54 F.3d 1534, 1536 (10th Cir. 1995)). A. Legitimate Disputes The district court utilized the Oklahoma Uniform Ju ry Instruction (OUJI) for bad faith when submitting the case to the jury. The instructions stated that the jury could find bad faith if, inter alia, the insur er “had no reasonable basis” for refusing the Policy. Enterprise complains that the jury instruction improperly suggests that bad faith may occur even if a reasona ble basis for refusing to pay the claim might exist. Although Enterprise correct ly reads the instruction, it does not follow that the instruction failed correctly to state Oklahoma law. Bad faith may be established by showing an “unreasonable” ref usal to pay a claim, and the instructions set forth three alternative scenarios which are deemed to be unreasonable: (1) the insurance company “had no rea sonable basis for the-18-

refusal,” (2) the insurance company did not perform a proper investigation, or (3) the insurance company did not evaluate the results of the investigation properly. As we pointed out earlier, merely because there is a reasonable basis that an insurance company could invoke to deny a claim does not necessarily immunize the insurer from a bad faith claim if, in fact, it did not actually rely on that supposed reasonable basis and instead took action i n bad faith. Timberlake , 71 F.3d at 343. Because the jury instruction correctl y stated the applicable law, we review the instruction for abuse of discretion in t he particulars of its wording. We do not believe that the use of the standard Okla homa instructions for bad faith cases constitutes an abuse of discretion.

B. Material Misrepresentations and Rescission The district court quoted verbatim the language of the Oklahoma statute regarding an insurer’s ability to rescind an insurance contract to instruct the jury on the affirmative defense of rescission. See Okla. Stat. tit. 36, § 3609(A) (1990) (allowing rescission where applicant misrepresents material facts on an insurance application). Enterprise contends that the court a lso should have included an instruction quoting a Tenth Circuit case defining t he term “material” for the purposes of instructing the jury how to identify wh at constitutes a material6 Specifically, Enterprise wished to quote Long v. Insurance Co. , 670 F.2d

930, 934 (10th Cir. 1982), as follows: “A misrepre sented fact is material if a reasonable insurance company in determining its cou rse of action would attach importance to the fact misrepresented.”

7The instructions read as follows: KNOWLEDGE OF AGENT IMPUTABLE TO PRINCIPAL Knowledge, or notice possessed by an agent while ac ting within the scope of his authority, is the knowledge of, or not ice to, his principal.

ACTS OF AN AGENT AS ACTS OF PRINCIPAL Nancy Sidler was the agent of defendant, Enterprise Financial Group, Inc., at the time she sold the insurance policy to plaintiff’s husband, Milford Vining. Therefore, an act or omission of N ancy Sidler within the scope of her authority at the time was in law the a ct or omission of defendant, Enterprise Financial Group, Inc. . (Appellant App. Vol. III at 773 & 774 ). -19- misrepresentation on an insurance application. 6 Enterprise’s challenge to this jury instruction is now moot given Enterprise’s admissio ns that the statute only applies if the insured intentionally deceived the insurer a nd that Milford did not possess any such intent in this case. C. Imputed Knowledge The district court instructed the jury using an OUJ I instruction that notice of information conveyed to the agent by the insured is imputed to the insurer under agency principles. 7Enterprise challenges this instruction in light o f settled law that a bad faith action against an insurance co mpany cannot rest on the actions of that company’s agent. See Oulds , 6 F.3d at 1440. As a result, Enterprise complains, the instruction misstated the law by allowing the jury to find that Enterprise acted in bad faith based on kn owledge it should have had8 Enterprise also cannot complain about any prejudi cial effect of the jury

instruction on its claimed rescission defense becau se, as discussed above, it has conceded that defense away on appeal. -20- because of information communicated to Sidler by Mi lford about his condition. However, Vining never introduced any testimony regarding Milford’s disclosures to Sidler. In fact, Vining concurred in Enterprise ’s Motion in Limine to exclude as hearsay any evidence regarding communications be tween Milford and Sidler. As a result, Sidler’s knowledge of Milford’s condit ion was never at issue at trial. Vining’s claim rests on her showing that Enterprise operated a bad faith insurance scheme and denied her claim as a matter of course w ithout any investigation or justification. Sidler’s knowledge is irrelevant to that showing. In other words, even if the instruction was in error, it could not have affected the verdict, and Enterprise was not prejudiced thereby. 8 See Osteguin v. Southern Pac. Trans.
Co. , ___ F.3d ___, 1998 WL 257224, at *2 (10th Cir. May 21, 1998); see also Fed. R. Civ. P. 61 (the court “must disregard any e rror or defect . . . which does not affect the substantial rights of the parties”).9 Enterprise sought a remittitur of not less than $ 350,000 in actual

damages, which would reduce the actual damages to $ 50,000 and consequentially also reduce the punitive damages, which the distric t court ruled could not exceed actual damages, to $50,000. -21- III. Remittitur on Damage Award Enterprise challenges the damages awarded to Vining as excessive and as lacking sufficient evidentiary support. 9 First, we review a damage award challenged on the basis of insufficient evidence un der a clearly erroneous standard, “viewing the evidence in the light most f avorable to the prevailing party.” Rainbow Travel Serv., Inc. v. Hilton Hotel s Corp. , 896 F.2d 1233, 1239 (10th Cir. 1990). We affirm the judgment below if there is substantial evidence tending to support the jury’s damage award. Rainbo w Travel , 896 F.2d at 1239. Second, we review for “manifest abuse of discretion ” a court’s disposition of a motion for remittitur or new trial on damages to re duce an excessive award. Malloy v. Monahan , 73 F.3d 1012, 1017 (10th Cir. 1996). The award m ust be so excessive that it shocks the judicial conscience an d raises “‘an irresistible inference that passion, prejudice, corruption, or o ther improper cause invaded the trial. . . .’” Fitzgerald v. Mountain States Tel. & Tel. Co. , 68 F.3d 1257, 1261 (10th Cir. 1995) (quoting Malandris v. Merrill Lync h, Pierce, Fenner & Smith,
Inc. , 703 F.2d 1152, 1168 (10th Cir. 1981)).-22-

Given the special nature of an insurer’s relation t o its insureds, recovery for mental suffering in a bad faith insurance claim doe s not require either severe mental distress or outrageous conduct. See Timmons v. Royal Globe Ins. Co. , 653 P.2d 907, 916 (Okla. 1982). Vining testified at trial regarding the distress she experienced as a result of Enterprise’s conducttowards her during the three years she spent fighting the insurance company overthe claim. Such evidence is sufficient in a bad faith claim to support an award for emotional distress. In addition, $400,000 for mental pain and suffering , financial losses, embarrassment, and loss of reputation in the context of bad faith insurance claims is not excessive on this record. See , e.g. Buzzard , 824 P.2d at 1116 (noting that the district court awarded $200,000 for mental dist ress caused by delay in withholding a $10,000 insurance payment over seven and one half months). Enterprise also claims in the alternative that the jury verdict was the result of undue passion and prejudice based on its conside ration of certain evidence erroneously admitted by the district court. Becaus e we do not believe the district court abused its discretion on the challenged evide ntiary rulings (see discussion below), we reject Enterprise’s prejudice claim. In addition, Enterprise did not contest the punitive damage award directly. Rather , Enterprise sought to reduce the amount of punitive damages by seeking a reducti on in actual damages, noting that the district court limited punitive damages to an amount not to exceed actual-23-

damages. Because we uphold the $400,000 actual dam age amount, the $400,000 in punitive damages does not exceed actual damages and need not be adjusted. Therefore, by affirming the actual damage award, we also necessarily affirm the punitive damage award. IV. Evidentiary Rulings Enterprise appeals a number of the district court’s rulings admitting various evidence unfavorable to Enterprise, contending thatthe evidence unfairly poisoned the well against it. We review a districtcourt’s ruling on the admission or exclusion of evidence for abuse of discretion. See Cartier v. Jackson , 59 F.3d 1046, 1048 (10th Cir. 1995).

A. Market Conduct Examination Report The district court allowed into evidence the 1992 M arket Conduct Examination Report (the “Report”) prepared by the O klahoma Insurance Department concerning Enterprise’s business practic es. Enterprise challenges the admission of the evidence on both hearsay and relev ance grounds. Enterprise argues that a report prepared for a state agency do es not meet the hearsay exception in Fed. R. Evid. 803(8)(C) for factual fi ndings resulting from an investigation made pursuant to authority granted bylaw unless and until the agency actually adopts the findings in the report. Specifically, Enterprise quotes Brown v. Sierra Nevada Mem’l Miners Hosp. 849 F.2d 1186 (9th Cir. 1988):-24-

“where ‘a staff report is submitted to a commissionor other public agency charged with making formal findings, only those fac tual statements from the staff reports that are approved and adopted by the agency will qualify as 803(8)(C) findings.’” Id. at 1189 (quoting Zenith Radio Corp. v. Matsushita Elec. Ind. Co. , 505 F. Supp. 1125, 1145 (E.D. Pa. 1980)); see also City of New York v. Pullman,
Inc. , 662 F.2d 910, 914-15 (2d Cir. 1981) (interim repo rts subject to revision and review, tentative results of an incomplete staff in spection, and preliminary recommendations not yet accepted or adopted by the agency do not constitute factual findings under Rule 803(8)(C)). Enterprise concludes that the agency did not adopt the Report in this case because the Oklahoma Insurance Commissioner subsequ ently issued an Order with respect to Enterprise following the Report. T he Order states that “the violations described herein at paragraph 7 (Finding s of Fact) shall be incorporated into the examination Report as if expressly set forth therein, and shall constitute the only legal violations set forth in the Examinat ion Report.” However, the Order also states under a section entitled “Conclus ions of Law” that “the Examination Report of Enterprise Life Insurance Company shall be and hereby is adopted as modified in this Order by the Insurance Commissioner, pursuant to 36 O.S. § 309.4(C) (Supp. 1992), with actions to be taken by Enterprise Life-25-

Insurance Company to cure the violations noted ther ein.” In addition, the Report was attached and incorporated into the Order as “Ex hibit A” of the Order. Just because the Order did not characterize all of Enterprise’s business practices documented in the Report as legal violati ons does not mean that the Order did not incorporate the factual findings cont ained in the Report. Instead, a more reasonable interpretation is that the Order re lies on and adopts all of the factual findings in the Report but only characteriz es certain of those findings as constituting a violation of law. Moreover, Enterpr ise does not dispute and indeed fully supports the position that the Order was admi ssible, arguing only that the Order and not the Report should have been admitted. Because the Report is attached and incorporated by reference into the Ord er, the Report would have been properly admitted as part of the Order even if the Report by itself were inadmissible. On the question of relevance, Enterprise claims the Report was not relevant because the evidence it revealed regarding Enterpri se’s general conduct was not specific to this case. Enterprise also argues thatthe Report unfairly prejudiced the jury against it. Determinations of relevance a nd prejudice under Rule 403 lie within the discretion of the district court. See United States v. Wacker , 72 F.3d 1453, 1468-69 (10th Cir. 1995), cert. denied , 117 S. Ct. 136 (1996). Vining sought to prove that Enterprise engaged in a pervas ive, consistent pattern of-26-

abusive rescissions. Such evidence is clearly rele vant to the question of how Enterprise acted in this case under Federal Rule of Evidence 406 (habit). While the evidence may have worked to prejudice the jury against Enterprise, such prejudice did not substantially outweigh the releva nce of the evidence to the inquiry of Enterprise’s general business practices. Thus, we find that the district court did not abuse its discretion by admitting the Report into evidence. B. Expert Witness Enterprise challenges the district court’s decisionto allow Hammond to testify as an expert witness. The admission of exp ert testimony is left to the sound discretion of the trial court. See Daubert v. Merrell Dow Pharmaceuticals,
Inc. , 509 U.S. 579 (1993). Enterprise’s main challenge to the admission of expert witness Hammond’s testimony seems to stem from the fact that Hammond routinely testifies in bad faith insurance cases. See, e.g. Timberlake , 71 F.3d at 345; Thompson v. State Farm Fire and Cas. Co. , 34 F.3d 932, 941 (10th Cir. 1994). Enterprise also argues that Hammond’s testi mony should have been excluded because he made conclusions of fact proper ly reserved for the jury, specifically his conclusion that Enterprise did nothave appropriate grounds to rescind the Policy. However, because the rescissio n defense is a moot point, we do not see how Hammond’s testimony on that issue matters in this case. In addition, this court in Thompson , 34 F.3d at 941, ruled that “it is plainly within-27-

the trial court’s discretion” to determine whether expert testimony is admissible when the expert offers to testify on an issue that a jury is capable of assessing for itself. Thus, the district court did not abuse its discretion by allowing Hammond to testify.
C. Other Evidence Enterprise challenges the introduction of Enterpris e’s Training Manual (the “Manual”) and the testimony of other Enterprise cre dit life insurance claimants on grounds that such evidence was irrelevant, unduly p rejudicial, and confusing under Federal Rules of Evidence 403 & 404. Relevan ce and prejudice are matters within the discretion of the district court. See Wacker , 72 F.3d at 1468-69. Enterprise argues that the Manual should not have b een admitted because Vining did not show that Sidler, the agent in this case, e ver read or even saw a copy of the Manual. In addition, Enterprise contests the a dmissibility of the testimony of other claimants. The other claimants testified abo ut their purchase of life insurance policies and the subsequent rescission of those policies by Enterprise despite their disclosures to Enterprise agents conc erning prior health problems. Enterprise argues that such testimony was not relev ant because Vining did not show in this case that Milford actually disclosed h is medical condition. Nevertheless, Vining’s case of bad faith was based on demonstrating a pervasive, consistent pattern of abuse by Enterpris e. Clearly, the Manual and-28-

evidence regarding how Enterprise treated other cla imants were all relevant to that exercise. Such evidence is expressly allowed under Federal Rule of Evidence 406. The only impact such evidence might have had on the jury was to convince them that Enterprise habitually denied claims in ba d faith, precisely the point Vining wished to prove. Allowing such evidence to be admitted, therefore, did not constitute an abuse of discretion.

V. Additional Punitive Damages for Willful Conduct Finally, we dispose of Vining’s cross-appeal. Vini ng argues that if the case is retried for any reason, the district court shoul d lift the limitation on punitive damages imposed by the court on any jury award. Be cause we affirm the district court’s denial of Enterprise’s motion for judgment as a matter of law, the crossappeal has become moot.
CONCLUSION Vining presented sufficient, admissible evidence sh owing that Enterprise willfully engaged in a bad faith, abusive scheme of issuing guaranteed insurance policies and then routinely denying coverage to its insureds regardless of whether it had reasonable grounds for the rescission. Vini ng also showed that Enterprise acted unreasonably in this case and that such bad f aith conduct caused her emotional distress, pain, and anguish. Therefore, we AFFIRM the jury verdict-29-

finding that Enterprise acted in bad faith, AFFIRM the jury verdict awarding damages to Vining, and REMAND for the entry of judg ment consistent with this opinion.