Court Opinion

ID: 3050160
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:30:06.188067+00
Date Added: 2024-06-11T11:49:22.908613
License: Public Domain

FILED
                           NOT FOR PUBLICATION                              MAR 23 2011

                                                                       MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS

                            FOR THE NINTH CIRCUIT

NORTHWESTERN MUTUAL LIFE                         No. 10-35145
INSURANCE COMPANY,
                                                 D.C. No. 3:08-cv-05394-BHS
              Plaintiff-counter-defendant -
Appellee,
                                                 MEMORANDUM *
  v.

RICHARD L. KOCH,

              Defendant-counter-claimant -
Appellant.

NORTHWESTERN MUTUAL LIFE                         No. 10-35185
INSURANCE COMPANY,
                                                 D.C. No. 3:08-cv-05394-BHS
              Plaintiff-counter-defendant -
Appellant,

  v.

RICHARD L. KOCH,

              Defendant-counter-claimant -
Appellee.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                    Appeal from the United States District Court
                      for the Western District of Washington
                    Benjamin H. Settle, District Judge, Presiding

                       Argued and Submitted March 9, 2011
                               Seattle, Washington

Before: McKEOWN, FISHER, and GOULD, Circuit Judges.

      This appeal arises from the rescission of Richard L. Koch’s three disability

insurance policies by Northwestern Mutual Life Insurance Company. While

investigating Koch’s claim for coverage, Northwestern Mutual discovered that

Koch had made false statements about past treatment for bipolar depression in

connection with his policy applications. Northwestern Mutual filed this action

seeking ratification of its decision to rescind Koch’s policies; Koch answered with

counterclaims for breach of contract, violation of Washington’s Insurance Fair

Conduct Act (“IFCA”), and bad faith. The district court granted motions by

Northwestern Mutual for summary judgment as to two of the policies. Then, at

trial, the district court granted a motion for judgment as a matter of law on Koch’s

IFCA and bad faith counterclaims. The jury returned a verdict in Koch’s favor on

the remaining claims, which related to one policy. Both parties appealed. We have

jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

                                          2
                                              I

      We reject Koch’s challenge to the district court’s partial grant of summary

judgment in favor of Northwestern Mutual. Washington law permits rescission of

a disability insurance policy on account of oral false statements. Wash. Rev. Code

§ 48.18.090(1); see Cutter & Buck, Inc. v. Genesis Ins. Co., 306 F. Supp. 2d 988,

1001 (W.D. Wash. 2004). Koch argues that § 48.18.090(2) governs all statements

made in connection with disability insurance policies, requiring any actionable

misrepresentation to be in writing, but we read that subsection to govern only

statements made in writing on applications for life or disability insurance.

      The district court also correctly held that Northwestern Mutual had

established the elements of materiality and deceptive intent because Koch did not

adduce sufficient evidence to show a genuine issue for trial. See Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). While the fact that an insured had

preexisting coverage when applying for new policies may, considered with other

evidence, support a finding that the insured’s misstatements were innocent, Kay v.

Occidental Life Ins. Co., 183 P.2d 181, 184 (Wash. 1947), this fact is not alone

sufficient to create a jury question, particularly where, as here, obtaining better

coverage gave the insured an incentive to lie, and a presumption is present that the

insured’s intent was deceptive, id. at 302.

                                              3
                                          II

      We reject Northwestern Mutual’s challenge to the district court’s rulings

regarding admissibility of evidence and jury instructions. The district court did not

abuse its discretion when it excluded evidence of its summary judgment ruling

while admitting evidence of the false statements at issue on summary judgment.

Although evidence of prior wrongs is normally admissible to show intent, Fed. R.

Evid. 404(b), it is inadmissible if it may be substantially more prejudicial than

probative, Fed. R. Evid. 403. See United States v. Curtin, 489 F.3d 935, 944 (9th

Cir. 2007) (en banc). Evidence of a trial judge’s interlocutory ruling may be

highly prejudicial, see Quercia v. United States, 289 U.S. 466, 470 (1933) (“The

influence of the trial judge on the jury is necessarily and properly of great weight

and his lightest word or intimation is received with deference, and may prove

controlling.”), and the district court did not abuse its discretion by excluding such

evidence here.

      We need not decide if the district court erred by omitting a jury instruction

about a presumption of deceptive intent; any error was harmless. See Caballero v.

City of Concord, 956 F.2d 204, 206 (9th Cir. 1992) (“An error in instructing the

jury in a civil case requires reversal unless the error is more probably than not

harmless.”). Had the jury been instructed to determine whether Koch had

                                           4
overcome a presumption of deceptive intent on Northwestern Mutual’s rescission

claim, the jury’s intent inquiry would have been substantially the same as it was for

Koch’s breach of contract claim. As to the breach of contract claim, the jury found

that Koch proved innocent intent.

                                           III

      We reject challenges by Koch and Northwestern Mutual to the district

court’s resolution of Northwestern Mutual’s motion for judgment as a matter of

law. The district court properly granted judgment as a matter of law on Koch’s

counterclaims for bad faith and violation of the IFCA. See Wash. Rev. Code

§ 48.30.015. At trial, Koch produced no evidence that Northwestern Mutual’s

decision to rescind Koch’s policies was based on an unreasonable interpretation of

the policies or controlling law. See Overton v. Consol. Ins. Co., 38 P.3d 322, 329

(Wash. 2002) (“If the insurer’s denial of coverage is based on a reasonable

interpretation of the insurance policy, there is no action for bad faith.”).

      The district court correctly denied judgment as a matter of law on the

rescission and breach of contract claims. Koch’s testimony, in which he presented

                                            5
a plausible account of his innocent intent, provides an adequate evidentiary basis

for the jury’s verdict.1

                                          IV

       Finally, we reject Koch’s challenge to the district court’s denial of his

motion for Olympic Steamship attorneys’ fees. See Olympic S.S. Co., Inc. v.

Centennial Ins. Co., 811 P.2d 673, 681 (Wash. 1991) (“[A]n award of fees is

required in any legal action where the insurer compels the insured to assume the

burden of legal action, to obtain the full benefit of his insurance contract.”). The

district court did not abuse its discretion when it concluded that: (1) an award of

Olympic Steamship fees is an equitable remedy, Polygon Nw. Co. v. Am. Nat’l Fire

Ins. Co., 189 P.3d 777, 799 (Wash. Ct. App. 2008); (2) equitable remedies are not

available to parties with unclean hands, Income Investors v. Shelton, 101 P.2d 973,

       1
        The district court’s denial of judgment as a matter of law as to the 1994
policy is not inconsistent with it grant of summary judgment as to the 1992
policies. The grant of summary judgment was based on (1) Koch’s false statement
during the oral interview for which he had no plausible innocent account, and (2)
Koch’s failure to adduce sufficient circumstantial evidence of his innocent intent.
By contrast, at trial, Koch did present a plausible innocent account of his 1994
misstatements and Koch presented supporting circumstantial evidence that he had
not adduced at summary judgment, including that his answers to the insurance
application questions were consistent with his answers to questions in unrelated
patient questionnaires.

                                           6
974 (Wash. 1940); and (3) Koch, although prevailing in part of this action, was

adjudicated at summary judgment as having acted with unclean hands.

      The parties shall bear their own costs on appeal.

      AFFIRMED.

                                         7
                                                                            FILED
Northwestern Mut. Life Ins. Co. v. Koch, 10-35145+                           MAR 23 2011

                                                                        MOLLY C. DWYER, CLERK
                                                                          U .S. C O U R T OF APPE ALS

FISHER, J., dissenting in part:

      I respectfully dissent from that portion of Section I of the disposition

affirming the district court’s partial grant of summary judgment in favor of

Northwestern Mutual. The district court’s conclusion, on summary judgment, that

there was no genuine issue of material fact as to Koch’s intent to deceive is in

tension with its later ruling on Northwestern Mutual’s motion for judgment as a

matter of law that there was sufficient evidence to support a jury finding in Koch’s

favor on that element. Koch already had insurance at the time he obtained the

1992 policies, creating a question of fact (and credibility) whether he had a motive

to deceive Northwestern Mutual. The jury should have been allowed to decide

whether Koch acted with deceptive intent in obtaining the 1992 policies, just as it

was regarding the 1994 policy. See Kay v. Occidental Life Ins. Co., 183 P.2d 181,

182 (Wash. 1947).

      Accordingly, I would also remand for reconsideration Koch’s entitlement to

attorney’s fees (Section IV), in light of the incorrect summary judgment on the

claim for rescission of the 1992 policy.