Century Surety Co. v. Shayona Investment, LLC
2016 U.S. App. LEXIS 19602
| 10th Cir. | 2016Background
- Century issued a commercial insurance policy to Shayona covering the Cinderella Inn (Oct. 19, 2011–one year).
- Shayona submitted multiple claims (vandalism/theft Oct. 2011; hail May 2012); Century paid $777,885.41 under the policy.
- Century investigated later submissions, concluded some claims were fraudulent, and sued for declaratory judgment that the policy was void and to recover amounts paid plus investigative costs.
- The policy contained a fraud and false swearing clause voiding coverage for intentional misrepresentation; Oklahoma law permits such clauses.
- At trial the district court instructed the jury to apply the preponderance standard; the jury found fraud, awarding Century $855,057.91 (policy payouts plus $77,172.50 investigative expenses).
- Shayona appealed, arguing the court should have required Century to prove fraud by clear and convincing evidence; the Tenth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Century) | Defendant's Argument (Shayona) | Held |
|---|---|---|---|
| Appropriate evidentiary standard for insurer seeking restitution under a fraud/false-sworn policy clause | Claim is a declaratory judgment/contract action; preponderance applies | Century’s action is effectively a fraud claim to recover money already paid and investigative costs, so clear and convincing applies | Preponderance of the evidence governs; district court instruction correct |
| Whether bringing the theory as a claim (vs. defense) changes the burden of proof | No distinction between asserting fraud as claim or defense in contract actions; same preponderance standard | Characterizing the theory as a claim should trigger higher standard | Court rejects a claim/defense distinction; no authority requires higher burden when insurer brings contract-based claim |
| Recoverability and treatment of investigative (extra-contractual) expenses | Recoverable as damages flowing from breach; award permitted under contract action | Such extra-contractual damages require a tort/fraud action and thus higher proof standard | Jury award for investigative expenses stands; Shayona forfeited objections to the damages instruction |
Key Cases Cited
- Pratt v. Petelin, 733 F.3d 1006 (10th Cir. 2013) (standard of review for jury instructions)
- Transportation Insurance Co. v. Hamilton, 316 F.2d 294 (10th Cir. 1963) (insurer must prove fraud/false swearing in policy by preponderance)
- Lederman v. Frontier Fire Protection, Inc., 685 F.3d 1151 (10th Cir. 2012) (party asserting claim or defense bears burden by preponderance)
- Johnson v. Board of Governors of Registered Dentists of State of Oklahoma, 913 P.2d 1339 (Okla. 1996) (general preponderance standard in civil disputes)
- Funnell v. Jones, 737 P.2d 105 (Okla. 1987) (discussing fraud standards in Oklahoma)
- United Services Automobile Ass’n v. McCants, 944 P.2d 298 (Okla. 1997) (distinguishing tort fraud actions from contract-based denials)
- Chorn v. Williams, 99 P.2d 1036 (Okla. 1940) (contract damages are natural and proximate consequences of breach)
- Addington v. Texas, 441 U.S. 418 (U.S. 1979) (clear-and-convincing standard used where more than mere loss of money is at stake)