Home Loan Investment Co. v. St. Paul Mercury Insurance Co.
2016 U.S. App. LEXIS 12411
| 10th Cir. | 2016Background
- Home Loan sought foreclosed-property insurance for White Hall after owner stopped payments; it selected "mortgagee in possession" on an insurer questionnaire and St. Paul issued temporary coverage pending underwriting.
- White Hall burned on September 15, 2011; Home Loan filed a claim for the outstanding loan balance and St. Paul investigated, asked who had possession, and was told the owner did.
- St. Paul issued a reservation-of-rights and ultimately denied the claim because it concluded Home Loan was not a "mortgagee in possession" under the policy and refunded the premium for that location.
- Home Loan sued in Colorado court for breach of contract and statutory bad faith under Colo. Rev. Stat. §§ 10-3-1115 and 10-3-1116; St. Paul removed to federal court and proceeded to trial.
- A jury found for Home Loan on both breach and statutory bad faith; the district court denied St. Paul’s JMOL and new-trial motions. On appeal, St. Paul contested only the statutory bad-faith judgment, statutory scope, and damages calculation; the Tenth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Home Loan) | Defendant's Argument (St. Paul) | Held |
|---|---|---|---|
| Whether denial of a "fairly debatable" claim is per se reasonable under Colorado law | Fair debatability is only one factor; insurer can still act unreasonably despite a debatable position | Denial of a fairly debatable claim is per se reasonable as a matter of law | Court: Not per se; fair debatability weighs against bad faith but is not outcome-determinative (follow Colo. Ct. App. precedent) |
| Whether §§ 10-3-1115 and 10-3-1116 apply only to claims-handling (not underwriting) | Statutes reach unreasonable delay/denial of benefits generally, including underwriting-related bases for denying payment | Statutes are limited to claims-handling; underwriting conduct cannot support statutory bad faith | Court: Statutory language is broad; liability is not limited to claims-handling and can include underwriting decisions that unreasonably delay/deny benefits |
| Whether St. Paul preserved and argued a sufficiency-of-the-evidence JMOL claim on appeal | Home Loan: St. Paul failed to preserve a pure sufficiency challenge; it advanced statutory/legal arguments and thus waived a sufficiency review | St. Paul: Preserved and argued JMOL, urging judgment as a matter of law because no reasonable jury could find statutory bad faith | Court: St. Paul did not properly preserve or press a general sufficiency-of-the-evidence challenge, so appellate sufficiency review is not entertained |
| Proper measure of remedies under § 10-3-1116 (double damages) | Home Loan: Section allows statutory penalty in addition to contract damages (resulting in contract benefit + 2x covered benefit) | St. Paul: Recovery should total two times the covered benefit (i.e., statutory remedy replaces or caps total recovery) | Court: § 10-3-1116 awards two times the covered benefit as a statutory penalty in addition to other remedies; district court’s treble (contract + 2x) award affirmed |
Key Cases Cited
- Elm Ridge Expl. Co. v. Engle, 721 F.3d 1199 (10th Cir. 2013) (standard for appellate review of JMOL in diversity cases)
- Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394 (U.S. 2006) (Rule 50 preservation requirements for sufficiency-of-the-evidence challenges)
- ClearOne Commc'ns, Inc. v. Bowers, 643 F.3d 735 (10th Cir. 2011) (JMOL standard and drawing inferences for nonmoving party)
- Vaccaro v. Am. Family Ins. Grp., 275 P.3d 750 (Colo. App. 2012) (fair-debatability is a factor but not dispositive in bad-faith analysis)
- Zolman v. Pinnacol Assurance, 261 P.3d 490 (Colo. App. 2011) (discussing insurer’s ability to challenge fairly debatable claims)
- Hansen v. Am. Family Mut. Ins. Co., 375 P.3d 115 (Colo. 2016) (Colorado Supreme Court decision addressing related statutory interpretation issues)