Zitzow v. Auto-Owners Ins. Co.

1

ERIC ZITZOW; TINA ZITZOW, Plaintiffs-Appellees, v. AUTO-OWNERS INSURANCE CO., Defendant-Appellant.

No. 22-5549

United States Court of Appeals, Sixth Circuit

February 16, 2023

NOT RECOMMENDED FOR PUBLICATION

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TENNESSEE OPINION

Before: GILMAN, McKEAGUE, and GRIFFIN, Circuit Judges.

OPINION

McKEAGUE, Circuit Judge.

Plaintiffs-Appellees Eric and Tina Zitzow and DefendantAppellant Auto-Owners Insurance Company entered into a homeowners' insurance contract for coverage of the Zitzows' rental property in Chattanooga, Tennessee. When a nearby tornado caused damage to the Zitzows' property the couple filed a claim. Auto-Owners paid for the property's roof damage but denied coverage for damage caused by the collapse of a nearby retaining wall. Auto-Owners claimed the collapse resulted from water pressure-a risk expressly excluded from coverage within the Zitzows' policy. The Zitzows sued Auto-Owners for breach of contract and a bad-faith penalty. After a three-day trial, the jury found for the Zitzows, and the district court for the Eastern District of Tennessee at Chattanooga entered judgment against AutoOwners.

Auto-Owners now appeals that judgment, challenging a number of pretrial rulings by the district court. Specifically, Auto-Owners appeals the district court's denial of its motion for summary judgment, motion in limine as to proof of damages, and motion for a directed verdict on the bad-faith claim. Auto-Owners also challenges the district court's jury instructions. Because the district court did not abuse its discretion in ruling on any of the at-issue motions or in instructing the jury on the applicable burden of proof, and because Auto-Owners' challenge to the bad-faith penalty is unreviewable due to Auto-Owners' procedural default, we AFFIRM the district court's judgment.

I

A. Factual Background

Plaintiffs-Appellees Eric and Tina Zitzow own a rental property located in Chattanooga, Tennessee. In November of 2019, the Zitzows entered a "Dwelling Insurance Policy" with Defendant-Appellant Auto-Owners for homeowners' insurance coverage of the property.

As alleged in the Zitzows' Complaint, a severe windstorm occurred on April 12, 2020, causing damage to the Zitzows' property and rendering it "uninhabitable." R.1-2, PID 7. More specifically, the Zitzows allege that the storm caused damage to the property's roof and forced a nearby retaining wall to fall onto the home. After the storm, the Zitzows filed an insurance claim with Auto-Owners. Auto-Owners conducted an initial investigation and determined that the windstorm had in fact caused damage to the property's roof. The insurer promptly issued an undisputed payment for roof replacement.

The retaining wall's collapse, however, was less straightforward. To assess the cause of the retaining wall's collapse, Auto-Owners engaged Rimkus Consulting Group, Inc. ("Rimkus"). Rimkus inspected the property and issued a report wherein it concluded that hydrostatic pressure caused the retaining wall to collapse. Relying on Rimkus' opinion, Auto-Owners denied coverage for damage to the property caused by the collapse of the retaining wall. As grounds for its denial, Auto-Owners pointed to a provision in the Zitzows' policy that excluded coverage for damage caused by hydrostatic pressure.

The Zitzows then hired a local engineering firm, ICR Engineers, Inc. ("ICR"), to render a second opinion regarding the cause of the retaining wall's collapse. ICR determined that the retaining wall collapsed due to "the force of storm winds and ground vibrations." R. 1-2, PID 8. The Zitzows provided Auto-Owners with a copy of this ICR report, as well as an estimate for the entire claim, requesting compensation in the amount of $74,987.50.

When the Zitzows received no response, their attorney sent Auto-Owners a demand letter, informing Auto-Owners that, should it fail to acknowledge coverage of the Zitzows' claim within sixty days and to thereafter adjust the claim in good faith, the Zitzows "would be left with no choice but to commence litigation," including pursuing causes of action for breach of contract and bad faith pursuant to Tenn. Code Ann. § 56-7-105. R. 1-2, PID 15-16. Auto-Owners did not respond.

B. Procedural Background

On December 10, 2020, the Zitzows filed their Complaint against Defendants AutoOwners and Rimkus in the Chancery Court of Hamilton County, Tennessee. On January 5, 2021, Auto-Owners removed the case to the United States District Court for the Eastern District of Tennessee at Chattanooga pursuant to 28 U.S.C. §§ 1441 and 1446. Rimkus was dismissed with prejudice by order dated April 18, 2022. Auto-Owners is therefore the only defendant involved in this appeal.

Trial began on May 24, 2022. After three days of testimony, the jury returned a verdict in favor of the Zitzows and against Auto-Owners on the Zitzows' claims for breach of contract and a bad-faith penalty pursuant to Tenn. Code Ann. § 56-7-105. The court entered judgment, ordering Auto-Owners to pay the Zitzows $14,150.00 for damages to the retaining wall, $75,000.00 for damages to the house, $14,150.00 for loss of rental income, and $20,000.00 as a bad-faith penalty. R. 114, PID 1940. Auto-Owners timely appealed.

II

Auto-Owners raises three primary arguments on appeal: (1) the district court's jury instructions impermissibly shifted the burden to Auto-Owners for all material elements of the breach-of-contract claim, (2) the district court erred by allowing the Zitzows to put on proof of damages at trial despite not having a disclosed damages expert, and (3) the district court erred in denying Auto-Owners' motion for directed verdict on the Zitzows' bad-faith claim when there was allegedly no evidence in the record to support a finding of bad faith. We find none of these arguments persuasive.

A. Jury Instructions

Beginning with the jury instructions, Auto-Owners contends that the district court "impermissibly shifted the burden to Auto-Owners for all material elements of the breach of contract claim." Appellant's Br. at 8. According to Auto-Owners, the court "refused to instruct the jury that the plaintiff carries the burden of proving that a contract is breached under Tennessee law and refused to [instruct] the jury with finding that the Zitzows proved each element of their breach of contract claim by a preponderance of the evidence." Id. at 11.

The Zitzows, however, assert that the lower court's jury instructions were "clear and correct" and "conformed to the all-risk policy at issue." Appellees' Br. at 7. According to the Zitzows, all-risk insurance policies cover any accidental loss unless that loss is excluded from coverage. If a property loss occurs, the insurer's payment obligation is triggered unless the loss comes within an exclusion. We agree.

1. Standard of Review

A district court has discretion to deny proposed jury instructions. Hill v. Homeward Residential, Inc., 799 F.3d 544, 551 (6th Cir. 2015). Therefore, "[w]hen reviewing a district court's decision to deny a specific jury instruction, this Court applies an abuse of discretion standard." United States v. Adams, 583 F.3d 457, 468-69 (6th Cir. 2009). "An abuse of discretion occurs if the district court relies on clearly erroneous findings of fact, applies the wrong legal standard, misapplies the correct legal standard when reaching a conclusion, or makes a clear error of judgment." In re Countrywide Fin. Corp. Mortg. Lending Pracs. Litig., 708 F.3d 704, 707 (6th Cir. 2013) (internal quotation marks and citation omitted).

Jury instructions are reviewed as a whole "to determine if they adequately inform the jury of the relevant considerations and provide a basis in law for aiding the jury in reaching its decision." Adams, 583 F.3d at 469 (citation omitted). "A district court's refusal to give a jury instruction constitutes reversible error only if (1) the omitted instruction is a correct statement of the law, (2) the instruction is not substantially covered by other delivered charges, and (3) the failure to give the instruction impairs the requesting party's theory of the case." Decker v. GE Healthcare, 770 F.3d 378, 396 (6th Cir. 2014) (citation omitted). Furthermore, "[w]e may reverse only if instructions 'were confusing, misleading, or prejudicial.'" Hill, 799 F.3d at 551 (quoting United States v. Kuehne, 547 F.3d 667, 679 (6th Cir. 2008)). The legal accuracy of the jury instructions themselves are reviewed de novo. United States v. Blanchard, 618 F.3d 562, 571 (6th Cir. 2010).

2. The Challenged Instructions

On May 3, 2022, Auto-Owners and the Zitzows jointly filed proposed jury instructions. As to breach of contract, the parties modeled the language of their proposed instructions on § 13.10 of the Tennessee Pattern Jury Instructions. And as to burden of proof, the parties modeled their proposed instructions on § 2.40 of the Tennessee Pattern Jury Instructions.

On the morning of the third day of trial, after the close of proof and before closing arguments, the district court held an in-chambers conference to discuss its jury instructions. There, the district court informed the parties that it intended to modify the jointly-proposed instructions. The judge grappled with the applicable burden of proof for the breach-of-contract claim and reached the following conclusions:

The plaintiffs have . . . the burden of proof to show that they sustained an accidental direct physical loss to their property because the policy covers all accidental direct physical losses . . . unless there's an exclusion in the policy that excepts it out.... [B]ut the parties have agreed that there is an accidental direct physical loss . . . to the

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