No. 91,1121
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
MARIA ORTIZ,
Appellee,
v.
JOHN P. BISCANIN, PUBLIC
ADMINISTRATOR OF THE ESTATE OF
THEODORO HERNANDEZ, DECEASED,
Appellee,
v.
GUARANTY NATIONAL INS. CO.,
Appellant.
SYLLABUS BY THE COURT
1. Pursuant to Supreme Court Rule 6.02(d) (2003 Kan. Ct. R. Annot. 35), an appellate court will consider facts not keyed to the record to be unsupported by the record on appeal.
2. In a garnishment proceeding on a liability insurance policy, an appellate court does not consider the matter de novo but rather examines the record to determine whether substantial evidence supports the trial court's findings and conclusions. In doing so the appellate court does not reweigh conflicting evidence, pass on the credibility of witnesses, or redetermine questions of fact. The appellate court accepts as true all evidence and inferences supporting the district court's findings and disregards any contrary evidence or inferences.
3. A district court's verbatim adoption of findings and conclusions proposed by one party is not a practice to be encouraged; but it is not, standing alone, a violation of either Supreme Court Rule 165 (2003 Kan. Ct. R. Annot. 202) or K.S.A. 2003 Supp. 60-252, or error. The test is whether the findings are supported by evidence in the record.
4. The factors for determining whether a liability insurer acted in bad faith or negligently in denying coverage include (1) whether the insured was able to obtain a reservation of rights; (2) efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way to limit any potential prejudice to the insured; (3) the substance of the coverage dispute or the weight of legal authority on the coverage issue; (4) the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage; and (5) efforts made by the insurer to settle the liability claim in the face of the coverage dispute.
5. Kansas law does not impose upon a liability insurer the duty to advise its insured, before any suit is brought against the insured, that the insurer is investigating whether coverage exists under the policy. Thus, when an injured plaintiff brings an action against an insured after the insurer has taken action to rescind the policy, whether a reservation of rights letter was sent by the insurer to its insured is irrelevant.
6. An insurer's failure to join all necessary parties in a declaratory judgment action on the issue of liability coverage under the policy constitutes evidence that the insurer failed to make efforts to promptly resolve the coverage dispute or to act in a manner so as to limit the potential prejudice to its insured.
7. In determining whether a liability insurer acted in bad faith or negligently in denying coverage to its insured, the court looks at the substance of the coverage dispute or the weight of legal authority on the coverage issue. In doing so, the court can take into account the likelihood of the insurer satisfying the requirements of K.S.A. 40-2,118(a) when the claim of the insurer is that its insured committed fraud in applying for coverage.
8. Pursuant to K.S.A. 40-2,118(a), in order to establish fraud on the part of the insured, an insurer must prove by clear and convincing evidence that its insured knowingly and with intent to deceive signed an application the insured knew contained materially false statements.
9. In considering the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage, a factor for determining whether a liability insurer acted in bad faith or negligently in denying coverage to its insured, the district court may consider the insurer's failure to interview a material witness to the claimed fraudulent policy application.
10. In determining whether a liability insurer acted in bad faith or negligently in denying coverage to its insured, the court looks at the efforts made by the insurer to settle the liability claim in the face of the coverage dispute; it does not require the insurer to settle, but does consider significant any attempt at settlement.
11. When the district court has found that the defendant-tortfeasor has liability coverage for the plaintiff's claim and the defendant-tortfeasor then enters into a settlement which results in the plaintiff obtaining a judgment against the defendant-tortfeasor, the plaintiff in a garnishment action on the liability insurance policy has the initial burden of presenting a prima facie case to establish the reasonableness of the settlement amount. In order to do so, the plaintiff must provide the district court with sufficient information for it to make an independent evaluation of the reasonableness of the settlement.
12. When the district court makes a negative finding, such as when it finds that a party failed to meet its burden of proof on an issue, an appellate court reviews the record to determine if the district court arbitrarily disregarded undisputed evidence or if the finding was the product of bias, passion, or prejudice.
13. In a tort action, the substantive law of the state where the tort occurred – lex loci delicti – applies.
14. A settlement between an injured plaintiff and the tortfeasor-defendant is not the product of collusion merely because, at the hearing before the court to consider approval of the settlement, the attorney for the tortfeasor-defendant fails to subject the plaintiff to vigorous cross-examination calculated to undermine the settlement.
15. A settlement between an injured plaintiff and a tortfeasor-defendant is not collusive and unreasonable merely because the tortfeasor-defendant is insolvent.
16. The district court has discretion to determine the amount of an award of attorney fees, and its decision will not be disturbed on appeal absent a showing that it abused that discretion.
17. In deciding the reasonableness of attorney fees, the eight factors set forth in Rule 1.5(a) (2003 Kan. Ct. R. Annot. 362) of the Kansas Rules of Professional Conduct should be considered. The district court itself is an expert in the area of attorney fees and can draw upon and apply its knowledge and expertise in determining their value.
18. Under Rule 1.5(a) of the Kansas Rules of Professional Conduct, the court can consider whether an attorney's fee is fixed or contingent in determining the reasonableness of an award of attorney fees.
Appeal from Wyandotte District Court; DANIEL A. DUNCAN, judge. Opinion filed December 3, 2004. Affirmed.
J. Franklin Hummer, of Shawnee Mission, for appellant.
Christopher P. Sweeny and John E. Turner, of Turner & Sweeny, of Kansas City, Missouri, for appellee Maria Ortiz.
Donald W. Vasos, of Vasos Law Offices, of Fairway, for appellee John Biscanin, Administrator of the Estate of Theodoro Hernandez.
Before GREEN, P.J., McANANY, J., and BUKATY, S.J.
McANANY, J.: Guaranty National Insurance Company (Guaranty) appeals from the district court's entry of judgment in a garnishment proceeding and its award of attorney fees. We affirm.
This extensive litigation centers on Guaranty's issuance of an auto insurance policy to Sandra Simental. The policy provided liability coverage of $25,000. The insured automobile was involved in an accident in Colorado while being driven by Simental's boyfriend, Theodoro Hernandez. Hernandez and his passenger, Gilberto Ortiz, died in the accident. Dustin Glenn, the driver of the other automobile, also died in the accident. Hernandez' fault is not in question. His vehicle crossed the center line of the highway and struck the Glenn vehicle. Hernandez had a blood-alcohol level of .546 at the time of the accident. Guaranty took the position that Simental lied in answering five questions on the insurance application form. Simental's native tongue is Spanish. Her ability to speak in English is extremely limited. Simental claimed these five questions were never put to her, but rather were answered by the agent selling the policy without input from her.
The procedural history of the litigation can be summarized as follows:
5/24/97 The accident occurs in Colorado. Hernandez and passenger Ortiz are killed. Glenn, the driver of other car, is also killed.
6/9/97 Glenn's estate and a representative of the Ortiz family contact Guaranty about coverage for the deaths. National Farmers Union Property and Casualty Companies (Farmers Union) (the uninsured motorist insurer for the Glenn family) also inquires of Guaranty about coverage.
6/10/97 Guaranty assigns the claim from Glenn's family to Ward North America (Ward), a private adjustment firm, for an investigation of the facts relating to policy coverage.
6/13/97 Ward sends a letter to the attorney for Glenn's family stating, "there are coverage questions." That same day, Ward sends a report to Guaranty saying rescission of the Simental policy is possible.
7/1/97 Ward sends Simental a letter warning that if she fails to cooperate with Guaranty, she could jeopardize her liability coverage under the Guaranty policy. (Ward does not warn Simental, Guaranty's insured, of the policy problems communicated earlier to the attorney for Glenn's family who are prospective claimants.)
7/15/97 Ward reports to Guaranty and recommends rescission of the policy.
7/16/97 Guaranty hires attorney Donald Lysaught to help make a decision about rescission.
7/31/97 Lysaught takes a sworn statement from Simental. Simental denies that agent Barnes asked the five questions when the application was taken. Simental is not warned about Guaranty's concerns about coverage.
8/6/97 Guaranty files a declaratory judgment action seeking to avoid coverage under the policy. Guaranty does not open an estate for Hernandez. Hernandez is not joined in the suit. Ortiz is not joined in the suit. The heirs of Glenn are not joined. (Farmers Union later settled an uninsured motorist claim for Glenn's death, but Guaranty did not then join Farmers Union in the suit when Farmers Union's subrogation claim matured.)
8/11/97 Guaranty sends rescission letter to Simental.
8/19/97 Ortiz offers to settle with the Hernandez estate for Guaranty's $25,000 policy limits. Guaranty rejects the settlement offer.
2/3/98 John P. Biscanin, public administrator, opens an estate for Hernandez and thereafter obtains letters of administration.
3/20/98 Maria Ortiz sues Biscanin, administrator of the Hernandez estate, for the wrongful death of her husband. Attorney Vasos defends Biscanin. He does not tender the defense to Guaranty, taking the position that since Guaranty has rescinded the policy, the Hernandez estate owes no duty to cooperate further with Guaranty.
4/23/98 Attorney Lysaught writes to Guaranty and reports that the Ortiz case presents a case of either no coverage or full policy limits exposure. This same day, Guaranty moves to consolidate the Ortiz wrongful death action with the declaratory judgment action.
4/24/98 Guaranty, without first moving to intervene, purports to enter an appearance in the Ortiz v. Biscanin case and moves to stay proceedings until the declaratory judgment case is resolved.
5/29/98 The court denies Guaranty's motion to stay proceedings in Ortiz v. Biscanin because Guaranty lacks standing in the suit.
6/1/98 Lysaught warns Guaranty that there is a risk of a claim of bad faith and a judgment in excess of the policy's $25,000 coverage limit. He notes that the case is a swearing match between Barnes and Simental.
6/30/98 The court grants Guaranty's motion to consolidate the declaratory judgment action and the Ortiz wrongful death action.
7/3/98 Guaranty obtains for the first time a statement from Mrs. Ortega, the witness Barnes and Simental claim was present when Simental applied for the Guaranty policy.
7/28/98 Two-day trial of the declaratory judgment action.
11/13/98 Mrs. Ortiz makes a settlement demand to Biscanin for $618,548.67. Ortiz was age 21 at time of his death. Mrs. Ortiz claimed damages in the form of discounted future earnings of $368,548.67 plus noneconomic damages of $250,000. Attorney Vasos recommends to client Biscanin a settlement offer of $500,000.
4/13/00 The court's journal entry of judgment is filed in the declaratory judgment action. The court finds that (1) Guaranty failed to prove Simental acted fraudulently, and (2) Guaranty is estopped to deny coverage. Later, the court grants Simental's motion for fees. Guaranty appeals.
5/10/00 Consistent with his attorney's recommendation, Biscanin offers to settle with Mrs. Ortiz for $500,000. Mrs. Ortiz accepts the offer.
5/16/00 A hearing is held on the settlement of the Ortiz wrongful death case. Guaranty's counsel is present for the hearing. Biscanin agrees to settle with Mrs. Ortiz for $500,000 in exchange for a covenant not to execute on the personal assets of the Hernandez estate. Biscanin and Mrs. Ortiz testify. The court finds the settlement is fair, just, and equitable.
5/17/00 The court enters judgment of $500,000 in favor of Mrs. Ortiz and against the Hernandez estate.
6/12/00 Guaranty files a notice of its appeal of the $500,000 judgment against the Hernandez estate. One month later, Guaranty withdraws this appeal.
6/1/01 The Court of Appeals affirms the trial court's judgment in the declaratory judgment action. Following this decision, Guaranty pays into court its policy limit of $25,000.
7/17/01 Guaranty is served with a garnishment in the Ortiz wrongful death action.
8/22/01 Guaranty removes the garnishment to federal court. The federal district court later remands the case to state court. Guaranty fails to file an answer to the garnishment.
8/5/02 The district court holds a 4-day trial on the garnishment. Before trial, Guaranty moves in limine to exclude evidence of events after 8/11/97 (the date it sent its rescission letter to Simental). The district court overrules the motion. On the second day of trial, Guaranty files an untimely answer to the garnishment without seeking leave of court to do so. Attorney Edward Boyle testifies that the settlement was reasonable and based on commonly accepted methods of evaluating claims.
5/20/03 The court announces its decision in the garnishment action. The court finds that (1) Guaranty's denial of coverage was in bad faith; (2) its failure to settle was negligent and in bad faith; (3) the Ortiz/Biscanin settlement was reasonable and free of collusion; (4) the settlement and resulting judgment were caused by the acts of Guaranty; and (5) Guaranty's acts of bad faith occurred before 8/11/97. The court specifically finds that Guaranty did not file an answer to the garnishment, as required by K.S.A. 60-718. However, in view of the other findings and conclusions, the court determines that it need not rule further on Guaranty's failure to file a timely answer, and does not premise its rulings on Guaranty's apparent default. The court enters judgment against Guaranty on the garnishment for $475,000. Thereafter Guaranty moves for a new trial.
7/11/03 Guaranty's motion for a new trial is overruled. The court finds that since Guaranty failed to pay without just cause or excuse, it is liable for fees of $158,333.33 to be split between Biscanin's and Ortiz' lawyers. This appeal follows.
Form of Guaranty's Appellate Brief
Both Ortiz and Biscanin argue that Guaranty's statement of facts set forth in its appellate brief should be stricken for failure to comply with Supreme Court Rule 6.02 (2003 Kan. Ct. R. Annot. 35). In view of this court's October 4, 2004, ruling on Guaranty's Motion to Determine Sufficiency of Compliance with Rule 6.02 Prior to Oral Arguments, this issue is moot. We note, however, that pursuant to Rule 6.02(d) we consider those purported facts not keyed to the record to be unsupported by the record on appeal.
Guaranty's Default in the Garnishment
Ortiz claims that this court need not review the trial court's ruling on negligence and bad faith since Guaranty did not timely file a verified answer and, therefore, was in default and waived its defenses. This ignores the district court's ruling that its determination of negligence and bad faith was independent of Guaranty's failure to file a timely answer. We will, therefore, consider the district court's rulings on the issue.
Relevant Time Period for Considering the Issue of Negligence and Bad Faith
Guaranty claims that the district court improperly considered evidence regarding Guaranty's negligence and bad faith that occurred after it filed the declaratory judgment action. The admission of evidence lies within the sound discretion of the trial court. Wendt v. University of Kansas Med. Center, 274 Kan. 966, 975, 59 P.3d 325 (2002). Guaranty must establish an abuse of discretion regarding the evidentiary rulings it criticizes. To prevail on these matters, it must establish that no reasonable person would take the view adopted by the district court. Jenkins v. T.S.I. Holdings, Inc., 268 Kan. 623, 633-34, 1 P.3d 891 (2000); see First Savings Bank, F.S.B. v. Frey, 29 Kan. App. 2d 436, 440, 27 P.3d 934 (2001).
Ortiz and Biscanin argue that Guaranty's criticism is disingenuous, since Guaranty introduced into evidence its entire claim file containing many documents that post-dated the filing of the declaratory judgment case. Nevertheless, in its findings of fact and conclusions of law, the district court stated:
"Ultimately, determination of the relevant date is not necessary because it will not change the outcome of this case. For the reasons set forth below, the Court finds [Guaranty]'s acts and conduct on and before August 6, 1997, support the finding of negligence and bad faith. Moreover, the actions of [Guaranty] after the filing of the declaratory judgment action also demonstrate continuing negligence and bad faith."
Since the district court predicated its finding of negligence and bad faith on actions and events on and before August 6, 1997, we look to those actions and events to determine the soundness of the district court's judgment. In doing so, we are mindful that some actions and events after August 6, 1997, bear on the issue of Guaranty's claimed pre-August 6, 1997, negligence or bad faith. We consider those actions and events to the extent that they demonstrate Guaranty's negligence or its good faith or lack thereof before it filed its declaratory judgment action.
Standard of Review
Our task is to examine the record to determine whether substantial evidence supports the trial court's findings and conclusions. Substantial evidence is such legal and relevant evidence as a reasonable person might accept as sufficient to support a conclusion. U.S.D. No. 233 v. Kansas Ass'n of American Educators, 275 Kan. 313, 318, 64 P.3d 372 (2003). "'The court does not weigh conflicting evidence, pass on credibility of witnesses, or redetermine questions of fact.' [Citation omitted.]" State ex rel. Morrison v. Oshman Sporting Goods Co. Kansas, 275 Kan. 763, 775, 69 P.3d 1087 (2003). We accept as true all evidence and inferences supporting the district court's findings and disregard any contrary evidence or inferences. Garvey Elevators, Inc. v. Kansas Human Rights Comm'n, 265 Kan. 484, 497, 961 P.2d 696 (1998). We will not set aside findings of fact unless they are clearly erroneous. K.S.A. 2003 Supp. 60-252(a). On the other hand, our review of conclusions of law is unlimited. Nicholas v. Nicholas, 277 Kan. 171, 177, 83 P.3d 214 (2004).
Guaranty requests we ignore these well-established principles and review the record de novo. Guaranty first argues for application of the de novo review standard based upon its contention that the trial court violated the spirit and intent of K.S.A. 2003 Supp. 60-252 when it adopted in toto the suggested findings of fact and conclusions of law submitted by Biscanin and failed to make its own independent findings and conclusions. We fail to see how such conduct, if improper, leads to the conclusion that this court must, therefore, review the record de novo. Nevertheless, we will examine Guaranty's argument.
K.S.A. 2003 Supp. 60-252 states, in relevant part, that in all actions tried upon facts without a jury, "the judge shall find, and either orally or in writing state, the controlling facts." Additionally Supreme Court Rule 165 (2003 Kan. Ct. R. Annot. 202) states that when matters are submitted to a judge without a jury, "the judge shall state the controlling facts required by K.S.A. 60-252, and the legal principles controlling the decision."
Guaranty cites Roberts v. Ross, 344 F.2d 747, 751-52 (3d Cir. 1965), in which the court announced its disapproval of the trial court adopting the findings proposed by a party. Roberts is no longer good law. In Lansford-Coaldale Joint Water Authority v. Tonolli Corp., 4 F.3d 1209, 1215 n.5 (3d Cir. 1993), the court stated that Roberts had been superseded by Anderson v. Bessemer City, N.C., 470 U.S. 564, 84 L. Ed. 2d 518, 105 S. Ct. 1504 (1985), and its decision in Hayes v. Community General Osteopathic Hosp., 940 F.2d 54, 57 (3d Cir. 1991). In Hayes, the court explained the Anderson decision when it stated:
"Anderson held that 'even when the trial judge adopts proposed findings verbatim, the findings are those of the court and may be reversed only if clearly erroneous.' 470 U.S. at 572, 105 S. Ct. at 1511 (emphasis added). 'A district court's verbatim adoption of findings proposed by one party is not, of itself, error . . . [O]ur review is only to determine whether the findings are supported by the evidence of record. If they are, then their source of origin is of no moment to the resolution of this appeal.' [Citation omitted.]" 940 F.2d at 57.
Our Supreme Court addressed the issue in Stone v. City of Kiowa, 263 Kan. 502, 506, 950 P.2d 1305 (1997), when it stated:
"There is nothing inherently wrong with a trial court's adopting a party's findings and conclusions in their entirety as long as they had been individually considered, but it is the sort of shorthand that would be susceptible to abuse. Thus, although not a practice to be encouraged, it is not, standing alone, a violation of Supreme Court Rule 165 or K.S.A. 60-252."
The district court's action of adopting Biscanin's findings of fact and conclusions of law in toto did not violate K.S.A. 2003 Supp. 60-252 and does not warrant our applying a de novo standard of review.
Guaranty next claims that de novo review is appropriate because there were no witness credibility issues before the trial court. Guaranty relies on Bell v. Tilton, 234 Kan. 461, 467-68, 674 P.2d 468 (1983), in which the court quoted Stith v. Williams, 227 Kan. 32, Syl. ¶ 2, 605 P.2d 86 (1980), and stated:
"'Where the controlling facts are based upon written or documentary evidence by way of pleadings, admissions, depositions and stipulations, the trial court has no peculiar opportunity to evaluate the credibility of witnesses. In such situation, this court on appellate review has as good an opportunity to examine and consider the evidence as did the court below, and to determine de novo what the facts establish.' [Citation omitted.]"
Guaranty fails to note that a number of witnesses testified in person during the 4 days of trial on the garnishment. This argument pressed by Guaranty fails. Our task does not include second-guessing the trial judge on the credibility of witnesses who testified before him during those 4 days.
Guaranty next argues for de novo review because the district court was so arbitrary and capricious in all of its rulings that Guaranty was denied substantial justice. This rather confusing notion would have us review claimed arbitrary and capricious conduct by one standard of review, and when Guaranty prevails on those issues, begin the review process all over again using another review standard. We shudder at the prospect. Guaranty provides no legal authority for the proposition that arbitrary and capricious actions by the district court change the standard of review. We do not address an issue presented for which no supporting legal authority has been provided. McCain Foods USA, Inc. v. Central Processors, Inc., 275 Kan. 1, 15, 61 P.3d 68 (2002); Enlow v. Sears, Roebuck & Co., 249 Kan. 732, 744, 822 P.2d 617 (1991).
We decline the suggestion of a de novo review of the record.
The Trial Court's Findings of Negligence and Bad Faith
The parties and the district court agreed that Associated Wholesale Grocers, Inc. v. Americold Corp., 261 Kan. 806, 934 P.2d 65 (1997), establishes the controlling factors for determining whether an insurer acted in bad faith or negligently in denying coverage. In Americold, the court stated:
"We approve the Robinson v. State Farm Fire & Cas. Co., 583 So. 2d 1063, 1068 (Fla. Dist. App. 1991), factors suggested for evaluating the circumstances surrounding an insurer's coverage denial, including: (1) whether the insured was able to obtain a reservation of rights; (2) efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way to limit any potential prejudice to the insured; (3) the substance of the coverage dispute or the weight of legal authority on the coverage issue; (4) the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage; and (5) efforts made by the insurer to settle the liability claim in the face of the coverage dispute." 261 Kan. at 846.
Accordingly, we examine the record to determine if substantial evidence supports the district court's findings with respect to the Americold factors.
Factor No. 1: Reservation of Rights
Guaranty concedes that it did not send a reservation of rights letter to Simental or to the Hernandez estate. Biscanin suggests that this court should adopt the reasoning in Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163 (1982), on this issue. In Griggs, the court stated:
"[O]nce an insurer has had a reasonable opportunity to investigate, or has learned of grounds for questioning coverage, it then is under a duty promptly to inform its insured of its intention to disclaim coverage or of the possibility that coverage will be denied or questioned. [Citations omitted.]
"Unreasonable delay in disclaiming coverage, or in giving notice of the possibility of such a disclaimer, even before assuming actual control of a case or a defense of an action, can estop an insurer from later repudiating responsibility under the insurance policy [Citation omitted.]
. . . .
". . . The insurer's obligation to deal in good faith also includes a 'duty of fair and full disclosure between the insured and his insurer.' [Citations omitted.] This duty necessarily requires that an insurer communicate to the insured in a timely fashion the results of any investigation. Cf. Bollinger v. Nuss, 449 P.2d 502, 512 (Kan. 1969) (a duty is imposed on the carrier to communicate to the insured the results of any investigation indicating liability in excess of policy limits so that he may take proper steps to protect his own interests). Such disclosure is especially important where the results of an investigation reveal a conflict between the interests of the insured and its insurer. [Citation omitted.] Failure to give prompt notice of such a conflict, or potential conflict, is inconsistent with the overriding fiduciary duty of an insurer to deal with an insured fairly and candidly so that the insured can, if necessary, protect itself. [Citations omitted.]" 88 N.J. at 357-61.
The Griggs court concluded:
"We therefore conclude that where, after timely notice, adequate opportunity to investigate a claim, and the knowledge of a basis for denying or questioning insurance coverage, the insurance carrier fails for an unreasonable time to inform the insured of a potential disclaimer, it is estopped from later denying coverage under the insurance policy in the event a legal action is subsequently brought against its insured." 88 N.J. at 363-64.
If the standard cited in Griggs applies, there certainly was evidence to support Biscanin's argument. The district court found that Guaranty was not always honest and candid with Simental. The court noted that Guaranty's adjuster sent Simental a letter stating that he needed to talk to her about the accident when he really wanted to talk to her about the issue of coverage and, more particularly, whether she answered the five policy application questions in dispute. The adjuster testified that he was hired to investigate whether misrepresentations had been made and not to investigate the accident.
The district court also noted that the adjuster sent a letter to Simental in which he stated:
"We must inform you that you are required by your policy to cooperate with us in regard to the investigation of claims. Failure to cooperate could jeopardize coverage under your policy.
"If you fail to contact us within two weeks of the date of this letter, a thorough review will be made of your policy and your coverage could be jeopardized."
The district court found that at the time the letter was sent a thorough review of Simental's policy had already been made and her policy was already in jeopardy. The district court found that this failure to disclose to Simental that her policy was already in jeopardy displayed a lack of candor when dealing with its policyholder while investigating the coverage issue.
Further, the adjuster told both Hernandez and Simental before their recorded statements that he was there to talk to them about the accident on May 24, 1997. However, he admitted at trial that these were untrue statements.
The district court also found that Guaranty was less than candid with policyholder Simental when she was not told that the purpose of her sworn statement was to ask her questions about the insurance application that relate to the coverage issue.
While substantial evidence supports the district court's finding on this first factor, the real question is whether this factor applies at all under the facts of the case. In