# Petition for Writ of Certiorari — Aetna Life Insurance v. Ace > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_1386%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1998 - **Citation:** 525 U.S. 930 ## Text ‘ Surens Court, 0.8. ’ PILED ~ BB 2Soavea 1998 No. 97- Be eae In the Supreme Court of the Anited States OCTOBER TERM, 1997 AETNA LIFE INSURANCE COMPANY, Petitioner, v. SHERRIE ACE, Respondent. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit PETITION FOR A WRIT OF CERTIORARI PHILIP ALLEN LACOVARA ANTHONY M. SHOLTY Counsel of Record BETHANN B. CHAPMAN ANDREW L. FREY Faulkner Banfield JOHN J. SULLIVAN 302 Gold Street Mayer, Brown & Platt Juneau, AK 99801 2000 Pennsylvania Ave., N. W. (907) 586-2210 Washington, DC 20006 (202) 463-2000 Counsel for Petitioner Stall atest sto ah chee aaa Neve Pletcas g SrNS ell QUESTIONS PRESENTED In reviewing a district court’s decision to grant a new trial, the Ninth Circuit applies a “stringent standard” — which the Seventh Circuit has expressly rejected — under which it will not permit the trial court to exercise its discretion to grant a new trial based on the weakness of the evidence, unless the verdict is against the “great weight” of the evidence or is “seriously erroneous,” and the Ninth Circuit accords minimal deference to that determination. In this case, which involves a $16.5 million punitive damage verdict based on the alleged “bad faith” denial of insurance benefits worth $27,000, the trial court granted a new trial on punitive damages, but the Ninth Circuit, applying its “stringent standard,” reversed. 1. Does the Ninth Circuit’s “stringent” rule for new trial orders based on evidentiary weakness — which (a) prohibits trial judges from awarding new trials unless the verdict is against the “great” weight of the evidence, (b) subjects such orders to a standard of review more “stringent” than “abuse of discretion,” and (c) squarely conflicts with the broader discretion allowed in other circuits — create an unauthorized barrier to relief from problematic verdicts and excessively intrude on trial judges’ discretion to grant new trials? 2. Because this Court has held that the Due Process Clause requires searching post-verdict judicial review of punitive damage verdicts, should the Court also require appellate courts to extend the maximum deference possible under the “abuse-of-discretion” standard, when the trial judge concludes that a punitive award is unwarranted, dubious, or excessive, and orders a new trial? 3. When a court of appeals concludes that a trial judge did not make sufficiently specific findings under Fed. R. Civ. P. 50(c)(1) explaining the grant of a “conditional” new trial, should the proper practice be for the appellate court to remand for more detailed findings rather that to reverse the new trial decision outright and reinstate the original verdict? (I) RULE 29.6 STATEMENT Petitioner Aetna Life Insurance Company states that its parent companies and non-wholly owned subsidiaries consist of: Aetna Inc. (parent) Aetna U.S. Healthcare, Inc. (parent) Aetna Chile Seguros Generales S.A. (a Chilean corporation) Administradora de Fondos de Pensiones Santa Maria, S.A. (a Chilean corporation) Aetna Capital L.L.C. Amerin Corporation Fianzas Monterrey, S.A. (a Mexican corporation) TABLE OF CONTENTS Page tos ge oo By so sy 1 2 RRR er me I AP ATR POIOEER 8 ka a we CERN RUNS Oe ii RAE PE PAU RUREEID ie wie ee tee eee iv NS oe ky aw a o's Wb As bee wk as 2 SER a Rag I Sa a Ea ae Repeat 2 FPEUERAL RULES INVOLVED ..... 0. cc ccccsees 3 RAAT he Wh 8 3G Ch OWS ORR. c s BEES Cs 4 A. Aetna’s Evaluation of Ace’s Claim For Benefits .. 4 B. The Trial, Verdict, And Post-Verdict Motions ... 6 C. Te Neen Croun 8 Decision... ww tt 9 I. THE NINTH CIRCUIT’S ERRONEOUS STAN- DARDS FOR GRANTING AND REVIEWING NEW TRIAL ORDERS BASED ON THE SUFFICIENCY OF THE EVIDENCE CONFLICTS WITH DECI- SIONS OF THIS COURT AND OTHER CIRCUIT St RE RS SD ee ee ea Grane 14 II. DUE PROCESS REQUIRES SPECIAL DEFERENCE ON APPEAL TO ORDERS GRANTING NEW TRI- ALS ON PUNITIVE DAMAGE VERDICTS ..... 24 Ill. IF FINDINGS ARE INSUFFICIENT UNDER RULE 50(c)1) TO EXPLAIN THE GRANT OF A NEW TRIAL, THE PROPER PROCEDURE IS TO RE- MAND FOR ADDITIONAL FINDINGS, NOT TO SRE RURMRIEES: 36.45 Bin 8 0 Fo wien eee 27 SE 6 cGN0 Fw BOR bw 08 4.8 98 6 ee ae ak 30 iv TABLE OF AUTHORITIES Page(s) Cases: Allied Chemical Corp. v. Daiflon, Inc., ee a No ck ap ew po 9 ce 14 Binder v. Long Island Lighting Co., 57 F.3d 193 PRN MEE Oe oe yk we 5 15 Books v. Chater, 91 F.3d 972 (7th Cir. 1996) ....... 28 Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257 (1989) . . . 14, 25-26 Byrd v. Blue Ridge Rural Electric Cooperative, Pe See ME EE Se ky wack ais t Aw ce ks 14, 17 Calderon v. Thompson, US. . RAED. Ae, MOE ks oe ek ca 20 Carter vy. DecisionOne Corp., 122 F.3d 997 Seen REE oo ns AS Oh ov owe ee ee 16 Carter v. Fenner, 136 F.3d 1000 (Sth Cir. 1998) ...... 16 Chizmar v. Mackie, 896 P.2d 196 (Alaska 1995) ...... 12 Collazo-Santiago v. Toyota Motor Corp., No. 97-1365, 1998 U.S. App. LEXIS Se Cae ee, SOY TE i i ee eee 19 Cooter & Gell v. Hartmax Corp., 496 U.S. 384 (RUPUE: ok a Nee Wie ke EK Pilea At trial, Dr. McEvoy stated that he referred to the release as “trial” because “[i]t alerts the insurer and the employer and the patient . . . that [returning to work} may not work.” 4a | B. Ace’s Application for Long-Term Disability Benefits | Ace contacted Aetna and requested a long-term disability | benefits application because her short-term disability benefits had expired early in September 1992. Aetna representatives advised her that although her policy required her to be “under the care of a physician,” the physician need not be a specialist. Accordingly, Ace had Dr. Kiessling, her long-time family physician, complete Aetna’s Attending Physician’s Statement (“Statement”). On the form, he diagnosed Ace as suffering from “severe degenerative joint disease,” stated that her condition had retrogressed, noted that she experienced “frequent swelling” and “constant pain,” and rated her to be between 30-50% and 50-70% physically disabled.* Aetna received Ace’s application, along with the Statement and Dr. McEvoy’s July work release, on October 12, 1992. On October 20, Aetna returned the Statement to Ace for signature by the physician and asked her to submit a physical capacities evaluation form, which had been prepared by a physical therapist in July. Ace submitted these forms and queried Aetna several times about the status of her claim, indicating her urgent need. C. Aetna’s First Denial On November 17, Aetna denied Ace’s claim. In the denial letter, Stephen Elliott (“Elliott”), Aetna’s account specialist, informed Ace that [iJn order to be eligible for Long-term Disability Benefits, you must be totally disabled to the extent that you are unable to work at any gainful * Aetna’s form characterized 30-50% disabled as “Class III . . . capable of light work,” and 50-70% disabled as “Class IV . . . capable of . . . sedentary activity.” * The form indicated that Ace could not work an eight-hour day but predicted that her condition would improve in four to six weeks. ; | ee mn ERT Ne Re ea NEE Sa occupation due to bodily injury or illness. He noted that according to the Statement — the most current medical evidence on file — Ace was capable of continuing her employment as a loan examiner because she could perform clerical, sedentary work. Therefore, he wrote, “we cannot consider you as being totally disabled from performing the duties of any gainful occupation as required by the policy,” and denied her request for benefits. Neither Elliott nor any other Aetna employee investigated Ace’s claim other than to review the material sent by Ace. Elliott did have the material reviewed by Dr. John Galvin, an Aetna medical consultant, who reported that Ace had not established that she had a long-term disability. But Elliott did not contact Ace’s medical care providers or obtain additional medical records, though Ace had signed a release. In determining the physical nature of Ace’s occupation, Elliott relied entirely on Aetna’s Physical Demands Analysis worksheet, ignored the more complete description that was attached,® and did not contact Ace or her supervisor to discuss her job’s physical requirements. The “unable to work at any gainful employment” phrase in Elliott’s letter is drawn from Aetna’s policy. In his deposition, Elliott testified he understood Aetna’s policy to require Ace to be “totally disabled from any gainful employment” and “unable to do . . . any work,” though he added that he would have denied her application even if he believed that Ace could only have worked half-time. Elliott’s supervisor, Bryan Southall (“Southall”), testified, however, that he knew Aetna could not apply the “unable to work at any gainful employment” language literally, and that Aetna ® Aetna’s physical demands analysis work sheet described her position as 100% office-based. Ace’s supervisor ‘iad attached a more complete description, explaining that Ace’s position required her to engage in rigorous travel to remote communities. 6a did not apply it literally in Ace’s case.’ Both he and Elliott testified Aetna applied a “reasonableness” test in evaluating | disability.* Aetna conceded at trial, however, that no one from Aetna ever told Ace that the policy was not being interpreted and applied literally.” Ace testified she had called Aetna several times, but no one would clarify the term “disabled” or suggest specific documents she should send. Based on what she had been told in the letter, she would have to be totally disabled to be eligible for benefits; she knew that her condition was not that bad but also that it did not permit her to perform her job. D. Ace’s Request for Reconsideration Ace responded to Aetna’s denial by writing a short letter requesting reconsideration."° She enclosed a longer letter | from Dr. Kiessling, dated November 30, explaining why Ace | should be considered totally disabled. Dr. Kiessling’s letter ? Both parties agree that insurers cannot lawfully apply this standard literally. See Aetna Life Ins. Co. v. Orr, 205 Ark. 566, 169 S.W.2d 651, 654 (1943); Erreca v. Western States Life Ins. Co., 19 Cal.2d 388, 121 P.2d 689 (1942). ® Both Elliott and Southall testified they determined disability based on whether an applicant was capable of earning a monthly amount equal to her disability benefits. Ace’s benefits equaled 70% of her salary; thus, under their reasonableness test, Ace should have received benefits if she was incapable of working at least 70% of the time at her current job. * Aetna’s practice was to quote only the language of the policy and not to inform claimants of the legal requirements governing interpretation of the policy or of informal reasonableness guidelines used in evaluating applications. '© Elliott’s November 17 letter had informed Ace that she could appeal his denial but did not specify particular documents or information to send that would be helpful. ene nE Rn eee neers Ta noted that Ace’s condition had worsened since his earlier Statement, that she now needed “nearly continuous[ ] traction” to obtain any pain relief, that she had received epidural injections for her back pain, that she could not sit for prolonged periods of time, and that she was unable to perform clerical work. He reclassified her as a “Class V disability,” which Aetna’s form describes as “severe functional capacity; incapable of minimal (sedentary) activity.” E. Aetna’s Response to the Request for Reconsideration On December 11, Elliott responded to Ace’s request. His letter stated that the information submitted by Ace had been reviewed oy Aetna’s medical consultant who had advised that “there is no objective medical evidence . . . to support your contention that you are unable to work at any gainful occupation.” It reiterated that to receive benefits “you must be totally disabled . . . from working at any gainful occupation.” The letter advised Ace that for Aetna to review her file, Ace would have to have her physicians “furnish . . . Objective medical evidence to support [her] contention [of total disability].” Aetna’s policy neither contains nor defines the term “objective medical evidence,” and it did not inform Ace what would qualify as objective medical evidence; _ its claim handling guidelines, moreover, instruct analysts to consider subjective complaints of pain even in the absence of objective medical findings." Southall testified that he was uncertain whether Ace’s documents contained objective medical evidence and that he would not be surprised if a claimant did not know whether a '' Aetna’s Proper Claim Handling Guidelines instruct claim analysts to “[cjonsider subjective complaints of the claimant as well as objective evidence” and give as an example “[a] disability claimant [who] genuinely appears to be in pain, although there are no objective medical findings.” 8a physician’s letter constituted objective or subjective evidence. He stated that what he wanted to see was Dr. Kiessling’s chart notes, reports of examinations, and x-rays, but he never asked Ace or Dr. Kiessling to supply these materials. Aetna’s medical consultant, Dr. Galvin, again reviewed Ace’s file and concluded there was no medical evidence to support Dr. Kiessling’s opinion that Ace was in the Class V | disability category. At trial, however, he conceded that Dr. Kiessling’s letter contained objective medical evidence and that he was unable to ascertain from Ace’s file whether she was disabled. | F. Ace’s Response to Aetna’s Second Response Although Aetna’s December 11 letter did not state that the claim had again been denied, it was the functional equivalent of a denial. When Ace received this letter, she had been without income since her short-term disability | benefits expired in September and had begun to sell her | personal property. She consulted a lawyer, Francine Harbour | (“Harbour”), who wrote to Aetna on Ace’s behalf “to facilitate the review process in this matter.” Harbour’s letter stated that Ace believed she already had furnished objective medical evidence but would submit additional information to “clarify any misunderstanding.” To that end she requested that Aetna send to her “the pertinent claim adjustment guidelines that [Aetna] relied on in reaching [the] denial determination” and certain other material. She asked Aetna to provide the documents prior to her sending additional information, so that she could ensure that her submission was complete. | Southall responded to Harbour’s request on January 28, | 1993, stating, “There are no claim adjustment guidelines | which we follow.” During discovery, however, Aetna produced its “Proper Claim Handling Guidelines” contained ill eal 9a in its Methods and Procedures Manual,” and at trial Aetna’s director of disability claims testified that the guidelines are mandatory for its claim analysts to follow. G. Ace’s Renewed Request for Reconsideration On February 12, 1993, Harbour submitted an additional packet of materials to Aetna enclosing another Attending Physician Statement prepared by Dr. Kiessling on January 7, 1993, which rated Ace as a Class V disability, a letter by Dr. Kiessling summarizing the objective medical evidence upon which he based his opinion and explaining why Dr. McEvoy’s July release should not carry dispositive weight,’ and a physical capacities evaluation (“PCE”) completed January 28, 1993. The PCE stated that Ace was capable of sitting, standing or walking for less than an hour each during the day. Harbour’s cover letter explained Ace’s fragile physical, emotional and economic position and advised Aetna that unless it accepted Ace’s application by March 1, Ace would file suit. By February 1993, Ace had been forced to sell much of her personal property and her home. She sent her eldest son to live with another family and she lived in her car from late February through early April. H. Aetna’s Response Southall called Harbour on February 24, 1993, and left a phone message the content of which was disputed at trial. It may have confirmed that the denial of the claim stood or it may have been a request for an independent medical ' See note 11, supra. '3 In his letter, Dr. Kiessling stated that, “Dr. McEvoy’s release ignored the slower than anticipated healing and associated pain of the osteotomy procedure . . . as well as the critically complicating feature of her low back pain.” ee 10a examination (“IME”). In any event, after receiving the additiona! materials, Dr. Galvin and Southall had concluded that there was insufficient information to support a finding that Ace was disabled. Dr. Galvin considered Dr. Kiessling’s letter as being of “no value” because of its tone, and asserted that he “{did] not accept Dr. K’s opinion, he is not a specialist and we are not providing a social benefit service.” Southall testified that he discounted Dr. Kiessling’s letter because it was unaccompanied by Dr. Kiessling’s chart notes, examination results or other materials. Neither Southall nor Dr. Galvin contacted Dr. Kiessling to discuss his letter or to ask him to submit materials to support his conclusions. I. Aetna’s Demand for an Independent Medical Examination On March 4 Aetna wrote Ace a letter, directing her to appear before a designated physician for an IME on April 5, 1993. On advice of counsel, Ace refused to appear. On March 15, Aetna wrote to Harbour, reaffirming its decision to deny the claim on the basis of Ace’s failure to produce proof of “[tJotal disability [which] is the inability to work at any gainful occupation due to sickness or injury.” Ace then retained litigation counsel who attempted, unsuccessfully, to reschedule the IME. J. End of Ace’s Disability On April 8, 1993, Ace’s previously-scheduled knee surgery was performed. Dr. Zorn successfully replaced Ace’s knee. Within two months, Ace was walking without crutches and returned to work. Her disability ended June 1, 1993. DISCUSSION 1. Judgment as a Matter of Law—Punitive Damages Judgment as a matter of law is appropriate only when the evidence, “viewed in the light most favorable to the nonmoving party,” could not reasonably support the verdict. lla Amarel v. Connell, 102 F.3d 1494, 1517-18 (9th Cir.1997), (as amended). We review the grant of a motion for judgment as a matter of law de novo. Id. at 1517. To support punitive damages under Alaska law, a plaintiff must prove by clear and convincing evidence that the wrongdoer’s conduct “was outrageous, such as acts done with malice or bad motives or reckless indifference to the interests of another person.” Alaska Stat. § 09.17.020;'* State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1158 (Alaska 1989) (quoting Sturm, Ruger & Co. v. Day, 594 P.2d 38, 46 (Alaska 1979), modified on reh’g, 615 P.2d 621 (Alaska 1980), overruled on other grounds by Dura Corp. v. Harned, 703 P.2d 396 (Alaska 1985)). Alaska courts will overturn a punitive damage award only if consideration of the record as a whole leaves them with a firm conviction of error and the need to intervene to prevent a miscarriage of justice. Alaskan Village, Inc. v. Smalley, 720 P.2d 945, 948 (Alaska 1986). The district court concluded that no reasonable jury could find by clear and convincing evidence that Aetna acted with malice, bad motives or reckless indifference. After determining that the evidence did not support a finding of malice or bad motive, the court held that the evidence did not clearly and convincingly support a finding of reckless disregard, stating: A jury could find that by requiring the insured to marshall [sic] all the information, especially after Dr. Kiessling’s second opinion was communicated, it is more likely than not that Aetna acted with enough disregard for Ace’s interest to represent bad faith sufficient to breach the contract . . . but the evidence cannot support a finding that Aetna’s disregard for Ace’s interest was clearly and convincingly reckless to the point that Aetna should be punished. Plainly put, there is nothing outrageous about '* The statute was amended in August 1997 to make minor textual changes not significant to the decision of this case. a — = — ee SS eee Ce eS ee ee ie eee eee ee Se ee ee oe een ee a AS aig ta 12a relying on the opinion of the most knowledgeable physician, Dr. McEvoy, to the exclusion of what little contrary indication of Ace’s condition had emerged prior to asking for an IME, the one procedure that could be expected to clear up any uncertainty. In ruling that while Aetna acted “with enough disregard for Ace’s interest to represent bad faith” but not “clearly and convincingly reckless[ly],” the district court ignored significant and undisputed evidence. Focusing only on Aetna’s “requiring the insured to marshall all the information” and “relying on the opinion of the most knowledgeable physician,” the court failed to take into account substantial evidence’ from which a jury could reasonably have found, clearly and convincingly, that Aetna acted with reckless indifference to Ace’s interests."° That evidence, which is summarized in the preceding part of this opinion and is undisputed, includes the following conduct by Aetna: (1) basing denial of the claim on an illegal standard for benefit eligibility;'” (2) failing to inform the claimant of the standard actually used by Aetna in evaluating disability claims;'* (3) 'S The court also failed to take into account that Aetna had effectively twice denied the application before it asked for the IME; had it wished to “clear up any uncertainty,” it would presumably have asked for the examination before it decided whether to grant or deny the application. ‘© Because under Alaska law, the jury could award punitive damages on evidence that Aetna acted with reckless indifference to Ace’s interests, it is not necessary to address the court’s findings with respect to malice and bad motives. '7 See note 7, supra. ‘8 Alaska law requires the insurance company to provide a reasonable explanation of the basis in the policy for denial of a claim. Alaska Stat. §§ 21.36.125(1) and (14). 13a fe‘ling to investigate the claim and to seek or request the supporting information alleged to be missing; (4) failing to assist the claimant in presenting her disability claim;'? (5) relying on outdated prognoses of the claimant’s expected recovery and disregarding recent reports of her actual condition; (6) denying her claim based on an undefined “requirement” not a term of her policy and contrary to Aetna’s internal claim adjustment guidelines; (7) falsely advising the claimant that Aetna had no claim adjustment guidelines; and (8) making a last-minute demand for an IME after having denied the claim. In evaluating the sufficiency of the evidence, the district court failed to consider it as a whole and to resolve all inferences in favor of the jury’s verdict. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699, 82 S. Ct. 1404, 1410, 8 L.Ed.2d 777 (1962) (“In cases such as this, plaintiffs should be given the full benefit of their proof without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each.”). Viewing the evidence in the light most favorable to the nonmoving party, we cannot say the evidence does not reasonably support an award of punitive damages.” '9 Alaska law requires n insurer upon receipt of notice of a claim, promptly to provide t .c necessary claim forms, instructions and assistance so that the .laimant is able to comply with all reasonable requirements. Alaska Admin. Code tit. 3, § 26.040(a)(3) (1997). 20 The two cases on which the district court relied, State Farm Mut. Auto. Ins. Co. v. Weiford, 831 P.2d 1264 (Alaska 1992), and Nicholson, 777 P.2d 1152, are inapposite. Both involved negotiations leading to disputes between the insured and the carrier over the amount to be paid on the insured’s damage claim, the court holding that the evidence did not support a finding of “outrageous” conduct. Neither involved denial of coverage or benefits or other misconduct by the carrier. l4a 2. Conditional Grant of New Trial — Punitive Damages We have jurisdiction to review the conditional grant of a new trial order under Fed.R.Civ.P. 50(c)(1). Air-Sea Forwarders, Inc. v. Air Asia Co., 880 F.2d 176, 190 n. 15 (9th Cir.1989). The district court’s order stated in relevant part: In general the court agrees with the arguments advanced by defendant and therefore grants the motion for a new trial as to the claim for punitive damages such that if the court of appeals should reverse this court’s decision on the punitive damages claim there will be a new trial on that claim. Rule 50(c)(1) states that the court “shall specify the grounds for granting the motion for the new trial.” The court failed to do so here, at least explicitly, but it is a fair inference that it granted a new trial for the same reasons for which it granted judgment as a matter of law. The court’s failure to rule on Aetna’s request for a remittitur or to base its new trial order specifically on the magnitude of the punitive damage award, as opposed to the fact of the award, leads us to the conclusion that the new trial was granted on the erroneous ground that the evidence was insufficient as a matter of law. While our review of an order granting a new trial is for abuse of discretion, “a stringent standard applies when the motion is based on insufficiency of the evidence.” EEOC v. Pape Lift, Inc., 115 F.3d 676, 680 (9th Cir. 1997) (internal quotations omitted) (quoting Venegas v. Wagner, 831 F.2d 1514, 1519 (9th Cir.1987)). A district court may order a new trial based on insufficient evidence only if it finds that the jury’s verdict “is against the great weight of the evidence, or it is quite At trial, Dr. McEvoy stated that he referred to the release as “trial” because “[iJt alerts the insurer and the employer and the patient . . . that [returning to work] may not work.” 28a B. Ace’s Application for Long-Term Disability Benefits Ace contacted Aetna and requested a long-term disability benefits application because her short-term disability benefits had expired early in September 1992. Aetna representatives advised her that although her policy required her to be “under the care of a physician,” the physician need not be a special- ist. Accordingly, Ace had Dr. Kiessling, her long-time family physician, complete Aetna’s Attending Physician’s Statement (“Statement”). On the form, he diagnosed Ace as suffering from “severe degenerative joint disease,” stated that her condition had retrogressed, noted that she experienced “frequent swelling” and “constant pain,” and rated her to be between 30-50% and 50-70% physically disabled.* Aetna received Ace’s application, along with the Statement and Dr. McEvoy’s July work release, on October 12, 1992. On October 20, Aetna returned the Statement to Ace for signature by the physician and asked her to submit a physical Capacities evaluation form, which had been prepared by a physical therapist in July. Ace submitted these forms and queried Aetna several times about the status of her claim, indicating her urgent need. C. Aetna’s First Denial On November 17, Aetna denied Ace’s claim. In the denial letter, Stephen Elliott (“Elliott”), Aetna’s account specialist, informed Ace that * Aetna’s form characterized 30-50% disabied as “Class III . . . capable of light work,” and 50-70% disabled as “Class IV .. . capable of . . . sedentary activity.” * The form indicated that Ace could not work an eight-hour day but predicted that her condition would improve in four to six weeks. 29a {ijn order to be eligible for Long-term Disability Benefits, you must be totally disabled to the extent that you are unable to work at any gainful occupation due to bodily injury or illness. He noted that according to the Statement — the most current medical evidence on file — Ace was capable of continuing her employment as a loan examiner because she could perform clerical, sedentary work. Therefore, he wrote, “we cannot consider you as being totally disabled from performing the duties of any gainful occupation as required by the policy,” and denied her request for benefits. Neither Elliott nor any other Aetna employee investigated Ace’s claim other than to review the material sent by Ace. Elliott did have the material reviewed by Dr. John Galvin, an Aetna medical consultant, who reported that Ace had not established that she had a long-term disability. But Elliott did not contact Ace’s medical care providers or obtain additional medical records, though Ace had signed a release. In deter- mining the physical nature of Ace’s occupation, Elliott relied entirely on Aetna’s Physical Demands Analysis worksheet, ignored the more complete description that was attached,° and did not contact Ace or her supervisor to discuss her job’s physical requirements. The “unable to work at any gainful employment” phrase in Elliott’s letter is drawn from Aetna’s policy. In his deposition, Elliott testified he understood Aetna’s policy to require Ace to be “totally disabled from any gainful employment” and “unable to do . . . any work,” though he added that he would have denied her application even if he believed that Ace could only have worked half-time. Elliott’s ® Aetna’s physical demands analysis work sheet described her position as 100% office-based. Ace’s supervisor had atiached a more complete description, explaining that Ace’s position required her to engage in rigorous travel to remote communities. 30a ’ supervisor, Bryan Southall (“Southall”), testified, however, that he knew Aetna could not apply the “unable to work at | any gainful employment” language literally, and that Aetna | did not apply it literally in Ace’s case.’ Both he and Elliott testified Aetna applied a “reasonableness” test in evaluating disability.* Aetna conceded at trial, however, that no one from Aetna ever told Ace that the policy was not being interpreted and applied literally.” Ace testified she had called Aetna several times, but no one would clarify the term “disabled” or suggest specific documents she should send. Based on what she had been told in the letter, she would have to be totally disabled to be eligible for benefits; she knew that her condition was not that bad but also that it did not permit her to perform her job. D. Ace’s Request for Reconsideration Ace responded to Aetna’s denial by writing a short letter requesting reconsideration."® She enclosed a longer letter 7 Both parties agree that insurers cannot lawfully apply this standard literally. See Aetna Life Ins. Co. v. Orr, 169 S.W.2d 651, 654 (Ark. 1943); Erreca v. Western States Life Ins. Co., 121 P.2d 689 (Cal. 1942). 8 Both Elliott and Southall testified they determined disability based on whether an applicant was capable of earning a monthly amount equal to her disability benefits. Ace’s benefits equaled 70% of her salary; thus, under their reasonableness test, Ace should have received benefits if she was incapable of working at least 70% of the time at her current job. * Aetna’s practice was to quote only the language of the policy and not to inform claimants of the legal requirements governing interpretation of the policy or of informal reasonableness guidelines used in evaluating applications. © Efliott’s November 17 letter had informed Ace that she could appeal his denial but, did not specify particular documents or Bi asc a erent i a NR au ala oa ere Sec eas eae 3la from Dr. Kiessling, dated November 30, explaining why Ace should be considered totally disabled. Dr. Kiessling’s letter noted that Ace’s condition had worsened since his earlier Statement, that she now needed “nearly continuous[ ] traction” to obtain any pain relief, that she had received epidural injections for her back pain, that she could not sit for prolonged periods of time, and that she was unable to perform clerical work. He reclassified her as a “Class V disability,” which Aetna’s form describes as “severe functional capacity; incapable of minimal (sedentary) activity.” E. Aetna’s Response to the Request for Reconsideration On December 11, Elliott responded to Ace’s request. His letter stated that the information submitted by Ace had been reviewed by Aetna’s medical consultant who had advised that “there is no objective medical evidence . . . to support your contention that you are unable to work at any gainful occupation.” It reiterated that to receive benefits “you must be totally disabled . . . from working at any gainful occupation.” The letter advised Ace that for Aetna to review her file, Ace would have to have her physicians “furnish . . . Objective medical evidence to support [her] contention [of total disability}.” Aetna’s policy neither contains nor defines the term “objective medical evidence,” and it did not inform Ace what would qualify as objective medical evidence; its claim handling guidelines, moreover, instruct analysts to consider subjective complaints of pain even in the absence of objective medical findings." information to send that would be helpful. '' Aetna’s Proper Claim Handling Guidelines instruct claim analysts to “[cJonsider subjective complaints of the claimant as well as objective evidence” and give as an example “[a] disability claimant [who] genuinely appears to be in pain, although there are no objective medical findings.” 32a Southall testified that he was uncertain whether Ace’s ) documents contained objective medical evidence and that he | would not be surprised if a claimant did not know whether a physician’s letter constituted objective or subjective evidence. He stated that what he wanted to see was Dr. Kiessling’s 4 chart notes, reports of examinations, and x-rays, but he never | asked Ace or Dr. Kiessling to supply these materials. Aetna’s medical consultant, Dr. Galvin, again reviewed Ace’s file and concluded there was no medical evidence to | support Dr. Kiessling’s opinion that Ace was in the Class V | disability category. At trial, however, he conceded that Dr. | Kiessling’s letter contained objective medical evidence and that he was unable to ascertain from Ace’s file whether she was disabled. F. Ace’s Response to Aetna’s Second Response Although Aetna’s December 11 letter did not state that the claim had again been denied, it was the functional equivalent of a denial. When Ace received this letter, she had been without income since her short-term disability benefits expired in September and had begun to sell her personal property. She consulted a lawyer, Francine Harbour (“Harbour”), who wrote to Aetna on Ace’s behalf “to facilitate the review process in this matter.” Harbour’s letter stated that Ace believed she already had furnished objective medical evidence but would submit additional information to “clarify any misunderstanding.” To that end she requested that Aetna send to her “the pertinent claim adjustment guidelines that [Aetna] relied on in reaching [the] denial determination” and certain other material. She asked Aetna to provide the documents prior to her sending additional information, so that she could ensure that her submission was complete. Southall responded to Harbour’s request on January 28, 1993, stating, “There are no claim adjustment guidelines which we follow.” During discovery, however, Aetna pro- | ; ; ee 33a duced its “Proper Claim Handling Guidelines” contained in its Methods and Procedures Manual,” and at trial Aetna’s director of disability claims testified that the guidelines are mandatory for its claim analysts to follow. G. Ace’s Renewed Request for Reconsideration On February 12, 1993, Harbour submitted an additional packet of materials to Aetna enclosing another Attending Phy- sician Statement prepared by Dr. Kiessling on January 7, 1993, which rated Ace as a Class V disability, a letter by Dr. Kiessling summarizing the objective medical evidence upon which he based his opinion and explaining why Dr. McEvoy’s July release should not carry dispositive weight,” and a physical capacities evaluation (“PCE”) completed January 28, 1993. The PCE stated that Ace was capable of sitting, standing or walking for less than an hour each during the day. Harbour’s cover letter explained Ace’s fragile physical, emotional and economic position and advised Aetna that unless it accepted Ace’s application by March 1, Ace would file suit. By February 1993, Ace had been forced to sell much of her personal property and her home. She sent her eldest son to live with another family and she lived in her car from late February through early April. H. Aetna’s Response Southall called Harbour on February 24, 1993, and left a phone message the content of which was disputed at trial. It may have confirmed that the denial of the claim stood or it '2 See note 11, supra. '? In his letter, Dr. Kiessling stated that, “Dr. McEvoy’s release ignored the slower than anticipated healing and associated pain of the osteotomy procedure . . . as well as the critically complicating feature of her low back pain.” 34a may have been a request for an independent medical examina- tion (“IME”). In any event, after receiving the additional materials, Dr. Galvin and Southall had concluded that there was insufficient information to support a finding that Ace was | disabled. Dr. Galvin considered Dr. Kiessling’s letter as | being of “no value” because of its tone, and asserted that he | “[did] not accept Dr. K’s opinion, he is not a specialist and a we are not providing a social benefit service.” Southall | testified that he discounted Dr. Kiessling’s letter because it a was unaccompanied by Dr. Kiessling’s chart notes, examination results or other materials. Neither Southall nor Dr. Galvin contacted Dr. Kiessling to discuss his letter or to ask him to submit materials to support his conclusions. | I. Aetna’s Demand for an Independent Medical Examination On March 4 Aetna wrote Ace a letter, directing her to appear before a designated physician for an IME on April 5, 1993. On advice of counsel, Ace refused to appear. On March 15, Aetna wrote to Harbour, reaffirming its decision to deny the claim on the basis of Ace’s failure to produce proof of “[t]otal disability [which] is the inability to work at any gainful occupation due to sickness or injury.” Ace then retained litigation counsel who attempted, unsuccessfully, to reschedule the IME. J. End of Ace’s Disability On April 8, 1993, Ace’s previously-scheduled knee surgery was performed. Dr. Zorn successfully replaced Ace’s knee. Within two months, Ace was walking without crutches and returned to work. Her disability ended June 1, 1993. | DISCUSSION | 1. Judgment as a Matter of Law—Punitive Damages Judgment as a matter of law is appropriate only when the evidence, “viewed in the light most favorable to the nonmov- | 35a ing party,” could not reasonably support the verdict. Amarel v. Connell, 102 F.3d 1494, 1517-18 (9th Cir. 1997), (as amended). We review the grant of a motion for judgment as a matter of law de novo. Id. at 1517. To support punitive damages under Alaska law, a plain- tiff must prove by clear and convincing evidence that the wrongdoer’s conduct “was outrageous, such as acts done with malice or bad motives or reckless indifference to the interests of another person.” Alaska Stat. § 09.17.020;"* State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1158 (Alaska 1989) (quoting Sturm, Ruger & Co. v. Day, 594 P.2d 38, 46 (Alaska 1979), modified on reh’g, 615 P.2d 621 (Alaska 1980), overruled on other grounds by Dura Corp. v. Harned, 703 P.2d 396 (Alaska 1985)). Alaska courts will overturn a punitive damage award only if consideration of the record as a whole leaves them with a firm conviction of error and the need to intervene to prevent a miscarriage of justice. Alaskan Village, Inc. v. Smalley, 720 P.2d 945, 948 (Alaska 1986). The district court concluded that no reasonable jury could find by clear and convincing evidence that Aetna acted with malice, bad motives or reckless indifference. After determining that the evidence did not support a finding of malice or bad motive, the court held that the evidence did not clearly and convincingly support a finding of reckless disregard, stating: A jury could find that by requiring the insured to marshall [sic] all the information, especially after Dr. Kiessling’s second opinion was communicated, it is more likely than not that Aetna acted with enough disregard for Ace’s interest to represent bad faith sufficient to breach the contract . . . but the evidence cannot support a finding that Aetna’s disregard for Ace’s interest was '* The statute was amended in August 1997 to make minor textual changes not significant to the decision of this case. 364 clearly and convincingly reckless to the point that Aetna should be punished. Plainly put, there is nothing outrageous about relying on the opinion of the most knowledgeable physician, Dr. McEvoy, to the exclusion of what little contrary indication of Ace’s condition had emerged prior to asking for an IME, the one procedure | that could be expected to clear up any uncertainty. In ruling that while Aetna acted “with enough disregard for Ace’s interest to represent bad faith” but not “clearly and | convincingly reckless[ly],” the district court ignored signifi- | cant and undisputed evidence. Focusing only on Aetna’s | “requiring the insured to marshall all the information” and “relying on the opinion of the most knowledgeable physician,” the court failed to take into account substantial evidence’ from which a jury could reasonably have found, clearly and convincingly, that Aetna acted with reckless indif- ference to Ace’s interests.'° That evidence, which is summa- rized in the preceding part of this opinion and is undisputed, includes the following conduct by Aetna: (1) basing denial of the claim on an illegal standard for benefit eligibility;'’ (2) failing to inform the claimant of the standard actually used by 'S The court also failed to take into account that Aetna had effectively twice denied the application before it asked for the IME; had it wished to “clear up any uncertainty,” it would presumably have asked for the examination before it decided whether to grant or deny the application. '© Because under Alaska law, the jury could award punitive damages on evidence that Aetna acted with reckless indifference to Ace’s interests, it is not necessary to address the court’s findings with respect to malice and bad motives. '7 See note 7, supra. ee ee ee 37a Aetna in evaluating disability claims;'* (3) failing to investi- gate the claim and to seek or request the supporting informa- tion alleged to be missing; (4) failing to assist the claimant in presenting her disability claim;'® (5) relying on outdated prognoses of the claimant’s expected recovery and disregarding recent reports of her actual condition; (6) denying her «laim based on an undefined “requirement” not a term of her policy and contrary to Aetna’s internal claim adjustment guidelines; (7) falsely advising the claimant that Aetna had no claim adjustment guidelines; and (8) making a last-minute demand for an IME after having denied the claim. In evaluating the sufficiency of the evidence, the district court failed to consider it as a whole and to resolve all inferences in favor of the jury’s verdict. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699 (1962) (“In cases such as this, plaintiffs should be given the full benefit of their proof without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each.”). Viewing the evidence in the light most favorable to the nonmoving party, we cannot say the evidence does not reasonably support an award of punitive damages.” '* Alaska law requires the insurance company to provide a reasonable explanation of the basis in the policy for denial of a claim. Aleska Stat. §§ 21.36.125(1) and (14). '? Alaska law requires an insurer upon receipt of notice of a claim, promptly to provide the necessary claim forms, instructions and assistance so that the claimant is able to comply with all reasonable requirements. Alaska Admin. Code tit. 3, § 26.040(a)(3) (1997). 0 The two cases on which the district court relied, State Farm Mut. Auto. Ins. Co. v. Weiford, 831 P.2d 1264 (Alaska 1992), and Nicholson, 777 P.2d 1152, are inapposite. Both involved negotiations leading to disputes between the insured and the carrier 38a 2. Conditional Grant of New Trial — Punitive Damages We have jurisdiction to review the conditional grant of a new trial order under Fed. R. Civ. P. 50(c)(1). Air-Sea For- warders, Inc. v. Air Asia Co., 880 F.2d 176, 190 n. 15 (9th Cir. 1989). The district court’s order stated in relevant part: In general the court agrees with the arguments advanced by defendant and therefore grants the motion for a new trial as to the claim for punitive damages such that if the court of appeals should reverse this court’s decision on the punitive damages claim there will be a new trial on that claim. Rule 50(c)(1) states that the court “shall specify the grounds for granting the motion for the new trial.” The court failed to do so here, at least explicitly, but it is a fair inference that it granted a new trial for the same reasons for which it granted judgment as a matter of law. The court’s failure to rule on Aetna’s request for a remittitur or to base its new trial order specifically on the magnitude of the punitive damage award, as opposed to the fact of the award, leads us to the conclusion that the new trial was granted on the erroneous ground that the evidence was insufficient as a matter of law. While our review of an order granting a new trial is for abuse of discretion, “a stringent standard applies when the motion is based on insufficiency of the evidence.” EEOC vy. Pape Lift, Inc., 115 F.3d 676, 680 (9th Cir. 1997) (internal quotations omitted) (quoting Venegas v. Wagner, 831 F.2d 1514, 1519 (9th Cir. 1987). A district court may order anew trial basec_on insufficient evidence only if it finds that. the jury’s verdict “is against the great weight of the evidence, over the amount to be paid on the insured’s damage claim, the court holding that the evidence did not support a finding of “outrageous” conduct. Neither involved denial of coverage or benefits or other misconduct by the carrier. 39a Or it is quite clear that the jury has reached a seriously erroneous result.” Jd.; Roy v. Volkswagen of Am., Inc., 896 F.2d 1174 (9th Cir.), as arsended by 920 F.2d 618 (9th Cir. 1990). The court made no such finding and the record would not support it. Rule 50(c)(1) further provides that where “the motion for a new trial has been conditionally granted and the judgment is reversed on appeal, the new trial shall proceed unless the appellate court has otherwise ordered.” The rule contemplates that in a case such as this, we may give direction for further proceedings. See 28 U.S.C. § 2106 (“any [ ] court of appellate jurisdiction may . . . remand the cause and direct the entry of such . . . order . . . as may be just under the circumstances”). While the evidence was sufficient as a matter of law to support an award of punitive damages, whether the award was excessive is a different issue.! A punitive damage award is excessive if it is manifestly unreasonable, resulting from passion or prejudice or disregard of the rules of law. Relevant factors include the compensatory damage amount, magnitude of the offense, importance or the policy violated and the defendant’s wealth. Alaskan Village, 720 P.2d at 949; see also Sturm, Ruger & Co., 594 P.2d at 48; Pluid v. B.K., 948 P.2d 981, 983 (Alaska 1997) (per curiam). No single factor is dispositive. Sturm, Ruger & Co., 615 P.2d at 624 & n.3. The award must also pass muster under federal due process analysis. BMW v. ~ Gore, U.S. __, 116 S. Ct. 1589, 1599-1604 (1996) (identifying as «guideposts” that must be considered: (1) “degree of reprehensibility of the defendant’s conduct”; (2) * Aetna does not contend that the award was the product of passion or prejudice. 40a “ratio [of punitive damage award] to the actual harm inflicted on the plaintiff”; and (3) “[c]omparing the punitive damage award and the civil or criminal penalties that could be imposed for comparable misconduct”). Our review of the reported Alaska decisions leads us to the conclusion that the punitive damage award was excessive. Although not dispositive itself, the ratio of punitive-to- compensatory damages — 130 to 1 — is much higher than any ratio approved by Alaska state courts. Moreover, the amount of punitive damages far exceeds the potential civil and criminal penalties for Aetna’s actions.” The trend of reported Alaska decisions (subject to some variation taking into account unusual factual situations) reflects approval of punitive damage awards on the order of two to three times the amount of compensatory damages.” Taking all relevant factors into account, we conclude that Alaska courts would not approve an award in excess of three times compensatory ~ The maximum fine under the applicable provisions of the Alaska criminal code is $500,000. Alaska Stat. §§ 11.46.600(a)(2), 12.55.035(c)(1)(A). ® See Pluid, 948 P.2d at 984, 986 (upholding jury’s 5-to-1 ratio of punitive to compensatory damages); Day, 615 P.2d at 624 (remitting jury punitive damage award, resulting in a 3.6-to-1 ratio); Alaska Ins. Co. v. Movin’ On Constr. Inc., 718 P.2d 472, 475 (Alaska 1986) (upholding 3-to-1 ratio); Teamsters Local 959 v. Wells, 749 P.2d 349, 361 n.26 (Alaska 1988) (upholding 2.54-to-1 ratio); Ben Lomond, Inc. v. Cambell, 691 P.2d 1042, 1048 (Alaska _1984) (upholding 2.38-to-1 ratio); Alaskan Village, 720 P.2dat949 (upholding 2-to-1 ratio). Cf Cameron v. Beard, 864 P.2d 538, 551 (Alaska 1994) (upholding 70-to-1 and 45-to-1 ratios). In Cameron, however, in addition to the $1,000 in compensatory damages received from each of the two individual defendants, the plaintiff also recovered $700,000 in actual damages from the State, another defendant. Id. at 544. Thus, the overall ratio of punitive to compensatory damages was 1-to-6. 4la damages in this case. Following the lead of the Alaska Supreme Court in Sturm, Ruger & Co., 615 P.2d at 624, we will remand with directions to the district court to enter an order denying a new trial on punitive damages conditioned on Ace accepting a remittitur of punitive damages to $381,000. See American Nat’l Bank & Trust v. Regional Transit Auth. 125 F.3d 420, 437 (7th Cir. 1997) (“We, like the district court, certainly have the authority to grant a new trial or a remittitur if the circumstances so warrant.”); Jn re Torcise, 116 F.3d 860, 869 (11th Cir. 1997) (remanding with directions to enter remittitur in specified amount or, if plaintiff does not accept, a new trial). 3. Denial of Aetna’s Motion for Judgment—Bad Faith Liability The district court’s denial of Aetna’s motion may be reversed only if the evidence, construed in the light most favorable to Ace, permits only one reasonable conclsion, and that conclusion is contrary to that of the jury’s. Acosta v. City & County of San Francisco, 83 F.3d 1143, 1145 (9th Cir.), cert. denied sub nom., Yawczak v. Acosta, Sie | ef __» 1178S. Ct. 514, 136 L. Ed. 2d 403 (1996). We review de novo the denial of a motion for judgment as a matter of law. Td. To prove bad faith, a plaintiff must establish “the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.” Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1324 (Alaska 1993) (quoting Anderson v. Continental Ins. Co., 271 ~N-W.2d 368, 376-77 (Wis. 1978)). As the foregoing discussion shows, the court’s denial of judgment as a matter of law is supported by the evidence that (1) Aetna did not investigate Ace’s claim and shifted the burden of investigating 42a entirely to her;** (2) Aetna did not gather any medical records, contact Ace’s lawyers, or telephone Ace or her employer to obtain evidence relevant to her claim; (3) Aetna failed to disclose the standard it was obliged to use in evaluating a disability claim; (4) Aetna failed to provide a _ reasonable explanation for its denial of Ace’s claim; (5) Aetna acted unreasonably in reviewing Ace’s records by relying on outdated prognoses of her expected recovery and ignoring more recent reports on her actual condition; (6) Aetna failed to answer Ace’s questions and to tell her what documents to submit in support of her claim; and (7) Aetna knew that Ace suffered from a chronic condition that had been predicted to deteriorate. The foregoing discussion also disposes of Aetna’s appeal from the denial of a new trial on its bad faith liability. 4. Denial of Aetna’s Motion for New Trial on the Award of “Emotional Distress” Damages Aetna appeals the denial of a new trial on the award of “emotional distress” damages, asserting that the district court erred by failing to instruct the jury that a plaintiff seeking emotional distress damages must prove that her distress was “severe” before any damages may be awarded. We review the denial of a new trial for abuse of discretion. Wharf v. Burlington N. R.R. Co., 60 F.3d 631, 637 (9th Cir. 1995). We hold that the district court did not abuse its discretion in denying Aetna’s motion for a new trial. Under Alaska law, breach of the implied covenant of good faith and fair dealing is actionable in tort against insur- ** Aetna’s claim handling guidelines instruct claims handlers to: “Obtain all available pertinent facts, not just those that are favorable to the company. Develop the claimant’s case as well as the company’s. If he is being treated by different doctors, obtain medical information from all of them.” 43a ers. Nicholson, 777 P.2d 1152. Emotional distress is a cate- gory of damages in a bad faith case but is not an element of the claim. Alaska courts have never explicitly limited recov- ery of emotional distress damages in bad faith insurance cases to those instances where the plaintiff has shown “severe” emotional distress. However, Aetna interprets Chizmar v. Mackie, 896 P.2d 196 (Alaska 1995), a negligent infliction of emotional distress case, as requiring plaintiffs seeking emo- tional distress damages from any type of tort to prove that their distress was “severe” before any damages may be awarded.” Aetna’s reliance on Chizmar is misplaced. The requirement that the damages be “severe” is an element of the underlying torts of negligent and intentional infliction of emotional distress, but not of the tort of breach of the duty of good faith and fair dealing by an insurer to an insured. Chizmar, 896 P.2d at 204 (negligent infliction); Cameron v. Beard, 864 P.2d 538, 548 (Alaska 1993) (intentional infliction). Aetna contends that the elements of the two torts, intentional infliction of emotional distress and bad faith *> Aetna also relies on Hillman, 855 P.2d. at 1324. Hillman cites a Wisconsin case, Anderson, 271 N.W.2d at 376-77, which required severe emotional distress, but uses the case to explain the objective and subjective elements of bad faith. The Hillman court did not address the severity of the emotional distress damages that must be proved or cite to the Anderson court’s discussion of this issue. The fact that the court relied on one portion of the Anderson opinion does not support the claim that it also adopted other parts of the opinion. © Under Alaska law, a claim for intentional infliction of emotional distress has three elements: (1) the defendant’s conduct is extreme and outrageous; (2) the conduct is intentional or reckless; and (3) the conduct causes severe emotional distress. Bishop v. Municipality of Anchorage, 899 P.2d 149, 155 (Alaska 1995) (citing King v. Brooks, 788 P.2d 707, 711 (Alaska 1990)). 44a breach, are so similar that any attempt to distinguish them would b artificial. The argument overlooks the fact that Alaska courts have treated intentional infliction of emotional distress and bad faith breach cases differently. For instance, under Alaska law, a plaintiff cannot sustain a claim for intentional infliction of emotional distress unless the defendant’s conduct rises to the level of outrageousness, which would warrant a punitive damage award. Hawks v. Department of Pub. Safety, 908 P.2d 1013, 1015 (Alaska 1995) (citing Richardson v. Fairbanks N. Star Borough, 705 P.2d 454, 456 (Alaska 1985)). However, a plaintiff may successfully bring a bad faith breach claim and recover compensatory damages where the evidence was insufficient to support an award of punitive damages because it did not show that the insurer’s actions were outrageous or reckless. Nicholson, 777 P.2d at 1158; Weiford, 831 P.2d at 1267. Moreover, the policy considerations for requiring severity to be shown do not support applying the requirement to bad faith insurance cases. As the court said in Chizmar, “The basic assumption underlying the traditional rule is that emotional distress without physical injury is relatively trivial and easily feigned.” Chizmar, 896 P.2d at 201. In contrast, when an insurance company wrongly refuses to honor its obligations, emotional distress is a natural and believable response. Insureds bargained and paid for the security and peace of mind of knowing that reimbursement and financial support will be provided in the event that a misfortune occurs. As insurance payments often serve as a safety net for the insured, Aetna’s refusal to cover Ace’s injury is foreseeably egregious. ___ The fact that the Alaska courts-have applied_the-tort-of bad faith breach only to insurance contracts between the insurer and the insured further demonstrates that these policy considerations do not come into play. See Nicholson, 777 P.2d at 1157. By allowing insureds to bring the action in tort, Alaska courts have relieved plaintiffs of the obligation of 45a bringing a separate tort claim for negligent or intentional infliction of emotional distress. However, unlike a plaintiff in an insurance case, a plaintiff bringing a claim for bad faith breach of an employment contract would have to indepen- dently establish the tort of negligent or intentional infliction of emotional distress to recover emotional distress damages. See, e.g., ARCO Alaska, Inc. v. Akers, 753 P.2d 1150, 1153- 54 (Alaska 1988) (no independent tort for breach of good faith and fair dealing in an employment contract). CONCLUSION We AFFIRM the denial of Aetna’s motions for judgment as a maiter of law on bad faith liability, for a new trial on bad faith liability and for a new trial on emotional distress damages. We REVERSE the grant of judgment as a matter of law on punitive damages and we VACATE the conditional grant of a new trial on punitive damages. We REMAND with direction to enter an order denying Aetna’s motion for new trial on punitive damages on condition that Ace accepts a remittitur of punitive damages to $381,000. FLETCHER, Circuit Judge, Dissenting: I respectfully dissent from that portion of the opinion that would have our court dictate the amount of punitive damages for the purposes of remittitur. The majority picks a multiple of 3 out of the air, stating only that we are “taking all relevant factors into account . . .” Majority at 2268. The Alaska Supreme Court has recently stated that “[t}he ratio between compensatory and punitive damages is merely a-factor-to-be taken into account and we have never laid out a definitive permissible ratio.” Pluid v. B.K., 982 P.2d 981, 985 (Alaska 1997). The issue is one of state law. We should not imperially delegate to ourselves the decision as to what that ratio should be. When reviewing an award of punitive da®ages, Alaska courts look to a number of factors to 46a determine what is “manifestly unreasonable.” Jd. at 984. “Relevant factors include the compensatory damage amount, magnitude of the offense, importance of the policy violated, and the defendant’s wealth.” Jd. If we had an adequate record and, in fact, could and did review the relevant factors, we could determine what is too much, but certainly not what is enough. The majority pays only lipservice to the Alaska Supreme Court’s determination that the facts, and not the ratio, drive the results of a review of punitive damages. The majority notes that the jury awarded a 130-1 ratio of punitive to compensatory damages and that Alaska typically approves “of punitive damage awards on the order of two to three times the amount of compensatory damages.” Majority at 2267-68. Waving its judicial wand and invoking the incantation — [t]aking all relevant factors into account,” the majority divines the proper award of damages to be three to one. Jd. The majority has engaged in no meaningful analysis. It does not even attempt to compare the facts of this case with those of other cases where different multipliers were approved. Were it our business to set maximums, the facts of this case would support a much higher award. The three discretionary factors outlined by Pluid, would support a much higher multiple. First, as to the “magnitude of the offense,” we need only look to the harm caused to Ace, harm that her insurance was intended to avoid. She lost everything she had, including her home; she had to live in her car; and she had to send her child away because she couldn’t care for him. Next, with respect to the “importance of the policy violated,” Aetna’s wrongful and bad faith refusal to cover Ace implicated a much broader company policy of wrongfully denying coverage to many who met the definition of “disabled,” exhibiting a callous breach of trust owed to their insureds at a time when they are most vulnerable. Finally, the “defendant’s wealth,” is estimated at 1.7 billion dollars and the evidence presented demonstrates that Aetna’s assets 47a would not be sufficiently diminished by the punitive damages award set by the majority. Punitive damages by definition are to be adequate in amount to punish the offender. All of these factors weigh heavily in favor of a substantial award to Ace. In Pluid, a sexual battery case, the Alaska Supreme Court affirmed a 5-1 ratio of punitive damages to compensatory damages. Id. at 984. I see nothing in the opinion that suggests that the Alaska Supreme Court found this ratio to be high or even near the limit that would be acceptable. Certainly nothing in Pluid suggests that a 3-1 ratio represents a “standard.” Indeed, there is strikingly little evidence of Alaska courts disturbing jury awards at all. Of the cases cited by the majority, the Alaska courts disturbed the jury’s punitive damages award in only two, Alaska Ins. Co. v. Movin’ On Constr. Inc., 718 P.2d 472, 475 (Alaska 1986) (reducing punitives damages proportionally to a reduction of compensatory damages because it appeared that the jury had set punitives itself by using a 3 to 1 ratio); and Sturm, Ruger & Co. v. Day, 615 P.2d 621, 624 (Alaska 1980) (on rehearing increasing a cap it had previously set on the punitive damages from $250,000 to $500,000). In Sturm, Ruger & Co., the Alaska Supreme Court was dealing with its own law under the facts presented in that case. If we compare the facts of Sturm, Ruger & Co. to our facts, this case involves more egregious facts, a more important relationship — that of the insured to the insurer, and a greater likelihood of reoccurrence. Even so the Alaska Court set a ratio significantly higher in Sturm, Ruger & Co. than the majority sets here. Of the other cases cited by the majority, not only were the awards left undisturbed but the underlying facts and public policy concerns appear to have been less compelling than those before us. Moreover, in a later case, the Alaska Supreme Court denied a request to fix the amount of punitive damages at the appellate level. It explained that Sturm, Ruger & Co. was a case where “[i]t was only after an extensive trial record was established that 48a the appellate court reduced the award of punitive damages.” Pletnikoff v. Johnson, 765 P.2d 973, 978 (Alaska 1988). It went on to state, as did the court in Pluid, that “[w]e have noted on numerous occasions that the factors to consider in awarding punitive damages are the amount of compensatory damages and, more importantly, the magnitude and flagrancy of the offense, the importance of the policy violated, and the wealth of the defendant.” Jd. at 978-79. As a federal appellate court, we have no business setting the amount of the remittitur in this case. The majority ignores the fact that a raotion is pending before the district court to grant a remittitur. It should be ruled upon by the district court in the first instance where a proper record can be made. 49a APPENDIX D MINUTES OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ALASKA Case No. J94-0018 CV (JWS) SHERRIE ACE V. AETNA LIFE INSURANCE Co. THE HONORABLE JOHN W. SEDWICK Deputy Clerk, Pam Richter Official Recorder, APPEARANCES: for Plaintiff: —----- for Defendant: ----- PROCEEDINGS: ORDER FROM CHAMBERS [Filed September 9, 1996] The court has considered the motion for new trial at docket 228 and the opposition thereto. In general the court agrees with the arguments advanced by defendant and therefore grants the motion for a new trial as to the claim for punitive damages such that if the court of appeals should reverse this court’s decision on the punitive damages claim there will be a new trial on that claim. The question of whether there should be a new trial on the underlying tort claim for compensatory damages is a closer question. The court resolves that issue in favor of plaintiff. 5Ca The motion at docket 228 is GRANTED IN PART AND DENIED IN PART as set forth above. ENTERED AT JUDGE’S DIRECTION INITIALS: _prr_ DATE: September 9, 1996 Deputy Clerk Sla APPENDIX E UNITED STATES DISTRICT COURT DISTRICT OF ALASKA Case No. J94-018 CV (JWS) SHERRIE ACE, PLAINTIFF, vs. AETNA LIFE INSURANCE CO., DEFENDANT. (Motion for Judgment, as Matter of Law — Docket 214) [Filed: July 2, 1996] ORDER FROM CHAMBERS MOTION PRESENTED Plaintiff Sherrie Ace (“Ace”) applied for disability benefits pursuant to an insurance policy issued by Aetna Life Insurance Company (“Aetna”) . Aetna denied the ap,lication, and Ace sued, alleging that Aetna denied her _‘aim in bad faith, and seeking compensatory and punitive damages. A jury trial was conducted in Juneau, Alaska, from May 20, 1996 through May 30, 1996. Upon conclusion of plaintiff’s case, Aetna moved for judgment as a matter of law, which the court denied. At the close of all the evidence, Aetna again moved for judgment as a matter of law, pursuant to Fed. R. Civ. P. 50. The court took the motion under advisement. The case was submitted to the jury, which returned a verdict for Ace awarding compensatory damages of $127,009 and punitive damages of $16,500,000. Aetna renewed its motion and the court invited further briefing. 52a Defendant’s memorandum was filed at docket 214 and plaintiff's memorandum was filed at docket 216. No party has requested additional oral argument, and it would not be of material aid to the court. This order also addresses plaintiff's motion at Docket 212, which requests that prejudgment interest begin to accrue on March 3, 1993. DISCUSSION 1. Jurisdiction; Governing Law This court has jurisdiction under 28 U.S.C. § 1332. The applicable substantive law in this diversity action is the law Alaska. The Home Indemnity Co. v. Lane Powell Moss and Miller, 43 F.3d 1322, 1325 (9th Cir. 1995). 2. Rule 50 Standard Judgment as a matter of law is proper if the only reasonable conclusion supported by the evidence presented at trial would require judgment for the moving party; it is not proper where there is substantial evidence to support a judgment for the non-moving party. Evidence must be considered in the light most favorable to the non-moving party. E.g., Morgan v. Woessner, 997 F.2d 1244, 1252 (9th Cir. 1993). 3. Insurance Bad Faith and Punitive Damages The Alaska Supreme Court recognized a cause of action in tort for bad faith handling of a first party insurance claim in State Farm Fire & Casualty Company v. Nicholson, 777 P. 2d 1152 (Alaska 1989). The Alaska court explained that the tort cause of action arises from a breach of the covenant of good faith and fair dealing implied in the insurance contract. The court chose to allow a cause of action in tort for conduct which in other contexts would give rise only to a claim for breach of contract in recognition of the adhesionary nature of insurance contracts and to afford an adequate remedy to 53a insureds who would not be able to recover consequential damages on a contract cause of action. Nicholson, 777 P.2d at 1155-57. Noting that, as a tort cause of action, an insurance bad faith claim could support an award for punitive damages, the Nicholson court cautioned that such a cause of action cannot support an award of punitive damages unless the plaintiff can prove that the insurer engaged in conduct which was “outrageous, such as acts done with malice or bad motives or reckless indifference to the interests of another.” 777 P.2d at 1158 (quoting Sturm, Ruger & Co. v. Day, 594 P.2d 38, 46 (Alaska 1979), overruled on other grounds, Dura Corp. v. Harned, 703 P.2d 396 (Alaska 1985)). In Nicholson, and again in State Farm Mutual Auto. Ins. Co. v. Weiford, 831 P.2d 1264 (Alaska 1992), the Alaska Supreme Court made it clear that there are circumstances under which the evidence may be sufficient to present a jury question on a bad faith claim, but insufficient to support a claim for punitive damages. In both cases, the Alaska court found wanting evidence of the outrageous conduct required to warrant punishment. In addition to the need to establish truly outrageous behavior, under Alaska law, a plaintiff has a higher burden of proof for the recovery of punitive damages than for the recovery of compensatory damages. To recover punitive damages, a plaintiff must prove the elements of her case by clear and convincing evidence. AS 09.17.020. This legislative recognition of the “narrow limits in which punitive damages should be allowed”, Weiford, 831 P.2d at 1266 n. 2, is a corollary to the Alaska Supreme Court’s admonition that punitive damages, “are not favored in law” and “are to be allowed only with caution and within narrow limits.” Weiford, 831 P.2d at 1266 (quoting Alaska Placer Co. v. Lee, 553 P.2d 54, 61 (Alaska 1976)). The facts in Nicholson were summarized by the Alaska court as follows: 54a In February, 1983 a water main. . . broke. The water main . . . ran (underground] beside the Nicholson house and other houses. . . . The escaping water caused the soil underneath the house to erode and settle. More than a year later, on March 27, 1984, the Nicholsons first contacted State Farm to report the loss. On April 6, 1984 Vere Hotchkiss, claims adjuster for State Farm, made an initial on-premise inspection, and returned again on April 11, 1984 with an engineer to conduct another inspection. Relying on the . . . engineering report which stated two possibilities for the loss i.e. water alone or permafrost and earth settling, State Farm denied coverage on April 22, 1984, because its policy contained an exclusion for [the second possibility]. Furthermore the . . . report recommended that the Nicholson house be observed during the winter of 1984-1985 to determine if any more settling would occur. Another consulting engineering report agreed... .. In the meantime State Farm agreed to cover the Nicholson’s next door neighbor for the same loss. On June 14, 1984 State Farm now agreed to extend coverage to the Nicholsons for their loss and requested them to obtain property appraisals. On August 15, 1984 a general contractor . . . declined to give a repair estimate to the Nicholsons until a soil survey was performed {which was done during the 1984-85 winter]. During this time the Nicholsons experienced electrical and structural problems in their house. They were upset with the delay in fixing their house. On May 29, 1985, a new State Farm adjuster [directed the Nicholsons to contact Pac-Rim Construction Services for an estimate on repair or replacement of the house.] The Pac Rim report was issued on June 14, 1985 [with estimates] well in excess of the policy limits of $113,264. 55a State Farm then obtained an appraisal of the property [in the amount of] $98,200, and offered to pay that amount plus additional reimbursement for repair or replacement costs up to the policy limits. The offer was made on October 9, 1985. The Nicholsons rejected this offer and filed suit... . 777 P.2d at 1153-54. In the October 9, 1985 letter, State Farm also required the Nicholsons to complete a sworn statement of loss within 60 days. Jd., 777 P.2d at 1154 n. 1. The Nicholson case was tried to a jury which returned a verdict awarding compensatory damages and punitive damages.' At trial: State Farm offered testimony from several witnesses that the adjustment of this claim was highly unusual, difficult, and complex. The Nicholsons offered testimony from Robert Lowe, as an expert independent claim adjuster, that State Farm’s delay in deciding coverage and settlement of the claim was unreasonable and outrageous. 777 P.2d at 1154. Recognizing that State Farm’s wrongful acts constituted a tort, the Nicholson court then addressed the sufficiency of the evidence to support an award of punitive damages. The court had no trouble concluding that it did not. “Based upon the factual scenario [set out at length above] we conclude that there was insufficient evidence as a matter of law to support a finding of outrageous conduct or a gross deviation from an acceptable standard of reasonable conduct in order to sustain an award of punitive damages.” 777 P.2d at 1158. In State Farm Mutual Auto. Ins. Co. v. Weiford, 831 P.2d 1264 (Alaska 1992), the Alaska court again examined ' In State Farm Fire & Casualty Co. v. Nicholson, 777 P.2d F452 (Alaska 1989), the jury awarded $107,500 in compensatory damages and $7,500 in punitive damages. 56a the sufficiency of evidence presented in a bad faith case where a jury had awarded both compensatory and punitive damages.* The court found that the evidence was sufficient to present a jury question on the bad faith claim, but insufficient to support a claim for punitive damages. Linda Weiford was injured in an automobile accident in August of 1984. She attempted to collect benefits under her uninsured motorist policy issued by State Farm. In October, 1984, she was diagnosed with a cervical strain. She initially demanded $17,500 and State Farm initially offered $3,408. After further negotiations, State Farm offered $5,000, and Weiford progressively reduced her demand until it was $10,000. In July 1986, Weiford was diagnosed with a nerve root injury at the seventh cervical vertebra, which injury the physician thought was attributable to the auto accident. Weiford then demanded the $25,000 policy limit and State Farm offered $7,500. Further negotiations brought State Farm up to $12,500, while Weiford reduced her demand to $18,500. Anticipating arbitration, State Farm requested that Weiford undergo an independent medical exam (“IME”). She agreed, and the IME confirmed the nerve root injury. State Farm then offered $17,500, which was countered by Weiford at $21,000. Prior to the arbitration, State Farm increased its offer to $20,000, but that was rejected. The arbitration resulted in an award to Weiford of $22,000, which State Farm paid. Weiford then sued for bad faith in the handling of her claim. On appeal, Weiford argued that the award of punitive damages was justified because State Farm had adopted a “tough stance” policy on claim payments in 1984 and 1985 which led State Farm adjusters to make unreasonably low offers to Weiford. Weiford also pointed to a State Farm 2 In State Farm Mutual Auto. Ins. Co. v. Weiford, 831 P.2d 1264 (Alaska 1992), the jury awarded $18,007.50 in compensatory damages and $1,200,000 in punitive damages. 57a supervisor’s note that indicated that State Farm should not exceed $20,000 in its offers to Weiford prior to arbitration, because with a policy limit of only $25,000, the insured would have more to lose at arbitration than the insurer. As in Nicholson, the Alaska court let the compensatory damage award stand but found the evidence insufficient to support an award of punitive damages. The court wrote: “In our view, while there is some evidence which would justify a finding that State Farm was acting in bad faith, none of the evidence shows conduct that may fairly be categorized as outrageous.” 831 P.2d 1261. Addressing Weiford’s claim about the unreasonably low initial offers, the court noted the following: Given [plaintiff's expert’s] testimony, the $5,000 offer might support a fact finder’s conclusion that State Farm was guilty of bad faith. However, because of Weiford’s high level of physical activity, the absence of definitive medical test results in 1985 and the fact that Weiford’s physicians evidently believed that her injury would be self resolving, even this conclusion is fairly debatable. The evidence will not reasonably support the further conclusion that this offer was so low as to be outrageous. 831 P.2d at 1268 (footnote omitted). 4. Evidence In The Case At Bar In their memoranda, the parties have set forth in considerable detail the evidence which was presented to the jury. Most of the evidence is listed or described at Docket 214 pp. 8-20, 22-27, 34-38, 42 and Docket 216 pp. 15-19, 23-26. A comparison of the parties, briefing discloses a considerable disagreement over the conclusions which may be drawn from the evidence presented, but no disagreement over what evidence was presented to the jury. The parties have adequately set forth the evidence presented, making it unnecessary to repeat it here. 58a 5. Sufficiency of Evidence Viewed in the light most favorable to Ace, this court concludes that a reasonable jury could have concluded that Aetna breached its obligation to deal fairly and in good faith with Ace in the processing of her claim for disability benefits, but that no reasonable jury could find that there was clear and convincing evidence that Aetna’s conduct was outrageous. Aetna had an obligation to investigate Ace’s claim. However, up to the point at which Aetna made arrangements for the IME, rather than initiate inquiries of its own, Aetna relied upon Ace to present information to it. Aetna persisted in this approach even after it had reason to know that Ace’s family doctor, Dr. Kiessling, held the opinion that Ace was disabled. While it is true that Dr. Kiessling had earlier opined that Ace’s condition was substantially better, and it is also true that Dr. Kiessling did an abysmal job of explaining why his opinion had changed, Aetna nevertheless was alerted to the fact that one physician believed that Ace’s condition had deteriorated to the point that she was disabled. Further, Dr. Kiessling’s second opinion was the most recent opinion available to Aetna. Aetna also knew from the medical records that Ace’s initial leg injury produced major damage and a chronic orthopedic condition which had already required several surgeries and was expected to require a complete replacement of her injured knee. On the other hand, Aetna also had received the opinion of Dr. Richard McEvoy (“Dr. McEvoy”), the orthopedic physician most familiar with Ace’s condition, indicating that she could go back to work. Although it is a close question, particularly in light of the fact that where an insurer has an objectively reasonable basis for denying a claim the denial does not constitute bad faith,’ > Hillman v. Nationwide mutual Fire Ins. Co., 758 P.2d 1248 (Alaska 1988) . 59a this court concludes that when all the evidence is viewed in the light most favorable to Ace, a reasonable jury could have found that Aetna acted in bad faith by not promptly making some affirmative inquiry after receiving Dr. Kiessling’s second opinion. It bears emphasis that Ace was making a Claim for disability in circumstances where the insurer had reason to know she suffered from a chronic condition that had been predicted to deteriorate. For the company to have continued to demand that Ace bring additional evidence to it in such circumstances could reasonably be viewed as unfair disregard for Ace’s interest under the insurance contract. The punitive damages issue must be evaluated in light of the Alaska court’s holdings in Nicholson and Weiford. These cases underscore the fact that evidence of bad faith violation of the insurance contract is not enough to warrant imposition of punitive damages. The Alaska court requires proof of outrageous behavior. Moreover, the proof must be clear and convincing. With the examples provided by Nicholson and Weiford in mind, an examination of the evidence in the case at bar discloses inadequate support for the proposition that Aetna’s conduct was clearly and convincingly “outrageous,” represented “malice” toward Ace, was caused by “bad motives” or displayed a “reckless disregard” for Ace’s interest. There is no direct evidence that Aetna acted with malice toward Ace or from bad motives. Of course, such conditions may also be proved indirectly by inference from other evidence, Alyeska Pipeline Service Co. v. O’Kelley, 645 P.2d 767, 774 (Alaska 1982). Ace urges that evidence of bad motives or malice will be found in the fact that Aetna quoted the policy language respecting “any gainful occupation” in correspondence with Ace, rather than offering an explanation that the policy language could not be taken literally. The “any gainful occupation” language quoted was the language actually used in a contract entered by Ace’s 60a employer, the State of Alaska. The language was not language inserted into a policy presented to an individual insured on a take it or leave it basis. The language was contained in a contract between Aetna and a state government. The language was not actually employed by Aetna to deny benefits to Ace. Ace’s qualification for disability benefits turned upon whether she was able to go back to work at her own job. That this was the central issue was Clearly known by all the Aetna personnel involved in handling the claim. Whatever might be said about quoting back the “any gainful occupation” language in some other context, it is unreasonable to conclude that on the facts here it shows any malice toward Ace. Ace argues that quoting back the “any gainful occupation” language also shows a bad motive: by quoting back a standard far higher than the law would allow Aetna to enforce literally, Aetna discourages claimants and bolsters its own bottom line. On the other hand, the evidence shows that Aetna uses the language in very few disability contracts and does not employ it literally. Significantly, there is no evidence in the record that Ace’s hypothesis is viable. Ace was certainly not discouraged. Nor is there evidence that the language has discouraged anybody else. All Ace offered to support the viability of the hypothesis was the opinion of her expert, Barbara Paul. However, Ms. Paul offered no basis for her opinion. She had no relevant knowledge at all about claims experience under the State of Alaska insurance program in which Ace was enrolled, nor could she cite evidence from any other source to support her opinion. On the other hand, there was uncontradicted testimony from Steve Elliott and Bryan Southall, who currently are engaged in processing disability claims under both the rare “any gainful occupation” standard and more common modern formulations, that they have observed no difference in the behavior of insureds. There was also uncontradicted 6la testimony from Aetna’s expert, Burt Bernstein, that Ms. Paul’s opinion is not supported by the literature. Even if one were to disregard all of the evidence on this point completely except Ms. Paul’s speculation, her opinion is simply not clear and convincing evidence of a bad motive. It is a substantial reach from the hypothesis that accurately quoting back the “any gainful occupation” contract language in today’s heavily lawyered society would possibly discourage disabled insureds from pursuing their rights to the conclusion that the possibility is considered a reality by Aetna such that a bad motive may be inferred. The vastly more reasonable inference is that in order to avoid claims against it based upon alleged misrepresentation by its claims processors, Aetna is careful to require such personnel to refer to the contract language in correspondence with claimants. The manner in which Ace’s claim was actually handled in terms of the information available to Aetna at each step in the process cannot support an inference of malice or bad motives. At all times, Aetna had knowledge of Dr. McEvoy’s opinion which, given his role in Ace’s care, was never persuasively contradicted by any other information. Moreover, the lay claims personnel referred the medical information to a qualified physician, Dr. Galvin, for review. He found no basis for concluding Ace was disabled. Despite Dr. Galvin’s opinion, Aetna did make arrangements for an IME. Surprisingly, Ace declined the IME. The evidence does not clearly and convincingly support the proposition that Aetna acted in “reckless disregard” for Ace’s interest. A jury could find that by requiring the insured to marshall [sic] all the information, especially after Dr. Kiessling’s second opinion was communicated, it is more likely than not that Aetna acted with enough disregard for Ace’s interest to represent bad faith sufficient to breach the contract (and simultaneously give rise to the tort claim), but the same evidence cannot support a finding that Aetna’s 62a disregard for Ace’s interest was clearly and convincingly reckless to the point that Aetna should be punished. Plainly put, there is nothing outrageous about relying on the opinion of the most knowledgeable physician, Dr. McEvoy, to the exclusion of what little contrary indication of Ace’s condition had emerged prior to asking for an IME, the one procedure that could be expected to clear up any uncertainty. The court has carefully reviewed the evidence and considered the other arguments advanced by the parties. The court finds no merit in Aetna’s arguments that an award of compensatory damages cannot be supported by the evidence. A reasonable jury could find for Ace on that issue. Similarly, the court finds no merit in Ace’s arguments that an award of punitive damages is supported by clear and convincing evidence. A reasonable jury could not find for Ace on that issue. 6. Prejudgment Interest Under Alaska law prejudgment interest begins to accrue on the date that process is served or that written notice of a claim is given to the defendant, and such written notice must be adequate to advise a “prudent person” that a claim will be made. AS 09.30.070(b). Here, there is no dispute that Francine Harbour’s letter of March 3, 1993, was an adequate written notice, but Aetna argues it was vitiated by Roger DuBrock’s indication that Ace would go ahead with the IME. DuBrock did not tell Aetna that Ace would not follow up on Harbour’s threatened lawsuit. The decision in Himschoot v. Shanley, 908 P.2d 1035, 1042 (Alaska 1996) suggests that a trial court should look to all the circumstances in deciding what a prudent person would believe. Here, the circumstances are that after a clear written notice that suit would be filed, there was a temporary indication that additional information (the IME) would be provided, there was no withdrawal of the threat of suit, and the lawsuit eventually was filed. The court agrees with the 63a observation of Ace’s counsel: “The test is what a prudent person would believe; not what an optimistic person would believe.” Docket 217 at p. 2. Therefore, prejudgment interest began to accrue on March 3, 1993. CONCLUSION For the reasons and to the extent set forth above, the motion for judgment as a matter of law by Aetna is GRANTED IN PART and DENIED IN PART. The motion at docket 212 is GRANTED. The Clerk is directed to enter judgment for Ace for compensatory damages only in the amount of $127,009 and to provide for prejudgment interest at the State of Alaska statutory rate of 10.5 percent per annum from March 3, 1993 to the date judgment is entered. DATED this 2nd day of July, 1996, at Anchorage, Alaska. /s/ John W. wick JOHN W. SEDWICK UNITED STATES DISTRICT JUDGE --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_1386%3A1. Public record. Not legal advice.