F I L E D

United States Court of Appeals

Tenth Circuit

MAR 10 1999

PUBLISH

PATRICK FISHER
Clerk
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

WOODWORKERS SUPPLY, INC.,

Plaintiff-Appellee/
Cross-Appellant,
v.
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY,

Nos. 97-2226
97-2232

Defendant-Appellant/
Cross-Appellee,
Appeal from the United States District Court
for the District of New Mexico
(D.C. No. CIV 95-1583 BB/DJS)
Doug K. Butler (Bill E. Davidoff with him on the briefs) of Figari & Davenport,
L.L.P., Dallas, Texas, for Defendant-Appellant/Cross-Appellee.
William C. Madison and Gregory D. Steinman of Madison, Harbour, Mroz &
Brennan, P.A., Albuquerque, New Mexico, for Plaintiff-Appellee/CrossAppellant.
Before SEYMOUR, Chief Judge, BALDOCK and BRORBY, Circuit Judges.
SEYMOUR, Chief Judge.

In this diversity action, Woodworkers Supply, Inc. (Woodworker) sued

its former insurer, Principal Mutual Life Insurance Company, for unfair trade
practices and fraud. The district court held that the Employee Retirement Income
Security Act of 1974 (ERISA), 29 U.S.C. 1001 et. seq., bars claims arising
after March 1, 1994, the effective date of the parties agreement, but sent to the
jury the claims arising prior to that date. The jury awarded Woodworker
$221,000 based on Principal Mutuals violations of the New Mexico Unfair
Insurance Practices Act, N.M. S TAT . A NN . 59A-16-1 et. seq., the New Mexico
Unfair Practices Act, N.M. S TAT . A NN . 57-12-1 et. seq., and fraud in the
inducement. Principal Mutual appeals, arguing that 1) ERISA preempts all of
Woodworkers claims; 2) Woodworker improperly failed to disclose its damage
theory prior to trial; 3) the evidence was insufficient to support the jurys findings
of fraud, violations of the New Mexico statutes, and damages; and 4) Principal
Mutual is entitled to contract damages resulting from Woodworkers failure to
pay certain premiums. Woodworker cross-appeals, claiming that 1) the district
court erred by not sending the issue of punitive damages to the jury; and 2) in
refusing to award treble damages under the state statutes; 3) we should award
Woodworker attorneys fees and costs on appeal; 4) and if we order a new trial,
the jury should be permitted to consider conduct occurring after March 1, 1994.
We affirm in part and reverse in part.
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I.
We review the evidence in the light most favorable to Woodworker
because the jury found in its favor. See Webb v. ABF Freight Sys. Inc., 155 F.3d
1230, 1234 n.1 (10th Cir. 1998). [W]e accept the jurys factual determinations
as long as they are reasonably based on some evidence or the inferences that may
reasonably be drawn from such evidence. Id. Under this standard of review, the
record establishes the following facts.
At the end of 1993, Woodworker, a manufacturer and supplier of
woodworking tools and equipment, was shopping for insurance coverage for its
employees. It was dissatisfied with its previous insurer, Washington National, for
processing claims inefficiently and inaccurately. Woodworker received bids from
several insurance companies, including Principal Mutual, through its insurance
broker, Nadyne Shimada.
Woodworker had previous experience with different types of insurance
contracts. Washington National had provided Woodworker with a contingent
premium contract, also known as a retrospective premium agreement. Under such
an agreement, the insurer sets two rates, the preliminary premium and the contract
premium. During the course of the year, the insured pays the preliminary
premium which is the lower of the two rates. At the end of the year, the insurer
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calculates the claims paid as well as certain other charges. If this calculation is
lower than the preliminary premium, the insured pays nothing further. If it is
higher, the insured pays the difference but never more than the contract rate. In
exchange for this flexibility, the maximum liability is somewhat higher than it
would be were only one rate set. Woodworkers experience with this arrangement
had been positive. Its claims had been 60-70% of the preliminary premium, and it
never had to make an additional payment at the end of the year.
When Ms. Shimada solicited bids for a new insurer on behalf of
Woodworker, she looked for a plan structured similarly to Washington Nationals.
Principal Mutual submitted a low bid, so low in fact that Ms. Shimada sent it back
for the company to revise its rates upwards. Rates that are too low may harm the
insured in several ways. They may indicate insufficient coverage. Or, in a
contingent funding agreement, inadequate preliminary premiums may subject the
insured to unexpected collections at the end of the year or significant rate
increases for the next year.
Principal Mutual resubmitted an increased bid and set the preliminary
rates 25% below the contract rate. According to Ms. Shimadas analysis, the rates
seemed reasonable and she recommended Principal Mutuals plan to Woodworker.
Principal Mutual began insuring Woodworker on March 1, 1994, although the
parties did not sign the retrospective premium agreement until late July 1994.
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Unbeknownst to Woodworker, the underwriter of the plan, Melissa Lorek,

had serious doubts about the adequacy of the rates. On February 28, 1994, she
e-mailed Laura Bullock, the Principal Mutual sales representative on the
Woodworker contract:
We dont feel comfortable with increasing the retro differential past
the 20%. We did, originally, look at this as an option. We decided
against this because, upon closer examination, the contract rates are
already inadequate. . . . We feel we have already been very
aggressive with this case and I dont feel comfortable with getting
any more aggressive.
Supp. App. at 64. Ms. Bullock responded the following day, This is completely
unacceptable. . . . This is a done deal. Id. at 66. Principal Mutual made no
further changes to the rates. In a letter discussing contract renewal and rate
increases for the following year, Ms. Lorek told Ms. Shimada, When [Principal
Mutual] sold this case last March, [it] knew the rates were inadequate. Id. at 68;
see also Aplt. App. at 766. Prior to that, no one from Principal Mutual had told
Ms. Shimada that the rates charged to Woodworker were inadequate.
Principal Mutual also failed to fully disclose certain aspects of the method
it used to calculate rates, increasing the likelihood that Woodworker would
experience large rate increases and charges in excess of the preliminary
premiums. For example, Principal Mutuals method for determining reserves to
cover incurred but not reported expenses deviated from the industry norm and
significantly impacted Woodworkers renewal program. Principal Mutual did not
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disclose this to Woodworker until February 1995. In addition, while the contract
mentioned pooling charges, it did not indicate that such charges could equal up to
15% of the contract premium. Even though Woodworker paid $178,000 in
premiums in 1994, its claims would have to have been less than $50,000 to avoid
an end of the year surcharge. Had Woodworker known this prior to March 1,
1994, it would not have contracted with Principal Mutual.
As would be expected, Principal Mutuals omissions resulted in a
significant charge at the end of 1994 as well as a large rate increase for the
following year. Severe disagreements ensued between Principal Mutual and
Woodworker. Woodworker refused to pay the increase in the rates, as well as the
1994 surcharge. Principal Mutual demanded payments and unilaterally increased
the 1995 rates. Finally, Principal Mutual terminated Woodworkers coverage
effective midnight, August 31, 1995.
II.
A.

ERISA Preemption
The primary legal question in this case is whether, and to what extent,

ERISA preempts Woodworkers claims against Principal Mutual. 1 The trial court
1

Woodworker does not contend that Principal Mutuals counter-claim

(continued...)
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originally dismissed as preempted only those claims arising out of Principals

alleged failure to provide coverage in September 1995, Aplt. App. at 153, but
modified its ruling at trial by holding preempted all claims arising after March 1,
1994, the date the insurance plan commenced. We review the trial courts ruling
on ERISA preemption de novo as it involves a question of law. See Airparts Co.
v. Custom Benefits Serv. of Austin, 28 F.3d 1062, 1064 (10th Cir. 1994).
The plain language of ERISA provides that it shall preempt state laws that
relate to any employment benefit plan, subject to enumerated exceptions. See
29 U.S.C. 1144(a). The Supreme Court has frequently acknowledged the
expansive scope of ERISA preemption, see, e.g., Ingersoll-Rand Co. v.
McClendon, 498 U.S. 133, 138-39 (1990); Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 47 (1987); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98-99 (1983), yet
the Court has also noted that this observation provides little aid in actually
determining whether ERISA supersedes state law, see, e.g., New York State
Conference of Blue Cross & Blue Shield v. Travelers Ins. Co., 514 U.S. 645, 655
(1995); California Div. of Labor Stand. v. Dillingham, 519 U.S. 316, 335-36
(1997) (Scalia, J., concurring). As the Court noted in Travelers:
[O]ne might be excused for wondering, at first blush, whether the
words of limitation . . . do much limiting. If relate to were taken
(...continued)
against it is preempted, and we do not consider that issue.
1

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to extend to the furthest stretch of its indeterminacy, then for all

practical purposes pre-emption would never run its course, for
[r]eally, universally, relations stop nowhere, H. James Roderick
Hudson xli (New York ed., World Classics 1980). . . . That said, we
have to recognize that our prior attempt to construe relate to does
not give us much help in drawing the line here.
Travelers Ins. Co., 514 U.S. at 655. The Court then offered another way of
analyzing ERISA pre-emption: We simply must go beyond the unhelpful text
and the frustrating difficulty of defining its key term, and look instead to the
objectives of ERISA as a guide to the scope of state law that Congress understood
would survive. Id. at 656.
In enacting ERISA, Congress intended to protect . . . the interests of
participants in employee benefits plans and their beneficiaries . . . by establishing
standards of conduct, responsibility, and obligation for fiduciaries of employee
benefit plans, and by providing for appropriate remedies. 29 U.S.C. 1001(b).
Preemption of state law works toward that end by subjecting plans and plan
sponsors to a uniform body of law and minimizing the administrative and
financial burdens of complying with conflicting directives among states or
between states and the federal government. See Travelers Ins. Co., 514 U.S. at
656-57 (quoting Ingersoll-Rand Co., 498 U.S. at 142). Congress defined a plan
fiduciary as a person
(i) [who] exercises any discretionary authority or discretionary
control respecting management of such plan or exercises any
authority or control respecting management or disposition of its
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assets, (ii) [who] renders investment advice for a fee or other

compensation, direct or indirect, with respect to any moneys or other
property of such plan, or has any authority or responsibility to do so,
or (iii) [who] has any discretionary authority or discretionary
responsibility in the administration of such plan.
29 U.S.C. 1002 (21)(A).
This court has identified four causes of action that relate to a benefit
plan for purposes of ERISA preemption. They involve 1) laws regulating the type
of benefits or terms of ERISA plans; 2) laws creating reporting, disclosure,
funding or vesting requirements for such plans; 3) laws providing rules for
calculating the amount of benefits to be paid under such plans; and 4) laws and
common-law rules providing remedies for misconduct growing out of the
administration of such plans. Airparts Co., 28 F.3d at 1064-65 (quoting National
Elevator Indus. v. Calhoon, 957 F.2d 1555, 1558-59 (10th Cir. 1992)).
At the same time, this circuit recognizes that ERISA does not preempt all
state law claims. It has no bearing on those which do[] not affect the relations
among the principal ERISA entities, the employer, the plan, the plan fiduciaries
and the beneficiaries as such. Hospice of Metro Denver, Inc. v. Group Health
Ins. of Okla. Inc., 944 F.2d 752, 756 (10th Cir. 1991) (quoting Memorial Hosp.
Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 249 (5th Cir. 1990)). As a
corollary, actions that affect the relations between one or more of these plan
entities and an outside party similarly escape preemption. Airparts Co., 28 F.3d
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at 1065. While the scope of ERISA preemption may be broad, it is certainly not
boundless. See Monarch Cement Co. v. Lone Star Indus. Inc., 982 F.2d 1448,
1452 (10th Cir. 1992).
With these principles in mind we turn to the parties claims. Essentially
Principal Mutual argues that many courts, including this one, have held ERISA
preempts fraudulent inducement claims and we should follow that precedent here.
Principal Mutual concedes that courts have allowed employers fraudulent
inducement claims against insurance professionals, but contends those cases are
inapposite because Principal Mutual is an insurance company, not an insurance
professional. We disagree on both counts.
In the cases upon which Principal Mutual relies, the fraudulent
inducement claims arise in a context factually distinguishable from the instant
case. For example, several of the cases involve fraudulent inducement claims
affecting relations between primary ERISA entities. See, e.g., Dedeaux, 481 U.S.
41, 43-44 (1987) (employee sued plan fiduciary for failing to pay benefits);
DeBruyne v. Equitable Life Assurance Soc. of the United States, 920 F.2d 457,
460-62 (7th Cir. 1990) (beneficiaries sued plan fiduciary). Principal Mutuals
heavy reliance on Maez v. Mountain States Tel. & Tel., 54 F.3d 1488 (10th Cir.
1995), is also misplaced. In Maez, plan beneficiaries sued the employer to
recover benefits under the plan. Id. at 1492. As noted above, the allocation of
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benefits under an employee benefits plan goes to the core of ERISA, and so such
claims are usually preempted. See Airparts Co., 28 F.3d at 1064-65.
We find instructive those cases in which an employer sued an insurance
professional for misrepresentations that induced plan participation. At least four
circuits have held that ERISA does not preempt such claims. See Wilson v.
Zoellner, 114 F.3d 713, 721 (8th Cir. 1997) ([W]e hold that ERISA does not
preempt [plaintiffs] suit against [an insurance agent] for the Missouri state
common-law tort of negligent misrepresentation.); Coyne & Delaney Co. v.
Selman, 98 F.3d 1457, 1467 (4th Cir. 1996) (We hold that [plaintiffs]
malpractice claim [against the insurance professionals] is not preempted because
it does not relate to an employee benefit plan within the meaning of ERISAs
preemption provision); Morstein v. National Ins. Serv., Inc., 93 F.3d 715, 723
(11th Cir. 1996) (en banc) (When a state law claim involves the reliance on an
insurers promise that a particular treatment is fully covered under a policy, . . . a
claim of promissory estoppel is not related to the benefits plan.); Perkins v.
Time Ins. Co., 898 F.2d 470, 473 (5th Cir. 1990) ([W]e conclude that a claim
that an insurance agent fraudulently induced an insured to surrender coverage
under an existing policy, to participate in an ERISA plan which did not provide

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the promised coverage, relates to that plan only indirectly.). 2 The reasoning is
two-fold: first, by definition, the insurance professional cannot act as a plan
fiduciary before the plan exists; and second, allowing preemption would not
further Congress purpose in passing ERISA. See Coyne & Delaney Co., 98 F.3d
at 1466-71.
Coyne & Delaney Co. is particularly apposite to the instant case. There,
an employer sued insurance professionals under Virginias malpractice law. See
id. at 1464. The insurance professionals had misadvised the employer about
employee benefit plans and had designed an inadequate plan for it. See id. at
1461. Once the plan went into effect, the insurance professionals served as the
Plan Administrator and Plan Supervisor. See id. The Fourth Circuit rejected the
defendants claims that ERISA preempted the employers claims, noting:
Quite simply, Delanys claim is not aimed at a plan administrator at
all since the defendants are sued in their capacities as insurance
professionals for actions taken in that capacity. Indeed, defendants
malpractice, if any, took place before they began to act in their
capacities as Plan Administrator and Plan Supervisor.
Id. at 1471.
Two cases to the contrary relied on by Principal Mutual have
subsequently been disavowed in their respective circuits. Thus, in Wilson v.
Zoellner, 114 F.3d 713, 721 n.4 (8th Cir. 1997), the Eighth Circuit declined to
follow the dicta in Consolidated Beef Indus., Inc. v. New York Life Ins. Co., 949
F.2d 960, 964 (8th Cir. 1991). And in Morstein v. National Ins. Servs., Inc., 93
F.3d 715, 717-18, 722 (11th Cir. 1996), the Eleventh Circuit en banc court
overruled Farlow v. Union Cent. Life Ins. Co., 874 F.2d 791 (11th Cir. 1989).
2

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Similarly, Woodworker is suing Principal Mutual with respect to its preplan activity in its role as a seller of insurance, not as an administrator of an
employee benefits plan. Principal Mutual does not, and cannot, claim that it was
a principal ERISA entity before March 1, 1994. Of the four principal ERISA
entities, the employer, the plan, the beneficiaries, and the plan fiduciaries,
Principal Mutual could only claim to be the last. However, Congress quite
logically defined a plan fiduciary in relation to a plan. If no plan exists, by
definition plan fiduciaries cannot exist. Consequently, Woodworkers pre-March
1, 1994 claim is best characterized as a claim between an employer and an outside
party not affecting relations between ERISA entities, as such. See Airparts Co.,
28 F.3d at 1065. That Principal Mutual may have later acted as a plan fiduciary
does not alter its pre-plan status. Cf. Coyne & Delaney, 98 F.3d at 1471.
Allowing Woodworkers claims to proceed is consistent with Congress
purpose in enacting ERISA, that is, to protect the interests of employees and other
beneficiaries of benefit plans and establish uniform standards regulating such
plans. Holding insurers accountable for pre-plan fraud does not affect the
administration or calculation of benefits, nor does it alter the required duties of
plan fiduciaries. See Wilson, 114 F.3d at 719; Coyne & Delaney Co., 98 F.3d at
1471. Conversely, were ERISA to preempt such claims, employees, whom
Congress sought to protect, [would] find themselves unable to make informed
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choices regarding available benefit plans. Morstein, 93 F.3d at 723-24. We

agree with the Eighth Circuits assertion that a states efforts to prevent sellers
of goods and services, including benefit plans, from misrepresenting . . . the
scope of their services is quite remote from the area with which ERISA is
expressly concernedreporting, disclosure, fiduciary responsibility and the like.
Wilson, 114 F.3d at 720 (quoting Dillingham, 117 S. Ct. at 840).
Finally, we are not persuaded that Principal Mutuals status as an
insurance company mandates preemption. 3 We acknowledge that in the abovecited cases plaintiffs were suing insurance professionals, as opposed to insurance
companies, but we fail to see how this makes a material difference. See Camp v.
Pacific Fin. Group, 956 F. Supp. 1541, 1546-47 n.4 (C.D. Cal. 1997). In enacting
ERISA, Congress intended to protect the integrity of employment benefit plans,
not insurance companies. It explicitly defined a plan fiduciary in terms of the
function it performed for the plan, not whether it was an insurance company.
Courts have repeatedly held that insurers are not necessarily ERISA entities. See
Harris Trust & Sav. Bank v. Provident Life & Accident Ins. Co., 57 F.3d 608,
613-14 (7th Cir. 1995) (holding that insurance company was not a fiduciary as

Principal Mutual argues that because claims against insurance

professionals are permitted, Woodworker could sue Ms. Shimada for fraud. That
suggestion ignores Woodworkers theory of the case: that Principal Mutual, not
Ms. Shimada, concealed material facts.
3

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defined by ERISA and citing cases). Moreover, one circuit has indicated that an
insurance company may suffer liability in a misrepresentation suit. See Wilson,
114 F.3d at 718 (If Prudential incurs any liability as a result of this suit, it will
do so only as the employer of a tortfeasor, and not as a plan fiduciary.). Quite
simply, we see no principled basis for distinguishing insurance companies from
insurance professionals in this type of action. We hold that ERISA does not
preempt Woodworkers pre-plan fraud claims against its insurer, and affirm the
district court on this point.
B.

Admission of Woodworkers Damage Theory

Principal Mutual contends that Woodworker failed to properly disclose its

damage theory prior to trial and that the district court should have excluded its
evidence of damages. Principal Mutual raises this claim under two theories:
arguing first, that Fed.R.Civ.P. 37(c) mandated exclusion, and second, the court
should have granted a new trial under Fed.R.Civ.P. 60(b)(3). We review
evidentiary rulings and the disposition of Rule 60(b) motions for an abuse of
discretion. See Howard v. Mail-Well Envelope Co., 150 F.3d 1227, 1231 (10th
Cir. 1998 ) (60(b) motions); Orjias v. Stevenson, 31 F.3d 995, 1005 (10th Cir.
1994) (evidentiary rulings under 37(c)). Under this standard, we will not reverse
unless the trial court has made an arbitrary, capricious, whimsical, or manifestly
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unreasonable judgment. FDIC v. Oldenburg, 34 F.3d 1529, 1555 (10th Cir.

1994) (further quotations omitted).
In its complaint, Woodworker asked for compensatory damages for
various offenses in an amount to be proven at trial. Aplt. App. at 30-31. At
trial, it asked for contract damages based on recission, the difference between the
value it had received for the insurance and the purchase price. During its opening
statement, Woodworker explained, [w]e want that . . . difference between the
amount we paid in premiums and the amount they paid in claims refunded to us.
Id. at 442. Woodworkers pre-trial disclosures had been somewhat vague,
however, and during a deposition Mr. John Wirth, president of Woodworker, did
not fully explain that he would request such damages.
At trial, Principal Mutual objected when the attorney for Woodworker
asked Mr. Wirth on direct examination about the amount his company had paid in
premiums, but Principal Mutual did not request a continuance. The trial court
overruled the objection without explanation, but offered Principal Mutual the
right to question Mr. Wirth outside the presence of the jury prior to his crossexamination. Id. at 887-88. Principal Mutual apparently failed to take advantage
of this opportunity. See id. at 891. Nevertheless, during cross-examination,
Principal Mutual elicited from Mr. Wirth that his calculation of damages did not
account for the administrative and other costs incurred by the insurance company.
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Rule 37(c)(1) provides:

[a] party that without substantial justification fails to disclose
information required by Rule 26(a) or 26(e)(1) [which govern initial
disclosures and required supplements thereof] shall not, unless such
failure is harmless, be permitted to use as evidence at a trial, at a
hearing, or on a motion any witness or information not so disclosed.
The determination of whether a Rule 26(a) violation is justified or harmless is
entrusted to the broad discretion of the district court. Mid-America Tablewares,
Inc. v. Mogi Trading Co., 100 F.3d 1353, 1363 (7th Cir. 1996). A district court
need not make explicit findings concerning the existence of a substantial
justification or the harmlessness of a failure to disclose. United States v.
$9,041,598.68, 163 F.3d 238, 252 (5th Cir. 1998). Nevertheless, the following
factors should guide its discretion: 1) the prejudice or surprise to the party against
whom the testimony is offered; 2) the ability of the party to cure the prejudice; 3)
the extent to which introducing such testimony would disrupt the trial; and 4) the
moving partys bad faith or willfulness. See Newman v. GHS Osteopathic Inc., 60
F.3d 153 (3d Cir. 1995) (quoting Bronk v. Ineichen, 54 F.3d 425, 418 (7th
Cir.1995)); Cf. $9,041,598.68, 163 F.3d at 252 (enumerating a similar list of
factors to determine whether inclusion of last-minute evidence is harmless); Smith
v. Ford Motor Co., 626 F.2d 784, 797 (10th Cir. 1980) (applying these four
factors to determine whether the district court abused its discretion in allowing
testimony not specified in the pretrial order).
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We assume arguendo that Woodworker improperly failed to disclose its

damage theory. Even so, we are persuaded the admission of Woodworkers
damage theory was harmless under the factors we must consider. First, Principal
Mutual knew the numbers on which Mr. Wirth based his calculation; indeed, it
provided the calculation for the amount it paid in premiums. Moreover, the
district court gave Principal Mutual a significant opportunity to cure any resulting
prejudice by cross-examining Mr. Wirth outside the presence of the jury.
Principal Mutual failed to do so. After Mr. Wirth testified, Principal Mutual also
called as a witness Ms. Lorek, an underwriter who was familiar with the
administrative costs Principal Mutual incurred processing claims. Yet, it elicited
no testimony on this subject matter. Nor did it argue to the district court that it
needed more time to make this calculation. Finally, Woodworkers initial
disclosures and Mr. Wirths deposition occurred before the district court ruled
that ERISA preempted a number of its claims. Those rulings no doubt prompted
Woodworker to modify its damage theory. While this certainly does not excuse
Woodworker from supplementing its disclosures, it reduces the likelihood that
Woodworker acted in bad faith in varying its trial testimony from its deposition
testimony. Under these circumstances, we hold the district court did not abuse its
discretion under Rule 37 in permitting evidence of Woodworkers damage theory.
We now turn to Principal Mutuals Fed.R.Civ.P. 60(b)(3) claim based on
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the same facts, and again assume arguendo that Woodworkers failure to disclose
was improper. [B]efore retrial is mandated under Rule 60(b)(3) in consequence
of discovery misconduct, the challenged behavior must substantially have
interfered with the aggrieved partys ability fully and fairly to prepare for and
proceed at trial. Anderson v. Cryovac, Inc., 862 F.2d 910, 924 (1st Cir. 1988)
(emphasis in original). Given Principal Mutuals opportunities to cure any
prejudice flowing from Mr. Wirths testimony, we cannot say with any certainty
that Woodworkers failure to disclose substantially interfered with Principal
Mutuals ability to proceed at trial. Accordingly, we hold that the district court
was within its discretion in denying Principal Mutuals Rule 60(b)(3) motion, and
we decline to grant a new trial on this basis.
C.

Sufficiency of the evidence

Principal Mutual contends that Woodworker presented insufficient

evidence to support the jurys finding on the claims for violations of the New
Mexico Unfair Practices Act, the Unfair Insurance Practices Act, fraudulent
inducement, and damages. We view the evidence in the light most favorable to
Woodworker, upholding the verdict if the record reveals sufficient evidence to
support it. See Acrey v. American Sheep Indus. Assn, 981 F.2d 1569, 1572 (10th
Cir. 1992). We discuss each claim in turn.
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1.

New Mexico Trade Practices Statutes

Both the New Mexico Unfair Practices Act (UPA), N.M. S TAT . A NN .

57-12-1 et. seq., and the New Mexico Unfair Insurance Practices Act (UIPA),
N.M. S TAT . A NN . 59A-16-1 et. seq., prohibit misleading or deceptive
communications to consumers. [U]sing exaggeration, innuendo or ambiguity as
to a material fact or failing to state a material fact if doing so deceives or tends to
deceive is unlawful under the UPA. N.M. S TAT . A NN . 57-12-2 (D) (14). The
UPA applies to all misleading or deceptive statements, whether intentionally or
unintentionally made. Ashlock v. Sunwest Bank of Roswell, 753 P.2d 346, 348
(N.M. 1988), overruled on other grounds by Gonzales v. Surgidev Corp., 899
P.2d 576, 583 (N.M. 1995).
The UIPA places similar restrictions on trade practices within the
insurance business. No person may misrepresent[] the benefits, advantages,
conditions or term of any policy, N.M. S TAT . A NN . 59A-16-4 (A) or fail[] to
disclose material facts reasonably necessary to prevent other statements made
from being misleading. N.M. S TAT . A NN . 59A-16-4 (G).
Woodworker presented evidence that Principal Mutual knew that the rates
were inadequate prior to the time the agreement went into effect, and that
Principal Mutual did not disclose its method for deciding whether to add a
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surcharge to the preliminary premium or increase annual rates. Evidence in the

record shows that had Woodworker had access to that information, it would not
have contracted with Principal Mutual. We therefore hold sufficient evidence
supports the UPA and UIPA claims.
2.

Fraudulent Inducement
Under New Mexico law, the elements for fraudulent inducement are 1) a

misrepresentation of fact or failure to disclose a material fact; where 2) the falsity

was known to the maker or where the representation or concealment was reckless;
3) the maker acted with the intent to deceive and to induce the other party to act
in reliance; and 4) the other party actually relied on the representation or
concealment. See Lotspeich v. Golden Oil Co., 961 P.2d 790, 792 (N.M. Ct. App.
1998); see also Krupiak v. Payton, 561 P.2d 1345, 1346 (N.M. 1977). A party
has the duty to disclose if he knows that the other party to a contemplated
transaction is acting under a mistaken belief, or if he has superior knowledge not
within the reach of the other party. Krupiak, 561 P.2d at 1346.
Woodworker presented evidence that supported its fraudulent inducement
claim. First, as discussed above, Principal Mutual had superior knowledge about
its calculation methods for the underrated premiums it had offered Woodworker.
Principal Mutual contends it failed to disclose opinions, not facts. However, its
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unusual calculation methods and the resultant hidden charges presumably led Ms.
Lorek to conclude the rates were inadequate. These underlying facts serve as the
basis for a fraud claim. In addition, a reasonable juror could infer that Principal
Mutual intentionally chose not to disclose the inadequacy of the proposed rates in
order to ensure it received Woodworkers business. Finally, Woodworker
presented evidence that it relied on Principal Mutuals concealment. We
therefore affirm the jurys finding of fraud. 4
3.

Damages
Principal Mutual contends that Woodworker did not suffer any damages

because, at worst, Woodworker paid less in premiums than it should have. We

disagree. Woodworker presented considerable evidence that underrating
premiums and failing to disclose calculation methods can, and did, result in
unexpected retrospective collections and rate increases. Woodworker then
presented evidence of recission damages, an appropriate remedy for fraud. See
Snell v. Cornehl, 466 P.2d 94, 95-96 (N.M. 1970); Montoya v. Moore, 422 P.2d

Because we uphold the jurys finding that the contract at issue was
procured by fraud, Principal Mutual has no right to collect under it. See
Rodriguez v. Horton, 622 P.2d 261, 265 (N.M. Ct. App. 1980). Consequently, we
deny Principal Mutuals counterclaim for $56,320, the surcharge on the 1994
preliminary premium.
4

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363, 365 (N.M. 1967); F OWLER V. H ARPER ET AL ., 2 T HE L AW OF T ORTS 7.15

(2d ed. 1986); see also 37 A M . J UR . 2 D . Fraud and Deceit 338 (1968). Because
sufficient evidence existed to support the damage award, we uphold it.
III.
Woodworker raises several issues in its cross-appeal which we address in
turn.
A.

Punitive damages
Woodworker contends the district court erred in refusing to submit the

issue of punitive damages to the jury. After both parties rested, Woodworker
requested that evidence pertaining to punitive damages be admitted. The district
court denied the request, finding insufficient evidence to submit punitive damages
to the jury. Aplt. App. at 1144-1145. 5 We review this question of law de novo,
viewing the evidence in the light most favorable to Woodworker. See Oja v.
Howmedica, Inc., 111 F.3d 782, 792 (10th Cir. 1997).
Under New Mexico law, punitive damages may be awarded for conduct

Later, the district court noted the compensatory damage award alone was
sufficient to achieve the underlying policy rationale of awarding punitive
damages, that is, to encourage private citizens to undertake this type of litigation.
Aplt. App. at 201.
5

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that is malicious, willful, reckless, wanton, fraudulent, or in bad faith. See

Gonzales v. Surgidev Corp., 899 P.2d 594, 597 (N.M. 1995); Golden Cone
Concepts v. Villa Linda Mall, 820 P.2d 1323, 1328-29 (N.M. 1991); Sanchez v.
Wiley, 946 P.2d 650, 655 (N.M. Ct. App. 1997). If sufficient evidence exists to
prove any one of the enumerated mental states, the trial court is required to
instruct the jury on punitive damages. See Gilmore v. Duderstadt, 961 P.2d 175,
184 (N.M. Ct. App. 1998). In Flores v. Baca, 871 P.2d 962, 964 (N.M. 1994), for
example, the trial court refused to instruct the jury on punitive damages. On
appeal, the New Mexico Supreme Court ordered a new trial on that issue because
the jury could have inferred from the evidence that the defendant acted
fraudulently. Id. at 968. Once a plaintiff presents sufficient evidence of a
requisite mental state, the question of punitive damages belongs to the jury.
Punitive damages are an appropriate sanction for common-law fraud. Naranjo v.
Paull, 803 P.2d 254, 261-62 (N.M. 1991).
Here, the jury specifically found Principal acted willfully and committed
fraud and therefore possessed the mental state required for a punitive damage
award. We are sympathetic to the policy justifications the district court gave in
explaining why it did not award punitive damages and would not award treble
damages. However, the district court did instruct the jury on fraudulent
inducement, and we have held that Woodworker presented sufficient evidence to
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support such a finding. Under these circumstances, New Mexico law requires an
instruction on punitive damages, if requested. See, e.g., Gilmore, 961 P.2d at
184. Because substantial evidence supports the jurys finding of fraudulent
inducement, we have no choice but to order a new trial on punitive damages.
B.

Treble damages
Woodworker argues that the district court also erred in refusing to treble

its damage award. The New Mexico Unfair Trade Practices Act provides that
[w]here the trier of fact finds that the party charged with an unfair or deceptive
trade practice . . . has willfully engaged in the trade practice, the court may award
up to three times actual damages. N.M. S TAT . A NN . 57-12-10 (B) (emphasis
added). The statute specifically makes the awarding of treble damages a
discretionary act. We therefore review the courts decision not to award treble
damages under an abuse of discretion standard. Cf. Lam, Inc. v. Johns-Manville
Corp., 668 F.2d 462, 476 (10th Cir. 1982) (reviewing for abuse of discretion an
award of treble damages and attorneys fees granted under statute providing the
court may award successful party such fees).
Here, the jury expressly found that Principal Mutuals conduct was
willful, so the district court had the option to grant treble damages. However,
[g]iven the record in the case and other remedies awarded, it declined to do so.
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Aplt. App. at 202. We are not persuaded the district court abused its discretion in
denying Woodworker treble damages.
C.

Liability for post-March 1, 1994 Conduct

Woodworker contends the district court erred in instructing the jury that it

could only find liability for Principal Mutuals conduct occurring before the
commencement of the insurance plan on March 1, 1994, with respect to the
fraudulent inducement, the UPA, and the UIPA claims. On cross-appeal,
Woodworker asks us to reverse this decision in the event we order a new trial on
liability or damages. Woodworker provides no separate argument on this issue,
however, and we are at a loss to determine either from its briefs on appeal or from
the record below what alleged post-plan conduct of Principal Mutuals relates to
these three claims. Woodworker specifically disclaims any intent to appeal the
district courts dismissal of its claims for breach of contract, defamation, bad
faith, and prima facie tort, which claims primarily were based on conduct
occurring after March 1, 1994. See Br. of Aplee./Cross-Aplt. at 2. Under these
circumstances, we decline to address this argument.

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D.

Attorneys Fees and Costs on Appeal.

Woodworker also argues that it is entitled to attorneys fees and costs on

appeal. The New Mexico Unfair Trade Practices Act mandates an award of costs
and attorneys fees to prevailing plaintiffs. N.M. S TAT . A NN . 57-12-10 (C).
The New Mexico Supreme Court has ruled that this provision applies to costs and
fees incurred on appeal as well as at trial. See Hale v. Basin Motor Co., 795 P.2d
1006, 1013-1014 (N.M. 1990). Woodworker is therefore entitled to such fees.
On remand, the district court should award Woodworker attorneys fees for
litigating this appeal.
IV.
We REVERSE the district courts denial of punitive damages and
REMAND this case for a new trial on that issue. We AFFIRM on all other
issues.

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