DONALD W. MOLLOY, District Judge.
This criminal case was tried to a jury but it should not have been given to them for decision. It was submitted to the jury on a theory of mail fraud as set forth in the indictment but, upon reflection, that criminal theory cannot be sustained when the proof of materiality is at odds with a contractual obligation to pay what was supposedly gained by fraud. Chubb, the alleged victim of mail fraud, was obligated to pay Didier a substantial sum of money, undefined except in ambiguous language in the contract of insurance it wrote, because she could not live in her lake mansion due to covered losses to that home. Chubb argued to state and federal regulatory and investigative agencies that it had been victimized when Didier misrepresented the nature of her temporary residence. But, because Chubb was obligated to pay her an amount sufficient to maintain her standard of living in a mansion with multiple bedrooms, multiple baths, and even a ballroom whatever she said could not have been material to Chubb. The answer to the question of whether the element of materiality can be shown under such circumstances is that materiality cannot be proven when the entity supposedly victimized by mail fraud is obligated to pay what the government claims was a loss caused by fraudulent representations of the insured.
Every day in this country there are thousands, if not hundreds of thousands of insurance claims made or resolved. In many of those claims the carrier pays the policy value of the roof destroyed by wind, the collision damage from a wreck, or the estimated value of windshield damage. Likewise, everyday insurance adjusters engage in thousands of transactions and adjustments concerning liability payments, home owners claims, or replacement value disputes. If the government's theory is correct about materiality being a separate issue from the contractual obligation to pay, then each of these events could give rise to indictment for mail fraud. Is it mail fraud when the owner of a damaged car gets the requisite three estimates, obtains payment by mail from the carrier but then has someone else do the work, pocketing the difference or savings? What if the owner never has the damage repaired, is that fraud? Is it mail fraud when the water heater leaks and destroys the beautiful wooden floor in the kitchen and the adjuster issues a check in the mail for the replacement cost and the homeowner elects to install linoleum or chooses not to fix the wooden floor but pockets the difference in cost? Is it mail fraud when the adjuster compromises the personal injury claim with a third party by erroneously telling them comparative fault applies when the injured person is an innocent passenger, using the underpayment to bolster corporate and personal profits? Is it mail fraud when an auto carrier tells an insured in Montana that policy limits cannot be stacked, contrary to established law? Is it mail fraud when Chubb issues a "white glove" policy that requires it to pay to maintain a standard of living and its adjuster unilaterally uses the wires to declare the "cost is too much" even though the policy requires it to pay according to a subjective standard? Materiality cannot legally exist if the purported victim is contractually obligated to pay what it was allegedly deprived of by misrepresentation or lies. That is why a judgment of acquittal must be entered in this case.
Ms. Didier and Ms. Nasir were convicted of mail fraud and conspiracy to commit mail fraud March 22, 2013, after a week-long jury trial. The Defendants' Motions for a Judgment of Acquittal are now pending.
For the reasons discussed below, there was not sufficient evidence to support the Defendants' convictions on Counts I-IX of the Indictment.
I. Statement of Facts
Sometime in July of 2005, Christin Didier bought a large mansion in Somers, Montana. The home was built in 1903 and had fourteen separate bedrooms, multiple fireplaces, and three bathrooms, as well as what was described as a ballroom. The property was located on nearly five acres of land and has extraordinary views of Flathead Lake. When she bought the mansion, Ms. Didier also purchased an expensive white glove insurance policy on the home written by Pacific Indemnity Company, a division of Chubb Insurance. The Chubb Masterpiece Policy she purchased included liability coverage as well as coverages for the structure and its contents. It is described as a white glove policy marketed specifically for high end homes and high net worth customers that Chubb intended to give special treatment. The premium cost for the policy was nearly $1, 000 per month.
After she had been living in the house for two years, in July of 2007, the mansion was damaged by a tornado. Didier filed a claim with Chubb Insurance, which Chubb began the process of adjusting so necessary repairs could be made. That winter another untoward event took place; either due to damage to the boiler from the earlier wind occurrence or because of a lack of fuel, Didier began using portable diesel-fueled heaters and the mansion's wood-burning fireplaces as a source of heat. A fire happened on January 11, 2008 that caused extensive damage to the residence, rendering it uninhabitable and ultimately leading to the indictment in this case.
To start with Didier and Chubb agreed that losses from the wind and fire were covered by her Masterpiece Policy. They also mutually agreed it was necessary for her to vacate the house until repairs were completed. A major clause of Chubb's policy anticipated this event and it provided assurance that her standard of living would not be altered because she had to temporarily abandon the mansion while repairs took place. Chubb set out to find Ms. Didier alternate housing under the policy's additional living expenses coverage. This insurance clause obligated Chubb in the following way:
If your house cannot be lived in because of a covered loss to your house or, if applicable, to your contents, we cover the reasonable increase in your normal living expenses that is necessary to maintain your household's usual standard of living. We cover this increase for the reasonable amount of time required to repair, replace or rebuild your house or your contents, or if you permanently relocate, the shortest amount of time required for your household to settle elsewhere. This period of time is not limited by the expiration of this policy.
Chubb was obligated to pay whatever it took to make sure Didier maintained her standard of living, regardless of where she lived, even if her normal living expenses went up. In this regard Chubb conceded that the fire was a covered event that would require Ms. Didier to vacate the premises for at least six months while repairs were made. The Masterpiece Policy required undefined payment to Didier, constrained only by her usual standard of living at the Somers mansion.
In setting the stage to resolve the materiality issue in this case it is important to keep in mind that if the language of a policy drafted by the insurer is ambiguous, courts will construe the ambiguity against the insurer and in favor of extending coverage. Giacomelli v. Scottsdale Ins. Co., 221 P.3d 666 (Mont. 2009). The purpose of this canon of construction is to give protection to the insured because insurers draft the language of the policy. See Pablo v. Montana, 995 P.2d 460 (Mont. 2000). Likewise, if a clause of an insurance contract is subject to more than one reasonable interpretation, if it is ambiguous, obscure, or subject to different interpretations, the policy must be construed most favorably for the insured particularly when there is some attempt to exclude the liability of the carrier to make the necessary payment. See Head v. C. Reserve Life of N. Am. Ins. Co., 845 P.2d 735, 742 (Mont. 1993). Resolving an ambiguous clause to favor Chubb in this case is inconsistent with the general rules of insurance contract interpretation and turns payment of a contractual obligation into a sword of conviction simply because the carrier paid what it owed, but did so based on mistaken reasons imparted to it by its insured. The focus of the obligation to pay is not on where the insured chooses to live when expelled from her mansion by a loss, rather it is what is the cost of keeping her standard of living the same, even if it costs more than her actual expenses, based on the mansion she could no longer inhabit.
The nature of the Somers mansion and Ms. Didier's use and enjoyment of it presented a challenge to Chubb in meeting their guarantee to provide replacement housing that would maintain her standard of living. The Somers mansion and estate were exceptional properties in the Flathead Valley. The size of the mansion, its historic character, and surrounding estate, as well as panoramic views of Flathead Lake are rare, especially in a replacement rental property. The loss was complicated by Didier's living situation. She used the property in a way that was specialized and somewhat incompatible with many rental arrangements. When the fire loss happened, Didier was living at the Somers mansion with her elderly mother who was suffering from Alzheimer's disease. She also had several dogs on the property, some estimates as high as twenty to thirty Pugs, as part of her household.
When Chubb was handed this unique high end loss it retained a temporary housing vendor, ALE Solutions, Inc., to find suitable replacement housing. Chubb initially authorized ALE to offer Ms. Didier and her household hotel accommodation as a stopgap to provide her shelter with heat during the cold Montana winter. The idea was unworkable because Didier had concerns about her mother and her dogs. While ALE searched for housing that would match the standard of living in the mansion, Didier stayed at the mansion despite the firedamage. Ms. Didier offered to live in a mobile home or trailer, but that offer was not acted on by ALE and Chubb due to cost.
The search to replace the mansion proved difficult for ALE. They located a bed and breakfast in Whitefish, Montana willing to cancel its reservations to accommodate Ms. Didier. Chubb's adjuster said no to this property because its owner was not willing to sign a six month lease with option to renew. ALE later found a fully furnished home with eight bedrooms. Chubb's claims adjuster again rejected the corporate property due to the $40, 000 per month cost. Evidently relying on the notion that it was obligated to replace the mansion, Chubb's adjuster told ALE to look for a place costing $10, 000 to $15, 000 per month as an appropriate price range. In other words, Chubb acknowledged it had to pay based on the replacement cost, not the value of where Didier, her mother and her dogs actually lived. ALE then returned to negotiations with the bed and breakfast owner, eventually reaching an agreement to rent the six bedroom, three and onehalf bath property for just over $10, 000 per month for six months with an option to renew.
ALE presented the idea of the Whitefish bed and breakfast to Ms. Didier on January 22, 2008 and encouraged her to visit the property. She did so but after visiting the property, Ms. Didier rejected the Whitefish bed and breakfast as replacement housing because it was too far from her home in Somers.
On January 28, 2008 Ms. Didier contacted ALE, informing them she had a lead on a property in Rollins, Montana that would be a better fit for her household. ALE responded to Ms. Didier and asked her for more information about the property. Ms. Didier put ALE in contact with Ms. Nasir. Ms. Nasir represented herself as broker for the Didier Family Trust and began communicating with ALE by fax and email.
When placing a customer in temporary housing, ALE collects information regarding the property in a form called a "preap" and then evaluates these details internally before presenting the proposed placement to the insurance adjuster. Typically the preap is completed by ALE based on information provided by the landlord or property manager over the telephone or in-person. In this case, ALE's representative sent the preap to Ms. Didier for completion. Ms. Didier or Ms. Nasir completed the preap and faxed it back to ALE with the necessary information. Notably these communications were not with Chubb.
The preap as completed by Ms. Didier represented that the Rollins property was 6900 square feet, with five bedrooms and two bathrooms. This information was false. The document detailed proposed financial terms for the temporary housing arrangement, including a base rent of $15, 250 per month, a $7, 000 security deposit, a $5, 000 pet deposit, a $200 application fee, a $1, 500 cleaning fee, and a 10% broker fee. Chubb did not question the coverage for any of the claims. ALE transferred the handwritten preap as completed by Ms. Didier to an electronic format and processed it for Chubb's approval.
ALE contacted Ms. Nasir for more information regarding her role in the transaction. It confirmed her role as broker on behalf of the Didier Family Trust and confirmed that the broker fee was a one-time fee.
ALE also asked Didier for more information about the Rollins property. ALE had concerns about Nasir's statement that she represented the Didier Family Trust. It needed confirmation that the Rollins property was not Ms. Didier's own property and that the property was actually held in trust by her extended family. Didier confirmed.
Didier, her mother, and the dogs stayed in the Somers mansion, surrounded by smoke and fire damage and without adequate heat, until January 27, 2008. Then she moved her household to the Rollins property. She moved her household to the Rollins property before the Chubb adjuster gave final approval to ALE to enter a lease agreement to use that property as replacement housing. On January 31, 2008 there was an email exchange between the Chubb adjuster and ALE. Ms. Didier had been very demanding about acceptable accommodation. The adjuster expressed frustration with her demands and approved the Rollins proposal to just "shut this lady up." Chubb eventually approved the Rollins property as temporary housing for Ms. Didier on the terms she proposed.
A short time later, on February 4, 2008, ALE received a lease, a payment letter of commitment, a temporary housing agreement, and a move-in form for the Rollins property. The payment letter of commitment was executed between ALE and the landlord detailing the nature of the transaction including the monthly rent. The temporary housing agreement was also executed between ALE and the insured detailing the nature of the transaction as temporary replacement housing in connection with the Chubb insurance policy. The move-in form was completed by Didier detailing the condition of the property on move-in. All of these documents were based on information contained in the preap and flow from the Chubb adjuster's approval of the preap.
With the paperwork complete, ALE started the covered payments. It sent a $10, 875 check to Ms. Nasir for the broker fee and application fee. That check was sent by mail or common carrier from an office in Illinois to Ms. Nasir in California. She accepted and deposited the check.
ALE also sent checks to the Didier Family Trust. The checks were sent from ALE's office in Illinois to Didier's sister in Lewistown, Montana. The sister then sent the checks to Ms. Didier's Somers address. Didier deposited the checks into an account at Glacier Bank, held in the name of C.D. Didier Family Trust, Christin Didier. Seven checks were sent by common carriers DHL, FedEx, and the United States Postal Service. Those checks were for monthly rent for January to June 2008, the security deposit, pet deposit, and the cleaning fee. The payments totaled $122, 791.50 for the term of the lease of the Rollins property.
Before the wind event and fire giving rise to Ms. Didier's insurance claims to Chubb she filed for Chapter 11 bankruptcy. Her initial Chapter 11 petition was filed July 2007. During those proceedings, Ms. Didier represented that the Rollins property was owned in trust and not an asset available for liquidation under her Chapter 11 plan. Two years later in July of 2009, Ms. Didier's Chapter 11 filing was converted to Chapter 7 by order of Judge Kirscher. Her schedule of assets was amended after conversion to Chapter 7 and the trust designation was removed as to the Rollins property. She objected to the sale of the Rollins property by the bankruptcy trustee because she claimed it was owned in trust and not a personal asset. Judge Kirscher ultimately ruled that Ms. Didier ...