A & E Supply Co., Inc. v. Nationwide Mut. Fire Ins.

• Decision Date: 21 June 1985
• Docket Number: Civ. A. No. 81-0140 B.
• Citation: 612 F. Supp. 760
• Court: U.S. District Court — Western District of Virginia
• Parties: A & E SUPPLY CO., INC., Plaintiff, v. NATIONWIDE MUTUAL FIRE INSURANCE CO., Defendant.

612 F. Supp. 760

A & E SUPPLY CO., INC., Plaintiff, v. NATIONWIDE MUTUAL FIRE INSURANCE CO., Defendant.

Civ. A. No. 81-0140 B.

United States District Court, W.D. Virginia, Big Stone Gap Division.

June 21, 1985.

E.K. Street, Thomas Scott, Grundy, Va., for plaintiff.

Howard C. Mc Elroy, Abingdon, Va., for defendant.

MEMORANDUM OPINION

GLEN M. WILLIAMS, District Judge.

This is a suit to recover damages for fire loss from the insurer. The plaintiff, A & E Supply Company, Incorporated (A & E), seeks both compensatory and punitive damages. Originally instituted in Buchanan County, Virginia, this diversity action was removed before the Virginia Supreme Court announced its decision in Kamlar Corp. v. Haley, 224 Va. 699, 299 S.E.2d 514 (1983). Prior to trial, A & E moved this court for leave to amend its complaint to comply with Kamlar. Kamlar allows a plaintiff to set forth, in separate counts, allegations of independent, willful torts in order to support an award of punitive damages. Id. The court initially denied the motion to avoid further delay in bringing the case to trial. However, when the trial was continued by agreement of the parties, A & E was permitted to amend to allege independent, willful torts if said torts were supported by the facts alleged in the original complaint.¹

Partial summary judgment was granted to A & E prior to trial because Nationwide had already paid the claim of Borg-Warner Acceptance Corporation, a co-loss payee named in the insurance contract. The court held that payment to a co-loss payee waived the defenses of arson and misrepresentation. A & E Supply Company v. Nationwide, 589 F.Supp. 428 (W.D.Va. 1984). The total coverage of fire insurance on the building was $150,000. Nationwide paid the mortgagee named in the policy the sum of $117,930.21, leaving a balance of $32,069.79 as the maximum amount A & E could recover in actual damages for its loss. The total fire loss coverage on the contents of the building was $250,000. Of this amount, Nationwide paid Borg-Warner the sum of $61,033.91, leaving a balance of $188,966.09 as the maximum that A & E could recover for the loss of the contents. The jury was instructed that the most A & E could recover as compensatory damages was $32,069.79 for damage to the building and $188,966.09 for damage to its contents, a total of $221,035.88. The jury awarded the full amount of compensatory damages and also awarded the entire amount sought for punitive damages, $500,000.

Nationwide admitted at trial that the lost value of the building exceeded the amount of coverage. Therefore, there was no question that the sum of $32,069.79 was justified as an award for the balance of the loss of the building. The value of the building's contents was disputed. This dispute raised the question of whether goods and contents alleged to have been in the building at the time of the fire were actually there. Evidence of an overvalued inventory was used to support Nationwide's theory that the crime of arson had been committed by the owners. The issue of arson was thus placed directly before the jury. The verdict was based on certain interrogatories submitted by the court. The jury was required to find the amount of the actual loss of the building and the actual loss of its contents to arrive at the total for which compensatory damages were awarded. The court also asked the jury to decide whether the defendant had committed the torts of conversion, fraud or bad faith and whether the defendant had committed specific practices prohibited by the Unfair Trade Practices Act of Virginia.

This case is now before the court on Nationwide's motion for judgment notwithstanding the verdict or for a new trial. The motion is based on the following arguments: (1) that there was no finding, and indeed no proof, of compensatory damages for the separate independent torts and that punitive damages could not be awarded absent a finding of compensatory damages for the torts, (2) that A & E failed to prove the specific torts, (3) that the tort of bad faith is not legally cognizable in Virginia, (4) that, under Virginia Law, there is no implied private right of action for a violation of the Unfair Trade Practices Act, (5) that there was insufficient evidence to award punitive damages for lack of evidence showing actual malice or willful or wanton disregard by Nationwide of A & E's rights, (6) that there was no proof that Nationwide authorized or ratified the acts upon which A & E based its claims for the various torts, (7) that the punitive damages award was excessive and (8) that the evidence did not justify a finding of compensatory damages.

STATEMENT OF FACTS

In the late evening of Sunday, October 27 and continuing into the early hours of Monday, October 28, 1980, a fire completely destroyed the building and the contents of A & E Supply Company (A & E), a Virginia corporation, located in Buchanan County, Virginia. A & E was owned and operated by two brothers, Terry Lee Fletcher and Larry Fletcher. A & E was organized and incorporated in January, 1979 and operated as a mine supply business. During its operation, A & E grew from monthly sales of $50,000 in January, 1979 to monthly sales of $275,000 for September, 1980. In the interim, during peak months sales had run as high as $334,000 per month. A & E's corporate fiscal year ended in November. At the direction of A & E's certified public accountant, an end of year inventory, which was almost 95% complete, was being conducted at the time of the fire. This inventory was introduced into evidence as Plaintiff's Exhibit Number 2; it recorded the amount that had been physically counted and projected the items which had not been counted. The total value of the recorded and projected inventory was $365,000, whereas the amount of insurance on the inventory was only $250,000.

Among the items shown on the inventory sheet were many highly inflammable items which would normally be totally destroyed in a fire. These included rubber tires, rubber rainsuits, plastic pipe, rubber splicing kits, rosin glue, rags, vinyl electric tape, rubber tape, paint, oil and grease, transmission fluid, rubber knee pads, compressed oxygen, rubber mine hose, etc. In addition to the inflammable items were items which would melt, such as bags of calcium chloride. There were, of course, numerous items which would not be consumed by fire, including copper wire, cables, metal buckets and items of that kind.

A & E's building was of double masonry wall throughout, consisting either of double brick or single brick and cinder block. The roof of the building was supported partly by metal I-beams and partly by wood rafters. Part of the roof was tin and part was tarpaper. During the course of the fire, the roof collapsed. Witnesses testified that a large area collapsed all at one time. This area was "almost the entire width of the structure and probably over half of its length." (Transcript I at 50). The portion that first collapsed was over the back of the building and later another part of the roof over the front of the building collapsed. In the areas where the roof collapsed, it covered the floor until the time this case was being tried and made any effort to take an inventory most difficult, if not impossible. It was, of course, impossible to count any items which melted or which were inflammable and burned completely. Therefore, it was impossible to take an accurate inventory after the fire.

Many of the business records of A & E were destroyed by the fire. A & E later received certain cancelled checks and turned those over to Nationwide. They partially reconstructed the accounts receivable and accounts payable. Nationwide was provided an "aging sheet" which was current through September 30 but did not record the sales during the month of October. The accounts receivable at the end of September, according to the aging sheet, were $342,708. A & E was able to reconstruct $161,000 of invoices which had been given to customers and turned that information over to Nationwide. A & E contacted their suppliers after the fire, arranged to obtain records of what was owed to the suppliers and turned those records over to Nationwide. Individual tax returns of A & E's owners were furnished to Nationwide. The insurance company refused to return the records to A & E even though they were requested many times. Nationwide advised A & E that it would be detrimental to its case to return any of the material requested. A & E was unable to complete its tax returns and got records from Nationwide only a few weeks prior to trial pursuant to a court order. The evidence is undisputed that A & E had made a written demand upon Nationwide which was specifically denied by a letter from District Claims Manager Robert Allen, who advised that the records would not be returned because it would be contrary to the best interests of Nationwide.

The only evidence placing any employee or either owner of A & E near the building for at least 48 hours before the fire showed that one employee entered the store on Saturday morning to make a delivery. The business was closed on Friday afternoon and the fire occurred on Sunday night. Nationwide produced no evidence, either by eyewitness testimony or circumstantial evidence, to show any opportunity of A & E's principals or agents to set the fire. Indeed, Nationwide made no attempt to confirm or refute the testimony of A & E's officers and agents about where they were before the fire.

After the fire, A & E forwarded its largely completed year-end inventory to Borg-Warner Acceptance Corporation. Borg-Warner furnished a copy to Nationwide and, in reliance thereon, some seven months after the fire Nationwide paid Borg-Warner as a loss-payee. Nationwide, however, refused to accept the inventory when considering payment of A & E's claim. Instead, they relied upon a physical count inventory taken at the scene of the fire despite the facts that the roof had...