Burress v. Standard Fire Ins. Co., EC82-329-LS-D.

• Citation: 642 F. Supp. 62
• Decision Date: 15 January 1986
• Docket Number: No. EC82-329-LS-D.,EC82-329-LS-D.
• Parties: William E. BURRESS, Sr. and Reba J. Burress, and the Peoples Bank and Trust Company of Booneville, Mississippi, Plaintiffs, v. STANDARD FIRE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

642 F. Supp. 62

William E. BURRESS, Sr. and Reba J. Burress, and the Peoples Bank and Trust Company of Booneville, Mississippi, Plaintiffs, v. STANDARD FIRE INSURANCE COMPANY, Defendant.

No. EC82-329-LS-D.

United States District Court, N.D. Mississippi.

January 15, 1986.

William Smith, Rickey T. Moore, Booneville, for plaintiffs.

Richard T. Lawrence, Jackson, for defendant.

MEMORANDUM OPINION GRANTING JUDGMENT IN FAVOR OF DEFENDANT

SENTER, Chief Judge.

In this diversity action which was removed to federal court, Plaintiffs William E. Burress, Sr., and Reba J. Burress, husband and wife, sued Defendant Standard Fire Insurance Company for recovery of policy proceeds following a fire loss on October 28, 1981, to a building and contents owned by plaintiffs in Booneville, Mississippi. Plaintiffs seek recovery of $27,680.38 for the contents and $40,000.00, the face amount of the policy, for the building. The defendant is defending the action on the grounds of arson, misrepresentation, concealment, and increased hazard. Sitting without a jury, the court conducted an evidentiary hearing on October 15-16, 1985. Pursuant to Fed.R.Civ.P. 52(a), the court finds as follows.

I. FINDINGS OF FACT.

The Burresses purchased the House of Carpets, a retail carpet business, in February, 1981, from a Mr. Wren. Since they had never before been in the retail carpet business, they retained the employees who had worked for Wren. The Burresses assumed a loan which had an outstanding balance of approximately $62,000 and payments which were in arrears in the amount of $3,300. An insurance policy was purchased which was in effect from March 3, 1981, until March 3, 1984, and had coverage limits of $40,000 on the building and $60,000 on the personal property.¹ The lot fronted Highway 45 within the city limits, and the building sat 100-150 feet from the highway. The metal structure contained an office/showroom about 20' × 24' in area and a warehouse about 40' × 80' in area. The business was operating at a loss when purchased by the plaintiffs, and it remained unprofitable. Plaintiffs conducted a "going-out-of-business" sale in September and October of 1981, allegedly to provide more time and service to Mr. Burress' ill father. This sale was still in effect on the day of the fire.

On Wednesday, October 28, 1981, at approximately 4:00 a.m., the House of Carpets became consumed in flames and was destroyed by fire. The fire was incendiary in origin, or deliberately set, and resulted when flammable liquids deliberately placed inside the building's warehouse area ignited. According to plaintiffs, they were at home with their sons the evening before the fire and were asleep when they received a telephone call at approximately 4:00 a.m. in which the caller informed them that their business was on fire. They left the house immediately and arrived at the fire scene a few minutes later. A fire truck was already on the scene, and Mr. Burress assisted the firefighters by unlocking the front door to the building. The building was a total loss, and substantial damage was done to the rolls of carpet, a forklift, and a truck.² Mr. Burress subsequently completed and filed a sworn proof of loss form and nonwaiver agreement with the insurer's representative.³ On April 19, 1982, plaintiffs were notified that the insurer denied any and all liability arising from the October 28 fire. Plaintiffs thereafter initiated this lawsuit to recover the proceeds of the policy.

Mr. Burress asserted that he closed the business for the day at 5:30 p.m. the evening before the fire. The building had three entrances. The front glass door led into the showroom and office areas and contained a deadbolt lock which required a key to be unlocked from either the inside or the outside. The warehouse portion of the building contained a large overhead door which had a sliding lock and which could be opened or unlocked only from the inside. The rear entrance to the warehouse area contained a lock that one had to push in to lock and which could be opened from the inside without a key. After the Burresses had purchased the business in February, 1981, they had the locks on the building changed. Mr. Burress affirmed in his testimony that he was convinced that the locks were secure enough to keep out intruders.⁴ Although Mr. Burress stated that other persons had had keys to the building, he admitted that all the keys were returned to him before the day of the fire. On the evening before the fire, Mr. Burress made certain that he locked all the doors and entrances before he left, and he did not see, hear, or smell anything unusual. He testified at trial that he knew of no threats against him or of any previous break-ins or of anyone who would have a motive to set the fire.

Frank Fleming, Booneville fire chief, was at the scene of the fire when the fire department arrived. At trial, he testified that he went around to the south side of the building that morning and found no evidence of illegal entry. He attempted entry through the front showroom door, but found it locked. Fleming examined the back door of the building and found it locked and unopenable from the outside. He then unsuccessfully attempted entry through the overhead warehouse door, which he finally broke open by use of an ax. Upon gaining entrance, Fleming smelled gasoline in the area of the warehouse where the carpet was stored. He took pictures and samples but did not question anyone. An examination of the truck in the warehouse revealed that the fuel line had been cut evenly. Fleming thereafter contacted the state fire marshal's office.

Max Ellis, a deputy state fire marshal, investigated the fire scene on November 4.⁵ His investigation revealed that an accelerant had been poured on the carpet and set aflame. The remnants of the rolls of carpet showed distinct lines and places of burns. His examination also revealed no evidence of forced entry into the building. In a discussion with Mr. Burress, Ellis discovered that business had been slow and that Burress was having to lay off some of his employees. Ellis was of the opinion that a key had to be used to enter the building and that the fire was incendiary, although he admitted that there was no direct evidence as to who set the fire.

Kirk McDaniel is manager of Aetna's arson and fraud unit and, in that capacity, supervises investigators for the southeast part of the country.⁶ His November 2 investigation revealed that no one had gained entrance through the front glass and that there was no real disturbance or evidence of vandalism in the office/showroom part of the building. He found the origin of the fire to be flammable liquids placed in a corner of the warehouse, and he thought the fuel had come from the truck, the filler hose of which had been cleanly cut. The evidence indicated to McDaniel sporadic burning and particular placement of flammable liquids on the carpet. McDaniel pointed out that carpeting does not support its own burning. There was no evidence of tampering with the locks, according to McDaniel. He testified that there was no evidence that this fire was caused by vandals. He pointed to the fact that there was no damage to the drink machines or to the truck, other than fire damage. Typically, vandals do not set fires solely to have a fire going. McDaniel also discarded a burglary theory and a revenge theory of the fire since the drink machines remained intact and since revenge fires are usually made against the outside of the building. This fire, McDaniel pointed out, was started to damage the carpet, not the building. The witness testified that there were no signs of forcible entry and that the type of lock on the back door indicated that the building was secure. More specifically, he testified that use of a credit card would not permit entrance through the rear door because of the particular design and manufacture of the door and frame. In McDaniel's opinion, the fire was incendiary.

Much of the testimony, and the portion most vigorously disputed, centered around plaintiffs' financial condition at the time of the fire loss. At that time, they had an interest in three apartment complexes: A & B Associates, Ltd., and Greenacres, begun in 1978, and Carter Hill, or Burress Brothers, Ltd., begun in 1977.⁷ The first of these were low-income housing projects subsidized by the Department of Housing and Urban Development (HUD).⁸ Cost overruns on these projects forced plaintiffs in 1979 to obtain loans totaling over $100,000 from a lender at a time when interest rates were hovering at 20% per annum. On April 3, 1981, six months prior to the fire, HUD notified Mr. Burress that housing assistance payments had been suspended on these projects due to receipt by plaintiffs of excess payments. The A & B project was approximately $65,000 delinquent in payments, and the Greenacres project was in arrears in the amount of $59,000. One month prior to the date of the fire, the Farmers Home Administration (FHA) notified Mr. Burress of acceleration of the debt to FHA on the A & B and Greenacres projects. Much of plaintiffs' income was derived from these projects, and this cessation of housing assistance payments had an adverse impact upon their financial condition. Insurance on the projects was obtained from Aetna. After the fire at issue here, Aetna cancelled all insurance on the three apartment projects, and plaintiffs were unable to obtain insurance elsewhere. FHA finally agreed to insure the projects at a higher cost. Burress Brothers, Ltd., was sold by plaintiffs in 1983. The debt on that project was assumed, and plaintiffs were paid $65,000.

In May, 1981, the Small Business Administration (SBA) turned down the House of Carpets' application for an $80,000 loan. The reasons listed for rejection were: (a) lack of reasonable assurance of repayment of loan from earnings; (b) gross disproportion between business debt and net worth, and (c) insufficient collateral.

The...