Hayseeds, Inc. v. State Farm Fire & Cas.

• Citation: 177 W.Va. 323,352 S.E.2d 73
• Decision Date: 12 December 1986
• Docket Number: No. 16782,16782
• Court: Supreme Court of West Virginia
• Parties: HAYSEEDS, INC. v. STATE FARM FIRE & CAS.

Page 73

352 S.E.2d 73

177 W.Va. 323

HAYSEEDS, INC. v. STATE FARM FIRE & CAS.

No. 16782.

Supreme Court of Appeals of West Virginia.

Dec. 12, 1986.

Syllabus by the Court

1. Whenever a policyholder substantially prevails in a property damage suit against its insurer, the insurer is liable for: (1) the insured's reasonable attorneys' fees in vindicating its claim; (2) the insured's damages for net economic loss caused by the delay in settlement, and damages for aggravation and inconvenience.

2. An insurer cannot be held liable for punitive damages by its refusal to pay on an insured's property damage claim unless such refusal is accompanied by a malicious intention to injure or defraud.

3. "In determining whether there is sufficient evidence to support a jury verdict the court should: (1) consider the evidence most favorable to the prevailing party; (2) assume that all conflicts in the evidence were resolved by the jury in favor of the prevailing party; (3) assume as proved all facts which the prevailing party's evidence tends to prove; and (4) give to the prevailing party the benefit of all favorable inferences which reasonably may be drawn from the facts proved." Syl. Pt. 5, Orr v. Crowder, 173 W.Va. 335, 315 S.E.2d 593 (1983).

4. "If, when considered together, instructions state the law of the case, and are not palpably inconsistent or misleading, mere inaptness of phraseology does not necessarily vitiate any one instruction." Syl. Pt. 3, Karr v. Baltimore & O.R. Co., 76 W.Va. 526, 86 S.E. 43 (1915).

James R. Watson, Steptoe & Johnson, Charleston, for appellant.

Raymond H. Yackel, Oliver & Yackel, Morgantown, James M. Casey, Musgrave, Musgrave & Casey, Pt. Pleasant, for appellee.

NEELY, Justice.

This case involves a suit by a policyholder against an insurance company to recover the value of a burned building. We granted the appeal because we initially shared the defendant's anxiety that the jury's verdict might have been contrary to the evidence and to clarify our rules on attorneys' fees and punitive damages in property damage cases involving insurance companies. After examining the record we conclude that the jury's verdict for the insured was not erroneous on the underlying question of arson and that the award of consequential damages and attorneys' fees was proper. However, we reverse the award of punitive damages. Additionally, we find it appropriate here to refine and clarify our rules governing attorneys' fees, consequential damages and punitive damages in property damage insurance cases.

I

In August, 1980, James Trovato and Lynn Trovato bought a restaurant in Point Pleasant. The restaurant was located on a main thoroughfare of Point Pleasant in an old Kroger Store building of ten thousand square feet with ample parking. The building had already been converted to a family-style restaurant known as "Kinfolks" with a dining room, two banquet rooms, a kitchen and bath rooms.

Mr. and Mrs. Trovato paid $138,000 for the property, which included $100,000 payment to the original owners and the assumption of $38,000 in debts. Mr. and Mrs. Trovato borrowed a total of $120,000 under two notes, one of which was secured by the furnishings, equipment, and interior of the restaurant and the other by Mr. Trovato's interest in a mobile home park in Monongalia County. Mr. Trovato had had three years of experience in running a successful restaurant in Morgantown and both he and his wife believed that the purchase of Kinfolks (later Hayseeds) was a good investment.

Before opening the restaurant, Mr. and Mrs. Trovato spent approximately $20,000 on improvements. They purchased an insurance policy for fire loss and protection from Paul Summerville, a State Farm agent in Point Pleasant, who was also a member of the board of directors of the People's Bank of Point Pleasant where the Trovatos had taken out their loans. Mr. Summerville recommended a policy amount of $150,000 and Mr. and Mrs. Trovato purchased a policy with that coverage for an annual premium of $3,344.

When the restaurant first opened in August, 1980, both Mr. and Mrs. Trovato devoted approximately 12 hours a day, six to seven days a week to the restaurant. Although business was not what they had originally anticipated, the restaurant improved steadily beginning in January, 1981. In March, 1981, Mr. and Mrs. Trovato purchased some video games and opened a video game room in their restaurant building. Eventually they purchased more video games and placed them in outside locations. At this time the video game market was at its peak and Mr. Trovato began devoting an increasing portion of his time to the game business rather than the restaurant.

However, in October, 1981, Hayseeds closed its doors to the public because Mrs. Trovato was pregnant and had medical complications that prompted her doctor to advise her to stop working. Mrs. Trovato had been working between 50 and 70 hours per week in the restaurant as its manager, and when she had to stop working the cost of hiring a substitute manager made it uneconomical to continue operations. Furthermore, Mr. Trovato had become completely engrossed in the video game business and he concluded that the highest and best use of his time was in that enterprise rather than the restaurant business. After Hayseeds closed, Mr. Trovato used the building as a warehouse and office for his video game business. The building was being used for that purpose when, at approximately 2:30 a.m. on 14 April 1982 the building burned down.

The fire, which caused extensive damage to the interior of the restaurant, was investigated by the State Fire Marshal. State Farm received its first notice of the blaze from Hayseeds' insurance agent, Paul Summerville, of Point Pleasant, who stopped at the fire scene on the morning of the fire. Mr. Summerville told State Farm that Hayseeds had been closed for a couple of months and that its equipment was for sale. He further advised State Farm that the property had been advertised for sale in the Huntington newspaper, and that the insured was now in the video game business and had financial problems. State Farm then initiated an investigation to determine whether the building had been burned by the insureds. There was no question at trial that the fire had been deliberately set by an arsonist, and that was the official report of the State Fire Marshal.

When Mr. and Mrs. Trovato filed their claim for property damage with State Farm, State Farm declined to pay on the grounds of arson. Mr. and Mrs. Trovato then brought this action in the Circuit Court of Mason County and, after a lengthy trial, the jury returned a verdict for $150,000 on the insurance policy itself, $69,000 for attorneys' fees and consequential damages and $50,000 for punitive damages. State Farm's assignments of error are that: (1) the overwhelming weight of the evidence favored its position; (2) the trial court should not have instructed the jury that State Farm had the burden of proving its arson defense by clear and convincing evidence; and, (3) the evidence demonstrated that State Farm had more than a reasonable ground for denying the insured's claim and, therefore, should not be liable for punitive damages.

State Farm's position has always been that the circumstantial evidence in this case ineluctably leads any fair-minded person to the conclusion that Mr. and Mrs. Trovato (or one of them) caused the building to be burned. State Farm points to the fact that: (1) the Trovatos had significant financial problems; (2) the mortgage payments were a serious drain on their limited resources; (3) the fire was caused by arson; and (4) the building was locked when the fire was started.

On the other hand, Mr. and Mrs. Trovato have taken the position that their financial problems were similar to those of many small business owners and that their circumstances alone could not lead to the conclusion that they had committed a felony. Buildings are burned down by pyromaniacs, personal enemies, juveniles, and miscellaneous crackpots all the time. The fact that a fire is deliberately set does not necessarily imply that it was set by the owner. At trial State Farm relied entirely on circumstantial evidence. Mr. and Mrs. Trovato, on the other hand, took the stand and testified under oath that they had neither burned the building themselves nor caused someone else to burn it.

Mr. and Mrs. Trovato's claim for punitive damages and attorneys' fees proceeded from their allegations that State Farm failed to make a fair, good faith investigation of the facts and circumstances surrounding the fire. They proved to the jury's satisfaction that the investigation focused only upon circumstances that could justify denial of the claim. In this regard the most serious contention of the plaintiffs was that State Farm failed to make a careful investigation of the plaintiffs' financial condition. Plaintiffs argued that, although the destroyed building was a drain on plaintiffs' income, they were keeping their heads above water and did not need to burn the building.

The record bears out that the plaintiffs authorized State Farm to contact the plaintiffs' accountant, who had access to all plaintiffs' financial information including bank accounts, loans, loan payments, receipts from the video game business, receipts from Hayseeds, receipts from Mundy's (another of plaintiffs' restaurants) receipts from Frontier Bakery in Morgantown (which plaintiffs also owned), tax returns, bank statements, accounting information, personal notes, scrap sheets and other accounting information. Although State Farm admitted that they were authorized to review this information, State Farm conceded that they did not undertake a complete examination of plaintiff's financial condition.

II

This is admittedly a close case, but upon a full review of the transcript we are persuaded that there was sufficient evidence that the jury could infer that Mr. and Mrs. Trovato were...