High Country Arts and Craft Guild v. Hartford Fire Ins. Co.

• Decision Date: 17 October 1997
• Docket Number: No. 96-2670,96-2670
• Citation: 126 F.3d 629
• Parties: HIGH COUNTRY ARTS AND CRAFT GUILD, Plaintiff-Appellee, v. HARTFORD FIRE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 629

126 F.3d 629

HIGH COUNTRY ARTS AND CRAFT GUILD, Plaintiff-Appellee, v. HARTFORD FIRE INSURANCE COMPANY, Defendant-Appellant.

No. 96-2670.

United States Court of Appeals, Fourth Circuit.

Argued June 5, 1997.

Decided Oct. 17, 1997.

ARGUED: Donald Lee Craig, Butler, Burnette & Pappas, Tampa, FL, for Appellant. Edward Glenn Kelly, James Gary Rowe, Kelly & Rowe, P.A., Asheville, NC, for Appellee. ON BRIEF: Gary S. Parsons, John M. Kirby, Bailey & Dixon, L.L.P., Raleigh, NC; George W. Hendon, Martin K. Reidinger, Adams, Hendon, Carson, Crow & Saenger, P.A., Asheville, NC, for Appellant.

Before WIDENER and NIEMEYER, Circuit Judges, and MICHAEL, Senior United States District Judge for the Western District of Virginia, sitting by designation.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WIDENER and Senior Judge MICHAEL joined.

OPINION

NIEMEYER, Circuit Judge:

The jury returned a verdict against Hartford Fire Insurance Company, finding that it breached its policy of insurance in refusing to pay the fire loss claims of its insured, High Country Arts and Craft Guild, and that it did so in bad faith. Hartford now challenges certain posttrial rulings of the district court. Rejecting these challenges, we affirm.

I

High Country Arts and Craft Guild, a nonprofit corporation located in Asheville, North Carolina, was engaged in promoting and sponsoring arts and craft events "with the idea of helping artists and craftsmen make a living at the work they like to do." On April 2, 1995, a fire destroyed High Country's office and all of its property, including its computer database containing fund-raising and donor information. While High Country reopened an office about one month later at a new location, it struggled due to the lack of the database and diminished receipt of donations, and it wished not to proceed with shows scheduled for the summer.

At the time of the fire, High Country was insured by Hartford Fire Insurance Company for, among other things, loss of personal property and loss of business income. Hartford paid the policy limits of $5,400 for the loss of personal property and, because the loss of business income was expected to be substantial, appointed the Asheville adjusting firm of Central Claims Service to handle the business income claim. Central Claims Service appointed Steven Peek as the claims adjuster.

In June 1995, Peek met with High Country employees and advised them that High Country had 12 months of coverage for business interruption loss and that High Country had a duty under the policy to mitigate its damages during that period. He stated that High Country was therefore required, contrary to its wishes, to put on the shows that had been scheduled. When High Country advised Peek that it was unable to do so professionally, Peek insisted on Hartford's position that High Country was required to put on the shows. He explained that by going ahead with the shows, Hartford could measure High Country's business loss for the year. Peek's insistence on proceeding with the shows was approved by Hartford's home office. Despite High Country's continuing protests to Hartford and its expectation of losses, High Country put on two shows scheduled in July and early August 1995, losing over $61,000 on one and approximately $13,000 on the other.

Because of disagreements about the amount of loss, the parties submitted that issue to a panel of appraisers, in accordance with policy provisions, who assessed High Country's business loss for the first 60 days after the fire at $26,518. The appraisers did not quantify the loss sustained after 60 days because they concluded that "[t]he period of coverage under the business interruption provisions of the policy in question should be limited to sixty days." They concluded that the losses from the two shows occurred after the 60-day period and therefore should not be covered, adding that no loss caused by a "lack of operational funds should be attributable to the policy." Hartford tendered $26,518 to resolve the claim, but High Country insisted on payment for losses sustained during the 12 months after the fire.

High Country filed suit in state court, alleging claims for breach of contract, tort, and state statutory violations, and Hartford removed the case to federal court on the basis of diversity jurisdiction conferred by 28 U.S.C. § 1332. Following trial, the jury returned a verdict in favor of High Country, finding that Hartford breached its contract of insurance; that Hartford required High Country to put on shows to mitigate its losses; that the policy provided High Country with insurance against business income loss for 12 months; and that Hartford acted in bad faith in refusing to settle with High Country. The jury awarded High Country $246,809 in compensatory damages and $148,085.42 in punitive damages. In lieu of punitive damages, however, High Country elected an award of treble damages and attorneys fees under the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen.Stat. §§ 75-16 & 75-16.1.

On appeal, Hartford assigns three errors. It argues that (1) the district court erred in refusing to set aside the judgment because Peek was without authority to extend coverage from 60 days to 12 months; (2) the district court should have limited the damages for High Country's business income loss to the $26,518 fixed by appraisers; and (3) the district court erred in allowing a verdict under North Carolina's Unfair and Deceptive Trade Practices Act to stand in conflict with an earlier summary judgment ruling made by the court in favor of Hartford.

II

Hartford's principal argument is directed at the trial court's refusal to grant Hartford's posttrial motion for a judgment as a matter of law because "the court [erroneously] held Hartford Fire liable for 12 months loss of business income despite the language of the policy, relying on what Peek, the independent claims adjuster, represented to High Country." While the jury, not the court, found business loss for the 12-month period, apparently Hartford claims that somehow the jury relied on Peek's representation to High Country rather than on the policy language. Hartford explains:

The jury found that Hartford Fire breached the policy by not paying more than $240,000 for twelve months of loss of business income. This apparently was based upon findings that Mr. Peek, acting as Hartford Fire's agent, told High Country that it was entitled to loss of business income coverage for the entire twelve months following the date of the fire and that it must put on events which were likely to lose money. The Court, in ruling on Hartford Fire's Post-Trial Motion for Judgment as a Matter of Law, rejected Hartford Fire's argument that Mr. Peek had varied the terms of the policy beyond his authority to do so. The Court's ruling is error. As a matter of law, Mr. Peek had no authority, apparent or otherwise, to modify the plain language of the policy. Therefore the Court should have granted Hartford Fire's Motion for Judgment as a Matter of Law.

(Emphasis added).

While the jury found as a fact that Peek represented to High Country that it was entitled to 12 months of coverage for loss of business income, there is no evidence that the jury based its award on Peek's representation and not on the policy's language. Because, however, we believe that Peek accurately stated, albeit in a general way, the scope of the policy's coverage, it is of no consequence whether or not he was authorized to make such a statement about the policy's coverage.

The policy reads in connection with business income loss coverage:

We will pay for the actual loss of Business Income you sustain due to necessary suspension of your "operations" during the "period of restoration." The suspension must be caused by direct physical loss of or damage to property at the described premises....

We will only pay for loss of Business Income that occurs within 12 consecutive months after the date of direct physical loss or damage. This Optional Coverage is not subject to the Limits of Insurance.

(Emphasis added). The policy defines the "period of restoration" as "the period of time that (a) [b]egins with the date of direct physical loss or damage ... and (b) [e]nds on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality." The parties agree that the period of restoration constituted the first 60 days after the fire. Thus, in the context of this loss, the unambiguous language of the policy promises reimbursement for business income loss that was "due to," i.e., caused by, High Country's 60-day suspension of business and that occurred during the 12-month period following the fire. So long as a business loss is causally linked to the 60-day period, it is covered even if it occurs after that period, provided that it "occurs" within 12 months after the date of loss.

The coverage under the policy for loss of business income attributable to suspended operations is distinct from coverage for loss of business income due to damage or loss of electronic records. That coverage is limited to "the longer of (a) 60 consecutive days from the date of direct physical loss or damage; or (b) the period beginning with the date of direct physical loss or damage, necessary to repair, rebuild, or replace [the records]."

Thus, when Peek told High Country that it had 12 months of coverage for loss of business income, his statement was accurate. What was not said was that the loss of business income had to be due to the suspension of business during the 60-day period of restoration, and could not be attributed to loss of electronic records after the 60-day period. But the failure to explain all of the limitations or conditions of the 12-month business loss coverage does not render Peek's statement a misrepresentation that somehow altered the coverage of the...