Kostelec v. State Farm Fire and Cas. Co.

• Decision Date: 05 September 1995
• Docket Number: No. 94-3541,94-3541
• Parties: David A. KOSTELEC, Appellee, v. STATE FARM FIRE AND CASUALTY COMPANY, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1220

64 F.3d 1220

David A. KOSTELEC, Appellee, v. STATE FARM FIRE AND CASUALTY COMPANY, Appellant.

No. 94-3541.

United States Court of Appeals,

Eighth Circuit.

Submitted April 14, 1995.

Decided September 5, 1995.

Bradley Scott Russell, Overland Park, KS, James L. Sanders and Tina A. Smith, Kansas City, MO, argued for appellant.

Michael L. Hodges, Mission, KS, argued for appellee.

Before WOLLMAN and MURPHY, Circuit Judges, and EISELE, ^* Senior District Judge.

EISELE, Senior District Judge.

This is an appeal from a final judgment entered in this diversity action, ¹ the subject of which is an insurance coverage dispute. We have jurisdiction pursuant to 28 U.S.C.A. Sec. 1291 (West 1993). Following a jury trial, the district court entered judgment on the jury's verdict and awarded David A. Kostelec damages of $90,199.39, an amount which reflected the damages stipulated to by the parties, less the policy's $250 deductible and a $1000 advance paid to Mr. Kostelec by State Farm Fire and Casualty Company (State Farm). The district court further awarded Mr. Kostelec $40,380.00 in attorneys' fees and $9,169.94 as a penalty under Mo.Ann.Stat. Sec. 375.420 (Vernon 1991), in accordance with the jury's finding that State Farm's failure to pay Mr. Kostelec's claim had been made without reasonable cause or excuse. We affirm.

I.

In 1990, Mr. Kostelec purchased a home in Gravois, Missouri, which was insured under a general homeowners' liability policy underwritten by State Farm. This policy insured Mr. Kostelec's property for all "accidental direct physical loss to the property," subject only to those losses expressly excluded under the policy. Among the risks covered by this policy were any losses to the property caused by "fire." However, the policy specifically disclaimed coverage for any loss caused by the insured "for the purpose of obtaining insurance benefits," an exclusion which, presumably, includes the insured's commission of arson.

On April 10, 1992, Mr. Kostelec's property was destroyed by fire. Mr. Kostelec filed a timely notice of claim with State Farm, and State Farm soon began an investigation into this claim. During an interview with Mr. Brent Moyer, a State Farm representative, Mr. Kostelec stated that he had left his house at approximately 3:30 p.m. on the day of the fire, and that he had made some long distance telephone calls before leaving. Telephone records indicated that someone (presumably Mr. Kostelec) had made a telephone call from the house at 4:10 p.m., and Mr. Kostelec never denied being in the house at that time. A neighbor, Mrs. Kathryn Couch, stated that she saw Mr. Kostelec and a friend leave the house at approximately 4:30 p.m., and her husband reported the fire at 4:39 p.m., stating that he saw smoke emanating from the rear of the house. This was the location of the property's propane hot water heater, which Mr. Kostelec claimed was the source of the fire. ²

As it had done on other occasions, State Farm retained an "independent" investigator, Mr. Larry Stemmerman, to examine the site of the fire, and Mr. Stemmerman concluded that the fire had been intentionally set. This finding was based exclusively upon Mr. Stemmerman's determination that some allegedly suspicious burn marks on the building's floor had been made by an unspecified accelerant. He reached this conclusion in spite of the fact that laboratory tests found no evidence of any accelerant on the samples he submitted for testing. Later in its investigation, State Farm discovered that Mr. Kostelec was apparently suffering some financial difficulties. ³ Given its expert's finding of arson, Mr. Kostelec's having apparently been the last person seen near the property, Mr. Kostelec's alleged "misrepresentation" of his time of departure from the property, and Mr. Kostelec apparent motive for arson (his distressed financial condition), ⁴ State Farm refused to pay Mr. Kostelec's claim. Written notice of this determination was given on July 28, 1992.

Soon after its denial of Mr. Kostelec's claim, on August 6, 1992, State Farm received the report of the Missouri State Fire Marshal, who had also investigated the fire at Mr. Kostelec's property. The Fire Marshal's report indicated that no accelerant or suspicious burn marks had been found at the site of the fire, and that no ignition device had been discovered. The report also found evidence suggesting a defect in the electrical system of the house. In sum, the Fire Marshal's report concluded that there was no evidence of arson, and that the fire had most likely been accidental. State Farm nevertheless persisted in its denial of Mr. Kostelec's claim.

On December 2, 1992, Mr. Kostelec commenced a breach of contract action in the District Court of Wyandotte County, Kansas, seeking to recover benefits under the policy that he claimed were wrongfully withheld by State Farm. On January 4, 1993, this action was removed to the United States District Court for the District of Kansas, at which time State Farm filed its answer raising its defense of arson. On May 3, 1993, upon State Farm's motion, this action was transferred to the United States District Court for the Western District of Missouri pursuant to 28 U.S.C.A. Sec. 1404(a) (West 1993). Following the trial of this matter, the jury rejected State Farm's arson defense and concluded that Mr. Kostelec had suffered a compensable loss. The jury further found that State Farm's persistent denial of Mr. Kostelec's claim was made without reasonable cause or excuse. Judgment was accordingly entered in favor of Mr. Kostelec, and the district court later granted Mr. Kostelec's motion for attorneys' fees and statutory penalties.

II.

Ordinarily, in a diversity action such as this, the first step in our legal analysis would be to determine the governing body of substantive of law. Here the two possibilities were Kansas law (the place were the insurance policy was issued) or Missouri law (the situs of the insured property). The district court chose, without discussion, to apply Missouri law to this dispute, and neither party has voiced any objection to the district court's decision in this respect, either in this court or in the court below. Indeed, in both courts the parties have argued their respective cases under the laws of Missouri. Accordingly, we deem any objection to the district court's choice of law to have been waived, and we too will decide this appeal under Missouri law without independently examining the conflict-of-laws issue. See Pellerin Laundry Mach. Sales Co. v. Reed, 300 F.2d 305, 309-10 (8th Cir.1962); accord Employers Ins. of Wausau v. Occidental Petroleum Corp., 978 F.2d 1422, 1430 n. 8 (5th Cir.1992), cert. denied, --- U.S. ----, 114 S.Ct. 61, 126 L.Ed.2d 30 (1993); Corrugated Paper Prods., Inc. v. Longview Fibre Co., 868 F.2d 908, 910 n. 2 (7th Cir.1989); Kritikos v. Palmer Johnson, Inc., 821 F.2d 418, 421 (7th Cir.1987); but cf. Roofing & Sheet Metal Servs., Inc. v. La Quinta Motor Inns, Inc., 689 F.2d 982, 989-90 (11th Cir.1982) (appellate court may consider conflict-of-laws issue raised for the first time on appeal to prevent a miscarriage of justice).

III.

State Farm first argues that the district court erred in instructing the jury on the issue whether Mr. Kostelec had suffered a loss covered by the policy. State Farm argues that the district court's instructions erroneously required State Farm to prove that the fire was caused by arson to justify its disclaiming coverage, rather than requiring Mr. Kostelec to disprove that the fire was caused by arson, and hence that he suffered an accidental loss that fell within the policy's coverage. The district court instructed the jury as follows:

In these instructions you are told that your verdict depends on whether or not you believe certain propositions of fact submitted to you. The burden of causing you to believe a proposition of fact is upon the party who relies upon that proposition. ... Your verdict must be for plaintiff unless you believe plaintiff is not entitled to recover by reason of [the following instruction.] ... Your verdict must be for defendant if you believe, first, that the property in question was damaged by fire. And, second, that plaintiff intentionally caused or set the fire. ⁵

Since State Farm specifically objected to this portion of the district court's instructions below, ⁶ this claim of error is properly before us. See Fed.R.Civ.P. 51; Randle v. Parker, 48 F.3d 301, 304 n. 1 (8th Cir.1995). In passing upon this point, we must determine whether the district court's instructions, when taken as a whole, accurately stated the governing law on this issue, Randle v. Parker, supra, 48 F.3d at 304; Smith v. World Ins. Co., 38 F.3d 1456, 1464 (8th Cir.1994); Brown v. Stites Concrete, Inc., 994 F.2d 553, 559 (8th Cir.1993) (en banc), keeping in mind that "the district court has broad discretion in formulating the language of the jury instructions." Federal Enter., Inc. v. Greyhound Leasing & Fin. Corp., 849 F.2d 1059, 1061 (8th Cir.1988). Of course, we review the district court's interpretation of state law de novo. Salve Regina College v. Russell, 499 U.S. 225, 231-33, 111 S.Ct. 1217, 1220-22, 113 L.Ed.2d 190 (1991); Schieffler v. Financial Servs. Ins. Co. of Tenn., 39 F.3d 181, 184 (8th Cir.1994).

In order to recover for a loss under a policy of insurance under Missouri law, the insured must prove that the policy was in full force and effect, ⁷ and that the claimed loss falls within the policy's scope of coverage. Truck Ins. Exch. v. Heman, 800 S.W.2d 2, 3-4 (Mo.Ct.App.1990); see also National Union Fire Ins. Co. of Pittsburgh, Pa. v. Structural Sys. Tech., Inc., 964 F.2d 759, 761 (8th Cir.1992) (applying Missouri law). The burden then shifts to the insurer to prove any exclusion of coverage. American Family Mut. Ins. Co. v. Pacchetti, 808 S.W.2d 369, 370 (Mo.1991); Aetna Casualty & Surety Co. v. Bollig, 878 S.W.2d 837, 839 (Mo.Ct.App.1994); ...