O-So Detroit, Inc. v. Home Ins. Co.

• Decision Date: 24 September 1992
• Docket Number: O-SO,91-1158 and 91-1432,Nos. 91-1078,s. 91-1078
• Citation: 973 F.2d 498
• Parties: DETROIT, INC. d/b/a Towne Club, a Michigan corporation, Plaintiff-Appellee, Cross-Appellant (91-1158), Plaintiff-Appellant (91-1432), v. HOME INSURANCE COMPANY, a New Hampshire corporation, Defendant-Appellant (91-1078), Cross-Appellee, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 498

973 F.2d 498

O-SO DETROIT, INC. d/b/a Towne Club, a Michigan corporation Plaintiff-Appellee, Cross-Appellant (91-1158) Plaintiff-Appellant (91-1432), v. HOME INSURANCE COMPANY, a New Hampshire corporation Defendant-Appellant (91-1078), Cross-Appellee Defendant-Appellee.

Nos. 91-1078, 91-1158 and 91-1432.

United States Court of Appeals, Sixth Circuit.

Argued April 6, 1992.

Decided Aug. 26, 1992.

Rehearing Denied Sept. 24, 1992.

John W. Bryant (argued and briefed), Eames, Wilcox, Mastej, Bryant, Swift & Riddell, Detroit, Mich., for plaintiff-appellee, cross-appellant.

Paul H. Johnson, Jr. (argued and briefed), Judith A. Friday (briefed), Robert L. Mott, Jr., Southfield, Mich., for defendant-appellant, cross-appellee.

Before: MARTIN and RYAN, Circuit Judges; and WILHOIT, District Judge. ^*

WILHOIT, District Judge.

O-So Detroit, Inc., d/b/a Towne Club (O-So), purchased fire insurance from Home Insurance Company (Home). In November of 1988, property owned by O-So and stored in a warehouse was destroyed by fire. Home refused coverage based on its assertions that the fire was deliberately set or arranged by O-So and that O-So committed fraud or false swearing on its loss reports to Home. In order to compel coverage, a suit was initiated by O-So in the Eastern District of Michigan. At the close of discovery, the District Court denied O-So's motion for summary judgment. The case proceeded to trial, after which the jury returned a verdict in favor of O-So. Judgment was entered on this verdict. All post-trial motions were denied including a motion by O-So for Rule 11 sanctions against Home.

Home appeals the jury's verdict and the judgment entered thereon. O-So has filed two cross-appeals from the District Court's denial of its motions for summary judgment and Rule 11 sanctions.

I.

O-So is in the business of producing and selling soft drinks under the brand name "Towne Club." These soft drinks are distributed to customers in glass bottles and wooden crates. Customers pay a deposit on the bottles and crates which is later refunded when the empties are returned to a retailer. However, since 1983, O-So's business has declined and as a result, a number of returnable glass bottles that were formerly used by O-So became unnecessary to its operations. These bottles were stored in their wooden crates atop wooden pallets in a warehouse on Grinnell Avenue in Detroit, Michigan.

On April 28, 1988, Home entered into a contract of insurance with O-So which covered the property stored at the Grinnell warehouse, including the glass bottles, wooden crates and pallets. The contract insured against loss of the property as a result of fire, smoke, and other specifically listed perils. Maximum coverage under the contract was $350,000.00.

On November 15, 1988, the Grinnell warehouse was damaged by fire. Only a small portion of O-So's property was damaged in this first fire. A second fire on November 30, 1988, however, caused extensive damage to the warehouse and the property of O-So stored within. All parties agree that both fires were the result of arson. In a sworn statement submitted to Home, O-So's president Rino Nazzani estimated the replacement value of the property that was destroyed to be $423,891.53. ¹ Home denied all liability under the policy based on its belief that O-So had deliberately set or arranged the fires, and its belief that Mr. Nazzani had committed fraud or false swearing on behalf of O-So when he estimated the loss sustained by O-So.

Home's denial of liability resulted in the present lawsuit, and at the close of discovery, O-So moved for summary judgment. This motion was denied after the District Court identified several genuine issues of material fact. However, at the close of O-So's proof at trial, the Court directed a verdict in O-So's favor on the question of the measure of damages, and held that replacement cost rather than actual value would be the measure of any damages awarded by the jury. During its portion of the proof, Home raised the defenses of arson and fraud or false swearing. At the close of all proof, the jury returned a verdict in favor of O-So on the issue of coverage, and judgment was entered on this verdict in the amount of $395,263.45. ² Post-judgment interest was fixed at 7.95% while pre-judgment interest was computed at 12%. Home's motion for a new trial or amendment of the judgment was denied and this appeal followed.

O-So has cross appealed the District Court's denial of its post-discovery motion for summary judgment and its post-trial motion for sanctions under Rule 11 of the Federal Rules of Civil Procedure. All appeals in this matter have been consolidated and this Court is now asked to determine whether the District Court properly: (1) instructed the jury on Home's arson defense, (2) directed a verdict in O-So's favor concerning the measure of damages, (3) calculated pre-judgment interest, (4) denied O-So's motion for summary judgment, and (5) denied O-So's motion for Rule 11 sanctions.

II.

Home contended at trial that it was not obligated to indemnify O-So for its losses because those loses were the result of arson by O-So. The District Court issued the following instruction to the jury in regards to the arson defense:

"With respect to the arson: Home Insurance Company asserts that the fires which occurred at the Grinnell Street Warehouse on November 15 and November 30, 1988 were intentionally set or arranged to be set by Rino Nazzani, the sole shareholder of the plaintiff corporation for the fraudulent purpose of collecting money under the fire insurance policy issued by Home Insurance Company. If Home Insurance Company has proved this by a preponderance of the evidence, it is excused from payment.

In determining whether or not Plaintiff set or arranged the setting of the fire [sic] as claimed, you may consider every fact and circumstance which tends to establish his involvement. You may also consider his conduct and his statements and the consistency or inconsistency of those statements and conduct.

In order to prove an arson defense, Home Insurance Company must prove by a preponderance of the evidence, direct and/or indirect, that Mr. Nazzani or his agents had a motive for causing the fire to be set. Home Insurance Company also must prove by a preponderance of the evidence that Mr. Nazzani or his agents had access or an opportunity to set these fires.

If you find, after considering all of the evidence that Home Insurance Company has established by a preponderance of the evidence that Mr. Nazzani, the sole shareholder of the plaintiff corporation, set or arranged for the setting of either of these fires, your verdict will be in favor of Home Insurance Company on the issue of arson. If you do not find Home Insurance Company made such a showing, your verdict will be in favor of the plaintiff, Towne Club, on the issue of arson."

(Transcript, September 12, 1990 at 91-93) (emphasis added).

Home argues that this instruction does not comport with Michigan law ³. Specifically, Home takes exception with the italicized portion of the instruction, which states that Home must prove arson by showing motive and access or opportunity. This, says Home, is contrary to Michigan law, under which an arson defense is raised by proving simply that the insured "set fire to the building or caused it to be set on fire." George v. Travelers Indem. Co., 81 Mich.App. 106, 265 N.W.2d 59, 62 (1978). Home argues that by requiring that it prove arson by motive and access or opportunity, the District Court placed upon it an undue burden of proof such that a new trial is required.

In Michigan, arson, as a defense to an insurance company's liability under a fire insurance policy, may be proved by circumstantial evidence. Peterson v. Oceana Circuit Judge, 243 Mich. 215, 219 N.W. 934, 934-935 (1928). All parties agree, and the cases cited by O-So establish, that circumstantial proof of motive plus access or opportunity is adequate to establish arson. George, 265 N.W.2d at 62; Crossley v. Allstate Ins. Co., 139 Mich.App. 464, 362 N.W.2d 760, 762 (1984); United Gratiot Furniture Mart, Inc. v. Basic Property Ins. Assoc., 159 Mich.App. 94, 406 N.W.2d 239, 243-244 (1987); Fitzgerald v. Great Cent. Ins. Co., 842 F.2d 157, 158 (6th Cir.1988). However, these cases do not suggest the opposite; that is that arson cannot be established by circumstantial evidence unless by proof of motive and access or opportunity. No authority cited to this Court has held that motive and access or opportunity are mandatory elements of circumstantial proof of the arson defense. In fact, the Supreme Court of Michigan, when asked to consider the propriety of an arson instruction that stated, "[o]pportunity, plus motive, is the test by which you will determine the question as to circumstantial evidence [of arson]," found the instruction to be erroneous. Cipriano v. Mercantile Ins. Co. of America, 284 Mich. 346, 279 N.W. 855, 857 (1938). ⁴

The instructions given in the present case stated that Home "must prove by a preponderance of the evidence ... that Mr. Nazzani ... had a motive ... [and] had access or an opportunity to set these fires." We find that this portion of the instructions, and specifically the word "must", does not comport precisely with Michigan Law, and is therefore erroneous. However, as did the Supreme Court of Michigan in Cipriano, we find the erroneous portion of the instructions to be harmless. Id.

When instructions are challenged on appeal, our duty is not to read the instructions word for word in search of an erroneous word or phrase. Rather, our task is to review the instructions "as a whole in order to determine whether they adequately inform the jury of the relevant considerations and provide a basis in law for aiding the jury in reaching its decision." Kitchen v. Chippewa Valley Schools, 825 F.2d 1004, 1010-1011 (6th Cir.1987) (citing Blackwell v. Sun Elec. Corp., 696 F.2d 1176, 1181 (...