United Services Auto. Ass'n v. Wade

• Decision Date: 17 March 1989
• Citation: 544 So.2d 906
• Parties: UNITED SERVICES AUTOMOBILE ASSOCIATION v. Larry WADE and Tracie Wade. 86-1511.
• Court: Alabama Supreme Court

Page 906

544 So.2d 906

UNITED SERVICES AUTOMOBILE ASSOCIATION v. Larry WADE and Tracie Wade.

86-1511.

Supreme Court of Alabama.

March 17, 1989.

Rehearing Denied May 5, 1989.

Guy E. Burnette, Jr. of Butler and Burnette, Tampa, Fla., and John D. Richardson and Vincent A. Noletto, Jr. of Brown, Hudgens, Richardson, Mobile, for appellant.

Robert T. Wilson, Sr. and Garve W. Ivey, Jr. of Wilson & King, Jasper, and John D. Clements and F.A. Flowers III of Burr & Forman, Birmingham, for appellees.

ALMON, Justice.

United Services Automobile Association ("USAA") brought this action against Larry and Tracie Wade ("the Wades") for a declaratory judgment, seeking a determination of its nonliability under a homeowner's insurance policy purchased by the Wades. The Wades counterclaimed, seeking recovery under the policy for loss of their house and its contents, and seeking punitive damages for USAA's alleged bad faith in refusing to pay their claim.

The case was tried without a jury, and the trial court entered judgment against USAA on its complaint for declaratory judgment and in favor of the Wades on their counterclaim. The trial court entered judgment against USAA on the contract claim in the amount of $166,795 plus $21,962.21 interest for loss of the house and its contents, together with $100,000 consequential damages. The trial court also entered judgment against USAA in the amount of $3,500,000 for its bad faith in refusing to pay the Wades' claim.

USAA filed motions asking the court to alter, amend, or vacate the judgment, or to order a remittitur or a new trial. The trial court denied these motions, and USAA appeals.

The Wades owned a house that was insured by USAA. The house was insured for $84,700 and the contents for another $84,700. On October 30, 1984, the house and its contents were completely destroyed by fire. The Wades notified USAA within 24 hours. At the conclusion of its investigation, USAA elected to deny the Wades' claim, asserting arson and misrepresentation on the part of the Wades as grounds for the denial.

At trial, USAA called as a witness Deputy State Fire Marshal Richard Montgomery, who had investigated the fire. On cross-examination, counsel for the Wades asked Montgomery if the Wades were suspected of setting the fire. USAA's objection to this question was overruled and Montgomery testified that the Wades were never suspects in the criminal investigation. USAA argues that the trial court erred in allowing Montgomery to testify that the Wades were never suspected of arson.

USAA has cited numerous cases from other jurisdictions that hold that evidence of non-prosecution for arson is not admissible in a subsequent civil action arising out of the same event. Among the cases cited by USAA are Rabon v. Great Southwest Fire Ins. Co., 818 F.2d 306 (4th Cir.1987); Kelly's Auto Parts, No. 1, Inc. v. Boughton, 809 F.2d 1247 (6th Cir.1987); Galbraith v. Hartford Fire Ins. Co., 464 F.2d 225 (3rd Cir.1972); and Greenberg v. Aetna Ins. Co., 427 Pa. 511, 235 A.2d 576 (1967), cert. denied, 392 U.S. 907, 88 S.Ct. 2063, 20 L.Ed.2d 1366 (1968). Each of these cases holds, and USAA argues, that evidence of non-prosecution should not be admitted because of the higher burden of proof required in a criminal prosecution.

In each of the cases cited by USAA, it is evidence of non-prosecution that the policyholder seeks to elicit. In the present case, the Wades presented the testimony of the investigator that he had never suspected the Wades of arson, not evidence that they were not prosecuted. Although a prosecutor may consider the higher burden of proof in determining whether to bring charges, an investigator obviously does not consider burdens of proof in determining whether or not he suspects someone of arson.

One consideration in a bad faith case is what was known by the insurance company at the time of the decision to deny the policyholder's claim. It would be very relevant to the trial court to know that USAA knew that the investigator from the fire marshal's office did not suspect the Wades of arson.

USAA argues that there is no evidence in the record that USAA knew that Montgomery did not suspect the Wades of arson. Although there may have been no direct evidence of such knowledge, the evidence would support an inference that USAA knew that the Wades were not suspects. The record shows that when Montgomery conducted his investigation of the fire scene, USAA's investigator, Chris Lackey, was also present, and that they conducted their investigations together. The record also shows that when USAA's adjusters, Ed Kelly and Patrick Corr, interviewed the Wades concerning the fire, Montgomery was present. USAA also obtained a copy of Montgomery's final report. Taking into consideration these facts, the trial court did not err in admitting Montgomery's testimony that he did not suspect the Wades, because there was evidence that USAA knew or should have known of Montgomery's lack of suspicion.

USAA contends that the trial court erred in finding that USAA failed to establish arson and misrepresentation by the Wades. This Court has held:

"To establish a prima facie case of arson for the purpose of denying coverage under the fire policy, the [insurance company] would have to prove by competent and reliable evidence arson by someone, motive by the [policyholder] and unexplained surrounding circumstantial evidence implicating the [policyholder]. Lawson v. State Farm Fire and Casualty Ins. Co., 41 Colo.App 362, 585 P.2d 318 (1978); Cora Pub, Inc. v. Continental Casualty Company, 619 F.2d 482 (5th Cir.1980); Great Southwest Fire Ins. Co. v. Stone, 402 So.2d 899 (Ala.1981)"

Mueller v. Hartford Ins. Co. of Alabama, 475 So.2d 554, 557 (Ala.1985).

USAA argues that it did prove arson through the testimony of its expert, Chris Lackey, and the deputy fire marshal, Richard Montgomery. Lackey based his opinion that there was arson largely on a "spalling trail" that he found leading from the basement door toward the center of the room. Spalling occurs when cement is subjected to high temperatures and the moisture in the cement expands and causes the cement to explode, leaving a crater in the cement. In his investigation, however, Lackey did not clear the entire basement floor of debris. James Posey, the Wades' investigator, did clear the entire floor and discovered that spalling was prevalent over the entire floor and that there was no discernible "trail." USAA correctly points out that it is undisputed that the area in the center of the floor was spalled more deeply than the rest of the basement. The Wades produced evidence that this concentration of spalling was caused by gasoline, motor oil, transmission fluid, and paint that was stored in this area. Lackey testified that he found no remains of the containers in this area. Posey, on the other hand, testified that the containers could have been destroyed by the fire. Montgomery, who was with Lackey when the "spalling trail" was discovered, testified that he believed that the spalling indicated the presence of flammables, but that he believed that the fire started upstairs and not in the basement.

In its order, the trial court discussed the evidence concerning the alleged arson:

"The court carefully considered Mr. Lackey's testimony and demeanor and carefully evaluated his investigative techniques. The court concludes that not only is Mr. Lackey's testimony as a whole completely void of credibility, but that the presentation of his testimony borders upon the perpetration of a fraud upon this court. For Mr. Lackey and USAA to present to this court a case so heavily dependent upon 'spalling' as this case, when it is indisputable that Mr. Lackey selectively cleared only those areas of the floor which supported this incredulous [sic] theory is reprehensible....

"Mr. James Posey was an expert presented to the court by the Wades. Mr. Posey carefully and professionally divided the scene into quadrants, photographed all phases of his investigation in its various stages, sifted the debris, inspected the electric panels, and performed a detailed, thorough and professional investigation.

"Mr. Posey's pictures of the fire scene emphasized dramatically the fact that spalling was common to the entire basement floor, and not just the 'trail' delineated by Mr. Lackey. Mr. Lackey's failure to make these findings leaves this court with two possible conclusions, both of which are fatal to the position of USAA, (1) either Mr. Lackey deliberately and intentionally set out to manufacture an arson case, and went to such trouble to accomplish this as to deceive the court, or (2) his investigation was absolutely deficient, inept and inadequate.

"In support of the latter conclusion, the court notes that Mr. Lackey's testimony was that he knew at once when he looked at the scene that this was a fire for profit. This is totally unbelievable and outrageous, and becomes more so when balanced against the thorough, careful, professional investigation conducted by Mr. Posey. The allegation of arson is a very serious allegation, and in good faith, the insurer owes to its insured a very thorough investigation.

"To the contrary, in the instant case, it is clear to this court from the evidence that USAA set out, within forty-eight hours of this fire, to find some means by which to deny their lawful obligation under the contract. To that end, they employed at best incompetent investigators, and at worst, unscrupulous ones."

In addition, Deris Olive, the fire chief, and Larry Glover, the police chief, entered the basement while the house was burning and removed several items. Both Olive and Glover testified that the basement was not burning at that time. USAA points out that, by the time that Olive and Glover entered the basement, the flammable liquid would have burned itself out. This assertion does not explain the fact, however, that the items removed by Olive and Glover were not damaged by...