Childress v. State Farm Fire ( 1996 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JERRY CHILDRESS,
Plaintiff-Appellant,
v.
No. 95-1283
STATE FARM FIRE AND CASUALTY
COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Virginia, at Big Stone Gap.
Samuel G. Wilson, District Judge.
(CA-94-116-B)
Argued: March 6, 1996
Decided: September 16, 1996
Before ERVIN and MOTZ, Circuit Judges, and BUTZNER, Senior
Circuit Judge.
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Affirmed by unpublished opinion. Judge Ervin wrote the opinion, in
which Judge Motz and Senior Judge Butzner joined.
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COUNSEL
ARGUED: Anthony Elmer Collins, Wise, Virginia, for Appellant.
Howard Chowning McElroy, WHITE, BUNDY, MCELROY,
HODGES & SARGENT, Abingdon, Virginia, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
ERVIN, Circuit Judge:
After a fire destroyed his house, Jerry Childress tried to recover
under his State Farm Fire and Casualty Company homeowner's pol-
icy. State Farm denied the claim on the grounds that Childress had
intentionally set the fire and had intentionally concealed or misrepre-
sented material facts during the investigation. A jury found that State
Farm had proven by clear and convincing evidence that Childress
made material false statements during the investigation, but found that
State Farm had not proven by clear and convincing evidence that
Childress had intentionally started the fire.
Childress contends that he is entitled to a new trial because the
jury's two-part verdict was inherently inconsistent. That argument
fails. Because the responses to the two special interrogatories can be
reconciled under several possible theories, the jury's resolution of this
case must stand.
Childress further argues that the district court should have granted
his motion for judgment notwithstanding the verdict, 1 or in the alter-
native, for a new trial, because State Farm presented insufficient evi-
dence to prove that he intentionally made false, material statements
during the investigation. Again, Childress is not persuasive. State
Farm presented enough evidence contradicting Childress's statements
to have convinced a reasonable jury that Childress concealed or mis-
represented material facts. We affirm.
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1 A 1991 Amendment to Fed. R. Civ. P. 50 abandoned the terms "judg-
ment notwithstanding the verdict" and "directed verdict." The new ver-
sion uses motion for "judgment as a matter of law" to refer to both pre-
verdict and post-verdict motions under Rule 50.
2
I.
Jerry Childress's home in Dickenson County, Virginia, was
destroyed by fire on Sunday night, June 13, 1993. Childress lived
alone and was the sole named insured on a homeowner's insurance
policy in effect at the time of the fire.
According to Childress, there had been an electrical storm on the
Saturday night before the fire. On Sunday morning, only a trickle of
water flowed from the bathroom faucet. After he was unable to fix the
problem using the switch and breaker, Childress went to shower at his
parents' house, about 5 minutes away. From there he went to church,
and then to his fiancee's house. Later that afternoon, Childress
returned to the house with his father to work on the water problem.
Still unsuccessful, Childress drove his father home and returned to his
fiancee's, leaving the breaker off and all the doors and windows
secured. Childress's father twice returned to the house that day. Nei-
ther Childress nor his father noticed anything unusual or amiss during
any of their visits to the house.
At about 11:00 p.m., Childress drove back to his house to sleep. He
testified that, when he arrived at about 11:30, he saw flames burning
through the gable at the upper right end of the house. He went first
to the garage to save his father's car. The car was gone, but his broth-
er's motorbike was there, and Childress pushed it away from the
house. Childress testified that he was unable to enter the house
because of the heavy smoke and instead drove to his parents' house
to call for help. When fire fighters arrived about fifteen minutes later,
flames had consumed the house and had burned out the floor joists
in the middle of the house.
On June 14, 1993, State Farm agent Liz Woodward retained Ken-
neth Riddleberger, an independent expert, to determine the cause of
the fire. Riddleberger examined the fire scene on June 15, 1993, in the
presence of Woodward and Childress. In the yard, in an area between
about thirty and fifty feet from the house, Riddleberger found large
unblackened pieces of glass, which apparently had been blown out by
an explosion. The glass had come from a window in the right rear sec-
tion of the house, where the master bedroom, hallway, utility room,
closet, and bathroom were located. Because the glass was not black-
3
ened by smoke, Riddleberger concluded that the explosion occurred
at the time the fire was ignited. Woodward and Riddleberger later tes-
tified that Childress told them that he had heard an explosion from the
right side of the house after he arrived home to find the house in
flames.
Inside the right rear section of the house, Riddleberger found evi-
dence consistent with a high intensity fire and the presence of flam-
mable liquids. In the basement of the right rear section of the house,
Riddleberger found a piece of melted glass and a melted steel gun
barrel. Riddleberger testified that temperatures exceeding 1,350
degrees would have been required to melt the glass and temperatures
higher than 2,600 degrees would have been required to melt the gun
barrel--heat far exceeding that of a normal house fire. In typical fires,
thin glass will sag slightly, but not melt, and a gun barrel will not
ordinarily melt.
While at the scene on June 15th, Riddleberger told Childress and
Woodward that he concluded that the fire had been caused by an
explosion in the right rear section of the house, intentionally created
with a flammable liquid. Childress told Riddleberger that no flamma-
ble liquids, aerosols, bottled gas, or heat-producing appliances were
present in the living area of the house.
On June 15, Riddleberger took two samples of flooring from the
house. Returning on July 14, 1993, Riddleberger took a sample of
scrapings from the melted gun barrel and Woodward took two sam-
ples of liquid stored in two containers found in a livestock trailer on
Childress's property. An independent chemical analyst, Richard Hen-
derson, tested the samples for flammable liquids. One of the flooring
samples, and both of Woodward's liquid samples tested positive for
a petroleum product in the "kerosene range" (which includes kero-
sene, number one fuel oil, jet fuel, and some charcoal lighters). The
barrel scrapings sample tested positive for a petroleum product in the
"medium range" (including mineral spirits, charcoal lighter, paint
thinner, and some solvents).
The positive flooring sample was then analyzed by Douglas Craw-
ford, a Mississippi State Laboratory chemist, and tested positive for
ammonia and nitrate. The compound ammonium nitrate is explosive,
4
and when combined with kerosene, produces a substance called
ampho, used as an explosive in mining and constructing roads and
ditches.
Thomas Eaton, an independent expert in fire causation and electri-
cal and mechanical failures, also went to the house with Woodward
on July 14, 1993. Eaton later testified that he examined the utility
pole, the outdoor and attic heat pump units, the service entrance
panel, the washer and dryer, the microwave and range top, and the
well pump, but found no problems that might have caused the fire.
Eaton concluded that lightning did not cause the fire.
Lastly, Eaton examined part of the water system. He cut a piece of
the underground water line where it entered the house. He testified
that the line was full of mud. Checking to see if mud had gotten into
the house, Eaton also turned over the water heater. He found mud and
clay inside. Eaton concluded that the pump had been pumping muddy
water. Childress, in contrast, testified that he had experienced no
problems with the water, but suggested that after the fire, mud might
have entered the water system through damaged pipes.
State Farm presented evidence that Childress had experience with
explosives. During the mid 1980s, he attended shot fireman's school,
run by the Virginia Division of Mines in Big Stone Gap, Virginia, and
was certified as an underground shot firer. Since the mid 1980s, he
had occasionally used dynamite for blasting. At the time of the fire,
he worked as a shearer operator in an underground coal mine. State
Farm also introduced evidence that no one other than Childress had
access to the house, that the doors were locked, that there was no indi-
cation of a break-in, and that no one observed anyone else at the
house before the fire.
On the question of motive, State Farm showed that the house was
on the market at the time of the fire. On February 1, 1993, Childress
listed the property with a realtor for $120,000.00. The realtor never
showed the house--which was located in a remote, rural area--to a
prospective buyer. Childress himself had shown the house to five peo-
ple, but had not found a buyer. Childress explained that he wanted to
sell the house because it was too large for him and he wished to move
with his girlfriend to Abingdon, Virginia. Selling the house would
5
have enabled Childress to pay off some of his debts and have more
money available each month. Childress stated that his uncle had
agreed to buy Childress's house for $100,000.00 if the uncle were
able to sell his own house in Michigan before Childress found a
buyer.
As further evidence of motive, State Farm established that Chil-
dress was in debt at the time of the fire. His revolving credit card bal-
ance totalled $19,000.00, and he was able only to meet the minimum
payments, which totalled $780.00 per month. Childress also made
monthly payments of $670.00 on two bank notes totalling $43,000.00.
Thus, Childress's monthly expenses exceeded the $1,680.00 monthly
take-home pay from his job at Clinchfied Coal Company. In addition,
$450.00 in real estate taxes had been overdue since December 1992.
On September 3, 1993, in accordance with provisions of the policy
requiring Childress to submit to examinations under oath, Childress
made sixteen statements that State Farm alleged to be untrue:
1. That he had no responsibility for setting the fire;
2. That he did not personally set the fire;
3. That he had made no arrangements to have the fire set;
4. That his uneducated guess about how the fire started
was that it was electrical, either from the heat pump or from
the breaker box area due to lightning;
5. That he did not hear an explosion when he was at the
house at the time of the fire;
6. That, as he turned off the highway from his girlfriend's
house onto his driveway on the Sunday night of the fire, he
saw a red glow and flames;
7. That, other than the incidents with the low pressure
switch and the problems with the discoloration, he had no
problem with his water system, well system, or water pump;
6
8. That he had no idea how the mud found in his water
line got there;
9. That the last time he used the water it was clear;
10. That he could not think of any explanation for the dirt,
mud, clay, or other foreign material in the water line, other
than the usual residue build-up around the edges;
11. That the last water he used in the house was good
water;
12. That he could not think of any reason why the water
inside the water tank would be dirty;
13. That, as he was going back to the house from his girl-
friend's to spend the night on Sunday, he discovered the
fire;
14. That he was headed home from his girlfriend's on
Sunday night to go to bed;
15. That he was going to the house Sunday night rather
than his parents' house because he stayed there; and
16. That he was going to the house with no water on Sun-
day night because he could still sleep there, and it was
around midnight, and his mother and father were in bed.
About six months after the fire, State Farm denied Childress's
claim on the bases that Childress intentionally set the fire and violated
the "false swearing" provision of the policy by intentionally misrepre-
senting material facts to State Farm during its investigation of the
loss. Childress filed a motion for judgment in the Circuit Court of
Dickenson County. State Farm removed the case to the district court.
Jurisdiction in the district court was based on diversity of citizenship,
with an amount in controversy greater than $50,000, under 28 U.S.C.
§ 1332.
7
The case was tried before a jury on January 25-26, 1995. After the
close of evidence, the jury was charged with three special interrogato-
ries:
1. Has State Farm Fire and Casualty Company proven by
clear and convincing evidence that after the fire loss, Jerry
Childress made a statement or representation of fact to State
Farm during its investigation of the fire that was intention-
ally false?
If your answer to Question No. 1 is YES, then
answer Question No. 2 and Question No. 3. If it is
NO, answer Question No. 3 only.
2. Has State Farm proven by a preponderance of the evi-
dence that the false statement or representation made by
Jerry Childress during State Farm's investigation was mate-
rial to State Farm's investigation as it was then proceeding?
3. Has State Farm proven by clear and convincing evi-
dence that Jerry Childress intentionally set the fire that
destroyed his property?
The jury answered questions 1 and 2 "yes" and answered question
three "no." Accordingly, the district court entered judgment in favor
of State Farm. Childress filed a motion for j.n.o.v. or, in the alterna-
tive, for a new trial. The district court denied the motion.
II.
A.
Childress's policy attached the following proviso, which is stan-
dard in Virginia fire insurance policies:2
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2 The Virginia Code sets out a standard false swearing provision to be
included in all fire insurance policies:
This entire policy shall be void, if whether before or after a loss,
the insured has willfully concealed or misrepresented any mate-
8
This policy is void as to you and any other insured, if you
or any other insured under this policy has intentionally con-
cealed or misrepresented any material fact or circumstance
relating to this insurance, whether before or after a loss.
When invoking a "false swearing" clause to avoid a loss, a carrier
must prove a willful, material misstatement by clear and convincing
evidence. Childress argues that the jury's verdict was inherently
inconsistent. Because it found that he did not intentionally set the fire,
he contends, it could not rationally have found that he misstated mate-
rial facts concerning the origin of the fire. Accordingly, he contends
that the district court abused its discretion by denying his motion for
a new trial.
Childress's argument both overstates the nature of the jury's ver-
dict and fails to approach it with the imaginative percipience
demanded by the standard of review. This court has instructed that
special verdicts be viewed as "expressing a rational view of the case"
and that "[t]he answers to special verdicts should be reconciled under
any rational theory of the evidence." Bristol Steel & Iron Works v.
Bethlehem Steel Corp., 41 F.3d 182, 190 (4th Cir. 1994).
In answering "no" to question 3, the jury may have believed the
testimony of State Farm's witnesses that the fire was intentionally set,
but may have concluded that State Farm had not met the "clear and
convincing" standard in proving that it was Childress who set the fire.3
That conclusion would not conflict with a finding that at least one of
the sixteen statements to State Farm was intentionally false and
material.4 For example, the jury may have credited Eaton's testimony
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rial fact or circumstance concerning this insurance or the subject
thereof, or the interest of the insured therein, or in case of any
fraud or false swearing by the insured relating thereto.
Va. Code. § 38.2-2105(A.) (1994).
3 Indeed, as the interrogatories are written, they seem to contemplate
the possibility of this very result. The record does not indicate that Chil-
dress made any objection to the form of the verdict before the jury was
charged.
4 If statement one, two, or three was among the statements which the
jury believed untrue by clear and convincing evidence, then the special
9
that mud was inside the water heater and disbelieved Childress's
statements that he had no problem with the water system and that the
water was clear on the day before the fire. Because the verdict can be
rationally reconciled, it must stand.
B.
Childress argues that State Farm presented insufficient evidence to
prove that he intentionally concealed or misrepresented material facts
during the investigation. He contends that State Farm did not establish
which statements were materially false and did not show that it relied
on those statements. Accordingly, so the argument goes, the district
court should have granted Childress a JNOV or a new trial.
Again, Childress's argument fails. State Farm produced a signifi-
cant amount of evidence directly contradicting Childress's sixteen
sworn statements. For example, Childress stated that he did not hear
an explosion at the time of the fire, but Riddleberger and Woodward
testified that Childress told them that he had heard an explosion. Chil-
dress also stated that the water was good and clear, yet Eaton testified
that he found mud and clay in the water system. And so on. It is
impossible to know which of Childress's statements the jury disbe-
lieved, but easy to find sufficient evidence to contradict many of
them.
Childress additionally argues that State Farm failed to prove that
the relevant statements, even if false, were material to State Farm's
investigation. On the issue of materiality, the district judge instructed
the jury:5
Materiality of a false statement made during an insurance
company's investigation is not to be judged by what the
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verdict would, indeed, be inconsistent. However, as Childress concedes,
it is impossible to know which of the sixteen statements the jury disbe-
lieved.
5 Because neither party has raised the issue, we express no opinion as
to whether, under Virginia law, the issue of materiality is for the court
or the jury to decide.
10
facts later turn out to have been. The purpose of a provision
requiring an insured to give truthful answers is to enable the
insurance company to acquire knowledge or information
that may aid it in its further investigation, or that may other-
wise be significant to the company in determining its liabil-
ity under the policy, and the position that they take with
respect to the policyholder's claim.
The materiality requirement is satisfied if a false state-
ment concerns a subject relevant and germane to the insur-
er's investigation as it was then perceived. Thus, false
statements are material if they might have affected the atti-
tude and action of the insurer.
They are equally material if they are said to have been
calculated either to discourage, mislead or deflect the com-
pany's investigation in an area that might seem to the com-
pany at that time a relevant or productive area to investigate.
Childress made no objection to those instructions, but now con-
tends that State Farm was required to prove that it actually relied on
the false statements during its investigation. On the contrary, the Vir-
ginia Supreme Court held long ago that an insurer that invokes a poli-
cy's express "false swearing" clause to defend against a claim--as
distinguished from an insurer bringing an action for common-law
fraud--need not demonstrate that it was prejudiced by the insured's
mendacity. Virginia Fire & Marine Ins. Co. v. Vaughan, 14 S.E. 754,
757 (Va. 1892). We find no indication that Virginia's law has since
changed. Most other courts agree with the Virginia Supreme Court
that allowing insurers to invoke a policy's false swearing clause with-
out the common-law burden of proving detrimental reliance best
serves the underlying goal of protecting insurers from post-loss fraud.
See e.g., Hall v. State Farm Fire & Cas. Co. , 937 F.2d 210, 214 (5th
Cir. 1991) (applying Mississippi law); J.C. Wyckoff & Assoc., Inc. v.
Standard Fire Ins. Co., 936 F.2d 1474, 1485-86 & n.16. (6th Cir.
1991) (applying Michigan law); St. Paul Mercury Ins. Co. v.
Salovich, 705 P.2d 812, 814-15 (Wash.App. 1985). Thus, we con-
clude that State Farm was not required to show that it relied upon
Childress's statements. Furthermore, although we cannot know which
of the statements the jury found false, we find that all were material
11
to the cause of the fire, to Childress's whereabouts or to Childress's
possible motives--and thus were material to State Farm's investiga-
tion as it was then proceeding.
For the reasons stated, the verdicts of the jury and the judgments
of the district court are
AFFIRMED.
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