William Hatcher v. MDOW Insurance Company

United States Court of Appeals
For the Eighth Circuit
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No. 17-2410
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William Hatcher
lllllllllllllllllllllPlaintiff - Appellant
v.
MDOW Insurance Company
lllllllllllllllllllllDefendant - Appellee
Wells Fargo Home Mortgage, Inc.
lllllllllllllllllllllDefendant
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Appeal from United States District Court
for the Eastern District of Arkansas - Helena
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Submitted: April 11, 2018
Filed: September 7, 2018
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Before BENTON, MELLOY, and GRASZ, Circuit Judges.
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MELLOY, Circuit Judge.
William Hatcher appeals following an adverse jury verdict on his claim seeking
additional insurance benefits for smoke and fire damage at his home. He argues the
district court misinterpreted his insurance policy as an actual-cash-value policy rather
than a replacement-cost policy. In addition, he raises an evidentiary issue, arguing the
district court improperly prevented him from testifying as to the pre-fire, depreciated
value of the damaged portions of his home. We conclude his policy was an actual-
cash-value policy. We also conclude Mr. Hatcher is not entitled to relief on his
evidentiary claim. Mr. Hatcher testified as to a pre-fire depreciation amount, he failed
to show that the court admonished the jury to disregard his testimony, he did not
otherwise make an offer of proof as to what additional testimony he sought to
provide, and he failed to provide a transcript of the final day of trial. We affirm the
judgment of the district court.
I.
Mr. Hatcher’s home was damaged by smoke and fire in 2015. He and his son
had built the home together approximately twenty years prior to the fire. Mr. Hatcher
owned and lived in the home during the intervening years. The home had new
kitchen appliances at the time of the fire, but many components of the home (furnace,
carpet, roof, etc.) were twenty years old. The home suffered severe fire damage in
some areas and smoke damage throughout more extensive areas.
Mr. Hatcher maintained casualty insurance for his home with defendant
MDOW Insurance Company, renewing annually after initial issuance of the policy
in January 2011. Soon after the fire, an adjuster from MDOW arrived at the scene
and met with Mr. Hatcher. Mr. Hatcher indicated he wished to remain at the home
during reconstruction. In fact, he had already borrowed a camper from his son,
placing the camper in a carport at the damaged home. The adjuster agreed to pay a
per diem for use of the camper and provided a $5,000.00 advance. Mr. Hatcher and
his son commenced making repairs at the home, performing much of the tear-out and
demolition work themselves and disposing of materials in a ravine on the property.
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Less than one month later, the adjuster provided Mr. Hatcher with an additional
$1,040.00 for living expenses.
The adjuster initially estimated the actual cash value of damage to Mr.
Hatcher’s home as $41,550.02. Mr. Hatcher disagreed with the adjuster’s estimate
and interpretation of the policy. Mr. Hatcher tendered an estimate from his brother
(a contractor) for $92,895.00. He also tendered an estimate from a different,
unrelated contractor for $97,080.00. In addition, he hired an attorney.
The adjuster then increased his estimate of damages to the home to $63,593.32,
acknowledging that certain items he had deemed salvageable should be replaced. In
November 2015, MDOW issued two checks to Mr. Hatcher’s attorney: $63,593.32,
representing MDOW’s estimate of the actual-cash-value damages, and $12,556.77
for damage to Mr. Hatcher’s personal property. In total, MDOW paid Mr. Hatcher
$82,190.09.
The third-party, unrelated contractor performed repairs to Mr. Hatcher’s home
for the estimate amount tendered by MDOW ($63,593.32). In addition, Mr. Hatcher
alleges that he and his son personally performed approximately $20,000 of additional
repairs and demolition work. Ultimately, the repairs to Mr. Hatcher’s home included
some repairs and some upgrades. For example, Mr. Hatcher installed a metal roof
(where previously there had been shingles) and hardwood floors (where previously
there had been vinyl). He also replaced some twenty-year-old components with new
components. But, as already noted, certain other expenses were not included in repair
costs paid to the unrelated contractor because Mr. Hatcher and his family provided
labor and disposed of damaged materials without charge. Moreover, some damaged
components were merely repaired. In receiving the checks and making repairs, Mr.
Hatcher did not agree to MDOW’s estimate of damages, and MDOW did not make
its payment contingent on such assent.
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Mr. Hatcher commenced this action, alleging MDOW acted in bad faith. He
sought punitive damages as well as additional payment under the policy for his
repairs. Mr. Hatcher attached to his complaint the operative policy for 2015. The
attached policy included an actual-cash-value endorsement as well as a declarations
page identifying the actual-cash-value endorsement as a form attached to the policy.
To a large extent, the policy attached to the complaint speaks for itself. The 2015
policy, without looking at the actual-cash-value endorsement, is a hybrid policy.
Some categories of harm are covered for replacement cost, and other categories are
covered only for actual cash value. The endorsement, however, expressly deletes
replacement cost and applies actual cash value to all relevant coverage terms.
Disputes in this case relate primarily to what was included in earlier years’ versions
of the policy and whether changes upon annual renewal were conducted in a manner
so as to make the actual-cash-value endorsement in the 2015 policy effective.
Mr. Hatcher filed a motion for partial summary judgment, asking “that the
‘actual cash value’ endorsement be stricken from the contract, that the Defendant be
prohibited from arguing the same to the jury in this case, and for all other fit and
proper relief.” He attached to his motion an affidavit and a thirty-six-page,
purportedly complete copy of the “original” policy. The document he attached
included no declarations page and contained no actual-cash-value-endorsement.
Because he attached no declarations page to the policy accompanying his affidavit,
the attachment, in fact, was merely a basic form policy. It referenced no policy
period, failed to identify the insured or the insurer, referenced no limits of liability,
identified no premium, and identified no deductibles. In other words, the policy
attached to his affidavit was obviously incomplete. Nevertheless, he specifically
stated in his affidavit that “[w]hen I purchased insurance for the house, I remember
being offered the policy of insurance which is attached to this affidavit at Exhibit ‘B’.
It had 36 pages.” He also stated in his affidavit that “[t]he endorsement must have
been added after I agreed to the attached policy . . . [and that he] never agreed to
change the terms from ‘replacement costs’ to ‘actual cash value.’”
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MDOW resisted Mr. Hatcher’s motion and filed its own motion for partial
summary judgment. In its own motion, MDOW sought a defense judgment on the
bad-faith claim, characterizing its own treatment of Mr. Hatcher’s insurance claim as
involving good-faith disagreements as to policy interpretation and damages amounts.
In resisting Mr. Hatcher’s motion concerning policy provisions and in presenting its
argument concerning policy interpretation as relevant to the bad-faith claim, MDOW
attached affidavits, renewal-notice letters, and annual policies.
Each policy that MDOW submitted included a declarations page, and each
policy included an actual-cash-value endorsement. For the three policies issued for
2011, 2012, and 2013, the declarations page included a section entitled “Additional
Endorsements Attached to Policy.” For these three years, the actual-cash-value
endorsement was attached but not listed on the declarations page. Then, for the 2014
and 2015 policies, the corresponding section on the declaration page was renamed
“Forms Attached to Policy” and the actual-cash-value endorsement was listed.
MDOW also provided letters it purportedly sent to Mr. Hatcher in December 2013
as notice of renewal for the 2014 policy, and sent in 2014 for the 2015 renewal.
These letters did not expressly reference the actual-cash-value endorsement as a
change. They did, however, identify other changes to the policy. In addition, the
letters were accompanied by declarations pages and instructed Mr. Hatcher to review
the policy if he intended to renew.
The district court granted MDOW’s summary judgment motion as to the bad-
faith claim, rejecting three arguments by Mr. Hatcher. First, the court held Mr.
Hatcher failed to create a triable question of fact regarding bad faith related to the
adjuster’s initial and subsequent damages estimates. Second, the court held Mr.
Hatcher failed to create a triable question of fact regarding an allegation that MDOW
had unilaterally altered the policy by adding the actual-cash-value endorsement. And
finally, the court held MDOW had not acted in bad faith in relation to living expenses
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by agreeing to pay a per diem for use of the trailer rather than paying for some other
arrangements.
The case proceeded to trial, which took place over the course of three days.
Late in the week prior to trial, the court held a pretrial conference at which the court
addressed questions surrounding policy interpretation. Mr. Hatcher argued he should
be allowed to introduce evidence of earlier years’ policies to prove MDOW had
added the actual-cash-value endorsement after the initial policy issuance in 2011 and
to prove it had not been added in a manner so as to make it effective. The district
court reserved ruling. Then, on the first day of trial, the court again took up the issue
of earlier policies and the process of policy amendment. The court did so to decide
whether the court would or would not allow parol evidence for the purpose of
interpreting the 2015 policy as attached to Mr. Hatcher’s complaint.
The court concluded the evidence was overwhelming that the annual policies
had always included an actual-cash-value endorsement. The court noted the state of
the record concerning this issue, indicating that, although the earlier policies did not
reference the actual-cash-value endorsement on their declaration pages, Mr. Hatcher’s
own conclusory affidavit was the only evidence indicating such endorsements had not
been included in the earlier policies. His affidavit, however, was facially infirm in
that it made representations about the original policy that were patently incorrect, i.e.,
he represented that a thirty-six-page document with no declarations page (and
therefore no listing of insurer or insured, insured amounts, insured property,
deductibles, etc.) was the “original” policy. The court also determined, in the
alternative, that even if the original policy had not included an actual-cash-value
endorsement, the latter addition of such an endorsement at time of renewal, with Mr.
Hatcher having the option to not renew, sufficed to alter the policy. The court entered
a separate written order to this effect, stating its conclusion that interpretation of the
applicability of the endorsement was a question of law for the court.
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When the trial commenced, in light of the district court’s pretrial ruling, the
parties tried the issue of the fire-damage loss amount under an actual-cash-value
analysis rather than a replacement-cost analysis. MDOW elicited testimony from its
adjuster who was experienced in using software for calculating depreciation.
Eventually, Mr. Hatcher took the stand and attempted to offer his opinion, as the
property owner, regarding the pre-fire depreciation of his home. Counsel asked Mr.
Hatcher, “And now, knowing that you have an actual cash value policy, how much
would you depreciate the value of your home?” Mr. Hatcher answered, “No more
than 10 percent.” Counsel for MDOW immediately objected, and counsel for Mr.
Hatcher rebutted that Mr. Hatcher was the owner of the property. The district court
called the parties to a sidebar.
In the ensuing discussion, the parties disputed whether Mr. Hatcher was
qualified to offer an opinion as to depreciation and whether an opinion as to
depreciation in this context differed from an opinion as to value. The court concluded
the sidebar, stating:
He can give that if you want to go through and lay a foundation for him
to talk about depreciation. The problem with the way you phrased your
question is the value of the property subject to depreciation. I don’t
know – when we’re talking about that, I don’t know what exactly the
property is. I think you could give a value as to the property. But I’m
not sure what subject to depreciation means in your question for this
witness.
...
I’m not sure, again, he’s qualified to do the subject to depreciation. I’m
not sure what he did in his past life or employment or how he would
establish a value for certain values of the overall property. If you have
some way he would have that foundational knowledge, you know, I
think what you are asking him is slightly different than the value of his
property.
...
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If you want to go out there and try to do it again with the witness, you
can. Like I said, right now the way the question is phrased I think is
objectionable, and I’ll sustain the objection. You can make another run
at it with a different question in an effort to try to get to where you are
trying to go. I will rule on contemporaneous objections that are made.
After the sidebar, proceedings continued in open court, but the court did not
inform the jury as to the ruling on the objection, and the jury was not told to disregard
Mr. Hatcher’s testimony that the pre-fire depreciation in the value of his home was
“[n]o more than 10 percent.” Subsequently, Mr. Hatcher’s counsel asked a few
pointed questions regarding problems or deterioration with cabinets, insulation,
appliances, general wear and tear, etc. Counsel did not, however, ask Mr. Hatcher to
opine again as to a depreciation amount. Counsel’s questioning of Mr. Hatcher as to
this topic concluded with the following:
[Counsel]: You’ve heard [the adjuster] testify that significant portions
of your property had deteriorated over time. Can you tell the jury what
portions of your property had deteriorated significantly over time?
[Mr. Hatcher]: Not anything. I had vinyl siding on the outside. It was
all good, other than what the fire done. I didn’t have anything.
Ultimately, the jury returned a defense verdict, rejecting Mr. Hatcher’s claim
that he was entitled to additional insurance proceeds. Mr. Hatcher appealed to our
court and provided a transcript of the pre-trial conference that took place the week
prior to trial. In addition, he provided transcripts of the first two days of trial. He did
not provide a transcript of the final day of trial. The district court docket sheet, in
fact, does not show that either party ordered the transcript of that day. On appeal, Mr.
Hatcher argues the district court improperly interpreted the policy as an actual-cash-
value policy and erred by preventing him from testifying as to the pre-fire
depreciation of his home.
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II.
A.
We first address Mr. Hatcher’s challenge to the district court’s determination
that the 2015 policy included an enforceable actual-cash-value endorsement. The
procedural posture surrounding the interpretation of the policy is a bit opaque. Mr.
Hatcher attached the operative 2015 policy to his complaint. The parties, on their
cross motions for summary judgment, developed a record to contest the contents of
the 2011 policy, annual changes to the policy through the 2015 policy, and
communications preceding renewals. We review summary judgment rulings de novo.
Ball v. City of Lincoln, Neb., 870 F.3d 722, 726 (8th Cir. 2017). But the district
court did not rule at the summary judgment stage that the operative 2015 policy was
an actual-cash-value policy. Rather, the district court merely rejected Mr. Hatcher’s
bad-faith claim and denied his request to rule as a matter of law that the policy was
a replacement-cost policy. Then, the week before trial and again at the
commencement of trial, the court addressed policy interpretation and policy
amendments in a context akin to ruling on a motion in limine. The court was
deciding whether to allow or disallow parol evidence to challenge the actual-cash-
value endorsement attached to the 2015 policy and identified on its declaration page.
We normally review such evidentiary rulings for an abuse of discretion. Sims v. State
Farm Mut. Auto. Ins. Co., 894 F.3d 941, 946 (8th Cir. 2018). As between these two
standards, the most favorable possible standard of review we could apply from Mr.
Hatcher’s standpoint is de novo review. Because we affirm even under this standard,
we apply de novo review.
The district court supported its decision with two lines of reasoning. First, the
court looked at the materials tendered at summary judgment and referenced by the
parties at the pretrial hearings and determined the annual policies had always included
actual-cash-value endorsements, even if the declaration pages for 2011, 2012, and
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2013 did not reference those endorsements. MDOW had tendered materials and
affidavits to this effect, and they were consistent with the 2015 policy Mr. Hatcher
had attached to his complaint. The only countervailing evidence Mr. Hatcher offered
was his own facially infirm affidavit claiming that the partial document attached to
his summary judgment affidavit comprised the entirety of the original 2011 policy.
Faced with the undisputedly applicable 2015 policy Mr. Hatcher had attached to his
complaint, the district court essentially found Mr. Hatcher’s infirm affidavit
incompetent to create a triable question of fact as to whether the earlier policies had
or had not included the actual-cash-value endorsement.
Second, the court determined that, even if the actual-cash-value endorsement
was first added to the policy for policy year 2014, it was added in a manner consistent
with requirements under Arkansas law to provide an insured notice and opportunity
to review policy amendments prior to renewal. See Ark. Code Ann. § 23-88-105.
We agree with the district court that all years’ policies contained the actual-
cash-value endorsement. Moreover, the material question for our review is whether
the endorsement attached to, and referenced on the declaration page for, the 2015
policy was operative. As such, the enforceability of the endorsement for any prior
year is not at issue. Rather, the other years’ policies and any renewal letters as to
those years are material to the extent they indicate whether Mr. Hatcher had notice
of the endorsement for the 2015 policy. As such, we need not decide whether the
absence of a reference to the endorsement on the declaration pages for 2011, 2012,
and 2013 made the endorsement unenforceable for those years or whether the renewal
letter for the 2014 policy sufficed to make the endorsement enforceable for that year.
Looking at the entirety of what Mr. Hatcher received, it is clear the 2015
endorsement was enforceable. The declaration pages for 2014 and 2015 referenced
the endorsement. The letter MDOC sent to Mr. Hatcher in December 2013 inviting
policy renewal for 2014 did not expressly reference the endorsement. It did, however,
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reference the need to review the attached materials, which, in fact, included the
endorsement and the policy with a declaration page listing the endorsement. As to
the 2015 policy, Mr. Hatcher received a notice in December 2014 instructing him to
review the 2015 policy if he intended to renew. Therefore, prior to renewal in 2015,
Mr. Hatcher received two notice of renewal letters and was afforded approximately
thirteen months to review the materials provided, including declaration pages
referencing the endorsement that had been attached to his policy as far back as 2011.
The Arkansas Code addresses requirements for what an insurer is to include in
a notice to a policyholder regarding changes to a policy at time of proposed renewal:
(a) Except for nonpayment of premium, the insurer shall give either a
written notice of nonrenewal or an offer of renewal at least thirty (30)
days prior to the expiration of the policy’s existing term.
(b) The insurer shall send the insured a written notice . . . of the offer of
renewal under subsection (a) of this section, indicating the new premium
and providing a description of any change in deductible or policy
provision in the renewal policy.
Ark. Code Ann. § 23-88-105. If the endorsement had never been attached, and if it
had first appeared in the proposed 2015 policy sent to Mr. Hatcher prior to renewal,
a close question might exist as to whether Mr. Hatcher received sufficient statutory
notice of the change. It is by no means clear that one renewal letter accompanied by
a policy with a declarations page and attached endorsement would satisfy the
“description of any change” requirement listed in section 23-88-105(b). But, we
cannot view the disclosures for the 2015 renewal in a vacuum. We agree with the
district court that the entirety of the materials Mr. Hatcher received more than
adequately satisfied the statutory requirements.
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Mr. Hatcher nevertheless argues the change to his policy was without
consideration. To support his argument, he cites Southern Farm Bureau Cas. Ins. Co.
v. United States, 395 F.2d 176 (8th Cir. 1968), for the general proposition that
consideration is required to amend policy terms. In particular, he argues that his
premiums increased rather than decreased even though, according to him, the scope
of his coverage decreased. We conclude he reads too much into Southern. As our
court held in Slaughter v. Am. Cas. Ins. Co. of Reading, Pa., 37 F.3d 385 (8th Cir.
1994), Southern involved an “attempt[] to modify a policy during a policy period.”
Slaughter, 37 F.3d at 387. In fact, in Slaughter, we quoted and emphasized language
from Southern to the effect that the insurer is not locked in to existing terms beyond
the policy term:
The insurance company clearly could cancel the policy upon proper
notice and could if desired offer a different policy to the assured, who
would be free to accept or reject the proffered policy; or the company
could refuse to renew except upon altered terms and conditions. The
company is not locked in for an extended period of time or ad infinitum
so to speak in its contract obligations if proper steps are taken to make
a new or altered contract with its assured.
Id. (quoting Southern, 395 F.2d at 181). Mr. Hatcher’s premium for the 2015 policy,
after receiving adequate notice, served as consideration.
B.
Turning to the evidentiary issue, we agree with Mr. Hatcher that, at trial, the
district court should have overruled MDOW’s objection to Mr. Hatcher’s depreciation
testimony. Depreciation, after all, is merely the difference between two values: an
initial value and a later-in-time value. See, e.g., Nw. Nat’l Ins. Co. v. Nemetz, 400
N.W.2d 33, 40 (Wis. Ct. App. 1986) (“Replacement cost minus depreciation is a
permissible method of arriving at the fair market value of lost property.”). Although
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various technical means of tracking and deducting depreciation exist for accounting
and tax-calculation purposes, these technical means do not change the underlying fact
that an opinion as to depreciation is nothing more than an opinion as to value. And,
in Arkansas, a property owner intimately familiar with his property is competent to
testify as to its value. See, e.g., Walt Bennett Ford, Inc. v. Brown, 670 S.W.2d 441,
443 (Ark. 1984). Testimony from a property owner, although admissible, is subject
to attack and carries weight commensurate in scope with the property owner’s
explanation and demonstrated knowledge and experience. See Pope v. Overton, 376
S.W.3d 400, 405 (Ark. 2011) (“An owner of property is competent to testify as to
value of his property if he has an intimate acquaintance with his property, but not
every landowner’s testimony constitutes substantial evidence.”). Here, Mr. Hatcher
built the home, lived in it for twenty years, and participated in the post-fire
reconstruction. He was, therefore, well positioned to claim an ability to testify as to
the property’s value.
MDOW cites various cases seeming to limit a property owner’s ability to opine
as to value, but all such cases relate to unique situations not present in our case. For
example, courts have limited or excluded such testimony from commercial
landowners shown to be unfamiliar with their property or who sought to testify as to
the value of a property as part of a larger commercial enterprise or for a particular
commercial use. See, e.g., James River Ins. Co. v. Rapid Funding, LLC, 658 F.3d
1207, 1214–16 (10th Cir. 2011) (excluding a commercial property owner’s attempted
testimony as to valuation where the property owner offered no basis in fact to explain
a depreciation percentage and, in fact, was an out-of-state absentee owner who had
acquired the property in a distress sale); Ark. State Highway Comm’n v. Frisby, 951
S.W.2d 305, 307 (Ark. 1997) (stating that “no doubt” an owner has the privilege of
offering an opinion as to valuation, but excluding such an opinion from a commercial
property owner where the owner admitted in testimony he had no basis in fact for his
estimate and had merely based it on “his ‘feeling’ or what he would have asked for
the land”); Ark. State Highway Comm’n v. Hammond, 447 S.W.2d 664, 665 (Ark.
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1969) (finding landowner in eminent domain dispute could not testify as to value of
commercial fish-rearing ponds or intended construction projects on land taken by the
state because landowner had no basis in knowledge for such commercial valuations).
We simply find no authority for the proposition that a homeowner such as Mr.
Hatcher is unable to testify as to the value of his home, and by extension, depreciation
over a period of time during which he built and occupied the home.
That does not end our analysis, however, because three separate grounds exist
that bar Mr. Hatcher from receiving relief due to the absence of any demonstrated
harm. See Stolzenburg v. Ford Motor Co., 143 F.3d 402, 406 (8th Cir. 1998) (“[W]e
conclude as well that any error in excluding it was harmless.”). First, as discussed
above, the jury actually heard his testimony that pre-fire depreciation of his home was
“no more than 10 percent.” The district court ruled on the MDOW’s motion only in
the sidebar. The transcript provided to our court does not show that the jury was
informed as to the ruling on the motion. In any event, Mr. Hatcher has not shown that
the jury was admonished to disregard his depreciation testimony. Therefore, without
resort to speculation, we cannot conclude the jury was even aware that the district
court sustained the objection.
Second, even if the jury had been admonished to disregard that testimony, Mr.
Hatcher made no offer of proof as to what additional or alternative information he
wanted to tell the jury but was prevented from saying. See Strong v. Mercantile Trust
Co., 816 F.2d 429, 431 (8th Cir. 1987) (“Error may not be predicated upon a ruling
excluding evidence unless a substantial right of the party is affected and ‘the
substance of the evidence was made known to the court by offer [of proof] or was
apparent from the context within which questions were asked.’” (quoting Fed. R.
Evid. 103(a)(2))).
And third, Mr. Hatcher did not provide to our court a transcript of the final day
of trial. Without a transcript of the final day of the trial, we cannot assess harm
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because we cannot know what was said to the jury at closing regarding the parties’
respective views of pre-fire value, replacement costs, depreciation, etc. See, e.g.,
Kelly v. Omaha Hous. Auth., 721 F.3d 560, 562 (8th Cir. 2013) (dismissing for
inability to review based on plaintiff’s failure to order the entire transcript where the
court deemed missing transcript portions necessary); Brattrud v. Town of Exline, 628
F.2d 1098, 1099 (8th Cir. 1980) (per curiam) (“The pleadings included in the record
on appeal fail to provide any record required for a meaningful review. This court
cannot rule on the issues raised here without a complete transcript of the proceedings.
In the absence of a proper record which includes the transcript of testimony, we have
no alternative but to dismiss the appeal pursuant to Eighth Circuit Rule 13, for failure
to comply with the Federal Rules of Appellate Procedure.”).
Because the district court did not err in interpreting the policy as an actual-
cash-value policy, and because Mr. Hatcher has shown no harm related to the
evidentiary ruling on his depreciation testimony, we affirm the judgment of the
district court.
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