Federated Mutual Insurance Co. v. Moody Station and Grocery

United States Court of Appeals
For the Eighth Circuit
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No. 14-3847
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Federated Mutual Insurance Company
lllllllllllllllllllll Plaintiff - Appellee
v.
Moody Station and Grocery
lllllllllllllllllllll Defendant - Appellant
The Big Store
lllllllllllllllllllll Defendant
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Appeal from United States District Court
for the Western District of Missouri - Springfield
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Submitted: December 15, 2015
Filed: May 2, 2016
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Before MURPHY, BENTON, and KELLY, Circuit Judges.
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BENTON, Circuit Judge.
A fire damaged Moody Station and Grocery, a convenience store owned by
Sonya R. Hubbard. The store was leased to Jeremy D. and Don McKee Jr., operating
as “The Big Store.” The insurer, Federated Mutual Insurance Company, filed an
interpleader suit to determine the rights of Moody Station and The Big Store to
insurance proceeds. Moody Station says it is entitled to the full amount remaining
under the policy, not just part of the interpleaded funds. The district court found
Moody Station was not entitled to the full amount and awarded attorney fees to
Federated. Having jurisdiction under 28 U.S.C. § 1291, this court affirms in part and
reverses in part.
I.
Federated insured Moody Station for $225,000.00 for fire loss and other
casualties. Months after the policy issued, the main building on the property was
damaged by fire. A carport, sign, and shed (operated as “Don’s ATV and Boat
Repair”) were not damaged.
Federated instituted an interpleader suit to determine the proper allocation of
policy proceeds between Moody Station and The Big Store. Having paid Moody
Station’s mortgagee $131,898.44, Federated alleged its willingness to pay the
remaining $92,101.56 (after the $1,000 deductible). Federated asserted that only
$40,980.95 was owing, which it deposited with the district court. Moody Station
counter-claimed for vexatious refusal to pay—a claim dismissed by the district court
and affirmed on appeal. See Hubbard v. Federated Mut. Ins. Co., 799 F.3d 1224,
1226 (8th Cir. 2015). The district court eventually ordered a distribution of the
interpleaded funds, determining The Big Store was entitled to $10,879.39 and Moody
Station was entitled to $30,101.56.
Federated contested paying the remaining $51,120.61, arguing Moody Station
had not replaced the property as required by the policy. Moody Station argued that
it suffered a total loss and, by Missouri’s total-loss statute, should recover the
$51,120.61. Alternatively, Moody Station argued that, even with a partial loss, its
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damage exceeded the policy limit. Federated countered that—regardless of total or
partial loss—Moody Station’s policy had an (un-met) condition precedent: “We will
not pay on a replacement cost basis for any loss or damage: (1) Until the lost or
damaged property is actually repaired or replaced; and (2) Unless the repairs or
replacement are made as soon as reasonably possible after the loss or damage.”
Federated then concluded that recovery was limited to the actual cash value of the
property by another policy provision: “We will determine the value of Covered
Property in the event of loss or damage . . . At actual cash value as of the time of loss
or damage . . . .”
The district court found that because Moody Station had not repaired or
replaced the damaged property, the replacement-cost provision is a valid condition
precedent limiting Moody Station to the actual cash value of the property. The
district court held a bench trial on actual cash value of the property. The court did not
make an explicit finding whether the property suffered a total or partial loss. It did
use the analysis in Missouri’s partial-loss statute to determine recovery. Federated
argued the actual cash value was $162,000; Moody Station argued it exceeded the
policy limit of $225,000. Hubbard (the owner of Moody Station) testified that at the
time of loss, the property was worth $320,000. The district court disagreed, first
finding the actual cash value was $137,750.68. However, it set the actual cash value
at $162,000—Federated’s position throughout. The court ruled Moody Station did
not meet its burden to show the actual cash value exceeded $225,000 and was thus
not entitled to the additional $51,120.61. The court awarded Federated attorney fees,
ordering The Big Store to pay $233.29 and Moody Station to pay $3,859.46. Moody
Station appeals.
II.
This court must first determine if it has subject matter jurisdiction. Moody
Station is correct that there is no jurisdiction under Section 1335’s statutory
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interpleader because the two adverse claimants—Moody Station and The Big
Store—are both citizens of Missouri. See 28 U.S.C. § 1335. “The interpleader
statute . . . applies where there are ‘Two or more adverse claimants, of diverse
citizenship.’” State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530 (1967),
quoting § 1335.
Federated’s complaint invoked Rule 22 of the Federal Rules of Civil
Procedure, asserting diversity jurisdiction under 28 U.S.C. § 1332. Rule 22 states that
persons “with claims that may expose a plaintiff to double or multiple liability may
be joined as defendants and required to interplead . . . even though . . . (B) the
plaintiff denies liability in whole or in part to any or all of the claimants.” Fed. R.
Civ. P. 22(a)(1). Rule interpleader “does not provide an independent basis for
jurisdiction” but can “be premised on the diversity statute.” Correspondent Servs.
Corp. v. First Equities Corp. of Florida, 338 F.3d 119, 124 (2d Cir. 2003). Diversity
jurisdiction exists “where the matter in controversy exceeds the sum or value of
$75,000, exclusive of interests and costs, and is between . . . (1) citizens of different
States.” 28 U.S.C. § 1332(a). Rule interpleader “requires that the plaintiff . . . be of
diverse citizenship to all defendants, and that the amount in controversy be greater
than $75,000.” Correspondent Servs., 338 F.3d at 124. See also Webb v. Voirol, 773
F.2d 208, 209 (8th Cir. 1985) (stating the appeal is “an interpleader action brought
pursuant to Fed.R.Civ.P. 22, with jurisdiction based on 28 U.S.C. § 1332”).
Diversity jurisdiction exists here. Diversity of citizenship is undisputed: the
claimants are both citizens of Missouri and the stakeholder, Federated, is a citizen of
Minnesota. The amount in controversy is also met. “In this circuit, the amount in
controversy is measured by the value to the plaintiff of the right sought to be
enforced.” Schubert v. Auto Owners Ins. Co., 649 F.3d 817, 821 (8th Cir. 2011).
A complaint that “alleges the jurisdictional amount in good faith will suffice to confer
jurisdiction, but the complaint will be dismissed if it ‘appear[s] to a legal certainty
that the claim is really for less than the jurisdictional amount.’” Scottsdale Ins. Co.
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v. Universal Crop Prot. Alliance, LLC, 620 F.3d 926, 931 (8th Cir. 2010), quoting
St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938). In the
initial complaint, Federated alleged an amount in controversy of $92,101.56.
Although Federated is disinterested as to $40,980.95, the total $92,101.56 is in
dispute among the three parties. In fact, Moody Station counterclaimed, in good
faith, that it was entitled to the full amount. Cf. Schubert, 649 F.3d at 821-822
(finding no amount in controversy where insurer, pre-litigation, sent a check to
insured for $62,250 and the remaining $62,250 under the policy was the only amount
in dispute). Diversity jurisdiction is proper here.
III.
According to Moody Station, the district court erred in determining the only
issue for trial was actual cash value and in requiring Moody Station to bear the
burden of proving it. After a bench trial, this court reviews legal conclusions de novo
and factual findings for clear error. Rice v. Union Pacific R. Co., 712 F.3d 1214,
1219 (8th Cir. 2013). “Under the clearly erroneous standard, we will overturn a
factual finding only if it is not supported by substantial evidence in the record, if it
is based on an erroneous view of the law, or if we are left with the definite and firm
conviction that an error was made.” Id. See also Fed. R. Civ. P. 52(a)(6) (“Findings
of fact, whether based on oral or other evidence, must not be set aside unless clearly
erroneous, and the reviewing court must give due regard to the trial court’s
opportunity to judge the witnesses’ credibility.”). Both parties agree that Missouri
law applies.
The policy says that, in the event of loss or damage, the value of covered
property is determined by “actual cash value as of the time of loss or damage.” On
the other hand, if an insured prefers to receive replacement costs, the insured must
repair or replace “as soon as reasonably possible after the loss or damage.”
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A policy requiring actual replacement or repairs in order to receive replacement
costs complies with Missouri’s partial-loss statute. Dollard v. Depositors Ins. Co.,
96 S.W.3d 885, 889 (Mo. App. 2002), discussing Mo. Rev. Stat. § 379.150 (the
“partial-loss statute”). After a partial loss, “it shall be the duty of the party writing
the policies to pay the assured a sum of money equal to the damage done to the
property, or repair the same to the extent of such damage, not exceeding the amount
written in the policy . . . at the option of the insured.” § 379.150. The policy
purposes of Section 379.150 “do not override the admittedly unambiguous language
of [the insurer’s] policy that meets the statutory minimum and provides an additional
benefit, subject to conditions that the property actually be repaired or replaced.”
Dollard, 96 S.W.2d at 890.
After a total loss, a policy may require a similar condition precedent.
Kastendieck v. Millers Mut. Ins. Co. of Alton, Ill., 946 S.W.2d 35, 36 (Mo. App.
1997), discussing Mo. Rev. Stat. § 379.140 (in this opinion, the “total-loss statute”).
The policy in Kastendieck provided that the insurer “will pay no more than the actual
cash value for the loss or damage until the actual repair or replacement is complete.”
Id. at 40. The court held that the insured’s “claim that he is entitled to recover the
replacement cost of his dwelling and personal property without actually replacing
these items must fail . . . . This provision is clear and unambiguous and must be
enforced as written.” Id. The policy here allowed for replacement costs at Moody
Station’s option, but Moody Station must first replace or repair the property.
The district court properly relied on Kastendieck to enforce the replacement-
cost provision, but it wrongly concluded, based on Kastendieck, that it did not need
to explicitly find if Moody Station suffered a partial loss or total loss. See Id. at 37
(explaining that the insurer paid “the policy limit as required by § 379.140”)
(emphasis added). The district court here adopted the partial-loss analysis, placing
the burden on Moody Station to prove actual cash value at the time of loss. See §
379.150; Fire Ins. Exchange v. Bowers, 994 S.W.2d 110, 112 (Mo. App. 1999) (“In
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cases of partial loss, the insured has the burden to prove the value of the property both
before and after the casualty.”); Porter v. Shelter Mut. Ins. Co., 242 S.W.3d 385, 390
(Mo. App. 2007) (“Actual cash value means a depreciated sum, i.e., the difference
between the reasonable value of the property immediately before and immediately
after the loss.”), discussing § 379.150.
Total loss has a different standard:
. . . in case of total loss of the property insured, the measure of damage
shall be the amount for which the same was insured, less whatever
depreciation in value, below the amount for which the property is
insured, the property may have sustained between the time of issuing the
policy and the time of the loss, and the burden of proving such
depreciation shall be upon the defendant.
§ 379.140. See Wells v. Missouri Prop. Ins. Placement Facility, 653 S.W.2d 207,
210 (Mo. banc 1983) (“Section 379.140 . . . establishes as the measure of damages
for a total loss of real property the face value of the policy less the amount the
property depreciates between the time the policy is issued and the time of the
casualty. The insurer bears the burden of proving such depreciation . . . .”).
Although the district court did not explicitly find a partial loss, the court
implicitly rejected that a total loss occurred (as confirmed by the court’s allocation
of the burden of proof on the insured). Only two witnesses testified at trial: Hubbard,
the owner, and Kent E. Garretson, a claims adjuster for Federated for 19 years. The
district court found Hubbard’s testimony that the property was worth $320,000
“purely speculative,” while explicitly finding Garretson’s “testimony regarding the
value of the property . . . credible.” Garretson testified that “Don’s ATV and Boat
Repair” shop and the free-standing sign were undamaged by the fire; Hubbard herself
testified that these structures remained after the fire, in addition to a metal-frame
carport. See § 379.150 (stating that the partial-loss statute applies “[w]henever there
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is a partial destruction or damage to property covered by insurance”); Stevens v.
Norwich Union Fire Ins. Co., 96 S.W. 684, 689 (Mo. App. 1906) (holding “there
was not a total loss” where $100 of insured goods were saved and $800 of goods were
“destroyed by fire”); cf. State Auto Prop. & Cas. Ins. Co. v. Boardwalk Apartments,
L.C., 572 F.3d 511, 516 (8th Cir. 2009) (noting that under an analogous Kansas law,
a property is not “wholly destroyed” “where one building in a group of buildings is
destroyed”). These undamaged structures were covered by the policy. Garretson also
testified, based on industry-standard software, that the actual cash value of the
damaged property was $137,750. The court ultimately found the actual cash value
to be $162,000 ($163,000 less the $1,000 deductible). This finding is not clearly
erroneous and is supported by substantial evidence in the record.
Because the district court solely credited Garretson’s testimony, the court did
not clearly err in determining the actual cash value of the destroyed property.
IV.
Moody Station challenges the award of ten percent of the interpleaded funds
as attorney fees to Federated. The decision to award attorney fees “rests within the
sound discretion of the [district] court and we will not disturb [the district court’s
decision] absent a clear abuse of that discretion.” Wescott Agri-Products, Inc. v.
Sterling State Bank, Inc., 682 F.3d 1091, 1094 (8th Cir. 2012) (brackets in original).
While a “completely disinterested stakeholder should not ordinarily be out of
pocket for the necessary expenses and attorney’s fees incurred by him, the amount
allowed for such fees should be modest.” Hunter v. Fed. Life Ins. Co., 111 F.2d 551,
557 (8th Cir. 1940). An interpleader action, “including the depositing of the fund in
the registry of the court and the procuring of an order of discharge of the stakeholder
from further liability, does not usually involve any great amount of skill, labor, or
responsibility.” Id. Although Federated did deposit interpleaded funds with the
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district court, Federated was not disinterested, alleging that the entire $92,101.56 was
in controversy. Federated has consistently opposed Moody Station’s attempts to
collect on its policy and is not a disinterested stakeholder deserving attorney fees.
See Rhoades v. Casey, 196 F.3d 592, 603 (5th Cir. 1999) (“The award of attorney’s
fees is in the discretion of the district court, and fees are available when the
interpleader is a disinterested stakeholder, and is not in substantial controversy with
one of the claimants.”). The district court clearly abused its discretion in ordering
Moody Station to pay attorney fees to Federated.
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The judgment of the district court is affirmed in part, reversed as to attorney
fees, and remanded for proceedings consistent with this opinion.
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