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JEB Stuart Auction Services, LLC v. West American Insurance Co.

United States District Court, W.D. Virginia, Danville Division

June 16, 2016

JEB STUART AUCTION SERVICES, LLC, Plaintiff,
v.
WEST AMERICAN INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION

          JACKSON L. KISER SENIOR UNITED STATES DISTRICT JUDGE

         This matter is before the Court following a bench trial on the merits of Plaintiff Jeb Stuart Auction Services, LLC’s (“Jeb Stuart”) claim for attorneys’ fees pursuant to section 38.2-209 of the Code of Virginia. The matter was tried on April 28, 2016, and this Memorandum Opinion represents my findings of fact and conclusions of law. See Fed.R.Civ.P. 52(a). For the reasons stated herein, I find that Defendant West American Insurance Company (“West American”) acted in good faith in investigating Jeb Stuart’s representations on an application for insurance, and therefore Jeb Stuart is not entitled to recover its attorneys’ fees expended in prosecuting this matter.

         I.FINDINGS OF FACT

         Although the facts are relatively well-recounted in my Opinions on the two summary judgment motions (see Mem. Op. pgs. 1-3, Aug. 13, 2015 [ECF No. 39]; Mem. Op. pgs. 1-5, Oct. 1, 2015 [ECF No. 59]), I will summarize the most relevant facts again here, making special note of the few instances in which the parties have offered competing versions of events.

         Jeb Stuart is a single-member limited liability corporation (“LLC”) located in Stuart, Virginia. Robin Hiatt (“Hiatt”) is Jeb Stuart’s managing and sole member. West American is an Indiana-based insurance provider, and Burch Hodges Stone, Inc. (“BHS”) is a Virginia-based insurance agency that markets and sells, among other things, West American commercial insurance policies. Dianne Joyce (“Joyce”) is a commercial insurance agent with BHS and has been with the agency for thirty-eight years. Diane Via Fulcher (“Fulcher”)[1] is also an insurance agent at BHS and has been in the insurance business for forty-seven years.

         On January 13, 2014, Hiatt[2] had an appointment with Fulcher at BHS about purchasing a commercial insurance policy on a large piece of property Jeb Stuart was planning to acquire. Fulcher took information from Hiatt regarding Jeb Stuart and the property, and she promised to call him back with quotes from various carriers.

         On January 22, 2014, Hiatt returned to BHS to fill out an application for a West American commercial insurance policy. Fulcher introduced Hiatt to Joyce, who was to handle the policy once it was issued. At this meeting, Fulcher went through the entire insurance application with Hiatt and assisted him in filling it out. While Fulcher went through the questions, Joyce input Hiatt’s answers into an electronic application. Of particular relevance now, “Question Eight” on the application asked, “DURING THE LAST FIVE YEARS (TEN IN RI), HAS ANY APPLICANT BEEN INDICTED FOR OR CONVICTED OF ANY DEGREE OF THE CRIME OF FRAUD, BRIBERY, ARSON OR ANY OTHER ARSON-RELATED CRIME IN CONNECTION WITH THIS OR ANY OTHER PROPERTY?” Hiatt, on behalf of Jeb Stuart (who was the sole applicant for the insurance policy), answered, “No.” Hiatt signed the application and left.

         Unbeknownst to Fulcher and Joyce, Hiatt had been convicted of a crime of fraud within the last ten years. In 2009, Hiatt entered an Alford plea to charges that he obtained money by false pretenses. He admitted to hiring individuals to wreck cars so that he could receive the proceeds from the applicable insurance policies.

         On January 30, 2014, Hiatt returned to BHS. Hiatt spoke with Fulcher about lowering the policy limits on Jeb Stuart’s policy because he felt they were too high.[3] He also told Fulcher that he had had some “personal financial issues” in 2008 but that they were resolved. She told him that, because the financial problems were personal and not business-related, they were not relevant to the LLC’s application for insurance.[4]

         Shortly after that meeting ended, Fulcher prepared a “visit note” regarding her meeting with Hiatt. It reads, in relevant part:

DV 01/30/2014 12:14 PM wanted to know if could reduce limit from $3mil on 1 bldg, I explained this is a Functional Replt & company will not change. Also said he had financial problems as individual in 2008 but not in business name

(Tr. Def.’s Ex. 9.)[5] West American issued Jeb Stuart the policy for which Hiatt applied.

         On March 3, 2014, a fire destroyed the property insured by Jeb Stuart’s policy. West American sent one of its claims adjusters, Anthony DeCesare (“DeCesare”) to investigate the fire. As part of his investigation, DeCesare had Hiatt engage in an Examination Under Oath (“EUO”) on June 25, 2014. During the day-long session, questions were propounded to Hiatt by Andrew Watson (“Watson”), one of West American’s attorneys, in a format very similar to a deposition. Hiatt’s attorney was also present. During the EUO, Hiatt first disclosed to West American that he had been convicted of several crimes that would have been responsive to Question Eight had he been the applicant. Hiatt also relayed his version of events regarding the January 30 meeting-specifically, that he told Fulcher about his criminal history, but she replied that it did not matter because the application only concerned Jeb Stuart’s history. Upon learning of Hiatt’s claim what he told West American’s representatives about his criminal history, neither DeCesare nor Watson followed up with Fulcher or Joyce to determine if that conversation ever took place.

         Following the EUO, Watson drafted a letter informing Hiatt that West American would be denying Jeb Stuart’s claims due to material misrepresentations on its application. West American took the position that Hiatt’s personal criminal background was responsive to Question Eight and that, by failing to disclose it, Hiatt (on behalf of Jeb Stuart) lied on the application. Additionally, the denial letter stated, in part,

At this third meeting [on January 30 at BHS], Mr. Hiatt says he had realized the conviction information under Question 8 was incorrect and he asked Ms. Joyce at BHS about it. Ms. Joyce admitted to Mr. DeCesare that she told him that the question about convictions “did not matter”, because he was purchasing insurance for Jeb Stuart Auction Services, LLC and not individually for himself. EUO, p. 153-54. The statements made by Ms. ...

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