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Hayes v. Metropolitan Property and Casualty Insurance Co.

United States Court of Appeals, Eighth Circuit

November 9, 2018

Eric D. Hayes Plaintiff - Appellee
v.
Metropolitan Property and Casualty Insurance Company Defendant-Appellant Eric D. Hayes Plaintiff - Appellant
v.
Metropolitan Property and Casualty Insurance Company Defendant-Appellee

          Submitted: May 16, 2018

          Appeals from United States District Court for the District of Nebraska - Omaha

          Before SMITH, Chief Judge, BEAM and COLLOTON, Circuit Judges.

          BEAM, CIRCUIT JUDGE.

         Metropolitan Property and Casualty Insurance Company (Met) appeals the district court's[1] entry of judgment in favor of Eric Hayes, its insured, following a bench trial in a dispute over property coverage of a building that was destroyed by fire. We affirm.

         I. BACKGROUND

         We relate the facts which were supported by substantial evidence at the trial and from the district court's factual findings. We give deference to the district court's position as the credibility judge in this bench trial. Kaplan v. Mayo Clinic, 847 F.3d 988, 991 (8th Cir.), cert denied, 138 S.Ct. 203 (2017). Hayes's home at 480 South 6 Street, Springfield, Nebraska, was insured by Met under a homeowner's insurance policy. Hayes used the detached garage of the residence as part of a home base for his plumbing business, and in addition to living there himself with his children, he also rented out the second and third levels of the residence to a tenant and her two children. When Hayes insured the residence in 2007, Met argues that he indicated on his application that the premises were not used to conduct business, and were not used as rental property. However, the application, a five-page document, was not a model of clarity on either of these two points. It was apparent that the form was not filled out by hand because pre-printed "x's" were used in the checked boxes. Hayes testified that he did not recall personally completing the application in 2007; that he worked with an independent insurance agent when it was filled out, and it was also likely filled out with information from his sister, because his signature "stamp" was used in the signature line instead of his actual handwritten signature, and she had his authorization to use the stamp.

         With regard to tenants, the form asked whether "the residence [was] held exclusively for rental?" and a pre-printed "x" was marked next to the letter "N" in answer to that question. The form also asked for number of "families" and the number "1" was printed in that box. With regard to the business, the form asked whether "[a]ny farming or other business [was] conducted on premises?" and again, a box indicating "no" was marked with a preprinted x. Hayes testified at trial that while he did maintain some plumbing supplies at the property, very little of the plumbing equipment was located in the detached garage due to limited space. He also testified that he definitely did not "run" the plumbing business out of the premises, although customers would on occasion contact him there about doing a plumbing job. Further, Hayes had a separate commercial business insurance policy to cover the plumbing business in the detached garage, (although the address for this business was inadvertently and incorrectly listed on the insurance form as 680 South 6 Street, Springfield, Nebraska, rather than 480), and Hayes testified that he believed the commercial policy adequately covered his business. Hayes did not make a claim with regard to the shop or business as a result of the fire.

         On January 24, 2013, the home was destroyed by a fire. Hayes was in Haiti on a mission trip when the fire occurred. Hayes filed a claim with Met. Met made a notation as of January 28, 2013, that it believed the fire was intentionally set. By January 29, 2013, Met knew that Hayes was operating part of his business at the detached garage near the premises, and that he leased the upper portion of the premises to tenants. Accordingly, in February 2013, Met sent Hayes a reservation of rights letter, informing him that it was investigating the circumstances surrounding the fire, and whether there had been a change in occupancy due to the business and tenants.

         Hayes submitted multiple sworn proofs of loss, all of which were rejected by Met for deficiency in form and documentation. On September 18, 2013, the state fire marshal informed Met that there was insufficient evidence to charge anyone with arson in connection with the fire at the insured premises. In October 2013, while the investigation was ongoing, Met sent Hayes a policy renewal for the premises for the effective dates of November 2013 through November 2014. In this renewal form, there was a provision for "optional coverage" for Hayes's plumbing business venture. In January 2014, Met concluded that Hayes had made material misrepresentations on his 2007 insurance application. Met informed Hayes of this conclusion in April 2014, and email communications between the parties' lawyers ensued. Part of the discussion in that correspondence included whether, in return for agreeing not to sue Met, Hayes would accept a check to cover the balance of what was owed on Hayes's mortgage. Those talks never came to satisfactory fruition, and Hayes ultimately sent a demand letter in the amount of $669, 000 on July 30, 2014.

         On August 5, 2014, Met officially informed Hayes that it was denying the claim, cancelling the policy ab initio based upon material misrepresentations, and enclosed a check for all premiums Hayes had paid, with interest. Met also sent a check to Springfield State Bank for $127, 342.97 to satisfy the balance due on Hayes's mortgage. Hayes returned the premium check and asked the bank to refuse to cash the mortgage payment. The bank nonetheless accepted the check to satisfy the mortgage payment.

         Hayes sued Met in October 2014 in state court for breach of contract and bad faith denial/investigation. Met removed the matter to federal court on the basis of diversity jurisdiction. In February 2015, the district court[2] dismissed the breach of contract claim as time-barred. The bad faith claim proceeded to a bench trial that was conducted on April 18 through April 20, 2017. The district court entered judgment for Hayes on the bad faith claim at the conclusion of trial. As relevant, the court found that the insurance form was filled out by the independent insurance agent and signature stamped by Hayes's sister. Further, the court found that the form contained ambiguous questions. Accordingly, the court held there was a lack of evidence that Hayes knowingly provided false answers on the insurance application with the intent to deceive. The court additionally held that Met did not suffer a detriment due to any possible deception, and thus had no basis for rescission. The district court found that even if Met had proved deception and detriment, it should be estopped from rescinding the contract because of the eighteen-month delay between the time Met found out Hayes had a tenant and a plumbing business (in January 2013), and the time it rescinded (August 2014). The district court found that Hayes met his burden to establish Met's bad faith refusal to to pay the claim.

         Subtracting the amounts Met paid for the mortgage, the deductible and a few other small amounts, the total amount awarded by the district court was $493, 455. The court also directed Hayes's counsel to submit a request for reasonable attorney fees. In a separate order, the district court awarded counsel attorney fees in the amount of $86, 160. In that same order, the district court denied Met's motion to alter or amend its original order. Met appeals, alleging numerous errors discussed in turn below-its primary contention being, however, that the bad faith claim could not lie without the time-barred breach of contract claim earlier dismissed. Hayes cross-appeals the dismissal of the contract claim as time-barred.

         II.DISCUS ...


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