Insurer Files Interpleader to Allow Claim Payment to Proper Competing Claims Against Funds
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Post 4773
In an interpleader action arising out of a jury trial in Hanover Am. Ins. Co. v Tattooed Millionaire Entertainment, LLC, No. 2:16-cv-02817-JPM-tmp (W.D. Tenn. 2016) (“Hanover I”). In Hanover I, a jury trial was held on “insurance claims submitted to Hanover [by Defendants in the instant case] in connection with a 2015 arson fire and alleged theft at the House of Blues recording studio located on Rayner Street in Memphis, Tennessee.”
In Hanover American Insurance Company v. Tattooed Millionaire Entertainment, LLC, Christopher C. Brown, and John Falls, No. 2:20-cv-02834-JPM-cgc, United States District Court, W.D. Tennessee, Western Division (April 4, 2024) the USDC distributed the available funds.
PUBLIC POLICY CAN BAN PAYMENT
The Hanover I jury held that:
1. Christopher C. Brown (“Brown”) and Tattooed Millionaire Entertainment, LLC (“TME”) were indistinguishable; and
2. Brown/TME made material misrepresentations with the intent to deceive and committed unlawful insurance acts during the claims process, and thus Hanover was entitled to recover the advance payments made to Brown/TME.
3. The Hanover I jury also held that Falls did not make material misrepresentations or commit unlawful insurance acts, and thus awarded him the maximum amount covered by his policy: $2.5 million in Business Personal Property (“BPP”) and an additional $250,000 in Business Income (“BI”).
After the jury trial concluded, the USDC granted Hanover’s Rule 50(b) motion for judgment notwithstanding the verdict and entered an amended judgment denying Falls’ recovery. The Sixth Circuit, however, reversed the post-trial ruling and remanded with instructions to reinstate the jury verdict as to Falls, which the USDC did.
INTERPLEADER & DECLARATORY RELIEF ACTION
In the current action: “Hanover II,” Hanover filed its Complaint for interpleader and declaratory relief. Hanover claims that the $2.5 million BPP insurance awarded to Falls is subject to multiple competing claims. Hanover’s Declaratory Relief Complaint seeks a declaration that the $2.5 million BPP award is null and void as a matter of Tennessee public policy. It also pleads in the alternative that the Court must resolve the various competing claims to the BPP insurance proceeds and declare to whom, and in what amount, those funds should be paid.
Stipulated to Facts
Prior to trial the Parties stipulated to the following facts during pre-trial conference:
The public-policy argument, an ancient equity maxim that no one should benefit from his own wrongdoing does not mean that Falls takes nothing of the $2,500,000 BPP award.
The Court’s Previous Rulings
The Court ruled on several Summary Judgment motions and held that claim preclusion prevents Hanover from asserting claims or arguments against Falls regarding his interests in BPP but does not prevent Hanover from pursuing claims and arguments against TME/Brown. The Court also dismissed TME/Brown’s counterclaim for conversion against Hanover.
ANALYSIS
The key determination in this case is whether and what type of interest did Falls have regarding the BPP. As the Sixth Circuit already noted “Falls had a property interest in the ‘gear,’ in the form of his leasehold with unlimited renewal options. Leaseholds have been held to be insurable interests.”
Public Policy Question
Because the jury in Hanover I found Brown/TME to be interchangeable and Brown himself admitted to fraud in connection with Studio B, awarding Brown/TME any of the BPP profits would go against long standing public policy of not benefiting the wrongdoer for his own wrongdoing. Therefore, the Court held that Brown is not entitled to any of the BPP profits.
Summary of Court Findings
The Court found:
1 Hanover is precluded from arguing against Falls’ recovery;
2 Falls’ lease for Studio B and equipment therein did not terminate with the fire;
3 Loss Payable Clause modifies the language of the Schedule in Fall’s insurance contract, requiring Hanover to pay BPP jointly to Falls and Brown/TME as interests may require;
4 Falls is entitled to recover $2,066,217.30 for the destroyed/missing BPP;
5 The decision in the State Court Action is not binding on this Court;
6 Brown/TME are not entitled to recover any part of BPP, as such recovery would violate longstanding Tennessee public policy; and
Intervenor’s claim is moot, given that Brown/TME are unable to recover any of the BPP.
CONCLUSION
The Court ORDERED as follows:
1 Hanover SHALL pay John Falls $2,066,217.30 of the BPP;
2 Hanover SHALL NOT pay or credit the remaining $433,782.70 to Brown/TME; and
3 Intervenors’ claim is DISMISSED WITH PREJUDICE.
ZALMA OPINION
Insurance disputes are often difficult to resolve as established by this case that started with a jury verdict, a judgment notwithstanding the verdict, an appeal reversing the USDC, an interpleader action to determine who was on first and could recover more than $2 million, who shall not recover because of public policy and whether any competing claims could recover anything, and Hanover was able to keep$433,782.70 because no one was entitled to the funds. It took many years to resolve and we can only hope this is the end of a case where an insurer is required to pay an innocent person when the named insured was found to have committed fraud in an arson-for-profit scheme.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.
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