Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01584/USCOURTS-ca10-88-01584-0/pdf.json

Parties Involved:
Thomas H. Black
Appellee
Northern Insurance Co. of N.Y.
Appellant
Royal College Shop, Inc.
Appellee

Document Text:

PUBLISH 

·· · UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

ROYAL COLLEGE SHOP, INC., a Kansas 

Corporation, and THOMAS H. BLACK, 

Plaintiffs-Appellants, 

Cross-Appellees, 

1-=i'ILED 

United States Court of Appeals ·r.cnd_: r:1 .. .-11;,. 

FEB 1 1990 

ROBERT L. HOECKER 

Clerk 

v. 

} 

} 

)· 

} 

} 

} 

} 

) 

} 

} 

} 

} 

Nos. 88-1584 & 

88-1620 

NORTHERN INSURANCE CO. OF N.Y., 

Defendant-Appellees, 

Cross-Appellants. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D.C. No. 82-4245-R} 

John w. Lungstrum (Scott J. Bloch with him on the briefs} of 

Stevens, Brand, Lungstrum, Golden & Winter,. Lawrence, Kansas, 

attorney for Plaintiffs-Appellants, Cross-Appellees. 

Glenn Mccann (Theresa Shean Hall with him on the briefs} of 

Knipmeyer, Mccann, Smith, Manz & Gotfredson, Kansas City, 

Missouri, attorney for Defendant-Appellees, Cross-Appellants. 

Before LOGAN, EBEL and BARRETT, Circuit Judges. 

BARRETT, Senior Circuit Judge. 

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 1 
Plaintiffs, Royal College Shop, Inc., (Royal College) and 

Thomas H. ~lack (Black), the owner of Royal College, appeal from 

an order of the district court denying their motion for assessment 

of prejudgment interest on insurance proceeds which plaintiffs 

were awarded after a jury trial. Defendant, Northern Insurance 

Company of New York (Northern), cross-appeals from an order of the 

district court denying Northern's motions for remittitur, a new 

trial, or judgment notwithstanding the verdict. Plaintiffs 

invoked jurisdiction of the district court pursuant to 28 u.s.c. 

§1332 on the basis of diversity of citizenship. 

FACTS 

On February 3, 1982, Black and Royal College suffered a fire 

loss that closed Royal College, a landmark shoe store in the 

downtown retail area of Lawrence, Kansas. Royal College had been 

owned by Black's father from 1933 until 1966 when it was 

transferred to Black. The store was incorporated as a Subchapter 

S corporation and Black was the sole shareholder. 

The fire in 1982, as well as smoke and water incident to the 

fire, destroyed a substantial portion of the building in which 

Black had a partial interest. Personal property owned by Black 

and Royal College inventory were also destroyed. 

Plaintiffs timely filed a Proof of Loss with Northern, the 

company that insured the building, personal property, and 

inventory. Northern also insured the plaintiffs against loss of 

earnings resulting from the interruption of business. The policy 

limits were: $190,000 for damage to the building; $35,000 for 

-2-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 2 
damage to personal property; $165,000 for damage to the inventory; 

and $90,000 for · loss of· earnings.· Northern refused to pay on 

plaintiffs' claim. 

of Royal College. 

This refusal resulted in the permanent closure 

On October 14, 1982, plaintiffs filed this 

lawsuit against 

business. 

Northern to recover the value of the lost 

Douglas County 

the fire scene 

Fire 

to 

Immediately after the fire, the 

Investigation Unit began its examination of 

determine the cause and origin of the fire. 

investigation, the officer in charge of the Unit 

the fire had been intentionally set. 

Based on this 

concluded that 

On October 14, 1982, criminal arson charges were filed 

against Black by the Douglas County, Kansas, district attorney in 

connection with the February 3, 1982, fire at Royal College. 

Black's trial, which commenced on May 2, 1984, ended in his 

conviction by a jury. This conviction was reversed by the Kansas 

Court of Appeals in December, 1985. A second arson trial 

commenced on May 28, 1986, which resulted in a hung jury. 

Thereafter, on July 23, 1986, the State of Kansas voluntarily 

dismissed with prejudice the criminal charges against Black. 

This proceeding had been stayed on July 10, 1985, pending the 

outcome of the arson charges against Black. After the arson 

charges were dismissed, the district judge lifted the stay on 

August 18, 1986. The trial in the present action commenced on 

October 1, 1987. 

In their proof of loss and at trial, plaintiffs claimed an 

inventory loss of $165,000 ($156,200.39 after plaintiffs received 

-3-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 3 
a salvage credit), $90,000 in loss of earnings, and $288,150 for 

- th~ loss of business. ~laintiff·Black•further claimed the amounts 

of $24,749.44 for damage to his one-quarter interest in the 

building and $35,000 for loss or damage to personal property. 

These latter two amounts were stipulated to by the parties. On 

October 16, 1987, the jury returned a verdict in favor of 

plaintiffs for the following amounts: $24,749.44 for damage to 

the building; .$35,000 for loss or damage to personal property; 

$100,000 for loss or damage to inventory; $60,000 for loss of 

earnings; and $175,000 in consequential damages for loss of the 

business as a going concern. 

Plaintiffs moved post-trial for assessment of prejudgment 

interest on the amounts stated above. Northern filed a motion for 

judgment notwithstanding the verdict or in the alternative, a new 

trial, or in the alternative, for remittitur. These motions were 

denied. This appeal and cross-appeal followed. We affirm in 

part, reverse in part, and remand. 

Plaintiffs do not assert that they are entitled to 

prejudgment interest on the amount awarded for the loss of the 

business as a going concern. They seek prejudgment interest only 

on the amount of the jury verdict attributable to damages 

recovered under the insurance policy. 

This was a diversity action arising out of a fire insurance 

contract to be performed under Kansas law. Therefore, the law of 

the State of Kansas governs. Erie v. Tompkins, 304 U.S. 64 

(1938). 

-4-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 4 
ISSUES ON APPEAL 

Plaintiffs, Royal College and Black, put £orth the following 

issues on appeal: 

I. Whether the district court erred in failing to assess 

prejudgment interest from the time of the suit, when the amount of 

plaintiffs' loss under the insurance policy was fairly 

ascertainable. 

II. Whether the district court abused its discretion in 

failing to award prejudgment interest in order to make plaintiffs 

whole on moneys wrongfully withheld by Northern for over five 

years. 

I. 

In resolving the first issue, the district court stated that 

"[p]laintiffs' claim upon the insurance policy in the instant case 

was_ not liquidated. The amount due plaintiffs under the policy, 

among other issues, was hotly contested. Therefore, under the 

general rule, plaintiffs' motion [for prejudgment interest] should 

be denied." (R., Suppl. Vol. I, Doc. 91 at p. 1). (Citations 

omitted). However, only a portion of plaintiffs' claims under the 

insurance policy were hotly contested or disputed. Northern 

stipulated to the loss or damage sustained by the building and the 

personal property. 

The general rule of law in Kansas is that prejudgment 

interest is allowable on liquidated claims. Plains Resources, 

Inc. v. Gable, 682 P.2d 653 (Kan. 1984) "A claim becomes 

liquidated when both the amount due and the date on which it is 

due are fixed and certain, or when the same become definitely 

-5-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 5 
ascertainable by mathematical computation." Id. at 657. See Also 

Frank v. Bloom, 634 F~2d 1245 (10th-Cir. 1980)~ According to Kan. 

Stat. Ann. §16-201 ( 1980) "Credi tors shall be allowed to receive 

interest at the rate of ten percent per annum, when no other rate 

of interest is agreed upon, for any money after it becomes due; 

for money lent or money due on settlement of account, from the day 

of liquidating the account and ascertaining the balance •• " 

(Emphasis added). Therefore, if a claim is liquidated, 

prejudgment interest must be awarded. In The Matter of Midland 

Industries, Inc., 703 P.2d 840, 842 (Kan. 1985) ("Where an amount 

is due upon contract, either expressed or implied, and there is no 

uncertainty as to the amount which is due or the date on which. it 

becomes due the creditor is entitled to recover interest from the 

due date.") (Emphasis added). See Also Delano v. Kitch, 663 F.2d 

990, 1001 (10th Cir. 1981). 

The first question is whether the amounts claimed under the 

insurance contract were fixed, certain and ascertainable. Black 

submitted a Proof of Loss on May 11, 1982, for $24,749.44 for 

Black's one-quarter interest in the building, and $35,000 for loss 

or damage to Black's personal property. Thereafter, Northern and 

plaintiffs stipulated to these exact losses. Because these two 

claims were not in dispute, the amount due was ascertainable. 

Thus, we hold that the district court erred in failing to award 

prejudgment interest on these two claims. The foregoing amounts 

were not only fixed, certain, and ascertainable, they were not 

even in dispute. 

-6-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 6 
Our next inquiry must focus on the date the above amounts 

became ·fixed·and certain. Plaintiffs contend that the damages to 

the personal property and the building were fixed and certain on 

May 11, 1982, the date on which payment was due under the policy, 

but in no event later than October 14, 1982, the day this lawsuit 

was filed. However, on the day that this lawsuit was filed, 

criminal arson charges were brought against Black concerning th~ 

fire at Royal College. Because of these arson charges, Northern 

refused to pay under the insurance contract. This refusal was 

based on Northern's belief that if Black should be convicted of 

criminal arson, Northern would not be liable for any amounts under 

the insurance contract. Northern therefore argues that an award 

of prejudgment interest, if any, should commence not on May 11, 

1982, or October 14, 1982, but rather on July 23, 1986, when the 

charges against Black were dismissed. 

We recognize that under Kansas law 

public policy deny the insured the 

"[s]trong principles of 

right to recover when he 

intentionally sets on fire property covered by the insurance 

contract." Neises v. Solomon State Bank, 696 P.2d 372, 378 (Kan. 

1985). However, the insurance contract between plaintiffs and 

Northern did not abrogate Northern's obligation to pay under the 

policy if the insured was charged with setting fire to the insured 

premises, nor did it provide for a delay in the payment of the 

proceeds should the insured be accused of or charged with setting 

fire to the·--insured ·premises. The courts will not make a contract 

of insurance, but will only enforce the intent of the parties as 

manifested by the writing. Farmers Alliance Mut. Ins. Co. v. 

-7-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 7 
Bakke, 619 F.2d 885, 888-89 (10th Cir. 1980); Gibson v. 

Metropolitan· Life Ins. Co ♦-, 518 ·P.2d 422 (Kan. 1974). And it is 

fundamental that an insurance contract which is not ambiguous must 

be construed according to its terms. Catts Co. v. Gulf Ins. Co., 

723 F.2d 1494, 1501 (10th Cir. 1983); Maryland Cas. Co. v. 

Alliance Mut. Cas. Co., Inc., 576 P.2d 625 (Kan. 1978). ----------------'----

Furthermore, even should an ambiguity exist with respect to 

coverage, construction will favor the insured. Brown v. Combined 

Ins. Co. of America, 597 P.2d 1080 (Kan. 1979); United Bank of 

Pueblo v. Hartford Acc. & Indem. Co., 529 F.2d 490, 494 (10th Cir. 

1976). 

Under Kansas law, in determining whether prejudgment interest 

should be awarded in a breach of contract action, it is irrelevant 

that the underlying liability is disputed, so long as the amount 

of damages is certain. Smart v. Hardware Dealers Mutual Fire 

Insurance Company, 181 F.Supp. 575 (D. Kan. 1960) (Where an 

insured building was destroyed and the sole dispute between the 

insured and insurer was whether the loss was caused by a covered 

risk, and the amount due the insured was not disputed if the loss 

was covered, a liquidated sum was involved, and the insured in 

whose favor a judgment was returned was entitled to recover 

prejudgment interest under Kansas law.) See also Fanderlick-Locke 

Co. v. United States, 285 F.2d 939 (10th Cir. 1960). 

Furthermore, the real estate interest and the personal 

· property damage amounts of $24,749.44 and $35,-000, respectively, 

did not become unliquidated simply because the plaintiffs 

requested additional unliquidated damages under the insurance 

-8-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 8 
policy. See Schatz Distributing Co., Inc. v. Olivetti Corp., 647 

P.2d 820, 827 (Kan. 1982). Each clement.of damage covered under 

the insurance policy was separate and distinct. The insurance 

policy does not require that all property covered be destroyed 

before the insured is entitled to proceeds for the damages 

sustained by one item covered by the policy. (Appellants' Brief, 

Insurance Policy). Thus, the damages sustained by the building 

and the ~ersonal property are sufficiently independent to be 

isolated from the other damage claims for purposes of ascertaining 

whether they are liquidated. Id. 

We therefore hold that the district court erred 

to grant prejudgment interest on the liquidated 

$24,749.44 and $35,000. We remand to the district 

in refusing 

damages of 

court with 

instruction to award prejudgment interest from May 11, 1982, the 

date on which payment was due under the policy. 

However, the damages plaintiffs claimed under the policy for 

damage or 

contested. 

loss to inventory and loss 

Those amounts were unliquidated 

of earnings were hotly 

claims because they 

were not fixed or certain. In The Matter of Midland Industries, 

Inc., 703 P.2d 840 (Kan. 1985). Plaintiffs claimed damages for 

the full policy limits of $165,000 ($156,200.39 after the salvage 

credit) for loss or damage to inventory and $90,000 for loss of 

earnings. However, Northern claimed that the maximum loss or 

damage to inventory was $92,635 and the loss of earnings was only 

$60,000. - These two amounts were ver~much in dispute and were not 

ascertainable. See Plains Resources, Inc., 682 P.2d at 657 (Kan. 

1984). We therefore hold that the district court did not err in 

denying prejudgment interest on these amounts. 

-9-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 9 
II. 

In the second·issue on appeali plaintiffs ·contend that the 

district court abused its discretion in failing to award 

prejudgment interest under the equitable theory to make plaintiffs 

whole. Plaintiffs claim that "[w]hen it is necessary to arrive at 

full compensation, the court has the discretion to award interest 

or its equivalent as an element of damages even if the primary 

damages are. unliquidated." (Appellants' Brief at p. 17). 

Although that is a correct statement of the law, the key word in 

the foregoing quote is "discretion". 

As a general rule, prejudgment interest is not allowable 

on a claim for unliquidated damages. This rule is 

subject to the qualification however, that where 

necessary to arrive at full compensation, a cou·rt may in 

the exercise of its discretion award interest or its 

equivalent as an element of damages even where the 

primary damages are unliquidated. (Emphasis added) 

Schatz Distributing Co., 647 P.2d at 826. See also Farmers State 

Bank v. Production Credit Association, 755 P.2d 518 (Kan. 1988). 

In response to plaintiffs' claim for prejudgment interest 

under the court's discretionary authority, the district court 

stated: 

Kansas case law also recognizes a discretionary 

authority to award interest on unliquidated claims. 

Plaintiffs suggest that this court should exercise such 

discretion to award prejudgment interest where so much 

time has passed from the date of the fire loss to the 

date of judgment. 

The court does not believe prejudgment interest must be 

awarded in the interests of fairness. The court finds 

the jury award, which included an amount of compensatory 

·- damages for ·loss of business, adequate to compensate 

plaintiffs for the loss experienced from the fire. 

-10-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 10 
Furthermore, the delay in rece1v1ng compensation in this 

matter was not·entirely the fault of defendant. Indeed, 

to some extent, plaintiffs countenanced the delay 

between the time this case was filed and the time of 

trial. Therefore, prejudgment interest should not be 

awarded. 

(R., Supp. Vol. I, Doc. 91 at pp. 1-2). 

According to United States v. Ortiz, 804 F.2d 1161, 1164 n.2 

(10th Cir. 1986): 

Under· the abuse of discretion standard, a trial court's 

decision will not be disturbed unless the appellate 

court has a definite and firm conviction that the lower 

court made a clear error of judgment or exceeded the 

bounds of permissible choice in the circumstances. When 

we apply the 'abuse of discretion' standard, we defer to 

the trial court's judgment because of its first-hand 

ability to view the witness or evidence and assess 

credibility and probative value. 

Therefore, the issue is whether the district court abused its 

discretion in disallowing prejudgment interest on the unliquidated 

damages as sought by plaintiffs. We hold that the court did not. 

The facts in the present case do not evoke application of the 

equitable principles of prejudgment interest. This case does not 

involve Northern's retention of money which it knew rightfully 

belonged to plaintiffs. To the contrary, based on the events 

preceding the fire, the evidence gathered from the fire scene, the 

conclusions of the Douglas County Fire Investigation Unit that the 

fire was intentionally set, as well as the indictment and 

subsequent criminal proceedings brought against Black for criminal 

arson, Northern reasonably believed that it was not liable for any 

amounts under the policy. Therefore, we hold that the district 

court was not in error for denying plaintiff's motion for 

prejudgment interest. 

-11-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 11 
We hold that prejudgment interest should have been awarded on 

the damages ·sustained by- the building and personal property, 

inasmuch as those two amounts were stipulated to and liquidated. 

We further hold that the district court did not abuse its 

discretion by denying plaintiffs' motion for prejudgment interest 

on the unliquidated damages for loss or damage to the inventory 

and the loss of earnings. 

ISSUES ON CROSS-APPEAL 

Northern makes the following contentions in its cross-appeal: 

I. The district court erred in denying Northern's motion for 

remittitur or new trial and entering judgment for plaintiffs on 

the jury's verdict because: 

A. Consequential damages allegedly resulting from loss 

of the "going concern value" of a business are not recoverable 

under Kansas law; 

B. Plaintiffs failed to produce substantial and 

competent evidence that the alleged loss of the "going concern 

value" of the business was the direct and proximate result of 

Northern's failure to pay the claimed insurance proceeds; there 

was absolutely no evidence that such damages were within the 

contemplation of the parties; and plaintiffs failed to prove their 

alleged loss with reasonable certainty; 

C. The jury's award of $175,000 for the alleged loss of 

the business in addition to damages-eawarded under the policy for 

-12-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 12 
personal property, inventory and loss of earnings allowed 

plaintiffs to make a double recovery. 

II. The district court erred in denying Northern's motion 

for new trial because instruction No. 10 did not properly apprise 

the jury of the applicable law. 

III. The district court erred in denying Northern's motion 

for a new trial because instructions No. 4 and 8 incorrectly 

advised the jury that Northern must prove fraudulent statement or 

misrepresentation in the proof of loss by evidence that was clear 

and convincing. Furthermore, such instructions were confusing and 

misleading. 

IV. The district court erred in denying Northern's motion 

for new trial because instruction No. 6 incorrectly stated that 

"The law presumes that a person would not burn his or her 

property." 

misleading. 

Furthermore, instruction No. 6 was confusing and 

v. The district court erred in denying Northern's motion for 

a new trial because Northern was improperly barred from presenting 

competent, relevant evidence regarding the criminal proceedings 

brought against plaintiff Black. 

VI. The cumulative prejudicial effect of the foregoing 

errors warrant a new trial. 

VII. The district court erred in denying Northern's motion 

for judgment notwithstanding the verdict because the jury's 

verdict demonstrated as a matter of law that the plaintiffs 

-13-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 13 
intentionally misrepresented and overvalued the amount of the 

loss. 

In analyzing Northern's contentions, we will address each 

issue in the same order as stated above. However, we must first 

determine the correct standard of review. 

"Federal law governs the decision whether a remittitur should 

be granted in a diversity case 'Under federal law, 

whether the trial court properly refused to grant remittitur or a 

new trial on the ground of an excessive damage award is tested by 

an abuse of discretion standard.'" K-B Trucking Co. v. Riss 

International Corp., 763 F.2d 1148, 1162 (10th Cir. 1985), quoting 

Garrick v. City and County of Denver, 652 F.2d 969, 971 (10th Cir. 

1981). 

"A district court has broad discretion in deciding whether to 

grant a motion for a new trial • • In reviewing a district 

court's ruling on a motion for a new trial, a court of appeals 

does not make a determination of the sufficiency or weight of the 

evidence; rather, review is limited to whether the district 

court's refusal to set aside the jury's verdict constituted a 

manifest abuse of its discretion." Patty Precision Products Co. 

v. Brown & Sharpe Manufacturing, 846 F.2d 1247, 1251 (10th Cir. 

1988) . 

In determining whether the district court properly denied a 

motion for judgment notwithstanding the verdict, we must follow 

the federal standard. Zimmerman v-. ,First Federal Savings and Loan 

Ass'n., 848 F.2d 1047, 1051 (10th Cir. 1988). "Under this 

standard, we may find error only if the evidence points but one 

-14-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 14 
way and is susceptible to no reasonable inferences supporting the 

party for -whom the jury found; we must construe the evidence and 

inferences most favorably to the nonmoving party." Id. 

I. 

Northern argues that the district court should have granted 

its motion for remittitur or new trial or for judgment 

notwithstanding the verdict because 

allegedly resulting from the loss of 

consequential damages 

the business as a going 

concern are not recoverable under Kansas law. This contention is 

in response to the jury verdict awarding plaintiffs $175,000 for 

the loss of the business. According to Northern, plaintiffs' 

claim for the alleged loss of the business should not have been 

submitted to the jury. 

The Kansas Supreme Court has not dire?tly addressed the issue 

of consequential damages in an insurance contract. "[A] federal 

court attempting to forecast state law must consider relevant 

state precedents, analogous decisions, considered dicta, scholarly 

works, and any other reliable data tending convincingly to show 

how the highest court in the state would decide the issue at 

hand." McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 663 

(3d Cir. 1980). 

Northern relies almost exclusively on Spencer v. Aetna Life & 

Casualty Ins. Co., 611 P.2d 149 (Kan. 1980), for the proposition 

that consequential damages· are not recoverable in an action-for 

breach of an insurance contract. In Spencer, an insured sought 

recovery for mental anguish caused by Northern's wrongful refusal 

-15-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 15 
( 

to pay her claim. Spencer was concerned with whether Kansas 

recognize~- bad faith as an independent tort for recovery under an 

insurance policy. The Kansas Supreme Court concluded that since 

the Kansas Legislature has provided detailed and effective 

penalties and remedies, which are enforceable against companies 

that fail to settle claims with their policy holders, it is 

undesirable for the court to expand such remedies by judicial 

decree. 

Therefore, according to Northern, statutory penalties are 

exclusive remedies against a company that wrongfully refuses to 

pay an insured's claim. The insured may not, Northern reasons, 

resort to other common law remedies for breach of contract, 

including consequential damages. 

The district court, in denying Northern's motion for 

remittitur, a new trial, or for judgment notwithstanding the 

verdict, relied on Earth Scientists v. United States Fidelity & 

Guaranty Co., 619 F.Supp. 1465 (D. Kan. 1985). The district court 

found that according to Earth Scientists, the Spencer holding 

dealt only with the question of whether or not Kansas should 

recognize the tort of bad faith; it did not take away any 

traditional contract remedies in an insurance contract case. "A 

review of other Kansas cases reveals that the general rule in 

Kansas is clearly that the damages recoverable for a breach of an 

insurance contract are the same as those available for breach of 

contract." Id. at 1475. Therefore, because consequential damages 

have traditionally been allowed in breach of contract actions, 

-16-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 16 
f 

Spencer does not preclude such an award if the circumstances so 

warrant. 

The district court and the plaintiffs also relied on Hochman 

v. American Family Insurance Co., 673 P.2d 1200 (Kan. 1984) for 

the proposition that Kansas allows consequential damages for 

breach of an insurance contract. In Hochman, defendant insurer 

breached its insurance contract by refusing to pay for repairs to 

a damaged combine. Because defendant refused to pay on its 

policy, plaintiffs were forced to borrow the money for the 

repairs, thereby incurring interest. The Kansas Court of Appeals 

in Hochman held that the interest debt arose in the usual course 

of the contract between the parties and from the breach itself. 

Thus, the interest was recoverable as consequential damages. See 

Also Earth Scientists, 619 F.Supp. at 1475 ("[A]n insured is 

entitled to state a claim for recovery of lost profits if he can 

show that the lost profits arose in the usual course of things and 

directly from the defendant's failure to pay on the policy."), and 

Kansas State Bank v. Overseas Motosport, 563 P.2d 414 (Kan. 1977). 

After reviewing the foregoing law, we hold that the district 

court did not abuse its discretion in denying Northern's motion 

for remittitur or a new trial. Further, the evidence was not so 

one-sided as to require that the district court grant Northern's 

motion for judgment notwithstanding the verdict. There is 

substantial legal authority supporting 

·· -rulings on thes~~ matters. We therefore 

the district court's 

affirm the district 

court's denial of Northern's motions on this issue. 

-17-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 17 
( 

Northern next contends· that the district court erred in 

·denyi-ng·its 0motion· for remittitur or new trial·· and for entering 

judgment on the jury's verdict because plaintiffs failed to 

produce substantial and competent evidence that the alleged loss 

of the "going concern value'' of the business was the direct and 

proximate result of Northern's failure to pay the claimed 

insurance proceeds; there was no evidence that such damages were 

within the contemplation of the parties; and plaintiffs failed to 

prove their alleged loss with reasonable certainty. 

The district court discussed the~e contentions and disagreed 

with the Northern on every point. First, the court found that 

there was sufficient evidence to support plaintiffs' loss of 

business claim to allow a reasonable jury to conclude that the 

loss of business arose directly from Northern's failure to pay on 

the policy. Further, Northern could have contemplated that loss 

as a reasonable consequence of breaching the contract. Plaintiffs 

presented the expert testimony and analysis of a certified public 

accountant experienced in the valuation of businesses. This 

evidence supported plaintiffs' claim for damages for loss of the 

business as a going concern. 

Once again, we cannot say that the district court abused its 

discretion in refusing Northern's motions for remittitur or a new 

trial. Furthermore, both Northern and the plaintiff had the 

opportunity to present their respective arguments on this point 

through expert· wi tnes~es. · The jury appareAtly ·found pla·i-ntif fs' 

expert more persuasive. Thus, we cannot overturn the district 

-18-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 18 
court's denial of a judgment notwithstanding the verdict. 

Obviously, there was evidence to support the jury's award. 

Northern also argues that the loss of the "going concern 

value" of the business was not within the contemplation of the 

parties when they entered into this insurance contract. 

Under Hochman, 673 P.2d at 1202-1203, "damages recoverable 

for breach of contract are limited to those which may fairly be 

considered as arising, in the usual course of things, from the 

breach itself, or as may reasonably be assumed to have been within 

the contemplation of both parties as the probable result of the 

breach." (Emphasis added). Thus, the disjunctive "or" 

demonstrates that the language "usual course of things" may -be 

used in the place of "within the contemplation of the parties." 

Both permissible standards afford the jury a course of finding 

that the damage was not a remote, unforeseeable event unrelated to 

the breach itself. Therefore, plaintiffs were required to prove 

either that the damages arose in the usual course of things, from 

the breach itself, or that the damages were within the 

contemplation of the parties. According to the law of Kansas, 

plaintiffs were not required to prove both. 

However, we believe that both of these requirements were 

satisfied. It is elementary that a business obtains insurance 

against fire loss for protection and to restore itself to the 

status quo, i.e., the status before the fire. If a fire should 

occur; and the insurance-company shou~d-refuse to pay under the· 

policy, a business could be forced to close down for lack of 

finances. Furthermore, as the district court stated, it was 

-19-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 19 
I l 

reasonable for the jury in this case to conclude that the parties 

--to the ·insurance contract··reasonably anticipated-that the failure 

to pay upon the contract following a fire would prevent plaintiffs 

from restarting their business. Accordingly, it was proper to 

permit the jury to award damages for loss of business if it fairly 

arose from the failure to pay on the insurance policy. We hold 

that the district court did not abuse its discretion when it 

refused Northern's motions on this claim. 

Northern further argues that the plaintiffs failed to prove 

their alleged loss of the business with reasonable certainty. In 

addressing this contention, the district court stated that "we 

believe there was sufficient evidence in support of plaintiffs' 

loss of business claim to allow a reasonable jury to conclude that 

the loss of business arose directly from Northern's failure to pay 

on the policy.'' (R., Vol. I, Doc. 92 at p. 4). As stated before, 

the evidence presented by plaintiff came through the expert 

testimony and analysis of a certified public accountant 

experienced in the valuation of businesses. Northern also 

provided evidence through an expert witness. The jury weighed 

this evidence and returned a verdict in favor of the plaintiff for 

$175,000 to compensate for the loss of the business. The district 

court found that there was sufficient evidence to allow the jury 

to determine that because of Northern's refusal to pay under the 

policy, plaintiff Black lost his business. We cannot say that the 

district court··abused its discretion in this regard. We do not 

believe that the district court made a clear error of judgment or 

-20-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 20 
exceeded its bounds. Therefore, we affirm the district court's 

ruiing on this issue. 

Northern also contends that the jury's award of $175,000 for 

the loss of the business·, in addition to damages awarded under the 

policy for personal property, inventory, and loss of earnings, 

allowed plaintiffs to make a double recovery. The court rejected 

this argument for several reasons. First, the jury was instructed 

that plaintiffs' loss of business claim was for losses other than 

those compensated under the insurance policy. (R., Vol. I, Doc. 

92 at p. 7). Second, Northern's counsel had the opportunity to 

clarify the similarities and differences between plaintiffs' 

claims under the insurance policy and the claim for loss of 

business through cross-examination and argument. Id. 

Furthermore, the total amount awarded by the jury was less than 

the value of the business as estimated by plaintiffs' expert. Id. 

Finally, the court also noted that the loss of earnings provision 

of the insurance contract only covered earnings lost over a 

limited period of time. (See Appellants' Brief, Insurance 

Contract, at p. B-18). Therefore, the court found that the loss 

of earnings was not significantly intertwined with the value of 

the business. 

We agree with the district court and hold that the jury's 

award of $175,000 for the loss of the business as a going concern 

did not allow the plaintiff double recovery, although the jury 

also awarded damages for-~oss of earnings, damage to inventory, 

and damage to personal property. We agree with the district court 

that the loss of earnings provision in the insurance contract only 

-21-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 21 
covered earnings over a limited period of time. This provision in 

- the-insurance ·contract states as follows: 

The Company shall be liable for: 

a. the actual loss sustained by the insured resulting 

directly from necessary interruption of business, •.• 

for only such length of time as would be required with 

the exercise of due diligence and dispatch to rebuild, 

repair or replace such part of the property herein 

described as has been damaged or destroyed, •••• 

The term "directly," as applied to loss under this 

endorsement, means loss, as limited and conditioned in 

this policy, resulting from direct loss to described 

property from the perils insured against • 

(Emphasis added) 

(Appellants' Brief, Insurance Contract at pp. B-18 and 19). 

Therefore, the policy itself provides that the insured's loss of 

earnings ·coverage extends only for a limited period of time. 

Furthermore, the loss of earnings provision covers only the 

losses occasioned by the "perils insured against," such as the 

fire. The money plaintiffs claim for loss of the business as a 

going concern did not arise from the perils insured against. The 

jury found that those damages arose by Northern's failure to pay 

under the insurance policy. Therefore, the damages granted by the 

jury to the plaintiff cover two separate and distinct injuries. 

The awards for the loss of earnings, and loss or damage to the 

inventory and personal property were to compensate for plaintiffs' 

losses under the insurance policy. The award of $175,000 for the 

loss of the business as a going concern was to compensate 

plaintiffs for their injuries in being unable to reopen Royal 

College. This latter award was in direct r~sponse to Northern's 

failure to pay the proceeds of the insurance policy. Awarding the 

amount due under the contract and consequential damages for its 

-22-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 22 
breach does not constitute double recovery. See Salamey v. Aetna 

Casualty & Surety Co., 741 F;2d 874,· 877 (6th Cir~-1984) ('''[t]he 

policy limits restrict the amount the insurer may have to pay in 

the performance of the contract, not the damages that are 

recoverable for its breach,'" quoting Lawton v. Great Southwest 

Fire Insurance Co., 392 A.2d 576, 579 (N.H. 1978)). 

Plaintiffs not only lost the money they should have been 

paid to reopen the b~siness, they lost the business itself. These 

are two different elements of damages. Thus, in order to return 

plaintiffs to the position they would have occupied had Northern 

performed under the contract, they must be compensated for the 

lost value of the business. 

We cannot hold that the district court abused its discretion 

by failing to grant Northern's motion for remittitur or new trial 

on this issue. Further, the district court did not err in 

entering judgment on the jury's verdict for loss of earnings, 

damage to the inventory and personal property, and the loss of the 

business. 

II. 

Northern further contends that the district court erred in 

denying Northern's motion for a new trial because instruction No. 

10 did not properly apprise the jury of the applicable law. 

As stated before, the district court has broad discretion to 

decide whether to grant a motion for a new trial. Patty Precision 

Produ~ts Co., 846 ·F.2d at 1251. Further, an appellate court's 

review of a district court's denial of a new trial is limited to 

whether the district court abused its discretion. 

addition: 

-23-

Id. In 

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 23 
[w]hen examining a challenge to jury instructions, we 

review the record as a whole to determine whether the 

instructions 'state the-law which governs and provided 

the jury with an ample understanding of the issues and 

the standards applicable.' Ramsey v. Culpepper, 738 

F.2d 1092,1098 (10th Cir. 1984). We thus 'consider all 

that the jury heard and, from standpoint of the jury, 

decide 'not whether the charge was faultless in every 

particular but whether the jury was misled in any way 

and whether it had understanding of the issues and its 

duty to determine these issues.' (Citations omitted). 

Big Horn Coal Co. v. Commonwealth Edison Co., 852 F.2d 1259, 1271 

(10th Cir. 1988). Therefore, our review of the jury instructions 

is fairly limited. 

The jury instruction in question stated that: 

If you find that plaintiffs have proven their business 

ceased because of defendant's failure to pay on the 

insurance policy, then you should further award such sum 

as you believe plaintiffs have proven will compensate 

them for loss of business which arose in the usual 

course of things and directly from defendant's failure 

to pay on the policy. 

(R., Vol. I, Doc. 76 at p. 13). Northern argues that this 

instruction did not include all the elements necessary to support 

an award of damages for loss of the business. 

In order for the plaintiffs to recover consequential 

damages, they must show and the jury must find, not only 

that such damages arose in the usual course of things 

and directly from defendant's failure to pay on the 

policy, but also (1) that the loss of business was 

proved with reasonable certainty and (2) that such 

damages were within the contemplation of the parties at 

the time the contract was entered into. 

(Appellee/Cross Appellant's Brief, at pp. 34-35). In essence, 

this is the same argument raised previously by Northern. Northern 

argues that absent an additional finding by the jury that 

plaintiffs' loss was shown with reasonable certainty and that loss 

of plaintiffs' business was within the contemplation of the 

parties, . the plaintiffs were not entitled to an award of 

-24-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 24 
consequential damages. However, as stated before, the law in 

Kansas· is that plaintiff -·may recover damages for breach of 

contract that arose in the usual course of things, from the breach 

itself, or as may reasonably be assumed to have been within the 

contemplation of both parties as the probable result of the 

breach. Hochman, 673 P.2d at 1203. Therefore, Northern's 

interpretation of the law on this subject is incorrect in that 

plaintiffs were only required to prove one of the foregoing 

requirements. Thus, we hold that the district court did not abuse 

its discretion denying Northern's motion for a new trial based 

on instruction number 10. 

III. 

Northern's third contention on appeal is that the district 

court erred in denying its motion for a new trial because 

instructions number four and eight incorrectly advised the jury 

that Northern must prove fraudulent statement or misrepresentation 

in the proof of loss by evidence that was clear and convincing. 

Furthermore, Northern argues that these instructions were 

confusing and misleading. 

Northern disagrees with the following language, as set out in 

instruction number four: 

A special rule of law, which is relevant to defendant's 

defense of fraudulent statement or misrepresentation, 

requires that to prove fraud it is necessary for the 

party claiming fraud to prove it by evidence that is 

clear and convincing. To be clear and convincing, 

evidence should be 'clear' in the sense that it is 

certain, plain to the understanding, unambiguous, and 

''convincing" in the sense that it is so reasonable and 

persuasive as to cause you to believe it. (Emphasis 

added} 

-25-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 25 
(R., Vol. I, Doc. 76 at p. 6). Furthermore, Northern disagrees 

with similar language in instruction number eight. Instruction 

number eight states in part: 

[t]hus, 

defense, 

evidence: 

in order 

defendant 

to prevail upon this affirmative 

must prove by clear and convincing 

(1) that either one or both of the plaintiffs made 

a misrepresentation which was false and material; 

(2) that the maker of the misrepresentation knew 

the misrepresentation was false or made it recklessly 

without knowledge of its truth; and 

(3) that the misrepresentation was made with the 

intent that the defendant accept it as true and act upon 

it. (Emphasis added). 

Id. at p. 11. 

Northern's assertion is that a claim of fraud or 

misrepresentation must be proved by a preponderance of the 

evidence. However, under Kansas law, "[e]vidence supporting a 

finding of fraud must be clear and convincing." K-B Trucking 

Company, 763 F.2d at 1156 (applying Kansas law). See also W-V 

Enterprises, Inc. v. Federal Savings & Loan Ins Corp., 673 P.2d 

1112, 1121 (Kan. 1983) (Fraud is never presumed and must be proven 

by clear and convincing evidence), and Hoch v. Hoch, 359 P.2d 839, 

841 (Kan. 1961). Thus, the courts of Kansas have specifically 

followed the rule that fraud or material misrepresentation must be 

proved by clear and convincing evidence. The district court 

obviously did not abuse it's discretion by giving an instruction 

stating the correct Kansas law. We hold that the district court 

properly denied the motion for a new trial. 

-26-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 26 
Furthermore, Northern claims that instructions four and eight 

were confusing • and- 0mis1eading. However, it•· does not appear that 

this confusion issue was raised in the district court. Therefore, 

because Northern did not raise this issue in the district court 

and it has failed to demonstrate plain error in these 

instructions, there are no grounds for relief. Issues not raised 

in the trial court will not be considered on appeal absent 

exceptional circumstances or manifest injustice. United States v. 

Oakes, 564 F.2d 384 (10th Cir. 1977), cert. denied, 435 U.S. 926 

(1978); Burnett v. Dresser Industries, Inc., 849 F.2d 1277 (10th 

Cir. 1988). 

IV. 

Northern next argues that the district court erred in denying 

its motion for a new trial because instruction number six 

incorrectly stated that "[t]he law presumes that a person would 

not burn his or her property." (R., Vol. I, Doc. 76 at p. 7). 

Furthermore, Northern asserts that instruction number six is 

confusing and misleading. 

The district court addressed this argument and found that the 

instruction is in accord with the burden of proof carried by 

Northern in this case. The court also found that the statement 

criticized by Northern is in accord with the presumption of 

legality recognized by state and federal courts. See Beardsley v. 

Weber, 516 P.2d 936, 939 (Kan. 1973) ("A person is presumed to 

intend obedience to and compliance with the provisions of the =-

law."); National Labor Relations Board v. Shawnee Industries, 

Inc., 333 F.2d 221, 225 (10th Cir. 1964) ("It is presumed that a 

-27-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 27 
person obeys the law and discharges the obligations imposed on him 

by law."). 

The use of this presumption is further underscored in other 

sources: 

The law presumes in favor of integrity of conduct, the 

presumption being that an individual intends to do right 

rather than wrong, and intends to do only what he has 

the right to do. Generally speaking, in the absence of 

proof to the contrary, there is a presumption that all 

men act fairly, honestly, and in good faith. 

The presumption is that the law has been obeyed, it 

being presumed, in the absence of proof to the contrary, 

that everyone obeys the law, and does not intend to 

violate it, which presumption is closely allied to the 

presumption of innocence which prevails in criminal 

cases. 

29 Am. Jur. 2d Evidence Sec. 168 (1967 & Supp. 1988). 

As the district court ruled, the presumption that a person 

would obey the law and, as in this case, not burn his or her own 

property, is well rooted in Kansas law. Therefore, when viewed on 

the whole, these instructions afford no basis for reversal, even 

if it were determined that they were not faultless in every 

particular. We hold that the jury was not misled in any way by 

this instruction. Further, the district court did not abuse its 

discretion by denying Northern's motion for a new trial. 

Northern also contends that the court may have confused the 

jury by using the term ''arson." Northern suggests that the jury 

may have thought that Northern was required to prove beyond a 

reasonable doubt that plaintiff Black intentionally set the fire 

at Royal College. However, in this argument, Northern-completely 

ignores instruction number four in which the court explicitly 

stated that this is not a criminal case and "proof beyond a 

-28-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 28 
reasonable doubt" has no application. We hold that there was no 

.,,- cause fo·r confusion by--use of the term "arson." 

Ve 

Northern's next contention of error is that the district 

court erred in denying its motion for a new trial because it was 

improperly barred from presenting competent, relevant evidence 

regarding the criminal proceedings brought against plaintiff 

Black. Northern asserts that to rebut plaintiffs' contention that 

the failure to pay the amounts claimed under the insurance policy 

was the proximate cause of their alleged loss of business, 

Northern attempted to present relevant evidence about the criminal 

arson charges brought against Black. According to Northern, 

evidence that Black was charged with arson and was subsequently 

involved in two criminal trials had a direct bearing on the 

reputation of Royal College and its standing in the community, 

"The decision to exclude (or admit) evidence under [Federal 

Evidence Rule 403]. is within the sound discretion of the 

trial court, and will not be reversed by this court absent a clear 

abuse of discretion." K-B Trucking Co., 763 F.2d at 1155. See 

also United States v. Alexander, 849 F.2d 1293, 1301 (10th Cir. 

1988). We hold that the district court did not abuse its 

discretion by excluding evidence regarding the criminal 

proceedings brought against Black. 

Prior - to trial, plaintif0fs, brought a Motion in Limine to 

exclude evidence of the criminal proceedings that had been brought 

against Black. Northern responded to this motion. However, 

-29-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 29 
because Northern has failed to provide us with a copy of this 

·response, we are· unable .. to det·ermine what it included~ Therefore, 

we must rely solely on the district court's ruling to enlighten us 

on this issue. 

The district court stated, in response to this contention, 

that Northern did not object to plaintiffs' motion asking that 

there be no reference to the criminal litigation during the trial 

of this case. "Defendant should not be allowed to argue at the 

end of trial that it could not mention the criminal litigation 

when it did not object to such a limitation before the trial." 

(R., Vol. I, Doc. 92, at p. 6). Furthermore, Northern has not 

proffered any evidence to uphold the claim that the criminal 

litigation would have affected the value of the business. 

Finally, the district court noted that after the court granted 

plaintiffs' Motion in Limine, Northern seemed to ignore the ruling 

at trial. "Rather than ask for reconsideration of the ruling, 

defendant simply requested leave to mention the criminal case 

without suggesting any changed circumstances which might justify 

modifying the previous ruling. Nor has defendant demonstrated 

that the evidence in question was more probative than prejudicial 

to the trial of this case." Id. at p. 7. 

Furthermore, Mr. Mccann, attorney for Northern, made the 

following statement during a chamber conference concerning the 

criminal proceedings: "I couldn't agree with the court and Mr. 

Lungstrum [attorney for plaintiffs] more that what happened in the 

criminal trial with respect to conviction or not conviction is not 

part of this case." (R., Vol. II, at. p. 6). Thus, Northern 

-30-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 30 
specifically 'conceded that evidence of the criminal trials of 

Black were ~rrelevant in this civil proceeding. After d6nceding 

the issue at trial, Northern nevertheless proceeded on appeal to 

attempt to persuade us that the district court erred by granting 

plaintiffs' Motion in Limine. In doing so, Northern has directed 

us to a phantom issue. We hold that the district court did not 

abuse its discretion in denying Northern's motion for a new trial. 

Northern's sixth 

VI. 

contention is that the cumulative 

prejudicial effect of the foregoing errors warrant a new trial. 

Northern urges the court to set aside the judgment on a "totality 

of the circumstances" theory. "Assuming that the Court does not 

find that any single point of error standing alone requires that 

the judgment be set aside, when the Court views the points of 

error in their totality, it will be clear that the cumulative 

prejudicial effect of such errors warrant a new trial." 

(Appellee's/Cross-Appellant's Brief at p. 45). However, as the 

foregoing discussion indicates, we have found no error in the 

district court's rulings concerning Northern's contentions. The 

only modification we shall direct concerns the plaintiffs' appeal 

seeking prejudgment interest. We decline to follow Northern's 

recommendation. 

VII. 

- The final contention presented by Northern on this crossappeal is that the district court erred in denying its motion for 

judgment notwithstanding the verdict because the jury's verdict 

-31-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 31 
demonstrated as a matter of law that the plaintiffs intentionally 

··misrepresented··and overvalued the amount of the· loss·~ Northern's 

argument is that the jury verdict indicates that the plaintiffs 

grossly overvalued the amount of their claim. 

Northern asserts that plaintiffs, in their proof of loss and 

at trial, claimed an inventory loss of $165,000, $90,000 in loss 

of earnings, and $488,150 for loss of the business. The jury 

awarded plaintiffs $100,000 for the inventory loss, $60,000 for 

loss of earnings, and $175,000 for the loss of the business. This 

represents overstatements of 65%, 50%, and 179%, respectively. 

Northern therefore argues that: 

it is obvious that the plaintiffs so grossly 

the amount of their claim that they 

misrepresentations were false or were made 

without knowledge of their truth with the 

defendant would pay the amount of the claim. 

overstated 

knew such 

recklessly 

intent that 

[P]laintiffs have breached the fraud and concealment 

conditions of the policy as a matter of law. Since the 

plaintiffs were barred from recovering under the policy, 

the district court erred in failing to grant defendant's 

motion for judgment notwithstanding the verdict. 

(Appellee's/Cross-Appellant's Brief at p. 47). 

However, the foregoing figures used by the Northern were not 

the damages sought by plaintiffs. Northern knows that the going 

concern value claimed, after deducting the hard assets of the 

business already covered under the insurance policy, was $288,150. 

This is the amount of damages plaintiffs sought for loss of the 

business as a going concern. Furthermore, Northern knows that the 

. inventory claim .

0was ·for $156,200.39, not $165,000, owing to a··· 

salvage credit. Thus, Northern has seriously exaggerated its 

-32-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 32 
claim to a judgment notwithstanding a verdict based on inflated 

figures. 

The district court, in denying Northern's motion, stated 

that: 

[t]he misrepresentation claim, of course, was made to 

the jury. The jury had the opportunity to determine 

whether plaintiffs willfully concealed or misrepresented 

a material fact concerning the insurance. The jury 

answered this question 'no' despite awarding damages in 

a lesser amount than plaintiffs' sworn statement .in 

proof of loss to the defendant. Given the difficulty in 

determining the damage to the inventory and the loss of 

earnings following the fire, the court believes no 

grounds exist for vacating the jury's decision and 

holding as a matter of law that plaintiffs made 

fraudulent or intentional misrepresentations. 

(R., Vol. I, Doc. 92, at p. 8). We agree. 

As stated previously, "[i]n reviewing a district court's 

denial of a motion for a judgment n.o.v., we may find error only 

when the evidence points but one way and is susceptible to no 

reasonable inferences sustaining the position of the party against 

whom the motion is made." Cooper v. Asplundh Tree Expert Co., 836 

F.2d 1544, 1547 (10th Cir. 1988). Furthermore, "[j]udgment n.o.v. 

is proper only when the evidence so strongly supports an issue 

that reasonable minds could not differ." Delano, 663 F.2d at 

1003. 

A question of fraudulent overvaluation in a proof of loss is 

one for the jury. Hargrove v. American Cent. Ins. Co., 125 F.2d 

225, 228 (10th Cir. 1942). In addition, 

[w]here 

estimates 

of loss, 

policy is 

theron is 

or a good 

an insured knowingly and willfully overthe value the property destroyed in his - proof 

with the intention to deceive the insurer, the 

voided and the insured's right to recover 

defeated. However, mere mistake, inadvertence 

faith belief as to the value of the insured 

-33-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 33 
property will not sustain a charge of fraud or false 

swearing. 

And, in a case where there is evidence 

finding of fraud and false swearing and, 

justifying a finding to the contrary, the 

for ·determination by the trier of fact. 

to support a 

also, evidence 

issue is one 

Transportation Insurance Company v. Hamilton, 316 F.2d 294, 296-

297 (10th Cir. 1963). In other words, the claim must stand, not 

upon its accuracy, but upon its bona fides. Thus, where an 

insured is honestly and in good faith mistaken as to the amount of 

the loss and he does not deliberately try to deceive the fire 

insurer on any material facts, he can recover the reasonable value 

of property destroyed in the fire, and there is no false swearing 

as will void the policies even though the reasonable value of the 

property is less than that submitted in the proof of loss. 

Buffalo Insurance Company v. Amyx, 262 F.2d 898 (10th Cir. 1958). 

Therefore, recovery is not barred for fraudulent overvaluation 

simply because the jury returns a verdict for an amount less than 

that claimed by the insured. See also Insurance Co. of North 

America v. Musa, 785 F.2d 370 (1st Cir. 1986) (Directed verdict 

and judgment notwithstanding the verdict improper because the jury 

was entitled to believe that the store owner did not have the 

requisite intent to defraud), and Steban Nash Co. v. 

Campbellsport Mutual Ins. Co., 133 N.W.2d 737 (Wis. 1965). 

There was evidence to support the plaintiffs' claims in this 

lawsuit. The jury's verdict did not demonstrate as a matter of 

law that plaintiffs intentionally misrepresented and overvalued 

the amount of the loss. The fact that the jury returns a verdict 

for an amount less than that claimed by the insured does not 

-34-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 34 
necessarily establish fraudulent overvaluation in the proof of 

•loss.- Therefore, we shall ~ot- reverse -the district court's ruling 

on this issue. 

CONCLUSION 

We reverse the district court's order denying plaintiffs' 

motion for assessment of prejudgment interest on the liquidated 

damages of $24,749.44 for damage to the building and $35,000 for 

loss or damage to Black's personal property. It is further 

ordered that this interest shall run from May 11, 1982, the date 

on which payment was due under the policy, until the jury returned 

its verdict on October 16, 1987. We affirm the district court's 

denial of prejudgment interest on the unliquidated damages. 

Furthermore, Northern has failed to demonstrate any abuse of 

discretion in the district court's failure to grant a new trial or 

remittitur. Northern has also failed to demonstrate any error 

affecting substantial rights in the submission of consequential 

damages to the jury, in the jury instructions, or in any rulings 

during and after the trial. Northern was not entitled to a 

judgment notwithstanding the verdict on any issue raised in its 

cross-appeal. 

AFFIRMED in part and REVERSED in part, and remanded. 

-35-

Appellate Case: 88-1584 Document: 010110141124 Date Filed: 02/01/1990 Page: 35