# FILED
September 30, 1998 Cecil W. Crowson Appellate Cou rt Clerk WAYNE BRAYFIELD and DON ) CHADWELL, INDIVIDUALLY AND ) d/b/a PLEASANTVILLE STUDIO TWO, ) ) Appeal No. Plaintiffs/Appell

ants, ) 01-A-01-9701-CV-00007

) v. ) ) KENTUCKY NATIONA L INSURANCE ) Circuit Court No. COMPANY, ) 14366-C ) Defendant/Appellee. )

COURT OF APPEALS OF TENNESSEE

APPEAL FROM THE CIRCUIT COURT FOR SUMNER COUNTY

AT GALLATIN, TENNESSEE
THE HONORABLE THOMAS GOODALL, JUDGE

LOUISE R. FONTECCHI O Bruce, Weather

s, Corley, Dughm

an & Lyle 2075 First American Center 315 Deaderick Street Nashville, Tennessee 37238-0275 ATTORNEY FOR PLAINTIFFS/APPELLANTS GARY A. BREWER PARKS T. CHASTAIN Brewer, Kra

use, Brooks & Mills Suite 2600, The Tower 611 Commerce Street P.O. Box 23890 Nashville, Tennessee 37202-3890 ATTORNEY FOR THE DEFENDANT/APPELLEE

AFFIRMED AND REMANDED

WALTER W. BUSSART, JUDGE1 Individually and d/b/a Pleasantville Studio Two 2 

## O PINION This is an appeal by plainti ffs/appellants, W

ayne Brayfield

a nd Don Chadwell, 1 from a

jury verdict and

order of the trial

court awarding de

fendant/ appellee, Kentucky Natio nal Insurance Company, $64,754.54. Appel

lants contend any misrepresentations were immaterial as a matter of law, the trial court incorrectly

instructed the jury, Appellee’s counsel made improper stat ement s during his closing argument, errors committed during voir dire tainted the jur

y, and the tr ia l court allowed inadmissable evidence. The pertinent facts are as follows.
I. Facts and Procedural History
WayneBr ayfield and Don Cha dwell (“Appella

nts”) purchased the Pleasantville

Studio Two (“The

Studio”) from John

Shelton in October 1993. Appellants assumed the exist in g mortgage of approxi

mately $70,000 and took out a$63,000 loan from a ba nk in Paris, Tennessee. They offered equipment as security for the Paris bank loan. They also paid Mr.Shelton $25,000 cash and agreed to pay him the balance of app ro ximately $78,000 in ins tallments of $2,000 per month

beginning in March of 1994. Appellants signed a promissory note, but M r. Shelton never recorded a deed of trust. Kentucky National Insurance Company (“Appelle e”) issued an insura

nce policy to Appella

nts covering the Studio. The policy provided $250,000 coverage on t he building and $125,000 coverage on t

he contents.

A fire destroyed the

Studi o on 11 September 1994. There was
co ntra dictory proof as to whether the building was a tota l loss or could be salvaged. Appellants’ exper ts estimated the cost

of repairs to be

approximately $275,000, and Appellee’s exp erts estimated the

cost repairs to be

$134,676.95. The p arties stipu lated the damage to t he contents was at l

east equal to the coverage amount. The Hen

d e rsonville Fire Marshall and Appellee’s investigator, Don Hoarist,concluded the fire was inte ntionally started by usi

ng large quantities of a flammable liquid.3 Appellants f

iled a proof of loss with Appellee. Appellee interviewed Appellants, and Appellants provid ed Appellee with

finan cial documents. Appellee later questioned Ap pellants under oa

th regarding the Studio , their financial situations, and the f ire. Ultimately, Appellee denied the claim based
on its conclusions that A ppellants intentionall

y cause d the fir e and committed material misrepresentation s in the claim process

. Appellee believed Appellants had misrepresented the

ir role in the fire

and the amount of the l o ss. It als o believed they had misrepresented their dealings with the Paris bank and Mr. Shelton’s interest in the Stud io. Despite its findings, Appellee paid off the third party mortgage holde

r in the amount of $68, 378.54.

After purchasing the Studio,

Appellants left the Par is bank loan in Mr. Shelton’s name. They made payments on the Pari s bank loan from October 1993 until February 1994. In March 1994, Chadwell obtained a secured loan from a West Virginia bank to purchas e the equipment which sec ured the Paris bank loan. The purchase

price equaled appr

oximately one-half the outstanding Paris bank loan amount. Appel

lants claim they simp

ly offered to pu rchase the equipment

from the bank and the

bank accepted th

e offer. Appellee claims Appellants failed to make the payments and then off ered to purchase the collateral at a reduced pri ce wh en the bank repossesse d the equipment. Regardless, the parties do not dispute the fact that Appellants did no t make any payments to the Paris bank after purchasing the equ ipment. Instead, they made payments on the note at

the West Virginia

bank.
Appellants did not pay the $2,00 0 i nstallments to Mr. Shelton. They claimed they had an agreement wit h Mr. Shelton under w

hich Appellants woul

d not have to pay the install

ments if business was slow. Mr. Shelton did, however, have his attorney send a le tter dated 12 July 1994 de manding payment. Appellants claimed Mr. Shelton change d his mind and told Bray

field in front of
awitness , Miche lle Hughes, to ignor e the letter. Ap

pellee claims Mr.

Shelton did not change his mind and w as attempting to take

back the business

when the fire occurred.
Appellants filed sui

t on 28 June 1995 for their actual damages unde

r the policy. Appellee filed an answe r and counter-claim. Appellee claimed4

Appellants were not entitled t o the poli c y proceeds because they committed
ar son and made material misrepresentations. Specifically, Appellee a llege d Appe llants mis-represented the extent of the damage, their purchase of t h e equipment

securing the Paris

bank loan, Brayfield’s use of paint thinner, whether the Studio had ever been for s ale, Shel ton’s interest in the property, and Appellants’ dealings with Shelto n. Appellee also sought

reimbursement

for the money paid to the third party mortgage holde r and damages for ba

d faith. The parties entered an agreed order which provided that Appellee’s counterclaim was based on misrepresentati ons concerning the

cause of the fire, not Appe

llants’ insurance applicat

ion.

A jury heard the case

from 29 July 1996 until

5 August 1996. The court denied the parties’ motions for directed verd

ict. The jury determined that neither Brayfield nor Chadwel l se t the fire and that Appellants made a material misrepresentation

with respect to the claim process. The jury also determined App ellee was not entitled to recover on its bad faith counterclaim. The court entered a judgment on 14 August 1 996 awarding Appell ee a jud gment in the amount of $68,754.54. App

ellants filed a Rul

e 50.02 mo tion or, in the alternative, a motion

for a new trial. Appellee filed a motion for discretionary costs. The court

entered two orders on 8 November 1996 ove rruling Appellants’ motionand granting Appellee’s motion. The court stayed th e judgment pending appe al. Appellants filed th eir notice of appea

l on 2 December 1996

an d presen ted the fol lowing issues: 1) whe ther the trial judge

failed to properly instruct the jury regarding the law; 2) whether any misrepresentations which the jury found Appellants

committed were immaterial as a matter of law; 3) whether counsel fo r Appellee made i mproper jury argume

nt which unfairly prejudiced th e jury; 4) whether the jur

y was taint ed by errors commit ted during voir dire a

nd not corrected by th e trial judge; and 5) whether the trial judge admitted inadmissable evidence.

Before addressing these issues we note an important point. T here is no indication

in the jury’s verdict of the actu al misrepresentat

ion relied upon by the jury in rendering it s decis ion. The verdict f orm asked several q

uestions of the jurors. The only question regarding misreprese ntations was: “Did

either of the plaintiffs, Wayne Brayfield o r Don Chadwell, ma

ke a willful, fa

lse statement

as5

to a mate rial matter in connection with the claim process with the inten t t o deceive the defendant, K

entucky National Insuranc e Comp any.” The jury answered yes. This broad finding makes it di fficult to review the d ecision below. Nevertheless,

it is the opinion

of this court that there was sufficient evidence from which the jury could conclude Appel lant s intentionally misre presented a material fact in the claim process.

II. Potential Misrepresentations
Appellants have listed four alleged misrepresentations urged by Appellee in closing argument. T

hose misrepresenta

tions involve: 1) value of the conte nt loss; 2) value of the prope rty loss; 3) Appella

nts’ financial condi

tion; and 4) whether certain

saddles were in the

building at the time of

the fire. Appel

lants argue these misrep

resentations were

immaterial to the c

laim process.

An i nsurance company may defend a suit for the proceeds of a fire insurance policy by proving the insured committed arson or made an intentional misrepresentation

of a material fact in the cl aim process. See Insurance Co. v. Scales , 101 Tenn. 628, 638, 49 S.W

. 743, 746 (1899); Wilder v. Tennessee Farmers Mut. Ins. Co. , 912 S.W.2d 722, 725-26 (Tenn. Ct.App. 1995); Nix v. S entry Ins . , 666 S.W.2d 462, 463-65 (Tenn. Ct. App. 1983). The insurance company must establish either defense by

a preponderance of th e evidence. See H endrix v. Insurance Co. of N. Am. , 675 S.W.2d 476, 481 (Tenn. Ct . App

. 1984) (cited in Wilder , 912 S.W.2d at 726).

A. Value of th

e Property Loss
Appellants argue any misrepresentations regard in g the value of the propertywere not materia l because the a pplication of the valued policy law resulted in a conclusive presu mptionthat the value of the propertywas $250,000. While it is true that the la w creates a reb

uttable presumptio

n, it doe s not necessarily

follow that the valu

e of the property lost

is immaterial. The valued policy law provides: Every agent, within ninet y (90) days after m

aking or writi

ng any contractof

fire insurance on any building or structure in this state,6 shall cause the building

or structure to be pe

rsonally inspected; and no company, and no officer o r agent thereof, and no insurance broker, shall knowingly i ssue, negotiate, con tinue or renew o r cause to permit to be issued,

negoti a ted, continued or renewed any fire insurance policy upon

property or intere sts therein within the state of an amount which, wit

h any existing insuranc

e thereon, exceeds the fair value of t

he property. Tenn. Code Ann. § 56-7-801 (1994). If buildings within the

state insured against loss by fire are totally destroyed by fire, the compa ny shall not be liable

beyond the actual value of the insured property at the time of the loss or damage; and if it appears that the i

nsured has paid premi

ums on an a

m ount in ex cess of the actual value , the insured shall be reimbur sed th e proportionate

excess or premiums paid on the difference between the amount

named in the policy an

d the actual value, wi

th interest atsix percent (6%) per annum from the date of iss

ue; and the excess of premiums, and intere st th ereon, shall be al lowed the insured from the time any c ompanies carrying t

he insurance at the time of the loss have contin uously carried the insurance on the destroyed buildings, whether under policies existing at the time of the loss or under prev

ious policies in the sam

e companies. Id. § 56-7-802. I f the agent fails to place a reasonable value on any such insured propertywithin the ninety (90) days, as provided in § 56-7-801, and which is agreed to by the insured, and a loss occurs, in tha

t event the value as shown by the policy or applica tio n shall be conclusively

presumed to be reasonable, and settlem en t shall be made on that basis. Id. § 56-7-803. These sections are reme dial, and thiscourt shall

construe them liberally in furtherance of their pu rpose. Price v. Allstate Ins. Co. , 614 S.W.2d 3 77, 3 81 (Tenn. Ct. A

pp. 1981). The pri

mary purpose of these sections is “to protectinsureds from being subjected to the insurer’s argument that the bui lding had been over insu

red and g ives the insurer an i ncentive to inspect r

isks and assist insureds in establishing proper insurance e valua tions.” Id. The valued policy law applies only in situations involving a tota l loss. See Third Nat’l Bank v. American Equitable Ins . Co. , 27 T enn. App. 249, 271 & 275, 178 S.W.2d 915, 924 & 926 (1943).
Appellee does not insist that it ove rinsured the

Studio. Instead,

it argues that the valued policy law does not apply because the loss was a partial loss as
o pposed to a total loss as claimed by Appellants. In other words, Appellee contends Appellants intentiona lly misrepresented that the loss was total in order7

to recover the full a

mount of the policy. A ppellants coun

ter t hat any disagreement

over the extent of th

e loss was simply a

difference of opinion, not an intentional misre

presentation of a ma

terial fact.

Itis the opinion of

this court that the valued policy law does not enter into the case until there is a determination of t he extent of the loss,

to tal or partial. The valued policy law pr

ovides an answer to t

he question

of the value of a total loss. It does not address th e is s ue of whether the i

nsured misreprese

nted the
ex tent of the loss, and it ca

n not be used by the insure d to perpetuate fra

ud. Moreover, an insurer may def end an actio n by claiming the insured misrepresented the extent of the loss. The extent of the loss is a material fact in the clai m pr ocess because of the valued policy law.That is, the exte nt of the loss, total or partial,

will determine the

application of the va

lued policy law and, therefore, the amount of the recovery. Thus, the jury in this case c ould ha ve foundin favor of Appelle e if it determined A

ppellants intenti onall y misrepresented tha

t the loss was total.
B. Interest in the Property and Contents
Appellee alleges Appellants misrepresented Joh

n Shelton’s interest

in the Studio and the Paris bank’ s interest in the equipment in

the proof of loss. Such misrepresentations

are material because the fact misrepresentedcould affect the extent of Appellant

s’ recovery under t

he policy.

C. Evidence of

Appellants’ F

inancial Conditi

on Appellants argue that any misrepre senta tions regarding Appe llants’ financial condition,

their relationship w

ith John Shelton and the Bank i n Paris, and their intentions to buy the propert y or rebuild are imm aterial. Appell

ants contend these facts are rel evan t only to prove motive to commit arson. We cannot agree with A

ppellants' position.
Appellants rely on Nix v. Sentry Ins. , 666 S.W.2d 462 ( Tenn. Ct. App. 1983), to support their argum ent. In Nix , the insured’s house burned and the insurerrefused to pay the claim. The ins urer defended against the insured’s8

actionby alleging arson and i ntentional misrepresentation. The appellate court affirmedthe trial co urt ’s conclusion that the re was insufficie

nt evidence to sustaina finding of arson. The appellate court then concluded that the evidence of the insured's financial condition was mater ial to the issue of ar

son, not to the loss claim ed. Nix , 666 S.W.2d at 46 4. Thereafter

, the court addres sed a n y possiblemis-representations and concluded they were either imm aterial, unintentional, or unproven. Id. at 465. The court then reversedthe trial court's decision in favor of t

he insured.
Appellants’ reading and application of the holding in Nix is erroneous. To explain, the decision in Nix did not involve whether a pa rt icular fact was material to th e cla im process. Inste ad, the holding addre ssed the relevancy o f eviden ce. T he Nix court determined th e insured’s financi

al condition was not relevant to the issue of whether the insured misrepresented a fact materialto the claim process.

The Nix court defined the term “financial condition” as “[w]hether or no t Nix was liquid or solvent.” Id. at 464. A careful rea ding of th e case does not reveal much about the specific evidence. It is the opinion of this co urt t hat evidence of the solvency of an insured may be re

levant to the issue of whether
an insured misrepresented a fact material to the claim process. In addition, other financial evidence may be re levant as well. I

n t his cas e, for example, the financial evidence is releva nt to prove

Appellants’ intenti

ons when representing the loss was a total loss a

nd the validity of Appe

llants’ represent

ation that no one else had an interest

in the property or co

ntents. III. The Jury’s Verdict
“Findings of fact by

a jury in civil

actions shall be set aside only if there is no material evidenc

e to support the verdic

t.” Tenn. R. App. P. 13(d). It is the opinion of

this court that there is materia l evidence to support t

his jury verdict. The jury could have deter mined based on the evid ence that Appellan

ts misrepresented the extent of the loss and their intere st in the property or its contents. Whether the misrepresentations relied upon by this court are the same as those relied upon by the jury i s something we will n ever know. Nevertheless,2 The trial court e xcluded testimony t

hat Appellants ha

d refused to take

a lie detector te

st. 9 we are compelled to uphold the verdict as i t is supported by the law and evidence.
IV. Jury Instructions, Closing Argument, and Voir Dire

Itis the opinion this court that, given the above decision, the errors asserted by Appellants involving t he jury instructions, closing argument, a

nd voir dire, if any,

were harmless.
V. Admissibility of Evidence
Appellants argue the trial cou rt e rred when it allowed Detective Wit herow,
acriminal investigat

or for the Hendersonville

Police Department, to testify that Appellants wer e uncoope rative. They con tend the only instance of noncooperation

was Appellants' r

efusal to take

a lie detector tes

t, evidence of which is inadmissible. 2 Appellants assert the trial cou

rt shouldnot have allowed Detective Witherow to testify Appellants were uncooperative when the onl y basis for that testimony

was inadmissable evidence. Appellee responds b y citing other instances in the record in which Appellants were uncooperative.

A review of Dete

ctive Witherow's testimon y reveals that he relat ed two "instances" of noncooperation. First, he desc r ibed his attempts to obt ain informatio n from Mr. Brayfield as "pulli ng teeth". Second,

he testified to his belief that Appellants had d

eliberately hidden f

acts. Hence, D

etective Witherow did not really relate any instances of the Appellants be ing "uncooperati ve," instead, he gave his

opinion or characte

rized their conduct

.
Rule 701, Tenn. R. Civ. P., is enti tled "Opinion

Testimony by Lay Witnesses" and

provides as follows: (a) Generally. If

a witness is not testi

fying as an expert,

the witness's testimony in

the formof opinions or inferences is limited to those opinions or inferences which are (1) rationally base

d on the perception of

the witness and10 (2) helpful to a clear understanding of the witness's testimon

y or the determination of a fact in issue. (b) Value. A witness m ay testify to the value of the witness's own property or ser

vices. Detective Witherow's testi

mony in regard to coope ration is lay testi mony. Hence, he mus t en umerate facts, leaving it to the juror

s to draw inferenc

es, unless he cannot readily, ac curately and adequately testify without giving an opini on. Here, he could ha ve simply told what A

ppellants did or did not do without the characteriz

ations of their conduc

t. We believe

the trial court shoul

d have excluded this testimo n y under Rule 701. There i s, however, no sho wing that this error affec

ted the jur y verdict and it is, therefore, harmless. Tenn. R. App. P. 36(b); Pettus v. Hurst , 882 S.W.2d 783, 787 (Ten n. Ct. App. 1993).

V. Conclusion

Itis the opinion of this cou rt that there is

material evidence in the record from which the jury could determine Appellants misrepresented either the extent of the damage or their in terest in the propert y or its contents. M oreover, these facts were material

to the claim process. I

t is also our opinion that an y errors in the jury instruction , c losin g argument, and voir dire were harml

ess given our conclusion

thatthe evidence supports the jury’s verdict. Finally, the trial court did err in allowing Detectiv e Witherow to testify as he did, but such err or washarmless here.
Therefore, it follows that the de cision of the trial c

our t is af firmed and remanded for any further ne cessary p roceeding s. Costs on appeal are taxed against plaintiffs/appellants, Wayne Brayfield and Don Ch adwe ll individually and d/b/a Pleasantvi

lle Studio Two.

________________ _________

___ _ WALTERW. B USSART, J UDGE11

CONCUR:

________________________________ BEN H. CANTRELL, JUDGE

________________________________ WILLIAM C. KOCH, JR., JUDGE