UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JASON'S ENTERPRISES, INCORPORATED,

d/b/a Jason's Furniture Center,

Plaintiff-Appellant,

v.

GENERAL ACCIDENT INSURANCE

No. 95-2553

COMPANY OF AMERICA, d/b/a General

Accident Fire & Life Assurance

Corporation, P.L.C., d/b/a General

Accident Insurance,

Defendant-Appellee.

JASON'S ENTERPRISES, INCORPORATED,

d/b/a Jason's Furniture Center,

Plaintiff-Appellee,

v.

GENERAL ACCIDENT INSURANCE

No. 95-2554

COMPANY OF AMERICA, d/b/a General

Accident Fire & Life Assurance

Corporation, P.L.C., d/b/a General

Accident Insurance,

Defendant-Appellant.

Appeals from the United States District Court

for the Eastern District of Virginia, at Alexandria.

James C. Cacheris, Chief District Judge.

(CA-94-1489-A)

Argued: June 3, 1996

Decided: June 25, 1996
Before RUSSELL, HALL, and LUTTIG, Circuit Judges.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: A. Andrew Giangreco, Fairfax, Virginia, for Appellant.

Tina Lynn Snee, Deborah Aileen Lisker, SLENKER, BRANDT,

JENNINGS & JOHNSTON, Merrifield, Virginia, for Appellee.

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Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

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OPINION

PER CURIAM:

Jason's Enterprises, Inc. ("Jason's Enterprises") appeals the district

court's order entering judgment upon jury verdict in favor of General

Accident Insurance Company of America ("GAI") on Jason's Enterprises' claims seeking damages for GAI's rescission for material misrepresentation of a policy of business owner's insurance. Jason's

Enterprises contends, inter alia, that GAI was estopped from defending its decision to void the policy with any reason not specifically

enumerated in its initial letter notifying Jason's Enterprises that the

policy was void for material misrepresentation. We reject this argument because the additional items of misrepresentation were timely

disclosed and Jason's Enterprises suffered no prejudice.

I.

Taiser Ramamni owned and operated furniture stores in Maryland

and Northern Virginia. In 1988, Taiser Ramamni opened his first

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store in Waldorf, Maryland, which was operated by Jason's Furniture

Center, Inc., a corporation owned by Taiser. His brother, Jamal

Ramamni, co-owned and managed the Waldorf store. Taiser

Ramamni also opened a furniture store in Glen Burnie, Maryland in

1988, which was owned by another of Taiser's corporate identities--

Jason's International Service. In 1990, Taiser Ramamni opened a

third store in Virginia, which was operated in Manasses under the

trade name Jason's Furniture Center by Jason's Enterprises, Inc., a

third corporation owned by Taiser.

In May 1992, Taiser Ramamni, on behalf of Jason's Enterprises,

Inc., purchased a business owner's insurance policy from GAI for the

Virginia store. In January 1993, the Virginia store burned under suspicious circumstances, and the local police considered Taiser Ramamni

an arson suspect.1 GAI independently investigated the loss, and discovered that Jason's Enterprises had made material misrepresentations on the insurance application. Specifically, GAI discovered that

on March 3, 1992, the Waldorf store also sustained a fire loss under

suspicious circumstances, and the police suspected Jamal Ramamni of

arson. In the GAI insurance application for the Virginia store, Taiser

Ramamni averred that Jason's Enterprises, Inc. had not sustained a

previous loss. Because of the closely-held nature of both Jason's

Enterprises and Jason's Furniture Center, Inc., GAI considered their

corporate identities to be virtually identical, and Taiser Ramamni's

statement that no previous loss was sustained to be a misrepresentation.

For the same reason, GAI also considered Jason's Enterprises to

have made a material misrepresentation when it averred that no previous insurance policies were cancelled or non-renewed. GAI discovered that State Farm provided a policy of business insurance for the

Waldorf store. Jason's Furniture Center, Inc. had filed a $400,000

claim for losses sustained in the March 1992 fire at the Waldorf store,

which State Farm settled for $25,000. Because of the large discrepancy between the claim and the settlement amount, GAI considered

this equivalent to a cancellation of that policy. Hence, GAI considered

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1 The police investigation was inconclusive as to the source of the fire

except that it was of suspicious origin.

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Taiser Ramamni's statement that no previous policy was cancelled to

be another misrepresentation.

On April 23, 1993, GAI notified Jason's Enterprises by letter that

it was voiding the insurance policy for material misrepresentation.

GAI stated that it would not have entered into the contract for insurance if it had known of the previous loss to the Waldorf store. Jason's

Enterprises thereafter filed the present lawsuit contending, inter alia,

that GAI breached the insurance contract.

During discovery, GAI disclosed three more misrepresentations

Jason's Enterprises had made in the application for insurance.2 These

additional instances were disclosed through answers to interrogatories. At trial, GAI defended Jason's Enterprises' lawsuit with all

instances of misrepresentation. The jury returned a verdict in favor of

GAI. This appeal followed.

II.

Jason's Enterprises argues on appeal, as it did below, two grounds

why GAI should have been barred from defending this lawsuit with

any other allegations of misrepresentation not specifically enumerated

in GAI's April 23 letter voiding the policy. Jason's Enterprises contends that under the Virginia Insurance Code, insurers are limited in

their defense of a decision to void a policy by the specific reasons

stated in the initial written notice to the insured. Alternatively, Jason's

Enterprises asserts that principles of the equitable doctrine of estoppel

barred GAI from arguing additional instances of misrepresentation.

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2 Although not completely clear from the record, it appears the additional instances of alleged misrepresentation were the following statements that Jason's Enterprises: (1) does not own or operate any other

business; (2) does not own or operate any other business not covered by

this insurance policy; (3) has been in business for 15 years.

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A.

The Virginia Insurance Code provides in relevant part:

No cancellation or refusal to renew by an insurer of a policy

of insurance as defined in . . . § 38.2-118 insuring a business

entity . . . shall be effective unless the insurer delivers or

mails to the named insured . . . written notice of the cancellation or refusal to renew. Such notice shall:

* * *

3. State the specific reason or reasons of the

insurer for cancellation or refusal to renew;

Va. Code Ann. § 38.2-231 (Michie 1994). Extrapolating from this

language, Jason's Enterprises contends that because a policy cancellation is effective only if the written notice states the specific reasons

for the cancellation, then logically GAI could defend its decision to

void the policy only with reference to those specific reasons.

We do not think it is at all clear that GAI "cancelled" the policy

within the meaning of § 38.2-231.3 There is a fundamental distinction

between a decision to cancel a policy and a decision to void a policy

ab initio. In the case of the former, termination of coverage is prospective only. In other words, the insured remains covered for losses

occurring prior to the effective date of the cancellation. In contrast,

when an insurer voids a policy ab initio, as in the present case, the

termination of coverage is total. The policy is rescinded and the premium returned under the theory that the parties never had a sufficient

meeting of the minds to form a legally-binding contract:

To rescind a contract is not merely to terminate it, but to

abrogate and undo it from the beginning; that is, not merely

to release the parties from further obligation to each other

in respect to the subject of the contract and restore the par-

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3 Jason's Enterprises does not argue that voiding the policy amounted

to a "refusal to renew" within the meaning of§ 38.2-231.

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ties to the relative positions which they would have occupied if no such contract had ever been made. Rescission

necessarily involves a repudiation of the contract and a

refusal of the moving party to be further bound to it. But this

by itself would constitute no more than a breach of the contract or a refusal of performance, while the idea of rescission

involves the additional and distinguishing element of a restoration of the status quo. . . . 1 Black on Rescission and

Cancellation, § 1.

Wall v. Zynda, 278 N.W. 66, 68 (Mich. 1938) (internal quotations

omitted). Such is the case when an insurer voids a policy ab initio for

material misrepresentation. The insurer voids the policy because, had

it known the truth, it would never have issued the policy in the first

instance, or it would have issued the policy pursuant to different

terms.

The plain language of § 38.2-231 does not reveal whether the Virginia General Assembly intended use of the word"cancellation" to

also encompass "rescissions" or "voidings." The Virginia Insurance

Code does not define the term "cancellation," and no published

authority in Virginia has interpreted § 38.2-231. But, the requirements

of § 38.2-231 itself intimate an answer. Apart from requiring the

insurer to enumerate specific reasons for cancelling the policy, § 38.2-

231 also requires that the insurer state in its written notice the date

upon which the cancellation is effective. Under§ 38.2-231(A)(2), that

date cannot be less than forty-five days after the delivery or mailing

of the notice of cancellation. Thus, it appears that the notice requirement of § 38.2-231 does not apply to a rescission, which by its very

nature is effective immediately and applies retroactively to discharge

all obligations past and future.

Nonetheless, in recognition of the fact that the terms "cancelled,"

"rescinded," and "void" are often used synonymously in the insurance

context, see Van Horn v. Atlantic Mut. Ins. Co. , 641 A.2d 195, 203

n.6 (Md. 1994), we will refrain from further attempting to resolve this

question of Virginia state law. We hold instead, as did the district

court, that even if § 38.2-231 applies to rescissions or voidings, GAI

adequately satisfied the statutory requirements. Section 38.2-231 does

not state when the notice must be given; it merely requires that the

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notice be written and that it specify the reasons for the cancellation.

We believe GAI satisfied this notice requirement by detailing the

additional instances of alleged misrepresentation in answers to interrogatories during discovery.

The district court appears to have added an additional requirement

when it further found that it was uncontroverted that GAI could not

have disclosed the additional instances of misrepresentation in its

April 23 letter because it was not yet aware of their existence. We

agree with Jason's Enterprises that this finding is not supported by the

record. At oral argument before this court, GAI's counsel inexplicably averred that GAI was not on notice of the additional instances

until after April 23; however, Thomas Tonks, GAI's own witness and

the author of the April 23 letter, clearly testified at trial to the contrary. Tonks stated he was aware of all instances of misrepresentation

at the time he prepared the letter, but that he only included two

because they were independently sufficient to support the decision to

void the policy. (J.A. at 157, 161, 163-64).

Any error in the district court's finding, however, was harmless

because we do not believe the timing of GAI's knowledge to be relevant. As previously stated, GAI gave written notice of the additional

reasons prior to trial, which we believe is all§ 38.2-231 requires.

Accordingly, we reject Jason's Enterprises' argument based upon the

Virginia Insurance Code.

B.

We similarly reject Jason's Enterprises' argument grounded on

estoppel. To invoke the equitable doctrine of estoppel, Jason's Enterprises must show its prejudicial reliance on "some act, conduct, or

non-action of the insurer." Western World Ins. Co. v. Hartford Mut.

Ins. Co., 784 F.2d 558, 563 (4th Cir. 1986). In other words, Jason's

Enterprises must establish that it relied to its detriment on a belief that

GAI would not assert further instances of misrepresentations. Such

detrimental reliance cannot typically be established where the insurer

"fairly informs [the insured] of its position and gives timely notice."

Norman v. Insurance Co. of North America, 239 S.E.2d 902, 907 (Va.

1978). Because we believe that GAI fairly and timely informed

Jason's Enterprises in advance of trial of its intent to rely on addi-

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tional instances of misrepresentations, GAI was not equitably estopped from asserting those instances in its defense.

III.

We turn next to Jason's Enterprises' contention that the district

court erred in ruling that forty-one documents sought from GAI were

privileged from disclosure under the work product doctrine, and in

granting GAI's motion to quash a subpoena served on its investigators.

A.

During discovery, GAI claimed that forty-one of the numerous

documents requested by Jason's Enterprises were protected from disclosure by the work product doctrine. Although not part of the joint

appendix before us, GAI submitted these documents under seal for an

in camera review by the district court. 4 The court subsequently denied

Jason's Enterprises' motion to compel discovery.

The work product doctrine serves to protect from disclosure material prepared by an adversary's counsel "`with an eye toward litigation.'" Commonwealth v. Edwards, 370 S.E.2d 296, 302 (Va. 1988)

(quoting Hickman v. Taylor, 329 U.S. 495, 511 (1947)). The privilege

encompasses such things as "`interviews, statements, memoranda,

correspondence, briefs, mental impressions, [and] personal beliefs.'"

Id. We review the district court's decision concerning application of

this evidentiary privilege for abuse of discretion. See In re Grand Jury

Subpoena, 884 F.2d 124, 128 (4th Cir. 1989).

Jason's Enterprises attacks the district court's denial of its motion

to compel discovery, contending that the district court erred in determining that the documents at issue were prepared in anticipation of

litigation. According to Jason's Enterprises, every document prepared

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4 GAI contends the documents contain such items as: an assessment

and evaluation determining the case's worth should it proceed to trial;

opinions requested of counsel; notes of a criminal investigation against

Jamal Ramamni; and opinions of an investigator hired by GAI discussing

progress in the criminal investigation against Jamal Ramamni.

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by an insurance company is in some respects prepared in anticipation

of litigation. Hence, Jason's Enterprises contends insurance companies should be subjected to a more narrow construction of the privilege, and GAI should at least be required to disclose those materials

prepared prior to the time litigation became a realistic possibility.

In effect, Jason's Enterprises asks this court to hold that litigation

only became a realistic possibility on April 23, 1993, when GAI sent

the letter voiding the policy. By this logic, any documents prepared

prior to that date cannot be privileged as work product. We reject this

contention. Obviously, GAI was investigating the fire loss prior to

April 23, and it likely formed an opinion about Jason's Enterprises'

misrepresentations and the possibilities of litigation prior to that date.

We see no merit to a bright-line holding which would render only

those documents prepared after a claim is denied or a policy voided

subject to the work product privilege. Hence, we reject this claim.

Jason's Enterprises also contends that even if the documents were

prepared in anticipation of litigation, it is entitled to their discovery

under Fed. R. Civ. P. 26(b)(3), which provides that a party may obtain

discovery of documents prepared by an adversary, or an adversary's

representatives, in anticipation of litigation upon a showing of substantial need for the documents and an inability to obtain their substantial equivalent without undue hardship. We reject this assignment

of error because Jason's Enterprises has utterly failed to articulate any

reason to believe that it had a substantial need for the documents, or

that it would be unable to obtain their equivalent without undue hardship. We therefore hold that the district court did not abuse its discretion in protecting these documents from disclosure after examining

them in camera.

B.

On a related note, Jason's Enterprises also challenges the district

court's order granting GAI's motion to quash a subpoena seeking

some of the materials determined to be work product. GAI hired the

firm of Cotter, Neimeyer & Lynch ("CNL") to assist with investigation of the claim. As part of its investigation, CNL prepared documents for GAI. Unsuccessful in obtaining those documents from GAI,

Jason's Enterprises served a subpoena directly on CNL. The district

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court granted GAI's subsequent motion to quash the subpoena. However, because the subpoena was served on the investigative firm hired

by GAI, rather than on GAI itself, Jason's Enterprises contends GAI

lacked standing to move to quash the subpoena.

We disagree. The work product privilege applies to protect documents prepared in anticipation of litigation "by or for another party

or by or for that other party's representative (including the other

party's attorney, consultant, surety, indemnitor, insurer, or agent)."

Fed. R. Civ. P. 26(b)(3). Because CNL was an agent or consultant to

GAI, CNL's documents generated pursuant to that relationship clearly

fall within the scope of protection contemplated by Rule 26. Accordingly, GAI was entitled to assert the privilege over documents prepared for it by CNL, which were in CNL's possession. It follows,

therefore, that GAI had standing to move to quash the subpoena that

sought those documents directly from CNL.

IV.

Jason's Enterprises next contends the district court abused its discretion by overruling its motion for a mistrial and permitting GAI to

introduce evidence that the police consider both Taiser and Jamal

Ramamni to be arson suspects in fires at the Virginia and Waldorf

stores, respectively. According to Jason's Enterprises, this evidence

was irrelevant to GAI's material misrepresentation defense and it was

highly prejudicial.

One of the reasons cited by GAI for its decision to void the policy

ab initio was that Taiser Ramamni failed to disclose the prior fire loss

at the Waldorf store. Accordingly, evidence of the existence of that

prior loss was certainly relevant to GAI's material misrepresentation

defense. While some district court judges may have limited the evidence to the mere fact of the loss, we do not think it was an abuse

of discretion for the district court here to allow introduction of foundation or background evidence concerning the circumstances of that

fire.

However, we are not similarly persuaded that the district court

acted within the permissible scope of its discretion when it admitted

evidence that the fire at the Virginia store was of suspicious origin,

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or that Taiser Ramamni was an arson suspect. This evidence was not

probative of any of the grounds upon which GAI relied to support its

material misrepresentation defense. Recognizing this, GAI asserts that

it was entitled to introduce the arson evidence to rebut Jason's Enterprises' claim for attorneys fees under Va. Code Ann.§ 38.2-209(A)

(Michie 1994), which required establishing that GAI acted in bad

faith when it voided the policy. According to GAI, it was entitled to

introduce evidence that it acted in good faith, which encompassed

introduction of evidence of everything its investigation discovered

about Taiser Ramamni, including the suspicious nature of the fire and

that he was an arson suspect.

We disagree with GAI's reasoning. Because GAI specifically limited its decision to void the policy to the misrepresentations in the

insurance application, the district court should have similarly limited

the focus of the good faith inquiry to evidence concerning those misrepresentations. The fire at the Virginia store may have been the event

which precipitated GAI's discovery of the misrepresentations, but we

see nothing about the circumstances surrounding the fire that was relevant to misrepresentations made eight months earlier.5

Nonetheless, to the extent the district court may have erred in this

regard, we believe that error was harmless. GAI introduced ample

evidence that Jason's Enterprises misrepresented, among other things,

that it had not sustained a prior loss, that it operated no other businesses, and that it had been in business fifteen years. We are satisfied

the jury reached its verdict with reference to the specific evidence

probative of GAI's misrepresentation defense.

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5 We do not believe, however, that this evidence was as prejudicial as

Jason's Enterprises asserts. It is indisputable that the fire at the Virginia

store was of a suspicious origin and that the police suspect Taiser

Ramamni of arson. GAI could have elected to cancel coverage under the

policy on this ground and pursued that defense at trial, at which point the

arson evidence would clearly have been material and probative. That

GAI opted instead to void the policy for misrepresentation in the application is all that prevented the arson evidence from being relevant.

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V.

Lastly, Jason's Enterprises contends that the district court erred in

instructing the jury on misrepresentation. According to Jason's Enterprises, the district court was required to instruct the jury that GAI

could not void the insurance policy ab initio for misrepresentation

unless that misrepresentation was willful.

This argument is without merit. The Virginia Insurance Code provides that no statement in an application for insurance will bar recovery unless the statement was material and untrue. Va. Code Ann.

§ 38.2-309 (Michie 1994). There is no statutory requirement that the

misrepresentation also be willful. The authorities cited by Jason's

Enterprises in support of its position involve insurance policies specifying that only a "willful" misrepresentation will void the policy. See

Glens Falls Ins. Co. v. Long, 195 S.E.2d 887, 889 (Va. 1973) (language in automobile insurance application provided that insurer could

reject application only if applicant willfully made incorrect or misleading statements therein); Old Republic Life Ins. Co. v. Bales, 195

S.E.2d 854, 856 (Va. 1973) (stating that in the ordinary case, mere

proof of the misrepresentation is enough to void a policy, but in this

case the insurer must establish that misrepresentation was done knowingly because signature recital on application stated that the answers

therein were correct to the best of applicant's knowledge). In contrast,

the insurance policy at issue here did not specify that only willful misrepresentations would void the policy. Accordingly, we reject Jason's

Enterprises' argument.

VI.

For the foregoing reasons, we affirm the district court's order

entering judgment upon the jury's verdict. By reaching this holding

we dispense with the need to examine GAI's cross-appeal challenging

the district court's decision to allow the issue of bad faith to be

decided by the jury.

AFFIRMED

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