Filed: April 17, 1996

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 94-2565

(CA-92-2708)

Loyd Tony Roberts,

Plaintiff - Appellee,

versus

American General Property Ins. Co.,

Defendant - Appellant.

ORDER

The Court amends its opinion filed April 5, 1996, as follows:

On the cover sheet, section 6 -- the status line is corrected

to read "Affirmed by unpublished per curiam opinion. Judge

Niemeyer wrote a dissenting opinion."

For the Court - By Direction

/s/ Bert M. Montague

Clerk
UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

LOYD TONY ROBERTS,

Plaintiff-Appellee,

v.

No. 94-2565

AMERICAN GENERAL PROPERTY

INSURANCE COMPANY,

Defendant-Appellant.

Appeal from the United States District Court

for the District of South Carolina, at Columbia.

Cameron M. Currie, District Judge.

(CA-92-2708)

Argued: December 4, 1995

Decided: April 5, 1996

Before HALL and NIEMEYER, Circuit Judges, and BUTZNER,

Senior Circuit Judge.

_________________________________________________________________

Affirmed by unpublished per curiam opinion. Judge Niemeyer

wrote a dissenting opinion.

_________________________________________________________________

COUNSEL

ARGUED: Stephen Peterson Groves, Sr., YOUNG, CLEMENT,

RIVERS & TISDALE, L.L.P., Charleston, South Carolina, for Appellant. V.M. Manning Smith, James Hoogenson Moss, MOSS &

KUHN, P.A., Beaufort, South Carolina, for Appellee. ON BRIEF:

Bradish J. Waring, YOUNG, CLEMENT, RIVERS & TISDALE,

L.L.P., Charleston, South Carolina, for Appellant.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

American General Property Insurance Company appeals a judgment entered on a jury verdict against it and in favor of its insured,

awarding $20,000 under a fire insurance policy, $10,000 for bad faith

denial of the claim, and $20,000 in punitive damages. Finding no

error, we affirm.

I.

On March 11, 1992, plaintiff Loyd Tony Roberts purchased a personal property fire insurance policy from American General. The policy covered the contents of Roberts' home in Ridgeland, South

Carolina. The policy limit was $20,000.

On May 27 of that same year, Roberts and his family were in

Charleston, South Carolina, where Roberts was receiving therapy for

a back injury. Meanwhile, their home was destroyed by fire.

The agent who wrote the policy, Barry Turpin, visited the scene the

next morning and took photographs. Turpin had no authority to adjust

the claim. American General's district manager, Danny McKenzie,

sent the claim to the company's home office, where it was forwarded

in turn to Lloyd Whipple, a regional senior property claims adjuster.

Though this process took most of the first week following the fire,

neither McKenzie nor Whipple had sufficient authority to adjust a

claim for the full policy amount.1

On June 3, 1992, Duane Lewis, an "origin and cause" investigator,

visited the scene at Whipple's request. A week later, he reported that

he could not determine the cause of the fire; however, he did not find

_________________________________________________________________

1 McKenzie's authority was $5,000, and Whipple's $10,000.

 2
any accelerants. He did report that the local fire chief had received

anonymous phone calls from two persons who stated that they had

seen Roberts remove furniture from the house before the fire.

On June 9, Whipple met with and questioned Roberts. He recorded

the unsworn interview, which ran to ten pages when transcribed. Roberts also signed a "Non-Waiver Agreement," which provided that

American General's investigative actions would not waive its rights

under the policy, and a written consent to American General's entry

on the insured premises to conduct its investigation. Whipple gave

Roberts formal sworn proof of loss forms. Roberts promptly returned

the forms on June 11, showing the value of the lost contents as

$66,937. Whipple just as promptly returned them to Roberts, because

they were incomplete.2

On June 8, Roberts obtained a specimen policy for his lawyer to

review, and on June 12, the lawyer called Whipple demanding to

know why the claim had not been paid. On June 16, the lawyer wrote

directly to American General's home office, and enclosed amended

proof of loss forms, showing a loss of $27,317 and requesting the policy limit. Whipple later testified that the lawyer's involvement

impaired his ability to investigate the claim, though he conceded that

the amended forms, which he received on June 19, were in satisfactory shape.3

According to Roberts, Turpin was more blunt. He told Roberts that

the claim would have been paid if he had not retained a lawyer. In any

event, because Roberts was represented, the claim was referred to

Theron Guthrie, American General's in-house counsel, at its home

office.

There the claim seems to have languished for a month. In mid- to

late July, Guthrie referred the case to outside counsel for the purpose

_________________________________________________________________

2 Roberts had not listed the person or entity from which he had purchased most of the items.

3 Whipple did complain of the lack of supporting documentation such

as receipts. Roberts explained that everything he owned -- receipts

included -- was lost in the fire.

 3
of taking an examination of Roberts under oath. Nearly two months

had now passed since the fire.

On July 29, Roberts' lawyer wrote to American General, demanding payment within ten days, else suit would be filed.4 Even this ultimatum was slow to stir American General to action. Four more weeks

passed, during which Roberts and his family were spending the summer living in a shed behind his parents' house.

On August 27, American General's outside counsel finally

responded. Rather than admit or deny coverage, counsel made a written demand that Roberts submit to an examination under oath, as

required by the policy. Believing that American General could and

should have requested the examination under oath weeks or months

earlier,5 Roberts went ahead with his suit.

The suit was filed in state court on September 3, 1992. Roberts'

primary claims were breach of contract and bad faith refusal to pay

insurance benefits. American General removed the case to district

court based on diversity of citizenship. It then moved to dismiss,

based on Roberts' failure to submit to an examination under oath

before filing suit. Roberts responded that American General had

waived its right to conduct the examination by inaction. The motion

was denied. A subsequent motion to require Roberts to submit to

examination under oath was also denied, after Roberts and his wife

gave formal depositions under Fed. R. Civ. P. 30.

A three-day trial was held in July 1994. The jury returned a verdict

of $20,000 (the policy limit) for breach of contract, and $30,000

($10,000 compensatory, $20,000 punitive) for bad faith. American

_________________________________________________________________

4 By this time, the insurer of the building had completed its investigation and paid the claim. There was no coverage for contents of Roberts'

home under the building policy, however, and the holder of a mortgage

on Roberts' real estate received all of the cash proceeds.

5 Roberts' counsel had support for this position in the text of the policy.

Condition 4(d), under the heading "Your Duties After Loss," requires the

insured to "submit to examination under oath as often as we may reasonably require[.]" "Reasonably" -- the classic weasel word of legal writing

-- makes the clause much less rigid than it would otherwise be.

 4
General moved for judgment notwithstanding the verdict or a new

trial; Roberts moved for attorneys' fees and costs under S.C. Code

§ 38-59-40. The district court denied American General's motions,

and awarded Roberts $17,399.73 in fees and costs.

American General appeals.

II.

On appeal, American General does not contend that Roberts committed arson. It does not contend that the contents of his house were

worth less than the policy limit. Indeed, it did not seriously contest

these issues at trial. Rather, it argued and persists in arguing that Roberts' filing of this suit in the face of its belated demand for an examination under oath ought to bar all recovery. A properly instructed jury

found otherwise, and we must affirm its verdict if, viewing the evidence in the light most favorable to Roberts, we conclude that any

reasonable jury could have so found. Duke v. Uniroyal, Inc., 928 F.2d

1413, 1417 (4th Cir.), cert. denied, 502 U.S. 963 (1991).

In its brief, American General spares no pain in extolling the utility

of the examination under oath as a device to ferret out fraud by

insureds against insurers. We need no convincing. Sworn testimony

is a fundamental part of our system of law precisely because of the

truth-revealing powers of oath and examination. Our respect for this

device, however, does not translate into victory for American General.

On April 8, 1993, American General took the plaintiff's deposition.

No defense to his claim was discovered. A deposition is, of course,

an examination under oath. Nonetheless, American General proceeded to trial fifteen months later, pinning its hopes on a general policy provision that made the filing of a lawsuit contingent upon the

insured's first having complied with all policy provisions, including

submission to an examination under oath. Because forfeitures of

insurance policies are disfavored in South Carolina, such a clause

may not be construed as a strict condition precedent to suit. Puckett

v. State Farm General Insurance Co., ___ S.C. ___, 444 S.E.2d 523

(1994). Instead, an insured's failure to cooperate bars recovery only

where the insurer is prejudiced by it. Id. at 524. In light of its ability

 5
to take Roberts' deposition, and its exercise of that ability, American

General has not shown any prejudice here.6 

III.

The remaining two issues go only to the $10,000 compensatory and

$20,000 punitive damages awarded on the bad faith claim. In South

Carolina,

if an insured can demonstrate bad faith or unreasonable

action by the insurer in processing a claim under their mutually binding insurance contract, he can recover consequential damages in a tort action. Actual damages are not limited

by the contract. Further, if he can demonstrate the insurer's

actions were willful or in reckless disregard of the insured's

rights, he can recover punitive damages.

Nichols v. State Farm Mutual Automobile Insurance Co., 276 S.C.

336, 306 S.E.2d 616, 619 (1983).

In its brief, American General cites a number of circumstances that

supposedly justified its refusal to pay, or at least its initial delay.

Other than the insured's exaggeration of the value of his personal

property (which was itself largely irrelevant because the $20,000 pol-

_________________________________________________________________

6 In a footnote in its brief, American General asserts that Judge Currie

erred in instructing the jury that Judge Shedd had denied American General's motion to dismiss and Magistrate Judge McCrorey had denied its

motion to compel Roberts to submit to the examination under oath. This

instruction was required to prevent American General's defense from

misleading the jury. By relying on the "lack" of an examination under

oath as a defense at trial, American General opened the door to Roberts'

explanation, i.e., he had given a deposition, and neither Judge Shedd nor

Magistrate McCrorey had required more. In light of this evidence, the

charge then actually worked to American General's advantage, because

the jury was told that the judges' rulings did "not take away from you

the question of the examination under oath." In other words, the charge

permitted the jury to find a material breach of the policy by Roberts, notwithstanding that these prior rulings implied no such breach. These

instructions were unusual, to be sure, but then so were the posture of the

case and American General's theory of it. We see no prejudicial error.

 6
icy limit was clearly met),7 the cited circumstances do not amount to

much. American General's suspicions were aroused by such things as

Roberts' receipt of worker's compensation at the time of the fire

(though on a valid claim) and his occasionally late mortgage payments. Perhaps the most telling item on American General's list of

horribles is this one: "Roberts obtained a specimen copy of the Policy

for his attorney on June 8, 1992." (emphasis in original). Apparently,

American General expected the jury to be offended that Roberts

would have sought the help of an attorney nearly two weeks after his

home was destroyed. At trial, Roberts testified that Turpin admitted

to him that "if I hadn't went around and got a lawyer they would have

paid it." Turpin later took the stand, but was not asked whether he had

made this statement. A jury could therefore have credited Roberts'

testimony on this point, and could also have concluded that aversion

to dealing with the insured's attorney is not a good faith reason to

deny an insurance claim.

Moreover, American General never comes to grips with its failure

to admit coverage once it became clear -- at the latest, upon Roberts'

deposition -- that it had no defense to the claim. Ordinarily, an insurer's good or bad faith is measured as of the time it denies the plaintiff's claim, and its conduct in resulting litigation is irrelevant. See B.

R. Ostrager and T. R. Newman, Handbook on Insurance Coverage

Disputes, § 12.14 (5th ed. 1992). Here, though, American General put

itself in the peculiar, and at times confused, posture of neither admitting nor denying coverage, even at trial.8 At the charge conference,

_________________________________________________________________

7 Had the policy covered realty rather than personalty, the exaggeration

of value would have been totally irrelevant, because an insurer is bound

by statute to pay the policy limit upon a total loss by fire. S.C. Code Ann.

§ 38-75-20 (1989 & Supp. 1995); Tedder v. Hartford Fire Insurance Co.,

246 S.C. 163, 143 S.E.2d 122 (1965).

8 In arguing its motion for directed verdict at the close of the plaintiff's

case, Mr. Mozingo, American General's counsel, admitted coverage,

though in an undetermined amount. The next day, Theron Guthrie,

American General's in-house counsel, testified that the company still

neither accepted nor denied the claim. This contradiction led Mr. Mozingo to explain, at the charge conference, that the company would have

covered the loss in some amount if Roberts had taken an examination

under oath before filing suit.

 7
the district court pointedly inquired whether American General had

any authority for the proposition that an insurance company that does

not contest coverage can refuse to pay because of the pendency of a

lawsuit. American General knew of no such authority, and it has cited

none on appeal.9

In addition, the marked similarity of Puckett to this case counsels

affirmance of the judgment on the bad faith claim. In Puckett, as here,

the insured had given an unsworn statement in which he denied

involvement in a fire that had destroyed his home. After the insured

obtained the assistance of counsel, the insurer demanded an examination under oath. The insured's counsel, believing the request to be

untimely and waived by the insurer's decision to take the earlier

unsworn statement, filed suit, alleging breach of contract and bad

faith refusal to pay. 444 S.E.2d at 523. The plaintiff's deposition was

taken; he again denied committing arson. Construing the examination

under oath requirement as a strict condition precedent to suit, the state

trial court dismissed the action. Id. at 524. The South Carolina

Supreme Court reversed, holding, as we noted above, that the

insured's lack of cooperation bars recovery only upon a showing a

prejudice. Id. By reversing, the Court necessarily held that the facts

alleged by Puckett stated a claim of bad faith. It follows, then, that

_________________________________________________________________

9 When the plaintiff's bad faith claim is based on delay rather than

denial, logic supports holding the insurer to a continuing duty of good

faith during the litigation, at least until the insurer forthrightly denies the

claim.

[W]here an insurer has unreasonably and in bad faith withheld

payment of benefits due under a policy prior to litigation, and

then continues this bad faith conduct after a complaint is filed,

there seems to be no compelling reason why the right to recover

for that continuing wrong should terminate either because the

insurer decides to file a preemptive action for declaratory relief

or because the insured, under the compulsion of the insurer's

recalcitrance, decides to file suit himself.

White v. Western Title Insurance Co., 40 Cal.3d 870, 710 P.2d 309, 320-

321 (1985) (Grodin, J., concurring).

 8
a jury could, upon receiving competent proof of those same facts, render a verdict for the plaintiff on that claim.10

IV.

One thing on American General's list of suspicious circumstances

was not in evidence -- the district court forbade American General

from introducing the testimony of the Ridgeland Fire Chief that he

received two anonymous telephone calls just after the fire, and that

the anonymous callers said that they had seen Roberts moving furniture out of his house and into his mother's shed two days before the

fire. Likewise, the court excluded the testimony of the "origin and

cause" investigator that the fire chief had told him about the calls.

American General asserts that the exclusion of this evidence was

error. Our review is for abuse of discretion. Martin v. Cavalier Hotel

Corp., 48 F.3d 1343, 1357 (4th Cir. 1995).

American General asserts that these extrajudicial statements were

not offered as proof of the matter asserted, but rather to establish that

it had a good faith reason to undertake a careful and time-consuming

investigation, and, especially, to demand the examination under oath.

First of all, the investigator's testimony is clearly inadmissible,

because it does rely on the truth of the matter asserted by the fire

chief, i.e., that the chief received the phone calls. Hearsay within

hearsay is admissible only "if each part of the combined statements

conforms with an exception." Fed. R. Evid. 805.

The fire chief's own testimony clears this hurdle, but the district

court felt that it foundered on Fed. R. Evid. 403-- relevant evidence

may be excluded where its probative value is outweighed by its prejudicial effect. American General has no proof of arson, and does not

contend that there was arson, so the prejudicial seed this testimony

could have planted in the jury outweighed any value the evidence

could have had in showing that, at one time, American General might

have had reason to delay decision on the claim. Again, American

_________________________________________________________________

10 Likewise, the verdict was not clearly against the weight of the evidence, so the district court properly denied a new trial.

 9
General failed to admit or deny coverage, even long after its suspicions were dispelled. There was no abuse of discretion here.

The judgment of the district court is affirmed.

AFFIRMED

NIEMEYER, Circuit Judge, dissenting:

The fire-loss claim submitted to American General in this case was

surrounded by suspicion, both as to the cause of the fire and the

amount of the loss. Moreover, the claim included items not covered

by American General's policy. I believe that, before American General was required to accept or reject the claim, it was entitled to have

the benefit of a full investigation. Because the insured denied it the

benefit of a full investigation, American General cannot be found to

have acted in bad faith for continuing its investigation before making

a decision.

In March 1992, Loyd Roberts purchased a $20,000 insurance policy from American General to cover the contents of his home. In

May, a little over two months later, Roberts made a claim under the

policy for water damage. Because the policy did not cover that risk,

however, American General denied the claim. Four days later, Roberts' house burned down. He made a claim for the policy limits for

loss of the contents of his home. During this entire period, Roberts

was out of work and was a month delinquent in his mortgage payments.

In the personal property inventory form that Roberts submitted to

American General on June 11, 1992, as part of his claim, Roberts

listed items that required additional explanation or investigation. He

claimed, for example, $1,800 for sterling silver pots and pans used for

cooking; $1,500 for a four-year old, 25-inch television set; $6,250 for

125 VCR tapes; and $6,000 for 1,800 trophies. In respect to his claim

for loss of a movie camera, he gave as a source a store that did not

sell movie cameras.

Whether these facts, and others, justified denial of coverage was an

open question that American General had not answered. Appropri-

 10
ately, I believe, American General sought to investigate the claims

through its own personnel and attorneys, and, once its attorneys gathered enough information, through an examination of Roberts under

oath, a mechanism authorized by the terms of the policy. Roberts,

however, refused that examination and, instead, halted American

General's investigation by suing it for bad faith in delaying payment

of his claim.

Roberts' overly aggressive efforts to be paid were revealed from

the beginning. Only one day after Roberts submitted the personal

property inventory form to American General, he had retained an

attorney who called American General, demanding to know why Roberts' claim had not yet been paid. And two and one-half months later,

when no decision had yet been made under the policy because Roberts had not yet provided an examination under oath, Roberts sued the

insurance company for breach of contract and bad faith, demanding

$1.5 million in damages.

Not only was American General denied the opportunity to adjust

the claim in the manner specified by the policy, it was also compelled

to defend itself before a jury on a claim of bad faith because it insisted

on contractual rights before making its decision on the claim.

While I believe the evidence at trial supports the jury's verdict in

awarding Roberts the $20,000 policy limits for property lost in the

fire, I can find no evidence that American General acted in bad faith.

It merely demanded an investigation which the circumstances compelled and which neither Roberts nor his attorney allowed to occur.

Accordingly, I would reverse the award of $10,000 on the bad faith

claim and $20,000 for punitive damages, and to that extent I respectfully dissent.

 11