                  IN THE COURT OF APPEALS OF TENNESSEE
                             AT KNOXVILLE
                                   February 12, 2001 Session



        ROY MICHAEL MALONE, SR. v. HARLEYSVILLE MUTUAL
                     INSURANCE COMPANY

                     Appeal from the Chancery Court for Hamilton County
                        No. 98-1273    Howell N. Peoples, Chancellor

                                     FILED MARCH 13, 2001

                                  No. E2000-01308-COA-R3-CV



This matter involves a dispute concerning a fire and casualty insurance policy (“Policy”) which
covered an apartment complex, Star Chase Apartments. Harleysville Mutual Insurance Company
(“Defendant”) was the insurance carrier, and the named insured was John L. Oliver, LLC (“Oliver”).
A fire in one of the apartment buildings caused substantial damage. Approximately six months later,
Oliver sold Star Chase to Roy M. Malone, Sr. (“Plaintiff”), prior to starting any repairs to the burned
building. Oliver also assigned to Plaintiff his right to the proceeds under the Policy, and Defendant
acknowledged this assignment. The Trial Court found that Plaintiff, as Oliver’s assignee, was
entitled to recover the replacement cost of the burned building, plus prejudgment interest. The Trial
Court denied Plaintiff recovery for business loss. Plaintiff appeals the amount awarded to him as
the replacement cost and the Trial Court’s denial of any additional recovery for business loss.
Defendant argues that the assignment of the “proceeds” to Plaintiff did not entitle Plaintiff to recover
any amount as replacement cost for repairs done after the assignment. Defendant also objects to the
amount of the replacement cost found by the Trial Court and to the awarding of prejudgment interest.
We reverse the Trial Court’s award of prejudgment interest and affirm all other aspects of the
judgment.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in Part
                         and Reversed in Part; Case Remanded.

D. MICHAEL SWINEY, J., delivered the opinion of the court, in which HOUSTON M. GODDARD , P.J.,
and HERSCHEL P. FRANKS , J., joined.

Michael E. Richardson, Chattanooga, Tennessee, for the Appellant, Roy Michael Malone, Sr.

Jeffrey L. Cleary and Michael A. Kent, Chattanooga, Tennessee, for the Appellee, Harleysville
Mutual Insurance Company.
                                                     OPINION

                                                   Background

               Harleysville Mutual Insurance Company ("Defendant") provided fire insurance
coverage with policy limits of $750,000 for an apartment complex, Star Chase Apartments ("Star
Chase") located in Red Bank, Tennessee. A portion of one of Star Chase's buildings, Building "A,”
burned in August 1998. The named insured was John L. Oliver, LLC ("Oliver"), the owner of Star
Chase at the time of the loss. The fire destroyed a portion of the roof and caused severe damage to
approximately one-half of the twenty units of Building "A."

               The fire insurance policy at issue ("the Policy") provided that Oliver, as the named
insured, could not transfer his "rights and duties under [the Policy] . . . without [Defendant's] written
consent except in the case of death of an individual named insured." With respect to the recovery
allowed by the Policy, the Policy provided as follows:

                  E. LOSS CONDITIONS

                                                     ******

                  7.        Valuation

                            We will determine the value of Covered Property in
                            the event of loss or damage as follows:

                  a.        At actual cash value as of the time of loss or
                            damage. . . .

                                                     ******

                  G.        OPTIONAL COVERAGES1

                  3.        Replacement Cost

                  a.        Replacement Cost (without deduction for
                            depreciation) replaces Actual Cash Value in the Loss
                            Condition, Valuation, of this Coverage Form.

                                                     ******




        1
            The Po licy’s Declara tions showed that Oliver had Replace ment Cos t coverage .

                                                          -2-
               c.     You may make a claim for loss or damage covered by
                      this insurance on an actual cash value basis instead of
                      on a replacement cost basis. In the event you elect to
                      have loss or damage settled on an actual cash value
                      basis, you may still make a claim for the additional
                      coverage this Optional Coverage provides if you
                      notify us of your intent to do so within 180 days after
                      the loss or damage.

               d.     We will not pay on a replacement cost basis for any
                      loss or damage:

               (1)    Until the lost or damaged property is actually repaired
                      or replaced; and

               (2)    Unless the repairs or replacement are made as soon as
                      reasonably possible after the loss or damage.

               (e)    We will not pay more for loss or damage on a
                      replacement cost basis than the least of (1), (2) or
                      (3) . . . :

               (1)    The Limit of Insurance applicable to the lost or
                      damaged property;

               (2)    The cost to replace, on the same premises, the lost or
                      damaged property with other property:

                       (a)    Of comparable material and quality;
                              and
                       (b)    Used for the same purpose; or

               (3)     The amount you actually spend that is necessary to
                       repair or replace the lost or damaged property.

               The Policy also provided coverage for loss of business income. The Policy provided
that Defendant "will pay for the actual loss of Business Income you sustain due to the necessary
suspension of your 'operations' during the 'period of restoration.'"

              In October 1998, Oliver's mortgagee, AmSouth Bank, submitted a proof of loss to
Defendant for $750,000, or the Policy’s limits. Shortly thereafter, Oliver submitted a proof of loss
for approximately $778,200. These amounts were disputed by Defendant. The parties stipulated that
Defendant made two advance payments, totaling $262,915 and characterized by Defendant as


                                                -3-
estimated "actual cash value." Defendant also made one advance payment for loss of business
income in the amount of $10,000.

                In February 1999, Oliver sold Star Chase to Roy M. Malone, Sr. ("Plaintiff"). As part
of the transaction, Oliver assigned to Plaintiff his right to proceeds from the Policy and any claims
arising out of the fire loss. Defendant reviewed Oliver's and Plaintiff's assignment agreement and
responded to Oliver via written correspondence on February 16, 1999, as follows:

               We have received and reviewed the Collateral Assignment
               Agreement between you and [Plaintiff] for our signature. We will
               acknowledge your assignment of the claim proceeds upon receipt of
               the fully executed document by including the assignee's name on all
               future loss payments. However, the claim proceeds assignment is
               between you and the assignee and does not need a signature from a
               representative of [Defendant]. The assignment agreement between
               you and the assignee should include a power of attorney so that the
               assignee can sign and negotiated checks issued to the named insured
               and the assignee.

               Again, we will honor your assignment of the claim proceeds upon
               receipt of the fully executed documents by including the assignee's
               name on all future loss payments. . . .

               Suit was brought initially by AmSouth Bank, and Oliver later intervened as plaintiff.
After purchasing Star Chase, Plaintiff intervened in the lawsuit and filed an Amended Complaint
which alleged breach of contract and statutory bad faith. Plaintiff sought recovery for damages to
Star Chase and loss of business income related to the fire. The Trial Court dismissed Plaintiff's bad
faith claim, and that decision has not been appealed.

               During the six-months between the fire and the time of the sale, Oliver neither started
any demolition or repairs of the burned building nor undertook any measures to protect it from
further damage. Testimony at trial was disputed as to whether protective measures such as a tarp
would have made a difference. Plaintiff began demolition soon after he purchased Star Chase in
February 1999, and claimed that he had completed the repairs by the time of trial in March 2000.
The building inspector for the City of Red Bank, however, disagreed to some extent and testified that
Building "A" was not completely repaired as of the day before trial.

               Several witnesses testified regarding the replacement cost of Star Chase. Plaintiff,
formerly a general contractor, testified that he spent $795,000 on repairs which took over a year for




                                                 -4-
completion.2 In addition, Plaintiff testified that the replacement cost was between $800,000 and
$850,000. Plaintiff failed to submit any documentation at trial supporting this testimony.

                Another witness for Plaintiff was Douglas Norman, a construction estimator and
consultant for Maryland-based Rolyn Companies. Norman’s final estimate for replacement cost was
$750,936. In arriving at his opinion, Norman used a computer program which did not provide
Chattanooga-area values for construction services and supplies. Norman also testified that Rolyn's
fee is a percentage of its client's settlement or recovery. Phillip Davidson, a public insurance
adjustor, also testified on behalf of Plaintiff. Davidson prepared Oliver's proof of loss, and like
Rolyn Companies, was to be compensated on a contingency basis.

                Defendant presented Kenneth Gilreath, an insurance adjustor, who testified that he
estimated the replacement cost to be approximately $352,000. Gilreath was retained by Defendant
to prepare this estimate.

                Defendant also submitted the testimony of Timothy Lind, an estimator and president
of a Chattanooga construction company. Lind testified that he had been interested in purchasing Star
Chase from Oliver and that he had secured a purchase contract with Oliver, second in line behind
Plaintiff. Lind first inspected the damage approximately 1.5 months after the fire and frequently
returned to the site. Lind intended to rebuild 12 of the 20 units of Building "A." Lind testified that
Building "A" deteriorated further after the fire since it was left exposed to the elements. Lind’s first
estimate in November 1998, totaled approximately $400,000, which he later revised in January 1999
to total nearly $520,894. Lind attributed this increase to Oliver's failure to protect the burned
structure from further damage. Both estimates were prepared when Lind hoped to purchase Star
Chase from Oliver.

                 As to the proof regarding Plaintiff's claim for loss of business income, Plaintiff
testified that he sustained $119,100 in lost rents between the time of the fire in August 1998, and
March 2000, the date of completion of repairs. Plaintiff testified that due to the demolition and
construction of Building “A,” Star Chase sustained a drop in occupancy in the remaining buildings.
In support of his testimony, Plaintiff submitted only Star Chase's rent rolls. Lind, on the other hand,
testified that he reviewed the rent rolls when he was a potential purchaser and found discrepancies
in the rent rolls' information regarding vacancy and occupancy. Moreover, Lind determined upon
his inspection of Star Chase that not all of the units in Star Chase’s other buildings were habitable.

               The Trial Court awarded replacement cost to Plaintiff in the net amount of $256,979,
plus prejudgment interest commencing on the date that Oliver filed his Motion to Intervene. The
Trial Court explained in its Memorandum Opinion that it arrived at this figure by using the opinion
of Timothy Lind that the replacement cost totaled $520,894 and then subtracting the deductible and
the advances made by Defendant to Oliver. In its Memorandum Opinion, the Trial Court found that


        2
            Plaintiff testified that the re pairs to Bu ilding "A" were nearly complete in Februar y, 1999, when a second fire
occurred.

                                                             -5-
Oliver assigned his right to the insurance claim proceeds to Plaintiff and that Defendant
acknowledged this assignment in its February 16, 1999, correspondence when it recognized Plaintiff
as the loss payee. With respect to Plaintiff's claim for loss of business income, the Trial Court held
in its Memorandum Opinion that Plaintiff failed to provide sufficient proof at trial to support this
claim. Both parties take issue with the final judgment.

                                             Discussion

                Plaintiff raises the following issues on appeal: 1) whether the Trial Court erred in
holding that Plaintiff's recovery for replacement cost for Building "A" was $520,894, instead of the
substantially higher amount Plaintiff expended in repairs to Building “A”; and 2) whether the Trial
Court's denial of Plaintiff's claim for loss of business income was in error.

                 Defendant does not dispute the Trial Court's denial of Plaintiff's claim for loss of
business income. Defendant does, however, raise the following issues on appeal: 1) whether the
Trial Court erred in awarding Plaintiff recovery for replacement cost since, Defendant argues,
Plaintiff, as assignee only of the Policy proceeds, could not exercise the contract rights of the named
insured, Oliver; 2) if Plaintiff was entitled to recovery for replacement cost, whether the Trial Court
erred in finding the replacement cost to be $520,844 rather than the lower amount presented by
Defendant; and 3) whether the Trial Court erred in awarding prejudgment interest to Plaintiff, and
if an award of prejudgment interest was appropriate, whether the Trial Court used the wrong
commencement date.

               We first address whether Plaintiff, as an assignee of the Policy proceeds, was entitled
to any recovery for replacement cost. As this issue involves the Trial Court’s conclusions of law,
our review of this matter is de novo review with no presumption of correctness. Ganzevoort v.
Russell, 949 S.W.2d 293, 296 (Tenn. 1997).

               The record shows that Defendant does not dispute that Plaintiff received an
assignment of the claim proceeds from Oliver. Defendant, however, contends that at the time of the
assignment, no further proceeds were due under the Policy. While not stated exactly in these words,
Defendant then maintains that Plaintiff’s right to any of the proceeds under the policy was fixed at
the time of the assignment and sale. Therefore, since no future proceeds could become due, the
assignment of the future proceeds to Plaintiff was an assignment of nothing according to Defendant.

                The Policy states that Defendant will not pay replacement cost until the property is
repaired or replaced. Defendant apparently argues that because Oliver failed to complete or even
begin any repairs to Building “A” prior to the assignment of proceeds and sale of Star Chase, Oliver
could not have recovered replacement cost. Since the rights of Plaintiff, as assignee of the proceeds,
could rise no higher than those of Oliver, Defendant argues that Plaintiff is barred from recovery of
replacement cost. Defendant asserts that Plaintiff’s claim for replacement cost is an exercise of a
right under the Policy in contrast to a right to claim proceeds.



                                                 -6-
                We agree with Defendant that Plaintiff, as an assignee of the claim proceeds, has no
right to recover proceeds beyond what right Oliver had as the named insured. See Zaharias v.
Vassis, 789 S.W.2d 906, 910 (Tenn. Ct. App. 1989) (citing 6A C.J.S. Assignments § 88 (1975)). The
record on appeal establishes that Plaintiff received a valid assignment of the Policy proceeds, not the
Policy itself. See Metropolitan Life Ins. Co. v. Brown ex rel. Fleming, 160 S.W. 2d 434, 437-38
(Tenn. Ct. App. 1941) (holding that an assignment of proceeds made after a loss, as distinguished
from an assignment made prior to the loss date, was valid despite the lack of consent by the insurer
since the liability of the insurer was fixed at the time of the loss); see also Zaharias, 789 S.W. 2d
at 910 (recognizing the difference between an assignment of a policy and an assignment solely of
the proceeds).

                We reject, however, Defendant’s argument that Plaintiff is not entitled to recover
replacement cost. The proof establishes Defendant’s February 16, 1999, correspondence specifically
recognized the assignment of future claim proceeds to Plaintiff. The record on appeal shows that
Defendant, in its February 16, 1999, written correspondence, stated that it “will honor [Oliver’s]
assignment of the claim proceeds upon receipt of the fully executed document by including the
assignee’s name on all future loss payments.” This correspondence presupposes that future loss
payments would be made to Plaintiff. Moreover, if Oliver had been the one who repaired Building
“A,” Oliver, as the named insured, would have been entitled to replacement cost under the Policy.
Accordingly, as Oliver’s assignee of claim proceeds, Plaintiff is entitled to replacement cost since
he undertook the task of repairing Building “A.” Plaintiff’s claim to recover replacement cost
proceeds is appropriate as such a right was held by Oliver prior to the assignment. The liability of
Defendant was fixed at the time of the loss with that liability being the value of the replacement cost
as defined in the policy. We note that the Trial Court’s holding on this issue requires Defendant to
pay nothing more than what it contracted to pay when it accepted premiums on the Policy. We find
no error in the Trial Court’s decision to award Plaintiff the proceeds equal to the replacement cost.

                We next review the amount of the Trial Court’s award for replacement cost. Since
this issue involves a finding of fact by the Trial Court, our review is de novo upon the record,
accompanied by a presumption of the correctness, unless the preponderance of the evidence is
otherwise. Tenn. R. App. P. 13(d); Alexander v. Inman, 974 S.W.2d 689, 692 (Tenn. 1998). Both
parties argue that the amount of the award for replacement cost was erroneous. Plaintiff, of course,
contends that he should have been awarded more, while Defendant declares that Plaintiff was
awarded too much despite the Trial Court’s heavy reliance upon the opinion testimony of
Defendant’s witness, Timothy Lind. It is apparent from the Trial Court's Memorandum Opinion that
it duplicated the amount testified to by Lind as its award for replacement cost.

                With respect to other testimony, the Trial Court, in its Memorandum Opinion,
discounted Plaintiff's testimony regarding repair costs and replacement cost since Plaintiff testified
to a “blanket figure” and failed to submit any documentation in support of his testimony. Plaintiff's
remaining two witnesses, Phillip Davidson and Douglas Norman, were similarly rejected by the Trial
Court since they were not familiar with the local cost of materials and labor and were to be
compensated based upon a percentage of Plaintiff's recovery. Moreover, the Trial Court recognized


                                                 -7-
in its Memorandum Opinion that Kenneth Gilreath, although not an employee of Defendant, owed
a duty of loyalty to Defendant as its retained witness.

               In discussing this issue, our Supreme Court has held that:

               Where the issue for decision depends on the determination of the
               credibility of witnesses, the trial court is the best judge of the
               credibility and its findings of credibility are entitled to great weight.
               This is true because the trial court alone has the opportunity to
               observe the appearance and the demeanor of the witnesses.

Tenn-Tex Prop. v. Brownell-Electro, 778 S.W.2d 423, 426 (Tenn. 1989). Here, the Trial Court
found that Timothy Lind was the most credible witness.

               In further support of his argument, Plaintiff contends that the “best evidence” of
replacement cost was the actual repair costs established through Plaintiff’s trial testimony. We reject
this argument as well because, as discussed, the Trial Court specifically found Timothy Lind to be
the most credible of all the witnesses who provided testimony regarding replacement cost. See Tenn-
Tex Prop., 778 S.W.2d at 426. Moreover, the Policy specifically provides that Defendant will pay
the least amount of the following for replacement cost: the Policy limit of $750,000; the cost to
replace with comparable material and quality; or the amount that the insured actually spends that is
necessary to repair or replace the damaged property. See E. K. Hardison Seed Co. v. Continental
Cas. Co., 410 S.W.2d 729, 735 (Tenn. Ct. App. 1966) (holding that where an insurance policy
provision is “plain and unambiguous, it must be applied as it reads”).

               We hold that the preponderance of the evidence does not weigh against the Trial
Court’s finding as to the replacement cost awarded. Therefore, we affirm the Trial Court on this
issue.

                 Plaintiff also contends that the Trial Court should have awarded him recovery for loss
of business income. The record on appeal shows that in support of his testimony, Plaintiff
submitted only rent rolls as evidence. The Trial Court, in its Memorandum Opinion, held that it
denied Plaintiff recovery for this claim because Plaintiff failed to comply with provisions of the
Policy, including the requirement that Defendant be provided with documentation, and because the
proof established that the rent rolls were inaccurate. As with the issue of recovery for replacement
cost, the Trial Court indicated in its Memorandum Opinion that it relied heavily upon the testimony
of Timothy Lind regarding the inaccuracy of the rent rolls. See Tenn-Tex Prop., 778 S.W.2d at 426.
We find no error in the Trial Court’s decision not to award loss of business income to Plaintiff.

                  Finally, Defendant argues on appeal that the Trial Court erred in granting prejudgment
interest to Plaintiff because the Policy only allows recovery once the repairs are complete. Our
Supreme Court recognized that a trial court’s award of prejudgment interest “is within [its] sound
discretion . . . and the decision will not be disturbed by an appellate court unless the record reveals


                                                  -8-
a manifest and palpable abuse of discretion.” Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn.
1998); Tenn. Code Ann. § 47-14-123. The Myint court discussed the review on appeal of an award
of prejudgment interest as follows:

               This standard of review clearly vests the trial court with considerable
               deference in the prejudgment interest decision. Generally stated, the abuse
               of discretion standard does not authorize an appellate court to merely
               substitute its judgment for that of the trial court. Thus, in cases where the
               evidence supports the trial court’s decision, no abuse of discretion is found.

Myint, 970 S.W.2d at 927.

                As discussed, under the terms of the Policy, Plaintiff’s recovery of replacement cost
was conditioned, in part, upon the completion of repairs to Building “A.” See E.K. Hardison Seed
Co., 410 S.W.2d at 658. The record on appeal shows that it was disputed as to whether Building “A”
was completely repaired even at the time of trial. Assuming, as Plaintiff contends and the record
supports, that the repairs were completed by trial, Plaintiff was not entitled to receive the
replacement cost until then. The basis of Plaintiff’s recovery for prejudgment interest is the award
of replacement cost. The money was not owed and due until the repairs were completed which was
not until the time of trial. Under the Policy, Plaintiff was not legally entitled to the funds and,
therefore, not entitled to the use of those funds until the repairs were completed. See Myint, 970
S.W.2d at 927. We hold, therefore, that the Trial Court erred in granting prejudgment interest to
Plaintiff.

                                          CONCLUSION

                The judgment of the Trial Court granting prejudgment interest to Plaintiff is reversed.
All other aspects of the Trial Court’s judgment are affirmed, and this cause is remanded to the Trial
Court for such further proceedings as may be required, if any, consistent with this Opinion, and for
collection of the costs below. The costs on appeal are assessed one-half to Roy Michael Malone, Sr.,
and his surety, and one-half to Harleysville Mutual Insurance Company, and its surety.




                                               ___________________________________
                                               D. MICHAEL SWINEY, JUDGE




                                                 -9-
