UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MARK WINSTON; JACQUELINE
DEVEREAUX,
Plaintiffs-Appellees,

v.                                                                No. 95-2705

STATE FARM FIRE AND CASUALTY
COMPANY,
Defendant-Appellant.

MARK WINSTON; JACQUELINE
DEVEREAUX,
Plaintiffs-Appellants,

v.                                                                No. 95-2783

STATE FARM FIRE AND CASUALTY
COMPANY,
Defendant-Appellee.

Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, District Judge.
(CA-95-162-A)

Argued: June 6, 1996

Decided: September 5, 1996

Before ERVIN, NIEMEYER, and HAMILTON, Circuit Judges.

_________________________________________________________________

Reversed and remanded by unpublished opinion. Judge Ervin wrote
the opinion, in which Judge Niemeyer and Judge Hamilton joined.
COUNSEL

ARGUED: Stephen Anthony Horvath, TRICHILO, BANCROFT,
MCGAVIN, HORVATH & JUDKINS, P.C., Fairfax, Virginia, for
Appellant. Kevin Roger Hildebeidel, STEPHEN K. CHRISTENSON,
P.C., Fairfax, Virginia, for Appellees. ON BRIEF: Stephen K. Chris-
tenson, STEPHEN K. CHRISTENSON, P.C., Fairfax, Virginia; Don-
ald E. Coulter, Manassas, Virginia, for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

ERVIN, Circuit Judge:

State Farm appeals following a jury verdict in favor of Mark Win-
ston and Jacqueline Devereaux, arguing that the district court erred
when it allowed the jury to consider the issue of materiality and when
it failed to instruct the jury on the meaning of"clear and convincing."
Winston and Devereaux have cross-appealed, challenging the district
court's refusal to submit the question of State Farm's good faith to the
jury, as well as its instructions on the issues of arson and misrepresen-
tation. For the reasons that follow, we reverse and remand for a new
trial.

I.

Mark Winston and Jacqueline Devereaux, to whom we will refer
as "Devereaux" for simplicity, own a house in Manassas, Virginia.
The house burned on February 15, 1993, and Devereaux promptly
sought to recover under a State Farm fire insurance policy. State Farm
suspected arson and conducted an investigation. Devereaux claimed
that she spent the evening of February 15 at her parents' home, and
discovered the raging fire when she returned home. The home and its
contents were almost totally destroyed.

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State Farm retained a fire investigator, who concluded that the fire
was caused by flammable liquids being poured into a wall register.
The insurer's investigation also uncovered what it considered to be
possible motives for Devereaux to set fire to the property: the house
was in terrible condition, and Devereaux may have been having finan-
cial difficulties. State Farm could not confirm Devereaux's explana-
tion of her whereabouts the night of the fire. It also contended that
Devereaux had removed a number of valuables from the home prior
to the fire, and inflated the values of some possessions in her insur-
ance claim. State Farm denied Devereaux's claim.

Devereaux filed an action alleging bad-faith breach of contract in
Virginia state court; State Farm filed a counterclaim seeking a decla-
ration that the policy was void based on material misrepresentation
and arson. State Farm also removed the action to federal court based
on diversity of citizenship. At trial, the jury deliberated for about an
hour, then returned a judgment in Devereaux's favor for $74,567.94.
The district court denied State Farm's motion to set aside the verdict
and denied Devereaux's motion for attorney's fees and prejudgment
interest. The district court also denied State Farm's request for a
declaratory judgment.

II.

A.

State Farm defended against Devereaux's claim of liability under
the policy based, in part, on its contention that Devereaux made mate-
rial misrepresentations in the course of its investigation. The policy
contained the following provision:

         This policy is void as to you and any other insured, if you
         or any other insured under this policy has intentionally con-
         cealed or misrepresented any material fact or circumstance
         relating to this insurance whether before or after a loss.1
_________________________________________________________________
1 The Code of Virginia dictates that fire insurance policies contain the
following provision:

          This entire policy shall be void, if whether before or after a loss,
          the insured has wilfully concealed or misrepresented any mate-

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State Farm now contends that the district court should have decided
the question of materiality, and erred by submitting the issue to the
jury.

State Farm argues that Virginia law, which applies in this diversity
action, dictates that materiality be decided by the court, not the jury.
See Harrell v. North Carolina Mutual Life Ins. Co., 213 S.E.2d 792,
794 (Va. 1975); Old Republic Life Ins. Co. v. Bales, 195 S.E.2d 854,
856 (Va. 1973); Chitwood v. Prudential Ins. Co. of Am., 143 S.E.2d
915, 918 (Va. 1965); Scott v. State Farm, 118 S.E.2d 519-23 (Va.
1961)). The cases on which State Farm relies all involve the issue of
materiality in the context of applications for insurance, not loss inves-
tigations. Our research has revealed no cases addressing whether the
issue of materiality in the context of an insurer's loss investigation is
an issue for the court or the jury.

Virginia's Model Jury Instructions define a "material fact" as "one
which influences a person to act or not to act." Instr. No. 39.020
(1993, Civil Ed.).2 A representation in the context of an insurance
application is "material to the risk if it would reasonably influence the
insurance company in deciding whether to issue the policy." Time Ins.
Co. v. Bishop, 425 S.E.2d 489, 492 (Va. 1993). Similarly, material
misrepresentations during loss investigations would reasonably influ-
ence the insurance company not to pay a submitted claim. Without
specific guidance from the Virginia courts that loss investigations are
different from applications for these purposes, we shall rely on the
closest analogy, and rule that materiality in the context of a loss
investigation is a question for the court. Therefore, the district court
erred in submitting this issue to the jury.
_________________________________________________________________

          rial fact or circumstance concerning this insurance or the subject
          thereof, or the interest of the insured therein, or in case of any
          fraud or false swearing by the insured relating thereto.

Va. Code § 38.2-2105(A) (1994). Sections 38.2-2107 and 38.2-2108
allow provisions that deviate from the language prescribed by § 38.2-
2105 provided they are at least as favorable as the standard provisions
and approved by the Insurance Commission.
2 We note that the Model Jury Instructions contain no instruction con-
cerning the materiality of statements made during a loss investigation.

                     4
The jury found only that Devereaux made no material misrepresen-
tations. We cannot now know whether the jury found that Devereaux
made no misrepresentations, or found that she made misrepresenta-
tions that were immaterial. Thus we cannot find this error harmless.3

Furthermore, we reject Devereaux's contention that, even if it were
error to submit the issue of materiality to the jury, State Farm invited
this error by proposing the instructions used by the district court. State
Farm's proposed instruction on the definition of materiality was sub-
mitted to the jury, but State Farm submitted this jury instruction only
after the court declined to decide the issue of materiality. State Farm
cannot now be faulted for so proceeding.

B.

State Farm argues that the district court should have instructed the
jury on the definition of "clear and convincing" evidence. With mini-
mal legal analysis, State Farm concludes that "[t]he probability that
the jury held the defendant to a heightened standard of proof and the
resultant prejudice to the defendant requires that the decision be over-
ruled." Apparently State Farm believes that the jury considered "clear
and convincing" to mean the same thing as "beyond a reasonable
doubt." This argument is without merit. The district court explained
to the jury that "clear and convincing evidence" is a higher standard
than "preponderance of the evidence." We find no error, because "the
charge [was] accurate on the law and [did] not confuse or mislead the
jury." Hardin v. Ski Venture, Inc., 50 F.3d 1291, 1294 (4th Cir. 1995).
_________________________________________________________________
3 In its subsequent order denying State Farm's motion to set aside the
jury verdict, the district court stated that "the Court found the statements
to be material when it sent the case to the jury." Joint Appendix at 297
(Order of Aug. 31, 1995). This suggests that State Farm may have pre-
vailed had the jury simply found that Devereaux had in fact made mis-
representations. Still later, the court ruled that"the defendant State Farm
has failed to show by a preponderance of the evidence that the plaintiffs
misrepresented or concealed material facts." Joint Appendix at 299
(Order of September 20, 1995). But the court specifically stated that it
was "guided by the jury's determination" that Devereaux had not misrep-
resented material facts. Thus, this ruling is not an accurate indication of
how the district court would have ruled if it had considered the issue of
materiality in the first instance.

                     5
III.

A.

Devereaux argues on cross-appeal that the trial court erred when it
refused to submit the issue of State Farm's bad faith to the jury. She
sought attorneys' fees under a Virginia statute:

          [I]n any civil case in which an insured individual sues his
          insurer to determine what coverage, if any, exists under his
          present policy or bond or the extent to which his insurer is
          liable for compensating a covered loss, the individual
          insured shall be entitled to recover from the insurer costs
          and such reasonable attorney fees as the court may award.
          However, these costs and attorney's fees shall not be
          awarded unless the court determines that the insurer, not act-
          ing in good faith, has either denied coverage or failed or
          refused to make payment to the insured under the policy.

Va. Code § 38.2-209(A) (1994). Devereaux argues that because the
jury is the "court" for fact-finding purposes, the statute by its terms
does not preclude submission of the issue to the jury; moreover, she
argues, the Supreme Court of Virginia has tacitly approved jury con-
sideration of an insurer's good faith. Brief of Appellee at 23-24 (cit-
ing State Farm Mut. Auto. Ins. Co. v. Floyd, 366 S.E.2d 93, 96 (Va.
1988)). Floyd, however, involved a common-law claim of bad faith
failure to settle with a third party, not the statutory availability of
attorneys fees in an action between insurer and insured.

The district court correctly concluded that the statutory reference
to "court" did not mean "jury," and decided the issue itself.
Devereaux's argument is counter-intuitive--"court" is not the same as
"fact-finder"--and we cannot assume that the Virginia legislature
chose the word "court" lightly.4 The district court did not err in refus-
ing to submit this issue to the jury.
_________________________________________________________________
4 The previous version of this statute, § 38.1-32.1, specifically provided
that an insured may recover "such reasonable attorney fees as the trial
judge may award if it is determined by such trial judge in such case that
the insurer has not in good faith either denied coverage or failed or
refused to make payment to the insured under such policy." CUNA Mut.
Ins. Soc. v. Norman, 375 S.E.2d 724, 726 (Va. 1989) (emphasis added).

                    6
Because the district court's determination that State Farm did not
act in bad faith was a finding of fact, we review it for clear error. Fed.
R. Civ. P. 52(a); Waters v. Gaston County, 57 F.3d 422, 425 (4th Cir.
1995). The Virginia Supreme Court has explained the inquiry to be
used in determining whether a denial of insurance coverage has been
made in good faith, noting that the proper standard is reasonableness.
CUNA Mut. Ins. Soc. v. Norman, 375 S.E.2d 724, 727 (Va. 1989).
Several of the non-exclusive factors offered by that court are at issue
here, specifically, "whether the insurer had made a reasonable investi-
gation of the facts and circumstances underlying the insured's claim;
whether the evidence discovered reasonably supports a denial of lia-
bility; [and] whether it appears that the insurer's refusal to pay was
used merely as a tool in settlement negotiations." Id. The district court
here found,

          In the instant action, State Farm conducted an investigation
          of the facts and circumstances and, based on the incendiary
          nature of the fire and on several inconsistencies in Plaintiff
          Devereaux's statement as to her whereabouts at the time of
          the fire and in the claim forms that she filed, State Farm
          denied coverage. This Court finds that State Farm's decision
          to deny coverage was a reasonable action in light of its
          investigation and was not done in bad faith.

Joint Appendix at 298 (Order of August 31, 1995).

The district court's conclusions were not clearly erroneous.
Devereaux has failed to convince this court that State Farm's investi-
gation was not conducted in good faith based on the information
available.

B.

Devereaux argues that if this court were to remand the case, it must
consider the following errors, which she claims benefitted State Farm.
She contends that the district court erred in instructing the jury that
it could find that she made misrepresentations by the "greater weight
of the evidence." Under Virginia law, fraud must be proven by clear
and convincing evidence. Evaluation Research Corp. v. Alequin, 439
S.E.2d 387, 390 (Va. 1994). But misrepresentations in the insurance

                     7
application context--to which we again turn by way of analogy--are
governed by Virginia Code § 38.2-309, providing that an insured's
statements will not prevent recovery under the policy "unless it is
clearly proved that such answer or statement was material to the risk
when assumed and was untrue" (emphasis added). The Virginia
Supreme Court has held that it was error for a trial court to require
"clear, cogent, and convincing" evidence of fraud in an insurance
application. Old Republic Life Ins. Co. v. Bales , 195 S.E.2d 854, 856-
57 (Va. 1973).

Finally, Devereaux argues that the trial court erred when it
instructed the jury that State Farm could prove that she set the fire by
"showing clear and convincing evidence that the fire was incendiary
in origin, that the insureds had the motive to set the fire and that the
insureds had an opportunity to set the fire." She contends that this
standard amounts to a presumption of guilt for homeowners whose
homes burn--"[a]ny homeowner has access to their own property,
and, according to the insurance company, has a motive: to obtain the
insurance money." She also complains that the instruction was based
on criminal arson cases. As State Farm points out, however, the stan-
dard in criminal cases is higher than civil cases, so this could not have
prejudiced Devereaux. Furthermore, there was additional evidence of
Devereaux's possible motive to set the fire--which went beyond a
bare allegation that she wanted the insurance proceeds--including the
fact that if she were to sell the house "as is" she would actually owe
money.

In sum, Devereaux has not persuaded this court that there were
errors in the jury charge.

IV.

Because the district court erred when it refused to decide the issue
of materiality, this case must be remanded for retrial. However, we
find no merit in the remaining assignments of error argued by either
party.

REVERSED AND REMANDED

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