                                              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.




                             O R D E R


     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to read "Affirmed by unpublished per curiam opinion.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UNPUBLISHED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Affirmed by unpublished per curiam opinion.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 Appel-
lant. 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Unpublished opinions are not binding precedent in this circuit.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 judg-
ment 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 per-
sonal property fire insurance policy from American General. The pol-
icy 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. Rob-
erts 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 pol-
icy 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 satisfac-
tory 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 pur-
chased 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, demand-
ing payment within ten days, else suit would be filed.4 Even this ulti-
matum was slow to stir American General to action. Four more weeks
passed, during which Roberts and his family were spending the sum-
mer 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 writ-
ten 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 investiga-
tion 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 reason-
ably 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 com-
mitted 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 Rob-
erts' filing of this suit in the face of its belated demand for an exami-
nation under oath ought to bar all recovery. A properly instructed jury
found otherwise, and we must affirm its verdict if, viewing the evi-
dence 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 Gen-
eral.

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 pro-
ceeded to trial fifteen months later, pinning its hopes on a general pol-
icy 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 mutu-
        ally binding insurance contract, he can recover consequen-
        tial 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 Gen-
eral'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, not-
withstanding 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 pay-
ments. 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 insur-
er's good or bad faith is measured as of the time it denies the plain-
tiff'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 admit-
ting 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. Moz-
ingo 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 examina-
tion 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, ren-
der 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 furni-
ture 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 preju-
dicial 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 evi-
dence, so the district court properly denied a new trial.

                     9
General failed to admit or deny coverage, even long after its suspi-
cions 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 Gen-
eral 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 pol-
icy 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, Rob-
erts' 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 pay-
ments.

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 gath-
ered 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 Rob-
erts' claim had not yet been paid. And two and one-half months later,
when no decision had yet been made under the policy because Rob-
erts 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 com-
pelled 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 respect-
fully dissent.

                    11
