PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

WESTFIELD INSURANCE COMPANY,
Plaintiff-Appellant,

v.

                                                                       No. 97-1835
CLARENCE R. HARRIS,
Defendant-Appellee.

WEST VIRGINIA FIRE MARSHAL,
Movant.

Appeal from the United States District Court
for the Southern District of West Virginia, at Huntington.
Joseph Robert Goodwin, District Judge.
(CA-96-370-3)

Argued: October 30, 1997

Decided: January 20, 1998

Before RUSSELL, NIEMEYER, and WILLIAMS, Circuit Judges.

_________________________________________________________________

Vacated and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Judge Russell and Judge Williams joined.

_________________________________________________________________

COUNSEL

ARGUED: Brent Karleton Kesner, KESNER, KESNER & BRAM-
BLE, Charleston, West Virginia, for Appellant. William Jack Stevens,
Sr., STEVENS & STEVENS, Hamlin, West Virginia, for Appellee.
ON BRIEF: Renatha S. Garner, KESNER, KESNER & BRAMBLE,
Charleston, West Virginia, for Appellant.
OPINION

NIEMEYER, Circuit Judge:

On the evening of January 10, 1996, the house of Clarence Harris
in West Hamlin, West Virginia, was destroyed by fire. Harris submit-
ted a claim for payment of the loss to Westfield Insurance Company,
which had issued an insurance policy on the house. Believing that the
fire was incendiary in nature, Westfield Insurance denied the claim
and filed this action for a declaratory judgment that its policy pro-
vided no coverage for the loss. Harris filed a crossclaim for the
amount of the loss, and a jury awarded Harris $97,500. After the dis-
trict court added pretrial interest and attorneys fees, it entered judg-
ment in favor of Harris in the amount of $141,674.

In attempting to prove its claim that the fire was deliberately set,
Westfield Insurance presented the testimony of the West Virginia
Deputy Fire Marshal who gave his opinion that the fire was incendi-
ary. Westfield Insurance also proffered evidence under Federal Rule
of Evidence 404(b) that Harris had received payment for six previous
claims that houses he owned had been destroyed by fire and a previ-
ous claim that his truck had been destroyed by fire. On Harris'
motion, the district court struck the fire marshal's entire testimony
because it depended too heavily on the findings of a private fire inves-
tigator retained by Westfield Insurance. Also on Harris' motion filed
before trial, the court refused to permit Westfield Insurance to intro-
duce any evidence of the prior fire claims by Harris.

On appeal, Westfield Insurance challenges these evidentiary rul-
ings, as well as other rulings, including one -- which Harris conceded
at oral argument was error -- that the verdict should not be reduced
by the amount that Westfield Insurance paid Harris' mortgagor as an
innocent insured.

Because we conclude that the district court abused its discretion in
excluding Westfield Insurance's critical evidence, we vacate the judg-
ment and remand the case for a new trial.

I

Westfield Insurance issued a policy of insurance to Harris that pro-
vided coverage for accidental fire loss or damage to his house in West

                    2
Hamlin and its contents. The policy, however, excluded coverage for
losses "arising out of any act committed: (1) by or at the direction of
an insured; and (2) with the intent to cause a loss." It also excluded
coverage for an insured who has "engaged in fraudulent conduct relat-
ing to this insurance."

Believing the January 10, 1996 fire to be suspicious, Westfield
Insurance hired an independent investigation firm to determine the
cause and origin of the fire. The investigator assigned to the case con-
cluded that the fire had been deliberately set, based on his findings
that: when Harris left his house, at about 9:00 p.m. on January 10,
nothing, according to him, was amiss, and he locked all of the doors;
three witnesses saw Harris leaving the scene of the fire shortly before
9:25 p.m., just moments before the fire was discovered; the fire devel-
oped "very fast"; firemen found the house still secure when they
responded to the fire, and the outside gas meter was clicking very rap-
idly; the fire came from the basement area; and after the fire, the
investigator found that the gas range in the basement had been turned
on and the nuts securing the connection of two gas lines had been
loosened by three turns, allowing gas to escape.

Based on the evidence and conclusion reached by the investigator
as well as evidence that there was little furniture in the house and that
Harris had a history of at least seven prior fire loss claims, Westfield
Insurance turned down Harris' claim for the loss sustained on January
10. It then filed this declaratory judgment action under 28 U.S.C.
§ 2201.

Before trial, Harris filed a motion in limine to "prohibit the plaintiff
from introduction of any evidence of any previous fires which
destroyed property owned by the defendant, and to further prohibit
any reference to, or any argument based upon the same by the defen-
dant's counsel and witnesses." Westfield Insurance proffered to the
court that it would prove that Harris has been involved in at least six
prior house-fire claims and one prior truck-fire claim, as follows:

          1. In December 1979, Harris' dwelling in West Hamlin
          was destroyed by fire while no one was home. The defen-
          dant had homeowner's insurance with the Adkins Insurance
          Agency at that time.

                     3
2. On January 1, 1981, Harris' new dwelling, which
was located directly across the road from the later dwelling
which burned on January 10, 1996, was also destroyed by
fire. As with the 1979 fire, no one was home at the time of
this fire.

3. On January 29, 1982, the internal area of the house
then owned by Harris was damaged by a fire. Once again,
no one was at home at the time of the fire. Harris had
insured this dwelling with a policy from Art Meadows, an
agent for Farmer's Mutual Insurance Company. At the time
of the fire, Meadows happened to be driving toward Harris'
house and saw Harris drive past him on the road. After
Meadows had proceeded down the road for two to three
minutes, he observed that Harris' house was on fire. An
investigation disclosed that there was very little evidence of
furniture in the house and that there was evidence of an
accelerant on the floor. That fire was determined to be the
product of arson.

4. On February 22, 1983, Harris again experienced a
fire and made an insurance claim that was paid by an insur-
ance company.

5. In October 1990, while insured by the Westfield
Insurance Company, a small A-frame dwelling on West
Hamlin hill owned and insured by Harris was destroyed by
fire. Like all of the others, no one was home at the time of
the fire. This fire was investigated by the West Virginia
State Fire Marshal's Office, which found that the second
level contained little or no furnishings, that there was no
evidence of the remains of clothing, shoes, bed coverings,
or other personal effects in the home, and that no food was
in the refrigerator. The investigators also found evidence of
a liquid substance running along a beam in the house. They
concluded that this fire was of a suspicious nature.

6. On April 15, 1992, Harris reported as stolen his 1990
Chevy S-10 pick-up truck. It was found one to two days

          4
          later totally destroyed by fire. The insurance company paid
          Harris over $6,000 for the loss.

          7. On December 18, 1993, a house that Harris built on
          his property in West Hamlin was destroyed by fire. Once
          again, no one was home when the fire started. Investigators
          determined that the fire had started in the utility room. The
          insurance company paid Harris $89,000 for the loss.

Westfield Insurance also proffered expert testimony that one indicator
of an arson house fire is that the fire occurs when no one is present
at the house.

On the first day of trial, before the presentation of evidence, the
district court granted Harris' motion to exclude any evidence of prior
fires and instructed counsel not to make any reference to the fires and
to instruct their witnesses not to mention the fires. Giving its reason
for the ruling, the court explained: "armed robbers committing one
armed robbery doesn't mean that they're guilty of the next one. I've
done the balancing test under Federal Rules of Evidence 403 and 404
in this case, and I think it's absolutely the clearest kind of case where
this evidence ought to be excluded."

During the trial, the West Virginia Deputy Fire Marshal, who
investigated the fire on January 10, was called by Westfield Insurance
and testified that in his expert opinion the fire was of incendiary ori-
gin. After the deputy marshal completed his testimony, Harris moved
to strike it because the deputy marshal acknowledged that about 90%
of the information on which he based his opinion was obtained from
the fire investigator hired by Westfield Insurance. The court granted
the motion to strike and instructed the jury not to consider anything
that the deputy marshal had said. The court concluded it was too
highly prejudicial.

The jury returned a verdict in favor of Harris against Westfield
Insurance in the amount of $64,000 for loss of his house, $25,000 for
loss of its contents, $3,500 for loss of the house's use, and $5,000 for
aggravation and inconvenience. The court added pretrial interest and
attorneys fees and entered judgment in favor of Harris in the amount
of $141,674. This appeal followed.

                     5
II

At trial, Westfield Insurance presented the testimony of West Vir-
ginia Deputy Fire Marshal E. R. Cook, who gave his opinion that the
January 1996 fire was incendiary and that the evidence was sufficient
to make out an arson case against Harris. Deputy Cook testified as an
expert witness whose job as Deputy Fire Marshal for the State of
West Virginia requires him to investigate the cause and origin of fires.
He stated that his office receives reports of 600-700 suspicious fires
per year and that it investigates 85-90% of them. To give his opinion
in this case, Deputy Cook relied on an interview with the West Ham-
lin Fire Chief, interviews with five firemen who responded to the fire,
a videotape of the fire taken by a bystander, a police report that Harris
had been seen leaving the scene of a fire shortly before the fire, and
the report of the fire investigator retained by Westfield Insurance. The
fire investigator's report included numerous photographs, a diagram,
the results of some lab work, and findings that the investigator made
based on observations and interviews. Deputy Cook said that his
opinion was based roughly 90% on what the investigator had discov-
ered from his thorough on-scene investigation. Deputy Cook also
indicated that he knew the investigator professionally based upon his
investigation of prior fires and considered him to be "very good."

After Deputy Cook completed his testimony, Harris moved to
strike it because Cook had based it on "what was fed to him by West-
field Insurance Company." After considering the motion overnight,
the district court expressed concern that Deputy Cook's testimony
"does nothing other than bolster the credibility of the insurance inves-
tigator that will testify." The court noted also that because Cook was
a "high official" of the State of West Virginia, "there is every chance
that his opinion will be given much credibility by the jury." Because
Deputy Cook relied so heavily on what the private fire investigator
found, the court ruled:

          Given the extremely prejudicial nature of this testimony and
          the lack of a factual basis for it and what the court considers
          to be the improper bolstering of the investigator who will
          later testify at trial, I am going to strike Mr. Cook's testi-
          mony and instruct the jury to disregard it in its entirety over
          the objection of the plaintiff.

                    6
Explaining its basis for striking the testimony beyond Deputy Cook's
opinion, the court stated,

          The rest of his testimony taken as a whole, beyond that
          opinion on an opinion, I believe is highly prejudicial. And
          the prejudicial nature of it substantially outweighs its proba-
          tive value. The prejudice is unfair. And it will clearly con-
          fuse and mislead the jury. And I exclude it under Rule 403.

In short, the district court concluded (1) that it was improper for Dep-
uty Cook to give an opinion based on other expert reports and not on
"independent facts," (2) that because he was a public official, his
opinion might be given undue "credibility," and (3) that his testimony
constituted "improper bolstering of the investigator who will later tes-
tify."

While the district court has broad discretion to regulate the admis-
sibility of expert opinion evidence, see General Electric Company v.
Joiner, 66 U.S.L.W. 4036, 4037 (U.S. Dec. 15, 1997); United States
v. Bostian, 59 F.3d 474, 480 (4th Cir. 1995), in this case we believe
that none of the three grounds relied on by the district court is an
appropriate reason under the Federal Rules of Evidence to exclude the
evidence, and accordingly we conclude that the court abused its dis-
cretion. See James v. Jacobson, 6 F.3d 233, 239 (4th Cir. 1993) (dis-
cretion abused by failing to apply legally recognized factors
constraining its exercise).

Expert opinion may, of course, be received into evidence in the dis-
cretion of the district court to assist the jury"to determine a fact in
issue." Fed. R. Evid. 702. And the rules expressly authorize that such
expert opinions may be based, not only on data and direct observa-
tions, but also on the opinions and observations of others "[i]f of the
type reasonably relied upon by experts in the particular field in form-
ing opinions or inferences upon the subject." Fed. R. Evid. 703. The
Advisory Committee note to Rule 703 explains:

          Thus a physician in his own practice bases his diagnosis on
          information from numerous sources and of considerable
          variety, including statements by patients and relatives,

                    7
          reports and opinions from nurses, technicians and other
          doctors, hospital records, and x-rays.

(Emphasis added).

In this case, it is the Fire Marshal's statutory duty in West Virginia,
in connection with preventing fires and suppressing arson, to investi-
gate fires and determine their cause and origin. See W. Va. Code
§ 29-3-12(f). And in carrying out this duty, the Fire Marshal is autho-
rized to take statements or testimony. See id . § 29-3-12(g). West Vir-
ginia also requires insurance companies to report fires to the Fire
Marshal and, upon request, to release their investigatory information.
See id. §§ 29-3-12(l), 29-3-12a(a). Moreover, if an insurance com-
pany believes a fire to be of incendiary origin, it is required by law
to report this fact to the Fire Marshal, together with the information
it has to support that belief. See id. § 29-3-12a(b). West Virginia law
also imposes on the Fire Marshal a duty to give to interested owners
or insurers, on request, a report of his investigation. See id. § 29-3-
12(l). Thus, it is within the fabric of the State Fire Marshal's official
duties to receive and rely on insurance company information about
fires within his jurisdiction.

Moreover, in this case, Deputy Cook testified that his office inves-
tigates hundreds of fires every year and that it is the "common thing"
to obtain information from interested insurance companies. In particu-
lar, he testified that he has received and relied upon investigatory
reports of fires investigated by Robert Stewart, Westfield Insurance's
investigator in this case. Cook stated about Stewart, "He's very
good." Deputy Cook said the report that Stewart prepared in this case
was complete. Indeed, the report provided patently objective data,
such as: (1) on the first floor of Harris' home there was only a recliner
and a table lamp; (2) that in the basement of Harris' home there was
only a sofa, a television, and a wrench on the washer/dryer; (3) one
of the burners on the gas range in the basement was turned on; (4)
nuts securing the gas line in the basement had been loosened three
turns in two different places so as to allow gas to escape. In addition
to these objective findings, Deputy Cook had data from the fire
department based on a half-dozen interviews, from the police depart-
ment, and from independent witnesses, which in the aggregate pro-
vided him information that the fire began after 9:00 p.m., the time

                     8
Harris admitted to being at the house; that Harris was seen leaving the
area of his house shortly before the fire was discovered at 9:25 p.m.;
that the fire started in the basement area; that the gas meter outside
of the house was clicking very rapidly, indicating a large amount of
gas was entering the house; and that the house was secure, showing
no evidence of a break-in.

The record in this case amply establishes that the reports and data
relied on by Deputy Cook are those ordinarily relied on by him in
investigating fires, and the fact that the insurance company's investi-
gator also concluded that the fire was incendiary is not a legal reason
to exclude the deputy fire marshal's opinion. Cf . General Electric, 66
U.S.L.W. at 4038 (stating that opinion testimony may be excluded if
there is "too great an analytical gap between the data and the opinion
proffered").

In addition, the fact that the deputy marshal's testimony might be
given "much credibility" by the jury or that it might "bolster" a simi-
lar opinion that was expected from the insurance company's investi-
gator are not grounds to exclude the evidence. That is not the type of
"prejudice" that is envisioned by Federal Rule of Evidence 403. We
have held that evidence can be excluded for "prejudice," as used in
Rule 403, only when the trial judge believes "that there is a genuine
risk that the emotions of the jury will be excited to irrational behavior,
and that this risk is disproportionate to the probative value of the
offered evidence." Morgan v. Foretich, 846 F.2d 941, 945 (4th Cir.
1988) (internal quotation marks and citations omitted). The insurance
company in this case needed the testimony of the deputy marshal
regarding the incendiary nature of the fire precisely because both the
court and Harris believed that the opinion of the insurance company's
investigator could be discounted because he was hired to conduct his
investigation by the insurance company.

We conclude that, in relying on the reasons it gave, the district
court abused its discretion in striking Deputy Cook's testimony. See
James, 6 F.3d at 239.

                     9
III

Before trial, Harris filed a motion in limine that Westfield Insur-
ance not be permitted to introduce at trial any evidence of Harris'
prior fires and claims for losses caused by them. In opposing this
motion, Westfield Insurance proffered evidence of at least seven prior
suspicious fire claims made by Harris,* which it intended to offer
under Federal Rule of Evidence 404(b) to prove absence of mistake
or accident. Following a hearing, the court decided to exclude all such
evidence and to preclude any reference to it, explaining that, while the
evidence was "clearly" relevant, its probative value was substantially
outweighed by the danger of "unfair prejudice." "You know, armed
robbers committing one armed robbery doesn't mean that they're
guilty of the next one." In making its ruling, however, the court failed
to explain how, if the evidence was relevant, it was prejudicial in any
way other than by being highly probative. In excluding the evidence,
we believe that the court misapplied Federal Rules of Evidence 404
and 403 and for this reason abused its discretion in categorically
excluding such evidence in this case. See James , 6 F.3d at 239.

We begin with the general proposition that relevant evidence is
admissible unless it is excluded for some other purpose authorized by
the Federal Rules of Evidence. See Fed. R. Evid. 402. And Federal
Rule of Evidence 404(b) provides that prior-acts evidence, when rele-
vant, is admissible unless it is offered to prove"the character of a per-
son in order to show action in conformity therewith." The Rule
includes a non-exhaustive list of those purposes for which prior-acts
evidence may be admitted: "motive, opportunity, intent, preparation,
plan, knowledge, identity, or absence of mistake or accident." Fed. R.
Evid. 404(b).

All relevant evidence, however, whether offered under Federal
Rule of Evidence 402 or Rule 404(b), is subject to exclusion under
Federal Rule of Evidence 403 when its probative value is "substan-
tially outweighed by the danger of unfair prejudice, confusion of the
_________________________________________________________________
*While, based on the proffered evidence, not all of the prior fires were
suspicious when looked at individually, several were highly suspicious,
and there comes a point when the accumulation of several claims, by
itself, creates suspicion.

                     10
issues, or misleading the jury, or by considerations of undue delay,
waste of time, or needless presentation of cumulative evidence." In
explaining when "prejudice" may be relied on to exclude evidence,
we have said

          [T]he possibly prejudicial effect of evidence can require
          exclusion only in those instances where the trial judge
          believes that there is a genuine risk that the emotions of the
          jury will be excited to irrational behavior, and that this risk
          is disproportionate to the probative value of the offered evi-
          dence.

Morgan, 846 F.2d at 945 (internal quotation marks and citations omit-
ted); see also United States v. Powers, 59 F.3d 1460, 1467 (4th Cir.
1995).

Because of the subtle difference that exists between evidence of
character prohibited by Rule 404(b) and evidence of intent or motive,
for example, allowed under the same rule, we have articulated a four-
prong test for the admissibility of evidence under Rules 404(b) and
403 as follows:

          [W]e hold that evidence of prior acts becomes admissible
          under Rules 404(b) and 403 if it meets the following
          criteria: (1) The evidence must be relevant to an issue, such
          as an element of an offense, and must not be offered to
          establish the general character of the defendant. In this
          regard, the more similar the prior act is (in terms of physical
          similarity or mental state) to the act being proved, the more
          relevant it becomes. (2) The act must be necessary in the
          sense that it is probative of an essential claim or element of
          the offense. (3) The evidence must be reliable. And (4) The
          evidence's probative value must not be substantially out-
          weighed by confusion or unfair prejudice in the sense that
          it tends to subordinate reason to emotion in the fact-finding
          process.

United States v. Queen, ___ F.3d ___, No. 96-4085 slip op. at 9-10
(4th Cir. Dec. 29, 1997); see also United States v. Rawle, 845 F.2d

                    11
1244, 1247 (4th Cir. 1988). It is the first and fourth prongs of that test
that are placed at issue in this case.

When considering whether the 1996 fire in this case was incendiary
in nature, the issue was squarely presented whether the fire was an
accident or whether it was set as part of a plan or scheme by Harris
to make fraudulent insurance claims. That Harris made at least seven
prior fire claims, several of which were highly suspicious, is probative
of whether the fire in this case was accidental. The evidence proffered
about the prior fires revealed some striking similarities. Harris owned
each of the houses burned, as well as the truck, and stood to benefit
from payment of the insurance claims. In virtually every case, the
houses were secure and no one was at home when the fires occurred.
In various cases, the contents that would normally be expected in a
house were missing, such as furniture or food in the refrigerator. In
two, an accelerant was found to have been used, and in two, Harris
was seen driving away from the scene mere minutes before the fire
was discovered.

Prior-acts evidence in this case could be particularly relevant
because of the doctrine of chances, recognized by both courts and
commentators. That doctrine posits that the more often an accidental
or infrequent incident occurs, the more likely it is that its subsequent
reoccurrence is not accidental or fortuitous. In Queen, we noted that
"[o]nce an act is assumed to be done, `the prior doing of other similar
acts . . . is useful as reducing the possibility that the act in question
was done within innocent intent. The argument is based purely on the
doctrine of chances, and it is the mere repetition of instances . . . that
satisfies our logical demand.'" Queen, slip op. at 8 (quoting Wigmore
on Evidence § 302, at 245 (Chadbourne rev. 1979) (footnote omit-
ted)). Similarly, where prior acts of apparent coincidence are similar,
the repeated reoccurrence of such an act takes on increasing relevance
to support the proposition that there is an absence of accident. See
Wigmore § 302, at 246 ("Where the intent of an erroneous addition
in a bookkeeper's accounts is an issue, . . . several other erroneous
additions in the bookkeeper's own favor in the same year and in the
same book of accounts go to exclude the explanation of casual error,
and leave deliberate intent as the more probable explanation"). "The
doctrine of chances and the experience of conduct tell us that accident
and inadvertence are rare and casual; so that the reoccurrence of a

                     12
similar act tends to persuade us that it is not to be explained as inad-
vertent or accidental." Wigmore § 242, at 45.

The district court seemed to recognize these principles because it
found, in passing on the propriety of the prior-acts evidence, that the
evidence proffered in this case was "clearly" relevant. Its sole basis
for excluding the evidence was that it was "prejudicial" as that term
is used in Federal Rule of Evidence 403 as a basis for exclusion.

While Rule 403 authorizes the exclusion of evidence on the ground
of prejudice, it does so only when "there is a genuine risk that the
emotions of the jury will be excited to irrational behavior" and only
then when that risk is disproportionate to the probative value of the
evidence. See Morgan, 846 F.2d at 945; Queen, ___ F.3d ___, slip op.
at 4. Prejudice under Federal Rule of Evidence 403 is certainly not
established from the mere fact that the evidence is highly probative.
See Queen, ___ F.3d ___, slip op. at 3-4. Yet, this appears to be the
reason underlying the district court's ruling. Indeed, the deputy fire
marshal found the prior-acts evidence so probative that he believed
the evidence was sufficient to justify bringing an arson indictment
against Harris, and he objected to being subpoenaed to testify in this
case so as not to prejudice his criminal investigation of Harris.

Because the prior-acts evidence was categorically excluded in this
case without being subjected to the necessary examination, a new trial
is required.

Accordingly, we vacate the judgment of the district court and
remand this case for a new trial. Because we are ordering a new trial,
we need not address Westfield Insurance's other assignments of error.

VACATED AND REMANDED

                     13
