UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JACOBS PRESS, INCORPORATED,
Plaintiff-Appellee,

v.
                                                                   No. 94-1046
THE HARTFORD STEAM BOILER
INSPECTION & INSURANCE COMPANY,
Defendant-Appellant.

JACOBS PRESS, INCORPORATED,
Plaintiff-Appellant,

v.
                                                                   No. 94-1087
THE HARTFORD STEAM BOILER
INSPECTION & INSURANCE COMPANY,
Defendant-Appellee.

Appeals from the United States District Court
for the District of South Carolina, at Greenville.
G. Ross Anderson, Jr., District Judge.
(CA-93-187-3-6)

Argued: December 6, 1994

Decided: March 4, 1997

Before ERVIN and MICHAEL, Circuit Judges, and MESSITTE,
United States District Judge for the District of Maryland,
sitting by designation.

_________________________________________________________________

Reversed in part, reversed and remanded in part, and vacated and
remanded in part by unpublished per curiam opinion.
COUNSEL

ARGUED: Robert Dennis Withers, ROBINS, KAPLAN, MILLER &
CIRESI, Atlanta, Georgia, for Appellant. Kenneth C. Anthony, Jr.,
KNIE, WHITE & ANTHONY, Spartanburg, South Carolina, for
Appellee. ON BRIEF: Mark W. Phillips, ROBINS, KAPLAN, MIL-
LER & CIRESI, Atlanta, Georgia, for Appellant. Claude H. Howe,
III, EDWARDS & HOWE, Clinton, South Carolina, for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit.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

_________________________________________________________________

OPINION

PER CURIAM:

I.

Jacobs Press Inc. sued Hartford Steam Boiler Inspection and Insur-
ance Company, its insurer under a boiler and machinery policy, for
proceeds allegedly due Jacobs when its main printing press broke
down and caught fire. A jury sitting in the United States District
Court for the District of South Carolina (Greenville Division)
awarded Jacobs $731,513.60 for property damage, $417,000 for busi-
ness interruption loss, and $200,000 compensatory plus $100,000
punitive damages for Hartford's bad faith failure to pay under the pol-
icy. Following trial, the district court denied Hartford's motions for
judgment as a matter of law and for a new trial, granted Jacobs'
motion for prejudgment interest on the property damage and business
interruption loss awards, and denied Jacobs' request for attorney's
fees under the South Carolina statute authorizing such fees in the
event of bad faith refusal to pay insurance claims.

Hartford has appealed from the district court's judgment; Jacobs
has cross-appealed the court's denial of its request for attorney's fees.

                     2
We shall reverse in part, reverse and remand in part, and vacate and
remand in part.

II.

Jacobs Press Inc. (Jacobs) operates a printing facility in Clinton,
South Carolina. As of July 1992, Jacobs maintained several presses,
the largest and most important of which was a six color Komori press.
The press consisted of eight sections. At one end was a feeder section
into which paper was fed, on the other a combined drying unit to dry
the inked paper and delivery section to stack the finished product. In
between were six columns, each containing a different color of ink,
which permitted the application of six different colors on one run-
through of a sheet of paper. The press was 40 feet long and 4 feet
wide, rested on legs which raised the press three or four inches off the
floor, and was bolted to the floor. At the time of the event in question,
paper scraps and other combustible debris had accumulated on the
floor underneath the press.

On Sunday, July 26, 1992, the delivery end of the press was dis-
covered to be on fire. Firemen arrived at the scene and extinguished
the flames with water. The net result was that the delivery end of the
press sustained severe damage from the fire and much of the rest of
the press showed rust damage, apparently from the water used to put
out the fire.

Jacobs, as might be expected, had taken out insurance policies that
it hoped would cover such contingencies. The first of these was a
commercial property policy issued by American Economy Insurance
Company (American), covering the firm's building, fixtures,
machinery, equipment, and such risks as fire.1 The second policy was
a boiler and machinery policy issued by Hartford Steam Boiler
Inspection and Insurance Company (Hartford), covering certain
defined "accidents" to certain defined "objects." Both policies, albeit
_________________________________________________________________
1 The commercial property policy was part of an "Economy Package
Policy." Separate coverage, at an additional premium, was provided for
"general commercial liability," i.e. for sums Jacobs might become legally
obligated to pay because of injuries or damages as to which the insurance
applied.

                     3
with differing limitations, covered the six color Komori press. Both
had "other insurance" clauses which required the insurer to share
responsibility with regard to any loss covered by another policy.2

Jacobs promptly made claims under both policies.
_________________________________________________________________

2 American's other insurance clause read:

          G. OTHER INSURANCE

          1. You may have other insurance subject to the same plan,
          terms, conditions and provisions as the insurance under this
          Coverage Part. If you do, we will pay our share of the cov-
          ered loss or damage. Our share is the proportion that the
          applicable Limit of Insurance under this Coverage Part bears
          to the Limits of Insurance of all insurance covering on the
          same basis.

          2. If there is other insurance covering the same loss or
          damage, other than that described in l. above, we will pay
          only for the amount of covered loss or damage in excess of
          the amount due from that other insurance, whether you can
          collect on it or not. But we will not pay more than the appli-
          cable Limit of Insurance.

Hartford's read:

          e. Other Insurance

          (1) You may have other insurance subject to the same plan,
          terms, conditions and provisions as the insurance under this
          Coverage Part. If you do, we will pay our share of the cov-
          ered loss or damage. Our share is the proportion that the
          applicable Limit of Insurance under this Coverage Part bears
          to the Limits of Insurance of all insurance covering on the
          same basis.

          (2) If there is other insurance covering the same loss or
          damage, other than that described in (l) above, we will pay
          only for the amount of covered loss or damage in excess of
          the amount due from that other insurance, whether you can
          collect on it or not.

          In no case will we pay more than the applicable Limit of
          Insurance.

                    4
American accepted coverage under its policy without dispute. One
of the two investigators it sent to determine the origin of the fire con-
cluded that an object on the conveyor chain in the press had struck
infrared tubes in the drying unit as it traveled through the press,
breaking the tubes and producing sparks which ignited the accumula-
tion of paper debris underneath the press. The second investigator
concluded that wiring in the dryer unit of the press overheated, caus-
ing the press to eventually erupt into flames. Accordingly American
paid Jacobs $731,360.93 for the replacement cost of the press,3
$100,000 for extra expenses that Jacobs would not otherwise have
had to expend had the accident not occurred, and $16,513.60 to install
a new press, a total of $847,874.53. With regard to the property loss
component ($731,360.93), American and Jacobs entered into a "Loan
Receipt and Assignment" agreement whereby American's payment
was characterized as a "loan . . . repayable only in the event and to
the extent of any net recovery" by Jacobs against Hartford, with
American taking an assignment of Jacobs' claim against Hartford as
"security." Jacobs covenanted not to settle any claim without Ameri-
can's written consent, to cooperate in the prosecution of a claim
against Hartford, and to appoint American its attorney-in-fact to con-
trol the litigation, all to be at American's expense. The agreement did
not affect any other claims that Jacobs might have against Hartford,
for example, for business interruption loss.

Hartford, after brief investigation, denied coverage. It began by
sending two claims adjusters to the scene but neither was able to
ascertain the cause and origin of the fire. Hartford then engaged an
independent investigator, Gary Venz, who advised Hartford that the
fire had started when a small arc inside a drying tube conductor in the
infrared heating unit of the press fell into and ignited the debris
beneath the press. Based on Venz's report and purported exclusions
under its policy, Hartford, by letter to Jacobs dated July 30, 1992,
denied coverage.

Hartford reasoned thus: Its policy would pay for repairing or
replacing a covered "object" as well as for business interruption loss
_________________________________________________________________
3 There is a slight discrepancy between the amount American paid
Jacobs for the replacement cost ($731,360.93) and the amount the jury
awarded Jacobs for that cost against Hartford ($731.513.60).

                    5
so long as the covered "object" was directly damaged as a result of
an "accident." It would pay for business interruption loss if the loss
was due "solely" to an accident to an object."Accident" was defined
under the policy as "a sudden and accidental breakdown" of an "ob-
ject" or "part of the object." Conceding that the six color Komori
press was a covered "object," Hartford took the position that the sud-
den and accidental breakdown was the arcing of the drying tube con-
ductor within the press as identified by Venz; hence the only direct
damage to the press was the damage to the drying tube conductor
itself and nothing more. Since the cost of repair or replacement of the
drying tube conductor was less than $l,000, the amount of the policy's
deductible, coverage would be denied.

Hartford contended that the fire and water exclusions under its pol-
icy supported this position. Thus, the fire exclusion provided that
Hartford would "not pay for . . . loss caused by or resulting from . . .
fire or explosion outside the `object' that occurs at the same time as
an accident or ensues from an accident" (Emphasis supplied). Hart-
ford took Venz's statement that the debris which caught fire was "be-
neath" the press to mean that the fire occurred"outside" the press and
was thus excluded by the policy.

Similarly Hartford relied on the water exclusion of the policy to
deny coverage. That exclusion provided that Hartford would "not pay
for . . . loss . . . resulting from . . . water or other means used to extin-
guish a fire, even when the attempt is unsuccessful." Since water was
in fact used to extinguish the fire and since, in Hartford's view, water
caused damage to the press, that damage was excluded even if the fire
damage itself was covered.

Hartford found further support for its denial of coverage in another
clause of the policy that provided that Hartford would "not pay for
any loss excluded . . . even though any other cause or event contrib-
utes concurrently or in any sequence to the loss." In other words, even
if a covered cause or event contributed to an outside fire or to water
damage, the loss due to the outside fire or water damage would still
not be covered.

Coverage for the business interruption loss was denied for an addi-
tional reason. Hartford's policy provided that it would pay for "actual

                      6
loss" and "extra expense" during a defined"period of restoration,"4
provided "the actual loss and extra expense must be caused solely by
an accident to an object." Again, Hartford reasoned that the accident
to the press involved only the sudden and accidental breakdown
within the delivery column and that fire outside the press as well as
water used to extinguish the fire were contributing causes to the loss.
In Hartford's view the actual loss and extra expense were therefore
not "solely caused by the accident to the object" and Jacobs would
receive no payment from it.

With insurance proceeds from American in hand, however, Jacobs
was able to recommence its operations in fairly short order. From
August 1992 through the first week of October 1992, it leased time
on a five color Komori press from a printer in Charleston, South Car-
olina. Beginning the second week of October 1992 and continuing
through December 1992 when it received and put into service its per-
manent six color replacement press, it leased and installed at its Clin-
ton facility a four color Komori press.

In February, 1993, Jacobs brought suit against Hartford, alleging
breach of contract based on the latter's denial of payment for property
damage and business interruption loss, asserting as well a claim in tort
for Hartford's alleged bad faith failure to provide coverage.

Approximately 60 days before trial, Hartford sought to join
American5 as the real party in interest on the grounds that Jacobs was
in effect bringing a suit for contribution on American's behalf. The
_________________________________________________________________

4 The "period of restoration," as stipulated by the parties, ran from July
26, 1992, the date of the fire, until December 31, 1992, the date a
replacement press was put in service.

5 Hartford actually sought to join"American States Insurance Com-
pany," the entity Jacobs had identified in its interrogatory answer as pos-
sibly having a subrogation interest. In fact Jacobs' fire insurance policy
and assignment were written with "American Economy Insurance Com-
pany." Jacobs does not dispute the apparent alter ego status of the two
entities and for purposes of this appeal we shall treat American States
and American Economy as one and the same.

                    7
district court denied Hartford's motion and the jury trial proceeded
with the results previously recited.6

III.

On appeal Hartford makes the following assignments of error:7

1) It should have been permitted to join American as a party
plaintiff because American, having paid Jacobs for part of its loss,
was the real party in interest, at least to the extent of the payment;

2) With regard to the property damage award, Hartford was enti-
tled to have the jury verdict set aside and a new trial awarded because
the verdict improperly held it liable for damage caused by water used
to extinguish the fire, an excluded cause of loss, and because the ver-
dict failed to recognize the salvage value of the press;

3) With regard to the business interruption loss award:

 a) Hartford was entitled to judgment as a matter of law because
the loss was not caused "solely by an accident to an object";

 b) It was entitled to judgment as a matter of law because
Jacobs failed to prove the amount of its loss in accordance with the
terms of the policy or with reasonable certainty; and

 c) It was entitled to a new trial because the district court erred
in its instruction to the jury;

4) With regard to the award for bad faith failure to provide cover-
age, Hartford was entitled to judgment as a matter of law because it
had an objectively reasonable basis for denying Jacobs' claim; and

5) With regard to prejudgment interest, Hartford was entitled to
_________________________________________________________________
6 Certain additional facts will be set forth in the course of our discus-
sion of the various issues before us.
7 For convenience, we have changed slightly the sequence of the issues
Hartford raises.

                     8
judgment as a matter of law because (a) Jacobs never prayed prejudg-
ment interest, (b) it had already been paid for its property loss claim
by American and (c) South Carolina law prohibits prejudgment inter-
est on lost profits.

On cross-appeal, Jacobs contends that the district court erred when
it declined to award attorney's fees in connection with the jury's find-
ing against Hartford on the count of bad faith refusal to provide cov-
erage.

IV.

Failure to Join American

We find persuasive Hartford's argument that the district court erred
in denying its motion to join American as a party plaintiff.

Jacobs claims that Hartford's motion to add American came too
late, having been filed on August 5, 1993, with trial set to begin on
September 30 of that year. Jacobs also says Hartford knew about
American and its status as a co-insurer several months before and was
therefore dilatory in seeking the latter's joinder. In any event, Jacobs
argues, Hartford suffered no prejudice by the non-joinder. Since
Jacobs had a contractual obligation to pay over to American any
monies it might recover from Hartford, there would be no risk of a
double recovery against Hartford.

Although Jacobs argued untimeliness in the district court, the court
did not base its ruling on that ground.8 Implicitly acknowledging that
American was subject to process and that its joinder would not affect
_________________________________________________________________
8 There appears to be good reason why it did not. The docket entries
below indicate that the parties had until August 25, 1993 to add parties
and Hartford's motion to join American was filed on August 5, well
within the allowable period. While the window between the time for
adding parties and the scheduled trial date may have been unrealistically
narrow, the fault is not one that can be ascribed to Hartford. We therefore
need not address the issue of whether or when a motion to join an other-
wise properly joinable party may be denied for untimeliness. But see
Harris v. Illinois-California Express, Inc., 687 F.2d 1361, 1373-74 (10th
Cir. 1982) (motion for joinder properly denied when party had full
knowledge of other insurers for at least eight months prior to trial);
Toney v. Bishop, 476 F.2d 203, 207 (5th Cir. 1973) (absence of parties
who have known of suit since the inception does not affect grant of com-
plete relief).

                     9
its diversity jurisdiction,9 the court reasoned that "the presence of
American . . . would contribute nothing to the resolution of the issues
raised in the complaint," noting that American had not sought to be
added nor would its absence put Hartford at risk of paying twice. The
court observed that American had agreed to be bound by the verdict
and that the court itself could determine at the conclusion of the
Jacobs-Hartford case how much, if anything, American should
receive. The court stated that, under the law of this circuit, "if both
insurers are liable for the loss, their respective excess clauses, which
are mutually repugnant, will result in their sharing the loss equally."
See Allstate Ins. Co. v. American Hardware Mut. Ins. Co., 865 F.2d
592, 594 (4th Cir. 1989); Reliance Ins. Co. v. St. Paul Surplus Lines
Ins. Co., 753 F.2d 1288, 1290 (4th Cir. 1985). It concluded that join-
der of American was unnecessary and would only result in confusion
and prejudice before the jury.

We note at the outset that, although Hartford argued for Ameri-
can's joinder below based exclusively on Federal Rule of Civil Proce-
dure 19, its argument before us is primarily based on Rule 17.10 The
_________________________________________________________________

9 Counsel for Hartford certified to the district court that American had
indicated its amenability to joinder, advising only that American said it
needed time beyond the scheduled trial date to prepare. American itself
subsequently filed a pleading objecting to its joinder, but asking for 120
days to prepare should the court require it to join.
10 Rule 17(a), in pertinent part, provides that "[e]very action shall be
prosecuted in the name of the real party in interest."

Rule 19, in pertinent part, states:

          (a) Persons to be Joined if Feasible. A person who is subject
          to service of process and whose joinder will not deprive the court
          of jurisdiction over the subject matter of the action shall be
          joined as a party in the action if (1) in the person's absence com-
          plete relief cannot be accorded among those already parties, or
          (2) the person claims an interest relating to the subject of the
          action and is so situated that the disposition of the action in the
          person's absence may (i) as a practical matter impair or impede
          the person's ability to protect that interest or (ii) leave any of the
          persons already parties subject to a substantial risk of incurring
          double, multiple, or otherwise inconsistent obligations by reason
          of the claimed interest. If the person has not been so joined, the

                     10
rules are sufficiently related, however, that we are prepared to permit
Hartford to proceed in this fashion. The purpose of the two rules is
essentially the same. Compare Rackley v. Board of Trustees of
Orangeburg Regional Hosp., 35 F.R.D. 516, 517 (E.D.S.C. 1964)
("The purpose of [Rule 17] . . . is to enable the defendant to present
his defenses against the proper persons, to avoid subsequent suits, and
to proceed to finality of judgment."), with Notes of Advisory Com-
mittee to Rule 19a ("Clause (1) stresses the desirability of joining
those persons in whose absence the court would be obliged to grant
partial or `hollow' rather than complete relief to the parties before the
court. The interests that are being furthered here are not only those of
the parties, but also that of the public in avoiding repeated law suits
on the same essential subject matter."). Ultimately both rules contem-
plate the joinder or non-joinder of persons, in the one case because
the absent person is "the real party in interest," and the other because
their joinder is "needed for just adjudication." Our concern, then, is
whether the district court erred in not granting Hartford's request to
join American as a party plaintiff, either by reason of its status as a
_________________________________________________________________

        court shall order that the person be made a party. If the person
        should join as a plaintiff but refuses to do so, the person may be
        made a defendant, or, in a proper case, an involuntary plaintiff.
        If the joined party objects to venue and joinder of that party
        would render the venue of the action improper, that party shall
        be dismissed from the action.

        (b) Determination by Court Whenever Joinder not Feasible. If
        a person as described in subdivision (a)(1)-(2) hereof cannot be
        made a party, the court shall determine whether in equity and
        good conscience the action should proceed among the parties
        before it, or should be dismissed, the absent person being thus
        regarded as indispensable. The factors to be considered by the
        court include: first, to what extent a judgment rendered in the
        person's absence might be prejudicial to the person or those
        already parties; second, the extent to which, by protective provi-
        sions in the judgment, by the shaping of relief, or other mea-
        sures, the prejudice can be lessened or avoided; third, whether a
        judgment rendered in the person's absence will be adequate;
        fourth, whether the plaintiff will have an adequate remedy if the
        action is dismissed for nonjoinder.

                  11
real party in interest under Rule 17 or because it was a person needed
for just adjudication under Rule 19.

We believe, under both Rules 17 and 19, that American should
have been joined as a party plaintiff and that the district court erred
in not ordering the joinder.

The facts of American's "settlement" with Jacobs bear close atten-
tion in this regard. American, as insurer of Jacobs, paid a substantial
amount, but not all, of Jacobs' loss. Thus the loan receipt agreement
between American and Jacobs covered $731,360.93, the replacement
cost of the press, whereas American paid Jacobs $847,874.53, a dif-
ference of $116,513.60. Leaving aside for a moment the proceeds
covered by the loan receipt, with regard to the other proceeds Ameri-
can in effect received an assignment by operation of law, i.e. it was
legally subrogated to a portion of Jacobs' claim against Hartford. See
United States v. Aetna Sur. Co., 338 U.S. 366, 380-81 (1949); 16
Couch on Insurance 2d § 61:4 (2d ed. 1983). In the case of a partial
subrogation, either the subrogor or the subrogee may sue another
party liable for the loss. Id. But it is also true that, upon timely
motion, the party sued may compel the joinder of the insurer-
subrogee or insured-subrogor. Id.; see also Travelers Ins. Co. v.
Riggs, 671 F.2d 810, 812-13 (4th Cir. 1982); Virginia Elec. & Power
Co. v. Westinghouse Elec. Corp., 485 F.2d 78 (4th Cir. 1973), cert.
denied, 415 U.S. 935 (1974); Pinewood Gin Co. v. Carolina Power
& Light Co., 41 F.R.D. 221, 224 (D.S.C. 1966); Public Serv. Co. of
Okla. v. Black & Veatch, 467 F.2d 1143, 1144 (10th Cir. 1972);
Standard Accident Ins. Co. v. Lohman, 295 F.2d 261, 264 (7th Cir.
1961); State Farm Mut. Liab. Ins. Co. v. United States, 172 F.2d 737,
739 (1st Cir. 1949). To the extent of its payment, the insurer-subrogee
is deemed the "real party in interest." To the extent of $116,513.60,
therefore, under the authorities just cited, American would be joinable
as the real party in interest. That much is clear.

But, as a leading treatise has pointed out:

          Difficulties arise when the subrogated insurer seeks to bring
          suit in the name of the insured in order to avoid the antipa-
          thy juries are thought to have toward insurance companies
          . . . . As a practical matter, of course, the insurance company

                     12
          will control the prosecution of the law suit no matter in
          whose name it is brought.

6A Charles A. Wright, et al., Federal Practice and Procedure, § 1546
(2d ed. 1990).

"Loan receipt" transactions of the sort employed here are primary
contributors to that difficulty. Wright, et al., elaborate:

          In some instances it may not be clear that the insurer has
          been subrogated. For example, under a procedure known as
          a "loan receipt," the insurer lends the insured the amount
          due on the policy, and the insured pays it back only to the
          extent that he is able to obtain a recovery against defendant.
          Technically the insurer is not the real party in interest, since
          it has not paid the insured's claim and therefore is not subro-
          gated to his rights.

          Whether the insurer may sue in the name of its insured
          under a loan-receipt arrangement depends on whether the
          court is willing to accept the transaction at face value, either
          on the basis of its own evaluation of the transaction or in
          terms of state law in diversity cases. If the loan is treated as
          genuine, there is no basis for subrogation and the action may
          be brought in the insured's name. But, if the court views the
          loan as a sham and as actually constituting payment of the
          insured's claim, then the insurer is subrogated and must sue
          in its own name.

Id. (Footnotes omitted).

It is true that the United States Supreme Court in Luckenbach v.
W.J. McCahan Sugar Ref. Co., 248 U.S. 139 (1918), approved the
concept of the loan receipt agreement, although it did so in an histori-
cal setting rather different from the present.11 It is also true that, since
the adoption of the Federal Rules of Civil Procedure in 1938, includ-
_________________________________________________________________
11 See generally Note, "The Real Party Under Rule 17(a): The Loan
Receipt and Insurers' Subrogation Revisited," 74 Minn. L. Rev. 1107
(1990).

                    13
ing Rule 17(a) dealing with real parties in interest, a number of cir-
cuits have upheld the validity of loan receipts when used by insureds
on behalf of insurers to sue third parties. See , e.g., Frank Briscoe Co.
v. Georgia Sprinkler Co., 713 F.2d 1500, 1502 n.1 (11th Cir. 1983);
R.J. Enstrom Corp. v. Interceptor Corp., 520 F.2d 1217, 1219-20
(10th Cir. 1975); Ketona Chem. Corp. v. Globe Indem. Co., 404 F.2d
181, 184 (5th Cir. 1968); see also Acro Automation Systems, Inc. v.
Iscont Shipping Ltd., 706 F. Supp. 413, 419-22 (D. Md. 1989). In con-
trast, other circuits have rejected use of the loan receipt device by
insurers to circumvent Rule 17(a). See Executive Jet Aviation Inc. v.
United States, 507 F.2d 508, 511-13 (6th Cir. 1974); City Stores Co.
v. Lerner Shops of District of Columbia, Inc., 410 F.2d 1010, 1011-
14 (D.C. Cir. 1969); see also Potomac Elec. Power Co. v. Babcock
& Wilcox Co., 54 F.R.D. 486 (D. Md. 1972).

While a persuasive case can be made for holding that loan receipt
agreements should never affect real-party-in-interest analysis for pur-
poses of federal litigation,12 we need not decide that broad proposition
in this case. Given that this was a suit brought by an insured on behalf
of its insurer-subrogee against a co-insurer, we are able to conclude
on the facts of the case that the insurer-subrogee was the real party
in interest.

American Dredging Co. v. Federal Ins. Co., 309 F. Supp. 425
(S.D.N.Y. 1970), is directly on point. There the insured was paid by
its first insurer pursuant to a loan agreement, with the understanding
that the insured would institute suit against co-insurers to cover its
loss; the expenses of suit were to be provided by the first insurer; and
the insured agreed to pay any sum recovered from the defendant co-
insurers in full satisfaction of the first insurer's so-called loan. If no
recovery was had against the defendant co-insurers, plaintiff was
under no obligation to repay the first insurer. The District Court for
the Southern District of New York held that the only right the first
insurer had against the co-insurers was one of pro rata contribution,
not full subrogation. By pursuing full payment of the loss from the
co-insurers, the insured was attempting to confer on its first insurer
a substantive right to which it was not entitled, namely full reimburse-
ment. Furthermore, the court held that if the insured were able to
_________________________________________________________________
12 Id.

                    14
recover from the co-insurers for the first insurer's benefit the full
amount paid by the first insurer, then the co-insurers in turn would
have the right to a pro rata contribution from the first insurer toward
the amount the co-insurers had to pay. But, as the court observed, the
defendant co-insurers could not assert such a claim against the first
insurer in the suit as it stood because the first insurer was not a party.
As the court stated, "giving effect to the device employed here would
give rise to multiplicity of litigation." 309 F. Supp. at 428. The first
insurer was thus deemed the real party in interest under Rule 17(a)
and required to be joined to the suit. Notably, since the insured had
a claim against the other insurers over and above the first insurer's
policy, it was permitted to remain in the suit to that extent.

We think all the considerations of American Dredging apply here.
Jacobs received proceeds from American and, at American's expense,
Jacobs agreed to institute suit against Hartford (actually against any
co-insurer). Jacobs was obliged to turn over to American any recov-
ery it might have against Hartford, but would have no liability to
American in the event of no recovery. Although by reason of their
"other insurance" clauses American and Hartford had mutual rights of
contribution, Jacobs' suit against Hartford was an attempt (successful,
as it turned out) to obtain full reimbursement for American. Subse-
quent litigation between the insurers, in all likelihood involving the
insured as well, was inevitable. Recognizing in the present transaction
potential for a comparable "multiplicity of litigation," we concur in
the result of American Dredging. Both as to that portion of its pay-
ment covered by the loan receipt, and that part not covered by the
loan receipt American is the real party in interest in this suit and
should have been joined upon Hartford's motion. 13 We hold that the
district court's failure to order its joinder was error.

We believe that Rule 19 also dictates joinder of American as a
party plaintiff. It is sufficient under Rule 19 if, in the absence of the
person to be joined, complete relief cannot be accorded among those
already parties or, what is more pertinent to the present case, if the
person to be joined claims an interest relating to the subject matter of
_________________________________________________________________
13 Alternatively American may be considered the real party in interest
to the extent that it is deemed an assignee of Jacobs' claim against Hart-
ford. See 61 Couch on Insurance§ 110 (2d ed. 1983).

                     15
the action and a person already party to the action might be left at
substantial risk of incurring inconsistent obligations by reason of the
claimed interest.

It is established in this case that American was both amenable to
process and its joinder would not have affected the diversity jurisdic-
tion of the court. Other considerations suggest that Hartford would be
left with a substantial risk of incurring inconsistent obligations in
American's absence. To be sure, the presence of American in Jacobs'
suit against Hartford would not necessarily bear on the question of
what losses Hartford might be liable for. Such liability would depend
exclusively upon the terms of Hartford's policy as to which the terms
of American's policy would simply be irrelevant. Determining, how-
ever, the exact amounts for which Hartford might be liable without
American's presence presents a difficulty. Whatever dollar exposure
Hartford might have to Jacobs would necessarily be a function of the
language in American's policy. Since Hartford's policy contains a co-
insurance clause whereby Hartford's exposure is expressly limited by
the existence of other insurance covering the same claim, the fact of
American's co-insurance, a precise description of the terms of that
insurance, and an equally precise description of its limitations would
be fully relevant to determining the extent of Hartford's obligation to
Jacobs.14 Joinder of American would permit not only a convenient,
_________________________________________________________________
14 We note that the district court and the parties, at least at the inception
of the trial, were under the impression that the general rule of evidence
precluding reference to the existence of insurance prevented any refer-
ence to the fact that Jacobs had received insurance proceeds from Ameri-
can. While the district court eventually permitted Hartford to apprise the
jury of the fact of American's payment after Jacobs' president attempted
to convince the jury that Jacobs was totally without funds during the
period of restoration, we point out that this misapplies the evidentiary
rule.

Federal Rule of Evidence 411 pertains only to the admissibility of evi-
dence of "liability insurance." A policy that covers an insured for damage
to its own property, however, is not a "liability" policy but an "indem-
nity" policy. See Black's Law Dictionary 804-05 (6th ed. 1990); supra
note 1.

Apart from that, any suit in which an insurer is a party-defendant obvi-
ously requires reference to insurance, particularly a suit involving co-

                    16
but a complete and accurate sorting out of the co-insurers' respective
obligations. See Lucas v. Garrett, 209 S.C. 521, 41 S.E.2d 212
(1947). While it may be true, as the district court stated, that where
co-insurers have "mutually repugnant" co-insurance clauses, they
must share a covered loss equally, the jury in this case returned a ver-
dict against Hartford on Jacobs' property loss claim for essentially the
full replacement cost of the press, i.e. approximately $730,000. If the
jury's verdict stands and the full $730,000 passes from Hartford to
Jacobs to American (as Jacobs has said will happen), Hartford will
have paid more than one-half share of the co-insurance; it will have
paid its own one-half and American's one-half as well.15

American's absence from this suit becomes more sharply apparent
when one considers Hartford's liability for "actual loss" and "extra
expenses," two components of the business interruption loss endorse-
ment under Hartford's policy. American paid Jacobs $100,000 for
items denominated "extra expenses" and approximately $16,500 for
"installation costs." As to these sums, which are not covered by the
loan receipt, American as previously noted has a subrogated interest
as a matter of law. Yet it is by no means certain that the Hartford and
American policies are congruent with respect to these losses, which
is to say it is not clear that the policies are"mutually repugnant" and
that the insurers will have to share those losses equally. Some of the
"actual loss" or "extra expense" that Hartford would be fully liable for
in the absence of co-insurance will be shared equally with American
if American is found to have co-insured the same loss. At the same
_________________________________________________________________
insurance when the fact and extent of the defendant-insurer's liability can
only be defined with reference to the terms of the co-insurer's policy. See
Public Service Co. of Okla., 467 F.2d at 1144. Reference to American's
payment of proceeds to Jacobs, therefore, was wholly appropriate
throughout the Jacobs-Hartford trial.

15 Both sides agree that the jury's award was erroneous in that it did not
take into account the salvage value of the press, $98,880.72, after deduct-
ing the sales commission. The fact that American may have paid Jacobs
that amount by mistake has obvious implications for any claim for con-
tribution it may have against Hartford. This is one example -- there are
others cited in the text -- of a "loss" that Hartford may not have to share
equally with American.

                    17
time, certain "actual loss" or "extra expenses" paid by American
under its policy may not be covered by Hartford's policy at all.16 Had
American been joined as a party-plaintiff to this suit, the congruency
vel non of its co-insurance with Hartford's with respect to both the
property loss and the business interruption loss could have been estab-
lished once and for all; so too the respective dollar obligations of each
insurer to Jacobs could have been ascertained.

We recognize that some cases have held that joinder of a co-insurer
is not always required. See e.g., Mutual Boiler and Machinery Ins.
Co. v. Reynolds Metals Co., 352 F.2d 520 (5th Cir. 1965) (joinder of
co-insurer not required where "the court can render full and complete
justice between the two parties . . . without such joinder"); Brinco
Mining Ltd. v. Federal Ins. Co., 552 F. Supp. 1233, 1238-39 (D.D.C.
1982) (joinder not required where "defendant has not made out a suf-
ficient showing of indispensability"); Special Jet Servs., Inc. v. Fed-
eral Ins. Co., 83 F.R.D. 596, 600 (W.D. Pa. 1979) (additional insurer,
which had "no independent, legally protected right at stake in a pro-
ceeding[,]" was not a necessary party). Those cases, however, have
typically involved parties whose joinder was not"feasible" within the
meaning of Rule 19, i.e. it would have affected the diversity jurisdic-
tion of the court. The courts were thus faced with deciding whether
they should dismiss the actions because of the indispensability of the
co-insurer or go forward notwithstanding. In opting to go forward, the
courts in effect decided that the co-insurers were not "indispensable,"
which, it must be emphasized, is not the same as saying the parties
were not "necessary." Cf. Schlumberger Indus., Inc. v. National Sur.
Corp., 36 F.3d 1274, 1286-87 (4th Cir. 1994); Evergreen Park Nurs-
ing & Convalescent Home, Inc. v. American Equitable Assurance Co.,
417 F.2d 1113, 1115 (7th Cir. 1969). But in a case in which a party
is deemed "necessary" and its joinder "feasible" the overriding con-
sideration is economy of litigation; the proper way to accomplish such
economy is by joinder, whether voluntary or involuntary.
_________________________________________________________________

16 Hartford, for instance, disputes that any of the approximately
$16,500 American paid Jacobs for installing the four color Komori press
in November of 1992 consisted of "extra expenses" as defined in Hart-
ford's policy.

                    18
We conclude that under Rule 19(a) complete relief between Hart-
ford and Jacobs could not be accorded in American's absence. We
further conclude, given American's obvious claim to at least a portion
of payments found due from Hartford and vice versa, that American's
absence from the suit left Hartford subject to a substantial risk of
incurring inconsistent obligations. Since American could feasibly
have been joined, we hold that it should have been.

We will therefore vacate the jury's verdicts in this case and remand
the case to the district court for a new trial, with the instruction that
American be joined as a party-plaintiff at the earliest convenience.
While our decision technically moots certain other issues raised on
appeal, in order to facilitate the retrial and reduce the possibility of
further appeal, we take the occasion to address those issues at this
time.

V.

Failure to Grant Judgment As Matter of Law Because of
Water Damage to Press; Jury's Failure to Recognize
Salvage Value of Press

Hartford argues that it was entitled to judgment as a matter of law
with regard to the property loss component of the jury award because
water damage occasioned the major portion of the loss and water
damage was an excluded cause under the policy. In considering a
motion for judgment as a matter of law, we view"all of the evidence
in the light most favorable to . . . [the non-moving party], drawing all
reasonable inferences in . . . [that party's] favor . . . ." Johnson v.
Hugo's Skateway, 974 F.2d 1408, 1412 (4th Cir. 1992). The motion
must be denied if, viewing the evidence in the light most favorable
to the non-moving party, there is sufficient evidence on the record to
support the jury verdict in its favor. Herold v. Hajoca Corp., 864 F.2d
317, 319 (4th Cir. 1988), cert. denied, 490 U.S. 1107 (1989).

Were it not for the problem arising from American's non-joinder,
we would, in the main, find unexceptionable the jury's determination
that Hartford should be liable for the damage to the Komori press.
Hartford, we observe, does not pursue on appeal a proposition it pur-
sued vigorously below, viz. that fire outside the press, an excluded

                     19
peril, occasioned the property loss. But conceding that a fire inside
the press could have caused the loss, even in part, opens the door to
a finding that the same fire could have been deemed responsible for
the entire loss. Thus, a jury could fairly conclude that fire rendered
the press, though perhaps useable to some extent, essentially unde-
pendable thereafter, whether or not there was also water damage.
Indeed, Komori's service technician testified that any repair to the
press could not be guaranteed. But such a repair may very well equate
with no repair at all. Neither Jacobs, nor ultimately a jury, would be
obliged to accept anything less than a fully functioning, reasonably
warranted machine. Assuming the evidence upon retrial replicates the
evidence of the present trial, we would see little justification for
granting Hartford judgment as a matter of law with regard to its liabil-
ity for Jacobs' property loss claim.

Hartford is quite correct, however, as counsel for Jacobs conceded
at oral argument before us, that any verdict against Hartford for dam-
age to the press would have to give credit for the salvage value of the
press, i.e. a net of $98,880.72, after deducting the sales commission.

VI.

Business Interruption Loss Award

Hartford challenges the jury's award of $417,000 for business
interruption loss on a number of grounds. It argues that the court
should have granted it judgment as a matter of law, first, because
Jacobs' loss was not caused "solely by an accident to an object" and,
second, because Jacobs failed to prove the amount of its loss in accor-
dance with the terms of the policy or with reasonable certainty. Alter-
natively, Hartford claims entitlement to a new trial because the
district court erred in instructing the jury with regard to apportion-
ment of loss. We consider these three formulations.

A) Failure to Rule Loss Not Covered Solely by Accident to an
Object

We may deal summarily with Hartford's claim that it should have
been granted judgment as a matter of law because Jacobs' business

                    20
interruption loss was not caused "solely by an accident to an object."
Again, to prevail as a matter of law, Hartford would have to convince
us that there was no "evidence of such quality and weight that reason-
able and fair-minded men in the exercise of impartial judgment could
reasonably return a verdict for the non-moving party. . . . " Wyatt v.
Interstate & Ocean Transp. Co., 623 F.2d 888, 891 (4th Cir. 1980).

We are satisfied that the record contained sufficient evidence from
which a trier of fact could find that Jacobs' interruption loss was
caused solely by an accident to the six color Komori press. As we
have just observed, a jury could find that a fire occurring inside the
press effectively made the press irreparable, notwithstanding the fact
that further fire ensued outside the press or that water may have been
used to extinguish the fire. As the trier of fact, a jury would be well
within its province to conclude that the interruption to business that
ensued was occasioned solely by an accident to a covered object.
Assuming identical evidence upon retrial, Hartford's motion for judg-
ment as a matter of law on the business interruption loss claim would
seem of doubtful prospect.

B) Failure to Prove Loss in Accordance With Terms of Policy or
With Reasonable Certainty

We see no need to address this issue in any detail. We are fully
confident that the district court understands that Jacobs has the burden
of proving its business interruption loss claim strictly in accordance
with the terms of Hartford's policy, that it must do so with reasonable
certainty and without duplication as between the"actual loss" and
"extra expense" components of the business interruption loss endorse-
ment to the policy.17
_________________________________________________________________

17 We note that at trial Jacobs conceded that, inasmuch as it had suf-
fered net losses each month for a considerable period prior to the press
fire, it could not claim lost profits under the Hartford policy. See
Northwestern States Portland Cement Co. v. Hartford Fire Ins. Co., 360
F.2d 531, 534 (8th Cir. 1966).

                    21
C) Erroneous Jury Instruction

Hartford requested and the district court refused to give the follow-
ing jury instruction:

          When an insured under a business interruption policy sus-
          tains loss from multiple causes, some of which are excluded
          from the coverage of the policy, the insured has the burden
          of proving the extent of the damage or interruption caused
          by the covered causes of loss.

Hartford excepted to the court's failure to give that instruction.

Instead the Court gave the following instruction to which Hartford
also excepted:

          The measure for breach of contract should be the actual
          damages that the injured party may reasonably have
          incurred. One injured by the breach of contract is entitled to
          be placed in the same position, insofar as this can be done
          with money, as he would have occupied if the contract had
          been performed. Damages recoverable for a breach of con-
          tract are such as may fairly and reasonably be considered as
          arising naturally from the breach of the contract itself, or
          such as may reasonably be supposed to have been in the
          minds or contemplation of the parties at the time they made
          the contract.

Jacobs argues that "the charge of the court covered all issues and
was correct on the law." Hartford, claiming error, asks for a new trial.

While we have already ordered a new trial on the basis of the join-
der issue, we acknowledge that the remedy for a prejudicial jury
instructions is likewise a new trial. Martin v. Cavalier Hotel Corp.,
48 F.3d 1343, 1350 n.2 (4th Cir. 1995). We consider the challenged
instruction at this time insofar as it may assist the district court at the
next trial.

In reviewing a trial court's decision whether or not to give a jury
instruction, as well as the content of the instruction, we review for

                      22
abuse of discretion. United States v. Russell , 971 F.2d 1098, 1107 (4th
Cir. 1992), cert. denied, 113 S. Ct. 1013 (1993). An error in jury
instructions will occasion reversal of a judgment"only if the error is
determined to have been prejudicial, based on a review of the record
as a whole." Wellington v. Daniels, 717 F.2d 932, 938 (4th Cir. 1983).
We also note, however, that a party is entitled to an instruction that
reflects the party's theory of the case if the instruction is legally cor-
rect and there is evidence on the record to support it. Gander v. Mr.
Steak of Sun Ray, Inc., 774 F.2d 920, 924 (8th Cir. 1985). We con-
sider the latter proposition first.

Hartford's theory throughout this action has been that excluded
perils -- fire outside the press and water damage-- were contribu-
tory causes to Jacobs' business interruption loss. Evidence in the
record amply supported that position, even if the jury may ultimately
have found countervailing evidence more compelling. Jacobs, more-
over, unquestionably had the burden of proving that, according to the
policy terms, Jacobs' total claimed loss was caused"solely" by a cov-
ered peril. See 15A Couch on Insurance § 57.32 (2d ed. 1983). Hart-
ford requested a charge in precisely these terms, which the district
court declined to give. We believe Hartford was entitled to such an
instruction and would be so entitled at a new trial.

St. Joseph Light & Power Co. v. Zurich Ins. Co. , 698 F.2d 1351
(8th Cir. 1983), is instructive. There the insured carried two types of
insurance, boiler and machinery insurance through Zurich Insurance
Company and fire insurance through 16 insurance companies includ-
ing an "extra operating expense policy" with Great American Insur-
ance Company. A boiler owned by the insured caught fire and
sustained serious damage. Great American, among others, paid an
amount it deemed to have been caused by fire, but refused to pay for
extra expense it attributed to low water condition. In setting aside the
jury's verdict against Great American on the extra expense policy, the
district court had declared:

          The jury's duty was to allocate the extra expenses incurred
          as a result of the damages due solely to fire. However, the
          evidence presented at trial did not afford the jury any basis
          upon which to allocate what portion of the outage was
          caused by the low water condition and what portion was

                    23
          caused solely by fire. The jury's verdict against Great Amer-
          ican was pure speculation and must be set aside.

698 F.2d at 1358.

The Eighth Circuit affirmed with the following observation:

          Thus, where only a portion of the loss is attributable to fire,
          only downtime caused specifically by fire damage can con-
          stitute a basis for recovery under the policy. We simply do
          not know, on the basis of the record, how long it took to
          repair those components which were damaged by fire. Since
          a low-water condition, rather than a fire, caused some of the
          damage, SJLP had the burden, in order to support recovery,
          of establishing how much time was required to repair those
          portions of the border damaged by fire. The record is devoid
          of such proof. There is no evidence that repair of portions
          of the boiler damaged only by fire took one month or thir-
          teen months . . . . SJLP made no attempt to allocate the extra
          expense cost between that caused by fire and that caused by
          the low-water condition.

698 F.2d at 1359.

St. Joseph Light & Power states an obvious proposition of law.
When the terms of an insurance policy limit coverage to loss caused
solely by a peril insured under the policy, an insured must offer proof
that allows the jury to allocate the amount of the loss caused by the
insured peril. See also Hart-Bartlett-Sturtevant Grain Co. v. Aetna
Ins. Co., 365 Mo. 1134, 1152, 293 S.W.2d 913, 925 (1956), cert.
denied, 352 U.S. 1016 (1957) (reversal required where plaintiff failed
to prove that expenses were caused by explosion, a covered peril,
rather than flood, an excluded peril). By extension, an insurer is enti-
tled to have the jury informed as to who holds the burden of proof as
to coverage and precisely what it entails.

We are unable to conclude that the instructions given by the court
"construed as a whole, and in light of the whole record, adequately
informed the jury of the controlling legal principles without mislead-

                    24
ing or confusing the jury to the prejudice of the objecting party." Spell
v. McDaniel, 824 F.2d 1380, 1395 (4th Cir. 1987), cert. denied, 484
U.S. 1027 (1988). Liability for breach of an insurance contract is
dependent upon the terms specified in the contract. Cf. Hutson v. Con-
tinental Assurance Co., 269 S.C. 322, 237 S.E.2d 375 (1977),
overruled on other grounds, O'Neal v. Bowles , 431 S.E.2d 555
(1993). If, as was the case here, Hartford's policy limited liability for
loss to but one peril despite the concurrence of other perils, it might
well have misled or confused the jury to have suggested that "the
measure for breach of contract should be the actual damages that the
injured party may reasonably have incurred" or that recoverable dam-
ages "are such as may fairly and reasonably be considered as arising
naturally from the breach of the contract itself." Upon receiving that
instruction, the jury might well have supposed that, with the fire,
Hartford would be responsible for all Jacobs' actual losses or all its
damages "arising naturally" from the fire, a conclusion that would
clearly be inappropriate to the extent that uncovered perils might be
determined to have contributed to the loss. We believe that Hartford
correctly articulated the controlling legal principle in this regard and
the district court did not. We direct upon retrial that, with regard to
Jacobs' claim of business interruption loss, Hartford's request to
charge be given. See Furka v. Great Lakes Dredge & Dock Co., 755
F.2d 1085, 1088 (4th Cir.), cert. denied, 474 U.S. 846 (1985);
Edwards v. Mayes, 385 F.2d 369, 373 (4th Cir. 1967) (cases
remanded for new trials based on failure to give jury instructions).

VII.

Bad Faith Denial of Coverage

We turn our attention next to the jury's award of compensatory and
punitive damages on Jacobs' claim for bad faith refusal to pay under
Hartford's policy. On the record before us, we conclude as a matter
of law that Hartford cannot be found liable on this account.

South Carolina law provides that an insurer will be liable for bad
faith failure to pay proceeds unless an objectively reasonable basis
exists for denying the insured's claim. State Farm Fire & Cas. Co.
v. Barton, 897 F.2d 729, 731 (4th Cir. 1990) (applying South Carolina
law); Varnadore v. Nationwide Mut. Ins. Co., 289 S.C. 155, 158, 345

                    25
S.E.2d 711, 713-14 (1986). "Whether such an objectively reasonable
basis for denial exists depends on the circumstances existing at the
time of the denial." State Farm, 897 F.2d at 731.

We agree with Hartford that, on the facts of this case, there could
be no bad faith denial of coverage. Our review of the entire record
convinces us that Hartford could plausibly have argued, based on the
report of its investigator Venz, and indeed as corroborated by Ameri-
can's investigator James Britt and the language of Hartford's policy,
that the press fire ignited "beneath" the press, which was on feet
raised above the floor, such that the fire occurred outside the press,
an excluded cause. At the same time Hartford could fairly have con-
tended that, while it might be liable for damage to the drying conduc-
tor within the press, it was not liable for damage to the press caused
by water used to extinguish the fire, a further excluded cause. Rust
on certain press parts (as observed by Hartford's inspector Propst,
Komori's investigator Kirkpatrick and Jacobs' expert Byers) would
clearly have justified such a conclusion on Hartford's part. That Hart-
ford's view may ultimately have been rejected by a jury is of no con-
sequence at all. Liability could attach to Hartford if and only if its
position as to coverage was taken without any objective basis in fact.
That simply was not the case here.

Finding no bad faith denial of coverage by Hartford moots Jacobs'
claim that it should receive attorneys' fees under S.C. Code Ann.
§ 38-59-40 (Law. Coop. 1993).

VIII.

Prejudgment Interest

With vacation of the jury's verdicts on both the property loss and
business interruption loss claims, the district court's grant of prejudg-
ment interest on those awards necessarily falls. We anticipate, how-
ever, that, upon remand and retrial with American joined as a party,
the propriety vel non of any prayer for prejudgment interest will
appear in sharper focus. We leave to the district court to determine,
if the jury ultimately returns a verdict favorable to Jacobs on its busi-
ness interruption loss claim, whether and to what extent the law of

                     26
South Carolina permits an award of prejudgment interest upon that
sort of award.

IX.

The district court's decision denying Hartford's motion to join
American as party plaintiff is reversed and remanded, with the
instruction that American be joined to the suit as party plaintiff; The
court's entry of judgment on the jury's verdict in favor of Jacobs on
its claim of bad faith denial of insurance coverage is reversed;

The court's entry of judgment on all other jury verdicts is vacated
and the causes remanded;

The court's award of prejudgment interest on the property loss and
business interruption loss awards is vacated and remanded; and

The court's denial of Hartford's Motion for a New Trial is
reversed.

REVERSED IN PART, REVERSED AND
REMANDED IN PART, AND VACATED
AND REMANDED IN PART

                     27
