The opinion of the court was delivered by: Garnett Thomas Eisele United States District Judge
Presently before the Court are Defendant's Motion for Set-Off, Defendant's Amended Motion for Set-Off, Plaintiff's Motion for Pre-Judgment Interest and Statutory Penalty, Defendant's Motion on Penalty Interest and Attorney's Fees, and Plaintiff's Motion to Amend Complaint to Conform to Proof.
Plaintiff Gloria Warren is a co-owner of a residence located at 816 Park, Earle, Crittenden County, Arkansas. On or about March 29, 2000, Defendant State Farm Fire and Casualty Company ("State Farm") issued Plaintiff Gloria Warren a homeowner's policy of insurance on the residence. On or about March 14, 2005, a fire destroyed Plaintiff Gloria Warren's home. Plaintiff filed suit in the Circuit Court of Crittenden County, Arkansas, to recover under the policy, and Defendant removed the cause of action to this Court.
State Farm stated that the insurance policy was void and no sum was owed to the insured because the fire was intentionally set by the Plaintiff or by another or others acting on behalf of the Plaintiff, citing the Intentional Acts provision of the policy, which states, "If you or any person insured under this policy causes or procures a loss to property covered under this policy for the purpose of obtaining insurance benefits, then this policy is void and we will not pay you or any other insured for this loss." Additionally, State Farm claims that Gloria Warren intentionally concealed or misrepresented material facts and circumstances relating to the insurance, citing the Concealment and Fraud provision, which states, "This policy is void as to you or any other insured, if you or any insured under this policy has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss." State Farm alleged that if Plaintiff recovered in the action, State Farm is entitled to a setoff or credit for all sums paid to the mortgagee or lienholder by State Farm and additional sums paid by State Farm to or on behalf of the Plaintiff following the fire, including advances and additional living expenses.
The trial of this matter began on February 5, 2007. At the close of the evidence, the Court granted a directed verdict for the Plaintiff on the material misrepresentation affirmative defense, but allowed the arson defense to go to the jury. On February 7, 2007, in response to the Interrogatory, "Do you find from a preponderance of the evidence that Gloria Warren intentionally burned the insured property or intentionally procured another person or persons to burn said property for the purpose of obtaining insurance benefits?," the jury replied, "No." When asked to state the amount of damages that Ms. Warren was entitled to recover for the loss of her personal property under the terms of the insurance policy, the jury stated, "$15,000." Finally, the jury found that Ms. Warren was entitled to recover $500 for additional living expenses she incurred under the terms of the insurance policy. The Court requested that the parties attempt to resolve the issue of setoff by agreement.
Defendant states that the policy reflects the limits of liability on Coverage A - Dwelling Coverage - as $52,900.00. Additionally, the parties agreed and stipulated that the amount owed totaled $56,074.00 due to the Inflation clause in the policy. Defendant seeks a set-off in the amount of the mortgage paid, $30,405.81, which results in a payment to Plaintiff in the amount of $25,668.19. Defendant cites several sections of the policy in support of its argument:
Insurable interest and Limit of Liability. Even if more than one person has an insurable interest in the property covered, we shall not be liable:
a. to the insured for an amount greater than the insured's interest; or
b. for more than the applicable limit of liability.*fn1
Loss Payment. We will adjust all losses with you. We will pay you unless some other person is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss and:
a. reach agreement with you;
b. There is an entry of final judgment; or
c. There is a filing of an appraisal award with us.*fn2
Mortgage Clause. The word "mortgagee" includes trustee.
a. If a mortgagee is named in this policy, any loss payable under Coverage A shall be paid to the mortgagee and you, as interests appear. If more than one mortgagee is named, the order of payment shall be the same as the order of precedence of the mortgages.
d. If we pay the mortgagee for any loss and deny payment to you:
(1) we are subrogated to all the rights of the mortgagee granted under the mortgage on the property; or
(2) at our option, we may pay to the mortgagee the whole principal on the mortgage plus any accrued interest. In this event, we shall receive a full assignment and transfer of the mortgage and all securities held as collateral to the mortgage debt.*fn3 Defendant states that Countrywide Home Loans, Inc. (hereafter "Countrywide"), as mortgagee, has an insurable interest. National Bedding & Furniture Indus. v. Clark, 252 Ark 780, 481 S.W.2d 690 (1972). Defendant cites to the unpublished opinion in Powell v. State Farm Fire & Cas. Co., 163 F.3d 602 (Table), 1998 WL 671479, *1 (8th Cir. 1998). In that case, the Eighth Circuit concluded that the district court abused its discretion in denying State Farm's motions for set-off and to amend the judgment, stating, "Once the jury found State Farm liable for payment under the policy, the policy required State Farm to pay $124,364.91, the full amount of the Powells' uncontested damages up to policy limits, less $40,615.38, the amount of State Farm's mortgage payments. Thus, the policy requires State Farm to pay the Powells $83,749.53." Id.
Plaintiff argues that provisions cited by the Defendant say nothing of a set-off, and that the provisions simply state that if State Farm pays the mortgagee for any loss and denies payment to the insured, it will be subrogated to the rights of the mortgagee or shall take a full assignment of the mortgage. Plaintiff states that the terms of the insurance contract do not provide for a setoff, and Defendant's motion should be denied.
Defendant replies that the policy at issue operates the same way as the policy in Powell. Defendant states that the effect of the provision noting the limits of liability, and the provision that the insurance company will not pay more than the limits of liability, even if there is more than one person or entity with an insurable interest, is set-off. Defendant also notes that the equitable doctrine against double recovery also applies to the issue of set-off. See Southern Farm Bureau Cas. Ins. Co. v. Tallant, 362 Ark. 17, 207 S.W.3d 468 (2005) (noting that "because insurers pay the obligations of their insureds, a right in equity to subrogation in the insurer arises. This assures against unjust enrichment by way of double recovery.").
The Court finds Defendant's arguments convincing. Therefore, as to the mortgage, a setoff in the amount of the mortgage paid, $30,405.81, is granted, ...