Jeb Stuart Auction Services, LLC v. West American Insurance
122 F. Supp. 3d 479
W.D. Va.2015Background
- Jeb Stuart Auction Services LLC (an LLC managed by Robin Hiatt) purchased commercial property and applied for a West American commercial property policy in January 2014; the application listed Jeb Stuart as the "Applicant."
- On the application Question Eight asked whether any "applicant" had been indicted/convicted of fraud/arson in the last five years; Hiatt (signing for the LLC) answered "No."
- Hiatt had a 2009 conviction (Alford plea) for obtaining money by false pretenses (a crime of fraud) within five years of the application; he and the agent dispute whether he disclosed that conviction in an office conversation.
- A fire on March 3, 2014 caused covered losses; West American issued payment but later denied coverage and rescinded the policy ab initio, asserting Hiatt’s answer to Question Eight was false and material.
- Jeb Stuart sued for breach of contract, declaratory relief, and bad-faith denial; West American counterclaimed to rescind the policy. Cross-motions for summary judgment followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "applicant" on Question Eight includes Hiatt personally or only the LLC | "Applicant" refers solely to the entity (Jeb Stuart); Hiatt signed as authorized representative | "Applicant" should include the LLC’s sole member/manager (Hiatt) for risk assessment purposes | Court: "Applicant" unambiguously refers to the party seeking insurance (Jeb Stuart LLC); not Hiatt individually |
| Whether false answer to Question Eight permits rescission | Hiatt’s answer was true as to the LLC, so no misrepresentation; policy cannot be rescinded | If "applicant" includes Hiatt, answer was false and material — rescission proper | Court: No actionable misrepresentation by the applicant (LLC); rescission denied; plaintiff entitled to summary judgment on liability and declaratory relief |
| Bad-faith denial of claim (Va. Code § 38.2-209) | Denial was unreasonable because insurer misinterpreted the application and/or knew of Hiatt’s convictions via agent | Denial was reasonable if insurer relied in good faith on perceived misrepresentation | Court: Material facts in dispute (especially what Hiatt told agent) preclude summary judgment; bad-faith claim proceeds to trial |
| Entitlement to damages / counterclaim | Jeb Stuart seeks damages and fees; asks dismissal of West American counterclaims | West American seeks rescission and declaration policy void ab initio | Court: Summary judgment granted for Jeb Stuart on liability, declaratory relief, and against counterclaims; damages and bad-faith remain for trial |
Key Cases Cited
- George & Co. LLC v. Imagination Entm't Ltd., 575 F.3d 383 (4th Cir. 2009) (summary-judgment standard)
- Ricci v. DeStefano, 557 U.S. 557 (2009) (genuine dispute standard explaining jury reasonable-finder rule)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary-judgment burdens and evidentiary standard)
- Scott v. Harris, 550 U.S. 372 (2007) (assessing whether a factual dispute is material)
- Woodson v. Celina Mut. Ins. Co., 211 Va. 423 (1970) (governing choice-of-law and contract interpretation for insurance policies formed in Virginia)
- Graphic Arts Mut. Ins. Co. v. C.W. Warthen Co., 240 Va. 457 (1990) (insurance policies construed as written contracts)
- Banner Life Ins. Co. v. Noel, 861 F. Supp. 2d 701 (E.D. Va. 2012) (insured’s duty to answer application truthfully)
- Williams v. Metropolitan Life Ins. Co., 139 Va. 341 (1924) (application interpretation principles)
- Gowin v. Granite Depot, LLC, 272 Va. 246 (2006) (LLC separate entity principles)
- CUNA Mut. Ins. Soc. v. Norman, 237 Va. 33 (1989) (factors in evaluating insurer bad-faith claim)