A $2.5 million insurance payout dispute over a Memphis studio fire ends with the Sixth Circuit blocking the owner’s claim due to proven fraud – and awarding nearly the entire sum to the lessee.
On Sept. 25, a dispute over a $2.5 million insurance payout after a Memphis music studio fire concluded, with the United States Court of Appeals for the Sixth Circuit affirming that most of the proceeds should go to the studio’s lessee, John Falls, while the owner, Christopher C. Brown of Tattooed Millionaire Entertainment (TME), is barred from recovery due to fraud.
The case began after a 2015 fire, determined to be arson, damaged the House of Blues studio and much of its recording equipment. Brown, through TME, owned the studio and insured the premises and equipment with Hanover American Insurance Company. Falls, who leased Studio B and its equipment, also obtained a separate insurance policy from Hanover, covering the business personal property (BPP) in Studio B and lost business income.
After the fire, Brown, Falls, and another lessee compiled their insurance claims, each signing separate proofs of loss. Hanover later discovered that Brown had forged receipts for the equipment claimed as lost. Brown had also experienced other suspicious insurance losses in the previous year. Hanover sued to recover advance payments and sought a declaratory judgment that it owed no further payments. Brown, Falls, and the other lessee counter-sued, seeking the remainder of their claims under breach of contract.
At trial, the jury found that Brown had made material misrepresentations and committed unlawful insurance acts but found no such conduct by Falls. The jury awarded Falls $2.5 million in BPP coverage and $250,000 in business income coverage. Hanover moved to set aside the verdict as to Falls, but the Sixth Circuit ultimately reinstated the jury verdict, holding that Hanover had forfeited its right to challenge the verdict under Federal Rule of Civil Procedure 50(b) because it had not made the required pre-verdict motion.
The allocation of the $2.5 million payout then became the subject of an interpleader action. Both Brown and Falls had interests in the insured equipment – Brown as owner, Falls as lessee with a leasehold. The insurance policy stated that claims would be paid “jointly to you and the Loss Payee, as interests may appear.” The courts had to determine how to divide the proceeds.
The district court, and now the Sixth Circuit, found that Falls’s leasehold interest was worth $2,066,217.30, while Brown would have been allocated $433,782.70. However, the court held that Tennessee public policy barred Brown from recovering his share due to his fraudulent conduct. The court’s decision was based on the finding that Brown had made false statements as to the value of the equipment and had committed insurance fraud. As a result, nearly the entire $2.5 million payout went to Falls, with Brown receiving nothing.
The case clarifies that, under Tennessee law, insurance proceeds can be divided between lessor and lessee based on the value of their respective interests, and that public policy prevents recovery by parties who have committed fraud. The decision interprets the application of loss payee clauses and the valuation of leasehold interests in commercial property insurance disputes.
The Sixth Circuit’s ruling affirms the district court’s decision and brings finality to the dispute. The outcome provides guidance for insurance professionals handling claims involving multiple parties and insurable interests, emphasizing the consequences of fraudulent conduct in insurance claims.
