Suit contends plant coverage was inadequate

By Diana McFarland

Managing editor

SURRY — S. Wallace Edwards and Sons recently filed suit in Surry County Circuit Court against its insurance carrier, alleging it failed to recommend and adequately cover the business against potential losses.

Edwards alleges Selective Way Insurance Company, Middle Peninsula Insurance Agency and Manry-Rawls knew the coverage was deficient but did not make that information known in order to secure the ham maker’s business, according to court documents.

Edwards is asking for at least $85 million in damages based on allegations of multiple counts of breach of contract, negligence, fraud and breach of fiduciary duty against the three defendants, according to court documents. 

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Edwards is demanding a jury trial. A hearing is scheduled for Sept. 1 in Surry County Circuit Court. 

The suit stems from a fire in January, which completely destroyed the company’s 90-year-old smokehouse, plant and business operations in Surry County. 

The company has since been offered temporary assistance with specialty meat packers from other states to sell hams, bacon and sausage under the Edwards label.

According to the suit, the insurance carrier in 2009 asked Edwards to complete a business worksheet, which it did, estimating a business income limit of $128,325.

Insurance agency employees received the worksheet, and in an email exchange determined “there probably would not be enough coverage for the expected losses,” if the figures in the worksheet were used, according to court documents.

Agents also identified a significant error, such that “the amount requested … is really 1/20^th of the annual amount and seems way too low,” according to court documents.

The insurance carriers allegedly did not share this information with Edwards and instead proposed the carrier “let it slide” and “let sleeping dogs lie,” according to court documents.

In 2012, Middle Peninsula became Edwards’ broker for its property and business income coverage. At the time, Middle Peninsula concluded the coverage was inadequate.

However, the agency did not inform Edwards, according to court documents.

Instead, it withheld the information in order to induce Edwards to contract at a lower price as a way to establish a long-term business relationship, according to court documents.

That same year, Selective conducted surveys and inspections of the Edwards facility and stated that if a fire did occur, it would take four months to rebuild, according to court documents. This time, the business interruption limit was determined to be $3 million. However, the carrier did not recommend an increase in coverage or seek to increase coverage, according to court documents.

Instead, Edwards relied on a letter from an agency employee about automobile coverage, and because it did not address business coverage, concluded the business coverage was adequate, according to court documents.

In 2015, Selective, through its agent, Middle Peninsula, issued a policy in April with a one-year term and with a premium of $35,133. The policy covered losses with a blanket limit of $6.2 million, along with coverage for other expenses, such as debris removal, according to court documents.

Five months before the fire, Selective did another risk assessment, survey and inspection of the Edwards property and business. The inspection noted that the company may have as much as $3.1 million in inventory, but the coverage limit was $1.9 million. This information was not conveyed to Edwards, according to court documents. The inspection also calculated potential losses at $5.9 million.

That amount was inadequate, according to court documents. Actual replacement costs were estimated at more than $23 million, according to court documents.

The policy was limited to $6.39 million.

After the fire, Selective allegedly admitted the estimation was inadequate and explained the “huge discrepancy” between the policy limit and actual loss due to the underwriter being a mere “pencil pusher” and less qualified than someone in the construction industry, according to court documents.

After the fire occurred, replacement was estimated in excess of $35 million — but the policy was limited to $6.2 million and business interruption coverage was $125,000, according to court documents.

Two months after the January fire, Edwards provided Selective with sworn proof of losses of $20.5 million. In February, Edwards provided Selective with demolition and reconstruction estimates, but the carrier refused to allow demolition until March. That failure hindered Edwards’ efforts to rebuild and recover the business, according to court documents.

Selective, Middle Peninsula and Manry-Rawls denied the majority of the allegations, or stated there wasn’t sufficient information to admit or deny the claims in the Edwards suit. The carrier and agent also stated that the negligence claim is barred by Virginia’s economic loss rule, and the ham maker cannot seek relief from a claim arising out of a contractual relationship, according to court documents filed by the plaintiffs.

The defendants also allege that there is no fiduciary duty between an insurer and a policyholder under Virginia law.

In addition, the defendants state the terms of the insurance policy disavowed any obligation by Selective to advise Edwards as to the appropriate limits of insurance, and as a result, cannot establish the element of reasonable reliance to prove fraud, according to court documents.

The defendants also allege that specific claims in the Edwards’ complaint are not applicable due to statute of limitations, because it dates back to 2009 and 2011 — exceeding the two year limitation for negligence and fraud, according to court documents.

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