The Virginia Court of Appeals has vacated a criminal restitution order after finding that the trial court abused its discretion by combining two insurance benefits to measure the value of property lost by an arson victim.
The “record does not explain the scope of either of the two [insurance] benefits, let alone show how those benefits relate to each other or to [the victim’s] loss,” said Judge Stuart A. Raphael, the author of the opinion. Judges Robert J. Humphreys and Mary Grace O’Brien joined in Raphael’s decision.
The court went on to reject the commonwealth’s speculative argument that the benefits were for two different types of repairs and might be a reliable indicator of loss.
The May 10 opinion is Slusser v. Commonwealth of Virginia (VLW 022-7-122).
In April 2020, Kenny James Slusser set fire to the house he rented from Jonathan Hetherington. The house was completely destroyed.
After being indicted for arson, Slusser offered an Alford plea to destruction of property, for which he received a five-year suspended sentence, community service and a yet to be determined amount of restitution.
At the restitution hearing, the commonwealth and Hetherington introduced photos of the property damage, a 2019 county real estate tax assessment, and a State Farm letter.
The assessment reported a total value of $89,500, comprised of $26,900 for the 3.2-acre lot and $62,600 for the buildings and improvements.
The State Farm letter described two different insurance benefits: an “‘estimate of repairs as well as payment […] representing the actual cash value of repairs’ in the amount of $121,652.66; and ‘Replacement Cost Benefits’ of ‘the actual cost of repairs, or $94,503.60, whichever is less.’”
State Farm’s description of the benefits, which the opinion called “cryptic,” said the first benefit represented “Dwelling Coverage” and asked Hetherington to have his contractor review the estimate before starting work.
To make a claim under the second benefit, entitled “Replacement Cost Benefit,” Hetherington would need to provide an explanation form along with bills for repairs. “A payment will then be issued to you for the actual cost of repairs, or $94,503.60, whichever is less,” the letter read.
The commonwealth did not introduce the insurance policy itself into evidence.
Hetherington testified that State Farm paid him the first benefit of $121,652.66 “for the loss of the house alone, not the land value.”
Hetherington didn’t apply for the second benefit because he sold the property without rebuilding the house for a net profit of $55,000. He still felt entitled to the second benefit, however, because the Replacement Cost Benefit was “for the complete restoration of [his] home” and “the value to reconstruct.”
Although he also sought to recover his $2,131 deductible, Hetherington said he was not seeking to recover for the land value.
Slusser’s sister testified in his defense that he moved into the home in 2011 and photographs she took in 2018 show it to have been “a run-down house with debris strewn about the yard.”
She also testified that the house had no insulation, no HVAC, and Slusser was forced to use his wood stove for both cooking and heating the premises. Slusser offered no other evidence and did not argue an inability to pay.
Slusser agreed that Hetherington was entitled to recover for the deductible but not the $121k benefit he received. They disagreed about whether the Replacement Cost Benefit should be included in restitution.
Slusser argued the second benefit was replacement cost value, not the fair market value of the building that was lost. The trial court agreed with the commonwealth and combined the benefits, which it said, “in effect established the value of that property.”
“The court did not explain, however, what it understood to be covered by either benefit,” Raphael said.
To calculate its restitution order of $41,634.60, the trial court combined both benefits, added the deductible, and then subtracted the first benefit and the land sale profit.
Slusser appealed the order and argued that combining the two benefits was an abuse of discretion. He reasoned that Hetherington received “ample compensation” with the first benefit and that he was only entitled to the deductible, because “anything more would give [him] a ‘windfall for a barely inhabitable, ramshackle building.’”
Raphael’s opinion began by saying there was “no doubt the trial court did its best to arrive at a fair restitution award,” but defects in its reasoning “persuade us that the award here amounts to an abuse of discretion.”
The commonwealth relied on a 1994 Virginia Court of Appeals case to argue that an insurance payment may be a “reliable indicator of true loss” and that an arms-length payment is prima facie evidence of its reasonableness.
“But in this case, the replacement-cost benefit was never ‘paid,’” Raphael pointed out.
The first benefit apparently represented “the actual cash value of repairs,” but the judge questioned what repairs were referenced, noting the record does not say.
“The record is silent about what ‘repairs’ would have been covered under the second benefit [if Hetherington rebuilt] but not the first [or] how the repairs paid under the second benefit would bring about the ‘replacement’ of the house if the first benefit already covered ‘the actual cash value of repairs,’” the judge wrote.
The commonwealth could only theorize that “presumably” the first benefit was for reimbursement for “the structure of the home” and the second for “construction for the home.”
The court, however, found this distinction “meaningless.”
Further, if the second benefit covered construction of a new house, “[w]ould it have been a house comparable to what Slusser rented — a dilapidated abode without insulation, heating or air-conditioning?”
The court found nothing in the record addressed whether the replacement benefit could have included upgrades that “would have made it ‘an entirely new and different house’ worth more than the value of what was lost.”
Nor did the trial court sufficiently differentiate between what the two benefits covered, which was “a relevant factor that should have been given significant weight” to be considered, Raphael said.
The court also could “not comprehend the legal or factual basis for subtracting” the land sale profit from the house value because “Hetherington testified that State Farm’s valuation was ‘only looking to the building and not the land’” and he disclaimed any claim for loss of land value.
“By conflating the value of the land and the value of the improvements, the trial court appears to have ‘considered and given significant weight’ to ‘an irrelevant or improper factor,’” Raphael concluded.
The court remanded the case to determine “what the two insurance benefits represent so that the trial court may determine the ‘value of the property’ lost by Hetherington.”
Raphael cautioned that the “remand is not intended to give either party a ‘second bite at the apple,’ [or] an opportunity ‘to take a mulligan.’”
The court emphasized the limited scope on remand because issues were first raised on appeal which should not be considered, such as the collateral source rule, subrogation, State Farm’s restitution rights and Slusser’s ability to pay.
Raphael added that the Court of Appeals saw no reason to decide whether to extend the collateral source rule to criminal restitution.
Attorneys involved in the case did not respond to a request for comment before deadline.