Recording artist John Falls finally should see more than $2 million from a Hanover American insurance policy in the long-simmering case of an historic Memphis recording studio that was damaged in an arson fire and resulted in the studio owner going to jail for insurance fraud in 2024.
The federal appeals court ruling last week chastized Hanover for trying to have it both ways in order to avoid any indemnity payout on its policies.
“This case begins to taste like a second bite at the apple,” a panel of the U.S. 6th Circuit Court of Appeals wrote last week in upholding a lower federal court’s decision against the insurance carrier in Hanover vs. Tattooed Millionaire Entertainment (TME).
It all began in 2014 when Memphis businessman Christopher Brown (not related to the rapper of the same name) and his Tattooed Millionaire firm purchased the House of Blues recording studio site in Memphis. He insured it with Hanover for $10 million, covering the premises, three studios and business interruption.
John Falls, front man for the hard-rock band Egypt Central, leased studio space from Brown at the site. He also secured a Hanover policy to cover studio equipment he used as well as lost business income.
After the fire in 2015, Brown, Falls and another artist combined their insurance claims. Hanover paid Brown $2.2 million and offered Falls and the other artist $250,000. Soon, though, the insurer discovered that Brown had forged the receipts for fire-lost equipment and had filed other suscipicious claims for arson in the previous year. Hanover sued, seeking return of the payouts.
Falls counter-sued Hanover. After a five-day trial, a jury decided that Hanover owed $2.7 million to Falls. Hanover’s attorneys moved to set aside the verdict. But they switched tactics, moving from “separate liability for the insureds” and no real loss by Falls, to arguing that Brown’s fraud barred any payment to anyone.
The district court and the appellate judges took notice.
“…After the jury had found misconduct by Brown and not by Falls, Hanover ‘turned around and argued the opposite’ to try to avoid paying Falls based on Brown’s fraud,” the appeals court opinion explained. “We stated that ‘behavior of this sort, sometimes called ‘lying in the weeds’ or ‘sandbagging,’ should be strongly discouraged.’”
In the end, the 6th Circuit upheld the lower court and sided with the rock star, reiterating that Hanover had not raised certain arguments early enough in the litigation process.
Falls, whose hard-edged music was once adopted by the Baltimore Ravens to kick off their football season, was covered partly due to Tennessee law, which notes that the terms of the lease on the studio help inform the coverage.
“Under the circumstances of the lease and strong working relationship seen in this case, the intent of the parties was to insure both Falls’s valuable leasehold and Brown’s ownership interest subject to that potentially renewing leasehold,” the appeals court explained.
“That equipment had monetary value to me that I have been out now for three years,” Falls testified at one point.
The appeals court noted the difficulty of the case.
“We affirm the district court’s decisions that Hanover is precluded from making contractual interpretation arguments as to Falls, that the loss payee clauses do not require that all money flow to Brown, that the fire did not prevent Falls from recovering on his leasehold interest, that there was no clear error in the leasehold valuation, and that Tennessee public policy prevents recovery by Brown of the funds allocated to him,” Appeals Court Judge Julia Smith Gibbons wrote in the Sept. 25 opinion.
Brown was eventually convicted of insurance fraud and in 2024 was sentenced to 27 months in prison and $5.2 million in restitution. Falls played no part in Brown’s forgery, the court explained.
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