Kingsport Packaging will get no insurance money from fire

Matthew Lane • Jan 22, 2007 at 9:03 AM

KINGSPORT - A federal jury has found the owners of the Kingsport Packaging Co. are not entitled to recover any money under the terms of their insurance policy for a warehouse that was destroyed by fire in December 2001.

Fire broke out at the Kingsport Packaging warehouse on Dec. 7, 2001, destroying a majority of the building. Located in the Phipps Bend Industrial Park, Kingsport Packaging was owned and operated by brothers Terry and Pat Link.

The State Fire Marshal's Office ruled the fire an arson, and according to Bob Pollard, assistant director for the Bomb and Arson Investigation Unit, the criminal investigation into the arson has been closed. Pollard said no criminal charges were brought due to lack of information.

Kingsport Packaging submitted a $5.7 million claim to Harleysville Mutual Insurance Co. However, HMIC filed a federal lawsuit in August 2002 arguing it had no liability to Kingsport Packaging since the fire at the warehouse was intentionally set.

A seven-day trial held in September 2006 ended in a hung jury. A second, six-day trial held in December 2006 resulted in the jury finding for HMIC.

According to the lawsuit, HMIC's denial of the claim was based upon a belief that the fire was intentionally set by Kingsport Packaging acting through its officers and managing agents or by someone acting at the direction of Kingsport Packaging.

Furthermore, HMIC stated that Kingsport Packaging violated the insurance policy provisions by committing misrepresentation or fraud and criminal or dishonest acts.

HMIC also claimed Kingsport Packaging's warehouse was not a total loss as defined by the terms of the policy.

"HMIC has determined that the appropriate damages ... are $670,000 for the structure and $683,807 for the contents of the structure," the lawsuit states.

Kingsport Packaging officials denied this claim, stating in an answer to the lawsuit the value of the building was $1.25 million and the value of the contents was $4.47 million. Officials also argued these numbers did not include the $100,000 coverage for the property of others located in the warehouse or the cleanup costs of $20,000.

The lawsuit stated Citizens Bank submitted a $594,000 claim to HMIC. The bank has a recorded deed of trust on the property in the amount of $514,569 and has made two loans to Kingsport Packaging.

"HMIC believes that it is obligated to pay Citizens Bank for the mortgage in the original amount of $547,500," the lawsuit states. "However, HMIC is uncertain about its obligation to pay for the remaining two loan balances."

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