Cora Pub, Inc. v. Continental Cas. Co.

• Decision Date: 19 June 1980
• Docket Number: No. 77-3065,77-3065
• Parties: CORA PUB, INC., etc., et al., Plaintiffs-Appellees, v. CONTINENTAL CASUALTY CO., etc., Defendant-Appellant, Irving Rubin et al., Intervenors-Appellees. MOSS AND SON, INC., Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellant, Irving Rubin et al., Intervenors-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 482

619 F.2d 482

CORA PUB, INC., etc., et al., Plaintiffs-Appellees, v. CONTINENTAL CASUALTY CO., etc., Defendant-Appellant, Irving Rubin et al., Intervenors-Appellees.

MOSS AND SON, INC., Plaintiff-Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellant, Irving Rubin et al., Intervenors-Appellees.

No. 77-3065.

United States Court of Appeals Fifth Circuit.

June 19, 1980.

Greene & Cooper, P. A., Robyn Greene, Miami, Fla., for Continental cas. co.

Edward Perse, Miami, Fla., for Cora Pub, Inc.

Evan Langbein, Alan E. Greenfield, Miami, Fla., for Moss and Son, Inc.

Cassel, Benjamin & Chotiner, William Cassel, Miami, Fla., Joseph G. Gubman, New York City, for Irving Rubin, et al.

Appeal from the United States District Court for the Southern District of Florida.

Before MORGAN, ANDERSON and RANDALL, Circuit Judges.

LEWIS R. MORGAN, Circuit Judge:

The Coral Way Pub of Miami, Florida was totally destroyed by fire in May 1975. Continental Casualty Co., the insurer, suspected arson by the lessee and refused to pay any claim on the loss. Subsequently the lessee of the restaurant, Cora Pub, Inc., instituted this action against Continental on the policy. Other parties having an interest in the property and insurance policy joined the action seeking their share of any insurance proceeds. ¹

The district court directed a verdict against Continental's arson defense and submitted the issue of damages to the jury, which returned an award of $409,000 in favor of Cora Pub and the intervenors. On appeal, Continental contends that the evidence that Cora Pub committed arson was sufficient to create a question for the jury, and that a directed verdict against the arson defense was improper. Cora Pub argues in reply that the evidence was sufficient neither to prove that there was arson nor to prove that arson was committed by any individual whose actions could be imputed to the corporation. Joining Cora Pub against Continental on this issue are the intervenors owner/landlord Moss and Son, Inc., and mortgagees Irving Rubin, Saul Kaplan, Joseph Gubman and Walker Sitomer but the principal position of these appellees is that regardless of whether the lessee committed arson, their interest in the insurance policy is unimpaired.

Continental also contends on appeal that the district court erred in striking a fraudulent concealment defense which was based on the failure of Cora Pub to disclose the criminal record of one of its principal officers. Lastly, Continental cites a number of errors in the proof of damages. For the reasons which follow, we agree with Continental that the arson defense should have been submitted to the jury and that error was committed in the proof of damages, and therefore we reverse the judgment and remand the case to the district court for retrial.

I. THE ARSON DEFENSE.

As the district court disposed of Continental's arson defense by directed verdict, the standard of review on appeal is a demanding one. A motion for directed verdict should be granted only if the court believes "that reasonable men could not arrive at a contrary verdict . . . ." Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969). In making this determination, the court must examine the whole record in the light most favorable to the party opposing the motion. Id. Viewed in that perspective, the record in this case reveals substantial evidence to support Continental's allegation of arson committed by Cora Pub.

The Coral Way Pub was a 27 year old restaurant owned by Moss and Son, Inc., and leased and managed by numerous different parties over its life. In November 1974, Cora Pub acquired the lease and continued to manage the restaurant until it was destroyed half a year later.

Throughout Cora Pub's brief management, the restaurant operated at a loss. At the time of the fire in May 1975, Cora Pub had current liabilities of $66,751.84, a mortgage of $207,416.67, and an indebtedness for loans from its officers totaling $51,291.20. During the month of the fire, six of Cora Pub's checks bounced, and after the fire the Internal Revenue Service filed a $15,000 lien against Cora Pub for failure to pay withholding taxes on wages of employees.

The restaurant had been damaged by fire in February 1975, and on this occasion Continental paid $18,000 on a claim by Cora Pub. The following month, Cora Pub president and chief stockholder John Barbero put the business up for sale.

At 2:00 A.M. on the night of the fire that led to this claim, a passer-by noticed smoke coming from the restaurant, and then observed an unidentified man walk from the parking lot behind the restaurant to a car parked at a nearby gas station, and drive away. The passer-by immediately notified the fire department, but the building burned rapidly to ruin after several explosions. A fireman who arrived at the scene found the doors to the building unlocked.

Julian Kirsch general manager, secretary, and treasurer of Cora Pub was the last person to leave the restaurant on the night of the fire, although he testified that he had locked and left the building at 11:00 P.M. and was home with a girl when the fire started. Earlier, the burglar alarm system for the restaurant had been disconnected, and although Kirsch had been informed of this fact, he gave a statement after the fire that he had set the alarm before leaving the restaurant.

All of Cora Pub's business records, including much important evidence of the actual financial loss suffered, have vanished. Kirsch testified at trial that the records were destroyed in the blaze, but a fireman who had been at the scene testified that the fire never reached the office where the books and records were kept.

Frank Ogden, a lieutenant with the Dade County Fire Department and an expert in arson investigation, testified that in his opinion the fire was of incendiary origin. His opinion was formed from his inability to find any possible accidental cause in the area where the fire began together with the rapidity with which the building had burned.

Though the case for arson is wholly circumstantial, we cannot deny that reasonable men might draw the inferences necessary for Continental's arson defense. In a host of similar cases where sufficient motive and opportunity of the insured to commit arson were combined with proof of an incendiary cause of fire, this court and others have considered the arson defense to be supportable by inference. Sullivan v. American Motorist Ins. Co., 605 F.2d 169 (5th Cir. 1979); Crown Colony Distributors, Inc. v. United States Fire Ins. Co., 510 F.2d 544 (5th Cir. 1975); Hanover Fire Ins. Co. of New York v. Argo, 251 F.2d 80 (5th Cir. 1958); Don Burton, Inc. v. Aetna Life & Cas. Co., 575 F.2d 702 (9th Cir. 1978); Elgi Holding Inc. v. Insurance Co. of North America, 511 F.2d 957 (2d Cir. 1975); Stein v. Girard Ins. of Philadelphia, 259 F.2d 764 (7th Cir. 1958).

Cora Pub contends, however, that the evidence of arson in this case is worse than merely circumstantial. It characterizes Continental's arson defense as built on an impermissible pyramiding of inferences.

The rule against inferences upon inferences is frequently overstated as absolutely prohibiting the drawing of one inference from another. ² Behind the rule is the thought that unless the first inference is certain, the improbability of the second inference is compounded. Consistently enforced, however, the rule would make proof by circumstantial evidence virtually impossible, since most generally accepted inferences may be dissected into intermediate inferences. Like Achilles of Zeno's paradox, we might never reach a conclusion. Wigmore offered the following examples in a refutation of the rule against inference upon inference:

(O)n a charge of murder, the defendant's gun is found discharged; from this we infer that he discharged it; and from this we infer that it was his bullet which struck and killed the deceased. Or, the defendant is shown to have been sharpening a knife; from this we argue that he had a design to use it upon the deceased; and from this we argue that the fatal stab was the result of this design. In these and innumerable daily instances we build up inference upon inference, and yet no Court (until in very modern times) ever thought of forbidding it. All departments of reasoning, all scientific work, every day's life and every day's trials, proceed upon such data. The judicial utterances that sanction the fallacious and impracticable limitation, originally put forward without authority, must be taken as valid only for the particular evidentiary facts therein ruled upon.

1 Wigmore on Evidence, § 41, at 435-36 (3d ed. 1940).

While it is routinely said in criminal cases that guilt may not be proven by inference upon inference, e. g., United States v. Aguiar, 610 F.2d 1296, 1304 (5th Cir. 1980), the practice in civil cases is to evaluate the probative value of every inference on its own merits. The modern view of the rule against inference upon inference was well-summarized by Judge Wisdom in NLRB v. Camco, Inc., 340 F.2d 803, 811 (5th Cir. 1965).

The so-called rule against pyramiding inferences, if there really is such a "rule" and if it is anything more than an empty pejorative, is simply legalese fustian to cover a clumsy exclusion of evidence having little or no probative value.

See also Smith v. General Motors Corp., 227 F.2d 210, 213 (5th Cir. 1955); Alman Bros. Farms & Feed Mill, Inc. v. Diamond Lab., Inc., 437 F.2d 1295 (5th Cir. 1971).

In the case before us, as in most arson cases, the incendiary origin of the fire was proved by circumstantial evidence, including the rapidity with which the building was observed to burn, the lack of any discoverable accidental cause of fire where the fire began, and the suspicious activity of the unidentified man seen at the restaurant immediately after the fire began. To reach the ultimate hypothesis sought to be proved requires another inference, joining the fact of the...