L & S ENTERPRISES CO. v. Great American Insurance Co.

• Decision Date: 02 December 1971
• Docket Number: No. 18570.,18570.
• Citation: 454 F.2d 457
• Parties: L & S ENTERPRISES COMPANY, Plaintiff-Appellee, v. GREAT AMERICAN INSURANCE COMPANY and United States Fidelity and Guaranty Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

454 F.2d 457 (1971)

L & S ENTERPRISES COMPANY, Plaintiff-Appellee, v. GREAT AMERICAN INSURANCE COMPANY and United States Fidelity and Guaranty Company, Defendants-Appellants.

No. 18570.

United States Court of Appeals, Seventh Circuit.

December 2, 1971.

Dom J. Rizzi, Epton, McCarthy, Bohling & Druth, Chicago, Ill., for defendants-appellants; Bernard E. Epton, Edward McCarthy, James V. Creen, Chicago, Ill., of counsel.

George C. Rabens, Chicago, Ill., for plaintiff-appellee.

Before HASTINGS, Senior Circuit Judge, and KERNER and SPRECHER, Circuit Judges.

KERNER, Circuit Judge.

L & S Enterprises brought this diversity action in the district court to recover under an insurance policy issued by the defendants, for damage arising out of a fire of its business premises on February 13, 1967. After a jury trial, a verdict was returned in favor of the plaintiff, L & S. The defendants appeal.

The defendants sought to prove below that the owners of L & S caused the fire themselves, and argue on appeal that it was error for the district court to have stricken this arson defense and related testimony.

A representative of the Chicago Fire Department testified that when he arrived at the business premises on the night of the fire, he observed two streamers of fire on the floor in the center of the building extending to the rear, suggesting to him that fuel had been used to start the fire. He also smelled the odor of fuel at the time. After the fire was extinguished, there remained a charred pattern in this area of the floor. These facts led the fire fighter to determine that the cause of the fire was of a suspicious nature. No other information was gathered as to the incendiary nature of the fire. The Bureau of Fire Investigation of the Fire Department did conduct a limited investigation, but dropped it after a short period of time. An official of the Bureau testified that it was very possible that the fire was innocent in nature.

With respect to the evidence that the insured caused the fire, assuming its incendiary origin, the defendants attempted to show that the owners of L & S, who were the proprietors of the building, possessed a motive for arson. Emanuel Lipschutz and Neil Scarpelli formed L & S in 1965, along with another company, to engage in the slot car racing business. Both men testified that they were engaging in other work as a means of income and regarded L & S as a hobby. At the premises subsequently damaged by the fire, they built three slot car racing tables on which customers could race controlled miniature automobiles along slotted tracks. The business, which began in late 1966, had incurred a loss from 1966 through the date of the fire. Evidence also indicates a general decline in the slot car racing market at the time of the fire.

The defendants argue that the jury should have been permitted to find that Scarpelli and Lipschutz, faced with a growing loss in their business, had decided to set a fire to their business premises in order to collect the insurance proceeds for the damage. The defendants point out that the only persons with keys to the premises had been Scarpelli, Lipschutz and the manager of the business, who, according to the evidence, had been the last to leave the premises on the night of the fire, but did not have a motive to start a fire. Thus, the defendants assert, the evidence of the incendiary nature of the fire coupled with the proprietors' motive and their possession of keys were sufficient to take the arson defense to the jury. We disagree.

We are mindful of the fact that "arson, by its very nature, is usually incapable of direct proof and the evidence is necessarily often of a negative nature," and that " * * * the opportunity for the commission of arson, the motive inducing arson, and the identity of the person accused of arson may all be established by circumstantial evidence." Commerce Union Bank v. Midland National Insurance Company, 53 Ill.App.2d 229, 239, 202 N.E.2d 688, 693 (1964). Nevertheless, we do not believe that the reasonable inferences which a jury could draw from the circumstantial evidence in the case at bar would support a defense of arson.

We reach this conclusion for two reasons. First, there was little probative evidence at trial that the fire was incendiary. The only evidence suggesting arson was the smell of fuel and the charred pattern on the floor. While this led the Fire Department to report the circumstances of the fire to its arson squad, an investigation of the premises was dropped. This scant evidence indicated to the Fire Department that a case of arson could not be shown, and we agree. Second, there is nothing indicating that Scarpelli or Lipschutz caused the fire, even if incendiary. An agent of the Arson Fraud Bureau of the American Insurance Association testified that he did not find anything at all to tie Scarpelli or Lipschutz to any wrongdoing in connection with the fire. The economic instability of the business may be a factor evidencing arsonous intent, but the existence of that fact alone did not compel the court to allow the jury to consider that defense. Mavros v. St. Paul Fire and Marine Insurance Company, 296 F.2d 271 (7th Cir. 1961). That Scarpelli and Lipschutz possessed keys to the premises does not make the arson defense any less tenuous since they both accounted for their whereabouts on the night of the fire. Stein v. Girard Insurance Co. of Philadelphia, 259 F.2d 764, 766 (7th Cir. 1958).

The absence of additional facts connecting the insured with the alleged arson distinguishes this case from those cited to us by the defendants, Esquire Restaurant Inc. v. Commonwealth Ins. Co. of N. Y., 393 F.2d 111 (7th Cir. 1968), and Stein v. Girard Insurance Co. of Philadelphia, Pa. supra. In Esquire Restaurant Inc. the Fire Department had found two five gallon fuel oil cans on the premises. The Deputy Chief of the Department testified that he believed the fire was deliberately set; there was also evidence of a prior arson attempt. More important for purposes of analogy to this case, the owner, who possessed four sets of keys to the premises, was...