Trzcinski v. American Cas. Co.

• Decision Date: 08 January 1992
• Docket Number: Nos. 89-3544 and 89-3584,s. 89-3544 and 89-3584
• Citation: 953 F.2d 307
• Parties: Helen TRZCINSKI, Plaintiff-Appellee, Cross-Appellant, v. AMERICAN CASUALTY CO., Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 307

953 F.2d 307

Helen TRZCINSKI, Plaintiff-Appellee, Cross-Appellant, v. AMERICAN CASUALTY CO., Defendant-Appellant, Cross-Appellee.

Nos. 89-3544 and 89-3584.

United States Court of Appeals, Seventh Circuit.

Argued June 7, 1991.

Decided Jan. 8, 1992.

Alvin R. Becker, Timothy M. Kelly (argued), Beerman, Swerdlove, Woloshin, Barezky & Berkson, Marvin Glassman, Rabens, Formusa & Glassman, Chicago, Ill., for plaintiff-appellee.

James T. Crotty, Zacarias R. Chacon (argued), Scott W. Hoyne, Crotty & Chacon, Chicago, Ill., for defendant-appellant.

Before COFFEY, FLAUM, and MANION, Circuit Judges.

MANION, Circuit Judge.

Helen Trzcinski brought an action against American Casualty Company ("American") for failure to indemnify a fire loss. American Casualty denied liability, asserting affirmative defenses of arson and fraud by the insured. The jury found in favor of Mrs. Trzcinski and specifically rejected the arson and fraud defenses in answers to special interrogatories. After trial, American moved for judgment notwithstanding the verdict or, alternatively, a new trial, and Mrs. Trzcinski moved for the imposition of pre-judgment interest. The trial court denied the motions by both parties and entered final judgment ordering American to pay Mrs. Trzcinski $54,691 for damage to the building, damage to the contents and living expenses. Both parties appeal.

American Casualty asserts first that Mrs. Trzcinski committed fraud as a matter of law and second that the jury's verdict was contrary to the manifest weight of the evidence. Mrs. Trzcinski maintains that pursuant to the Illinois Interest Act, she is entitled to pre-judgment interest. We affirm the district court's judgment.

I. Facts

At trial, American presented evidence to support both arson and fraud defenses. Since American has abandoned the arson defense on appeal, we will review only the facts pertaining to American's fraud claim.

At the time of the fire that destroyed her house in Dolton, Illinois on February 25, 1987, Mrs. Trzcinski lived in her home with her daughter and son-in-law, Gail and Steven Anton, and their son, Scott. Prior to the fire, American had issued an insurance policy to Mrs. Trzcinski and Gail Anton that provided coverage for certain risks of loss to Mrs. Trzcinski's house and its contents, and for additional living expenses. Gail had no ownership interest in the house, but the Antons had lived with Mrs. Trzcinski for ten years at the time of the fire and owned some of the house's contents. The policy had liability limits of $84,000 for the building, $59,000 for personal property and $16,800 for additional living expenses. In their proof-of-loss statement, Mrs. Trzcinski and Gail Anton claimed $102,737.03 for the building and its contents and in excess of $17,000 for living expenses. The Antons received $38,223.51 for contents and $16,153.09 for living expenses, but American denied Mrs. Trzcinski's portion of the claims.

In 1969, Mrs. Trzcinski and her two daughters inherited Mr. Trzcinski's 50% interest in Ed-N-Sam's Motors, a car dealership owned by the partnership that Ed Peters had formed with Mrs. Trzcinski's late husband. Shortly thereafter, Mrs. Trzcinski's daughters signed over their interest to their mother. As of 1984, Mrs. Trzcinski's main source of income was the $800 monthly rent she received from Ed-N-Sam's. In addition, every six months she received $320 interest for a loan she made to her son-in-law. Finally, Mrs. Trzcinski received interest payments from two certificates of deposit in face amounts of $15,000 and $14,000. A substantial amount of the evidence at trial focused on the financial condition of Ed-N-Sam's Motors.

In August 1984, Mrs. Trzcinski became aware of financial difficulties at Ed-N-Sam's. She received a letter from the First National Bank advising her that the bank was canceling the floor plan loan it had made to Ed-N-Sam's. Shortly after that, AMC Jeep pulled its franchise from Ed-N-Sam's. Mrs. Trzcinski went to Ed-N-Sam's to find out what was happening with the business, but according to Mrs. Trzcinski, Peters did not want her around. Nevertheless, Mrs. Trzcinski began coming to the business daily and began to figure out to whom Ed-N-Sam's owed money and the amount that was due. Initially, she answered phones, took in money and checked supplies. As the number of employees declined, however, she began to write checks to pay bills and make deposits. Occasionally, a bookkeeper helped with the books since Mrs. Trzcinski never learned to do them.

Ed-N-Sam's financial condition worsened over the years. In 1985, it lost $109,000 and failed to pay its real estate taxes. Mrs. Trzcinski testified that she understood that because the taxes were not paid, First Lien Company had "purchased the taxes" and that if the taxes were not redeemed within a certain time period, First Lien could sell the real property. Mrs. Trzcinski understood that First Lien's interest was considered a "lien" on the property because Ed-N-Sam's auditor told her so. At approximately the same time, to help the company's cash flow, Mrs. Trzcinski began holding the rent checks she received from Ed-N-Sam's rather than depositing them, which severely reduced her personal income.

Also in 1985, Steel City Bank foreclosed on the collateral for a loan made to Ed-N-Sam's that Mrs. Trzcinski and Peters had personally guaranteed. Steel City Bank took Mrs. Trzcinski's $15,000 certificate of deposit and in 1986 obtained a judgment against Mrs. Trzcinski, Peters and Ed-N-Sam's for approximately $94,743. To pay the judgment, Mrs. Trzcinski, Peters and Ed-N-Sam's borrowed $100,000 from Republic Bank, collateralized in part by Mrs. Trzcinski's other certificate of deposit of $14,000. The loan was later transferred to another bank and was due shortly after the fire in 1987.

In 1981, Ed-N-Sam's had obtained a Small Business Administration ("SBA") loan for $150,000, which Mrs. Trzcinski personally guaranteed at the request of Peters. As of 1987, the balance due on the loan had been reduced to $109,000. Ed-N-Sam's had stopped making payments on the loan in 1985, and the loan remained in default at the time of the fire. In 1986, the SBA sent a letter to Mrs. Trzcinski to notify her that the loan was in default and to demand payment of the entire principal and interest due.

Beginning in 1985 and continuing through 1988, Peters and Mrs. Trzcinski tried to sell Ed-N-Sam's. Although Peters received one acceptable offer, the buyer could not get financing for the purchase. Ed-N-Sam's was located in the steel manufacturing part of town which had suffered from severe down-turns in business. Mrs. Trzcinski testified that both the SBA and First Lien had agreed to forebear taking action while Peters and Mrs. Trzcinski tried to sell Ed-N-Sam's.

In addition to the financial problems that Ed-N-Sam's had created for her, Mrs. Trzcinski acknowledged that she had other financial problems. In March 1986, Mrs. Trzcinski received a notice that Phoenix Bond Indemnity Company had purchased Mrs. Trzcinski's real estate at a public auction for delinquent real estate taxes of $1,314.72. The County Collector's office had explained to Mrs. Trzcinski that she had until December 1987 to pay Phoenix Bond to redeem her taxes. Mrs. Trzcinski eventually paid the back taxes and redeemed the real estate after a friend repaid a personal loan.

The day of the fire, Ron Ramsey, an insurance adjuster for American, made an inspection of the fire damage with Steven and Gail Anton. Ramsey spoke with the Antons and Mrs. Trzcinski regarding the fire. After his investigation, Ramsey prepared a building repair estimate. Ramsey estimated that repairing the house to its pre-fire condition would cost $21,434.

After the fire, both Mrs. Trzcinski and American had estimates of repair prepared by third parties. Mrs. Trzcinski employed Clayton Nalon, a public insurance adjuster, to prepare her insurance claim under the policy for the building, the contents and additional living expenses. Nalon inspected the building, obtained information from Mrs. Trzcinski and the Antons and prepared a repair estimate of $43,737.03 for the repair of the house. Nalon presented the estimate to Ramsey who did not think that the estimate was accurate. Ramsey then asked Daniel Lipensky from the Nordic Construction Company to prepare an estimate. Lipensky estimated that $26,497 would put the house in pre-fire condition. Mrs. Trzcinski then requested John Babick of Sikora Builders to make an estimate. Mr. Babick reported to Mrs. Trzcinski that approximately $29,978 would put the house in pre-fire condition. At Mrs. Trzcinski's request, however, Mr. Babick prepared a revised estimate in August 1987 to cut down costs, and Sikora Builders eventually performed the repairs for $23,750. Nevertheless, Mrs. Trzcinski used Nalon's $43,737.03 estimate in her proof-of-loss claim.

Nalon had been a public insurance adjuster since 1975 and worked in the insurance industry since 1960. He had extensive experience in adjusting property damage. He prepared his estimate of damages and repair costs relying on the National Cost Estimator Manual, a publication recognized for local current pricing on specific materials. Nalon denied that the estimate was exaggerated. During his testimony, Nalon presented a tabular comparison of his repair estimates with the Nordic and Sikora estimates. Nalon discussed several reasons for the difference between the estimates. Nalon believed the floors in the living room, dining room and kitchen should have been removed down to the joists, and the damaged joists replaced at least to the main support beams; the subflooring should have been replaced; and all of the oak flooring should have been replaced. By contrast, Nordic Construction and Sikora Builders proposed to cut out the burned sections of the joists and "sister" them together, which Nalon believed was not the most structurally sound solution. ...