Cerullo v. Aetna Cas. & Sur. Co.

• Decision Date: 16 February 1973
• Parties: Joseph C. CERULLO, Respondent, v. AETNA CASUALTY AND SURETY COMPANY et al., Appellants.
• Court: New York Supreme Court — Appellate Division

Page 767

341 N.Y.S.2d 767

41 A.D.2d 1

Joseph C. CERULLO, Respondent, v. AETNA CASUALTY AND SURETY COMPANY et al., Appellants.

Supreme Court, Appellate Division, Fourth Department.

Feb. 16, 1973.

Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo (Hugh McM. Russ, Jr., Buffalo, of counsel), for appellants.

Offermann, Fallon, Mahoney & Adner, Buffalo (Francis J. Offermann, Jr., Buffalo, of counsel), for respondent.

Before GOLDMAN, P.J., and DEL VECCHIO, WITMER, CARDAMONE and SIMONS, JJ.

OPINION

GOLDMAN, Presiding Justice:

Defendants appeal from each and every part of Special Term's order, except that part which permits appellants to serve an amended answer containing a defense of fraud and false swearing by plaintiff-respondent Joseph C. Cerullo in connection with an alleged false proof of loss. This appeal primarily concerns Special Term's denial of summary judgment and the denial of appellants' motion to amend their answer, except as to the issue of fraud. A rather detailed narration of the facts is essential to a discussion of the legal effects of the various transactions.

The events giving rise to this litigation began in March 1967 when the two Cerullo brothers, hereinafter referred to as Joseph and Emil, contracted to sell property in the Village of Depew in Erie County to Emil's son, hereinafter referred to as John. The land contract provided that the property would be conveyed after John discharged certain obligations. In order to protect their interests as contract vendors and vendee, the Cerullos obtained fire insurance on the premises whereby the defendants-appellants, eight insurance companies, issued 10 policies covering a building consisting of a restaurant and 32 bowling alleys known as Fairlanes.

A fire occurred on May 11, 1970 at which time there were two mortgages on the premises, one held by Erie County Savings Bank and the other by Liberty National Bank. Eight of the policies contained mortgagee clauses listing the two banks, and the other two policies had loss-payee clauses naming American Machine & Foundry, Bowling Products Group (AMF) as the loss-payee, 'as interest may appear'.

On July 30, 1970, John and Emil agreed with Joseph that, in return for their discharging the bank mortgages and any obligaiton to AMF, together with obtaining a release of Joseph from any guarantee to AMF, Joseph would not claim any additional portion of the insurance proceeds over and above the mortgage payments. This agreement also provided that if litigation were necessary, it would be controlled exclusively by John.

Proofs of loss were filed in August 1970. Legal proceedings were commenced against the appellants by the Cerullos in November 1970. The appellants' answer consisted of specific denials and certain affirmative defenses raised against John only, to wit, fraudulent proof of loss, increase of hazard, neglect to care for the premises and incendiarism. Trial commenced in March 1971, but a mistrial was declared and the trial has not resumed. In January 1972, John and Emil agreed to settle their action against the appellants and, on April 20, 1972, executed releases and stipulations of discontinuance. After Emil and John had withdrawn as plaintiffs, appellants in May 1972 sought to amend their answer by striking the affirmative defenses in the original answer, with the exception of fraudulent proof of loss, and by setting up counterclaims in the amounts of liens and mortgages; alleging as an affirmative defense that respondent Joseph had no interest in the action; and alleging by way of counterclaim that he was committing an intentional tort in continuing to prosecute the action. On June 19, 1972 Special Term denied the respondent Joseph's and the appellants' motions for summary judgment and granted appellants' motion to set up the affirmative defense of false proof of loss against respondent Joseph. This decision was reflected in an order dated July 21, 1972. Controversy arose as to the scope of the permitted amendment. The order of July 21, 1972 was resettled by an order entered August 31, 1972 which denied the parties' motions for summary judgment and limited the amendment of appellants' answer to an affirmative defense of alleged proof of loss as to the respondent Joseph.

The determination of this appeal turns upon two issues: the effect of the agreement as between Joseph and the appellants and secondly, the result of the payments made by appellants to the mortgagees and the loss-payee as between Joseph and defendants.

The rights under a fire insurance policy, both as to amount of and eligibility for recovery, are fixed as of the time of the fire loss (Whitestone Sav. v. Allstate Ins. Co., 28 N.Y.2d 332, 334, 321 N.Y.S.2d 862, 863, 270 N.E.2d 694, 695). Appellants look to an agreement entered into subsequent to the fire loss as a basis for denying liability to Joseph. Their reliance on this agreement is...