Counihan v. Allstate Ins. Co.

• Citation: 25 F.3d 109
• Decision Date: 26 May 1994
• Docket Number: No. 924,D,924
• Parties: Josephine A. COUNIHAN, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee. ocket 93-7873.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 109

25 F.3d 109

62 USLW 2766

Josephine A. COUNIHAN, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.

No. 924, Docket 93-7873.

United States Court of Appeals, Second Circuit.

Argued Jan. 10, 1994.

Decided May 26, 1994.

Richard B. Lind, New York City (McCostis & Lind, of counsel), for plaintiff-appellant.

Dennis M. Brown, Smithtown, NY (Richard J. Inzerillo, P.C., of counsel), for defendant-appellee.

Before: MINER and MAHONEY, Circuit Judges, RESTANI, ^* Judge.

MINER, Circuit Judge:

Plaintiff-appellant Josephine A. Counihan appeals from a summary judgment entered in the United States District Court for the Eastern District of New York (Wexler, J.) in favor of defendant-appellee Allstate Insurance Company ("Allstate") in an action to recover on a fire insurance policy. The structure covered by the policy was totally destroyed by fire. Subsequent to the fire loss, a final judgment of forfeiture was entered on the basis of an earlier use of the property for illegal drug activities. Because the statute authorizing forfeiture under these circumstances provides that title vests in the United States as of the date of the act giving rise to the forfeiture, the district court determined that the plaintiff had no insurable interest in the property at the time of the fire. We are called upon to decide for the first time whether the "relation-back" provision of the forfeiture statute serves to divest a property owner of an insurable interest so as to bar recovery on a fire insurance policy where a fire loss occurs before the government acquires title to the property pursuant to a final decree of forfeiture. Disagreeing with the district court, we reject the notion of retroactive divestiture of an insurable interest and therefore reverse and remand in accordance with the analysis that follows.

BACKGROUND

Plaintiff acquired a one-half interest in the residential dwelling house property designated as 890 Noyac Road, Noyac, NY in 1982. The house was occupied by various tenants between 1982 and 1990. Among the tenants occupying the property as of July 22, 1988 was Thomas Counihan, son of plaintiff. On that date, a police agent purchased a quantity of cocaine at the property. Later that same day, police officers of the Town of Southhampton executed a warrant for the search of the property and arrested Thomas Counihan. Drugs, drug paraphernalia and cash were recovered during the search.

Plaintiff maintained insurance on the property both before and after July 21, 1988. On December 9, 1988, Allstate issued to plaintiff the most recent policy of fire insurance covering the dwelling house. The policy bore the title "Allstate Landlords Package Policy" and provided a limit of liability for fire damage to the property in the amount of $93,000. The insurance contract was in full force and effect on November 1, 1990, when the dwelling was destroyed by fire. Up to the time of the fire, plaintiff made all mortgage, tax and On February 9, 1989, the government filed a complaint in rem by which it sought forfeiture of the property on the basis of the narcotics activity that had occurred at the premises in July of the previous year. At about the same time, the government also seized the property, basing the seizure as well as the forfeiture action on the statutory provision for forfeiture of

insurance premium payments that were due on the property and paid for utility services as well. She also collected rents from the various tenants who occupied the property. At the time of the fire, plaintiff and Patricia Ljunquist, former wife of Thomas Counihan, each held a one-half interest in the property.

[a]ll real property, including any right, title and interest (including any leasehold interest) in the whole of any lot or tract of land and any appurtenances or improvements, which is used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, a violation of this subchapter.

21 U.S.C. Sec. 881(a)(7).

Following a jury verdict in favor of the government in the forfeiture action, a judgment of forfeiture was entered in the district court on July 2, 1990. On appeal, we reversed, finding that the district court had abused its discretion by allowing a post-trial amendment of the complaint. See United States v. 890 Noyac Rd., 945 F.2d 1252, 1259 (2d Cir.1991). We observed in our decision that, on remand, the claimant (the plaintiff here) could avoid forfeiture by establishing either that she had no knowledge of the narcotics activity at the premises or, if she had knowledge, she did not consent to it. Id. at 1260. As previously noted, the fire that destroyed the premises occurred on November 1, 1990, a date that followed the judgment of forfeiture but preceded our October 3, 1991 opinion for reversal. The government neither asserted any rights nor made any efforts to remove plaintiff from possession following the 1990 judgment of forfeiture.

On October 31, 1991, prior to any proceedings on remand in the forfeiture case, the action giving rise to the appeal at bar was commenced. It was not until May 27, 1992 that the second and final judgment of forfeiture was entered after trial in the district court. The jury apparently rejected Ms. Counihan's innocent owner defense. We affirmed by summary order on February 4, 1993. United States v. Certain Real Property, 990 F.2d 1250 (2d Cir.1993). Thereafter, both parties in the case presently before us moved for summary judgment in the district court. In a Memorandum and Order dated August 4, 1993, the district court granted the motion of Allstate and denied the motion made by plaintiff. See Counihan v. Allstate Ins. Co., 827 F.Supp. 132 (E.D.N.Y.1993). Final judgment in favor of Allstate was entered on August 18, 1993.

According to the district court's decision, plaintiff would have been entitled to recover in the absence of the "relation-back" provisions of 21 U.S.C. Sec. 881, since the policy was purchased and the loss occurred well before the date the final judgment of forfeiture was entered. Id. at 135-36. It was the provision relating to retroactivity, however, that led the district court to conclude its opinion as follows:

[W]here property, otherwise duly insured, is forfeited to the government retroactive to a time prior to the purchase of the insurance policy, such forfeiture renders the policy void by retroactively divesting the policyholder of her insurable interest in the property.

Id. at 136 (footnote omitted).

DISCUSSION

New York law provides that no insurance policy "shall be enforceable except for the benefit of some person having an insurable interest in the property insured." N.Y.Ins.Law Sec. 3401 (McKinney 1985). "Insurable interest" is defined as including "any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage." Id. According to the New York Court of Appeals, "the rights under a fire insurance policy are fixed both as to amount and standing to recover at the time of the fire loss." See Whitestone Sav. & Loan Assoc. v. Allstate Ins. Co., 28 N.Y.2d 332, 334, 321 N.Y.S.2d 862, 270 N.E.2d 694 (1971). We likewise Plaintiff had an insurable interest in the property when the fire occurred on November 1, 1990. That is, she had a substantial economic interest in the preservation of the building. She was paying the real estate taxes, mortgage installments, utility charges and insurance premiums. She apparently had been collecting rents for some time before the fire occurred, and it is established that "rent represents a significant portion of the exploitable economic value of [a] home." United States v. James Daniel Good Real Property, --- U.S. ----, ----, 114 S.Ct. 492, 501, 126 L.Ed.2d 490 (1993). But it was not only the right to receive rents that was at risk at the time of the fire; it was also the "pecuniary benefit" of plaintiff's interest in the property itself that was at risk when the fire occurred. See Scarola v. Insurance Co. of N. Am., 31 N.Y.2d 411, 413, 340 N.Y.S.2d 630, 292 N.E.2d 776 (1972) (innocent purchaser of stolen car has insurable interest). The final judgment of forfeiture was yet to be entered, since the first judgment of forfeiture, destined to be reversed, was at the time of the fire subject to a pending appeal.

                have recognized that section 3401 "require[s] an insurable interest at the time of the loss in cases involving property or casualty insurance."   See Herman v. Provident Mut. Life Ins. Co., 886 F.2d 529, 534 (2d Cir.1989)
                

What was in effect on November 1, 1990 was a so-called "seizure" by the government. It is not at all clear that the seizure afforded the government any interest in the property whatsoever, since it was of questionable validity. In civil forfeiture cases, the government may not seize real property without providing owners with notice and an opportunity to be heard, in the absence of exigent circumstances. See Good Real Property, --- U.S. at ----, 114 S.Ct. at 505. The record before us reveals nothing in regard to pre-seizure notice and hearing, and there certainly were no exigent circumstances that would justify dispensing with these due process rights. In any event, the seizure here certainly did not divest the plaintiff of an insurable interest, since she continued to exercise virtually all the incidents of ownership right up until the time of the fire. Whatever interest in the property the government may have derived from the seizure was insufficient to deprive plaintiff of her economic interests. The district court effectively agreed with the plaintiff to that extent:

Were there no relation back provision in the forfeiture statute, that is, were the forfeiture deemed effective only as of the date of final judgment, there would seem to be no question that Counihan, who had purchased her policy and whose loss had occurred well before May 27, 1992, the date judgment was entered in Noyac...