Don Burton, Inc. v. Aetna Life & Cas. Co.

• Decision Date: 23 March 1978
• Docket Number: No. 76-1830,76-1830
• Citation: 575 F.2d 702
• Parties: DON BURTON, INC. and Don Burton, Individually, Plaintiffs-Appellees, v. AETNA LIFE & CASUALTY COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 702

575 F.2d 702

DON BURTON, INC. and Don Burton, Individually, Plaintiffs-Appellees, v. AETNA LIFE & CASUALTY COMPANY, Defendant-Appellant.

No. 76-1830.

United States Court of Appeals Ninth Circuit.

March 23, 1978.

Rehearing and Rehearing En Banc Denied May 26, 1978.

Scott Conley (argued), San Francisco, Cal., for defendant-appellant.

James A. Richman (argued), San Francisco, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of California.

Before WALLACE and SNEED, Circuit Judges, and PALMIERI, ^* District Judge.

PALMIERI, District Judge:

On July 1, 1973, a shoe store owned by Don Burton, Inc., a California corporation, and operated by Don Burton, the individual plaintiff below, burned down. ¹ This was one of several retail shoe stores operated by Burton in the Sacramento area. At the time of the fire, insurance policies issued by Aetna Life & Casualty Company ("Aetna"), a Connecticut corporation, were in effect, covering the stock, equipment, fixtures, and personal property at the various locations in which Burton conducted business. Aetna assigned a claims representative to the case and a timely proof of loss was filed by Burton on August 31, 1973. Because of certain unresolved disputes over substantiation and documentation of the claims and the effect of a requested, but apparently unexecuted ² reduction of the policy limits by the insured from $115,000 to $3,500 in the month prior to the fire, Aetna withheld payment on the claim.

This action was commenced in the Municipal Court of the State of California when the insured's brokerage filed a claim against Burton for premiums owing. In a cross-complaint against Aetna, Burton sued for actual damages under his policies, consequential damages arising out of Aetna's failure to pay the claim promptly, and punitive damages for Aetna's alleged breach of its duty of good faith and fair dealing. The claims by and against the brokerage were subsequently severed and dismissed, and, the requisite diversity of citizenship being created among the parties, a petition for removal of the action was filed by Aetna on January 17, 1975.

The case was tried to a jury in the United States District Court for the Eastern District of California on November 7, 1975. On February 3, 1976, after a bitterly contested trial lasting thirty-four days, ³ the jury returned a verdict for the plaintiff insured amounting to almost $600,000. The amount adjudged due under the policy totaled $69,973.50, to which was added consequential damages of $200,333, and punitive damages of $300,000. Aetna filed its notice of appeal from this judgment on April 2, 1976, alleging a number of errors by the trial court. We need not pursue our scrutiny of all of them inasmuch as we are arrested at the threshold by an error which necessitates a reversal of the judgment.

THE DEFENSE OF ARSON

Appellant cites as error the district court's refusal to give the entirety of its requested instructions on its affirmative defense of arson. This defense was raised in appellant's answer to Burton's cross complaint in the state court, which stated, upon information and belief, that "the fire referred to in the complaint was incendiary in origin, and that the cross complainant was somehow responsible for the set fire." A substantial part of the insurer's case in this lengthy trial was devoted to establishing the defense of arson.

Appellant's requested instructions on the issue of arson read as follows:

An intentional burning by a person or persons acting for or on behalf or under the control of the plaintiff insured is sufficient to defeat the claim of the insured.

I instruct you that while the burden of proof is upon the insurer to establish that a person or persons acting for and on behalf or under control of the plaintiff insured intentionally set the fire mentioned in the evidence, nevertheless you are instructed that this fact does not need to be established beyond a reasonable doubt, but it is sufficient that it be established by the greater weight of the evidence.

In giving these instructions the court struck the phrases "by a person or persons acting for or on behalf of or under the control of (the plaintiff insured)". Proper exceptions to these deletions were taken by counsel for appellant, and the colloquy between court and counsel at this point is set forth in the margin. ⁴

The instructions relevant to the defense of arson as ultimately given read as follows The defendant has the burden of proof on the following issues:

One, that the fire mentioned in evidence was in fact incendiary, that is, a set fire.

Two, that, when considering all the evidence, the fire was set by plaintiff Don Burton.

Concealment, misrepresentation or fraud as to a loss is provable by circumstantial evidence, that is, by inference reasonably deductible from facts proven, and this is so because the law recognizes the intrinsic difficulty of establishing such a concealment, misrepresentation or fraud by direct evidence, as a person who sets a fire to a building usually plans and executes his plan with stealth and secrecy. Consequently, all of the circumstances, preceding and surrounding the origin of the fire of July 1, 1973 as well as the aftermath to the fire should be considered by you.

An intentional burning by the plaintiff insured is sufficient to defeat the claim of the insured.

I instruct you that while the burden of proof is upon the insurer to establish that plaintiff insured intentionally set the fire mentioned in the evidence, nevertheless you are instructed that this fact does not need to be established beyond a reasonable doubt, but it is sufficient that it be established by the preponderance of the evidence.

In order to establish that the fire of July 1, 1973, was a set fire, the defendant is not required to establish the exact method by which the fire started.

In determining whether or not a fire is incendiary, you may consider such factors as the pattern of the burn, the nature and the course of the spread of the fire, rapidity of the spread of the fire, and the testimony of experts.

A conspiracy is a combination of two or more persons to accomplish by concerted action a criminal or unlawful purpose or a lawful purpose by a criminal or unlawful means.

It is beyond dispute that under the substantive law of the State of California an insurer is not required to establish that the insured personally set the fire in question in order to prevail on its affirmative defense of intentional burning. Section 533 of the California Insurance Code provides that "(a)n insurer is not liable for a loss caused by the wilful act of the insured . . .". This is but a codification of the jurisprudential maxim that no man shall profit from his own wrong. A person who "burns or causes to be burned or who aids, counsels or procures the burning of any . . . building" may be convicted of the crime of arson. California Penal Code § 448a. It is clear that a defendant need not be actually present at the time of the commission of the offense in order to aid and abet its commission. People v. Sherman, 97 Cal.App.2d 245, 217 P.2d 715, 721 (1950). Unsurprisingly, the notion that a defense of arson can be defeated by a failure to prove that the insured himself was the incendiarist is not supported by any authority to which our attention has been drawn and we have been unable to find any.

In declining Aetna's instructions the trial court effectively truncated the defense of arson. The uncontradicted testimony that the insured was at home at the time of the fire in effect removed the defense from the case under the given instructions requiring a finding that Burton was himself the arsonist. While the proffered instructions were arguably too broad, seeking to hold the insured responsible for acts done by others "for or on (his) behalf" see, e. g., Nuffer v. Ins. Co. of North America, 236 Cal.App.2d 349, 354, 45 Cal.Rptr. 918 (1965), Erlin-Lawler Enterprises, Inc. v. Fire Insurance Exchange, 267 Cal.App.2d 381, 73 Cal.Rptr. 182 (1968), the trial court was certainly put on notice of the deficiency in its charge in the colloquy set forth in footnote 4, supra. We disagree with appellee's contention that the one-sentence definition of conspiracy ⁵ coming later in the charge was sufficient to cure this deficiency. In short, the jury was never properly instructed that the defense of arson could be sustained if the insured had aided, abetted, or procured the setting of the fire.

The more significant inquiry here is whether sufficient evidence of Don Burton's implication in the fire had been adduced at trial to warrant the submission of the issue of arson to the jury. While it is unnecessary to give instructions unsupported by the evidence, a litigant is entitled to have the jury charged concerning his theory of the case if there is any direct or circumstantial evidence to support it. See, e. g., Strudl v. American Family Mutual Insurance Co., 536 F.2d 242, 246 (8th Cir. 1976); Blassingill v. Waterman Steamship Corp., 336 F.2d 367, 368 (9th Cir. 1964). A failure so to charge is, in effect, tantamount to directing a verdict for the opposing party on the disputed issue. The giving or denial of instructions in a diversity action is tested under federal law, Lupton v. Torbey, 548 F.2d 316, 320 (10th Cir. 1977), and federal law supplies the standard applicable to the determination of evidentiary sufficiency. Midland Insurance Co. v. Markel Service, Inc., 548 F.2d 603, 606 (5th Cir. 1977); United Telecommunications, Inc. v. American Television & Communications Corp., 536 F.2d 1310, 1315 (10th Cir. 1976). The standard in our Circuit, as expressed in recent decisions of this Court, is "whether or not, viewing the evidence as a whole, 'there is substantial evidence present that could support a finding, by reasonable jurors, for the nonmoving party' ". Quichocho v. Kelvinator Corp., 546 F.2d 812, 813 (...