Esquire Restaurant, Inc. v. Commonwealth Ins. Co. of NY

• Decision Date: 16 April 1968
• Docket Number: No. 15874.,15874.
• Citation: 393 F.2d 111
• Parties: ESQUIRE RESTAURANT, INC., an Illinois corporation, Plaintiff-Appellant, v. The COMMONWEALTH INSURANCE COMPANY OF NEW YORK, Cream City Mutual Insurance Company, Hartford Fire Insurance Company, Newark Insurance Company, and United States Fidelity and Guaranty Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

393 F.2d 111 (1968)

ESQUIRE RESTAURANT, INC., an Illinois corporation, Plaintiff-Appellant, v. The COMMONWEALTH INSURANCE COMPANY OF NEW YORK, Cream City Mutual Insurance Company, Hartford Fire Insurance Company, Newark Insurance Company, and United States Fidelity and Guaranty Company, Defendants-Appellees.

No. 15874.

United States Court of Appeals Seventh Circuit.

March 11, 1968.

Rehearing Denied April 16, 1968.

COPYRIGHT MATERIAL OMITTED

John D. Vosnos, Bruce Parkhill, Chicago, Ill., for appellant.

Samuel Levin, Daniel J. Leahy, Chicago, Ill., for appellees.

Before KNOCH, Senior Circuit Judge, and FAIRCHILD and CUMMINGS, Circuit Judges.

CUMMINGS, Circuit Judge.

Plaintiff Esquire Restaurant, Inc., an Illinois corporation, is the lessee of part of the building at 12 South Grove Avenue, Elgin, Illinois. In 1962, it filed a suit in the Superior Court of Cook County, Illinois, to recover for losses allegedly covered by five fire insurance policies. Pursuant to Section 1441 of the Judicial Code (28 U.S.C. § 1441), the suit was removed by defendant insurers to the United States District Court.

About 4:45 a. m. on October 16, 1961, a fire occurred in the restaurant, damaging the contents, improvements and betterments. The complaint alleged that the sound value of the insured property at the time of loss was about $114,000, and that plaintiff's loss was about $84,000.

At the time of the fire, Phil Anaston had been succeeded as president of the restaurant corporation by his son Louis Manolis. Anaston and his wife then owned all the corporation's outstanding stock. Ten weeks before the fire, Charles Seidel and his wife sold their stock in the restaurant to the corporation, which had lost considerable money for the years 1957 through 1961. The Seidels' 250 shares were acquired by the issuance of the restaurant's promissory note for $28,400, secured by a chattel mortgage on all its assets, and were to be retained as treasury shares upon their transfer.

After the fire, the Elgin Fire Department found two 5-gallon fuel oil cans and various pots and pans containing fuel oil in the restaurant. Its deputy chief testified that in his opinion the fire was deliberately set.

The testimony showed that the front door of the restaurant was locked but the rear door was ajar after the fire. The rear door had been locked with a padlock and hasp on the inside of the basement, but after the fire was extinguished, the padlock was found hanging on the hasp in an open position. The rear door and padlock had not been forced open.

At 2:30 a. m. on the morning of the fire, Louis Manolis, son of the owner, inspected and locked all the restaurant doors. He and his brother, Leo, and their father, Phil Anaston, had three sets of keys to the restaurant, and the fourth set was usually kept hanging in the back room of the restaurant. This fourth set was being used by Leo Manolis at the time of the fire because he had lost his own set, which he found afterwards in his raincoat pocket.

In their answer, as amended, the defendants set out the following affirmative defenses:

1. Neglect of the insured to use all reasonable means to save the property.

2. False swearing in the proofs of loss that the origin of the fire was unknown, whereas it was known to be incendiary.

3. False swearing in the proofs of loss concerning the cash value of the property and damage thereto.

4. False testimony that the origin of the fire and those who caused it were unknown.

5. False testimony concerning the extent of damage.

6. Lessors\' (rather than plaintiff\'s) ownership of improvements and betterments.

Overstatements in the proofs of loss and arson were the principal trial defenses.

After a 12-day trial, a general verdict was returned in defendants' favor and judgment was entered thereon. Plaintiff's motion for a new trial was denied after a hearing.

On appeal, plaintiff first attacks four instructions (O, Z, DD and GG).¹ Plaintiff's principal attack is on Instruction O, which was derived from Claflin v. Commonwealth Insurance Company, 110 U.S. 81, 95, 3 S.Ct. 507, 28 L.Ed. 76; and Tenore v. American and Foreign Insurance Co. of New York, 256 F.2d 791, 794-795 (7th Cir. 1958), certiorari denied, 358 U.S. 880, 79 S.Ct. 119, 3 L.Ed. 2d 110, and provided:

"The Court instructs the jury as a matter of law that a false answer to any material fact, knowingly and wilfully made, with intent to deceive the insurers, would be fraudulent. And if the matter were material and the statement false to the knowledge of the party making it and wilfully made, the intention to deceive the insurers would be necessarily implied, for the law presumes every man to intend the natural consequences of his acts."

Plaintiff argues that this instruction does not specifically refer to the proofs of loss,² but the instruction refers to false answers made with intent to deceive the insurers. As revealed by the closing statement of defendants' counsel, the only false statements relied upon were in the proofs of loss, and plaintiff points to no other statements in evidence to which the instruction might refer. The jury itself understood what the instruction was aimed at, for after deliberating, the jury asked the court whether overstatements "in the sworn proof of loss" would render it fraudulent. In response, the court reread Instruction O, stating that it answered the jury's question. Therefore, the omission of a specific reference to the proofs of loss in Instruction O was not prejudicial.

Plaintiff also asserts that Instruction O was inadequate, on the ground that fraud in a proof of loss must be established by "clear and convincing evidence." On the contrary, Sundquist v. Hardware Mutual Fire Insurance Company of Minnesota, 371 Ill. 360, 365, 21 N.E.2d 297, 300 (1939),³ establishes that false swearing in a proof of loss may be proved by a preponderance of the evidence, as explained by Instruction Z.⁴ Taken together, Instruction O and those in note 4 supplied the jury with the proper rule.

Plaintiff finally contends that Instruction O improperly failed to define a material fact. However, the proof of loss statements about the cause of the fire and the value of the property and the amount of damage thereto, relied upon by defendants as false, were so clearly material that the jury did not need a separate definition of "material fact" in order to follow Instruction O. The jury's question to the court concerning the proofs of loss shows that it was not puzzled by any failure to define a material fact. Its sole concern was whether the whole of each proof of loss was fraudulent if some items therein were overstated. Since the purportedly false statements were patently material, plaintiff was undeservedly benefited by letting the jury consider materiality. Its material fact definition argument is therefore without merit in contrast to Laughlin v. Hopkinson, 292 Ill. 80, 85, 126 N.E. 591 (1920) and Williams v. Stearns, 256 Ill.App. 425, 433 (1930), where the juries' decisions on the materiality of allegations might have hurt those defendants.

Instruction GG is claimed to be erroneous. It provides:

"The Court instructs the jury that if you find from a preponderance of the evidence that it was agreed that the stock held by Charles G. Seidel and his wife in the Esquire Restaurant, Inc. be transferred to the corporation in consideration for the execution by Esquire Restaurant, Inc. of a chattel mortgage on the property of Esquire Restaurant, Inc., then and in that event the delivery of the certificates of said stock was not essential to the transfer of said stock to the corporation."

Because of plaintiff's Instruction 5, advising the jury that plaintiff could recover even if one of its officers set the fire unless he was the sole owner, it became important for the jury to determine who were the actual stockholders on the date of the fire. Instruction GG was appropriate for this purpose. Nothing in the instruction was calculated to raise a question in the jury's mind as to whether the plaintiff had an insurable interest in the mortgaged property, nor was such an objection raised at the conference on the instructions.

Assuming that plaintiff properly objected to Instruction DD⁵ by merely stating, "I don't know what it adds to the case," the instruction was necessary in view of the affirmative defense that the improvements and betterments were owned by lessors Marie B. Dowle and her brother, Waldo J. Bielenberg. Under the policies, the plaintiff was not entitled to recover for the improvements and betterments unless it owned them. In order to determine the ownership of such property, the jury needed the definition provided in Instruction DD.

Plaintiff next asserts that the defendants were erroneously permitted to amend their answer. This amendment, constituting Count II of the answer, alleged that under the lease of the premises, the improvements and betterments became the property of the lessors.

On November 17, 1965, during the course of the trial, the defendants first filed a motion for leave to amend their answer in this respect. At that time, the motion was denied after plaintiff's counsel objected to its coming "much too late." The motion was renewed on November 22 at the start of the instructions conference. There being no objection, the District Court allowed the motion at that time. Under Rule 46 of the Federal Rules of Civil Procedure, any error in permitting the amendment was perhaps technically waived. Nevertheless, since plaintiff originally objected to the amendment to the answer, we will consider the point.

Rule 15(b) of the Federal Rules of Civil Procedure gives the trial court wide discretion to allow pleadings to be amended to conform to the evidence. Here the original answer had admitted that plaintiff was the owner of the improvements and betterments in the restaurant. At the trial, the plaintiff introduced in evidence a lease between it and the building owners. The...