Jonari Management Corp. v. St. Paul Fire & Marine Ins. Co.

• Decision Date: 30 March 1983
• Court: New York Court of Appeals Court of Appeals
• Parties: , 448 N.E.2d 427 JONARI MANAGEMENT CORP., Respondent, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Appellant.

Page 760

461 N.Y.S.2d 760

58 N.Y.2d 408, 448 N.E.2d 427

JONARI MANAGEMENT CORP., Respondent, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Appellant.

Court of Appeals of New York.

March 30, 1983.

Solomon M. Cheser, New York City, for appellant.

Frank A. Weg, New York City, for respondent.

OPINION OF THE COURT

JONES, Judge.

Where an insured submits a second version of the lease pursuant to the terms of which its recovery under a policy of fire insurance is to be determined, which second version was concededly prepared after the fire, the jury's finding of no intent to defraud the insurer should not be disturbed where the proof contains testimony that the second version was prepared for the purpose of accurately reflecting the agreement reached by the landlord and tenant but imperfectly manifested in the lease originally signed. Nor was it error for the trial court to refuse the insurer's request to charge that the filing of duplicate claims would constitute concealment and misrepresentation entitling the insurer to a verdict in its favor. There should, however, be a new trial on the issue of damages for loss of rent.

Plaintiff Jonari is a corporation formed by an optometrist and a dentist, Drs. Mittleman and Zuckerman, for the purpose of establishing and operating a medical center. At the time of the events which gave rise to this lawsuit Dr. Mittleman was also a principal in a professional corporation, Mittleman & Sverdlin, P.C. (M & S). On March 24, 1975 Jonari entered into a sublease with O'Brien Enterprises, Inc. (O'Brien), itself the lessor of premises at 5536 Broadway, Bronx, under which O'Brien, also a contractor, was to remodel the premises at the leased site in accordance with plans provided by Jonari so as to construct multiple accommodations which Jonari in turn might lease to a variety of medical specialists. The president of O'Brien testified that included in the rent to be paid by Jonari was an amount to reimburse the contractor for the expenditures it would put into the structure for improvements and betterments to comply with Jonari's specifications.

On July 1, 1975 St. Paul Fire & Marine Insurance Company issued a policy insuring Jonari against fire loss at the leased premises, including provision for rents lost following a fire. Among the items of property covered by the policy, under paragraph 1C was: "Improvements and Betterments, meaning the Insured's use interest in fixtures, alterations, installations or additions comprising a part of the described building(s) occupied but not owned by the Insured and made or acquired at the expense of the Insured exclusive of rent paid by the Insured, but which are not legally subject to removal by the Insured." With respect to lost rents, the agreement provided that the company would be liable for: "The actual loss sustained by the Insured resulting directly from necessary untenantability, but not exceeding the reduction in rents less charges and expenses which do not necessarily continue during the period of untenantability for only such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair or replace such part of the property herein described as has been damaged or destroyed, commencing with the date of such damage or destruction and not limited by the date of expiration of this policy". Also included in the policy was the standard provision mandated by section 168 of the Insurance Law: "Concealmen fraud. This entire policy shall be void if, whether before or after a loss, the insured has wilfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto."

On July 14, 1975 the medical center opened; by the time a major fire occurred at the facility two weeks later on July 28 Jonari had sublet 17 units to medical and related professionals. Four of the arrangements were by written leases at a fixed rent; 13 were by oral agreement under which the tenants agreed to pay rent of a stated percentage of their gross receipts, the prospect being that after a three- to six-month probationary period written leases on the same terms would be executed. One of the tenants with a written lease was the professional corporation M & S, which had theretofore taken out an equipment floater policy with St. Paul at its previous location.

After the fire on July 28, which made the premises untenantable without substantial restoration and repair, Jonari filed a claim under its policy with St. Paul for personal property loss in the amount of $108,613.27, including improvements and betterments of $36,133.02, and for lost rents of $32,000. In connection with that claim, two documents were submitted to St. Paul as expressing the lease arrangement entered into between Jonari and O'Brien on March 24, 1975. Both bore the date last mentioned and were otherwise identical except that the second lease tendered to the insurer included a clause not appearing in the other. That clause--clause 45--provided: "Notwithstanding any other provisions to the contrary, it is understood and agreed between the parties, that upon completion of landlord's work on Exhibit A, to be performed for tenant's exclusive benefit and interest, tenant shall in the event the demised premises are damaged by fire or other cause, repair and rebuild the same to the extent of the available insurance proceeds for this work, within 60 days or have the right to cancel this lease without any further obligations." This clause was heavily relied on by Jonari as support for its claim that it had an insurable interest in the improvements and betterments of the medical center and its request for payment for such items under its policy with St. Paul. In examinations under oath of Drs. Mittleman and Zuckerman conducted by the insurer pursuant to a provision of the policy each was questioned with respect to the time of execution of the lease that contained clause 45. While Dr. Mittleman stated that he did not know when the clause was put in the lease form, Dr. Zuckerman stated that he knew it was before the fire.

After St. Paul rejected Jonari's claim in full, the present action was instituted in which the claim was reasserted, with the item of lost rent being increased to $96,000 (the full amount of policy coverage for that item), it being Jonari's position that that item had continued to escalate during consideration of its claim by St. Paul. In addition to other defenses not now relevant, the insurer asserted that it was relieved of liability under the policy by reason of the insured's production of a fraudulent lease and its misrepresentation as to the time of inclusion of clause 45 for the purpose of imposing liability on the insurer where none existed.

At the trial of the action, at which Mr. O'Brien testified that the lease containing the clause on which Jonari's claim for improvements and betterments was in significant part based had not been executed until after the fire had occurred, Jonari's counsel conceded that that was the fact. To establi the circumstances of the second lease's execution, testimony was produced that, after the insurer's...