Lykos v. American Home Ins. Co.

• Decision Date: 30 November 1979
• Docket Number: No. 78-1977,78-1977
• Citation: 609 F.2d 314
• Parties: Gus LYKOS et al., Plaintiffs-Appellants, v. AMERICAN HOME INSURANCE COMPANY, a New York Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 314

609 F.2d 314

Gus LYKOS et al., Plaintiffs-Appellants, v. AMERICAN HOME INSURANCE COMPANY, a New York Corporation,

Defendant-Appellee.

No. 78-1977.

United States Court of Appeals, Seventh Circuit.

Argued April 26, 1979.

Decided Nov. 30, 1979. ^*

Mathew K. Szygowski, William J. Harte, Chicago, Ill., for plaintiffs-appellants.

John P. Gorman, James T. Ferrini, Chicago, Ill., for defendant-appellee.

Before PELL, Circuit Judge, MOORE, Senior Circuit Judge, ^** and WOOD, Circuit Judge.

PER CURIAM.

The plaintiff-appellants, Gus and Catherine Lykos, and Mike, George, Helen, and Marie Bousis, brought this action to recover on an insurance policy issued by the defendant-appellee, American Home Insurance Company, for damage arising out of a fire on certain premises. The defendant denied liability under the policy, asserting the defenses of (1) fraud and false swearing and (2) arson by the insured. The case was given to the jury over the defendant's motion for a directed verdict, and the jury returned a verdict in favor of the plaintiffs. The trial court, however, granted the defendant's motion for judgment Non obstante veredicto and, in accordance with Fed.R.Civ.P. 50(c)(1), conditionally granted the defendant's motion for a new trial. We need not discuss the arson evidence, even though it overwhelmingly supports the defendant and would at least require a new trial, because we hold that the evidence at trial established the plaintiff's fraud and false swearing as a matter of law.

The insurance policy which is the subject of this action provides:

Concealment, 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.

Illinois law controls the substantive law on the defense of fraud, and the governing principle is that "(o)rdinarily, fraud and false swearing is a question of fact for the jury, but it becomes a question of law when the insured's misrepresentations cannot in any way be seen as innocent." Folk v. National Ben Franklin Insurance Co., 45 Ill.App.3d 595, 597, 4 Ill.Dec. 104, 105, 359 N.E.2d 1056, 1057 (1976). Illinois law also governs the appropriate standard for taking a case away from the jury. Etling v. Sander, 447 F.2d 593, 594 (7th Cir. 1971). The Illinois standard, as formulated in Pedrick v. Peoria & Eastern R.R., 37 Ill.2d 494, 510, 229 N.E.2d 504, 513-14 (1967), is that "verdicts ought to be directed and judgments n. o. v. entered only in those cases in which all of the evidence, when viewed in its aspect most favorable to the opponent, so overwhelmingly favors movant that no contrary verdict based on that evidence could ever stand." Our examination of the record convinces us that the trial court's entry of judgment for the defendant notwithstanding the jury's verdict met this stringent test. We recount below the facts essentially as detailed in the trial court's memorandum order granting judgment n. o. v.

The evidence at trial showed that the plaintiffs owned a building in Hoffman Estates, Illinois, which had been newly remodeled and equipped and where the plaintiffs operated a restaurant known as Tino's Restaurant & Lounge. The establishment served both food and alcoholic beverages. The business was insured by the defendant, and the policy insured against loss by fire of the building, equipment and inventory, and against business interruption.

On March 31, 1975, the plaintiffs suffered a fire loss at Tino's. A fire started in the attic of the building causing the roof of the building to collapse. The building and much of the equipment were damaged by the fire, and the plaintiffs were no longer able to conduct business on the premises. It is uncontested that the fire was the work of arsonists. Pursuant to the terms of the insurance policy, the plaintiffs reported the loss and made a timely claim for their loss with the defendant.

The plaintiffs engaged Gale Olson, a public insurance adjuster, and agreed to pay him ten percent of any recovery. Olson had various conferences with Gus Lykos concerning the losses. Based upon his memory and observations after the fire, Lykos, together with Olson, prepared a document purporting to be a sworn proof of loss and claiming three categories of loss as a result of the fire: $167,390 for damage to the building; $188,711 for damage to the contents of the building, including food, liquor, and equipment; and $39,703 for loss of gross earnings or business interruption. The plaintiffs then submitted a sworn statement in proof of loss totaling $395,805.

The evidence showed a large number of items in the contents claim to be overvalued. In preparation of the claim neither Gus Lykos nor Olson referred to bank or other records which were recovered from the fire by fire officials and delivered to Lykos and which would have shown the amounts paid for supplies and equipment. Neither did they consult any of the merchants, wholesalers, or other suppliers concerning...