Raphtis v. St. Paul Fire & Marine Ins. Co.

Decision Date13 June 1972
Docket NumberNos. 10997--10999,s. 10997--10999
Citation198 N.W.2d 505,86 S.D. 491
PartiesSam RAPHTIS, Plaintiff and Appellant, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a corporation, and United States Fire Insurance Company, a corporation, Defendants and Respondents. John RAPHTIS, Plaintiff and Appellant, v. MILBANK MUTUAL INSURANCE COMPANY, a corporation, and Tri-State Mutual Insurance Company, a corporation, Defendants and Respondents. John RAPHTIS, Plaintiff and Appellant, v. AMERICAN NATIONAL FIRE INSURANCE COMPANY, a corporation, and Agricultural Insurance Company, a corporation, Defendants and Respondents.
CourtSouth Dakota Supreme Court

Martin Weeks, Jr., of Bogue & Weeks, Vermillion, for plaintiffs and appellants.

Carleton R. Hoy, of Davenport, Evans, Hurwitz & Smith, Sioux Falls, for defendants and respondents.

BIEGELMEIER, Judge.

Plaintiffs commenced three separate actions on policies of insurance issued by defendants for losses sustained as a result of fires.

Plaintiffs, Sam Raphtis and John Raphtis, are brothers; they will be referred to as Sam and John. Sam's action against two companies is for losses from two fires about a month apart in a building he owned in Vermillion, South Dakota. One of John's actions is against two companies for losses from the first fire to restaurant equipment, and the other is for business interruption. The actions are consolidated for trial to the court and on appeal. In each case the defense was that the fires were of incendiary origin, that plaintiffs increased the risk or hazard by setting the fires or causing them to be set in violation of the terms of the policies, and that the companies were, therefore, not liable. Findings, conclusions and a judgment favorable to defendants were entered from which this appeal followed.

It is not disputed that the defendant companies issued the policies or that they were in full force on the dates of the fires, which resulted in losses to plaintiffs who gave due notice thereof to the insurance companies. The trial court's findings were that, except for their denial the fires were set by them, it was established by a preponderance of the evidence that plaintiffs did increase the hazards by means within their control or knowledge; that in effect they set the fires or caused them to be set. Plaintiffs urge the evidence is of a circumstantial nature and, while they now concede the fires were of an incendiary origin, they vigorously argue the circumstances are consistent with the theory that someone other than plaintiffs set the fires. The policies issued by defendants to plaintiffs in each case all include the following clause:

'Conditions suspending or restricting insurance. Unless otherwise provided in writing added hereto this Company shall not be liable for loss occurring (a) while the hazard is increased by any means within the control or knowledge of the insured * * *'.

Some basic legal principles guide our review. While there was a difference in the burden of proof in some early cases, a majority of courts, with which we align this court, holds it is only necessary in civil actions to establish the defense of incendiarism by a preponderance of the evidence. That was the conclusion reached in Weiner v. Aetna Ins. Co., 127 Neb. 572, 256 N.W. 71, after a review of court opinions.'

The insured's wilful burning of the property is a defense to his claim of loss by fire and precludes recovery under the quoted increased hazard clause. This is so even where policies contain no express provision to that effect. It has been said it is contra bonos mores to allow a man to insure against the consequences of his own rascality or recover for a loss resulting from his own criminal conduct. 2

Circumstantial evidence is admissible to establish the defense of incendiarism, or as often stated, 'Proof or arson may be made by circumstantial evidence.' 3 Indeed, proof of arson generally must of necessity rely substantially on such evidence. 'In proving arson, it is rare that eyewitnesses can be produced who saw the hand which struck the match that started a fire. Consequently, cases of this nature consist almost wholly of circumstantial evidence.' 4

Sam and John are brothers, both born in Greece. Sam came to the United States in 1952 and worked in his sister's cafe in Yankton until 1959 when he bought the Waffle Shop in Sioux City. He sold that cafe in 1962 and moved back to Yankton where he purchased an established cafe which he operated for about two months. He again moved to Sioux City and bought the Gridiron Club, and thereafter either owned or managed several bars or cafes. On December 13, 1968, at a time when he owned and operated a cafe in Sioux City, Sam bought a two-story building in Vermillion; on that date he mortgaged it to a bank for $14,400 payable in installments. The building was then subject to a lease to Tom Melenicos who continued to operate the Chimes Cafe, as it was known, until June 1969, when the business was sold to Sam. As before, to finance this purchase, Sam borrowed $8,500 from the bank. Appellants state that Sam purchased the business as an investment and to assist his brother John, a less affluent and relative newcomer from Greece, in starting a restaurant business. Sam immediately sold the business and leased the building to John who had arrived in the United States about three years before. The written transactions between Sam and John were a five-year lease in which John agreed to pay $260 a month rent commencing July 1, 1969, and a conditional sales contract whereby John agreed to pay $20,000 for the personal property of the cafe. This contract states $1,500 was paid down, and the balance of $18,500 was to be paid by John in monthly installments--first on Sam's $8,500 bank debt, the taxes and insurance, and the remaining $10,000 in monthly installments of $200 without interest to Sam.

The first Chimes Cafe fire occurred about 8:30 on the evening of September 26, 1969. An employee, who cleaned up at the end of the day's business, was in the cafe until near closing time, usually 7 p.m., when it can be inferred he was told he could leave and not finish cleaning up. In any event, John was the last to leave the building when he closed the place. Between thirty minutes to an hour later, fire was noticed in the cafe and was found to be centered near but below electrical conduits in the rear of the basement. It is conceded the fire was of incendiary origin, yet, because of its location and the method used, it deserves mention. The only access to the basement was provided by a door and stairs inside the building. Pictures in evidence showed that wide-mouthed glass jars containing gasoline had been placed on the floor near old box parts and lumber. One of the jars had broken and its contents had ignited causing some of the wood to burn and char. Firemen testified that by using masks they reached the site of the fire through dense smoke, it was hot but the fire was out due to a rather unusual occurrence; the terrific heat had melted the solder around the water line, and as water sprayed out it turned to steam and the dense smoke and steam extinguished the fire. 5

There was no evidence that plaintiffs had enemies or had received threats of any kind. When the 17-year-old helper came to work sometime after 4 p.m. he went to the basement to get some supplies from a refrigerator which was close by the location where the gasoline-filled glass bottles were later found; however, he saw nothing of them. John had locked the cafe when he left, and while sitting in a bar a few doors away, he paid no attention to the six fire trucks with flashing lights and sirens which were arriving and parking in the street until he was told that his cafe was on fire.

John's financial picture was not bright. While he ran the cafe which had been an established business before his venture, the financial statement he introduced showed a net profit of $650 for three months. It included as an expense the rent of $260 a month, but it did not include anything on the $18,500 balance of the purchase price of the business. His agreement was to first pay the $8,500 on Sam's note to the bank in an amount not set out in his contract, but which Sam stated was $165 a month. This leaves a three-month profit of $155 without considering any amounts for depreciation on the fixtures or for living expenses. On this basis there was little hope he could remain in business. The restaurant, of necessity, was thereafter closed for business. John moved to Sioux City and Sam began some repair work on the cafe which was locked.

On October 27th about 8:30 p.m., a month after the first fire, another fire occurred in the building. As the evidence conclusively shows, and it is conceded, this fire, too, was of incendiary origin. This time, however, it was in the attic near a trapdoor, and instead of glass jars of gasoline being use, it was started with burnable jugs of gasoline. Front and rear doors, both left unlocked, permitted access to a hall and rooms of the second story. No one lived there. Around eight o'clock that evening two strange men were seen backing a car up to the rear of the building, taking out what appeared to be plastic Clorox jugs and rags which they carried up the rear outside stairs. They remained a few minutes and drove away. Firemen extinguished the fire which involved most of the attic. Though the fire did considerable damage, it did not spread as expected by those who set it because of lack of oxygen; there was evidence that of the nine plastic jugs containing gasoline three were melted down, others were partially intact with gasoline in them and paper rolled up and struck in the tops of the jugs as wicks. Seven unburned newspapers--Sioux City Journals and Des Moines Registers, dated from September 11th through September 27, 1969--were found with the jugs; the latter originated from a town in northwest Iowa. There was...

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