Vitale v. Aetna Cas. & Sur. Co., 85-1203

Decision Date08 May 1987
Docket NumberNo. 85-1203,85-1203
Citation814 F.2d 1242
PartiesBennie VITALE, and Anna Vitale, Appellants, v. The AETNA CASUALTY & SURETY COMPANY, Appellee.
CourtU.S. Court of Appeals — Eighth Circuit

William L. Turner, Kansas City, Mo., for appellants.

R. Frederick Walters, Kansas City, Mo., for appellee.

Before McMILLIAN and JOHN R. GIBSON, Circuit Judges, and MURPHY, * District Judge.

DIANA E. MURPHY, District Judge.

This case concerns insurance claims made after fire destroyed a Kansas City restaurant owned by members of the Vitale family. Bennie and Anna Vitale 1 and their sons, Paul and Vincent Vitale, 2 brought a number of claims against Aetna Casualty and Surety Co., including breach of a fire insurance policy and vexatious refusal to pay. Aetna asserted arson and fraud as defenses. Some counts, including Vincent's claims, were dismissed before and during trial. The three remaining damage claims were submitted to a jury: the claim of Bennie and Anna on loss of the building and separate claims by Bennie and Paul on the building's contents. The jury returned a defense verdict on all counts, and judgment was entered in favor of Aetna. On appeal, Bennie and Anna Vitale contend that the trial court 3 erred in giving certain instructions to the jury and in ruling on two motions. 4 We affirm.

I.

The facts are stated in the light most favorable to Aetna, which prevailed at trial. See, e.g., Wilmington v. J.I. Case Co., 793 F.2d 909, 914 (8th Cir.1986). Bennie Vitale owned three barbecue restaurants in the Kansas City area. Two of his children, Paul and Vincent, worked at the restaurants from childhood and began managing the restaurants after graduating from high school. In 1978 or 1979, Bennie informally gave a restaurant to each of his sons: The Vineyard Restaurant to Vincent and Benny's Bar-B-Q, also known as Benny's Inter-City Bar-B-Q or the Old Plantation Bar-B-Q, to Paul. Bennie continued to manage the third restaurant, Benny's North Kansas Bar-B-Q, until 1983.

A fire destroyed Benny's Bar-B-Q on June 13, 1982. On that Sunday morning, Robert Warrene, a worker in an adjacent building, saw smoke drifting from Benny's Bar-B-Q. As he watched, flames leapt from the roof and two men emerged from the back door. One of the men was 5' 8"' or 5' 9"' and 200 to 220 pounds; Warrene later identified Paul Vitale as that man. The other man was taller, slimmer and carried a fire extinguisher; Aetna asserts that he was Vincent Vitale. Aetna argued that Paul, and possibly Vincent, had intentionally set fire to the building. 5 There was substantial evidence of arson. Appellants do not suggest that anyone other than their sons might have set the fire.

Bennie and Anna had purchased the building which housed Benny's Bar-B-Q only two months before the fire, after its owner died. They were able to purchase it for only $27,000, far less than its approximate $100,000 value, because Paul had a very favorable lease for its use. Bennie and Anna put $6,000 down on the building and took a $21,000 mortgage from the Blue Ridge Bank and Trust. Vincent, who managed insurance matters for the entire family, arranged to add their names to the insurance policy on the building, insuring it for $92,000.

Paul ran the restaurant and over a period of years borrowed money to improve it from Blue Ridge Bank and Trust. Bennie guaranteed the most recent of these loans, which consolidated the previous ones; the contents of the building served as collateral. Vincent incorrectly thought that he was also liable on the $50,000 consolidated loan from the bank. 6 Bennie claims that he no longer had any part in the ownership or management of his sons' restaurants at the time of the fire. The evidence indicates, however, that the utility bills for Benny's Bar-B-Q remained in Bennie's name. Vincent Vitale, who had the authority to sign anything in Bennie's name, signed his father's name to 1979, 1980 and 1981 liquor license applications indicating that Bennie owned both Benny's Bar-B-Q and The Vineyard.

Bennie and Paul Vitale had suffered financial difficulties shortly before the fire. At the time of the fire, Benny's Bar-B-Q was behind on its utility bills and on loan payments. It had lost money in 1981 and 1982. Paul had written a substantial number of checks on both his personal and business accounts which were returned for insufficient funds. He was also behind on his house payments. Bennie had recently suffered a substantial decrease in his income. In short, there was evidence of motive for arson.

Ten days after the fire, Aetna cancelled policies on all of the Vitales' businesses for "underwriting reasons." The same day, Aetna adjustor William Franz sent a proof of loss form to Vincent. Vincent contacted attorney Tom Cox, who completed the form. The first proof of loss stated that Paul and Vincent owned the business and that Bennie and Anna owned the building. The questions relating to loss, damage, and claim were answered incompletely or not at all. Vincent signed the form on behalf of all the insureds.

A second attorney, Ted Mullen, completed an amended proof of loss, which stated that the damage had been caused by a "fire in Bar-B-Q oven causing overheating and/or escaped." It further stated that Paul Vitale or Benny's Bar-B-Q, Inc. owned the personal property and business operation and that Bennie and Anna Vitale owned the building. The claim sought $92,000 for the building, $51,126.15 for its contents, and $100 per day for business interruption. 7 Only Vincent signed the amended proof of loss, but Bennie testified that he reviewed and approved the proof of loss before it was filed with Aetna and that it was, to the best of his knowledge, true. Bennie, Anna, and Paul had all authorized Vincent to complete and sign the proofs of loss.

On October 22, 1982, Aetna refused to accept the amended proof of loss. Its stated reasons included the suspicion that the fire had been intentionally set and the conclusion that some of the claim figures were fraudulent and unsupported by the necessary documents and calculations.

The Vitales brought this action on June 13, 1983. On January 30, 1984, Paul and Vincent sought voluntarily to dismiss their claims and Bennie and Anna sought to amend their complaint. The trial court denied these motions in relevant part. The court also denied the Vitales' subsequent motion to amend the complaint to add a claim for prima facie tort. In the course of the trial, the court directed a verdict for defendant on Vincent's claims because he had no insurable interest and also on the claims for vexatious refusal. In addition, the court determined that Missouri law did not bar an innocent co-insured from recovering for damages resulting from a co-insured's arson.

After seven days of trial, the jury returned three general verdicts, finding for Aetna against Bennie on his claim on the contents of the building, against Bennie and Anna on their claim on the building, and against Paul on his claim on the contents. The court denied post-trial motions brought by Bennie and Anna for judgment notwithstanding the verdict or a new trial and by Paul for a new trial.

II.

Appellants' primary arguments challenge the jury instructions on fraud. 8 Bennie and Anna argue that the trial court erred in giving instructions which allowed the jury to base a verdict against them on Vincent's fraudulent statements. The record does not indicate that they proposed alternative instructions on fraud to the trial court, however, and they do not now offer any. 9 Their central argument is that they cannot be held responsible for Vincent's alleged "arson/fraud" without a showing of their "participation, knowledge and consent."

The court instructed the jury to find for Aetna on the claims of Bennie and Anna if it found that Vincent was acting as their agent when he completed the amended proof of loss and that he knowingly misrepresented the cause of the fire 10 or materially misrepresented the business interruption damages. 11 According to the instructions Vincent was acting within the "scope of [his] agency" for Bennie and Anna if he submitted the proof of loss to serve their interests and they either controlled, or had the right to control, his conduct. 12

Under Missouri law, "[a]ny fraud perpetrated by the agent on a third party in the course of his employment, and for the benefit of the principal, must be imputed to the principal, whether or not the latter had actual knowledge." Tietjens v. General Motors Corp., 418 S.W.2d 75, 84 (Mo.1967) (quoting Darks v. Scudders-Gale Grocer Co., 146 Mo.App. 246, 130 S.W. 430, 437 (1910)). Thus, the principal need not authorize or know of the fraud to be held responsible for it. Phipps v. Mallory Commission Co., 105 Mo.App. 67, 78 S.W. 1097, 1098 (1904).

Appellants argue that this common principle of agency law is inapplicable where an insurer asserts that an insured has fraudulently concealed arson. "Arson/fraud" is a single defense, they argue, and the standard for attribution to a principal is the recognized standard for imputation of arson. That is, "a defense of arson ... will not operate to defeat recovery under a fire insurance policy where there has been no finding of knowledge, authorization or ratification of such burning by the insured." 18 G. Couch, Cyclopedia of Insurance Law Sec. 74:671 at 991 (M. Rhodes 2d rev. ed. 1983). See also Owl & Turtle, Inc. v. Travelers Indemnity Co., 554 F.2d 196 (5th Cir.1977). Garrison v. United States Fidelity & Guaranty Co., 506 S.W.2d 87, 88 (Mo.App.1974) (insurer asserting defense of arson must show "that the fire was intentionally set for the purpose of burning the ... property by a person ... acting for and with the knowledge of" the insured).

This argument rests on appellants' assertion that "arson/fraud" is a single defense and that it is accordingly improper to ...

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