Fine v. Bellefonte Underwriters Insurance Co.

25 F.2d 179 (2nd Cir. 1984)

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Nature of the Case

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Facts

P purchased three contiguous parcels of land for a total price of $1,300,000. Each parcel had a building on it. The buildings were contiguous and were operated as a single economic unit. The three buildings had a single heating system that employed a single boiler. P obtained a policy of fire insurance covering the three buildings (and other properties) from D. The buildings were occupied by commercial tenants. P desired to convert the buildings to residential use. P did not renew most expiring leases and he engaged in a 'freeze-out' policy designed to minimize expenses and discourage tenants from remaining. The heat timer which controlled the operation of the boiler, based in part on outside temperature, was set so that it would not start up the heating system until sub-freezing temperature was reached. The superintendent was told to turn off the heating system entirely from 11 a.m. to 2 p.m. each day regardless of the outside temperature. By February 1979, only about one-third of the premises remained occupied. On February 14, 1979, a fire of unknown origin occurred. The buildings at 649 and 653 Broadway were totally destroyed except for their facades and the building at 657 Broadway was substantially damaged. The fire sprinkler system in the buildings did not operate the night of the fire. It was a constant pressure system. The trial judge found that on the night of the fire, none of the sprinkler heads in the system worked. The Fire Department was unable to pump water into the system due to blockage in the pipes which the trial court found was 'presumably' caused by ice. The trial court found that had the sprinklers functioned normally, the fire could have been controlled. P submitted claims to D which, after investigation, D denied. D claimed that P breached the 'Protective Maintenance Clause', the 'Increased Hazard Clause', and the 'False Swearing Clause.' The last clause provides that coverage is voided if, before or after a loss, the insured has willfully concealed or misrepresented any material fact concerning the insurance or the insured property, or in the event of any 'fraud or false swearing by the insured' relating to any such material fact. P filed suit against D for payment of the loss. D conducted extensive examinations under oath of P (the one owner, among the group of owners, in charge of operating the buildings), and of Peters, the managing agent for the owners. The district court found that P and Peters each answered falsely during their examinations under oath. Both stated in the examinations that they had charged the superintendent, a Mr. Aloisio, with the responsibility for inspecting and maintaining the sprinkler systems as he had been charged under the prior ownership. The trial court found such testimony to be false and that Aloisio had not been so charged or instructed. P testified that the nighttime setting for the heat timer controlling the boiler was 40 degrees and Peters testified that he had instructed superintendent Aloisio to set the heat timer at 40 degrees for nighttime operation. The trial court found that the testimony of both men was false in this respect. The court found that Aloisio had been instructed by Peters personally to set the heat timer at 25 degrees for nighttime and that Aloisio had, despite such instruction, set it to 30 degrees. Despite the lies, the trial court rendered judgment for Ps on the false swearing defense on the ground that the false statements were not material. The court found: 'Here the statements were not material to the investigation. Given the extreme temperatures during the period from February 5th to February 14 as noted above, whether the heat timer setting was 25 degrees, 30 degrees or 40 degrees would not have affected the operation of the heating system. Further, there was no testimony that a 25-degree or 30-degree setting would have constituted a practice which would have reasonably been foreseen to result in a freezing condition, which, in turn, would have made the sprinkler system inoperative.' The trial court found in favor of P and against D and awarded a judgment of $1,214,221 for damage to the buildings plus additional sums of $150,000 for loss of rental and $170,446.60 for debris removal. P appealed.