Nagel-Taylor Automotive Supplies, Inc. v. Aetna Casualty & Surety Company

402 N.E.2d 302 (1980)

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Nature of the Case

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Facts

Ps are Marvin C. Taylor (Taylor) and Nagel-Taylor Automotive Supplies, Inc., a corporation of which Taylor was the sole owner and principal officer. Ps sued D to recover for a fire loss occurring on May 13, 1976, when a building near Litchfield, owned and operated by Ps as a nightclub, burned. Under the terms of the policy, Ps were insured for actual business interruption losses such that they would be reimbursed for the amount by which their profits decreased (or losses increased) during the interruption, 'but not exceeding the reduction in gross earning less charges and expenses which do not necessarily continue during the interruption of business * * *.' The policy limited payment for this type of loss to the sum of $50,000. A written proof of loss verified by P and timely mailed to D stated, 'Gross earnings -- estimated loss in excess of $100,000 for a twelve-month period.' D's affirmative defense of fraud and false swearing was based on a policy provision that stated: 'Concealment, fraud. This entire policy shall be void if, whether before or after a loss, the insured has willfully 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.' The evidence in support of the affirmative defense of fraud and false swearing was the financial records of the operation. They indicated a deficit exceeding $17,000 to have accumulated in the eight months of the club's operation on total receipts of about $95,000. The cost of goods sold was about $14,000. Baker, a certified public accountant specializing in business interruption claims, testified on behalf of D concerning his examination of the club's records. He described the business as being 'in very poor financial condition' and stated that liabilities exceeded current assets by 16 to 1, but he did not state the seemingly more important ratio of current liabilities to current assets. He described the records as somewhat unreliable but concluded from his examination of them that no business interruption loss was sustained. P explained how entertainment expenses had been drastically cut prior to the fire and how he expected to turn a profit. P presented a profit and loss statement for nine months, the figures for the last month having been lost. It was shown that a profit of $4,500 would have had to have been made in the last month in order for the statement to reconcile with the books. P obtained the results shown on the statement by crediting expense accounts which previously listed as expense, rent theoretically owed but not paid by the corporation to P or vice versa. One could not readily tell the respective functions of P and the corporation. After a trial by jury, a verdict was returned for P allowing $25,000 for damage to the building, $50,000 for damages to its contents, and nothing for business interruption loss. The trial court granted D's motion for judgment n.o.v., ruling that D had proved as a matter of law that Ps had committed fraud and false swearing in the proof-of-loss statement. The trial court rejected that portion of D's post-trial motion which asked for a new trial on the grounds that the jury's determination that P was not guilty of arson was contrary to the manifest weight of the evidence. This appeal resulted.