INSURANCE LAW REVIEW

Despite Admitted Falsehood During Arson Probe, Jury Rejects Insurer's 'Material Misrepresentation' Defense.

A jury in U.S. District court in Bridgeport, Conn., after hearing evidence over a three-week period in a case brought by an insurance company against a former insured, held unanimously that arson and fraud were not involved in a 1988 fire which severely damaged the insured's home in Greenwich, Conn.

The jury trial was based on a certified question propounded by the United States Court of Appeals for the Second Circuit in a decision handed down January 27, 1993. The question was the materiality of admittedly false statements made by Donald Golden during the course of the investigation of the fire in his home. The eight member jury panel, which deliberated four hours after the close of the trial, declined to accept the evidence offered by the insurance company, including statements of fire officials and police and the investigator for the Special Investigations Unit (SIU) of the insurer, Pacific Indemnity Company, a Chubb Group subsidiary.

Dennis T. D'Antonio, a principal in the New York law firm of Weg & Myers, P.C. who represented Golden from the onset of the legal action in July 1989, said that what made law in this Connecticut case was the rejection by the jury of the "material misrepresentation'" defense of the insurer.

Golden's home in Greenwich, Conn., insured under Chubb's "Masterpiece" insurance policy, an all risk policy, burned on December 2, 1988, when he was at the home of a friend in New Jersey. However, Golden returned before the fire was extinguished and informed the fire marshall at the scene that there was a quantity of gasoline stored in a part of the premises but away from the point where the fire had started. The gasoline stored in plastic garbage cans of thirty-two gallons each and several two-and-a-half gallon containers, was removed without incident.

In response to questions, Golden said the gasoline was there for use in snowmobiles owned by him and his neighbor, John Napoli. He repeated this story to police on the following day. The fire marshal's initial report was that the fire was deliberately set, by a person or persons unknown and that gasoline was probably used as an accelerant.

The support for the insurer's defense of material misrepresentation was centered on a series of interviews with Golden and Pacific Indemnity's SIU investigator Beverly Ascolese, the first of which was ten days after the fire. Golden was not under oath and did not have counsel present at the first interview, which was tape-recorded. He told the investigator that the gasoline had been brought into the house, with his consent, by workmen employed by his neighbor Napoli in February 1988, repeating the earlier statement that it was for use in snowmobiles. The statement was true only in respect to the smaller containers. Ascolese continued to probe the gasoline story of Golden, collecting a variety of information from such sources as the appraiser who was on the property six months before the fire and real estate agent, who had been retained by Golden in October 1988, to sell the house.

Ascolese's investigation was quite thorough, but in the end, Pacific Indemnity acknowledged that the course of the investigation would not have been different if Golden's misrepresentations had been known.

Ultimately, during the course of an examination under oath, Golden testified that he had given false information about the gasoline, and that it was on the premises because he was going to use it to foul Napoli's lawn in revenge for an alleged $1.2 million fraud against him by Napoli. Actually, he had already recovered $400,000 from Napoli and had taken an interest-bearing mortgage of $900,000 on Napoli's property.

He said during his examination before trial hearing that he did not believe the reason for his storage of the gasoline n the property was material to the fire investigation and he refrained from giving the real reason for it because he wanted to avoid possible criminal liability for vandalism. He had already spilled some gas on the Napoli lawn.

Pacific Indemnity denied Golden's claim by letter dated June 30, 1989, pointing out that it intended to go to court to seek a declaratory judgment on its non-liability and after that go after him to recover any money paid to Citicorp. The company said that it was denying coverage principally on the basis that the fire was intentionally set by Golden or at his behest and because Golden's alleged concealment and misrepresentation of material facts relating to the cause of the ire while under oath. In its actual complaint filed in the District Court for the District of Connecticut, Pacific Indemnity added to its allegation of misrepresentation, that Golden had materially increase his risk of loss by storing the gasoline in violation of policy terms and for a gross inflation of the damages sustained. Golden denied these allegations and asserted counterclaims for policy proceeds with interest, attorney's fees and other losses as well as punitive damages.

Golden appealed to the Circuit Appeals for the Second Circuit, which reversed the District Court's summary judgement, returning the case to the trial level for jury consideration of the issue of materiality. The appeals court did not consider the payment so Citicorp, which under the circumstances of the remand became a non-issue.

Mr. D'Antonio said that during the course of the jury trial, Ms. Ascolese initially asserted that she relied on Golden's testimony and testified at length the steps she would have take except for Golden's admittedly false statements. He said that under "vigorous cross-examination," she replied to his question that her procedure after interviewing Golden was to go and investigate the facts, "That's right" and to his further question "So you aren't accepting what Mr. Golden was saying to you a being true? She said, "That's Right."

Throughout the investigation and the course of the trial, Golden denied that he had anything to do with setting the fire and Mr. D'Antonio said, that he continued to question the dubiousness of the evidence presented at the trial to place guilt for arson on Golden. He said the "jury was influenced by myriad inconsistencies and contradictions in the testimony" of witnesses with respect to the origin of the fire. He said the jury also looked at the failure of the investigators "to consider exculpatory evidence demonstrating the insured's lack of motive and lack of opportunity to have started the fire." Actually, the house was already under contract for sale at a goodprice, prior to the fire, D'Antonio said.

D'Antonio said it was successfully argued to the jury that Pacific Indemnity never relied on what Golden was saying "and once there is no reliance, there can be no materiality attached to his statements under the law." He said that was enunciated by the Second Circuit and that he argued it before the jury.

The jury finding means Pacific Indemnity's material misrepresentation defense was vacated and Golden's counterclaim for the insurance proceeds upheld.

Johnathan Lerner, as associate of Weg & Myers, awaiting admission to the New York State Bar, assisted D'Antonio at the trial. Pacific Indemnity (Chubb) was represented by Franklin D. Tell and Alfred Polidore of the New York law firm of Tell, Cheser & Breitbart.