Judge Rules Insurer's Failure To Pay Initial Repair Costs, Estops Its Defense On Replacement Value Claim; Jury Rejects Arson Allegation In $1.22 M Award

A jury in New York Supreme Court, Richmond County has awarded $1.22 million, with interest bringing the total to approximately $1.9 million, in a suit brought by a homeowner whose house was destroyed by fire on August 6, 1994.

The suit involved allegations of arson, failure to replace with like kind and quality and the reformation of the policy because it failed to list the wife as a named insured.

The trial of the suit brought by Robert Pate and Jeannie Pate lasted three weeks and the jury deliberated two days, to reach the dollar verdict, after rejecting the arson allegation. Judge Frank Ponterio, who presided at the trial, ruled on several of the legal issues involved. He rejected the position of the Republic Insurance Company, the insurer of the Staten Island home, that under any circumstance, the liability it would owe was the insurable interest of Robert Pate, the husband and the only insured on the policy. The home was actually owned by both parties on a 50/50 basis.

Mr. Pate moved for a reformation of the policy on the grounds that the failure to list his wife Jeannie as a named insured was an innocent mistake, because the character and location of the property was accurate and there was the intention of the carrier to insure the risk. The judge agreed to the reformation adding Mrs. Pate as a named insured.

Another ruling of the judge related to the extent of the claim. Republic had argued that the Pates had failed to repair the home after the fire, with materials of like kind and quality, thereby barring recovery under the replacement cost endorsement of the policy, and limiting such recovery to the lesser amount expended for what was described as patch up repairs.

But William H. Parash, of Weg & Myers, P.C., a New York City-based plaintiff's law firm, responded that Republic Insurance was estopped from this defense because it had breached the terms of the policy, by failing to make available the funds to begin the repairs. Parash pointed out that the insurer should have paid the actual cash value, pending the completion of the repairs at which time it would supply the balance of the claim when it was satisfied that the like kind and quality requirement had been met.

In his decision, based on the arguments and relying on the 1983 Appellate Court, 2nd Department decision of Zaitchick v. American Motorists Ins. Co., Judge Ponterio held that if the court were to hold in favor of the insurance company, Republic and other insurance companies would be awarded a windfall, despite the breach of policy terms, knowing that insureds many times cannot repair their homes without the use of insurance proceeds.

Republic Insurance had made a strong bid to prove its arson allegation. The Pates were in the midst of a marital dispute and, at the time the fire took place, were not on the premises. Mr. Pate was in Europe and Mrs. Pate and their children were at a vacation home in Southampton, L.I.

The insurance company had presented its evidence to show motivation for arson, by citing financial difficulties of the Pates, specifically that they had outstanding debts, including monthly obligations of between $5,000 to $7,000. There was a foreclosure judgment on the house in the amount of $400,000.

The evidence presented by the insurer also showed that the New York City Fire Department had responded to the alarm immediately. The company also presented evidence at the trial, that the fire fighters had to force entry into the burning home. Republic Insurance presented the results of the investigation of the fire marshal as to the cause of the fire. The report included the detection by the marshal, who had subjected some debris to forensic test, that there were positive traces of gasoline, considered incendiary materials.

However, the attorney for the plaintiffs was able to convince the jury that the allegation of arson was not sustainable.