Opinion
Civil Action No. 98-2578 Section: E/2.
April 18, 2000.
FINDINGS AND CONCLUSIONS
The Court hereby enters the following findings of fact and conclusions of law on the basis of the record, the evidence presented at the non-jury trial held in this matter, including the testimony and exhibits, and the law. This Court has subject matter jurisdiction of the action pursuant to 28 U.S.C. § 1332, diversity of citizenship.
Plaintiff Alben J. Arena ("Mr. Arena") is the owner of the real property and improvements located at 44 Crislaur Avenue, Harahan, Louisiana. At all times material hereto, and particularly on August lot 1997, this property was insured by defendant Allstate Company ("Allstate"). Inasmuch as 44 Crislaur was the residence of Arena, the property was covered by a homeowner's insurance policy, for replacement value as well as additional living expenses in the event of loss due to certain covered events which included, among other things, losses due to fire.
In the early morning hours of August 10, 1997, there was a fire in the Arena residence at 44 Crislaur which caused extensive damage to both the structure and its contents. Earlier in the evening, from 8:30 p.m. until approximately 1:30 a.m., on August 9, 1997, Mr. Arena and his girlfriend, Lori Wynn, had attended his Chalmette High School reunion at the World Trade Center, formerly known as the Trade Mart, in downtown New Orleans. He left his home with his girlfriend at approximately 7:45 p.m. on August 9, 1997, and did not return home until sometime between 2:00 a.m. and 3:00 a.m. on August 10, 1997.
After Mr. Arena and Ms. Wynn returned to his home after the reunion, they decided to change from their more formal clothing to casual clothes and go to a restaurant to eat breakfast. They were at Mr. Arena's home approximately 30 minutes from the time they returned after the reunion until they left for breakfast. They departed the house and returned within minutes because Mr. Arena, the owner/operator of a tow truck business, did not have his pager. He retrieved the pager and testified that he left a side or back door unlocked, as he often did, when he left the second time, after being in the house about one minute. They traveled to Shoney's on Clearview Parkway, decided not to eat there for some reason, and drove to a Time Saver convenience store to buy some food items. They had been gone from 44 Crislaur approximately 30 to 45 minutes when Mr. Arena was paged by an acquaintance of his who worked as a Harahan fireman, who advised him that his house was on fire. Ms. Wynn testified that Mr. Arena drove home very quickly.
When they arrived, the firemen had the fire under control. The testimony of the firemen on the scene and fire department records indicate that they were notified of the fire at 3:50 a.m. and that they arrived at 3:55 a.m. Todd St. Cyr, one of the firemen on the scene, did not observe any broken windows and directed the firemen to get through the front door by whatever means was necessary. While the fire did not burn for a long time, the smoke and burn damage was extensive because of the small size of the house. The firemen on the scene noted that Mr. Arena was noticeably upset that his house had burned. He did not mention to the many persons, some acquaintances and most apparently strangers, standing around the scene and who were walking in and out of his house, that he had a substantial amount of cash in his bedroom.
The Harahan Police Department, having failed to discern an obvious cause of the fire, called in Dennis Guidry, a sergeant with the Jefferson Parish Arson Investigation Unit, to determine if the cause of the fire was arson. Sgt. Guidry, a former fire fighter and friend and acquaintance of the plaintiff, is an expert in fire and arson investigation, having attended the National Fire Academy and Louisiana State University for special training in this field. He arrived on the scene shortly after being contacted by the Harahan Fire Department.
He examined the house very carefully from the area of least damage to the most damaged area, noting that the area that burned the longest is normally the area where the fire started. The fire at 44 Crislaur started in the corner of the living room, which was the second room through the front door. He could not locate an accidental fire cause. While there was an electrical panel and a window air conditioning unit plugged in a wall outlet near the cause of the fire, he found no indications that these played any part in causing the fire. He took samples of the flooring near the corner where the fire started, and asked whether any appliances were left on or candles left burning. He found no remnants of candles or glass globe remains. The samples of carpet and flooring tested negative for an accelerant.
Upon completing his investigation, Sgt. Guidry determined that the fire was incendiary in origin, not accidental, and caused by arson. He prepared his report on August 19, 1997, and sent the report to the Harahan Police Department. He did no further investigation after August 19, 1997.
On August 25, 1997, Allstate retained George Bradley, a private consultant who conducted fire and explosive investigations and a former Alcohol, Tobacco and Fire (ATF) agent in New Orleans, to investigate the cause of the fire. He agreed with Sgt. Guidry that what he found was consistent with an arson fire. He found the air conditioning unit from the living room in a garbage can and noted that all the damage was on the casing of the unit, and that there was no interior damage. From this he concluded that the a/c unit was not a cause of the fire.
The front door was forcibly opened, but there was no forcible entry at the rear door or through the windows. The vinyl accordion slats on the side of the a/c unit appeared to have melted in the frame, and Mr. Bradley did not see any evidence that the slats were broken out. All witnesses agreed that it would not have taken much force to open the vinyl slats. The electrical supply line did not cause the fire, but Mr. Bradley did not locate the ignition source.
After examining the burn patterns on the underside of the baseboard in the corner of the living room where the fire started, Mr. Bradley opined that a small amount of liquid accelerant had leaked under the baseboard. He took no samples to determine what the accelerant was, but his opinion was, based upon the physical evidence, that the arson was caused by someone inside of the house pouring a small amount of accelerant on the wall near the baseboard and the electrical panel. Mr. Bradley testified that he did not know how the accelerant was introduced.
George Hero, an electrical engineer who testified as an expert in cause and origin of fires caused or contributed to by electrical systems, stated that he detected no mechanical or electrical source of ignition of the fire. He inspected the electrical panel and other electrical sources in the house, and discovered no copper melting, arcing, frayed wires or cords, or other electrical causes of the fire.
Lester Hankes, Jr., a Certified Public Accountant, testified that on the basis of the information he was provided, plaintiff's expenditures exceeded his income by $60.00 per month. However, Mr. Hankes based his opinion on rough estimates provided by Mr. Arena as to his monthly expenses, and further included in the calculation health insurance premiums which were for Mr. Arena's ex-wife and paid by her.
Mr. Arena essentially owed no debts at the time of the fire. He became sole owner of the 44 Crislaur house in the community property partition with his ex-wife, and had paid off the mortgage. He purchased and paid off the loans on three vehicles, his tow-truck, his Toyota 4-Runner, and a Corvette, none of which were subject to any liens or encumbrances. He testified that he had approximately $20,000.00 in cash in a metal box in his closet, money which he had been saving since he stated working when he was 14 years old. His tow-truck business was turning a profit and providing sufficient income to allow him to support himself and his two children from his prior marriage, which he financially supported. He was divorced on March 24, 1993, and by the date of the community property partition, October 24, 1994, Mr. Arena had paid all of his share of the community related debts. Mr. Arena's financial condition was sound, and while he may not have been wealthy, he certainly was not drowning in debt or in need of immediate cash.
Mr. Arena also has a twenty-three year old adult son who lives on his own and supports himself.
By contrast, the community property partition indicates that plaintiff's ex-wife, Alice Dale Arena Fernandez, was in much poorer financial condition. She became sole owner of the family home on Maine Street in the community property partition. She also had credit card debts exceeding $19,421.59 on October 28, 1994 at the time of the community property partition. She was unemployed in August, 1997, and was multiple mortgage payments in arrears, i.e., approximately $5,000.00, at the time of the fire. At the time of trial, she was approximately 40 months behind in mortgage payments on the Maine Street home.
Mr. Arena and his ex-wife, Ms. Fernandez, had a very volatile and acrimonious relationship. They had an on-going custody battle over their two minor daughters, which eventually resulted in Mr. Arena obtaining custody of them in October, 1999. On one occasion after they divorced, Ms. Fernandez, upset because Mr. Arena had some photographs of hers at the Crislaur house, hired a locksmith to make a key to the house and entered it, retrieving some photographs and other property she claims was hers. She testified that her daughter told her where the items were. She did not obtain Mr. Arena's permission to do so, nor did she notify him that she was going to enter the home prior to the time she did it. It is unclear to the Court whether this occurred before or after the community property partition, but it definitely occurred at a time when she was residing in the Maine Street house and Mr. Arena was residing at 44 Crislaur.
Ms. Wynn, Mr. Arena's girlfriend, testified that Ms. Fernandez confronted her at an event they were both attending, using foul language. Ms. Wynn also related an incident in which Ms. Wynn's two children and Mr. Arena's two children were in the 44 Crislaur home with them eating pizza and watching movies and Ms. Fernandez arrived unannounced, beating on the windows.
Ms. Fernandez married Mario Fernandez before the August, 1997 fire and stated that she was home at the time of the fire. Ms. Fernandez and Mr. Fernandez divorced approximately two years before the trial. She denied that she had anything to do with the fire and testified that she first learned of the fire the next day. No corroborating witness was presented to establish her whereabouts at the time of the fire, which occurred on the anniversary of her and Mr. Arena's wedding. She also gave a statement under oath on March 30, 1998 that she thought the house on Crislaur was in both of their names and that she was still a co-owner of the property. The testimony indicated that she did not know that her name was not listed as an additional insured on the policy at the time of the fire.
Mr. Arena flatly denied having set the fire or hired or arranged for anyone else to do it. He stated that, despite her contentions, he was never behind in his child support payments to Ms. Fernandez. While his ex-wife testified that she left the 44 Crislaur key she hired a locksmith make in his house after she entered it without his knowledge or permission, he testified that he did not learn that she had the key made until approximately 2 years after she did it. He did have the locks changed after he learned of the occurrence. He also denied that she had any belongings in the 44 Crislaur house.
A neighbor of Mr. Arena's testified that saw some children, 10 to 12 years old, playing in or loitering in his yard and around his house shortly before the fire. Efforts made to locate these children were unsuccessful and there was no testimony that they were seen near the house on the night of the fire.
On the Monday after the fire, which occurred on August 10, 1997, Mr. Arena spoke to an Allstate agent. He compiled a list of the contents and moved into an apartment. He began obtaining estimates for repairing the property. On August 28, 1997, he gave an audio-taped interview to Linda Gunderson of Allstate. He filled out and signed a sworn proof of loss on November 4, 1997 and submitted it to Allstate. He promptly completed the forms sent to him on January 23, 1998 for making a claim on the subject policy. At some point, before this suit was filed, he was deposed by Allstate's attorney, and he voluntarily appeared without legal representation.
On June 11, 1998, he gave a handwritten letter to Linda Gunderson of Allstate, which stated:
I am demanding that Allstate Ins. Co. pay in full claim # 1643961228 NLG which was submitted to Allstate on 8-11-97. I have provided Allstate with all items requested. I request that this claim be settled within 10 days of receiving this letter. If not paid, I will consider this an act in bad faith on [Allstate's] part.
Plaintiff's Exhibit 19.
Shortly thereafter, on June 15, 1998, Linda Gunderson wrote a letter to Sgt. Hollingsworth of the Harahan Police Department, advising that it was her "understanding that the investigation into this matter is open and pending. Once your investigation is closed, please contact me so that I may obtain a copy of your file." Defendant's Exhibit 14.
Linda Gunderson, formerly an Allstate claims representative, testified that in accordance with the policy, Allstate paid Mr. Arena $860.00 per month for one year to reimburse him for additional living expenses incurred as a result of the fire, less some prorated amounts for August and September. She commenced investigating the cause of the fire immediately after it occurred and contacted Sgt. Dennis Guidry, the Jefferson Parish Arson Investigator, who had turned his file over to the Harahan Police Department. She hired a fire investigator to determine the origin of the fire and a private investigator to canvass the neighbor in order to develop information relative to this file. She contacted the Harahan Police Department on several occasions, speaking to Sgt. Kevin Hollingsworth and Sgt. Ray Uloft. She stated that she was told by Ray Uloft that the investigation into this far was open and pending on June 15, 1998. She testified that she was never told that the file was closed.
Sgt. Kevin Hollingsworth testified that from August 1997 until June 1998, there was no active investigation by the Harahan Police Department. He stated that he was contacted by Mr. Arena in June 1998 to find out if there was an ongoing investigation. He admitted that he was contacted by telephone by Linda Gunderson of Allstate in May, 1998, but does not recall receiving the June 15, 1998 letter. During the time he handled the file, which was from August 1997 until June 1998, he never had an investigation going and that he turned the file over to Sgt. Henry Kuehn in July, 1998. He stated that while the file might have been "open and pending", that did not mean it was "active."
Sgt. Henry Kuehn testified that when he received the 44 Crislaur fire file in late 1998, the case was old. There was no ongoing or active investigation at the time the file was turned over to him in 1998. The file did not contain the Jefferson Parish Arson Investigator's Report, so he contacted Dennis Guidry. Guidry sent him a copy of the report, which he received on July 15, 1998, but Guidry also advised that he sent the Harahan Police Department a copy of the report within 60 days of the date of the fire. Sgt. Kuehn took a statement from Arena on July 14, 1998. He stated that the cause of the fire was vague, but that the investigation had been suspended from late 1997 until the summer of 1998, and that he closed the file on August 24, 1998.
The instant complaint was filed on August 10, 1998, in the 24th Judicial District Court for the Parish of Jefferson, State of Louisiana, and the case was removed to this Court shortly thereafter. Other than the amounts paid for living expenses, Allstate has never paid the claim for fire damages to the structure or the contents of 44 Crislaur. The parties stipulated that at the time of the fire occurred on August 9 or 10, 1997, plaintiff Alben Arena was the owner of the property located at 44 Crislaur Avenue in Harahan, Louisiana and that Allstate had in full force and effect a policy of fire insurance. The parties also stipulated that the "Replacement Cost" of the damages sustained by the structure in question is $45,435.66, and the "Actual Cash Value" of the loss to the structure is $40,705.50. The stipulated "Actual Cash Value" of the destroyed contents of the structure was $20,992.53.
Louisiana substantive law is applicable to this diversity case. Under LSA-R.S. 9:658(A), all insurers issuing fire insurance policies shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss, subject to the exception provided in LSA-R.S. 9:658(B)(2). Under this exception:
The period set herein for payment of losses resulting from fire and penalty provisions for nonpayment within the period shall not apply where the loss from fire was arson related and the state fire marshal or other state or local investigative bodies have the loss under active arson investigation. The provisions relative to time of payment and penalties shall commence to run upon certification of the investigating authority that there is no evidence of arson or that there is insufficient evidence to warrant further proceedings.
Should an insurer fail to meet its obligations under this statute to pay within the specified time, if such failure "if found to be arbitrary, capricious, or without probable cause," the insurer will become liable for a penalty, in addition to the amount of the loss, of ten percent damages on the amount due from the insurer, or $1,000.00, whichever is greater, and reasonable attorney fees for the prosecution and collection of the loss. LSA-R.S. 22:658(A).
The standard for determining whether or not an arson defense will prevail on a fire insurance claim was summarized in Chisholm v. State Farm Fire Casualty Co., 618 So.2d 1059 (La.App. 1st Cir. 1993), as follows:
Arson is an affirmative defense against a claim for fire insurance proceeds. The insurer has the burden of establishing, by convincing proof, that the fire was of incendiary origin, and that plaintiff was responsible for it. Since arson is rarely committed in the presence of eyewitnesses, the insurer may prove its case by circumstantial evidence. To do so, it does not have to prove its case beyond a reasonable doubt; it must simply exclude every reasonable hypothesis but that the plaintiff is responsible for the fire. Rist v. Commercial Union Ins. Co., 376 So.2d 113 (La. 1979); Sumrall v. Providence Washington Ins. Co., 221 La. 633, 60 So.2d 68 (La. 1942). Proof of motive plus establishment of the incendiary origin of the fire, in the absence of credible rebuttal evidence, is sufficient to sustain the affirmative defense of arson. Sumrall, 60 So.2d at 70.618 So.2d at 1062. Whether or not an insurer has adequately established the defense of arson is a factual determination. B. Bennett Mfg. Co., Inc. v. South Carolina Ins. Co., 692 So.2d 1258, 1269 (La.App. 5th Cir. 1997).
When the insurer uses circumstantial proof to establish the arson defense, "the evidence must be so convincing that it will sustain no other reasonable hypothesis but that the insured was responsible for the fire." McClain v. General Agents Ins. Co., 438 So.2d 599, 600 (La.App. 2d Cir. 1983).
The circumstances surrounding who may have caused the fire at 44 Crislaur are certainly a mystery. However, after careful and thoughtful consideration of all of the evidence in this cause, including weighing the credibility of the witnesses, the Court finds that the defendant Allstate has failed to establish by convincing evidence that plaintiff was responsible for the fire which occurred at his home. The plaintiff was the sole owner of the home, on which he had paid off the mortgage in a short period of time after his divorce and community property partition. He lived in the home and did not remove any of his possessions, including a large amount of cash which he kept in his closet. He knew he would be gone from the home for at least four hours earlier in the evening while he was attending his high school reunion, yet the fire did not occur until he returned home for a very short time to change clothes. He was with his girlfriend, Lori Wynn, the entire evening, except for the one minute period of time when he departed his vehicle and went inside his home to pick up his beeper after they originally left to eat breakfast. If he intended to have someone set fire to the home, he surely would have directed them to do so during the time he as at the reunion. If Allstate is contending that he set the fire when he ran inside to pick up the beeper, there was hardly sufficient time for him to pour some small amount of accelerant, the type of which was unknown and not in the house, and set the fire, before leaving to eat breakfast. While Ms. Wynn was tired and had been drinking earlier in the evening, she would have surely recalled his setting fire to the house.
Allstate insinuated that the fact that the plaintiff did not inform the firemen and the policemen on the scene, or his girlfriend, about the large amount of cash he kept in his house supported an inference that he did not have the money. It is more logical to assume that plaintiff's attention was first directed to the fire, its origin, and the losses he sustained. Also, it would hardly have been prudent for the plaintiff to tell anyone about this cash when strangers, albeit law enforcement and fire personnel, were streaming in and out of his house, which likely attracted somewhat of a crowd. Plaintiff stated that at his first opportunity, he retrieved the metal box it was stored in and locked in his vehicle. The court finds the plaintiff's testimony about the cash to be credible and thus, makes it less likely that plaintiff would have set fire to the house.
The evidence did not establish a realistic financial motive for the plaintiff to have set the fire. He owed no debts to anyone. His home, his tow truck, and his two personal vehicles were paid for. He appeared to live a modest lifestyle and did not spend excessive amounts of cash. While he was the insured under the policy and any amounts for contents and structure damages would be paid to him, he also stood to lose his home and all or many of his possessions and he had no other place to live. The testimony by the Certified Public Accountant that plaintiff was in poor financial condition was not supported by the evidence, as plaintiff appeared to be a fairly frugal person who quickly paid off his debts and lived within his means.
Thus, the evidence did not establish as to the plaintiff either a credible motive, or much of a reasonable opportunity to perpetrate this arson. While only he had the keys to his house, he indicated that he likely left the back door open. In addition, his ex-wife, with whom he had a very bitter and vitriolic relationship, had once had a locksmith make a key and she went into the house without his knowledge or permission. She had had harsh words with his girlfriend and was embroiled in a custody battle with the plaintiff. She also lurked around the house one evening while the plaintiff was there with his girlfriend and their four children and beat on the windows. There is at least a possibility that she knew of the reunion, waited for the plaintiff to return, saw him with his girlfriend on their wedding anniversary date, and set the fire after they left. Ms. Fernandez testified that she was not involved in the fire, but so did the plaintiff. No one corroborated the fact that Ms. Fernandez was home during the time the fire was set.
Further, in addition to a revenge motive, Ms. Fernandez may have thought that perhaps she was an additional named insured on the policy and could collect some of the proceeds of the policy. In contrast to Mr. Arena, Ms. Fernandez appeared to be drowning in debt. To be sure, the Court is by no means concluding or suggesting that Ms. Fernandez started this fire. It is, however, at least a "reasonable hypothesis" that plaintiff's ex-wife was responsible for the fire, as reasonable than the hypothesis that plaintiff set the fire, or had someone else do it.
The Court therefore concludes that Allstate has not met its heavy burden of establishing its defense that plaintiff committed arson, and that plaintiff is entitled to recover the stipulated amounts due under the policy. While Allstate may have established that the fire was incendiary, it did not prove that plaintiff set the blaze, nor was there any direct or circumstantial proof that he had someone set it for him. Accord, First Guaranty Bank v. Pelican State Mutual Ins. Co., 590 So.2d 1306, 1309 (La.App. 1st Cir. 1991) and Security Ins. Co. of Hartford v. Dudds, Inc., 648 F.2d 273, 275 (5th Cir. 1981). The next question is whether plaintiff is entitled to recover penalties and attorney's fees pursuant to LSA-R.S. 22:658(B).
There is no dispute that the Harahan Police Department closed the file on the fire at 44 Crislaur on August 24, 1998 without arresting or taking any action against Mr. Arena, or concluding that Mr. Arena had any involvement in intentionally causing the fire. While plaintiff filed suit in early August, 1998, that does not relieve Allstate of its burden under LSA-R.S. 22:658(B) of paying all claims due within 30 days after satisfactory proofs of loss. The thirty day time period for filing claims, according to the language in the statute, "shall commence to run upon certification of the investigating authority that there is no evidence of arson or that there is insufficient evidence to warrant further proceedings." LSA-R.S. 22:658B(2). Allstate did not pay the claim within 30 days after August 24, 1998. Once the law enforcement authority closed the file "the insurer was required to pay the claim. The wording of the statute leaves no leeway on that point." B. Bennett Manufacturing Co., Inc. v. South Carolina Ins. Co., 692 So.2d 1258, 1271 (5th Cir. 1997). Having failed to meet the 30 day deadline, the Court must then determine whether the failure to pay was "arbitrary, capricious, or without probable cause." LSA-R.S. 22:658(A).
The words "arbitrary and capricious" are not defined in the statute, but they commonly mean "contrary to the evidence or established rules of law" or "founded on prejudice or preference rather than on reason or fact." Black's Law Dictionary (7th ed. 1999), p. 100, 203. "Probable cause" is defined as "a reasonable ground to suspect that a person has committed or is committing a crime." Id. at p. 1219.
Upon carefully considering the evidence presented on this question, the Court concludes that Allstate's decision to withhold payment after the Harahan Police Department closed its file was arbitrary and capricious, in that it did not meet the standards for establishing the arson defense as set forth in the jurisprudence, and was without probable cause, in that Allstate did not have a "reasonable" basis upon which to conclude that the plaintiff set fire to his home. In order to deny payment after the file was closed, the evidence would have had to exclude every other reasonable hypothesis but that plaintiff committed the arson. For the reasons previously stated, there was at least one hypothesis that was equally as reasonable as the one which Allstate adopted. Further, there was not probable cause to believe that plaintiff had set the fire, given all of the circumstances discussed at length herein. Therefore, the Court finds that Allstate is liable for penalties and reasonable attorney's fees pursuant to LSA-R.S. 22:658.
The amount of damages due to the plaintiff was the replacement cost to his structure of $45,435.66, and the actual cash value of the destroyed contents of $20,992.53, which totals $66,428.19. Ten percent of the amount due of $66,428.19 is $6,642.82, which plaintiff shall be awarded as penalties under LSA-R.S. 22:658(A), as well as reasonable attorney's fees.
Plaintiff testified that he intended to repair his home, but that Allstate refused to pay the proceeds, which prevented him from doing so. Photographs of the structure establish beyond any doubt that the house is uninhabitable at the present time. Thus Allstate is liable for the replacement cost to the plaintiff as it is not plaintiff's choice that the repairs were not completed, but due to Allstate's decision to withhold payment.
Judgment shall be entered in favor of plaintiff and against defendant in the sum of $66,428.19 for fire damages to the structure and contents under the policy, and in the sum of $6,642.82 for 10 percent penalties, and for reasonable attorney's fees, in accordance with these findings of fact and conclusions of law.