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July 15, 1982


The opinion of the court was delivered by: POLLACK



 In the early morning of January 8, 1980, a three-alarm fire partially damaged the four story, 100 year-old building which, for more than 20 years, had housed Demyan's Hofbrau, a public restaurant, catering establishment and bar in Staten Island. Previously, the premises were used as a brewery. After the fire, plaintiff demolished the Hofbrau building and discontinued in the restaurant business.

 Plaintiff Demyan's Hofbrau, Inc., which operated the Hofbrau, is a New York corporation and was owned in equal parts by two brothers, John and Frank Demyan. (The latter died in October 1978 leaving an estate.) The Demyan's real estate holdings which consisted of the Hofbrau building and seven other rental commercial and residential properties adjacent to the Hofbrau were deposited in a second corporation, Demyan's Realty, Inc., also half-owned by each brother.

 On February 18, 1981, plaintiff filed this diversity suit to collect the fire insurance policy limits of $ 300,000, for damage to the building and of $ 150,000, for damage to its contents, from defendant, INA Underwriters Insurance Co. ("INA"). INA thereupon raised the defenses of arson and plaintiff's implication therein and false swearing by the assured in submitting its proof of claim thereby voiding the insurance.

 This case was heard at a Bench trial by the Court without a jury. At the close of trial, the Court made interim findings of fact regarding the incendiary, non-accidental character of the fire and the partial nature of the damage to the building. The Court found:

It has been clearly proved by the defendant and not contradicted by any acceptable evidence worthy of belief, that the fire on January 8, 1980 was of incendiary, non-accidental origin. There were two and perhaps three points of origin of fire, separate and separated, which were caused in each location by a supplied flammable liquid or accelerant to the premises. There was no evidence which is credited by the court of any other cause for the outbreak of the fires. The location of the points of origin and the inverted cones and the pooling make it clear and convincing beyond peradventure of doubt that arson was the cause at each of the two or perhaps three separate and separated portions of the insured premises.
Furthermore, it is unquestionable that the premises were not a total loss, and that the destruction by fire was partial only.

 The Court then requested post-trial briefs on several remaining issues to be decided, viz.: 1) the complicity, if any, of the insured with the arson; 2) whether there was clear and convincing evidence that intentionally false statements regarding proof of loss were made; and 3) assuming that the Court might reach this question, what damages were compensable and under what terms of the policy.

 After consideration of the briefs as well as all the testimony and exhibits that were submitted, and on due deliberation, the Court concludes that plaintiff is barred from any recovery on the policy, since on the preponderance of the evidence the Court finds that the assured was implicated in causing the fire which damaged the Hofbrau. In view of these dispositions of the arson issues, the other defense of deliberate false swearing in the proof of claim and the objections to plaintiff's damage proof need not be considered.

 The burden of proof

 In New York, the burden is on the insurer to prove the defense of arson and the assured's implication therein, by a fair preponderance of the credible evidence. Johnson v. Agricultural Ins. Co., 25 Hun 251 (4th Dep't 1881). *fn1" In this regard, since "(direct) proof of arson is seldom available," it is well settled that arson may be established by circumstantial evidence. Elgi Holding, Inc. v. Insurance Co. of North America, 511 F.2d 957, 959 (2d Cir. 1974); Shawanga Holding Corp. v. New York Property Ins. Underwriting Ass'n, 57 A.D.2d 677, 677, 394 N.Y.S.2d 69, 70 (3d Dep't 1977).

 Opportunity to Fire the Building

 In his testimony, John Demyan named only four persons who had keys and access to the Hofbrau premises: John Demyan, his sister-in-law, Patricia Demyan, his son, John Demyan, Jr. and a bartender (unnamed in Demyan's testimony). The day after the fire John Demyan told the Fire Marshal that his niece, Denise Demyan, and his cook, Steve Jacobson, also had keys to the Hofbrau. In his statement he named the bartender who held the key as David DiCarlo. None of those three were witnesses at the trial. Demyan, in his testimony, did not mention Harold Coyle, the other bartender.

 Harold Coyle was called as a witness for the plaintiff at the trial. He also tended bar and did catering jobs. He testified that it was he who went around the building at closing time on the early morning of the 8th January 1980 and he checked all the doors to the premises, turned off the lights, inside and in the parking lot, cleaned up the bar and swept up and about 3 A.M. he left with David DiCarlo, the other bartender, through the bar-room front door which they locked from the outside. They set the switch to the burglar alarm located on the outside of the door jamb. The first of the firemen who arrived on the scene testified that the front door was locked when he got there.

 Coyle testified that when he left everything was in order in the premises, they were locked tight, there was no sign of fire anywhere. The only persons who had access to the premises were the Demyans and the employees named. John Demyan testified that he had taken the precaution to change the locks in the building twice a year since each bartender who closed up for him was issued a key. Coyle had been employed for about three years and DiCarlo had been an employee for a period of nine years.

 John Demyan testified that at about five o'clock in the morning on January 8, 1980 he received a call from police who informed him of a fire at the Hofbrau. He dressed and rushed down to the restaurant, arriving at about a quarter after five. He testified that when he arrived he heard the burglar alarm ringing and "immediately ran to the front door", "the key to the alarm is on the outside, I wanted to turn it off" "I just went up to the door to turn the alarm off". He did not know why he wanted to shut the alarm off; that was just the way he reacted.

 No one else who was at the scene at the time mentioned anything about hearing an alarm sounding or corroborated Demyan's testimony of an alarm sounding. The front door was still locked, unforced, when Demyan says he arrived there. The firemen made no mention in their testimony or in their departmental reports of hearing a burglar alarm sounding. Seemingly, an activated alarm would imply that someone without a key or without knowledge of how to quiet the alarm system had gained access to the premises during the night.

 John Demyan's mention of a burglar alarm turned vague and contradictory as his testimony progressed. In direct examination he stated that the alarm had been activated before he got there and that he had been able to turn off the alarm. On cross-examination he ventured that perhaps the firemen had activated the alarm when they forced the doors. On re-direct examination, however, he admitted that he had not shut off any alarm, that the alarm noise had continued on albeit he had gone to the front door (where the burglar alarm switch was located) to shut the noise off as soon as he had arrived at the scene. On further questioning Demyan fell back on the statement that he could not tell if the sound he had heard was from the burglar alarm or rather was from the fire bell which was activated by and connected to the sprinkler system.

 The burglar alarm at the Hofbrau was an automatic dialer, which was set up to call Patricia Demyan, as well as the police, in the event of a break-in. Though she testified that she was at home the night of the fire, she did not receive a call from the automatic dialer. No one testified that the police had or had not received a call from the automatic dialer at any time, either before or after the firemen arrived.

 The fireman who arrived with the first due company and whose job it was to force open the doors testified that all those he tried were locked. There were no signs of forced or unauthorized entry into the Hofbrau building during the night or the morning of the fire.

 The exclusive opportunity to enter the Hofbrau building was with those who had access thereto with the keys; others lacked this opportunity and would have had to make a forcible entry to get in. No admissions or evidence placed any of the holders of the keys at the Hofbrau after it had been closed up for the night. John Demyan claimed that he had left the premises at about 11 P.M. on the 7th of January while Patricia Demyan testified that she was ...

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