Appellant argues that her claim under a homeowner's insurance policy following the destruction of her house in a fire was improperly disallowed, even if the fire was caused by arson and the arson was attributable to appellant's husband.
Feinberg, Chief Judge, Mansfield and Kearse, Circuit Judges.
Kathleen Fellman appeals from a judgment of the United States District Court for the Eastern District of New York, David F. Jordan, Magistrate, dismissing her complaint seeking recovery, on an insurance policy written by appellee, for the destruction of her house in a fire. The principal issue before us is whether appellant should be barred from recovery as a result of her husband's wrongdoing. For the reasons stated below, we reverse the judgment and remand for further proceedings.
The record establishes that the premises in question, located in South Farmingdale, New York, were acquired by appellant's husband Fred Fellman in the 1960's. At that time, Mr. Fellman was married to his former wife Lillian, whom he divorced in the early 1970's. As part of a separation agreement, he acquired any interest that Lillian may have had in the South Farmingdale house. Subsequently, Mr. Fellman and appellant were married and lived in this house.
In September 1979, however, they too entered into a separation agreement, pursuant to which
the Husband agree[d] to convey to the Wife, upon the execution of this agreement, the following described property:
b) All of his right, title and interest in and to that certain property and house located at 50 County Line Road, South Farmingdale, Long Island, New York, subject to the existing mortgage in the approximate sum of $45,000.00 thereon held by Mrs. Lena Ragusa, which the Wife assumes and agrees to pay; together with all of the household furniture and furnishings contained therein.
The homeowner's insurance policy that is the subject of this litigation was issued in August 1980 in the name of Fred Fellman. It covered the main house, an appurtenant structure and personal property. The policy was amended soon after; the amended policy named both Mr. Fellman and appellant as insureds. During the course of the trial before the magistrate, the insurance broker who, as an agent for appellee, sold the policy testified that he had intended to request that Mr. Fellman's name be removed from the policy altogether, and be replaced by appellant's. However, he made a mistake in filling out a form, and the change that was made -- listing both Fellmans -- was not the one that he intended to make. The broker also testified that he had the authority to orally bind appellee. Thus, he stated that when he agreed to request that the policy be amended to name only appellant, this change became effective.
The South Farmingdale premises were substantially destroyed by a fire in March 1981. In May, a proof of loss was submitted to appellee, bearing the names of both Mr. Fellman and appellant. The proof of loss stated, however, that appellant alone was the owner of the property and that, with the exception of two mortgagees, "no other person or persons had any interest therein or incumbrance thereon." The claimed loss was $341,763, the total cash value of the insured property.
Appellee rejected the claim on the ground that the fire was the result of arson, committed on behalf of appellant and her husband, and this litigation ensued. In October 1981, appellant brought suit in the Supreme Court of the State of New York, seeking to recover for the loss. Appellee removed the case to the United States District Court for the Eastern District of New York, alleging diversity jurisdiction. The case was tried before Magistrate Jordan, who entered a final judgment pursuant to the consensual reference provision of 28 U.S.C. § 636(c).
The magistrate concluded that appellee was liable for the losses caused by the fire unless it established at least one of its two affirmative defenses: first, that the fire was caused by arson attributable to appellant; and, second, that the claim was so exorbitant as to be fraudulent. The magistrate accepted the first defense. He found that (1) the fire was caused by arson, (2) the arson was attributable to Mr. Fellman and (3) the evidence did not establish a conspiracy between Mr. Fellman and appellant to destroy the premises. The magistrate further found -- and this finding is the critical one for the purposes of this ...