Richie's Corner, Inc. v. National Specialty Insurance

*275 MEMORANDUM DECISION AND ORDER

This removed diversity case involves the denial of an insurance claim stemming from a premises fire. The defendant insurance company claims that plaintiff, who it suspects of arson, failed to cooperate in its investigation of the claim in violation of plaintiffs obligation under the policy. The ease is before me on defendant’s motion for summary judgment. I hold that plaintiff breached its obligation under the policy and I therefore grant the motion.

BACKGROUND 1

Plaintiff ran a delicatessen in Queens. On October 9, 2006, a fire occurred. The Fire Department concluded that arson was the cause of the fire. There were a number of circumstances, such as the fact that the business was for sale at the time of the fire and owed $30,000 in rent, as well as the testimony of plaintiffs principal, Sal LaBarca, concerning his movements in the middle of the night at the scene and time of the fire, that caused the insurance company to believe that LaBarca had set the fire. Although the insurance company is also defending this case on the basis of arson, that issue is not directly before me on this motion.

Under the insurance policy, plaintiff had a duty to cooperate in defendant’s investigation of the fire and to answer questions under oath. Specifically, the policy provided that in the event of loss or damage, the insured had the duty to permit the insurance company to “examine your books and records,” make copies of those records, and “[cjooperate with us in the investigation and settlement of the claim.” In addition, the insurance company had the right to “examine any insured under oath ... about any matter relating to this insurance or the claim, including an insured’s books and records.”

Pursuant to that obligation, plaintiff produced, at defendant’s request, a number of financial records and testified twice under oath. Included among these records were LaBarca’s personal credit report, books and records of plaintiffs business and LaBarca’s other businesses, mortgage statements for LaBarca’s home and investment properties, bank statements, credit card statements, and a copy of LaBarca’s 2005 U.S. Income Tax Return.

The tax return showed about $9000 in income for the year. When asked at the examination under oath to confirm that the tax return accurately reflected his income, LaBarca’s attorney instructed him not to answer. The insurance company’s attorney cautioned LaBarca and his attorney that failure to answer might be deemed a breach of the duty of cooperation in the policy: “You direct your witness not to answer at an examination under oath at your own peril. You’re going to direct him not to answer, then it raises cooperation issues.” The insurance company lawyer persisted in repeating the question more than once, and LaBarca, on his attorney’s advice, was equally persistent in refusing to answer. He was again cautioned:

Just so we have it very clear. You know this is an arson fire, you know that motive to commit arson is an issue in a potential arson case, and you’re directing him not to answer a question addressed to whether all of the wages, salaries and tips he had in the entire *276 year 2005 was $9000? Just so I understand that.

And I would again respectfully suggest that failure to cooperate with the insurer’s investigation can, in and of itself, be a grounds [sic] for denial of the claim.

Do you insist on telling him not to answer that question?

Not only did the instruction stand, but when counsel for the insurance company continued to press the question, LaBarea responded sarcastically, “let me look at your taxes.... Let me look at your tax returns.”

The insurance company thereafter denied coverage on the grounds of giving false testimony during the examination and failure to cooperate, and plaintiff thereupon commenced this action.

DISCUSSION

The policy language at issue here is coextensive with the requirements of New York Insurance Law § 3404(e). 2 In the context of suspected arson, New York courts have construed this language broadly, describing it as “much broader than the right of discovery under the CPLR. By its terms the insured promises to render full and prompt assistance to discover the facts surrounding the loss and anything less re-suits in a breach of contract.” Dyno-Bite, Inc. v. Travelers Cos., 80 A.D.2d 471, 474, 439 N.Y.S.2d 558, 560-61 (4th Dep’t.1981), An insurance company that reasonably suspects arson has the right to obtain “all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights to enable them to decide upon their obligations, and to protect them against false claims.” Id. (quoting Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 94-95, 3 S.Ct. 507, 514-15, 28 L.Ed. 76 (1884)). 3

Harary v. Allstate Ins. Co., 988 F.Supp. 93 (E.D.N.Y.1997), also involved an arson fire in which the insurance company rejected the claim for, inter alia, breach of the cooperation clause. There, upon being asked to provide her tax returns for two specific years, the plaintiff averred that she had not filed tax returns for those years, but would estimate her income instead. When she continually failed to deliver on that promise, Allstate obtained what purported to be her tax returns for the subject years from the plaintiffs mortgagee, but the plaintiff disavowed having ever filed those returns. Like plaintiff here, the plaintiff in Harary asserted that the insurance company’s denial of the claim for lack of cooperation was improper because: (1) she had provided many documents and answered many questions but *277 only failed to answer two (the estimated income for the two tax years); and (2) the information could not be material because once the insurance company learned that the fire was an arson fire and that she had attempted to sell the house before the fire, nothing concerning her income could alter the insurance company’s evaluation of the claim.

Judge Trager rejected these arguments, noting that “[i]n view of the fact that direct proof of arson is seldom available .... [ijnformation gleaned from the tax returns of an individual insured or the officers of a corporate insured can be of crucial significance ... ”. Id. at 104 (quoting 2423 Mermaid Realty Corp. v. New York Prop. Ins. Underwriting Ass’n, 142 A.D.2d 124, 131, 534 N.Y.S.2d 999, 1003 (2d Dep’t.1988)). The Court also specifically rejected the argument that the insured could pick and choose which information to provide, and that the failure to provide some information could be rendered immaterial by' providing other information: “Plaintiffs argument would render New York’s statutory cooperation clause, as found in standard fire insurance policies, a nullity.” Id. at 105, “Materiality,” the Court held, is not “determined by the ultimate importance of the information to the insurer but rather its relevance to the investigation at the time asked.” Id. (citing Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 (2d Cir.1984)).

In the instant case, plaintiff attempts to distinguish Harary on the ground that here, plaintiff did provide copies of the requested insurance returns, as well as an abundance of other documents. It is true that the plaintiffs non-cooperation in Harary was more egregious than that alleged here; the plaintiff in Harary promised to provide income information, then claimed an inability to provide that information, and disavowed non-filed tax returns, so that the insurance company had no information about her income for the subject years. In addition, because plaintiff here has given defendant the tax returns, and they show an income of only $9000, defendant is in a position to argue that plaintiff had a motive for arson even without plaintiffs acknowledgement that the returns are accurate.

However, I do not believe that these distinctions are sufficient to render the answers to the questions concerning the accuracy of the tax returns immaterial. Having the tax returns, but also having plaintiffs refusal to acknowledge their accuracy, is only marginally better than not having them at all. It is not much different than if, instead of providing the tax returns, LaBarca had said in answer to a question that he would write his income down on a piece of paper, but would refuse to confirm that the number he wrote down was accurate. Defendant still has been deprived of information to which it was entitled to determine the nature and circumstances of the arson. “The most common example of a willful failure to cooperate is when the insured declines to answer questions about his personal finances or to turn over personal tax records.” Staten Island Supply Co., Inc. v. Lumbermen’s Casualty Co., No. 02-cv-6390, 2005 WL 711678, at *6 (E.D.N.Y. March 29, 2005). Moreover, although there are some facts that plaintiff has disclosed that would allow defendant to argue that there was a motive for arson, that is not much different than the argument rejected in Harary that there was “sufficient” circumstantial evidence to argue motive such that additional evidence would be immaterial. When it comes to a cooperation clause, the duty is not satisfied by volume; the insured must give complete disclosure concerning his financial affairs. 4

*278 In addition, plaintiffs responses to the question as to whether its principal’s tax returns are accurate would address more than just motive. The insurance company is entitled to know, in evaluating the credibility of the story given by plaintiffs principal, whether he is someone who is prone to lie under oath, as would be the case if he filed false tax returns. That is material to its investigation.

In this regard, although materiality needs to be measured at the time of the investigation, not trial, see Harary, 988 F.Supp. at 105, it is a useful analogy to consider what a jury would be allowed to hear on this issue. In being asked to determine whether plaintiffs principal had committed the arson, the jury would be allowed to consider the answer to the question of whether he had filed false tax returns as bearing on his credibility. “Evidence that a witness had made false statements in a tax return is obviously a matter which affects the witness’s credibility.” Chnapkova v. Koh, 985 F.2d 79, 82 (2d Cir.1993); accord, Chamblee v. Harris & Harris, Inc., 154 F.Supp.2d 670, 681 (S.D.N.Y.2001); Mischalski v. Ford Motor Co., 935 F.Supp. 203, 208 (E.D.N.Y.1996).

It is axiomatic that a jury is not allowed to consider evidence concerning an immaterial fact. Yet if evidence of filing false tax returns is deemed a material fact in the comparatively restricted context of admissible evidence at trial, then it seems equally axiomatic that it is at least as material in the broader context of an arson investigation that an insurance company is entitled to make pursuant to the terms of the policy. Stated otherwise, since the duty to cooperate is broader than the scope of discovery, see Dyno-Bite, Inc., 80 A.D.2d at 474, 439 N.Y.S.2d at 560, and the scope of discovery is broader than the scope of admissible at trial, see generally Walsh v. Northrop Grumman Corp., 165 F.R.D. 16, 20 (E.D.N.Y.1996), I cannot see how the information of whether plaintiffs principal has lied under oath could be deemed immaterial to defendant’s arson investigation. We instruct juries in virtually every case that they may consider falsus in uno, falsus in omnibus; there is no reason why the insurance company should be deprived of information to make that same determination in the context of an arson investigation.

The Second Circuit has made it clear that summary judgment is appropriately granted for failure to cooperate in an arson investigation when the insured’s action is deemed willful. See Rosenthal v. Prudential Property & Cas. Co., 928 F.2d 493 (2d Cir.1991). Here, defendant’s attorney did not simply ask the question and then end the examination or move on when plaintiff refused to answer. Instead, he urged plaintiff to reconsider its position and he warned of the consequences of noncooperation several times. He was repeatedly rebuffed. Under these circumstances, no reasonable jury could find that plaintiffs refusal to cooperate was anything other than willful. 5

*279 CONCLUSION

The motion for summary judgment is granted. The Clerk is directed to enter judgment in favor of defendant.

SO ORDERED.