Opinion issued May 10, 2007
In The
Court of Appeals
For The
First District of Texas
NO. 01-06-00459-CV
KONSTANTINOS ROUTIS; DULUTH RESTAURANTS, INC.; AND/OR KRMG ENTERPRISES, INC. AS THE ATTORNEY IN FACT OF DULUTH RESTAURANTS, INC., Appellants
V.
CLARENDON AMERICA INSURANCE COMPANY, INC., Appellee
On Appeal from the 280th District Court
Harris County, Texas
Trial Court Cause No. 2004-65367
MEMORANDUM OPINION
Appellants, Konstantinos Routis ("Routis"), Duluth Restaurants, Inc., (1) and/or KRMG Enterprises Inc., as attorney in fact of Duluth Restaurants, Inc. ("KRMG"), sued appellee, Clarendon America Insurance Company, Inc., for breach of contract after appellants' building was destroyed by fire and appellee denied coverage. The trial court rendered a take-nothing judgment against appellants.
In two issues, appellants (1) challenge the legal and factual sufficiency of the evidence supporting the trial court's judgment and (2) contend that the trial court applied an incorrect standard of proof.
We affirm.
Summary of Facts and Procedural History
Routis, a citizen of Greece who came to the United States in 1975, asserts that he does not speak English and does not read or write in any language. In 1991, Routis's nephew, Sachtouris Routis, moved to the United States and began overseeing Routis's business matters.
In 1985, Routis purchased a nightclub business, known as "La Chatte," located at 13335 Duluth in Houston. In 1989, he created KRMG corporation and purchased the building and land at 13335 Duluth. In 1992, a fire caused extensive damage to the building. The Houston Fire Department determined that an arsonist had poured gasoline through a rooftop air conditioner, but there was never a conviction in the case. Routis received $350,000 in insurance proceeds, and Sachtouris supervised the reconstruction of the building.
On August 15, 2000, KRMG sold the personal property assets of La Chatte to Duluth Restaurants, Inc. ("Duluth") for $350,000. The asset purchase agreement was executed by Routis, on behalf of KRMG, and by Louis Servos, as president of Duluth.
In addition, Routis, individually, executed a lease of the La Chatte real property to Duluth. The lease was for a period of five years and for an aggregate sum of $354,000, payable in variable monthly installments. The lease provided as follows in pertinent part:
10.2 Tenant shall procure and maintain throughout the term of this Lease a policy or policies of insurance, at Tenant's sole cost and expense, insuring Landlord as well as Tenant from all claims, demands, or actions arising out of Tenant's use and occupancy of the leased premises. The property damage insurance shall have limits of liability of not less than $1,250,000.00, . . . . In addition, Tenant will procure and maintain throughout the term of this Lease a policy or policies of fire and extended coverage insurance at Tenant's sole cost and expense on the building, fixtures, equipment, constituting the leased premises, insuring all such property for its full value. All insurance shall be carried with companies satisfactory to Landlord.
. . . .
14.2 In the event that the leased premises are damaged or destroyed by fire or other casualty insurable under standard fire and extended coverage insurance and Landlord does not elect to terminate this Lease . . . , Landlord shall proceed with reasonable diligence and at its sole cost and expense to rebuild and repair the leased premises. If the leased premises are damaged or destroyed by fire or other casualty so as to render untenantable more than 50% of the floor area of the entire building in which the leased premises are located, Landlord may elect either to terminate this Lease or to proceed to rebuild and repair the leased premises. Landlord shall give written notice to Tenant of its election within sixty (60) days after the occurrence of the casualty and, if it elects to rebuild and repair, shall proceed to do so with reasonable diligence and at its sole cost and expense.
. . . .
14.5 Any insurance against casualty loss which may be carried by either Landlord or Tenant shall be under the sole control of the party carrying the insurance, and the other party shall have no interest in any proceeds of that insurance.
The Lease also granted Duluth an exclusive right to purchase "the Leased Premises" during the primary term of the Lease for $550,000, and provided that Routis would finance the purchase.
In February 2002, Servos transferred his interest in the nightclub to Gus Venetoulias. In November 2002, Venitoulias transferred his interest to Mario Jafari, who operated the nightclub as "Duluth Restaurants, Inc., d/b/a Island Cabaret." Jafari understood that his interest was governed by the original asset purchase agreement between KRMG and Duluth, and by the real-property lease between Routis and Duluth. Each month, Routis accepted Jafari's payments.
At the time Jafari purchased the club, it had been grossing $20,000-$30,000 in revenues each month. Over time, Jafari began to realize revenues of $40,000-$50,000 per month. According to Jafari, Routis approached him at one point about exchanging the club for another of Routis's clubs in Houston. Jafari declined the offer.
In June 2003, according to Jafari, Jafari was contacted by Routis's insurance carrier and was told that it was time to renew the insurance policy covering the property and business. Jafari executed the paperwork and paid the premium. According to Routis and Sachtouris, however, the agent contacted them in July, 2003, and said that the insurance on the building was in danger of lapsing because Jafari had not paid the premium. According to Sachtoris, Sachtouris sent a copy of the lease to the agent, told the agent to issue the policy, and paid the premium.
The record shows that appellee issued an insurance policy ("Policy"), effective July 19, 2003. The Policy listed as the named insured "Duluth Restaurants, Inc., DBA Island Cabaret" at 13335 Duluth, and it listed Routis and Sachtouris each as an "additional insured," with proceeds for losses to be paid directly to "Routis and Sachtouris Routis." The coverage amount was increased $200,000 on the building, and the loss of business income coverage was dropped. Routis and Sachtouris deny that they instructed the agent to alter the coverage limits.
At 2:00 a.m. on August 10, 2003, Routis was closing up for the night at his nightclub, Mango's. Sachtouris, who managed Mango's, was there tallying the registers. The men finished cleaning up at 4:00 a.m., and Routis went home. Sachtouris went to a friend's nightclub. At 6:30 a.m., Sachtouris received a call that the building at 13335 Duluth was on fire.
The fire department arrived within minutes. All the exterior doors were covered by burglar bars and locked. The fire department had to cut through the locks to gain entry. The building suffered extensive damage.
At the time of the fire, the building was protected by a security system that monitored ingress and egress from exterior doors. System records from the night of the fire indicated that the building had been armed at 2:36 a.m. and that no doors had been opened before a fire was detected in the VIP Room at 6:20 a.m.
Throughout the lease period, Routis had maintained exclusive possession of two small rooms at the back of the building--a storage room and a "workout room" that contained gym equipment. These rooms were not wired into the building's alarm system. The storage room had an exterior door that was protected by burglar bars, and Routis had the only known set of keys. The storage room shared a common wall with the VIP Room.
Preliminary investigations determined that the fire had two points of origin--one in Routis's storage room and one in the VIP Room--and that the fire was incendiary. Houston Fire Department arson investigator S. Merrel testified that he determined that the fire was deliberately set and that whoever set the fire had access to the storage room at the back of the building because the alarm system had not been shut off or tampered with. B. Koger, an independent fire investigator, brought in a combustible gas detector and detected that flammable liquids had been used. T. Petty, of the Harris County Fire Marshal's Office, who brought in an accelerant-detection dog, which alerted in the VIP Room. However, laboratory samples taken tested negative for flammable liquids.
Subsequent to the fire, appellants changed the locks on the building. Jafari, as Duluth, sent a letter of notification to Routis that Duluth would formally exercise its option to purchase the building. Appellants refused Jafari's August rental payment and terminated the lease, citing the Lease provision that permitted termination if the building became over 50 percent damaged by fire. Jafari argued that the damage was less than 50 percent. In October 2003, while appellants had sole access to the building, another fire occurred that caused additional damage to the interior of the building. The parties do not dispute that the building was then over 50 percent damaged.
Jafari, as Duluth Restaurants, filed a sworn proof of loss for its share of the insurance proceeds and appellee paid $12,722 on the claim. Subsequently, appellants also filed claims of approximately $600,000 in damages with appellee in the name of Duluth, which appellee denied. Appellants then sued appellee, alleging breach of the insurance contract and violations of the Insurance Code and Texas Deceptive Trade Practices Act. Appellee asserted the defenses of fraud and illegality on the grounds that the Policy specifically excluded coverage for losses caused by any fraudulent, dishonest, or criminal act done by or at the instigation of any insured, which, it alleged, had occurred here. In addition, appellee asserted the defenses of payment, release, satisfaction, estoppel, and waiver on the grounds that Jafari's claim in the name of Duluth was proper and had been paid. Appellee contended that Duluth was an entity separate from appellants and that appellants lacked capacity to bring a claim in the name of Duluth. Further, appellee contended that KRMG was neither an insured nor a loss payee under the Policy. (2)
On December 19, 2005, the case was tried without a jury. (3) At the conclusion of trial, the trial court announced that it found that the loss in question was the result of an arson committed by appellants. On February 24, 2006, the trial court rendered a take-nothing judgment against appellants.
On March 24, 2006, appellants filed a motion for new trial, which the trial court denied. On May 16, 2006, the trial court denied appellants' motion to reconsider the motion for new trial. On May 24, 2006, appellants filed an untimely request for findings of fact and conclusions of law. (4) No findings of fact or conclusions of law appear in the record.Sufficiency of the Evidence
In their first and second issues, appellants (1) challenge the legal and factual sufficiency of the evidence supporting the trial court's judgment and (2) contend that the trial court applied an incorrect standard of proof. These issues can be most succinctly addressed together in a single analysis.
A. Standard of Review and Applicable Law
In a non-jury trial, when findings of fact and conclusions of law are not properly requested and none are issued, all facts necessary to support the judgment and supported by the evidence are implied. See Sixth RMA Partners, L.P. v. Sibley, 111 S.W.3d 46, 52 (Tex. 2003); Wade v. Comm'n for Lawyer Discipline, 961 S.W.2d 366, 374 (Tex.App.--Houston [1st Dist.] 1997, no pet.). When, however, as here, the record contains the clerk's and reporter's records, these implied findings are not conclusive and may be challenged for legal and factual sufficiency. See BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). We apply the same standards of review that are applied in reviewing evidence supporting a jury's answer. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994).
In conducting a legal sufficiency review, we consider "whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We "credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not." Id. As long as the evidence falls within the zone of reasonable disagreement, we may not substitute our judgment for that of the fact-finder, which alone determines the credibility of the witnesses and the weight, if any, to be given their testimony. Id. at 819, 822. We review the evidence in the light most favorable to the verdict and indulge every reasonable inference that supports it. Id. at 822. However, we may not disregard evidence that allows only one inference. Id. We will sustain a legal sufficiency challenge if the record shows one of the following: (1) a complete absence of evidence of a vital fact; (2) rules of law or evidence bar the court from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a scintilla; or (4) the evidence establishes conclusively the opposite of the vital fact. Id. at 810.
Under the factual sufficiency standard, we consider all the evidence in the record, both supporting and conflicting, and set aside the verdict only if it is so contrary to the overwhelming weight and preponderance of the evidence that it is clearly wrong and manifestly unjust. Plas-Tex Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989); Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). In an appeal from a bench trial, we do not invade the fact-finding role of the trial court, which alone determines the credibility of the witnesses, the weight to give their testimony, and whether to accept or reject all or any part of that testimony. Nordstrom v. Nordstrom, 965 S.W.2d 575, 580-81 (Tex.App.--Houston [1st Dist.] 1997, pet. denied).
B. The Law
An insured seeking recovery under an insurance policy must prove the contractual provisions that allow recovery. Texas Farmers Ins. Co. v. Murphy, 996 S.W.2d 873, 879 (Tex. 1999). "If there are any contractual provisions that could limit or bar recovery, it is incumbent upon the insurer to plead and prove them." Id.
Arson is an affirmative defense to a civil suit for insurance proceeds. State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 45 n.1 (Tex. 1998). To establish arson, an insurer bears the burden of proving that the insured set the fire or caused it to be set. Murphy v. Texas Farmers Ins. Co., 982 S.W.2d 79, 84 (Tex. App.--Houston [1st Dist.] 1998), aff'd on other grounds, 996 S.W.2d 873 (Tex. 1999); State Farm Lloyds, Inc. v. Polasek, 847 S.W.2d 279, 282 (Tex. App.--San Antonio 1992, writ denied). However, the insured's burden of proof is not to show by an absolute certainty, but rather, by a preponderance of the evidence that the insured set the fire. Murphy, 982 S.W.2d at 84. Because arson is ordinarily committed in secrecy, it may be proved by circumstantial evidence. Id. To establish the affirmative defense of arson, the insurer must show that (1) the fire had an incendiary origin; (2) the insured had a motive to set the fire or cause it to be set; and (3) the insured had an opportunity to set the fire or other circumstances link the insured to the fire. Simmons, 963 S.W.2d at 45 n.1; Murphy, 982 S.W.2d at 84.
C. Analysis
Here, the record shows that an insurance policy was in existence at the time that the August 10, 2003 fire occurred. Specifically, the record shows that, on June 9, 2003, Jafari, as Duluth Restaurants, Inc., dba Island Cabaret, executed a commercial insurance application ("Application") with King-Phillips Insurance Agency and that Jafari wrote a check to King-Phillips for $3,712.15 on July 18, 2003, which King-Phillips cashed on July 23, 2003. The Application states that the proposed coverage period was July 19, 2003 to July 19, 2004, and Routis and Sachtouris were listed as additional payees. The record shows that appellee then issued the Policy, to be effective from July 19, 2003 to July 19, 2004. The Policy listed as the named insured "Duluth Restaurants, Inc., DBA Island Cabaret" at 13335 Duluth, and listed Routis and Sachtouris as "additional insured," with proceeds for losses to be paid directly to "Routis and Sachtouris Routis."
On August 10, 2003, a fire destroyed the building at 13335 Duluth. The Policy included coverage for damage to the building and contents caused by fire. Appellants contend that they made a proper and timely claim to appellee and that appellee breached the insurance contract by failing to pay as agreed for the losses sustained. Appellee asserted the defense of arson, contending that appellants deliberately set the
fire that caused damage to the covered building and that the Policy specifically excluded coverage under these circumstances. The record shows that the Policy excluded, inter alia, coverage for loss, damage, or expense of any nature in any way connected with "[a]ny fraudulent, dishonest, or criminal act done by or at the instigation of any insured, partner or joint venture participant in or of any insured, an officer, director or trustee of any insured. . . ."
At the close of trial, the trial court stated in the record that it concluded that the fire was a result of arson and that the arson was committed by appellants. On appeal, appellants do not challenge the finding that arson occurred; rather, they contend that there is no evidence that Routis directly or indirectly caused the fire.
Here, to establish the affirmative defense of arson, appellee was required to show evidence that (1) the fire had an incendiary origin; (2) appellants had a motive to set the fire or cause it to be set; and (3) appellants had an opportunity to set the fire or other circumstances existed linking them to the fire. See Simmons, 963 S.W.2d at 45 n.1; Murphy, 982 S.W.2d at 84. Appellee had the burden to prove by a preponderance of the evidence that appellants set the fire or caused it to be set. Murphy, 982 S.W.2d at 84; Polasek, 847 S.W.2d at 282.
1. Incendiary Origin
Appellants concede that the fire had an incendiary origin; however, appellants contend that the evidence does not show that they set the fire. The record shows that R. Gonzales, a junior captain of the Houston Fire Department who responded to the fire, testified that he participated in cutting through a locked storage room door, later identified as Routis's, and that he extinguished a fire in the storage room. Gonzales testified that the storage room was a point of origin of the fire. Gonzales also testified that the storage room had a wall in common with the VIP Room.
T. Gardiner, District Chief of the Houston Fire Department, brought in preliminary investigators who determined that there were two separate points of origin--one in Routis's storage room and one in the VIP Room. Gardiner turned the investigation over to Houston Fire Department arson investigator S. Merrel.
Merrel testified by deposition that all of the exterior doors of the building, including the door to Routis's storage room, were behind locked burglar bars that had to be cut through for the fire department to gain entry. In addition, Merrel testified that all of the doors to the building were on an alarm system except the doors to Routis's storage room and workout room. Merrel testified that system records indicated that the building alarm was activated when the club closed at 2:36 a.m. and that none of the alarms detected movement in the building prior to the fire. Merrel testified that whoever set the fire had access to the storage room at the back of the building. Routis and Sachtouris had testified that Routis had the only key to the storage room door. Further, Merrel testified that it was his opinion that the fire that began in the VIP room was a result of someone having entered the storage room, having lifted up ceiling tiles, and having either crawled over the wall or thrown something into the VIP Room.
B. Koger, an independent fire investigator, testified that the wall between Routis's storage room and the VIP Room did not go all the way to the ceiling and that it was possible to pull aside the tiles of the dropped ceiling, where there was a two-foot crawl space over the wall. Koger testified that he had concluded that someone had entered through Routis's storage room with a ladder and had thrown a combustible liquid into the VIP Room. Koger brought in a combustible gas detector which detected that flammable liquids had been used. This conclusion was supported by the testimony of T. Petty, of the Harris County Fire Marshal's Office, who brought in an accelerant-detection dog which alerted in the VIP Room.
From this evidence, the trial court could have reasonably concluded that Routis and/or Sachtouris set the building on fire or caused it to be set on fire. See Polasek, 847 S.W.2d at 283.
Appellants contend that the samples of material that were sent to the laboratory tested negative for the presence of accelerants. In addition, appellants contend that they were never charged with having committed arson. We do not invade the fact-finding role of the trial court, who alone determines the credibility of the witnesses, the weight to give their testimony, and whether to accept or reject all or any part of that testimony. See Nordstrom, 965 S.W.2d at 580-81.
2. Motive
We next examine the record for evidence showing that Routis had a motive to set the building on fire. First, the record shows that less than 30 days prior to the fire, the insurance coverage on the building was raised from $300,000 to $500,000. At the same time, the business interruption coverage protecting Duluth was dropped--suggesting that the coverage changes were not instigated by Jafari. Appellee maintains that appellants intervened at the time of the renewal and ordered the changes. Appellants deny that they gave any such instructions.
Second, the record reveals evidence that appellants were experiencing financial distress at the time of the fire. Routis's bank records show that there was $187 in his account on July 11, 2003 and that the account had incurred overdraft charges. See Vandiver, 970 S.W.2d at 737 (finding evidence of motive when bank records revealed low balance and insufficient funds charges near time of fire).
From this evidence, the trial court could have reasonably concluded that Routis had a motive to set the building on fire or to cause it to be set on fire. See id.; Polasek, 847 S.W.2d at 283.
At trial, appellants disputed that they were experiencing financial difficulties at the time of the fire. Sachtouris testified that he and Routis had $500,000 in another account and had purchased other clubs, but appellants did not produce any evidence. We defer to the trial court's determination with regard to the weight, if any, to be placed on this testimony. See Nordstrom, 965 S.W.2d at 580-81.
3. Opportunity
Finally, we examine the record for any probative evidence tending to show that appellants had an opportunity to set the fire that occurred at the building.
The record shows that, at 4:00 a.m., on the night of the fire, Routis allegedly went home after closing up his nightclub, Mango's, and Sachtouris allegedly went to a friend's nightclub. There was no evidence corroborating their whereabouts. See Murphy, 982 S.W.2d at 84 (considering lack of evidence corroborating whereabouts on night of fire). At 6:20 a.m., the alarm system at 13335 Duluth detected a fire at the rear of the club in the "VIP Room." All the doors of the building were monitored by a security system except the two small rooms at the back of the building. Routis had exclusive access to those small rooms; however, Sachtouris testified that Routis sometimes loaned him the keys. These two rooms were not wired into the security system. There were no breaches of security detected on any of the doors of the club prior to the fire alarm. A fire started in Routis's storage room and a separate fire began in the VIP Room, which shared a common wall with Routis's storage room. The record showed that the ceiling tiles could easily be removed, giving access over the wall to the VIP Room. These facts constitute evidence of opportunity. See Vandiver, 970 S.W.2d at 737 (finding evidence of opportunity when burned structure was locked and accused had only set of keys); Polasek, 847 S.W.2d at 282.
We conclude that the combined evidence falls within the zone of reasonable disagreement and supports the trial court's implied finding that Routis and/or Sachtouris set the building on fire and that therefore appellee's proffered exclusion from coverage applies. See Wilson, 168 S.W.3d at 827; Vandiver, 970 S.W.2d at 737. We hold that the evidence is legally sufficient because the evidence would enable reasonable and fair-minded people to reach the verdict under review. See Wilson, 168 S.W.3d at 827. In addition, we hold that the evidence is factually sufficient because, after considering all the evidence in the record, the verdict is not so contrary to the overwhelming weight and preponderance of the evidence that it is clearly wrong and manifestly unjust. See Plas-Tex Inc., 772 S.W.2d at 445; Cain, 709 S.W.2d at 176. We further hold that the trial court applied the proper standard of proof when it concluded by a preponderance of the evidence that appellee met its burden to show that an exclusion to coverage applied in this case. See Murphy, 996 S.W.2d at 879.
Accordingly, appellants' first and second issues are overruled.
Conclusion
We affirm the judgment of the trial court.
Laura Carter Higley
Justice
Panel consists of Justices Nuchia, Keyes, and Higley.
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