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February 10, 1994


Appeal from the Circuit Court of Cook County. Honorable Michael J. Gallagher, Judge Presiding.

Released for Publication April 19, 1994.

Theis, Cahill, Johnson

The opinion of the court was delivered by: Theis

JUSTICE THEIS delivered the opinion of the court:

The insured plaintiff, A & A, Inc., appeals from a jury verdict which relieved the defendant, Great Central Insurance Company, of liability for paying on a claim arising from a fire on the plaintiff's premises. The jury found that although the plaintiff had not been involved in setting the fire, the plaintiff had committed fraud in presenting its claim and thus vitiated the insurance company's obligation to reimburse the plaintiff for the loss. On appeal, the plaintiff argues that the trial court erred in submitting the issue of fraud to the jury. Great Central cross-appeals, arguing that it was denied a fair trial on its arson defense when the trial court excluded physical evidence recovered from the site of the fire.

For the reasons presented below, we believe that portions of the jury instructions should not have been submitted to the jury. We also hold that the trial court erroneously excluded the evidence removed from the premises after the fire. We reverse the trial court and remand this case for a new trial.


On January 21, 1984, a fire broke out on the premises of Granny's Waffle & Pancake House in Forest Park, Illinois. At the time of the fire, the restaurant was under lease to A & A, Inc., whose sole shareholder was Ernest Raguso. On December 1, 1983, Raguso had purchased the corporate stock and restaurant equipment of A & A, Inc., from Alfred Sofiakis for $80,000. Raguso made a $15,000 down payment to Sofiakis, who retained a security interest in the restaurant fixtures and equipment, and assumed certain outstanding obligations of the corporation. Under the terms of the purchase agreement, Raguso was required to obtain full insurance coverage for the restaurant. Raguso purchased a one-year policy from the defendant, Great Central Insurance Company, effective December 1, 1983.

The restaurant was not open for business at the time of the January 21, 1984, fire. It had not reopened for business after a fire in June 1983 caused smoke and water damage to the floor, ceiling, and walls of the restaurant as well as the refrigerator and freezer. Sofiakis testified that he spent approximately $26,000 to repair the restaurant after the June fire. Raguso testified that by the time he closed the purchase contract with Sofiakis, all the damage from the June fire had been repaired.

After the fire of January 21, 1984, Raguso submitted a claim to Great Central Insurance. In June 1984, Raguso submitted a signed "Sworn Statement in Proof of Loss" to Great Central for damage to property in the amount of $89,940 and for loss resulting from the interruption of business valued at $35,847. Raguso's sworn statement asserted that the loss did not result from any action taken by him, on his behalf, or with his consent. His statement also declared that he had made no attempt to deceive the insurance company.

In November 1984, Raguso informed Great Central during an examination under oath that his first Discussion with Sofiakis concerning the purchase of the restaurant occurred after the June 1983 fire. Later at trial in 1991, however, Raguso testified that his first Discussions with Sofiakis regarding the sale of the restaurant occurred before the June 1983 fire.

In February 1985, Great Central rejected the plaintiff's claim for reimbursement for loss resulting from the January fire. In March 1985, the plaintiff filed this action against Great Central.

In June 1985, Great Central filed its answer and two affirmative defenses to the complaint. Great Central's first affirmative defense alleged that it was relieved of any obligation under the policy because "the insured either caused the fire, or it was caused with the insured's consent and authority."

The second affirmative defense asserted that the plaintiff was barred from recovering under the policy because of its "misrepresentation of the subject matter of the insurance, and other conduct by which the insured attempted to defraud the Defendant." Great Central's second affirmative defense also quoted the following provision from the plaintiff's insurance policy:

"This entire policy shall be void if the Insured has concealed or misrepresented, in writing or otherwise, any material facts or circumstances concerning this insurance or the subject thereof, or if the Insured shall make any attempt to defraud Great Central either before or after the loss."

Great Central's second affirmative defense did not allege any underlying facts.

The case proceeded to trial in April 1991. The plaintiff's key witness, Ernest Raguso, testified that after he closed on the restaurant on December 1, 1983, cold weather set in and froze the water pipes. Raguso testified that he installed a small kerosene heater in the restaurant to prevent other pipes from freezing. He explained that from late December up until two or three days before the January 21 fire, he visited the restaurant almost every other day. He recalled that the kerosene heater was operating when he left on his last visit to the restaurant before the fire. Raguso testified that when the fire broke out around 9 a.m., he was visiting his sister in Elmwood Park.

Also at trial, Raguso denied having seen a copy of the insurance policy before the fire. Raguso testified that Richard Guy Serpe, the insurance agent who sold him the policy, told him that he would receive the policy by mid-December, but the policy never arrived. According to Raguso, Serpe told him that he had sent out a copy of the policy, but would furnish another copy. Raguso testified that he never received the policy.

After the plaintiff completed its case in chief, Great Central moved for a directed verdict. The trial court denied the motion, ruling that the plaintiff had established a prima facie case regarding breach of an insurance policy.

Great Central sought to show, as it had asserted in its first affirmative defense, that the plaintiff was responsible for arson regarding the fire of January 21, 1984. The insurance company presented expert testimony from two fire investigators, who testified that the fire was incendiary in origin, based on their observations that (1) there were areas of "low-burning," (2) there were three separate points of fire origin, (3) there was evidence that some type of accelerant had been poured on the carpeting, and (4) a sample of liquid removed from the site of the fire and submitted for chemical analysis was a heavy petroleum distillate.

Great Central attempted to introduce into evidence the contents of a file cabinet drawer which the Forest Park police department had removed from the restaurant after the fire. Great Central contended that the contents of the drawer constituted crucial evidence which demonstrated that the January fire had been intentionally set. The evidence showed, Great Central asserted, that the restaurant had financial difficulty even prior to opening, and that the fire occurred within days after Raguso received the insurance policy. In an offer of proof, Great Western asserted in general terms that the drawer contained ledger books; past due bills of A & A, Inc., from the spring and summer of 1983 that had never been paid; monthly sales tax returns that were unfiled for February, March, and April 1983; and various checks that were returned for insufficient funds. The drawer also contained an envelope from the James Serpe Insurance Agency which enclosed a copy of the plaintiff's insurance policy and a cover letter to Raguso signed by Serpe, dated January 16, 1984.

In addition to the evidence contained in the file cabinet, Great Central sought to introduce physical evidence that had been obtained from the crime lab, including photographs of the fire site taken by the Forest Park police department. Great Central had obtained the file cabinet holdings and ...

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