The topic is the current New York rule that requires an insurer, in defending an action on a policy of fire insurance on the ground of arson, to establish that defense by "clear and convincing evidence." The inquiry is whether that rule justifies the title of this article.
Background
In 1881 the Appellate Division, Fourth Department, held that, where arson by an insured was asserted as a defense in an action on a policy of fire insurance, the insurer could establish that defense merely by a "preponderance of the evidence." (Johnson v. Agricultural Ins. Co., 5 Hun 251 (4th Dept. 1881).) A few years later, the Court of Appeals, while noting that the Johnson decision had been the subject of "considerable controversy among authors upon evidence," nevertheless refused "to express any opinion" on it. Seybolt v. The N.Y., L.E.&W.R.R. Co., 95 N.Y. 562, 569 (1884). Moreover, in a series of later cases, the Court of Appeals affirmed Johnson's basic principle, holding that where a party to a civil action is "charged, incidentally, with arson, embezzlement or any other crime," the adversary "is only required to sustain his case by a preponderance of evidence." Kurz v. Doerr, 180 N.Y. 88, 92 (1904); see also People v. Briggs, 114 N.Y. 56, 65 (1889); New York & Brooklyn Ferry Company v. Moore, 102 N.Y. 667, fully reported in 18 Abb. N.C. 106, 112 (1886); Serra v. Brooklyn Heights R. Co., 95 App. Div. 159, 88 N.Y. Supp. 500, 501 (2d Dept. 1904).
The rule respecting the arson defense remained undisturbed in New York for decades, and in 1982 it was reaffirmed in two federal court decisions, one by implication and the other expressly, in an opinion that equated the holding in Johnson with the overwhelming weight of authority in the United States. Zaitchick v. American Motorists Ins. Co., 554 F.Supp. 209 (S.D.N.Y. 1982), aff'd 742 F.2d 1441, cert. den. 104 S. Ct. 162, 464 U.S. 851; Demyan's Hofbrau, Inc. v. INA Underwriters Ins. Co., 542 F.Supp. 1385 (S.D.N.Y. 1982).
New Developments
The following year, however, 102 years after Johnson, The Appellate Division, Second Department, chose to rule for the first time that it was no longer sufficient to establish the arson defense by a "preponderance of the evidence" and that what was required was "clear and convincing evidence," a higher and "more contemporary" measure of persuasion, applicable to fraud cases, since "arson was but one form of fraud." Hutt v. Lumbermens Mut. Ins. Co. Reversing a judgment in favor of the defendant, the court ordered a new trial at which the "clear and convincing evidence" standard was to be charged. 95 A.D.2d 255, 466 N.Y.S.2d 28, 30 (2d Dept. 1983); Id., 466 N.Y.S.2d, at 31, Fn. 4. On the retrial, the insurer again prevailed.
Hutt became the seminal case on the subject in New York: it was followed, without discussion, by decisions in the Second Department, stated by the Second Circuit to represent the established law in New York, and formalized as such by the New York Pattern Jury Instructions. Rossi v. Hartford Fire Ins. Co., 103 A.D.2d 771, 477 N.Y.S.2d 402 (2d Dept. 1984); Long Island Ski Center, Inc. v. Hartford Fire Ins. Co., 121 A.D.2d 368, 502 N.Y.S.2d 800 (2d Dept. 1986); Malek v. Federal Insurance Company, 994 F.2d 49, 55 (2d Cir. 1993); 10 PJI 1:64.
Nevertheless, since the "clear and convincing evidence" standard in arson cases has not been adopted -- or even passed upon -- by the Court of Appeals, reexamination of its validity and of the Hutt decision, which brought it to New York, is warranted.
Many substantial reasons compel the conclusion that the "clear and convincing" standard applied to the arson defense should be abandoned, not only because it is intrinsically wrong but also because it is the product of the multi-flawed decisions in Hutt and its progeny.
Initially, doubt that a rule that applies the "clear and convincing evidence" standard to the arson defense constitutes good law can reasonably be inferred from the fact that it is -- and always has been -- contrary to the overwhelming weight of authority in this country. Thus, of the forty states that have ruled on the subject, New York is only one of four that has ever adopted it. Wisconsin: Jonas v. Northeastern Mut. Fire Ins. Co., 44 Wis. 2d 353, 171 N.W. 2d 185, 187, N. 1 (1969); Ziegler v. Hustisford Farmers Mut. Ins. Co., 238 Wis. 238, 298 N.W. 610, 612 (1941); Virginia: Mize v. Hartford Ins. Co., 567 F.Supp. 550, 552 (W.D. Va. 1982). Carpenter v. Union Ins. Soc., 284 F.2d 155, 162 (4th Cir. 1960), cited by Hutt as representing the "clear and convincing" standard in South Carolina, was declared to be "in error" in a later South Carolina case, Rutledge v. St. Paul Fire and Marine Ins. Co., 286 S.C. 360, 334 SE2d 131, 138 (App. 1985). McGory v. Allstate Ins. Co., 527 So. 2d 632, 636 (Miss. 1988) appears to be in conflict with four earlier federal court cases in Mississippi which upheld "preponderance of the evidence." All the others, decided before, contemporaneously with, and after Hutt, have required only "the preponderance of the evidence." Up to date collections of these cases appear in the following texts: 19 Couch, on Insurance (2d Ed. 1983); §§ 74:667, 79:447; 21 Appleman, Insurance Law and Practice (1980) §12229 and 21b Id., §12682; and in several recent decisions: Horrell v. Utah Farm Bureau Insurance Company, 909 P. 2d 1279 (Utah 1996): Dairy Queen v. Travelers Indem. Co., 748 P. 2d 1169, 1172 (Alaska 1985); Italian Fisherman, Inc. v. Commercial Union Assurance Company, 215 N.J. Super. 228, 521 A.2d 912 (1987). Glossing over this enormous disparity, the Hutt court rather disingenuously referred to the out-of-state cases as "divided." Hutt, supra, 466 N.Y.S.2d, at 30, note 2.
An Indefensible Position
Its minority position aside, New York's current "clear and convincing evidence" standard is indefensible for several additional reasons.
In an effort to overcome or minimize the effect of the overwhelming weight of contrary authority, the Hutt court sought to justify the "clear and convincing evidence" standard on the ground that it represented a "more contemporary measure of persuasion." This was a clear misreading of legal history as well as an unwarranted reliance on inapposite cases.
In the first place, a leading text on evidence reports examples of the "clear and convincing" standard being applied in various kinds of cases as early as 1749, which is certainly not contemporary." Moreover, the pages of leading insurance treatises are literally studded with citations, contemporaneous with Hutt, that overwhelmingly support the "preponderance of the evidence" standard as the accepted "measure of persuasion."
Even more serious is the fact that what the court in Hutt did, erroneously, was take the standard of proof applicable in cases where a plaintiff seeks to establish common-law fraud by a defendant and transfer that standard to cases where, in an action for breach of an insurance contract seeking money damages, the defendant asserts arson as an affirmative defense to its obligation under the contract to make payment. None of the cases cited by the court in Hutt justifies such a transfer of the standard of proof. The flaw in Hutt is well explained by the decision in Mutual of Enumclaw Ins. Co. v. McBride, 295 Or. 398, 667 P. 2d (1982), where the Oregon Supreme Court considered this precise question and rejected the clear and convincing standard as the insurer's burden of proof in establishing its affirmative defenses of arson and fraud. That court found that clear and convincing proof of fraud is required in common law fraud actions because the stigma of fraud is not lightly laid upon a defendant and thus the stakes are more substantial than the mere loss of money. However, with respect to an affirmative defense of fraud in an action on an insurance contract, the court found:
The fraud, if any, is on the insurer, a private party, not on the court or the public. The stakes are solely financial and aim at compensation rather than punishment. While the loss of anticipated insurance benefits may be a severe blow, it is no more severe than the consequences attaching to many disputes in tort or contract. For these reasons, insurance fraud or false swearing is a purely civil dispute. Accordingly, the jury was properly instructed that the measure of proof in this case was by a preponderance of the evidence.
This reasoning was cited with approval in Horrell v. Utah Farm Bureau Insurance Company, 909 P. 2d 1279, 1281 (Utah, 1996), which also considered and declined to follow New York's Hutt decision, and in Rego v. Connecticut Insurance Placement Facility, 218 Conn. 339, 593 A.2d 491 (1991).
Another weakness in the New York rule, as created by Hutt, is that it ignores the crucial effect of circumstantial evidence in arson cases.
Since "a motion picture of the arsonist in the act *** is most unlikely," the resultant unavailability of direct proof of arson not only permits but virtually compels the insurer to rely solely upon meticulously developed circumstantial evidence to establish the elements of its defense, i.e., the incendiary nature of the fire and the insured's motive and opportunity to set it; hence there is no possible justification for adding to the insurer's burden by requiring it to do so by more than a "fair preponderance of the evidence [Appleman, Insurance Law and Practice (1980) §12682]. Boone v. Royal Indemnity Company, 460 F.2d 26, 29 (10th Cir. 1972); Elgi Holding, Inc. v. Insurance Co. of North America, 511 F.2d 957, 959 (2d Cir. 1975).
Thus, as the Horrell court has perceptively written:
[D]ue to the inherent difficulties in proving arson, 'which is usually based on secret preparation and activity,' (State v. Dronzank, 671 P. 2d 199, 200 (Uta, 1983), we consider it inequitable to require insurance companies to establish the defense of arson by clear and convincing evidence, while insureds can demonstrate breach of the same contract under the preponderance of the evidence standard." - Horrell v. Utah Farm Bureau Insurance Company, supra, 909 P. 2d 1279, 1282.
It is of interest that the same court that decided Hutt found nothing inequitable or even incongruous in the fact that in an arson case "The plaintiff had to establish its case by a preponderance of the evidence and the defendant had to prove its three affirmative defenses [arson and false swearing] by clear and convincing evidence." [Long Island Ski Center, Inc. v. Hartford Fire Insurance Company, 121 A.D.2d 368, 502 N.Y.S.2d 800 (2d Dept. 1986)].
Also implicit in the question of the burden of proof is its impact on public policy.
Because it is clearly against public policy to permit "an insured to recover as a result of fraudulent conduct, which said conduct may also constitute a crime," such as arson, it necessarily follows that it is equally against public policy to insist upon a rule that makes it easier for the arsonist to profit by raising the insurer's required standard of defensive proof from "preponderance" to "clear and convincing." This point was perceptively made in two recent cases, Italian Fisherman and Horrell, in which the latter court most aptly wrote (p. 1282):
Finally, our decision to adopt the lower preponderance standard is also motivated by the strong public policy precluding recovery for arson. Dairy Queen, 248 P. 2d at 1172; Nieses, 696 P. 2d at 378.
It is significant that, while Hutt and its progeny were engaged in tipping the judicial scales in favor of arsonists, they completely avoided addressing this serious question of public policy.
Another factor undermining the validity of the Hutt-inspired series of decisions is their one-sided emphasis on the defendant's burden of proof and their failure to discuss, or even mention, the plaintiff's burden of proof on the specific issue of fortuity, since that issue, which is immediately raised by the introduction of evidence of willful burning, requires both the plaintiff and the court to deal with it, as mandated by these principles:
- for a loss to be covered by insurance it must be "fortuitous", Northwestern Mutual Life Insurance Co. v. Linard, 498 F.2d 558, 561 (2d Cir. 1974);
- it is not fortuitous if it results from, inter alia, the fraud or other misconduct of the insured, See, e.g., Goodman v. Fireman's Fund Ins. Co., 600 F.2d 1040 (4th Cir. 1969); University of Cincinnati v. Arkwright Mut. Ins. Co., 51 F.3d 1272 (6th Cir. 1995); and
- the insured has the burden of proof that the claimed loss was, indeed, fortuitous. Vasile v. Hartford Accid. & Indemnity Co., 203 A.D.2d 541, 624 N.Y.S.2d 56 (2d Dept. 1995).
Finally, it is significant that the same court that originally decided Hutt sought to enhance the legitimacy of that ruling by repeatedly citing it as authority in several later cases, presumably on the theory expressed in Lewis Carroll's "The Hunting of the Snark" that "What I tell you three times is true." See American Machine & Foundry, Inc. v. Santini Bros., Inc., 54 Misc. 2d 886, 283 N.Y.S.2d , 578 (Sup. Ct. N.Y. Co. 1967), aff'd 362 N.Y.S.2d 402.
Especially notable among these was the utterly absurd decision in Hutt's immediate successor, Rossi v. Hartford Fire Ins. Co., 103 A.D.2d 771, 477 N.Y.S.2d 402 (2d Dept. 1984).
There, the appellate court not only acknowledged that "There was an abundance of evidence from which a jury could find that plaintiff had willfully participated in the burning of her building," but also knew, from its decision in an earlier appeal in the same case, that the fire in question had "been determined by local authorities as unquestionable arson." Rossi v. Hartford Fire Ins. Co., 72 A.D.2d 548, 420 N.Y.S.2d 725, 726 (2d Dept. 1979). Nevertheless, and despite that "abundance of evidence," it reversed a judgment in favor of the insurer on its arson defense on the sole ground that the trial judge had committed "substantial error" when he charged "preponderance" instead of "clear and convincing" as mandated by Hutt.
Completely unexplained in the Rossi decision was how the trial judge's charge could possibly have been in violation of the rule established in Hutt when the charge in question had been given to the jury in April 1982, a good sixteen months before Hutt was reported in August 1983!
Yet Rossi is frequently cited, along with Hutt, as authority for the "clear and convincing" rule in arson cases in New York.
Conclusion
Clearly, a rule of law that requires "clear and convincing evidence" to establish the defense of arson benefits the arsonist and victimizes the insurer, and hence grossly violates sound public policy. It is therefore not surprising that the overwhelming weight of authority in this country has repeatedly adhered to "preponderance of the evidence" and rejected "clear and convincing evidence" as the required burden of proof in arson cases.
Since New York was lured into adopting the unacceptable minority position of "clear and convincing evidence" by the deeply flawed decision in Hutt and its uncritical followers, it should rejoin the majority, return to its hundred-year-old pre-Hutt precedent of the "preponderance of the evidence," and thereby re-level the now tilted playing field between arsonist and insurer.