Oriental Rugs the O'Connell Notes

Notes on Insurance Fraud by Khaibar Khan Goodarzian

11/20/68 Saks & Co. et al., v. Continental Ins. Co. et al

[Editor's note: footnotes (if any) trail the opinion]

[1] COURT OF APPEALS OF NEW YORK

[2] Saks & Co. et al., Appellants,

[3] Continental Ins. Co. et al., Respondents

[4] 242 N.E.2d 833, 23 N.Y.2d 161

BLUE BOOK CITATION FORM: 1968.NY.1877 (http://www.versuslaw.com)

[5] Date Decided: November 20, 1968

[6] Saks & Co. v. Continental Ins. Co., 26 A.D.2d 540, affirmed.

[7] POINT OF COUNSEL

I. The Appellate Division either misconstrued or ignored the record as [8] to plaintiffs' claim with
respect to the so-called "lost and missing" items. (Amend v. Hurley, 293 N. Y. 587; Boyd v. Boyd,
252 N. Y. 422; York Mtge. Corp. v. Clotar Constr. Corp., 254 N. Y. 128; McKellar v. American
Synthetic Dyes, 229 N. Y. 106.) II. Fraud is a serious charge and can only be proven by clear and
convincing evidence. It can neither be presumed nor based on suspicion, conjecture, or surmise.
Fraud as a matter of law can exist only where by no rational process may the trier of the facts arrive
at a conclusion other than fraud. (Lynch v. Gibson, 254 App. Div. 47; Manchel v. Kasdan, 286 App.
Div. 483, 1 N.Y.2d 734; Shotwell v. Dixon, 163 N. Y. 43; Constant v. University of Rochester, 133
N. Y. 640; Slocovich v. Orient Mut. Ins. Co., 108 N. Y. 56; Berkshire Mut. Ins. Co. v. Moffett, 378
F. 2d 1007; Stein v. Palisi, 308 N. Y. 293; Swensson v. New York, Albany Desp. Co., 309 N. Y.
497; Sommer v. Guardian Life Ins. Co., 281 N. Y. 508; Wearever Upholstery & Furniture Corp. v.
Home Ins. Co., 286 App. Div. 93.) III. Where a party finds it necessary to resort to clearly
disreputable testimony, its entire case is thereby affected. Such testimony is not merely to be
disregarded. It affirmatively casts doubt upon the entire position of the party offering the same.
(Nowack v. Metropolitan St. Ry. Co., 166 N. Y. 433; Garippa v. Wisotsky, 280 App. Div. 807, 305
N. Y. 571; Allen v. United States, 164 U.S. 492.)

[8] POINT OF COUNSEL

I. As a matter of law, defendants' policies are vitiated in their [10] entirety, and plaintiffs are not
entitled to recover, if there was fraud by Goodarzian with respect to any portion of his claim.
(Domagalski v. Springfield Fire & Mar. Ins. Co., 218 App. Div. 187; Werber Leather Coat Co. v.
Niagara Fire Ins. Co., 254 App. Div. 298; Kantor Silk Mills v. Century Ins. Co., 223 App. Div. 387;
Hadcock v. Osmer, 153 N. Y. 604; Merrill v. Agricultural Ins. Co., 73 N. Y. 452; Wicklow v.
United States Fid. & Guar. Co., 220 App. Div. 199; Schuster v. Dutchess County Ins. Co., 102 N.
Y. 260.) II. Fraud was established as a matter of law by the trial court's own finding that the "lost
and missing" items of the claim were not actually involved in the loss. III. Defendants also
established fraud as a matter of law with respect to the claim for damage to clothing. (Orenstein v.
Star Ins. Co. of America, 10 F. 2d 754; Anibal v. Insurance Co. of North America, 84 App. Div.
634; Sternfeld v. Park Fire Ins. Co., 50 Hun 263.) IV. Defendants' proof of fraud did not depend
upon any of the witnesses whose testimony the trial court rejected. V. The fire was incendiary and
Goodarzian had the only demonstrated motive. (Johnson v. Agricultural Ins. Co., 25 Hun 251;
Bonacci v. Prudential Ins. Co. of America, 247 App. Div. 617; Kurz v. Doerr, 180 N. Y. 88; New
York County Nat. Bank v. Herrman, 173 App. Div. 814; Coplay Cement Mfg. Co. v. Loeb, 124
Misc. 640; Chemical Corn Exch. Bank v. Wassung, 7 N.Y.2d 337; McSweeney v. Utica Fire Ins.
Co., 224 F. 2d 327; Kirkpatrick v. Allemannia Fire Ins. Co., 102 App. Div. 327, 184 N. Y. 546.)

[9] APPELLATE PANEL:

[10] Chief Judge Fuld and Judges Burke, Scileppi, Bergan and Jasen concur with Judge Keating;
Judge Breitel taking no part.

[11] DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE KEATING

[12] There is an old saying that "clothes make the man". This aphorism must have been coined (to
jumble a metaphor) with the plaintiff, here, one Khaibar Khan Goodarzian, in mind.*fn1 Mr.
Goodarzian's life-style can only be characterized as extravagant and flamboyant. His manner of
living is typified by his wardrobe. The different types of clothing and the numbers of each type which
Mr. Goodarzian claimed to have possessed is simply staggering.

[13] To accommodate his inventory of clothing, Goodarzian converted a bedroom of his Fifth
Avenue apartment into a wardrobe room in which closets lined all four walls; a bathroom was made
into a shoe closet. Goodarzian's extravagance for clothing is amply documented in the record and
supports his self-proclaimed title of the "World's Best Dressed Man". He even went so far as to
monogram his clothing with the initials WBDM, an acrostic made up of the first letters of his title.

[14] Mr. Goodarzian sued the defendant insurance companies for $411,952, the full coverage of the
policies issued by the companies, alleging that he had sustained a loss of $985,000 as a result of a
fire which occurred in his apartment in the early morning hours of November 4, 1961 while he was
entertaining a group of friends at a plush nightclub. Earlier in the evening, he had been a host to an
even larger group at his apartment.

[15] Goodarzian claimed that various items of clothing, furniture, fixtures, betterments and
improvements, valuable jewelry and Persian rugs were damaged, destroyed, or lost and missing as a
consequence of the fire and that the loss to his property amounted to approximately $985,000. The
defendants did not dispute the value placed on the property allegedly lost by the plaintiff, but resisted
his claim on the ground that items included in the proof of loss, submitted as the basis for recovery
under the policies, included many which were not in the apartment on the night of the fire.

[16] The policies issued to Goodarzian insured him against fire for the contents of his apartment to
the extent of $341,000 and $57,000 for theft and mysterious disappearance.*fn2 The insured claimed
that there was destruction to "in-sight" property amounting to $92,625, improvements and
betterments amounting to $9,437, in debris $750, lost and missing $132,518, jewelry $745,300 and
additional living expense $4,500. Goodarzian accordingly claimed the full amount of his insurance
coverage to partially compensate him for his loss.

[17] The case was tried without a jury, and the Trial Judge awarded judgment to the plaintiff for
$104,316. (The sum embraced $35,645 for clothing, $17,702 for carpeting, $37,482 for damage to
furnishings, and $13,487 for destruction of betterments and improvements.) The Trial Judge stated
that "Claims for the other items as lost and missing are not allowed because of failure of proof by the
plaintiffs."

[18] The Appellate Division (First Department) unanimously reversed and dismissed the plaintiff's
complaint, finding as a matter of law that the proof of loss was fraudulent. We affirm.

[19] The policies sued upon contained the standard provision as required by the Insurance Law that
"This entire policy shall be void if, whether before or after a loss, the insured has wilfully concealed
or misrepresented any material fact or circumstance concerning this insurance or the subject thereof,
or the interest of insured therein, or in case of fraud or false swearing relating thereto." (Insurance
Law, 168.)

[20] This provision is breached if an insured tenders a fraudulent proof of loss as the basis for a
recovery under the policy. If the insured fraudulently includes additional items to those actually
destroyed by fire in his proof of loss, the policy is vitiated and recovery thereunder is not permitted
even though the insured has suffered an actual loss as to part of the included items. The Appellate
Division in Domagalski v. Springfield Fire & Mar. Ins. Co. (218 App. Div. 187 [1926]) stated the
rule as follows (p. 190): "If it appears that a plaintiff has willfully and fraudulently placed in the
proofs of loss a statement of property lost which he did not possess, or has placed a false and
fraudulent value upon the articles which he did own, he is not entitled to recover anything. (Clement,
Fire Insurance, rule 20, p. 285; 26 C. J. 383; Furlong v. Agricultural Insurance Co., 20 Abb. N. C.
444; Claflin v. Commonwealth Insurance Co., 110 U.S. 81; Sternfeld v. Park Fire Insurance Co., 50
Hun, 262; Anibal v. Insurance Co. of North America, 84 App. Div. 634.)" (See, also, Kantor Silk
Mills v. Century Ins. Co., 223 App. Div. 387 [1928], affd. without opn. 253 N. Y. 584 [1930].)

[21] The issue presented by this appeal is whether the plaintiff, in attempting to recover for the fire
loss, submitted a fraudulent proof of loss, which, as a matter of law, voided the contract of
insurance. The determination of this issue rests upon whether the insured presented any credible
evidence to support the allegations of his proof of loss that $985,000 worth of items were present in
the apartment at the time of the fire.

[22] The fact that plaintiff did not recover for all items claimed does not establish fraud as a matter
of law so long as there is some basis to indicate that the claim was made in good faith. When an
insured can only prove a small percentage of his claimed loss a presumption arises that the statement
of value and quantity set out in his proof of loss is false and fraudulently prepared. This presumption,
however, becomes conclusive where it is shown that the difference between the amounts claimed in
the proof of loss and those actually proved to have been destroyed are grossly disparate and the
explanation tendered is so unreasonable or fantastic that it is inescapable that fraud has occurred.
(See Kantor Silk Mills v. Century Ins. Co. (supra).)

[23] Although the Appellate Division did not document its finding of fraud and false swearing, the
record supports its decision. This can be indicated by an amplification of the testimony in regard to
the lost and missing items and the jewelry.

[24] Plaintiff argued here that his inability to demonstrate a greater fire loss than allowed by the trial
court resulted from the fact that he did not take an inventory of the damage to the contents of his
apartment until 2 1/2 months after the fire and, therefore, contends that over $800,000 worth of
property was borne away during that period. Even if this assertion could be accepted, as of course it
cannot, the plaintiff in no way explains why he included parts of the lost and missing items and the
jewelry among the amounts claimed for loss of contents due to fire. A cursory examination of the
plaintiff's proof of loss discloses that included in the $341,000 claimed as fire loss the plaintiff listed
jewelry and items later claimed to be only lost or missing. Even if we were to close our eyes to this
inflation, and assume that it resulted from a mistaken understanding of the coverage of the policies,
this would not refute the insurer's contention that the jewelry as well as the property listed as lost
and missing could not have been destroyed by fire or taken by thieves because they were never
present in the apartment.

[25] Among the items in his "lost and missing" category, plaintiff included $64,000 of clothing and
$50,000 of Persian rugs. The clothing was allegedly in the wardrobe closets of the converted
bedroom, and the rugs were stored on the top of one of the closets with a number of hat boxes on
top of them. A Deputy Chief Fire Marshall, a Lieutenant in the Fire Department and a Detective of
the New York Police Department all testified, in part, that the fire was of suspicious origin and
incendiary in nature. They testified that the fire damage was widely separated and limited to parts of
a bedroom and the wardrobe room. These rooms, however, were separated by a 10-foot hallway in
which there was no fire damage. The fire occurred mostly at floor level and it never reached an
intensity so as to severely burn any portion of the rooms. The firemen inspected inside the closets
and on top in order to discover latent possibilities for fire, and they testified that the wardrobe closets
were sparsely hung with clothes and that there were a large number of wire hangers on the rods, but
no clothing and no remains. The firemen, not unlike Mother Hubbard when she looked in the
cupboard, found that the shelves were bare.

[26] Most importantly, the tops of the closets were covered with an even layer of ash film, except in
those places where hat boxes were placed. This testimony is conclusive as to the fact that the four
rugs, which were 9 by 12, were not on the closet roof the night of the fire since the layer of ash film
would not have been evenly distributed if the rugs had been there. Conclusive also is the fact that,
after the fire, inspection of ash residue in the apartment did not disclose traces of oriental rugs or
large destruction of clothing.

[27] With respect to the jewelry, plaintiff on the night of the fire showed absolutely no concern for
the three quarters of a million dollars worth of gems allegedly present in his apartment. The record is
devoid of any indication that Goodarzian made any attempt on the night of the fire either to locate or
safeguard his king's ransom in jewelry. He also remarked to a number of people present that he was
relieved that his jewelry was in Europe. Such conduct is wholly inconsistent with plaintiff's claims in
his proof of loss. The Appellate Division was, therefore, correct in concluding that, as a matter of
law, the insurance policies had been voided by plaintiff's fraudulent proof of loss.

[28] Accordingly, the order of the Appellate Division should be affirmed, with costs.

[29] Order affirmed.

[30] CASE RESOLUTION

[31] Order affirmed.

***** BEGIN FOOTNOTE(S) HERE *****

[32] *fn1 Plaintiff will be used throughout this opinion to refer to both Mr. Goodarzian, the insured,
and his assignees.

[33] *fn2 The policies also provided coverage for Additional Living Expenses (20% of the fire
coverage).

***** END FOOTNOTE(S) HERE *****