Representing Insureds Since 1970


Chubb Agrees to $1 Million Settlement on Fire Loss After Six days of Trial.

After six days of trial in United States District Court for the Southern District of New York, Chubb Insurance Company settled a contents and business interruption claim for $1 million on a fire loss to a recording studio in New York. The insured had demanded $1 million prior to the opening of the trial, but after a long discovery period which included 25 depositions.

During the course of the trial, the insurer had increased its initial settlement offer from $400,000 to $800,000. But Dennis T. D'Antonio, who represented the insured, Mastermind Recording Studios, said that the offer was summarily rejected. The insurer went to the $1 million figure on July 30, concluding the trial.

D'Antonio said that "the settlement for an amount substantially in excess of the sum claimed is unprecedented." The initial claim had been for $700,000. The settlement includes full payment for contents at replacement value and interest as well as the business interruption claim.

The claim developed as a result of a fire on April 19, 1986, on a weekend evening. D'Antonio, a principal in the New York law firm Weg & Myers, P.C., said that Chubb had raised a number of defenses, including arson and misrepresentation by the plaintiff as to prior loss experience.

With respect to the arson defense, Chubb had offered a report by a city fire marshal and by its own "cause and origins investigator" that arson was involved. There were actually two fires in two separate studios of the recording company, but there was no evidence showing relative times. One fire, according to D'Antonio, was in a studio that had been rented by an outside group as a classroom. The only evidence of fire was a scorchmark on a piece of furniture which had been next to a stand-up ash tray. The major blaze, however, was in a studio filled with much electrical equipment. D'Antonio said, and there was no showing of accelerants, nor any scientifically acceptable conclusion which would rule out accidental cause.

Chubb had denied the claim in July 1987. In addition to its assertion of arson, the company also said that the insured had misrepresented the fact that it had at least three prior losses while it was insured by The Hartford. The Hartford cancelled its coverage of Mastermind Studios and Chubb accepted the risk. In its denial of liability, Chubb asserted that it had not been told of the prior losses and that had it known of them, it would not have accepted the risk.

No Prior Knowledge

According to D'Antonio, the recording company challenged Chubb on its argument that it had no prior knowledge of the loss experience. But, he said, despite the dispute over whether there had been misrepresentation before trial, he was able to prove that the Chubb underwriter who had accepted the Mastermind risk had accepted an identical risk from another recording studio, even though that studio had reported a prior $250,000 loss. D'Antonio said that Section 3105 of the New York Insurance Law requires an insurer to prove that it would not have issued a policy had it known the facts which were misrepresented. The evidence developed prior to trial, D'Antonio said, "seriously undermined Chubb's allegations that it would not have issued the policy had it know of Mastermind's prior losses."

Chubb had also alleged that in the event it was liable for the loss, its liability would be limited to actual cash value rather than replacement cost. That position D'Antonio said, was based on the contention that the insured had not actually replaced the damaged contents.

The policy contained a "Replacement Cost Provision" which said, in part; REPLACEMENT COST means lost or damaged property will be valued at the full cost to repair or replace it, but not more than you actually spend to repair or replace the property at the same or another premises for the same use or occupancy. There is no deduction for depreciation. If you do not repair or replace the property it will be valued at its actual cash value on date of loss."

In arguing for the replacement value despite the fact that there was no replacement, D'Antonio said he raised the issue that the company had wrongfully withheld payment and that the presumption could be drawn that without the money or an advance on the claim, the recording studio would be unable to replace.

While there was a dispute over the value of the business interruption claim centering largely on the time it would take to get the studio back into operation, the arguments did not come into the trial because of the settlement agreement.

Associated with D'Antonio on the trial was Joshua N. Krellen of the Weg & Myers firm.

Chubb was represented by Franklin Tell and Paul Kovner of Tell Cheser and Breitbart, a New York-based legal defense firm.