Opinion ID: 1190835
Heading Depth: 1
Heading Rank: 2

Heading: Majority's Part V)

Text: Justice Huntley's opinion correctly notes that the trial court chose to instruct the jury as to the burden of proof on the basis of a 1981 Godwin case from Arizona. Godwin sets the standard as being a mere preponderance of the evidence in a fraud case. Justice Huntley, wholly at odds with his ordinarily extreme care, then makes the statement that the  original complaint alleged fraud ... This is grossly in error. Nevertheless it reads so well that Justice Huntley has been taken in along with the other justices who are content to join an opinion which reads well. The original complaint alleged no fraud; in fact it made no mention of fraud. It alleged a policy of fire insurance purchased by Dr. Pacheco, a fire and fire loss, and sought to recover in excess of $189,000 on the policy of insurance. Just how the Huntley office became so confused in this case is unknown  and the confusion and error is rampant throughout the opinion. It is not Huntley quality, to say the least. The Safeco brief filed in this Court may be responsible, in that it does not accurately portray the pleadings which were filed, although it certainly did not misportray the Pacheco complaint: 2. Course of the Proceedings Below Pacheco filed his complaint against Safeco on April 8, 1986, alleging willful, intentional, grossly negligent and vexatious conduct on the part of Safeco amounting to bad faith and sought punitive damages therefor. He also claimed damages under the policy for his properly loss, his loss of business interruption and attorneys' fees. R., pp. 8-12. Safeco filed its answer denying Pacheco's claims and raising the affirmative defense that Pacheco was intentionally responsible for the fire and that, therefore, Safeco had no contractual obligation to pay or that public policy would estop Pacheco from claiming payment under the circumstances. ... . Pacheco filed an amended complaint on December 9, 1986, again alleging willful, intentional, grossly negligent and vexatious conduct on behalf of Safeco amounting to bad faith, claims for loss of business interruption, attorney's fees, property loss under the contract and new claims for intentional infliction of emotional distress and defamation. R., pp. 53-56. Safeco answered the amended complaint by denying the claims and raising the affirmative defenses already stated. R., pp. 57-60. Safeco's Answer Brief, 1-2. It is to be noted that Safeco referred to the appeal record. Of extreme importance to the giving of a correct instruction on Safeco's burden of proving its affirmative defenses is the Third Defense and Counterclaim plead in Safeco's first answer: I. As an affirmative defense, defendant alleges fraud on the part of the plaintiff, in that the plaintiff himself, or through encouragement of others, caused the fire to occur at his dental office on the 2nd of January, 1986, with intent to obtain from defendant the proceeds of insurance for property allegedly destroyed in that fire. In furtherance of said fraud, he filed claims and made demands that defendant make a payment to him in excess of $189,000 under the policy of insurance issued to the plaintiff by defendant. II. As an affirmative defense, defendant alleges illegality and estoppel. It would be illegal, or at least against the public policy of the State of Idaho, for this defendant to pay plaintiff any proceeds under the terms of plaintiff's insurance policy under the circumstances wherein the plaintiff, either personally or through others, intentionally caused the fire to occur in his dental office on the 2nd of January, 1986, and the plaintiff should be estopped from claiming under that policy. III. As an affirmative defense, defendant alleges that it has no contractual duty to pay any monies to the plaintiff under the terms of his insurance policy for the said January 2, 1986 fire, for the reason that the fire was intentionally caused by plaintiff or by others acting with plaintiff's encouragement. COUNTERCLAIM As and for a counterclaim against the plaintiff, the defendant alleges the following: I. That on or about January 2, 1986 the plaintiff himself, or through the encouragement of others, intentionally caused a fire to occur at his dental office located on Tyhee Street, in American Falls, Idaho. II. That prior to the said fire the plaintiff obtained a policy of fire insurance covering loss due to damage by fire to the said dental office and after the said fire made a claim against said policy for payment in excess of $189,000. III. The actions of the plaintiff amount to fraud and misrepresentation and have caused the defendant to expend substantial sums to investigate the cause and origin of said fire and to defend itself in the plaintiff's action herein, all to the defendant's damage in the amount of $50,000 or such other amount as will be proven at trial. Defendant reserves the right to amend this counterclaim to allege specific damage amounts prior to trial as they become ascertainable. IV. That the actions of the plaintiff are fraudulent and are of a nature that the courts should attempt to prevent others from acting similarly and, therefore, punitive damages should be awarded to the defendant against the plaintiff in the amount of $50,000 or such other amount as would be appropriate under the circumstances. V. Defendant has been required to defend itself against plaintiff's complaint and to bring this counterclaim and has and will incur attorney's fees, and should be awarded its reasonable attorney's fees and costs against the plaintiff. R., p. 36 (From Safeco's first Answer and Counterclaim, filed June 13, 1986). On December 22, 1986, Safeco filed an answer to Pacheco's amended complaint (the amendment being to add a count, as noted accurately in Safeco's brief, discussed above). In this pleading Safeco plead the same bad conduct on Pacheco's part, but, as will be noted, avoided using language previously used, namely fraud and fraudulent: THIRD DEFENSE I. As an affirmative defense, defendant alleges that it has no contractual duty to pay any monies to the plaintiff under the terms of his insurance policy for the said January 2, 1986 fire, for the reason that the fire was intentionally caused by the plaintiff or by others acting at plaintiff's instance or with his encouragement. II. As an affirmative defense, defendant alleges illegality and estoppel, in that it would be illegal, or at least against the public policy of the State of Idaho, for this defendant to pay plaintiff any proceeds under the terms of plaintiff's insurance policy under the circumstances wherein the plaintiff, either personally or through others, intentionally caused the fire to occur in his dental office on the 2nd of January, 1986, and, therefore, the plaintiff should be estopped from claiming under the said policy. It is readily assumed that in the considerable intervening time between Safeco's first and second pleadings, June 16 to December 22, research uncovered those cases which require fraud to be proved by clear and convincing evidence, notably of which Gneiting v. Clement, 96 Idaho 348, 528 P.2d 1283 (1974), is one, and a case cited therein, Zuhlke v. Anderson Buick Co., 94 Idaho 634, 496 P.2d 95 (1972) is another. Justice Shepard authored both for a unanimous court. In Gneiting, Justice Shepard held that [i]n Idaho, fraud is not presumed, but rather must be shown by clear and convincing evidence. (citing Zuhlke ). The evidence adduced ... was highly conflicting and an examination thereof persuades us that the trial court did not err in holding that Gneiting had failed to prove the fraudulent conduct on the part of the defendants. 96 Idaho at 350, 528 P.2d at 1285. The trial court in this Pacheco v. Safeco case was presented with contra argument and authority by counsel for both parties. Notwithstanding Idaho case precedent that clear and convincing evidence is required to prove fraudulent conduct, the trial court opted to go along with a 1981 Court of Appeals decision from Arizona, Godwin v. Farmers Ins. Co. of America, 129 Ariz. 416, 631 P.2d 571 (App. 1981). In turn, this Court, through its majority, goes along with the trial court's choice. Unfortunately, neither the trial court nor the majority speaking for this court, has made any pretense of an independent review of the authorities which have been submitted. For instance, a case later than Godwin is Hutt v. Lumberman's Casualty Co., 466 N.Y.S.2d 28, 95 A.D.2d 255 (1983). Here we are presented with a well-reasoned opinion, far superior to Godwin. In comparing the work product of the two courts, it is first in order to note Hutt's recognition of and comment on Godwin: We are cognizant that out-of-state authorities have divided on the question (see cases collected in Godwin v. Farmers Ins. Co. of Amer., 129 Ariz. 416, 418-419, 631 P.2d 571, 574; Great Amer. Ins. Co. v. K & W Log, Inc, 22 Wash. App. 468, 472, 591 P.2d 457, 459; 46 C.J.S., Insurance, § 1359, pp. 567-568). We find those cases applying the clear and convincing standard (e.g. Carpenter v. Union Ins. Soc., 284 F.2d 155, 162; Jonas v. Northeastern Mut. Fire Ins. Co., 44 Wis.2d [347], 353, 171 N.W.2d 185, 187, n. 1) to be more in accord with New York law which has long imposed a far more demanding burden when a serious accusation involving moral turpitude, such as fraud, is leveled ( Jo Ann Homes at Bellmore v. Dworetz, 25 N.Y.2d 112, 121, 302 N.Y.S.2d 799, 250 N.E.2d 214; see Commissioner of Public Welfare of City of N.Y. v. Ryan, 238 App.Div. 607, 265 N.Y.S. 286; Ajax Hardware Mfg. Corp. v. Industrial Plants Corp., 569 F.2d 181, 186 [2d Cir.]; Maguire, Weinsten, and Mansfield, Cases and Materials on Evidence [6th ed.], p. 1035; McCormack, Evidence [2d ed.], § 340, pp. 796-798). Moreover, the conflicting cases fail to recognize that, as we point out in the text, a clear and convincing standard relates to the quality rather than the quantum of proof (see, e.g. Godwin v. Farmers Ins. Co. of Amer., supra ; Werner's Furniture v. Commercial Union Ins. Co., 39 Ill. App.3d 59, 349 N.E.2d 616; Great Amer. Ins. Co. v. K & W Log, Inc., supra ). To the extent that Demyan's Hofbrau v. INA Underwriters Ins. Co., 542 F. Supp. 1385 [S.D.N.Y.], which relied on Johnson v. Agricultural Ins. Co., 25 Hun. 251, is to the contrary, we need simply say that it reflects an erroneous view of the law of this State, and therefore, we decline to follow it. Hutt, 466 N.Y.S.2d at 30. In particular, this Court, of all courts, this day should be heeding the language, ... [case] law has long imposed a `far more demanding' burden when a serious accusation involving moral turpitude, such as fraud, is leveled. This Court through Justice Shepard might just as well not have written Gneiting, Zuhlke, both supra, and Smith v. King, 100 Idaho 331, 597 P.2d 217 (1979), the latter case also holding that the party alleging fraud has the burden of proving it by clear and convincing evidence. 100 Idaho at 334, 597 P.2d at 221. The case before us is a civil action. Gneiting, Zuhlke, and Smith were also civil actions. Those cases firmly established that in a civil action based on fraudulent conduct, the party claiming fraud has a higher burden than is present in the ordinary civil action where there is no element of fraud. As to Arizona law, the Godwin court facially instructs us that the burden of proof in civil cases is satisfied by the preponderance of evidence. BUT [a]n exception to this rule is that fraud must be proven by clear and convincing evidence. 631 P.2d at 573-574. The Godwin court then notes the argument that arson by an insured to collect insurance premiums (sic, insurance proceeds) is a `species of fraud' and as such must be proven by clear and convincing evidence. Godwin, 129 Ariz. 416 418-419, 631 P.2d 571, 573-574. The Arizona court is credible up to that point, and even cites appropriate cases for its statement. Then, however, in order to be kind to insurance companies, it purports to see a distinction between allegations of fraud and allegations of arson. In the process it brings no credit to itself. First, and worst, it states in a vacuum, that two major insurance treatises do not even recognize that a minority rule exists. Presumably it is referring to the rule it is about to announce as the majority rule, where it concludes that, as in other civil cases where fraud is not specifically alleged, the defense of proving arson is satisfied by a preponderance of the evidence. Godwin, 129 Ariz. 416, 631 P.2d 571. The Hutt case cites only to Appleman. The Appleman section cited in Godwin is § 12229. The Appleman section cited in Hutt is § 12229. The New York court cites the section for the proposition: [T]hat, because arson is but one form of fraud in making a claim under a policy (omission) and an inference of arson must be strong and almost inevitable. Footnote 4 to the section cites to a Louisiana case for the proposition that When proof of defense of arson to fire insurance claim is circumstantial, evidence must be so convincing that it will sustain no other reasonable hypothesis but that insured was responsible for the fire. Baghramain v. MFA Mut. Ins. Co., La. App. 1975, 315 So.2d 849, writ denied 320 So.2d 207 and 209 [La.] Wallace v. State Farm Fire & Cas. Ins. Co., 345 So.2d 1004 (La. App. 1977). The Arizona court cited to § 76.664 in Couch, and only to that section. Only in that way could it say that Couch does not even recognize a minority rule. Section 79.477 of Couch, however, says: On the other hand, some courts adhere to the rule that the evidence must be the same as in the case of a criminal charge of arson, namely, that the fact must be established beyond a reasonable doubt, and the courts seem to gravitate toward the criminal law standard although purporting to retain the civil litigation pattern. Thus it has been stated that the claim of wilful destruction of the insured property must be established by proof of facts and circumstances of such a nature that no other conclusion can fairly or reasonably be drawn therefrom. (Footnotes omitted, but cases cited in footnote 18 are from Pennsylvania, Iowa, and Louisiana.) The Hutt case is the case to which this Court, if better informed, should be turning. And why? Because it is in accord with prior Idaho case law which holds that fraud in civil cases must be proven by clear and convincing evidence. Or, is stare decisis dying or dead in Idaho, or just used when convenient? In New York, Hutt teaches us that the more contemporary measure of persuasion is that of clear and convincing evidence (citing to a number of cases); also To fasten upon a man the act of wilfully and maliciously setting fire to his own building should certainly require more evidence than to establish the fact of payment of a note, or the truth of an account in setoff; because the improbability or presumption to be overcome in the one case is much stronger than it is in the other. Hence, it can never be improper to call the attention of the jury to the character of the issue, and to remind them that more evidence should be required to establish grave charges than to establish trifling or indifferent ones. (quoting 2 Jones, Commentaries on Evidence [2d ed], § 563, p. 1036). Hutt, 466 N.Y.S.2d at 30, 95 A.D.2d 255 (1983). One might be asked what to make of the fact that Safeco amended its answer so as to remove the allegations of fraud and fraudulent conduct on the part of Dr. Pacheco which were contained in its initial answer. The general rule as stated in Jenkins v. Donaldson, 91 Idaho 711, 429 P.2d 841 (1967) is that the prior answer becomes functus officio, and is not properly in the record. In this case, however, it is still in the record, and moreover the defendant itself cites to it and uses it in its brief. If not properly in the record, rather than use it, Safeco could have moved that it be stricken. But it did not, notwithstanding its amended answer was so careful to not allege fraud. That it is still in the record entitles not just Safeco to make use of and refer to it, but this Court as well may do so. Although an amended pleading supersedes the prior pleading as a pleading, the prior pleadings are not ineffective for all purposes. Las Vegas Network, Inc. v. Shawcross, 80 Nev. 405, 395 P.2d 520 (1964). A superseded pleading nevertheless exists as an utterance once seriously made by the party (citing 2 Wigmore on Evidence, § 1067) and for certain purposes may be admitted in evidence. Shurtliff v. Extension Ditch Co., 14 Idaho 416, 94 P. 574 (1908). This Court may make use of the record and do so in connection with resolving the issue as to whether arson is a species of fraud. Of course it is, and it is fraudulent conduct, as the New York court noted in Hutt, to buy insurance coverage, and light a fire to the buildings insured with collection of the policy proceeds in mind. By way of distinction, to set fire to an enemy's house as a means of revenge is not fraudulent, although it is criminal, and also could result in a damage action sounding in tort. There is no distinction, however, in alleging arson for profit or alleging fraudulent conduct, as Safeco initially did. We can best gauge what Safeco had in mind by its first pleading where it alleged both. There isn't a hair's breadth difference between the two. IV.