In=20 The
For=20 The
KONSTANTINOS ROUTIS;=20
DULUTH RESTAURANTS, INC.; AND/OR KRMG ENTERPRISES, INC. AS THE =
ATTORNEY IN=20
FACT OF DULUTH RESTAURANTS, INC., =
Appellants CLARENDON AMERICA=20
INSURANCE COMPANY, INC., Appellee
On =
Appeal from the=20
280th District Court Harris =
County,=20
Texas Trial =
Court Cause=20
No. 2004-65367
MEMORANDUM=20
OPINION Appellants, Konstantinos Routis =
("Routis"), Duluth Restaurants, Inc., In two issues, appellants (1) =
challenge=20
the legal and factual sufficiency of the evidence supporting the =
trial=20
court's judgment and (2) contend that the trial court applied an =
incorrect=20
standard of proof. We affirm. Summary =
of Facts and=20
Procedural History Routis, a citizen of Greece who =
came to=20
the United States in 1975, asserts that he does not speak English =
and does=20
not read or write in any language. In 1991, Routis's nephew, =
Sachtouris=20
Routis, moved to the United States and began overseeing Routis's =
business=20
matters. In 1985, Routis purchased a =
nightclub=20
business, known as "La Chatte," located at 13335 Duluth in =
Houston. In=20
1989, he created KRMG corporation and purchased the building and =
land at=20
13335 Duluth. In 1992, a fire caused extensive damage to the =
building. The=20
Houston Fire Department determined that an arsonist had poured =
gasoline=20
through a rooftop air conditioner, but there was never a =
conviction in the=20
case. Routis received $350,000 in insurance proceeds, and =
Sachtouris=20
supervised the reconstruction of the building. On August 15, 2000, KRMG sold =
the=20
personal property assets of La Chatte to Duluth Restaurants, Inc.=20
("Duluth") for $350,000. The asset purchase agreement was executed =
by=20
Routis, on behalf of KRMG, and by Louis Servos, as president of =
Duluth.=20
In addition, Routis, =
individually,=20
executed a lease of the La Chatte real property to Duluth. The =
lease was=20
for a period of five years and for an aggregate sum of $354,000, =
payable=20
in variable monthly installments. The lease provided as follows in =
pertinent part: 10.2 Tenant shall procure and =
maintain=20
throughout the term of this Lease a policy or policies of =
insurance, at=20
Tenant's sole cost and expense, insuring Landlord as well as =
Tenant from=20
all claims, demands, or actions arising out of Tenant's use and =
occupancy=20
of the leased premises. The property damage insurance shall have =
limits of=20
liability of not less than $1,250,000.00, . . . . In addition, =
Tenant will=20
procure and maintain throughout the term of this Lease a policy or =
policies of fire and extended coverage insurance at Tenant's sole =
cost and=20
expense on the building, fixtures, equipment, constituting the =
leased=20
premises, insuring all such property for its full value. All =
insurance=20
shall be carried with companies satisfactory to =
Landlord. . . . . 14.2 In the event that the =
leased=20
premises are damaged or destroyed by fire or other casualty =
insurable=20
under standard fire and extended coverage insurance and Landlord =
does not=20
elect to terminate this Lease . . . , Landlord shall proceed with=20
reasonable diligence and at its sole cost and expense to rebuild =
and=20
repair the leased premises. If the leased premises are damaged or=20
destroyed by fire or other casualty so as to render untenantable =
more than=20
50% of the floor area of the entire building in which the leased =
premises=20
are located, Landlord may elect either to terminate this Lease or =
to=20
proceed to rebuild and repair the leased premises. Landlord shall =
give=20
written notice to Tenant of its election within sixty (60) days =
after the=20
occurrence of the casualty and, if it elects to rebuild and =
repair, shall=20
proceed to do so with reasonable diligence and at its sole cost =
and=20
expense. . . . . 14.5 Any insurance against =
casualty loss=20
which may be carried by either Landlord or Tenant shall be under =
the sole=20
control of the party carrying the insurance, and the other party =
shall=20
have no interest in any proceeds of that insurance. The Lease also granted Duluth =
an=20
exclusive right to purchase "the Leased Premises" during the =
primary term=20
of the Lease for $550,000, and provided that Routis would finance =
the=20
purchase. In February 2002, Servos =
transferred his=20
interest in the nightclub to Gus Venetoulias. In November 2002,=20
Venitoulias transferred his interest to Mario Jafari, who operated =
the=20
nightclub as "Duluth Restaurants, Inc., d/b/a Island Cabaret." =
Jafari=20
understood that his interest was governed by the original asset =
purchase=20
agreement between KRMG and Duluth, and by the real-property lease =
between=20
Routis and Duluth. Each month, Routis accepted Jafari's payments.=20
At the time Jafari purchased =
the club, it=20
had been grossing $20,000-$30,000 in revenues each month. Over =
time,=20
Jafari began to realize revenues of $40,000-$50,000 per month. =
According=20
to Jafari, Routis approached him at one point about exchanging the =
club=20
for another of Routis's clubs in Houston. Jafari declined the=20
offer. In June 2003, according to =
Jafari, Jafari=20
was contacted by Routis's insurance carrier and was told that it =
was time=20
to renew the insurance policy covering the property and business. =
Jafari=20
executed the paperwork and paid the premium. According to Routis =
and=20
Sachtouris, however, the agent contacted them in July, 2003, and =
said that=20
the insurance on the building was in danger of lapsing because =
Jafari had=20
not paid the premium. According to Sachtoris, Sachtouris sent a =
copy of=20
the lease to the agent, told the agent to issue the policy, and =
paid the=20
premium. The record shows that appellee =
issued an=20
insurance policy ("Policy"), effective July 19, 2003. The Policy =
listed as=20
the named insured "Duluth Restaurants, Inc., DBA Island Cabaret" =
at 13335=20
Duluth, and it listed Routis and Sachtouris each as an "additional =
insured," with proceeds for losses to be paid directly to "Routis =
and=20
Sachtouris Routis." The coverage amount was increased $200,000 on =
the=20
building, and the loss of business income coverage was dropped. =
Routis and=20
Sachtouris deny that they instructed the agent to alter the =
coverage=20
limits. At 2:00 a.m. on August 10, =
2003, Routis=20
was closing up for the night at his nightclub, Mango's. =
Sachtouris, who=20
managed Mango's, was there tallying the registers. The men =
finished=20
cleaning up at 4:00 a.m., and Routis went home. Sachtouris went to =
a=20
friend's nightclub. At 6:30 a.m., Sachtouris received a call that =
the=20
building at 13335 Duluth was on fire. The fire department arrived =
within=20
minutes. All the exterior doors were covered by burglar bars and =
locked.=20
The fire department had to cut through the locks to gain entry. =
The=20
building suffered extensive damage. At the time of the fire, the =
building was=20
protected by a security system that monitored ingress and egress =
from=20
exterior doors. System records from the night of the fire =
indicated that=20
the building had been armed at 2:36 a.m. and that no doors had =
been opened=20
before a fire was detected in the VIP Room at 6:20 a.m. Throughout the lease period, =
Routis had=20
maintained exclusive possession of two small rooms at the back of =
the=20
building--a storage room and a "workout room" that contained gym=20
equipment. These rooms were not wired into the building's alarm =
system.=20
The storage room had an exterior door that was protected by =
burglar bars,=20
and Routis had the only known set of keys. The storage room shared =
a=20
common wall with the VIP Room. Preliminary investigations =
determined=20
that the fire had two points of origin--one in Routis's storage =
room and=20
one in the VIP Room--and that the fire was incendiary. Houston =
Fire=20
Department arson investigator S. Merrel testified that he =
determined that=20
the fire was deliberately set and that whoever set the fire had =
access to=20
the storage room at the back of the building because the alarm =
system had=20
not been shut off or tampered with. B. Koger, an independent fire=20
investigator, brought in a combustible gas detector and detected =
that=20
flammable liquids had been used. T. Petty, of the Harris County =
Fire=20
Marshal's Office, who brought in an accelerant-detection dog, =
which=20
alerted in the VIP Room. However, laboratory samples taken tested =
negative=20
for flammable liquids. Subsequent to the fire, =
appellants=20
changed the locks on the building. Jafari, as Duluth, sent a =
letter of=20
notification to Routis that Duluth would formally exercise its =
option to=20
purchase the building. Appellants refused Jafari's August rental =
payment=20
and terminated the lease, citing the Lease provision that =
permitted=20
termination if the building became over 50 percent damaged by =
fire. Jafari=20
argued that the damage was less than 50 percent. In October 2003, =
while=20
appellants had sole access to the building, another fire occurred =
that=20
caused additional damage to the interior of the building. The =
parties do=20
not dispute that the building was then over 50 percent damaged.=20
Jafari, as Duluth Restaurants, =
filed a=20
sworn proof of loss for its share of the insurance proceeds and =
appellee=20
paid $12,722 on the claim. Subsequently, appellants also filed =
claims of=20
approximately $600,000 in damages with appellee in the name of =
Duluth,=20
which appellee denied. Appellants then sued appellee, alleging =
breach of=20
the insurance contract and violations of the Insurance Code and =
Texas=20
Deceptive Trade Practices Act. Appellee asserted the defenses of =
fraud and=20
illegality on the grounds that the Policy specifically excluded =
coverage=20
for losses caused by any fraudulent, dishonest, or criminal act =
done by or=20
at the instigation of any insured, which, it alleged, had occurred =
here.=20
In addition, appellee asserted the defenses of payment, release,=20
satisfaction, estoppel, and waiver on the grounds that Jafari's =
claim in=20
the name of Duluth was proper and had been paid. Appellee =
contended that=20
Duluth was an entity separate from appellants and that appellants =
lacked=20
capacity to bring a claim in the name of Duluth. Further, appellee =
contended that KRMG was neither an insured nor a loss payee under =
the=20
Policy. On December 19, 2005, the case =
was tried=20
without a jury. On March 24, 2006, appellants =
filed a=20
motion for new trial, which the trial court denied. On May 16, =
2006, the=20
trial court denied appellants' motion to reconsider the motion for =
new=20
trial. On May 24, 2006, appellants filed an untimely request for =
findings=20
of fact and conclusions of law. In their first and second =
issues,=20
appellants (1) challenge the legal and factual sufficiency of the =
evidence=20
supporting the trial court's judgment and (2) contend that the =
trial court=20
applied an incorrect standard of proof. These issues can be most=20
succinctly addressed together in a single analysis. A. Standard of Review =
and=20
Applicable Law In a non-jury trial, when =
findings of=20
fact and conclusions of law are not properly requested and none =
are=20
issued, all facts necessary to support the judgment and supported =
by the=20
evidence are implied. See Sixth RMA Partners, L.P. v. =
Sibley, 111=20
S.W.3d 46, 52 (Tex. 2003); In=20
conducting a legal sufficiency review, we consider "whether the =
evidence=20
at trial would enable reasonable and fair-minded people to reach =
the=20
verdict under review." City of Keller v. Wilson, 168 =
S.W.3d 802,=20
827 (Tex. 2005). We "credit favorable evidence if reasonable =
jurors could,=20
and disregard contrary evidence unless reasonable jurors could =
not."=20
Id. As long as the evidence falls within the zone of =
reasonable=20
disagreement, we may not substitute our judgment for that of the=20
fact-finder, which alone determines the credibility of the =
witnesses and=20
the weight, if any, to be given their testimony. Id. at =
819, 822.=20
We review the evidence in the light most favorable to the verdict =
and=20
indulge every reasonable inference that supports it. Id. =
at 822.=20
However, we may not disregard evidence that allows only one =
inference.=20
Id. We will sustain a legal sufficiency challenge if the =
record=20
shows one of the following: (1) a complete absence of evidence of =
a vital=20
fact; (2) rules of law or evidence bar the court from giving =
weight to the=20
only evidence offered to prove a vital fact; (3) the evidence =
offered to=20
prove a vital fact is no more than a scintilla; or (4) the =
evidence=20
establishes conclusively the opposite of the vital fact. Id. =
at=20
810. B. The =
Law An insured seeking recovery =
under an=20
insurance policy must prove the contractual provisions that allow=20
recovery. Texas Farmers Ins. Co. v. Murphy, 996 S.W.2d =
873, 879=20
(Tex. 1999). "If there are any contractual provisions that could =
limit or=20
bar recovery, it is incumbent upon the insurer to plead and prove =
them."=20
Id. Arson is an affirmative defense =
to a=20
civil suit for insurance proceeds. State Farm Fire & Cas. =
Co. v.=20
Simmons, 963 S.W.2d 42, 45 n.1 (Tex. 1998). To establish =
arson, an=20
insurer bears the burden of proving that the insured set the fire =
or=20
caused it to be set. Murphy v. Texas Farmers Ins. Co., =
982 S.W.2d=20
79, 84 (Tex. App.--Houston [1st Dist.] 1998), aff'd on other=20
grounds, 996 S.W.2d 873 (Tex. 1999); State Farm Lloyds, =
Inc. v.=20
Polasek, 847 S.W.2d 279, 282 (Tex. App.--San Antonio 1992, =
writ=20
denied). However, the insured's burden of proof is not to show by =
an=20
absolute certainty, but rather, by a preponderance of the evidence =
that=20
the insured set the fire. Murphy, 982 S.W.2d at 84. =
Because arson=20
is ordinarily committed in secrecy, it may be proved by =
circumstantial=20
evidence. Id. To establish the affirmative defense of =
arson, the=20
insurer must show that (1) the fire had an incendiary origin; (2) =
the=20
insured had a motive to set the fire or cause it to be set; and =
(3) the=20
insured had an opportunity to set the fire or other circumstances =
link the=20
insured to the fire. Simmons, 963 S.W.2d at 45 n.1;=20
Murphy, 982 S.W.2d at 84. C. Analysis =
Here, the record shows that an =
insurance=20
policy was in existence at the time that the August 10, 2003 fire=20
occurred. Specifically, the record shows that, on June 9, 2003, =
Jafari, as=20
Duluth Restaurants, Inc., dba Island Cabaret, executed a =
commercial=20
insurance application ("Application") with King-Phillips Insurance =
Agency=20
and that Jafari wrote a check to King-Phillips for $3,712.15 on =
July 18,=20
2003, which King-Phillips cashed on July 23, 2003. The Application =
states=20
that the proposed coverage period was July 19, 2003 to July 19, =
2004, and=20
Routis and Sachtouris were listed as additional payees. The record =
shows=20
that appellee then issued the Policy, to be effective from July =
19, 2003=20
to July 19, 2004. The Policy listed as the named insured "Duluth=20
Restaurants, Inc., DBA Island Cabaret" at 13335 Duluth, and listed =
Routis=20
and Sachtouris as "additional insured," with proceeds for losses =
to be=20
paid directly to "Routis and Sachtouris Routis." On August 10, 2003, a fire =
destroyed the=20
building at 13335 Duluth. The Policy included coverage for damage =
to the=20
building and contents caused by fire. Appellants contend that they =
made a=20
proper and timely claim to appellee and that appellee breached the =
insurance contract by failing to pay as agreed for the losses =
sustained.=20
Appellee asserted the defense of arson, contending that appellants =
deliberately set the fire that caused damage to the =
covered=20
building and that the Policy specifically excluded coverage under =
these=20
circumstances. The record shows that the Policy excluded, inter =
alia,=20
coverage for loss, damage, or expense of any nature in any way =
connected=20
with "[a]ny fraudulent, dishonest, or criminal act done by or at =
the=20
instigation of any insured, partner or joint venture participant =
in or of=20
any insured, an officer, director or trustee of any insured. . . =
."=20
At the close of trial, the =
trial court=20
stated in the record that it concluded that the fire was a result =
of arson=20
and that the arson was committed by appellants. On appeal, =
appellants do=20
not challenge the finding that arson occurred; rather, they =
contend that=20
there is no evidence that Routis directly or indirectly caused the =
fire. Here, to establish the =
affirmative=20
defense of arson, appellee was required to show evidence that (1) =
the fire=20
had an incendiary origin; (2) appellants had a motive to set the =
fire or=20
cause it to be set; and (3) appellants had an opportunity to set =
the fire=20
or other circumstances existed linking them to the fire. See=20
Simmons, 963 S.W.2d at 45 n.1; Murphy, 982 =
S.W.2d=20
at 84. Appellee had the burden to prove by a preponderance of the =
evidence=20
that appellants set the fire or caused it to be set. =
Murphy, 982=20
S.W.2d at 84; Polasek, 847 S.W.2d at 282. 1. Incendiary =
Origin Appellants concede =
that the fire=20
had an incendiary origin; however, appellants contend that the =
evidence=20
does not show that they set the fire. The record shows that R. =
Gonzales, a=20
junior captain of the Houston Fire Department who responded to the =
fire,=20
testified that he participated in cutting through a locked storage =
room=20
door, later identified as Routis's, and that he extinguished a =
fire in the=20
storage room. Gonzales testified that the storage room was a point =
of=20
origin of the fire. Gonzales also testified that the storage room =
had a=20
wall in common with the VIP Room. T. Gardiner, District Chief of =
the=20
Houston Fire Department, brought in preliminary investigators who=20
determined that there were two separate points of origin--one in =
Routis's=20
storage room and one in the VIP Room. Gardiner turned the =
investigation=20
over to Houston Fire Department arson investigator S. =
Merrel. Merrel testified by deposition =
that all=20
of the exterior doors of the building, including the door to =
Routis's=20
storage room, were behind locked burglar bars that had to be cut =
through=20
for the fire department to gain entry. In addition, Merrel =
testified that=20
all of the doors to the building were on an alarm system except =
the doors=20
to Routis's storage room and workout room. Merrel testified that =
system=20
records indicated that the building alarm was activated when the =
club=20
closed at 2:36 a.m. and that none of the alarms detected movement =
in the=20
building prior to the fire. Merrel testified that whoever set the =
fire had=20
access to the storage room at the back of the building. Routis and =
Sachtouris had testified that Routis had the only key to the =
storage room=20
door. Further, Merrel testified that it was his opinion that the =
fire that=20
began in the VIP room was a result of someone having entered the =
storage=20
room, having lifted up ceiling tiles, and having either crawled =
over the=20
wall or thrown something into the VIP Room. B. Koger, an independent fire=20
investigator, testified that the wall between Routis's storage =
room and=20
the VIP Room did not go all the way to the ceiling and that it was =
possible to pull aside the tiles of the dropped ceiling, where =
there was a=20
two-foot crawl space over the wall. Koger testified that he had =
concluded=20
that someone had entered through Routis's storage room with a =
ladder and=20
had thrown a combustible liquid into the VIP Room. Koger brought =
in a=20
combustible gas detector which detected that flammable liquids had =
been=20
used. This conclusion was supported by the testimony of T. Petty, =
of the=20
Harris County Fire Marshal's Office, who brought in an=20
accelerant-detection dog which alerted in the VIP Room. =
From this evidence, the trial =
court could=20
have reasonably concluded that Routis and/or Sachtouris set the =
building=20
on fire or caused it to be set on fire. See Polasek, 847 =
S.W.2d=20
at 283.=20
2. Motive We next examine the record for =
evidence=20
showing that Routis had a motive to set the building on fire. =
First, the=20
record shows that less than 30 days prior to the fire, the =
insurance=20
coverage on the building was raised from $300,000 to $500,000. At =
the same=20
time, the business interruption coverage protecting Duluth was=20
dropped--suggesting that the coverage changes were not instigated =
by=20
Jafari. Appellee maintains that appellants intervened at the time =
of the=20
renewal and ordered the changes. Appellants deny that they gave =
any such=20
instructions. Second, the record reveals =
evidence that=20
appellants were experiencing financial distress at the time of the =
fire.=20
Routis's bank records show that there was $187 in his account on =
July 11,=20
2003 and that the account had incurred overdraft charges. See=20
Vandiver, 970 S.W.2d at 737 (finding evidence of motive when =
bank=20
records revealed low balance and insufficient funds charges near =
time of=20
fire). From this evidence, the trial =
court could=20
have reasonably concluded that Routis had a motive to set the =
building on=20
fire or to cause it to be set on fire. See id.; =
Polasek,=20
847 S.W.2d at 283. At trial, appellants disputed =
that they=20
were experiencing financial difficulties at the time of the fire.=20
Sachtouris testified that he and Routis had $500,000 in another =
account=20
and had purchased other clubs, but appellants did not produce any=20
evidence. We defer to the trial court's determination with regard =
to the=20
weight, if any, to be placed on this testimony. 3. Opportunity =
Finally, we examine the record =
for any=20
probative evidence tending to show that appellants had an =
opportunity to=20
set the fire that occurred at the building. The record shows that, at 4:00 =
a.m., on=20
the night of the fire, Routis allegedly went home after closing up =
his=20
nightclub, Mango's, and Sachtouris allegedly went to a friend's =
nightclub.=20
There was no evidence corroborating their whereabouts. See=20
Murphy, 982 S.W.2d at 84 (considering lack of evidence =
corroborating=20
whereabouts on night of fire). At 6:20 a.m., the alarm system at =
13335=20
Duluth detected a fire at the rear of the club in the "VIP Room." =
All the=20
doors of the building were monitored by a security system except =
the two=20
small rooms at the back of the building. Routis had exclusive =
access to=20
those small rooms; however, Sachtouris testified that Routis =
sometimes=20
loaned him the keys. These two rooms were not wired into the =
security=20
system. There were no breaches of security detected on any of the =
doors of=20
the club prior to the fire alarm. A fire started in Routis's =
storage room=20
and a separate fire began in the VIP Room, which shared a common =
wall with=20
Routis's storage room. The record showed that the ceiling tiles =
could=20
easily be removed, giving access over the wall to the VIP Room. =
These=20
facts constitute evidence of opportunity. See Vandiver, =
970=20
S.W.2d at 737 (finding evidence of opportunity when burned =
structure was=20
locked and accused had only set of keys); Polasek, 847 =
S.W.2d at=20
282. We conclude that the combined =
evidence=20
falls within the zone of reasonable disagreement and supports the =
trial=20
court's implied finding that Routis and/or Sachtouris set the =
building on=20
fire and that therefore appellee's proffered exclusion from =
coverage=20
applies. Accordingly, appellants' first =
and second=20
issues are overruled. We affirm the judgment of the =
trial=20
court. Laura Carter Higley Justice Panel consists of Justices =
Nuchia, Keyes,=20
and Higley. 2. " "=20
4. =