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By Barry Zalma
The brothers were operating a successful bar and grill in the steel mill town of Fontana, California. Drawing on the hard-drinking, fast-living steel workers, their Olde Tyme Bar and Grill was a success. They would sell five to ten barrels of beer a day. The bar was noisy and violent. Seldom would a night pass without a fight breaking out.
The brothers, tired of the fights and boisterous customers, decided to move to an area with a better class of clientele. They ignored the fact that their success was the direct result of the type of people they served.
They rented a 7,000-square foot restaurant in the college town of Claremon. They called it Brothers Olde Tyme Restaurant and furnished it much like their bar and grill. Infatuated by their success in the mill town, they signed a 20-year lease on the property. They then added 1,000 square feet to the restaurant. The brothers spent most of the profits they had made from the Olde Tyme Bar and Grill in remodeling the restaurant. They opened with fanfare and initial success. An old time bar and grill in a college and bedroom community was a novelty.
In two months the novelty wore off. The brothers found that they were serving lunch to two couples. Dinner and dancing clients usually did not outnumber the waiters and waitresses. Fear struck.
The brothers had a 20-year lease and little hope of grossing enough money to pay a month’s rent. The profits of the Olde Tyme Bar and Grill were dissolving in the monies necessary to keep open the Olde Tyme Restaurant. The brothers feared imminent bankruptcy. The 20-year lease that seemed a brilliant business decision was now an insatiable consumer of money. The brothers were desperate. They pulled out the lease and read the 50-page document from cover to cover. They saw only one possible avenue of escape from the terms of the lease.
The lease allowed that if a casualty — such as a fire or an earthquake — happened, either the owner or the tenant could end the lease. They could not cause an earthquake.
The older brother, who operated the restaurant, went to the local library and began studying fires and arsonists. He read many books and magazine articles on the subject. He became familiar with the techniques used by professional arsonists. He studied investigation techniques to better understand the investigation that would follow any fire at his restaurant. He learned that fires in restaurants are quite common and seldom happen to successful restaurants. He knew, from his studies that he and his brother would be the first persons suspected. He further learned that small towns, like Claremont, usually had inexperienced or part-time arson investigators on their police or fire department staffs. He knew his chance of a successful arson for profit was better than if the fire occurred in a large metropolitan community.
He began to plan. First he checked his insurance coverage. He established that, as required by his lease, he had enough coverage to rebuild the entire structure and replace all of the furniture, furnishings, fixtures and equipment. He increased his limits for fixtures and business interruption.
From his studies he learned that most arson investigators and fire-cause investigators first look for the lowest point of burning. The arson investigators find that the point of origin of a fire is usually at the lowest point because fire burns up.
The brother also learned that fire-cause investigators first look for accidental causes of fire. It is not until the investigator eliminates all accidental causes that he will conclude the fire is arson. The brother, therefore, needed to leave evidence of an accidental cause for the fire-cause investigator to blame as the cause of the fire.
He knew that between the first and second floor of the restaurant there was a crawl space with electrical wiring for the low-voltage lights they had strung as decoration. In this crawl space there was also a transformer to step the power down to allow the low-voltage lights to operate. The research showed that electrical power transformers failed and caused fires. The older brother, therefore, chose the crawl space as the place where he was going to set the fire.
He was always the last to leave, being the person responsible for the banking and the lock up of the restaurant. On a Sunday night, since the restaurant was dark on Monday, the brother soaked the ceiling tiles directly above the bar with four bottles of 150 proof rum. He poured the strongest concentration of rum around the transformer for the low-voltage lights. He made a trail of bar napkins from the area of the ceiling down to the wooden bar. He soaked the napkins and the bar in pure grain alcohol and 150 proof rum. He knew that the fire investigators would look for petrochemicals. Since liquor belongs in a bar, he hoped the investigators would find nothing unusual about alcohol spilled in a bar that was involved in a fire. He allowed the alcohol to turn from liquid to fumes within the enclosed crawl space between the first and second floor and lit it. He first made certain that at least one of the ceiling tiles was on the bar, broken. This would provide oxygen to the crawl space. He watched the fire burn for a few seconds until it burned freely. When he saw the lumber making up the supports for the second floor was also burning, he calmly went to the rear of the restaurant, punched in his burglar alarm code, and left the restaurant. The small fire burned in the crawl space for 20 minutes before it burned through some of the lumber of the ceiling. The bar and the bar napkins, soaked in alcohol, ignited. The restaurant filled with smoke and the heat built up an immense pressure in the closed building. The dense smoke blocked the infrared motion detector’s beam. It reported to the central station burglar alarm company a possible intruder.
The insured had returned home. When the alarm company called he could take the call. The alarm company also called the police. The police arrived to see the windows blow out from the pressure. The police officer saw flames pouring out of the restaurant windows and called the fire department. They extinguished the fire rapidly. The fire did not destroy the entire restaurant but did do considerable damage. Fire repairs would take more than four months.
The brothers reported the claim to their insurance company and, simultaneously, advised their landlord that they were terminating the lease.
The insurer hired fire-cause investigators to go through the restaurant. They found no sign of the use of oil-based flammable solvents. All of the flammable solvents were natural to the building. The only flammable discovered in the restaurant was alcohol, a substance normally expected to be in a bar. The investigators took no note of the presence of the alcohol. The destruction was unusual. The insurer was suspicious because of the weak financial condition of the insured. It demanded that the insured appear for examination under oath.
Counsel for the insurer questioned the brothers for two days, mercilessly. The brothers admitted everything except setting the fire. They admitted the business was poor but expected it to get better. They admitted that they had a motive and they were quite understanding that their insurer needed to examine them under oath. They presented a claim for their financial losses, and because of the lack of business were quite fair in their demands for loss of earnings. The insurer knew that the owner of the building was named on the policy. Even if the insurer could find some evidence to show that the insureds had committed arson, it must still pay the mortgagee.
The fire-cause investigators hired by the fire department and the insurance company both agreed no evidence of an intentionally set fire was visible. They knew the insured was present in the location twenty minutes before the fire. The brother testified he neither smelled nor saw anything unusual in the restaurant before he closed up. The charred transformer was on the ground and appeared to be a reasonable culprit. The fire investigators concluded that the fire was electrical in origin.
The brothers recovered all of the money they had invested into the restaurant from their insurer. The landlord accepted the cancellation of the lease. The potential for bankruptcy was no longer in existence. The insureds were happy. The insurer concluded it had thoroughly investigated the loss, found it to be accidental and had paid its insured a fair and reasonable settlement.
There is no happy ending to this story. The brothers successfully committed a crime. Fraud was profitable to the brothers. The brothers defrauded both the insurer and their landlord. Only the insurer and the landlord suffered.
Neither the insurer nor the landlord knew about the fraud. Neither knew that the crime would not succeed if the insurer was more thorough; if the insurer had not advised its fire-cause investigator that his investigation must cost no more than $500 in investigation expenses; and if the insurer had not limited its attorney to two days of examination under oath the following would have been discovered:
1. The circuit breaker providing power to the transformer that was the suspected cause of the fire was in the off position.
2. The chef would have testified, if asked, that he always turned off the circuit breakers before he left, thus making the brothers’ close-down operation less complicated.
3. The chef would have testified that he had been told by the older brother to buy no food during the last two weeks before the fire.
4. The chef would have testified, and a close inspection would have revealed, by the night before the fire the larder was almost empty.
5. The dishwasher, if questioned, would have testified that he helped the younger brother carry a new deep fryer, a Hobart scale and a Hobart meat slicer to the Old Tyme Bar and Grill in Fontana.
6. The dishwasher would also testify that he took from the Old Tyme Bar and Grill old, worn items of the same description and installed them in the Old Tyme Restaurant only a week before the fire.
7. The bartender, if questioned, would have testified that he helped the brothers load and transport from the Olde Tyme Restaurant four cases of whiskey, twenty barrels of beer and many pieces of glassware to the Old Tyme Bar, replacing them with only partially full or empty bottles of whiskey, several empty beer barrels and scratched and worn glassware from the Olde Tyme Bar and Grill.
8. The landlord would have testified, if asked, that the brothers were three months behind in rent.
9. The landlord would also testify that in the months that they had been operating the restaurant the brothers had never developed enough income to start the percentage rent provisions of the lease.
10. Finally, the fire-cause investigator would have testified that had he known there was no power going to the transformer, he would have eliminated all electricity as a cause of the fire and concluded the fire was incendiary in origin.
The insurer attempted to save expense dollars by not paying enough fees to its investigator to conduct a thorough investigation. By not paying enough to its attorneys, the insurer did lip service to the requirement of a thorough investigation and paid the brothers a claim that should not have been paid.
Copyright Barry Zalma, 1995
REPRINTED BY PERMISSION
Barry Zalma, of the Culver City, California, Law firm of Barry Zalma, Inc., is also president of ClaimSchool, Inc., the publisher of How Your Friends and Neighbors are Screwing You,” a compendium of similar columns.