LEDBURY landlady Janet Kaye, 43, burned down the 16th Century Seven Stars Inn on July 22 last year, Hereford Crown Court heard.
William Rickarby, prosecuting, said Kaye, who denies arson, had endangered the lives of many people.
John Moorcroft, Kaye's boyfriend and co-manager, said she had admitted starting the fire as they watched it burn.
"I said 'Don't worry, it's just an accident and the insurance will pay out'," he said. "She said: 'No, I did it', so I told her not to be silly, but she kept on saying 'I did it.' I took it to mean she started the fire."
Kaye was overheard by a police officer, who challenged her. She confessed and said she had set fire to a cardigan owned by Mr Moorcroft, said Mr Rickarby.
Later, she told police she had "done nothing wrong" as she had set fire to her own pub.
Catherine Robertson, a guest at the Seven Stars, said Mr Moorcroft had woken them up saying there was a fire.
She said it was smoky in the building and when they were outside, they heard a drunken Kaye shouting 'This is what you wanted' at Mr Moorcroft.
Barman David Lancet said he had been drinking with Kaye that night and she was a "bit worse for wear", but Bridget Searle said she was "a bit merry, but not drunk".
The case continues.
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