Filed Under:Claims, Investigative & Forensics

Home Fires and Innocent Co-Insureds

Does the Whole Family Suffer When One Commits Arson?

(Editor's Note: This article has been contributed by Melody S. Mosley, a partner at Cummins & White, LLP, a business and insurance law firm based in Newport Beach, Calif.)

Late one evening, a woman awakened to find her home on fire. Although she escaped unharmed, the house was completely destroyed. A fire department investigation later revealed her husband had intentionally set the fire. The couple technically owned the home together but planned to divorce, and the woman wanted to stay in the house. The home was insured, and so the wife submitted a claim. But was their homeowners’ coverage still valid based on the intentional act of her husband? Did the wife have a right to recover? In California and in a growing number of states, the answer is “yes.” 

Assuming that a qualified fire expert has shown that the fire was intentionally set—in addition to establishing a strong motive—attention is focused on the insured’s whereabouts at the time of the fire. Determining whether there was a forced entry can be important in figuring out who entered the house. Cellphone records and bank statements (showing debit card transaction dates and locations) can be helpful as well. Of course, the insured’s whereabouts do not tell the whole story, as an insured may have hired or asked someone else to do the job.

If arson is confirmed and sufficient evidence exists to show that a named insured was involved, then insurance carriers can deny coverage to the guilty party based on the fact that the insured acted intentionally. Such conduct is against public policy and usually prescribed by a state insurance code even if it is not specified in the policy of insurance. 

Intentional Act Exclusion in Fire Policies: The California Supreme Court Weighs In  
In California, the State Supreme Court stepped in to address this issue. In Century-National Ins. Co. v. Garcia, 51 Cal.4th 564 (2011), the court phrased the question as follows: “May an insurer enforce an exclusion clause in a fire insurance policy that denies coverage to innocent insureds for damages from a fire intentionally caused by a co-insured, or does such a clause impermissibly reduce coverage that is statutorily mandated?”  

The facts of the case were undisputed. Jesus Garcia, his wife, Theodora, and their adult son were insureds under a fire insurance policy issued by Century-National Insurance Company. The Garcias filed a claim with Century-National for damage caused by a fire intentionally set by their son. Century-National denied the claim based on an exclusion in the policy for the intentional act or criminal conduct of “any insured.” The trial court sustained Century-National’s demurrer, finding that the policy excluded coverage for innocent co-insureds. The California Court of Appeals agreed, and the Garcias appealed.

The court noted that although California is not bound to follow out-of-state authorities, “they reflect a broad consensus as to the proper interpretation of the common standard form fire policy.” In a practical sense, the decision levels the playing field for innocent co-insureds who previously suffered when an insured such as a teenage son or estranged spouse intentionally set fire to their homes—situations that could happen to anyone.

Impact on Fire Insurance Claims
In California, the results of the Century-National decision are evident in changes to the intentional acts provision. Many policies still exclude coverage for intentional acts by “any” insured, but some newer policies include additional language such as: “We will cover the insurable interest of an innocent co-insured who did not cause or in any way contribute to the intentional loss.”  

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