An arson fire engulfs a vacant house. Will the homeowners policy cover the damage?
The typical fire insurance policy excludes coverage for damage caused by vandalism or malicious mischief if the building was vacant for more than 30 days before the loss. Determining whether arson qualifies as vandalism or malicious mischief can be a difficult task.
Last year, three appellate courts addressed that issue and came to very different conclusions.
A court in Florida found that the vacancy exclusion clearly excludes damage caused by arson; a California court said the vacancy exclusion might apply, depending on the intent of the person who set the fire; and a court in Tennessee found that the vacancy exclusion obviously does not apply to arson fires.
These courts used the same method to interpret similar vacancy exclusions. Because the policies did not define “fire,” “vandalism,” “malicious mischief” or “arson,” the courts looked at dictionaries to find the ordinary, everyday meaning of those words. They examined how terms such as “vandalism” were used throughout the policy, not just in the exclusion.
These cases also deal with the same basic facts, because the houses were vacant and the fires were intentionally set by someone other than the insureds. Nevertheless, common rules of policy interpretation, applied to the same situation and policy language, have yielded varying opinions on whether arson is excluded as a form of vandalism.
Case No. 1: Arson is definitely excluded
Florida: The Botee decision
The first case was decided in February 2015 in Florida. [Botee v. Southern Fidelity Ins. Co., 162 So.3d 183 (Fla. Ct. App. 2015).] An intentionally set fire damaged the insured's vacant house. The insurance company denied coverage on the grounds that the fire was excluded as vandalism and malicious mischief.
The insured argued that the phrase “vandalism and malicious mischief” did not include arson. She noted that the policy's personal property coverage listed “fire” and “vandalism and malicious mischief” as separate covered perils, which suggests that fire is not the same as vandalism or malicious mischief. Moreover, the vacancy exclusion listed “vandalism and malicious mischief” as excluded causes of loss, but did not mention “fire.” Botee asserted that this would lead an insured to believe that an intentionally set fire was not the same as “vandalism and malicious mischief.” Therefore, even if someone could interpret arson as a form of vandalism, the exclusion was ambiguous. Thus, she argued that because an ambiguity in the policy must be resolved in favor of coverage, the arson damage had to be covered.
The Botee court disagreed. It analyzed the plain and ordinary meaning of the words “vandalism,” “malicious mischief” and “arson.” “Vandalism” is defined in dictionaries as “willful or malicious destruction or defacement of…property.” “Malicious mischief” is defined as “willful, wanton, or reckless damage to or destruction of another's property.” Arson is defined as “the willful or malicious burning of property….” Because burning something is a form of damage, destruction or defacement, arson constitutes willful or malicious damage to or destruction or defacement of property. Therefore, the court concluded, arson is a form of vandalism and malicious mischief, and the vacancy exclusion applied to the arson fire. Under Botee, arson is clearly excluded by the vacancy exclusion.
A transient who accidentally set a house on fire while trying to keep warm, did not intend to burn it down. (Photo: Shutterstock)
Case No. 2: A deliberately set fire might be excluded
California: The Ong decision
Two months after Botee, a California court reached a decidedly different position. [Ong v. Fire Ins. Exchange, 235 Cal.App.4th 901 (Cal. Ct. App. 2015).] In this case, the evidence showed that although the fire was intentionally started, the intent was not to damage the house. The court held that the vacancy exclusion excludes fire only if the fire was started with the intent to cause harm.
A transient started a fire on the kitchen floor of Mr. Ong's vacant house. A mattress lay next to the large hole the fire had burned in the floor. There were smaller holes burned in the floor near the door, which could have been caused by someone trying to throw burning wood outside.
Because the fire was intentionally set by a trespasser, the insurance company denied coverage on the grounds that the fire was an act of vandalism, and the vacancy exclusion therefore applied. The insured asserted that the transient started the fire in order to keep warm, not to destroy property. Therefore, the insured argued, this fire did not qualify as an act of vandalism.
The court determined that the ordinary meaning of “vandalism” is the willful destruction of property or the destruction of property with a desire to cause harm. Absent evidence that someone started the fire with the intent to harm, the warming fire did not qualify as vandalism. Therefore, the vacancy exclusion did not apply, and the damage was covered.
Under Ong, a deliberately set fire is excluded under the vacancy exclusion only if it was set in order to cause damage. It follows that the vacancy exclusion will not apply to a fire claim unless the insurer can prove someone started the fire in order to cause damage. Making that determination will require facts indicating the mental state and purpose of the person who started the fire.
Case No. 3: Arson is definitely not excluded
Tennessee: The Phillips decision
Shortly after Botee and Ong, a Tennessee court concluded that arson is not excluded by the vacancy exclusion. [Southern Trust Insurance Co. v. Phillips, 474 S.W.3d 660 (Tenn. Ct. App. 2015).] When Mr. Phillips’ vacant house was substantially damaged by an arson fire, the insurance company denied coverage based on the vacancy exclusion.
The insured argued that the average person did not believe that arson and vandalism were the same thing. The court agreed, observing that in everyday speech, vandalism and arson are seen as separate and distinct activities. Likewise, in its list of specified perils, the policy listed “fire” as one peril, and “vandalism or malicious mischief” as another separate peril. The court concluded the average insured reading that list would presume that “arson” qualified as “fire,” and would expect that the exclusion of “vandalism and malicious mischief” did not apply to “arson.” Therefore, under Phillips, the vacancy exclusion does not exclude arson.
Related: 5 cases of arson gone bad
How an adjuster describes a fire can impact how coverage is applied. (Photo: Shutterstock)
Three issues to consider
On a practical level, this review of recent cases highlights three principles that apply in any jurisdiction:
Keep an open mind about how the policy applies to a loss.
Use objective and neutral language to report facts.
Check legal developments before making a coverage determination.
1. Keep an open mind
Even though Botee, Ong and Phillips dealt with similar facts, applied similar policies, and used the same method of interpretation, they came to divergent answers on the same question. So it is not surprising that an adjuster and an insured may have different opinions about how a policy applies to this type of claim. Therefore, the first tip drawn from these cases is a fundamental principle of claim investigation — keep an open mind about how policy terms apply to the loss at hand.
2. Use objective and neutral language to report facts
In the Ong claim, the adjuster and the insurance company's fire investigator described the fire as a “warming fire,” and the court relied on that description when it analyzed coverage. Significantly, the court explained that previous cases did not apply to this claim because they did not involve a “warming fire.” This demonstrates that other people will presume that an adjuster's summary is accurate and objective. A neutral description of the loss scene or interview allows a coverage determination based on the facts and not necessarily on the adjuster's initial interpretation of them.
3. Check the law
Imagine an adjuster with three losses involving vacant houses damaged by arson. The houses are in Florida, California and Tennessee. Whether the loss is covered or excluded depends on the jurisdiction. Because of widely differing views on the scope of the vacancy exclusion, adjusters should check the current law before reaching a coverage decision on such claims.
Although the facts and the law change, the purpose of claim adjustment remains the same — to properly apply the policy to the loss. Following these three principles will help the adjuster arrive at the appropriate decision.