The U.S. Court of Appeals for the Seventh Circuit, affirming adistrict court's decision, has ruled that an intentional actsexclusion in a homeowners' insurance policy conflicted with theIllinois Standard Fire Policy and, as a result,did not preclude parents from recovering for damage suffered aftertheir son intentionally set fire to their home.

The Case

On August 5, 2014, Wesley Streit Jr. set fire to the house wherehe lived with his parents, Barbara and Wesley Streit. Hesubsequently pleaded guilty to a charge of aggravated arson.

The Streits submitted a claim to their homeowners' insurancecarrier, Metropolitan Insurance Company, which refused to cover thefire damage based on the intentional acts exclusion in thepolicy.

The Streits sued, claiming that the exclusion was inconsistentwith the Illinois Standard Fire Policy as promulgated by theIllinois director of insurance.

The U.S. District Court for the Northern District of Illinoisheld that the Metropolitan policy had to conform to the StandardFire Policy but that a question remained as to whether the Streitshad played any role in directing or consenting to their son'sarson. The Streits and Metropolitan then stipulated that theStreits were innocent of any wrongdoing related to the fire, andbased on that stipulation, the district court granted partialsummary judgment in favor of the Streits, ruling that theMetropolitan policy impermissibly narrowed the coverage mandated bythe Illinois Standard Fire Policy. The district court enteredjudgment in favor of the Streits in the amount of $235,000.

Metropolitan appealed to the Seventh Circuit. The Metropolitanpolicy excluded coverage for an intentional Loss, meaning any lossarising out of any intentional or criminal act committed:

1. By you or at your direction; and

2. With the intent to cause a loss.

This exclusion applies regardless of whether you are actuallycharged with or convicted of a crime.

In the event of such loss, no one defined as you or your isentitled to coverage, even people defined as you or your who didnot commit or conspire to commit the act causing the loss.

The policy defined “you and your” as the persons named in thedeclarations and other residents including a spouse or any otherperson under the age of 21 in the care of these individuals.

The Standard Fire Policy provided the following limitations oncoverage:

This Company shall not be liable for loss by fire or otherperils insured against in this policy caused, directly orindirectly by: (a) enemy attack by armed forces, including actiontaken by military, naval or air forces in resisting an actual or animmediately impending enemy attack; (b) invasion; (c) insurrection;(d) rebellion; (e) revolution; (f) civil war; (g) usurped power;(h) order of any civil authority except acts of destruction at thetime of and for the purpose of preventing the spread of fire,provided that such fire did not originate from any of the perilsexcluded by this policy; (i) neglect of the insured to use allreasonable means to save and preserve the property at and after aloss, or when the property is endangered by fire in neighboringpremises; (j) nor shall this Company be liable for loss bytheft.

The conditions that suspended insurance coverage included lossesoccurring:

(a) While the hazard is increased by any means within thecontrol or knowledge of the insured; or

(b) While a described building, whether intended for occupancyby owner or tenant, is vacant or unoccupied beyond a period ofsixty consecutive days; or

(c) As a result of explosion or riot, unless fire ensues, and inthat event for loss by fire only.

Related: 25 U.S. cities with the highest risk of homefires

An innocent insured can still recover from a fire losscaused by another party  insured under the samepolicy in Illinois. (Photo: Shutterstock)

The Seventh Circuit's Decision

The circuit court affirmed. In its decision, the Seventh Circuitfound that the coverage provided by the Metropolitan policy failedto conform to that required by the Standard Fire Policy. Under theMetropolitan policy, the circuit court said, an intentional losscaused by any insured party suspended coverage for all insuredparties – even those who were innocent of any wrongdoing. Bycontrast, the circuit court explained, the Standard Fire Policysuspended coverage if the hazard was “increased by any means withinthe control or knowledge of the insured.” (Emphasis added.)

The Seventh Circuit pointed out that the term “the insured” wasnot defined in the Standard Fire Policy. It then reasoned that theinclusion of the word “the” as opposed to “an” served “as alimitation.” If one insured party committed an intentional harm butanother insured party was innocent of any wrongdoing, then theinsurance coverage was suspended “only as to the insured who causedthe loss.” An “innocent” coinsured still could recover, the circuitcourt declared.

Accordingly, the circuit court ruled, under the IllinoisStandard Fire Policy, Wesley Streit Jr.'s intentional act of arsonsuspended insurance coverage only as to him and his parents couldrecover. Any attempt by Metropolitan to proscribe their recoverywas “invalid and unlawful.”

The case is Streit v. Metropolitan Casualty Cas. Ins. Co., No.16-3203 (7th Cir. July 17, 2017).

Steven A. Meyerowitz, Esq., ([email protected])is the director of FC&S Legal, the editor-in-chief of theInsurance Coverage Law Report, and the founder and president ofMeyerowitz Communications Inc.