One of the long-held truths about insurance is that if you intentionally destroy property or cause harm, such acts are excluded from coverage. It makes sense; insurance is designed to provide coverage for accidental or catastrophic losses, and the insured is not supposed to gain from the loss. A major societal benefit to this design is that people are compensated for large losses so society itself does not have to provide financial assistance to the person. GoFundMe or similar campaigns aside, insurance serves both society and the individual.
However, if you intentionally destroy your property and receive payment from your insurance company, you have gained from the destruction of your own property. This idea goes against the premise of insurance. Naturally, insurance policies are written to exclude coverage for intentional acts. It makes sense that if you intentionally set fire to your dwelling, your insurance company will not pay you for the loss. Likewise, if you attack someone on the street because they said your dog was ugly and you injure that person, the company will not pay out because you intended to cause harm to the person.
The Oregon Division of Financial Regulation issued a bulletin last week regarding the language used by carriers excluding intentional acts in personal lines policies. The bulletin addresses the common exclusionary language that excludes acts intended or expected by an insured, and also excludes acts that are of a different kind, quality or degree than expected or intended, or that happen to a different person or property than intended. The bulletin quotes this language with added emphasis in bold:
"coverage does not apply to bodily injury or property damage, which is expected or intended by an insured, even if the resulting bodily injury or property damage is of a different kind, quality or degree than initially expected or intended; or is sustained by a different person, entity or property than initially expected or intended."
The language in question is the personal liability and medical payments exclusion commonly found in the ISO HO 00 03 – Special Form. This clause has been the standard ISO exclusion since the 2000 edition of the form. ISO changed the language because a number of courts were finding coverage for acts that were intended to be excluded. The exclusion in the previous 1991 edition simply excluded bodily injury or damage "which is expected or intended by the "insured"". The department is now requiring insurers to revert to the older or similar language.
The Department's concern is that this particular language excludes not only intentional acts, but also acts of negligence and unintended acts or unintended injury. Oregon courts have not interpreted the intentional acts exclusions to include unintended or negligent acts, and the Oregon Supreme Court has interpreted the exclusion to apply only when the insured intended to cause the specific harm resulting from the act, and not unintended harm.
To be clear, the Department is concerned with intentional versus negligent behavior, not the consequences of such behavior. For example, playing catch with a friend in a crowded room is negligent behavior; if you or your friend throws a ball and hits someone in the crowd, that is a consequence of the negligent behavior and should be covered by your policy. However, if an insured throws a beer bottle at another patron in a bar and misses, hitting the other patron's spouse, the injuries to the spouse would not be covered, because the injuries are a consequence of the intentional act of throwing the beer bottle.
The bulletin states that this language is vague and could place unintended or negligent behavior within the exclusion, and that this language is ambiguous and may not be approved under ORS §742.005(2). The statute outlines reasons why a form may not be approved by the director. Section (2) reads:
"If the director finds it contains any provision, including statement of premium, or has any label, description of its contents, title, heading, backing or other indication of its provisions, which is unintelligible, uncertain, ambiguous or abstruse, or likely to mislead a person to whom the policy is offered, delivered or issued;"
The Department found the exclusionary language misleading to the public about the intended coverage provided by the policy. The bulletin addresses the difference between acts committed by "the insured" as opposed to being committed by "an" or "any insured". This brings up the issue of innocent co-insureds. The Department said the exclusionary language as presented would prevent an innocent co-insured from recovering for the loss.
For example, two siblings share a house and are co-insureds under a homeowners policy. One sibling intentionally sets fire to the house while the other sibling is on vacation, and the house burns to the ground. The second sibling is an innocent insured; they have no knowledge that the fire was set intentionally. The second sibling should not be punished for the intentional acts of the first.
The bulletin states the exclusion of intentional acts is permitted, but the exclusions should not include losses due to negligent or unintended acts or harm. It clearly states that intentional acts exclusions containing language such as "losses of a different kind, quality or degree than initially expected or intended" or to losses that are "sustained by a different person, entity, or property than initially expected or intended" will not be approved by the Department. Likewise, language excluding damage or harm whether or not the insured had intent will not be approved.
If the policy language does not clearly limit an intentional acts exclusion to acts of "the insured", then the policy must contain additional clarifying language that the exclusion does not apply to innocent co-insureds who did not cause, participate in, contribute to, or were not aware of the intentional act before it was committed.
The intent of the bulletin is to express the Department's expectations regarding the policy language used to exclude intentional acts. It does not dictate how such language should be interpreted in the event of any particular claims. The bulletin is effective immediately as of May 2, 2022. Insurers have sixty days to remove or change vague language regarding intentional acts in their personal lines policies. A copy of the bulletin may be found here.