Intentional Act Exclusion Applies
Insurance, by definition, only provides indemnity for contingent or unknown events. A fire intentionally set by an insured is neither contingent nor unknown, that is, it must be fortuitous. To make clear the concept of fortuity insurance companies have rewritten their policies to include a specific exclusion for intentional acts by any insured if such exclusion is allowed by state statute. Insureds, especially when one spouse is innocent of the act, attempt to avoid the intentional act exclusions by claiming that since they had nothing to do with the criminal conduct they should be able to receive the benefits of the policy.
Rick Deeter appealed the trial court’s grant of summary judgment in favor of Indiana Farmers Mutual Insurance Company (Farmers) regarding his claim for insurance proceeds against Farmers. In particular, Rick asserts that Farmers failed to craft a clear and unambiguous insurance policy and thus improperly denied his claim based on the intentional loss exclusion in the policy for his home. Rick also argues that he is an “innocent co-insured spouse” and contends that the fact that Callie Deeter, his wife, is guilty of causing an intentional loss should not bar him from recovery. He asked, in Deeter v. Indiana Farmers Mutual Ins. Co., 43A04-1305-PL-229 (Ind.App. 12/04/2013) [enhanced version available to lexis.com subscribers], that the Indiana Court of Appeal reverse the trial court and allow him to receive the benefits of the policy.
In 1997, Rick and Callie purchased a home located in Pierceton, Indiana. In December 2010, Rick and Callie contracted with Farmers for a homeowners insurance policy. The policy provided insurance coverage for, among other things, the home the Deeters purchased in 1997. The policy insured their home for $124,000 for one year, from January 6, 2011 to January 6, 2012.
The policy contained an exclusion for intentional loss: “Intentional Acts – ‘We’ do not pay for loss which results from an act committed by or at the direction of an ‘insured’ and with the intent to cause a loss.”
Both Rick and Callie were listed as insured parties on the Declaration Page of the policy. On March 3, 2011, Rick was at Maple Leaf Farms, where he is employed as an assistant manager. Callie was at home, babysitting for her niece’s daughter. When her niece arrived to pick up her child, she told Callie that Rick was allegedly having an affair with another woman. After she left, Callie became irate, breaking things, and calling Rick at work to tell him that she was “tearing up the house.” He became alarmed and called 911. Before the police could reach the Deeters’ home, Callie purposefully started a fire in the living room on the first floor. When the police arrived, Callie was standing in the driveway, and she told the responding officer that she had set the fire. She was charged with arson, a class B felony, and later entered a plea agreement wherein she pleaded guilty to criminal mischief, a class D felony.
Farmers refused to pay on the insurance policy, stating that, because Callie had intentionally burned down the house, the situation fell within the intentional loss exclusion of the insurance policy. Rick filed a claim for insurance proceeds against Farmers, and both parties moved for summary judgment. The trial court, finding no genuine issue of material fact, granted Farmers’s motion for summary judgment.
DISCUSSION AND DECISION
Under Indiana law, insurance contracts are governed by the same rule of construction as other contracts. In interpreting a written contract, the court will neither extend the coverage provided nor rewrite policy language that is clear and unambiguous. The policy exclusion for intentional loss was clear and unambiguous. Callie intentionally set fire to her home and took criminal responsibility for her actions, placing the Deeters squarely within the policy exclusion.
Rick also argued that the innocent spouse rule does or should apply in this case. He asserts that, because he is an “innocent co-insured spouse,” he should not be barred from recovering under the insurance policy. In Fuston v. National Mut. Ins. Co., 440 N.E.2d 751, 754 (Ind.Ct.App. 1982) the court determined that, where an insurance company had not provided an explicit exclusion for intentional loss by a co-insured, it was possible for the innocent spouse to recover. The Fuston court highlighted the lack of an explicit exclusion in the insurance policy under consideration in that case.
Finding a void in Indiana case law the court of appeal determined that when an insurance company has included an explicit exclusion in its policy to cover loss that results from an intentional act by a co-insured, it will respect the parties’ right to contract and enforce that exclusion. Here, it was clear that Callie and Rick were both listed as an “insured” on the insurance policy, and the policy explicitly stated that it would not cover a loss that resulted from an intentional act of an insured.
The undisputed evidence shows that Callie purposefully and intentionally burnt down her home, and Farmers was within the scope of its contractual rights to deny the Deeters’ insurance claim in accordance with the intentional loss exclusion contained in the policy.
Different states have ruled differently with regard to the claim of an innocent spouse. In this case the policy clearly and unambiguously excluded any loss intentionally set by an insured. Callie and Rick agreed to the contract when they acquired the policy. They knew, or should have known, that if either did anything to intentionally damage the property there would be no coverage. Although Rick was innocent of setting the fire his actions may have precipitated Callie’s anger and he agreed if his spouse intentionally caused damage there would be no coverage. To rule otherwise would allow Rick, and Callie who is still his spouse, to benefit from her intentional conduct.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
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