Superior Court continues to whittle away innocent coinsured doctrine

I wrote here about the case of Shepperson v. Metropolitan Prop. & Cas. Ins. Co., 2018 WL 2324089 (D. Mass.), in which the United States District Court for the District of Massachusetts discussed the innocent coinsured doctrine.  That doctrine applies to property policies that insure more than one person.  If one of them commits an intentional act that causes damage to the insured property, that insured is not covered because damages from intentional acts are excluded.  Under the innocent coinsured doctrine, the other, innocent, insured person also cannot recover under the policy.
 

In Shepperson, the court held that an insured homeowner cannot be denied coverage for a fire loss even if the fire was set by another household member who is an insured on the homeowner’s policy, as long as two conditions are met.  First, the homeowner did not participate in the arson.  Second, the household member was made an insured by the operation of the policy language, such as a definition of insureds that includes any relatives who are household members, rather than by a conscious decision to make them an insured listed by name on the policy.   

The federal judge in Shepperson predicted that even though a 1951 decision of the Massachusetts Supreme Judicial Court held that there was no coverage for the innocent coinsured under similar facts, if the case were before the SJC today it would hold that there is coverage.  

A judge of the Massachusetts Superior Court has now addressed the innocent coinsured doctrine, in the context of a coinsurered who intentionally set the fire who, unlike in Shepperson, is a named insured on the policy. 

In Aquino v. United Property & Cas. Ins.  Co., 2018 WL 5532541 (Mass. Super.), Wenda Aquino sought coverage under a homeowner's policy issued by UPC after a fire in her home.  UPC denied coverage.  It asserted that the fire was intentionally caused by Aquino's fiance, Kelly Pastrana, who was a named coinsured on the policy, and that in those circumstances there was no coverage for any insured.

Both Aquino and Pastrana were listed on the deed and mortgage for the property.  Aquino was innocent of any involvement in Pastrana's intentional setting of the fire.  Pastrana died in the fire.

The Superior Court addressed the policy provision stating that intentional loss means "any loss arising out of any act an 'insured' commits or conspires to commit with the intent to cause a loss.  In the event of such a loss, no 'insured' is entitled to coverage, even 'insureds' who did not commit or conspire to commit the act causing the loss."

Aquino argued that that provision was broader than the provisions allowed by the Massachusetts Standard Form of Fire Policy statute, Mass. Gen. Laws ch. 175 §99.  The statute sets policy language for fire insurance policy.  Under the statute, such language includes a provision that the insured "shall not be liable for loss occurring . . . while the hazard is increased by any means within the control or knowledge of the insured" and that the insurer "shall not be liable for loss by fire . . . caused . . . by . . . neglect of the insured to use all reasonable means to save and preserve the property at and after a loss."

 Aquino argued that the statute used the phrase "the insured," but the UPC policy used the phrase "an insured."  The Superior Court agreed with Aquino that that change had impermissibly broadened the policy exclusion.

UPC argued that Aquino should be allowed to recover only half of the amount due under the policy because of Pastrana's intentional setting of the fire.  The court agreed, holding that Pastrana's intentional act forfeited his share of recovery available under the policy.  The court construed his share to be one half of the damages, noting that he and Aquino were tenants in common.  The judge also held that under the same logic Aquino was entitled to only one half of her additional living expenses (for example, rent while the house is being rebuilt).   

U.S. District Court weighs in on innocent coinsured doctrine

Massachusetts Lawyers Weekly quoted me in an article about Shepperson v. Metropolitan Prop. & Cas. Ins. Co., 2018 WL 2324089 (D. Mass.), in which the United States District Court for the District of Massachusetts addressed the innocent coinsured doctrine.  That doctrine applies to property policies that insure more than one person.  If one of them commits an intentional act that causes damage to the insured property, that insured is not covered because damages from intentional acts are excluded.  Under the innocent coinsured doctrine, the other, innocent, insured person also cannot recover under the policy. 

 

In Shepperson, the court held that an insured homeowner cannot be denied coverage for a fire loss even if the fire was set by another household member who is an insured on the homeowner’s policy, as long as two conditions are met.  First, the homeowner did not participate in the arson.  Second, the household member was made an insured by the operation of the policy language, such as a definition of insureds that includes any relatives who are household members, rather than by a conscious decision to make them an insured listed by name on the policy.   

 

The case started in Massachusetts state court and was removed by the insurer to federal court.  The federal judge predicted that even though a 1951 decision of the Massachusetts Supreme Judicial Court held that there was no coverage for the innocent coinsured under similar facts, if the case were before the SJC today it would hold that there is coverage.  He based that prediction on changes to the statute regulating fire insurance policies and on Massachusetts Superior Court decisions. 

SJC seeks amicus briefs on whether innocent coinsured doctrine should be revisited and on definition of insured allowed by Mass. Gen. Laws ch. 175 s. 99

In May, the Massachusetts Superior Court granted summary judgment to Jonathan and Tammy Hall in a declaratory judgment action against Preferred Mutual Insurance Company.  Hall v. Preferred Mut. Ins. Co., 2015 WL 4511760 (Mass. Super.). 




The Halls owned residential property insured by Preferred Mutual.  Their son Bryan intentionally started a fire that caused significant damage to the real and personal property of the residents in the home.  The Halls did not know initially that Bryan had started the fire.




When it learned that Bryan had started the fire Preferred Mutual denied the claim of Jonathan and Tammy. 




The policy defined the term "insured" to include "your relatives if residents of your household."  It was undisputed that Bryan fell within this definition of insured. 




The policy excluded coverage for fire damage where the "loss results from any act committed by or at the direction of any insured."  The plain language of the policy therefore excluded the loss.


However, insurers may not limit coverage for fire damage beyond what is permitted by statute to make up a standard fire insurance policy.  Mass. Gen. Laws ch. 175 §99.    Mass Gen. Laws ch. 175 §99 (Twelfth) allows policies to exclude coverage if the insured neglects to use all reasonable means to save and preserve the property at and after a loss, or if the hazard is increased by any means within the control or knowledge of the insured.  Under the statute a policy shall be void if before or after a loss the insured has willfully concealed or misrepresented any material fact or circumstance concerning the insurance or the subject thereof or the interest of the insured therein, or in a case of any fraud or false swearing by the insured resulting thereto. 




The statutory language thus precluded coverage if Bryan fell within the definition of insured.  The statute does not provide a definition of insured. 




Preferred Mutual argued that under the statute "the insured" refers to all people entitled to coverage.  Its argument relied on its assertion that insurers may deny coverage to an innocent co-insured in cases where the intentional misconduct of an insured causes damage to property covered by an insurance policy. 




The Superior Court held that the innocent coinsured doctrine may not apply unless the guilty coinsured holds a joint, non-severable and co-extensive interest in the insured property.  It also held that the legislature did not intend in Mass. Gen. Laws ch. 175 §99 that Bryan come within the definition of the insured in the relevant policy provisions. 




The SJC has accepted the case for direct appellate review.  It now requests amicus briefs on the issues of whether the policy defined insured beyond what is permitted by the statute, and whether the innocent coinsured doctrine should be revisited.