"Joint Obligations" Homeowners' Provision Didn't Bar Coverage for "Innocent
Insured"
March 2005
A cardinal rule of policy construction is
that courts will construe ambiguous policy language in favor of the insured
and a finding of coverage. "Ambiguity" is present when policy language is subject
to two or more reasonable interpretations. A recent homeowners case demonstrates
that this standard is relatively easy for the policyholder to meet, even in
the face of what appears to be a "belt and suspenders" approach in the drafting
of the policy.
by Richard
T. Valentino
O'Hagan, Smith & Amundsen
In Wasik v Allstate Insurance Co., 351 Ill
App 3d 260 (2nd Dist 2004), Allstate issued a homeowners insurance policy to
Martin Wasik. Among other things, the policy provided first-party coverage for
damage to Martin's property. After a fire destroyed his garage and its contents,
Martin made a claim under the policy. Allstate denied coverage, asserting that
Martin's stepson had intentionally started the fire and, therefore, certain
exclusions and provisions of its policy applied to bar coverage. Martin took
the position that, because he was an "innocent insured," the acts of his stepson
could not be imputed to him to deny coverage.
The Facts
Martin lived in a single-family home with a detached garage. His stepson,
William Fort, and his stepson's wife and child, moved into Martin's home a few
months before the fire occurred. William had stored his family's furniture,
clothing, and other property in the garage. The Fort family had moved into Martin's
house when they were facing eviction from their own home and experiencing other
financial difficulties.
On the day of the fire, William borrowed lighter fluid from a neighbor, ostensibly
for a barbeque. He claimed to have lit the grill and then began doing yard work.
Shortly thereafter, he discovered that the garage was on fire and he attempted
to put it out with a garden hose. The fire department arrived a short time later
and extinguished the fire. According to the fire department report, there was
a strong odor of flammable liquid present near a mattress in the garage. The
report concluded that the fire was suspicious. Similarly, a fire investigator
retained by Allstate examined the garage and concluded that the fire was incendiary,
caused by the ignition of a flammable liquid.
The Dispute
William made a claim under the Allstate policy for property damage of $55,000
and Martin made a claim for $8,000. However, William's claim was not at issue
in the appeal.
The policy issued by Allstate covered William as an "insured." The policy's
general declarations contained a "joint obligations" clause which stated as
follows:
- The terms of this policy impose joint obligations on persons defined
as an insured person. This means that the responsibilities, acts and failures
to act of a person defined as an insured person will be binding upon another
person defined as an insured person.
The policy's general declarations further stated:
- We do not cover any loss or occurrence in which any insured person has
concealed or misrepresented any material fact or circumstance.
The policy also contained several exclusions barring coverage for damage
to property consisting of or caused by:
7. The failure by any insured person to take all
reasonable steps to preserve property when the property is endangered by
a cause of loss we cover.
8. Any substantial change or increase in hazard,
if changed or increased by any means within the control or knowledge of
an insured person.
9. Intentional or criminal acts of or at the direction
of any insured person, if the loss that occurs:
- may be reasonably expected to result from such acts; or
- is the intended result of such acts;
- This exclusion applies regardless of whether or not the insured person
is actually charged with, or convicted of, a crime.
Allstate claimed that, based on William's alleged intentional act of setting
the garage on fire, coupled with misrepresentations made during the course of
his examination under oath, coverage was barred, not only for William's claim,
but for Martin's as well.
The Ruling
Although the trial court agreed with Allstate, the appellate court reversed.
The court found that Allstate's policy did not clearly and unambiguously inform
Martin that the policy would be void as to all insureds in the event of misconduct
by one insured. Although the policy's terms could be read as entirely prohibiting
coverage for a loss caused by the act or failure to act of "any" insured, they
did not clearly state that the policy would be void or coverage would be excluded
as to all insureds in the event of some improper behavior by "any" insured.
Relying on previous decisions of the Illinois Appellate Court, the Wasik court determined that the exclusions did
not clearly apply to bar coverage for Martin's claim.
The court also rejected Allstate's argument that the "joint obligations"
clause was a basis to distinguish its policy from the policies at issue in earlier
cases. The court noted that the "joint obligations" clause was not part of the
exclusionary clauses of the policy, but was instead found among the general
declarations. One plausible construction of the "joint obligations" clause was
that it referred to general obligations to pay premium and take certain actions
before and after a loss and that a reasonable insured would not understand the
clause to exclude coverage for all insureds when coverage was excluded for one
insured.
Precedent
In support of its decision, the court cited with favor decisions from several
other jurisdictions.
Utah—Allstate v Worthington
In Allstate Ins. Co. v Worthington, 46 F3d
1005 (10th Cir 1995), applying Utah law, a wife underwent a tubal ligation.
Her husband did not approve of the procedure and plotted to kill the doctor
who had performed it. The wife had removed all of her husband's firearms from
the home but, one day, her husband demanded that she return the guns, and she
did so. The wife allegedly knew her husband planned to go to the hospital and
kill the doctor, but she did not try to warn the doctor or the hospital.
Her husband took the firearms and a bomb to the hospital, where he took hostages
and shot and killed a nurse. The nurse's husband and her children brought suit
to recover damages for her death. That suit alleged that the wife had "negligently
and/or recklessly" breached a duty to warn potential victims of her husband's
plan.
Allstate relied on its policy's exclusions and the "joint obligations" clause
as bases to deny coverage to both the husband and wife. However, the Worthington court denied relief to Allstate,
finding that the exclusions did not "clearly identify whether the intentional
act or omission by one insured would preclude coverage for related negligence
by another insured." [46 F3d at 1009.] As was the case in Wasik, the Worthington court also rejected Allstate's argument that the "joint obligations" provision
removed coverage. Instead, the court found that the provision "refers to obligations
to pay premiums, to make timely claims, etc." The court did not believe that
a reasonable insured would understand the "joint obligations" provision to exclude
liability coverage for all insureds when coverage was excluded for one insured.
Alaska—C.P. v Allstate
Another case cited by the Wasik court is C.P. v Allstate Ins. Co., 996 P2d 1216 (Alaska
2000). The C.P. case arose from an incident in
which the adult son of the homeowners/insureds assaulted a child visiting their
home. The child and her parents sued the homeowners, claiming that their negligence
was a contributing cause of the child's injuries. The policy excluded coverage
for injury resulting from intentional or criminal acts. It also contained a
"joint obligations" provision.
The court found that, as to the parents of the assailant, the underlying
claim alleged accidental injuries and therefore fell within the definition of
"occurrence." The exclusionary provisions of the policy barred coverage for
injury resulting from criminal or intentional conduct. The provisions did not
expressly exclude injury caused in part by unintentional or noncriminal conduct.
The court interpreted the exclusions narrowly, finding that they did not bar
coverage for merely negligent insureds. The court also found that the "joint
obligations" clause did not clearly apply to the exclusions and, therefore,
did not expand the application of the exclusions to bar coverage to insureds
who are merely negligent. [996 P2d at 1227.]
Minnesota—Allstate v Steele
The Wasik court also referenced a case in
which Allstate prevailed, Allstate Ins. Co. v Steele,
74 F3d 878 (8th Cir 1996, applying Minnesota law). Steele arose out of an underlying claim of criminal sexual misconduct by a named insured's
relative, followed by a claim of negligent supervision against the named insureds.
The Tenth Circuit, citing insurer-favorable decisions from several other jurisdictions,
relied on the "joint obligations" provision, as well as certain exclusions,
in reaching the conclusion that no coverage was available to the merely "negligent"
policyholders. [74 F3d at 881.] However, the court described the "joint obligations"
provision as a "little mysterious." The Wasik court referred to this description in support of its conclusion that the terms
of the policy did not unambiguously bar coverage for the claim of an "innocent
insured" such as Martin.
Conclusion
Wasik is yet another example of a cardinal
rule of policy construction. The courts will construe ambiguous policy language
in favor of the insured and a finding of coverage. "Ambiguity" is present when
policy language is subject to two or more reasonable interpretations. Wasik demonstrates that this standard is relatively
easy for the policyholder to meet, even in the face of what appears to be a
"belt and suspenders" approach in the drafting of Allstate's policy.
An examination of decisions from around the country reveals the courts have
not been uniform in their construction of policy language similar to that construed
in Wasik. For the policyholder, the divergence
in the case law might, in and of itself, be argued to show evidence of the presence
of two "reasonable" interpretations of the language and, therefore, ambiguity.
From the standpoint of the insurer, Wasik illustrates
the importance of setting out exclusionary and limiting language in policies
with great specificity, so that it is subject to only a single, reasonable interpretation.
This is a concept with broad application in all lines of coverage.
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