The U.S. Court of Appeals for the Seventh Circuit, affirming a district court's decision, has ruled that an intentional acts exclusion in a homeowners’ insurance policy conflicted with the Illinois Standard Fire Policy and, as a result, did not preclude parents from recovering for damage suffered after their son intentionally set fire to their home.
On August 5, 2014, Wesley Streit Jr. set fire to the house where he lived with his parents, Barbara and Wesley Streit. He subsequently pleaded guilty to a charge of aggravated arson.
The Streits submitted a claim to their homeowners’ insurance carrier, Metropolitan Insurance Company, which refused to cover the fire damage based on the intentional acts exclusion in the policy.
The Streits sued, claiming that the exclusion was inconsistent with the Illinois Standard Fire Policy as promulgated by the Illinois director of insurance.
The U.S. District Court for the Northern District of Illinois held that the Metropolitan policy had to conform to the Standard Fire Policy but that a question remained as to whether the Streits had played any role in directing or consenting to their son's arson. The Streits and Metropolitan then stipulated that the Streits were innocent of any wrongdoing related to the fire, and based on that stipulation, the district court granted partial summary judgment in favor of the Streits, ruling that the Metropolitan policy impermissibly narrowed the coverage mandated by the Illinois Standard Fire Policy. The district court entered judgment in favor of the Streits in the amount of $235,000.
Metropolitan appealed to the Seventh Circuit. The Metropolitan policy excluded coverage for an intentional Loss, meaning any loss arising 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 actually charged with or convicted of a crime.
In the event of such loss, no one defined as you or your is entitled to coverage, even people defined as you or your who did not commit or conspire to commit the act causing the loss.
The policy defined “you and your” as the persons named in the declarations and other residents including a spouse or any other person under the age of 21 in the care of these individuals.
The Standard Fire Policy provided the following limitations on coverage:
This Company shall not be liable for loss by fire or other perils insured against in this policy caused, directly or indirectly by: (a) enemy attack by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately 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 the time of and for the purpose of preventing the spread of fire, provided that such fire did not originate from any of the perils excluded by this policy; (i) neglect of the insured to use all reasonable means to save and preserve the property at and after a loss, or when the property is endangered by fire in neighboring premises; (j) nor shall this Company be liable for loss by theft.
The conditions that suspended insurance coverage included losses occurring:
(a) While the hazard is increased by any means within the control or knowledge of the insured; or
(b) While a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of sixty consecutive days; or
(c) As a result of explosion or riot, unless fire ensues, and in that event for loss by fire only.
An innocent insured can still recover from a fire loss caused by another party insured under the same policy in Illinois. (Photo: Shutterstock)
The Seventh Circuit's Decision
The circuit court affirmed. In its decision, the Seventh Circuit found that the coverage provided by the Metropolitan policy failed to conform to that required by the Standard Fire Policy. Under the Metropolitan policy, the circuit court said, an intentional loss caused by any insured party suspended coverage for all insured parties – even those who were innocent of any wrongdoing. By contrast, the circuit court explained, the Standard Fire Policy suspended coverage if the hazard was “increased by any means within the control or knowledge of the insured.” (Emphasis added.)
The Seventh Circuit pointed out that the term “the insured” was not defined in the Standard Fire Policy. It then reasoned that the inclusion of the word “the” as opposed to “an” served “as a limitation.” If one insured party committed an intentional harm but another insured party was innocent of any wrongdoing, then the insurance coverage was suspended “only as to the insured who caused the loss.” An “innocent” coinsured still could recover, the circuit court declared.
Accordingly, the circuit court ruled, under the Illinois Standard Fire Policy, Wesley Streit Jr.'s intentional act of arson suspended insurance coverage only as to him and his parents could recover. Any attempt by Metropolitan to proscribe their recovery was “invalid and unlawful.”
Steven A. Meyerowitz, Esq., (email@example.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc.