Can You Burn the House Down and Still Recover From Your Homeowners Insurer? An Illinois Judge Says Yes!

Someday the editors of this blog will have to create a “Hall of Shame” for most witheringly wrong-headed pieces of first-party property insurance jurisprudence, and a clear contender is a federal decision out of Illinois that came down early last month.  In Streit v. Metropolitan Cas. Ins. Co., 2015 WL 6736677, 2015 U.S. Dist. LEXIS 149904 (N.D.Ill., Nov. 4, 2015), the court determined that there was coverage for a fire set by one of the insureds because the intentional acts exclusion in the contract of insurance was void.  The state’s Standard Fire Policy did not exclude intentional acts, and the judge held that that meant that fires caused by intentional conduct, “including arson, . . . must be covered.”

shutterstock_320032778The insureds owned a home in Lake in the Hills.  On August 5, 2014, a fire rendered the dwelling uninhabitable, and the policyholders’ 19-year-old son, who resided with his parents, subsequently admitted to setting the blaze.  The boy was sentenced to prison for the crime of aggravated arson.  The carrier denied the insurance claim of the husband and wife in reliance on an intentional loss exclusion reciting that the policy did not cover “any loss arising out of any intentional or criminal act committed . . . by you or at your direction . . . with the intent to cause a loss.”  The terms “you” and “your” were defined by the contract of insurance as meaning “the person or persons named in the Declarations and if a resident of the same household . . . the relatives of either[.]” 

The insureds acknowledged that the foregoing provision barred their claim if given effect, but they argued that it was unenforceable because it conflicted with the state’s Standard Fire Policy.  Under Illinois law, all fire insurance policies were required to be consistent with and provide at least as much coverage as the standard form.

The Standard Fire Policy’s list excluded perils included: (1) enemy attack by armed forces; (2) rebellion; (3) revolution; (4) civil war; (5) usurped power; (6) order of civil authority; (7) theft; and (8) “neglect of the insured to use all reasonable means to save and preserve the property.”  It did not exclude intentional acts, and the only language that might be argued to bar coverage for loss by an intentional act – the last-named peril above — has been held to be inapplicable to pre-loss conduct.  See, e.g. Chicago Import, Inc. v. American States Ins. Co., 2015 U.S. Dist. LEXIS 60400, 2015 WL 2193138(N.D. Ill. 2015).

On November 4th, the Northern District of Illinois’s Judge Sharon Coleman agreed with the policyholders, and she denied the insurer’s motion for summary judgment.  The carrier’s position was that previously Illinois decisions invalidating policy exclusions such as the one for vandalism because they conflicted with the standard form were inapposite because they did not involve the intentional acts provision.  It also pointed to two cases in which the state’s intermediate level appellate court and another Northern District jurist had enforced the exclusion to bar coverage for the innocent co-insured wife after the husband or the eldest daughter had set the family residence on fire.

The court stated that the two earlier decisions were distinguishable, however, because neither “consider[ed] the application of the Standard Fire Policy to the intentional conduct exclusions in the insurance policies.”  She then held as follows:

[T]his Court finds that the policy at issue must conform to the Standard Fire Policy.  The Standard Policy sets forth a limited number of exclusions restricting coverage. . . . Nowhere does the Standard Policy exclude coverage for intentional conduct, including arson, and therefore fires caused by intentional conduct must be covered if all other conditions are met.  Accordingly, this Court finds that the intentional conduct provision is void and may not be used to deny the Streits’ their proportional interest in the property, if they are in fact innocent co-insureds.

The concluding phrase in the quote above seems to have been motivated by the fact that the exclusion stated that it did not apply “to deny payment to an innocent co-insured who did not cooperate in or contribute to the creation of the loss” if that loss “arose out of the pattern of criminal domestic violence” and the perpetrator was criminally prosecuted for it.  Under the court’s rationale, however, the husband and wife’s recovery is potentially unaffected even if they did help to burn the house down.  In her words, even arson fires “must be covered” because neither arson nor intentional acts are excluded by the Standard Fire Policy.  That leaves fortuity — which the carrier evidently did not raise — as the only defense to arson claims in Judge Coleman’s courtroom.

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Posted in Arson, Arson and Fraud, Fire, Fortuity, Homeowners Coverage
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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