“Insanity Defense” Fails To Preserve Coverage For Insured’s Arson

Missouri resident James Roller set fire to his garage in an attempt to commit suicide.  When smoke and fumes surrounded him he changed his mind, fled the garage, and alerted his wife of the fire.  Mrs. Roller called 911.  A sheriff’s deputy escorted Mr. Roller to “protective custody” and obtained a 96-hour mental health detention order from the court.  Mr. Roller was treated at a hospital.

The garage sustained severe fire damage.  Mrs. Roller notified the Rollers’ homeowners’ insurer, American Modern Home Insurance Company (AMHIC).  An independent adjuster inspected the damage, took photographs, obtained a statement from Mrs. Roller, and estimated the replacement cost of the garage to be $21,240.  AMHIC’s adjuster reserved the company’s rights and continued to investigate.  Over the course of eight months, AMHIC repeatedly requested that the Rollers submit to an examination under oath and provide certain documents.  The Rollers demanded that AMHIC produce documents to them.  The Rollers refused to appear at an examination under oath, and when AMHIC failed to provide the documents they requested, they commenced a declaratory judgment action in Missouri state court.

After a bench trial, the court entered judgment for the insurer, finding that the Rollers’ claim was not covered by their policy.  On appeal, the Rollers sought reversal and argued these reasons:

  1. Their refusal to submit to examinations under oath did not prejudice AMHIC’s investigation.
  2. AMHIC’s claims adjuster’s statement to the Rollers that “there was a possibility that [AMHIC] could make payment” bound the company to cover the loss.
  3. The policy’s intentional acts exclusion did not preclude coverage because Mr. Roller was insane when he started the fire, so the fire was accidental.

In an opinion filed on December 15, 2015, the Missouri Court of Appeals rejected these arguments and affirmed the lower court’s decision of no coverage.  Roller v. American Modern Home Insurance Co., 2015 WL 8779858 (Mo.App. 12/15/15).  On appeal, the Rollers had claimed that AMHIC’s requests for documents were unreasonable, as was its refusal to provide them with documents they requested.  They claimed that AMHIC failed to prove prejudice as a result of their failure to submit to examinations because they did submit a sworn statement in proof of loss and they and Mr. Roller’s psychiatrist submitted to questioning in depositions in the lawsuit.

The appellate court pointed out that the Rollers’ homeowner’s policy required the provision of documents and submission to examination under oath if requested by the insurer.  These requirements are part of the insureds’ obligation to cooperate with the insurer’s investigation.  Cooperation clauses enable the insurance company to gather all facts material to its obligations and to protect itself against false claims.  The insured frequently possesses the greatest knowledge of the circumstances of loss.  An insured’s willful refusal, without excuse, to participate in an examination under oath is prejudicial.  Under Missouri law, such a refusal is a breach of the duty to cooperate that can justify denial of coverage.  Furthermore, the court pointed out that the requirement to submit to an examination under oath was independent from any dispute concerning the scope of document requests, rejecting the excuse offered by counsel for the Rollers that attendance at an examination was not required “until document exchange issues [were] resolved.”

The appellate court also pointed out that later testimony in a deposition cannot substitute for compliance with an examination request.  The court quoted an earlier federal court decision, applying Missouri law, that “by commencing this action on the Policy without submitting to an examination under oath, Plaintiff denied Defendant the opportunity to both complete its investigation and to issue a ruling on the claim.”  This, said the court, prejudiced AMHIC.

Before denying the claim, AMHIC’s adjuster told Mrs. Roller that further investigation was needed to determine if the “Innocent Spouse Doctrine” applied, and that “there was a possibility that [AMHIC] could make payment for the out-building of the adjacent structure.”  He later advised that the previously discussed payment would not be made.  The Rollers claimed that his statement created a new contractual obligation for the insurer to pay the loss.  The appellate court disagreed because no consideration was offered in exchange for the payment:  the statement was not conditioned upon a release by the Rollers.  A valid contract did not exist without consideration.  In addition, Missouri law requires definite terms to form an oral contract; the promises and performance of each party must be reasonably certain.  The adjuster stated only that there was a possibility that payment would be made.  The court held that this was not definite enough to form a contract.

Finally, the trial court had ruled that the policy’s intentional acts exclusion precluded coverage for the deliberately-set fire, despite the Rollers’ argument that Mr. Roller was insane when he started the fire.  Under Missouri law, “the taking of one’s own life while sane is not an accident while intentional suicide while insane is an accident.”  Garmon v. Gen. Am. Life Ins. Co., 624 S.W.2d 421, 44 (Mo.App. 1981).  However, the appellate court agreed with the trial court, holding that sanity is presumed until there is an adjudication of insanity, for which issue the party asserting insanity bears the burden of proof.  Not everyone diagnosed with a mental illness is necessarily “insane,” as that term is used in Missouri suicide cases.  According to the appellate court, the issue was whether the insured understood the difference between right and wrong at the time.  The evidence showed that Mr. Roller set fire to his garage with a clear plan and intent to end his life, and he understood what he was doing.  There was no adjudication of insanity.  Therefore, the fire was not accidental and the intentional acts exclusion applied to remove the damage from the policy’s coverage.

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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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