Intentional Loss Exclusion Could Apply Even to Unintended Damage, Says the Tenth Circuit

The Tenth Circuit recently held that, under Kansas law, an intentional loss exclusion precludes coverage for damage caused by an intentionally set fire even if the actual resulting damage is unintended. In Taylor et al. v. LM Insurance Corp., Case No. 20-3166 (10th Cir. Jul. 11, 2022), the named insureds’ 18-year-old daughter (who was also an “insured” under the policy) was home alone and used a lighter to ignite her father’s side of her parents’ bedspread, intending to “make him mad.” Though she intended to, and believed she had, put out the fire, the fire spread and caused damage to the insureds’ home.

The insureds’ homeowners policy covered fire damage, but contained an “intentional loss” exclusion that excluded “any loss arising out of any act committed: (1) [b]y or at the direction of an ‘insured’; and (2) [w]ith the intent to cause a loss.” The Tenth Circuit held that the intentional loss exclusion applied because the insureds’ daughter intended to start the fire and understood the fire would damage the bedspread, even though she thought she had put out the fire and did not intend to cause any damage to the rest of the house.

The insureds argued that the phrase “intent to cause a loss” is ambiguous because it depends on the character and use of the property. For example, lighting a candle which causes unintentional fire damage to a home would not fall within such an exclusion even though the lighting of the candle is intentional.

Rejecting this argument, the Tenth Circuit distinguished between lighting a candle, which constitutes a candle’s ordinary use and does not necessarily result in fire damage to a home, and setting fire to a bedspread with the purpose of causing damage to the bedspread. Because setting fire to a bedspread is an act intended to cause damage, it constitutes an “intent to cause a loss” even if the resulting damage is different than the damage originally intended by the act of the insured. Thus, the court held the intentional loss exclusion is unambiguous and precluded coverage for the fire damage to the insureds’ home.

Under the Taylor decision, the intentional loss exclusion requires only an intent to cause damage, not an intent to cause the actual damage sustained by the insured property. Therefore, even if the actual damage resulting from an insured’s act is far greater than the damage intended by the insured, the intentional loss exclusion should still preclude coverage under the Tenth Circuit’s reasoning in Taylor.

It is important to note, however, that the intentional loss exclusion in Taylor involved a first-party claim under a homeowners insurance policy. The same analysis would not necessarily apply to a third-party claim under a general liability policy. See, e.g., Spruill Motors, Inc. v. Universal Underwriters Ins. Co., 212 Kan. 681, 687, 512 P.2d 403, 408 (1973) (recognizing a distinction between an intentional injury and an unintended injury resulting from an intentional act under a liability policy). Accordingly, when evaluating these claims, insurers should be cognizant of the precise nature of the claim and applicable policy before reaching a coverage determination.    

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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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