Friday, February 18, 2011
S.C.: Insureds Whose Son Started Fire Entitled to Coverage
Statute Protects Innocent Policyholders Even if Co-Insured at Fault, Justices Rule
By KENNETH OFGANG, Staff Writer
Homeowners whose residence was damaged in a fire started by their adult son, an additional insured under their policy, were entitled to coverage as a matter of statute, the state Supreme Court ruled yesterday.
In a unanimous decision, the justices held that policy language purporting to exclude coverage for intentional or criminal acts of an insured cannot be construed against innocent insureds because of Insurance Code Secs. 2070 and 2071. Sec. 2071 sets forth standard policy terms for fire insurance and Sec. 2070 requires that all fire policies provide coverage which is “substantially equivalent” to that of the standard policy, or more favorable to the insured.
Reversing Div. Seven of this district’s Court of Appeal, the court held that Century-National Insurance Co. cannot rely on the exclusions for criminal or intentional acts by “any insured” to deny a claim by Jesus Garcia Sr. and Theodora Garcia.
Jesus Garcia Sr. was the named insured under the policy, and made a claim for substantial damage resulting when Jesus Garcia Jr. set fire to his bedroom.
Century-National filed a complaint in Los Angeles Superior Court seeking a declaration that it had no duty to pay for the Garcias’ loss based on the exclusions. The Garcias filed a cross-complaint for breach of contract, bad faith, and reformation.
Judge Maureen Duffy-Lewis sustained the company’s demurrer to the cross-complaint. She reasoned that as a relative of the named insured who was living on the property, Jesus Garcia Jr. was an additional insured, that innocent coinsureds are generally excluded from coverage for intentional and criminal acts, and that coverage for willful wrongs is contrary to public policy, as expressed in Insurance Code Sec. 533.
The statute provides that “[a]n insurer is not liable for a loss caused by the wilful act of the insured.”
The Court of Appeal affirmed.
But Justice Marvin Baxter, writing for the high court, said the lower courts misconstrued Sec. 533. The statute does not preclude coverage for an innocent insured based on the wrongful act of a co-insured, he concluded.
“Section 533’s use of the term ‘the insured’ bears directly on the instant coverage issue: unlike policy exclusions that refer to ‘an’ insured or ‘any’ insured, exclusions based on acts of ‘the’ insured are construed as not barring coverage for innocent coinsureds,” Baxter wrote, citing several California cases. “....Given the settled meaning of the language used in section 533, the standard form fire policy must be construed as including a willful acts exclusion that is protective of innocent insureds.”
The same is true, Baxter said, of Sec. 2071. “...[T]he provisions set forth in section 2071 uniformly indicate that provisions barring insurer liability or excluding coverage are to operate severally,” he wrote, emphasizing the repeated references to “the” insured.
Those references, he opined, reflect legislative intent to “protect the ability of innocent insureds to recover for their fire losses despite neglectful or intentional acts of a coinsured.”
Cases cited by Century-National to the contrary, the justice said, all involve third-party liability coverage, not fire coverage. Courts in other states, he noted, have on several occasions concluded that innocent insureds are not precluded from obtaining fire coverage based on wrongful acts of their co-insureds.
Baxter cautioned in a footnote that the decision “should not be read as necessarily affecting the validity of clauses that deny coverage for the intentional acts of ‘any’ insured in other contexts.”
The case was argued in the Supreme Court by Stephen M. Losh of Beverly Hills Law Associates for the Garcias and Valerie A. Moore of Haight Brown & Bonesteel for the insurer.
The case is Century-National Insurance Co. v. Garcia, 11 S.O.S. 936.
Copyright 2011, Metropolitan News Company