While matters of first-party insurance litigation typically concern the right of the named insured to payment, the existence of multiple insureds on a single policy can complicate a coverage analysis, particularly when one of the insureds commits an act that would prohibit recovery under the policy, e.g. arson, without the knowledge or assistance of another insured. In that scenario, the claim might implicate the “innocent co-insured doctrine.” An example of this doctrine can be seen when a spouse commits an arson that causes the insurer to deny payment of any proceeds as a result of the fire.

Since the 1980’s, the majority rule has shifted to favor recovery for the innocent co-insured. In so doing, courts examined insurance contracts as creating severable, as opposed to joint, obligations that enable recovery. As a result, the acts of one insured would not automatically void recovery under the policy. However, some jurisdictions, currently including Massachusetts, take the approach of focusing on the drafting of the insurance contract which could eliminate recovery for an innocent co-insured. This issue is currently on appeal before the Supreme Judicial Court in a case that could change how Massachusetts Courts interpret both the innocent co-insured doctrine and the intentional loss exclusion. This article will provide a brief history of jurisprudence on the topic both in Massachusetts and nation-wide.

Historical Analysis

A seminal case in Massachusetts regarding an innocent co-insured’s right to recover following an intentional act of a spouse is Kosior v. Continental Ins. Co., 299 Mass. 601, 602 (1938).  In Kosior the plaintiff was a spouse whose husband had set fire to the insured property. In affirming the lower court’s denial, the court held that where the property is jointly owned, or there is a joint obligation to save and preserve the property, an innocent owner cannot recover on the policy where a co-owner willingly set fire to the property. Id. at 603. Specifically, the court held that where the interest of the co-insured are considered joint and non-separable, the use of the term “insured” in the exclusion clause refers to both insureds. Id. at 603-04.

Kosior has remained the law of Massachusetts in regards to a claimant seeking to invoke the innocent co-insured doctrine.  Meanwhile, during the shift to the now majority rule, which favors recovery by innocent co-insureds, courts across the country began reversing the joint obligation framework that defined early decisions such as Kosior. For example, in Howell v. Ohio Casualty Ins. Co., a New Jersey court rejected the argument that allowing recovery to the non-arsonist spouse would be harmful as a matter of public policy. 130 N.J. Super 350, 352 (App. Div. 1974). As they explained, “[t]he significant factor is that the responsibility or liability for the fraud—here the arson, is several rather than joint, and the husband’s fraud cannot be attributed or imputed to the wife who is implicated herein.” Id. at 354.  Similarly in Error v. Western Home Ins. Co., the Supreme Court of Utah held that when the responsibility for arson is several and separate the innocent spouse should be held harmless for the other spouse’s action. 762 P.2d 1077, 1079 (Utah 1988).

In Massachusetts, the Supreme Judicial Court subsequently carved out a very narrow exception to Kosior in Baker v. Commercial Union Ins. Co., 382 Mass. 347, 348 (1981).  In Baker, the court held that the innocent spouse could recover even though his wife had set the fire which caused the loss because the wife’s mental illness precluded her from forming the requisite mental intent. Id. at 350-51. The wife had a documented history of psychiatric treatment and the insurance policy did not expressly exclude mental illness. Id. at 351. Outside of this exception, Kosior remained good law.

The Supreme Court of Delaware’s decision in Steigler v. Ins. Co. of North America, expressly rejected applying principles of real property interests to spouses in the case of an innocent co-insured. 384 A.2d 398, 400. (Del. 1978). In the eyes of the court the issue of an innocent co-insured is one of contractual law rather than a joint obligation to maintain property. Id. at 402. In so doing the court stated, “[w]e have regarded the rights of the husband and wife as separate under the contract and, so viewed, both logic and justice require that the amount recoverable be likewise allocated.” Id. Insurance companies subsequently recognized that if the issue of an innocent co-insured was rooted in the contractual rights awarded under the policy then the contract could be expressly modified to avoid the entire issue. The Court of Appeals of Indiana in American Economic Ins. Co. v. Liggett went so far as to suggest model language that could be used to render an innocent co-insured argument moot. 426 N.E.2d 136, 141 (Ind. App. 1981). Consequently the 1990 ISO form HO 00 03 policy contained unambiguous language that would void coverage if anyone who qualified as a named insured concealed or misrepresented a fact concerning the claim or engaged in fraudulent conduct.

Statutory Reformation and Equitable Approach

As modern courts nationwide began applying equitable principals to contract interpretation, the issue of the innocent co-insured again became a hot bed of litigation. The crux of these cases often turned on the meaning of the phrase “the insured” in contrast to the phrase “an insured.” As stated by a Connecticut Superior Court in Burdick v. Causa:

The word “the” is a “definite article, functioning as an adjective. It is used: 1. Before singular or plural nouns and noun phases that denote particular specific persons or things.” American Heritage Dictionary (New College Ed. 1976). In contrast, “a” or “an” is an “[i]ndefinite article functioning as an adjective… [u]sed before nouns and noun phrases that denote a single, but unspecified, person or thing.” Id. The language of this provision suggests, therefore, that “the insured person” is a particular person, opposed to the phase “an insured person,” which denotes an unspecified person.

No. CV030567196, 2009 WL 579235, at *5 (Conn. Super. Ct. Feb. 13, 2009).

Thus, in a policy with language such as, “…while the hazard is increased by any means within the control or knowledge of the insured,…” “the insured” can be interpreted to refer specifically to the person who caused or increased the hazard. The standard policy which uses the definite article “the” has been increasingly interpreted as excluding only the insured that caused the damage, and not an innocent co-insured.

In Fireman’s Fund Ins. Co. v. Dean, the innocent co-insured’s estate sought coverage after the innocent’s co-insured’s spouse murdered him and set fire to their home. 441 S.E.2d 436, 263 (Ga. App. 1994). The policy listed both spouses as named insureds and stated that the policy would be void if “an insured” intentionally concealed material facts relating to the claim. Id. The Court of Appeals of Georgia recognized the policy language was unambiguous but stated it violated state law which requires a fire insurance policy be as “favorable to the insured as the language in the Standard Fire Policy.” Id. at 264. The Standard Fire Policy in Georgia used the term “the insured,” and the court reformed the policy at issue to comply with the statute. Id. at 266. This modification allowed the innocent co-insured’s estate to recover.

This equitable approach has seen use nationwide to allow courts to rewrite an insurance policy and permit recovery by an innocent co-insured.  In one illustrative example, the Rhode Island Supreme Court in VanMarter v. Royal Indemnity Co., stated; “[i]n cases where insurance policies do not conform to the statutory requirements, the language of the policy will be disregarded and the contract will be construed to conform to the statute. 556 A.2d 41, 44 (R.I. 1989)

Recent Developments in Massachusetts

More recently, these nationwide trends have begun to influence Massachusetts law with regard to the innocent co-insured doctrine.

In Shepperson v. Metropolitan Prop. & Cas. Ins. Co., the United States District Court for the District of Massachusetts held that the subject policy provided coverage to an innocent co-insured whose adult son caused the fire that destroyed the family home. In Shepperson, the plaintiff maintained an insurance policy for a home in Salem and was the only named insured. 312 F.Supp.3d 183, 185 (D. Mass. May 22, 2018). However after conducting an examination under oath, Metropolitan Property found that the son was a resident of the household. Id. at 186-87. The son did not own a home and lived with his mother when he was not traveling for work. Id. at 193. Additionally the independent fire expert retained by Metropolitan determined that the fire was incendiary in nature. Id. at 186. With the knowledge that a resident of the insured premise intentionally set the fire, Metropolitan notified the plaintiff that it was denying coverage. Id. at 187.

The policy language excluded any “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.

Furthermore, the policy defined “You” or ‘Your” to mean:

1.   The person or persons named in the Declarations and if a
  resident of the same household:

2.   The spouse of such person or persons;

3.   The relatives of either or;…

Both the plaintiff and defendant moved for summary judgment. Id. at 188. Metropolitan argued its exclusion prohibited any recovery since a resident of the home, entitled to coverage, committed the arson that destroyed it. Id. at 190. The plaintiff in turn argued that the exclusion was illegal because it bared recovery of an innocent co-insured under the Standard Form Fire Policy Statute, Mass. Gen. Law c. 175 § 99. Id. at 197. The statute states:

No company shall issue polices or contracts…. Which insure against loss or damage by fire… to property or interests in the Commonwealth, other than those of the standard forms herein set forth [inapplicable exceptions omitted.]

G.L. c. 175 §99.

The court determined that the language of the policy precluded coverage for all insured parties when any one insured party caused an intentional loss. Id. at 190. While ruling the policy provision was clear it technically deviated from the Model Massachusetts policy which distinguishes between “the insured” and “a(ny) insured.” Id. at 196. The court was clear “the insured” was not barred from coverage where “an insured” intentionally causes the loss. Furthermore, the court declined to apply the ruling of Kosior to the present matter, noting that a growing majority of states have found coverage for an innocent insured. Id. at 194. Although the court found that coverage existed for the innocent co-insured, it noted that the result may have been different if the party who started the fire was also a named insured. Id. at 198.

More recently the Massachusetts Superior Court has addressed the innocent co-insured doctrine in Aquino v. United Property & Casualty Ins. Co., where a plaintiff and her fiancé were both listed as co-insureds under the policy. No. CV 18-00366-G, 2018 WL 5532541, at *1 (Mass. Super. Sept. 25, 2018).  The fiancé caused and ultimately perished in a fire and the insurer denied the claim under the intentional loss exclusion. The policy defined an “Intentional Loss” as “any loss arising out of any act an insured commits… with the intent to cause a loss.” (Highlighted for Emphasis) Id. at *2.

The court ruled the exclusion was broader than the state’s required language for fire insurance which refers to acts by “the insured” rather than “an insured.” Id. at 3. The court determined this interpretation mandated the obligation not to cause a loss was several and not joint. Id. Accordingly the innocent co-insured would be entitled to some measure of recovery. Interestingly, the court limited the innocent co-insured’s recovery to only one-half of the loss, reasoning that the fiancé forfeited his share of recovery under the policy. Id. at 5.

Aquino is on appeal and will be argued before the Supreme Judicial Court. The Supreme Judicial Court’s ruling in Aquino could have a major effect on the application of the innocent co-insured doctrine in Massachusetts.