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Review of Policy Provisions and Court Decisions

March 2004

Summary: Public policy against allowing a wrong-doer to profit from his own wrongful act precludes an insured from recovering insurance proceeds under a property policy for an act of arson committed by that insured. Traditionally, provisions of property policies have put contractual force to this public policy and have been used by insurers as a defense against fire insurance claims made by arsonists.

However, the case of the innocent coinsured—another person qualifying as an insured under the policy, who has no knowledge of, and no part in, the fraudulent act—has not been so clear.

The history of cases demonstrates that innocent coinsureds were denied recovery under early fire policies, were allowed recovery somewhat later as the underpinning doctrine was eroded, and are now allowed or denied recovery based upon the leanings of the courts of particular jurisdictions, the specific language of the insurance contract involved, or the pertinent state statute.

Recent changes in policy language have had an effect on the outcome of litigation in this area. Many of the older cases arose out of a provision that voided the policy where “an insured” had engaged in fraud or criminal conduct. The current trend is toward holding the provision that voids coverage where “any insured” has engaged in fraud as unambiguous, generally precluding insurance recovery by innocent coinsureds.

Topics covered:

Policy provisions

Court decisions

Early decisions—joint obligations

Erosion of joint responsibility doctrine

The modern view

Recent developments—homeowners

Variations in policy language

Policy Provisions

Provisions related to fraud and intentional loss are found in all standard property insurance policies and it would be the exceptionally rare independently filed policy that did not likewise contain such provisions.

In the New York standard fire policy, the “grandfather” and basis of modern property forms, there are two clauses that have been invoked to prevent insureds from recovering from intentionally set fires: the provision that voids the policy in the event of fraud committed by the insured (lines 1-6), and the exclusion of loss caused by the insured’s neglect in saving and preserving the property “at and after a loss” (lines 21, 22).

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