What if One of Us Did Start the Fire?

One of the most basic types of coverage in a standard homeowners insurance policy is for fire damage. When there is evidence that a fire loss was caused by arson, however, intentional loss exclusions are often applicable. But what if a coinsured on the relevant policy, who took no part in setting the fire, submits a claim? Do the acts of the culpable coinsured bar recovery for the innocent party? A recent decision issued by Massachusetts’ highest state court speaks to this issue.

The topic of innocent coinsured coverage is not novel to Massachusetts jurisprudence. In the 1938 case of Kosior v. Continental Insurance Co., a plaintiff and her husband owned property as tenants in common for which they obtained an insurance policy.¹ The husband set fire to buildings on the property in an attempt to defraud the couple’s insurance company. The wife was not involved in her husband’s scheme and filed suit against their insurer, claiming entitlement to benefits under the policy for fire damage. The policy contained the following provision: “. . . if the insured shall make any attempt to defraud the Company, either before or after the loss, the policy shall be void.”² The court held that “the policy in question was joint and that the plaintiff [could] not recover.”³

In January of 2020, the court revisited the issue of innocent coinsured coverage in the context of another arson case. In Aquino v. United Property & Casualty Company, the plaintiff owned a home as a tenant in common with her fiancé.⁴ The couple were named as coinsureds on a homeowners insurance policy issued by the defendant insurer, which included fire insurance.⁵ On May 22, 2017, the plaintiff’s fiancé intentionally set a fire that totally destroyed the insured home.⁶ The fiancé then initiated an exchange of gunfire with emergency responders, which frustrated fire suppression efforts.⁷ He eventually perished in the blaze. The plaintiff was innocent of any involvement in her fiancé’s actions.⁸

Following the incident, the plaintiff submitted a claim for property damage and other related losses with the insurer.⁹ The insurer denied liability, citing the fiancé’s intentional setting of the fire as a trigger for the following policy exclusion:

Section I – EXCLUSIONS

A. We do not insure for loss caused directly or indirectly by any of the following.

. . .

8. Intentional Loss

Intentional Loss means any loss arising out of any act an “insured” commits or conspires to commit with the intent to cause a loss. In the event of such loss, no “insured” is entitled to coverage, even “insureds” who did not commit or conspire to commit the act causing the loss.¹⁰

The innocent coinsured retained counsel who sent the insurer a demand letter pursuant to G.L. c. 93A, claiming that the insurer had acted in bad faith “by issuing a policy with less coverage than what is required under the language of the standard fire policy” under Massachusetts law.¹¹ The insurer stood by its denial, relying in part on the 1938 Kosior decision.¹² Subsequently, the innocent coinsured filed suit for, inter alia, breach of contract and the implied covenant of good faith and fair dealing and sought to reform the policy to conform with the applicable fire insurance statute.¹³

In Massachusetts, fire insurance is governed by a standard policy statute — G.L. c. 175, § 99. As observed in Aquino:

The standard form provides for an exclusion of coverage when there is loss by fire ‘caused, directly or indirectly, by . . . neglect of the insured to use all reasonable means to save and preserve the property at and after a loss.’  . . . Further, a company ‘shall not be liable for loss occurring . . . while the hazard is increased by any means within the control or knowledge of the insured.’” (internal citations omitted)¹⁴

Based on this language, the Aquino court upheld a lower-court ruling granting summary judgment in favor of the plaintiff based upon the breach of contract and reformation issues.¹⁵ The court opined that “by using the article ‘the’ and not ‘an’ before the word ‘insured’ in the statutory exclusion, the Legislature provided for several rather than joint rights and obligations.”¹⁶ In contrast, the policy exclusion impermissibly “impose[d] joint obligations on all coinsureds by denying recovery to any coinsured for the intentional loss caused by another coinsured.” Therefore, the court ordered that the policy language be reformed to allow for the plaintiff’s recovery.¹⁷

The court held, however, that as a tenant in common, the plaintiff’s interest in the policy was also severable, and that her recovery was limited to 50% of the policy proceeds.¹⁸ Further, the court affirmed the lower court’s dismissal of the plaintiff’s bad faith claims, observing that the insurer had a plausible basis to contest the claim based upon the Kosior holding.^{19 20}

In sum, the Aquino decision indicates that innocent coinsureds may have a right to recovery in arson cases venued in Massachusetts, subject to applicable policy provisions and exclusions. It will be interesting to see the potential effects of Aquino on future cases in other jurisdictions.