American Economy Ins. Co. v. Liggett

Decision Date30 September 1981
Docket NumberNo. 3-780A215,3-780A215
PartiesAMERICAN ECONOMY INSURANCE COMPANY, Defendant-Appellant, v. Joann LIGGETT, Plaintiff-Appellee.
CourtIndiana Appellate Court

R. Kent Rowe, Lewis C. Laderer, Jr., Paul M. Oleniczak, Rowe & Laderer, South Bend, for defendant-appellant.

A. Howard Williams, Richard J. McDonald, Patrick, McDonald, Donnelly, Warter & Williams, South Bend, for plaintiff-appellee.

GARRARD, Judge.

In this case the trial court granted summary judgment in favor of a policy holder for a fire loss claim although there was an issue of fact concerning whether the claimant's deceased husband may have caused the fire. Stressing that the claimant's innocence of any complicity was stipulated by the parties, Judge Beamer analyzed the reasons supporting the competing rules of law on the question thus presented. We agree with his conclusion and adopt his opinion as the decision of this court:

"This dispute is over the proceeds of a homeowners insurance policy following a fire loss at the insured premises in St. Joseph County, Indiana. Most of the facts The question presented is one of first impression for the courts of Indiana. Under my view of the law, the remaining factual dispute is not material and the plaintiff is entitled to summary judgment. Even assuming that the late Duwaine Liggett did intentionally start the fire which caused the loss, it is stipulated (paragraph 6) that the plaintiff, Joann Liggett, was away from home when the fire started and that she is innocent of any wrongdoing with regard to starting the fire.

are stipulated, including the existence of coverage and the plaintiff's damages. There is a factual dispute as to whether the plaintiff's late husband, Duwaine Liggett, intentionally started the fire which caused the loss which is the subject of this litigation. The parties advance different views of the law. The defendant insurance company contends that any intentional act of the late Mr. Liggett in setting the fire which caused the loss constitutes a complete bar to any recovery by the plaintiff under the policy. The plaintiff asserts that even if her late husband deliberately set the fire she is entitled to recover fully from the defendant for the insured loss.

A LITTLE HISTORY THE WRONG REASONS

Until recently it was generally the law in this country that where one of two or more insureds intentionally caused the loss to the insured property, the remaining insureds, although entirely innocent of any wrongdoing, could not recover. This rule was applied with special vigor where the insureds were husband and wife and additional reasons were found for the denial of coverage where the spouses owned the insured property as tenants by the entireties. Two principal reasons are advanced in these cases for the denial of coverage. The first is the claim of fraud. The carrier asserts that the policy is void based upon the following policy language:

'This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto.' (This is the language of the policy involved in this case.)

Even a casual reading of this policy clause reveals that it has no application to the circumstances presented in this case. Fraud generally, and as defined by the policy, is a willful concealment or misrepresentation of a material fact in the hope that the insurance company will rely upon it. In the usual case, the fraud arises when the insured signs a proof of loss form swearing that he has suffered a loss insured by the policy and assuring the company that he did nothing to increase the risk or to cause the loss for which he seeks reimbursement. This situation is illustrated by Ijames v. Republic Ins. Co. (1971), 33 Mich.App. 541, 190 N.W.2d 366, where the husband and wife as joint insureds signed the proof of loss. In denying recovery, the court quoted from and followed a Michigan Supreme Court case which said:

'The attempt to defraud the company by any one of the insured, by the making of false affidavits in relation to the loss is a complete bar to a recovery on the policy.'

190 N.W.2d at 369, quoting Monaghan v. Agricultural Fire Insurance Company (1884), 53 Mich. 238, 18 N.W. 797.

The typical certificate which the insured gives the carrier as a part of the proof of loss is set forth in the case of Hosey v. Seibels Bruce Group, S. C. Ins. Co. (1978), Ala. 363 So.2d 751, 752 and is as follows:

'The said loss did not originate by any act, design or procurement on the part of your insured, or this affiant; nothing has been done by or with the privity or consent of your insured or this affiant, to violate the conditions of the policy, or render it void ....'

It should first be noted that the language of the proof of loss form is not a part of the contractual agreement between the parties However, even if (such an imposition is) valid, the plaintiff in this case is guilty of no fraud and the policy language quoted above has no application. It is stipulated that the plaintiff is innocent of any wrongdoing. It is further stipulated that her husband and co-insured died contemporaneously with the fire. The plaintiff, being entirely innocent of any wrongdoing, could not have concealed or misrepresented any material fact concerning the insurance and her late husband was not around to do so after the fire.

(the insurance policy) and constitutes an additional condition imposed upon insureds after the fact.

The position taken by the insurance carriers and generally upheld by the courts barring recovery by innocent mortgage holders, partners and spouses was obviously harsh and inequitable. The opinion in Hoyt v. New Hampshire Fire Ins. Co. (1942), 92 N.H. 242, 29 A.2d 121, 148 A.L.R. 484, was influential in changing the direction of law. In Hoyt, two of three business partners who were tenants in common and joint insureds sued to recover their losses under a fire insurance policy. It was admitted that the third partner had set the fire which caused the loss and he had plead guilty to arson. The question presented was certified by the trial court to the Supreme Court of New Hampshire which held that the fact that the three joint tenants were co-insureds under one policy did not mean that the two innocent partners had violated the terms and conditions of that policy. The court held that the rights of the policy holders were several and not joint and that:

'(I)n construing an insurance contract the test is not what the insurance company intended the words of the policy to mean but what a reasonable person in the position of the insured would have understood them to mean.'

29 A.2d at 123.

The New Hampshire Supreme Court also gave early recognition to the principle that the reasonable expectations of the insured should be honored:

'The ordinary person owning an undivided interest in property, not versed in the nice distinctions of insurance law, would naturally suppose that his individual interest in the property was covered by a policy which named him without qualification as one of the persons insured.'

29 A.2d at 123.

Notwithstanding the harshness of the general rule and the break in the dam which the Hoyt case, supra, represented, the general rule is followed today in some jurisdictions, at least if the insureds are husband and wife. Two reasons are advanced. The first is the fictional 'oneness' of the married couple; the thesis that they constitute but a single legal entity in contemplation of law. This view is illustrated by the recent decision of the Virginia Court in Rockingham Mutual Ins. Co. v. Hummel (1979), 219 Va. 803, 250 S.E.2d 774:

"(U)nder the policy and as the 'insured,' each spouse had the joint obligation to use all reasonable means to save and preserve the property .... If either spouse violated any one of the duties, the breach was chargeable to the 'Named Insured' preventing either spouse from recovering any amount under the policy."

250 S.E.2d at 776.

The second ground advanced is that where the spouses own the insured property as tenants by the entireties, it is impossible to determine or separate out the interest of the innocent spouse and that therefore recovery must be denied altogether. This view is illustrated by the case of Cooperative Fire Ins. Assoc. of Vermont v. Domina (1979), 137 Vt. 3, 399 A.2d 502.

Strangely, many of the decisions adopting this rule apply it to deny recovery to the innocent spouse for additional living expenses and damage to personal property where a tenancy by the entireties is not possible.

These bases for denial of recovery likely have their foundation in ancient rules concerning coverture and a married woman's inability to separately own and sell property.

Western civilization is based upon the premise of individual responsibility for wrongdoing. We do not impose vicarious liability for torts (including fraud) on our spouses just because of the marital relationship. More appropriately, since arson is a crime, we do not impose vicarious liability for criminal conduct upon those who are totally innocent whether they are married to the criminal or not.

Similarly, the second leg of this argument is inapposite. The legal fiction of the entireties' estate in real estate is designed for the protection of the spouses and the marriage. It was initially designed to prevent the individual creditors of either spouse from taking the marital home. The courts generally, and divorce courts in particular, find no difficulty in dividing an entireties estate. I find it a perversion of this legal fiction, designed to protect the spouses' rights and marital property, to use it to destroy the property rights of an innocent spouse. Additionally, this ground has no application in the...

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