Delph v. Potomac Ins. Co.

• Decision Date: 30 December 1980
• Docket Number: No. 12629,12629
• Parties: Theresa DELPH, Plaintiff-Appellant, v. POTOMAC INSURANCE COMPANY, Defendant-Appellee.
• Court: New Mexico Supreme Court

Page 1282

620 P.2d 1282

95 N.M. 257

Theresa DELPH, Plaintiff-Appellant, v. POTOMAC INSURANCE COMPANY, Defendant-Appellee.

No. 12629.

Supreme Court of New Mexico.

Dec. 30, 1980.

Duhigg & Cronin, Paul S. Cronin, Albuquerque, for plaintiff-appellant

Shaffer, Butt, Thornton & Baehr, William C. Madison, Albuquerque, for defendant-appellee.

OPINION

FELTER, Justice.

Plaintiff, Theresa Delph, and her husband, Charles Delph, owned a residence as community property. Defendant, Potomac Insurance Company, had issued them a fire and extended coverage insurance policy covering the residence. Plaintiff and her husband were married at the time the policy was issued and both were named on the policy.

Theresa Delph separated from her husband, moved out of the residence, and sued for a dissolution of her marriage. Mrs. Delph obtained a default judgment granting the divorce and awarding her the residence of the parties.

Prior to entry of the divorce decree, Charles Delph intentionally set fire to their residence. It is conceded that Mr. Delph was solely responsible for the fire and that Theresa Delph did not participate in any manner in the intentional burning of the residence.

After the property had been conveyed to Theresa Delph pursuant to the divorce decree, she made demand upon Potomac Insurance Company to recover proceeds under the fire insurance policy for damages caused by the fire. Defendant refused to pay plaintiff under the policy, contending that her husband's arson constituted "fraud" by the "insured" and that the policy coverage was vitiated by the fraud. However, defendant did pay off a lien of $10,000 to an innocent third party lien holder.

Plaintiff brought suit; defendant then moved for summary judgment. The district court granted the motion in favor of defendant and plaintiff appeals. We reverse.

The issue presented on appeal is whether the intentional burning of a community residence by one spouse will bar recovery by an innocent spouse under a fire insurance policy issued to the community.

While this case presents a question of first impression in New Mexico, several common law states have addressed similar cases in which the property was held by the spouses in tenancy by the entireties, as joint tenants or as tenants in common. Generally, those courts have held that an innocent spouse may not recover when the interests of the co-insureds are joint but may recover when the interests of the co-insureds are divisible or separable. Cooperative Fire Ins. Assoc. v. Domina, 137 Vt. 3, 399 A.2d 502 (1979); Simon v. Security Insurance Company, 390 Mich. 72, 210 N.W.2d 322 (1973); Mele v. All-Star Ins. Corp., 453 F.Supp. 1338 (D.C.; E.D.Pa.1978). However, a new line of cases has developed whereby an innocent spouse is allowed recovery of one-half the benefits under the couple's insurance policy even when the couple's interest in the property is joint. Economy Fire and Cas. Co. v. Warren, 71 Ill.App.3d 625, 28 Ill.Dec. 194, 390 N.E.2d 361 (1979); Auto-Owners Ins. Co. v. Eddinger, 366 So.2d 123 (Fla.Dist.Ct.App.1979); Steigler v. Insurance Co. of North America, 384 A.2d 398 (Del.1978); Howell v. Ohio Casualty Insurance Company, 124 N.J.Super. 414, 307 A.2d 142 (1973). In these cases the courts focused upon the fact that the responsibility or liability for the fraud (arson in each case) is several and separate rather than joint, and that the spouse's fraud could not be attributed or imputed to the innocent spouse.

Following either line of cases, it is clear that plaintiff, Theresa Delph, is entitled to recover up to one-half of the policy limits on the insurance coverage here involved.

It is clear that the residence as well as the insurance policy involved herein are community property. As such, each spouse has a present, vested and equal interest in each of the community assets. Reed v. Nevins, 77 N.M. 587, 425 P.2d 813 (1967); Dillard v. New Mexico State Tax Commission, 53 N.M. 12, 201 P.2d 345 (1948); Herrera v. Health and Social Services, 92 N.M. 331, 587 P.2d 1342 (Ct.App.1978), cert. denied sub nom., Human Services Department v. Herrera, 92 N.M. 353, 588 P.2d 554 (1978).

New Mexico courts have segregated out the interests of spouses in community property when it has been necessary to do so in order to avoid injustice. Dillard v. New Mexico State Tax Commission, supra; McDonald v. Senn, 53 N.M. 198, 204 P.2d 990 (1949); United States Fidelity & Guaranty Co. v. Chavez, 126 F.Supp. 227 (D.N.M.1954). In McDonald, the Court held that a wife's vested interest in community real property could be segregated and subjected to a statutory judgment lien for a personal tort committed by her during coverture. In Dillard, the Court segregated the wife's interest in community real property and held that her interest did not come within New Mexico's veterans' exemption. In the United States Fidelity case, the Federal District Court in New Mexico found that the McDonald case was controlling and held that a husband's interest in community property could be segregated and subjected to attachment for a separate legal liability of the husband.

Furthermore, in 1973 the New Mexico Legislature enacted Section 40-3-10, N.M.S.A.1978 which sets forth priorities for satisfaction of separate...