Error v. Western Home Ins. Co.

• Decision Date: 28 September 1988
• Docket Number: No. 20238,20238
• Citation: 762 P.2d 1077
• Parties: Julie A. ERROR, an individual, Plaintiff and Appellee, v. WESTERN HOME INSURANCE COMPANY, a Utah corporation, and American Savings & Loan Association, a Utah corporation, Defendants and Appellants.
• Court: Utah Supreme Court

Page 1077

762 P.2d 1077

Julie A. ERROR, an individual, Plaintiff and Appellee, v. WESTERN HOME INSURANCE COMPANY, a Utah corporation, and American Savings & Loan Association, a Utah

corporation, Defendants and Appellants.

No. 20238.

Supreme Court of Utah.

Sept. 28, 1988.

Dennis C. Ferguson, Salt Lake City, for defendants and appellants.

Dale E. Anderson, Salt Lake City, for plaintiff and appellee.

HALL, Chief Justice:

Insurer Western Home Insurance Company (Western) appeals a judgment awarding insured Julie A. Error (Julie) indemnification in her action which was initiated

after Western denied coverage for damages to Julie's home. We affirm

I

After Julie initiated this action, the trial court granted American Savings' rule 41(b) motion, ¹ disposing of Julie's claim against that defendant. The trial court then ruled in favor of Julie on her claim against Western and entered the following findings and conclusions:

"FINDINGS OF FACT

"I

"Plaintiff, Julia [sic] A. Error and her husband Ray M. Error purchased a house at 2870 West 2960 South, Salt Lake County, Utah in November 1968 as joint tenants.

"II

"On November 15, 1976, Plaintiff obtained a 'Decree of Divorce' from Ray M. Error in Salt Lake County, case number D-11233 and the Court made the following judgment in favor of Julia [sic] A. Error:

'4. Plaintiff is awarded the home and real property located at 2870 West 2960 South, Salt Lake City, Utah, subject to the two mortgages presently on said home. Plaintiff shall assume and discharge the two mortgages on the home and real property and hold the defendant harmless from any further obligation thereon.'

"III

"From the time of entry of said 'Decree of Divorce' to the present, Plaintiff resided in said house and made all required mortgage and insurance premium payments from her own earnings.

"IV

"In August of 1978 Plaintiff and Ray Error were r married. In April of 1982 Plaintiff and Ray [E]rror were separated. During the period from August of 1978 to April of 1982 Ray Error contributed his earnings to general family expenses and Plaintiff continued to pay mortgage payments and insurance premium payments from her own earnings and from her own separate account.

"....

"VI

"In November 1982 Plaintiff filed for a second divorce from Ray Error and on November 12, 1982 the Court issued a 'Temporary Restraining Order And Order To Show Cause' (Civil No. D83-4586) and on December 16, 1982 an 'Order On Order To Show Cause' which ordered Ray Error to immediately vacate the home and premises and restrained and enjoined him from returning to the premises.

"Ray Error contested the Divorce proceedings claiming an interest in the property.

"VII

"From the time Plaintiff and Ray Error purchased the subject house to the time of trial there was no change in the record title to the said property. The insurance policy insuring said property was also continued by the Defendant, Western Home Insurance Company in the name of 'Error, Ray M. and Julie A.'

"....

"VIII

"On July 4, 1983 Ray Error entered the said property and deliberately started a fire with the use of a flammable liquid in the bathroom. Ray Error was arrested that night for arson and was booked in the Salt Lake County jail.

"On July 5, 1983 Ray Error returned to the premises with a gun, barricaded himself in the house and held his son Steven hostage for a short time. The police were called. The police fired tear gas into the house in an effort to get Ray Error out. When the police entered the premises they found Ray Error unconscious and he died shortly thereafter.

"IX

"There was, at the time of loss, a policy of insurance issued by Defendant Western Home Insurance Company which insured the Plaintiff against loss to the premises from fire and related damages, costs and expenses.

"X

"Plaintiff submitted a claim to Defendant, Western Home Insurance Company for the losses incurred by her and said claim was denied.

"XI

"The actual and anticipated expenses incurred by Plaintiff to repair the damage to the premises and the related costs and expenses are as follows:

Materials $ 4,000.00

Labor of Plaintiff and her present husband at $8.00 per hour for 4,800.00

600 hours

Labor of Plaintiff's son at $4.50 per hour for 120 hours 540.00

Personal property loss 987.00

Washing expense 56.00

Fair rental substitute for 3 months at $400.00 per month 1,200.00

Additional costs for meals for 3 months 1,253.00

Miscellaneous 60.00

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Total $12,896.00

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"XII

"Plaintiff had no control over the conduct of Ray Error, had no knowledge of his actions in setting the fire and did not misrepresent any fact nor engage in any fraud in either causing the loss or in the submission of the claim for said loss and was without fault in contributing to or causing the loss.

"CONCLUSIONS OF LAW

"I

'Ray Error did have an 'insurable interest' in the property at the time of the loss. The value of Ray Error's interest in the property at the time of loss would be minimal and not more than one-half of the appreciation in value from the date of remarriage in August of 1978 to the date of the second separation in April of 1982 during which time he contributed to family expenses.

"II

'The insurance policy excludes coverage for 'neglect' of the insured. This exclusion is not applicable to Plaintiff as there was no 'neglect' by Plaintiff and she was without fault.

"III

"The insurance policy excludes coverage for 'fraud' but this exclusion is not applicable to Plaintiff as she neither concealed any facts nor committed any fraud.

"IV

"The intentional, criminal acts of Ray Error bar any recovery by Ray Error or his estate from Defendants, Western Home Insurance Company.

"V

"Ray Error's interest in the property at the time of loss is minimal and speculative and there was no evidence establishing any value whatever for the 'insurable interest' of Ray Error at the time of loss and is therefore zero.

"VI

"The interests of Ray Error and Julie Error in the property were divisible or separable and were not joint.

"VII

"The responsibility or liability for the fraud (arson) in this case is several and separate and not joint and the fraud of Ray Error can not [sic] be attributed to Plaintiff the innocent spouse. Delph vs. Potomac Insurance Company [95 N.M. 257], 620 P.2d 1282 (N.Mex.1980); Commercial Union Insurance Company vs. State Farm Fire and Casualty Co., 546 F.Supp. 543 (Colorado 1982); St. Paul Fire and Marine Insurance Co. vs. Molloy [291 Md. 139], 433 A.2d 1135 (Md.1981); Fuston vs. National Mutual Insurance Co., 440 N.E.2d 751 (Indiana 1982); Richards vs. The Hanover

Insurance Company, [250 Ga. 613], 299 S.E.2d 561 (Georgia 1983)

"VIII

"Plaintiff is entitled to judgment and judgment shall be entered for Plaintiff in the sum of $12,896.00 plus prejudgment interest at the statutory rate of 10% per annum from July 4, 1983 to the date of entry of Judgment, plus costs in the amount of $67.69 and interest on the entire judgment at 12% per annum until paid."

Judgment was entered in accordance with these findings and conclusions, and Western appeals.

II

Western's first and principal point is that the judgment in favor of Julie was improper because her loss was "caused totally by the intentional conduct of [her] co-insured husband." Specifically, Western argues that where coinsureds have joint interests in property, an innocent coinsured cannot recover on a fire insurance policy following an act of arson by the other.

Despite Western's claim that this is the "traditional rule," we are not convinced, particularly since several of the cases Western cites to support its argument have been rejected, limited, overruled, or reversed. ² Rather, the rule of law in a majority of jurisdictions is that an innocent insured is not necessarily precluded as a matter of law from recovering on a fire insurance policy because a coinsured intentionally destroyed the insured premises. ³ The rationales behind this rule vary, but fall into three broad--and sometimes overlapping--categories. Some jurisdictions focus upon the insured's property interest. ⁴ Others focus upon the insured's obligations under the insurance policy. ⁵ The rationale that most appeals to our sense of reason and fairness, and the rationale we adopt today, is that which focuses upon the responsibility for the fraudulent act. ⁶

When the responsibility or liability for the fraud is separate rather than joint, an insured's fraud cannot be attributed or imputed to an innocent coinsured. As noted by the Wisconsin Supreme Court when it adopted the same rationale:

Courts adopting the modern rule recognize the need to deter arsonists but also recognize the fundamental principle of indiv dual responsibility for wrongdoing. A legal principle denying coverage to an innocent party implicitly imputes the guilt of the arsonist to the innocent insured. ... An absolute bar to recovery by an innocent insured is particularly harsh in a case in which the arson appears to be retribution against the innocent insured. Having lost the property, the innocent insured is victimized once again by the denial of the proceeds forthcoming under the fire insurance policy. Focusing on the nature of the individual responsibility for wrongdoing, we hold that the obligations of the insurer under the insurance policy in this case should be considered several as to each person insured. ⁷

In this case, the trial court concluded that liability for the fraud--arson--was separate rather than joint and that the fraud could not be attributed or implied to Julie, the innocent coinsured. It follows, then, that Ray's fraud does not void the policy as to Julie.

III

Western's second point is that if Julie is entitled to recover, her recovery must be limited to one-half of the damages to the insured real and personal property. Western argues that if the insurance policy is treated as creating several rights, amounts owing under the policy must likewise be...