Fuston v. National Mut. Ins. Co., 1-1281A370

• Decision Date: 19 October 1982
• Docket Number: No. 1-1281A370,1-1281A370
• Citation: 440 N.E.2d 751
• Parties: Daniel L. FUSTON, Zelma A. Fuston, Defendants-Appellants, v. NATIONAL MUTUAL INSURANCE CO., Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 751

440 N.E.2d 751

Daniel L. FUSTON, Zelma A. Fuston, Defendants-Appellants, v. NATIONAL MUTUAL INSURANCE CO., Plaintiff-Appellee.

No. 1-1281A370.

Court of Appeals of Indiana First District.

Oct. 19, 1982.

Lawrence D. Giddings, Peyton & Giddings, Lebanon, for defendants-appellants.

Jerome L. Withered, Robert C. Reiling, Jr., Dickson, Reiling, Teder & Withered, Lafayette, for plaintiff-appellee.

NEAL, Judge.

Plaintiff-appellee, National Mutual Insurance Co. (National), filed an action for declaratory judgment to determine coverage for fire loss on a Homeowners Insurance Policy issued to the defendants-appellants, Daniel L. Fuston and Zelma A. Fuston (Fustons). National claimed that Fustons had intentionally caused the fire and breached other policy provisions as well. Fustons filed a counterclaim for policy coverage. From an adverse jury verdict and judgment on both their counterclaim and National's declaratory judgment action, Fustons appeal.

We reverse.

STATEMENT OF THE FACTS

Fustons, husband and wife, owned a residence as tenants by the entireties. Their residence was destroyed by fire on September 8, 1979. A $38,000 homeowners insurance policy issued by National named both Daniel and Zelma as insureds. National denied coverage on the basis that Daniel intentionally caused the fire to be set and presented evidence to that effect; however, its brief points to no evidence in the record indicating complicity on the part of Zelma. Both Fustons submitted a proof of loss which National claims contains false statements. ¹

The trial court refused to give and read to the jury Fustons' tendered Instruction Number 3 which reads as follows:

"If you find that one of the defendants committed an act which would void the terms of the insurance policy but that the other defendant was innocent of any such act, you should return a verdict against the one defendant and a verdict for the other defendant."

Instead the court gave and read to the jury National's Instruction Number 5, which reads as follows:

"You are instructed that in this state, a husband and wife who own property jointly are deemed to be owners of the whole of the property whose interests are inseparable. In such a case where one spouse commits acts justifying the denial of coverage by the insurance company on a fire loss, the other spouse may not recover on the insurance policy. Therefore, if you find from a preponderance from the evidence that one or both of the defendants committed acts justifying the denial of insurance coverage for this fire loss, then you should render a verdict for the plaintiff."

No other instruction was given stating the issue raised by Fuston's Instruction Number 3.

ISSUE

The sole issue on appeal is whether the trial court erred in refusing to give Fuston's Instruction Number 3. Otherwise stated, the question is whether the separate act of one spouse of intentionally setting fire to property held by the entireties, can foreclose recovery by the innocent spouse on a contract of insurance.

DISCUSSION AND DECISION

The question was decided adversely to National in American Economy Insurance Company v. Liggett, (1981) Ind.App., 426 N.E.2d 136, handed down after the conclusion of this case. The facts in that case are similar to the facts here except that in Liggett the guilty husband perished in the fire. The Liggett court permitted full recovery for the fire loss by the innocent surviving tenant by the entirety, the widow.

Liggett proceeded in part, both in the majority opinion, and in the concurring opinion, on the construction of the policy, which contained provisions similar to those involved here. After reciting the usual rule of construction that an ambiguous policy should be construed against the insurer and in favor of the insured, the court concluded that the policy should be construed to permit the innocent spouse to recover. In the fraud exclusion, the word "insured" was limited to the guilty spouse in order to protect the reasonable expectation of the innocent insured that coverage would exist under such circumstances. The opinion noted that the company could have but did not make an express exclusion.

Liggett is not totally dispositive here, for that court's opinion suggested that "... a different rule may need to be fashioned where the guilty spouse survives." Id. at 144. In a concurring opinion Judge Staton said that, "[t]he amount of damages recoverable by the innocent spouse if the wrongdoing spouse survives the incendiary act may need to be limited to prevent the wrongdoer from benefitting from the wrongful act." Id. at 148. In its answer brief National's principal argument is that Liggett was erroneously decided and that we should ignore it.

No good purpose would be served by burdening this opinion with an analysis of the factors discussed in Liggett, for that opinion contains an exhaustive discussion of the problem. We agree with the results of that case and the rationale expressed therein. We shall limit our discussion to the measure of recovery where the guilty spouse survives.

The Liggett court stated in dicta,

"As a matter of public policy, we deny any recovery of insurance proceeds to a beneficiary of a life insurance policy who has murdered the insured. The law does not permit the guilty party to profit from his wrongdoing. There is no clause or policy language which purports to deny insurance benefits to the murderer. It is pure and simple a matter of fundamental justice and equity expressed as the public policy of the law. Similarly, the arsonist whose business is failing and who cannot sell his property must not be permitted, as a matter of public policy, to find a way out of his dilemma by setting a fire.

It may also be appropriate to prevent the depressed, jealous, murderous or even insane spouse from profiting by setting a fire by denying that spouse any recovery from an insurance carrier.

This public policy is easily vindicated by denying any recovery to the living guilty spouse and permitting the innocent spouse recovery of one-half of the insured loss within policy limits. Where there is some prospect that the guilty party might benefit, even indirectly, a careful factual analysis can be made by the trial court to determine whether that prospect exists and to protect against it. Erlin-Lawler Enterprises, Inc. v. Fire Insurance Exchange (1968), 267 Cal.App.2d 381, 73 Cal.Rptr. 182; Hildebrand v. Holyoke Mut. Fire Ins. Co. (Me.1978), 386 A.2d 329." (Footnote omitted.)

426 N.E.2d at 140.

It is said that the impediment to permitting an innocent...