Lewis v. Homeowners Ins. Co.

• Decision Date: 16 December 1988
• Docket Number: Docket No. 96472
• Parties: Deborah LEWIS, Plaintiff-Appellee, v. HOMEOWNERS INSURANCE COMPANY and Auto-Owners Insurance Company, Defendants-Appellants.
• Court: Court of Appeal of Michigan — District of US

Page 334

432 N.W.2d 334

172 Mich.App. 443

Deborah LEWIS, Plaintiff-Appellee, v. HOMEOWNERS INSURANCE COMPANY and Auto-Owners Insurance Company, Defendants-Appellants.

Docket No. 96472.

Court of Appeals of Michigan.

Submitted June 28, 1988.

Decided Oct. 18, 1988.

Released for Publication Dec. 16, 1988.

Butzel, Long, Gust, Klein & Van Zile by Eric J. Flessland, Birmingham, for plaintiff-appellee.

Deneberg, Tuffley, Bocan, Jamieson, Black, Hopkins & Ewald by David R. Tuffley, Southfield, for defendants-appellants.

Before MICHAEL J. KELLY, P.J., and MAHER and WARSHAWSKY, ^* JJ.

PER CURIAM.

Defendants appeal as of right from the opinion and order of the Oakland Circuit Court which held that plaintiff was entitled to the full value of a home which defendants insured and which had been burned down by plaintiff's estranged husband (now ex-husband). We reverse.

The home in question was owned by plaintiff and Donald Szalay as tenants by the entirety and was insured by defendant Homeowners Insurance Company, a subsidiary of defendant Auto-Owners Insurance Company. Although they were married at the time of the fire (February 11, 1984), plaintiff and Szalay were legally separated and were in the process of obtaining a divorce. The house was vacant, as plaintiff was residing with her brother and Szalay was living with his parents. Szalay apparently set the fire intentionally, causing extensive damage to both the home and the personal property therein.

The parties stipulated that total damage to the real property was $21,221.60 and that total damage to the personal property belonging to plaintiff and her son was $16,779.10. Pursuant to a compromise settlement, defendants paid plaintiff fifty percent of the real property loss plus one hundred percent of the personal property loss. The compromise settlement acknowledged plaintiff's right to file a supplemental claim for the remainder of the real property loss (i.e., $10,610.53), subject to any policy defenses.

On July 19, 1985, a judgment of divorce was granted to plaintiff upon Szalay's default. The judgment provided that any proceeds from the sale of the home, less closing costs, would be divided equally. The judgment also provided that each party shall be awarded, free from claims of the other, the net proceeds received as a result of their respective efforts to collect on the fire loss.

Plaintiff commenced this suit in the Oakland Circuit Court on January 24, 1986. A later, first amended complaint alleged wrongful retention of insurance proceeds (count I), breach of the insurance contract (count II), and two other claims which are not pertinent to this appeal. Thereafter, plaintiff moved for partial summary disposition under MCR 2.116(C)(9) and (10) as to counts I and II. A hearing on the motion was held on October 15, 1986, at the conclusion of which plaintiff was granted partial summary disposition and awarded the whole of the insurance proceeds for the property damage to the home. An order to that effect was entered on October 17, 1986.

The sole issue raised in this appeal is a legal one: whether an innocent coinsured spouse, who holds property as a tenant by the entirety, may recover insurance proceeds of more than one-half the amount of property damage, but not exceeding policy limits, caused by the wrongful acts of the other coinsured spouse. ¹ That question seems to be an issue of first impression in this state.

The vast majority of jurisdictions which have addressed this issue, and which have allowed any recovery at all, ² have held that the innocent spouse may only recover one-half of the insurance proceeds, up to the policy limits. See, e.g., Nationwide Mut Fire Ins. Co. v. Pittman, 82 N.C.App. 756, 348 S.E.2d 350 (1986); Maravich v. Aetna Life & Casualty Co., 350 Pa.Super. 392, 504 A.2d 896 (1986); Republic Ins. Co. v. Jernigan, 719 P.2d 331, 334 (Colo.App.1985); Krupp v. Aetna Life & Casualty Co., 103 A.D.2d 252, 479 N.Y.S.2d 992 (1984); Fuston v. Nat'l Mut. Ins. Co., 440 N.E.2d 751 (Ind.App.1982); Commercial Union Ins. Co. v. State Farm Fire & Casualty Co., 546 F.Supp. 543 (D.Colo.1982); St. Paul Fire & Marine Ins. Co. v. Molloy, 291 Md. 139, 433 A.2d 1135 (1981); Lovell v. Rowan Mut. Fire Ins. Co., 302 N.C. 150, 274 S.E.2d 170 (1981); Economy Fire & Casualty Co. v. Warren, 71 Ill.App.3d 625, 28 Ill.Dec. 194, 390 N.E.2d 361 (1979); Winter v. Aetna Casualty & Surety Co., 96 Misc.2d 497, 409 N.Y.S.2d 85 (1978); Steigler v. Ins. Co. of North America, 384 A.2d 398 (Del.,1978). See also Delph v. Potomac Ins. Co., 95 N.M. 257, 620 P.2d 1282 (1980) (community property state). See, generally, Anno., Right of innocent insured to recover under fire policy covering property intentionally burned by another insured, 11 A.L.R. 4th 1228.

Unfortunately, most of the above-cited cases, while adequately explaining why an innocent coinsured should not be precluded from any recovery, have been deficient in explaining why the recovery should be limited to one-half the property damage (or the amount of the policy, whichever is less). However, in Molloy, supra, the Maryland Court of Appeals gave the following explanation, which we find persuasive:

"Since '[w]e have regarded the rights of husband and wife [to be] separate under the contract, ... both logic and justice require that the amount recoverable be likewise allocated,' so that the innocent spouse be compensated for one-half the damages within the limits of the policy. Steigler, supra, 384 A.2d at 402. Permitting recovery of more would necessitate reliance on the 'oneness' legal fiction of marital property which we rejected in determining that the parties here enjoy and assume several, not joint, contractual rights and obligations. Moreover, an award greater than one- half would allow the innocent spouse to recover in excess of that to which she would be entitled upon severance of the tenancy by the entirety, whether by divorce or other action of the parties." 291 Md. 153-154, 433 A.2d 1135.

In our research, we could find only one case involving tenants by the entirety wherein the plaintiff was adjudged able to recover the whole of the insurance proceeds. ³ In American Economy Ins. Co. v. Liggett, 426 N.E.2d 136 (Ind.App.1981), the Indiana Court of Appeals for the Third District held that an innocent wife could recover the full value of property damage caused by a fire intentionally set by her husband, who perished in the blaze. We find Liggett to be of dubious jurisprudential value, though, since it was limited to the specific facts of the case. Indeed, the Indiana court expressly stated that a different rule may be necessary where the guilty spouse survives the arson: "The law's legitimate concern that a wrongdoer not profit by his wrong is not a factor in this case and there is no reason to deny the innocent plaintiff a full recovery, (a different rule may need to be fashioned where the guilty spouse survives)." 426 N.E.2d at 144. That prediction eventually proved to be true, as answered by the Indiana Court of Appeals for the First District in Fuston, supra. In that case, the court allowed an innocent wife to recover one-half of the insurance proceeds where the guilty husband was still living. 440 N.E.2d at 752-753. In finding this result consistent with Liggett, the Fuston court held:

"If the innocent spouse were denied any recovery, one could visualize situations in which one spouse, the sole owner of a piece of property, might convert the title to tenancy by the entireties thinking himself insured and later suffer...