Richards v. Hanover Ins. Co.

Citation299 S.E.2d 561,250 Ga. 613
Decision Date27 January 1983
Docket NumberNo. 38992,38992
CourtSupreme Court of Georgia

Clayton H. Farnham, Drew, Clayton, Eckl & Farnham, Atlanta, for Hanover Ins. Co.

SMITH, Justice.

Betty Jo Richards sued The Hanover Insurance Co. (Hanover) to compel payment of benefits under a homeowners insurance policy. The jury returned a verdict for Hanover, and the Court of Appeals affirmed. Richards v. The Hanover Ins. Co., 162 Ga.App. 736, 292 S.E.2d 99 (1982). On appeal Mrs. Richards challenges the following jury charge: "I charge you that in an action for fire insurance proceeds, if either of the co-insureds have either intentionally burned the building or caused it to be burned, their insurance policy is void and they may not recover." We granted certiorari and now reverse.

In March 1980 Mrs. Richards and her husband purchased a homeowners insurance policy from Hanover. The policy covered a newly acquired house and its contents. Some four months later, on June 28, 1980, the Richards' house burned down, resulting in partial destruction of the building and total destruction of the personal property contained therein. Mrs. Richards claimed coverage under the policy and, when Hanover refused to pay, she sued to recover $25,000 for the house, $12,500 for damage to her personal property, and $5,000 in additional living expenses in accordance with the terms of the policy.

Mr. Richards, who did not appear at trial, 1 was arrested for arson in connection with the house-burning incident. At trial Hanover introduced evidence tending to support the arson charge, but the record is silent regarding any subsequent prosecution or conviction of Mr. Richards. Mrs. Richards was in Tennessee visiting her mother at the time of the fire, and she was not implicated in any wrongdoing. 2

Following the presentation of Mrs. Richards' evidence, the trial judge directed a verdict for Hanover as to the real property damage claim on the grounds that Mrs. Richards failed to prove the structure's market value after the fire as required by the policy. 3 Only the claims for personal property damage and additional living expenses went out with the jury, which returned a verdict for Hanover on both claims. On appeal Mrs. Richards urges that the above quoted charge incorrectly stated the applicable law. We agree.

1. The question is whether, in an action for fire insurance proceeds, the fraud of a
                co-insured spouse bars recovery by the innocent co-insured spouse.  This issue is one of first impression in Georgia, and authorities which have considered it elsewhere are nearly evenly divided.  See St. Paul Fire and Marine Ins. Co. v. Molloy, 291 Md. 139, 433 A.2d 1135, 1139 (1981), and cases cited therein;  Annot., 24 A.L.R.3d 450 (1969).  Our examination of the relevant cases reveals two distinct lines of authority on this issue.  Most of the older cases denied recovery to an innocent co-insured spouse on the theory that spouses who hold joint interests in insured property have a joint obligation to refrain from defrauding the insurance company so that the fraud of one spouse necessarily becomes the fraud of the other.  See Kosior v. Continental Ins. Co., 299 Mass. 601, 13 N.E.2d 423 (1938).  Recently, however, an increasing number of courts have focused their analysis not on the joint or individual nature of the underlying property right, but on the rights and duties embodied in the language of the contract of insurance.  As the Delaware Supreme Court has stated, "[T]he case is fundamentally a contract dispute between an insurance company and a policyholder ... we look to the law governing that kind of problem rather than the law governing land titles."   Steigler v. Insurance Co. of North America, 384 A.2d 398, 400 (Del.1978)

We, too, look to the rules of contract to resolve the present dispute. In Georgia, insurance is a matter of contract, and the parties to an insurance policy are bound by its plain and unambiguous terms. Barker v. Coastal States, 138 Ga.App. 164, 166, 225 S.E.2d 924 (1976). The insurance policy executed by the Richards and Hanover designates "Patrick Dan Richards & Betty Jo Richards" as the "named insured," with residents of the household who are relatives of a named insured additionally defined as "insureds." The policy further provides for an exclusion from liability in the event of "neglect of the insured to use all reasonable means to save and preserve property ..." (Emphasis in original). Appellee contends that this "neglect provision" creates in Mr. and Mrs. Richards as co-insureds a joint obligation to preserve the property and that Mrs. Richards has breached her obligation and voided the entire policy by virtue of her husband's act of arson. 4 Mrs. Richards, on the other hand, argues that her obligation to preserve the property is several and separate from her husband's obligation, not joint; and that her husband's wrongful conduct cannot be attributed or imputed to her.

It is therefore apparent that whether Mrs. Richards, as an innocent co-insured, can recover under her policy depends on whether the parties to the contract intended the obligations of the co-insureds to be joint or several. To ascertain the parties' intent we look first to the language used in the insurance contract. The policy designates both Mr. and Mrs. Richards as the "named insured," and excludes from coverage destruction caused by acts of neglect by "the insured." The policy is silent as to whether the Richards' rights and obligations under the policy are to be considered joint or several. Under the circumstances, we think the policy is unclear and requires construction on this crucial point.

Three well known rules used in the construction of insurance contracts apply. Any ambiguities in the contract are strictly construed against the insurer as drafter of the document, Hulsey v. Interstate Life etc., Co., 207 Ga. 167,...

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