S. Trust Ins. Co. v. Phillips

• Decision Date: 10 June 2015
• Citation: 474 S.W.3d 660
• Parties: Southern Trust Insurance Company v. Matthew Phillips
• Court: Tennessee Court of Appeals

474 S.W.3d 660

Southern Trust Insurance Company

v.Matthew Phillips

Court of Appeals of Tennessee, AT KNOXVILLE.

April 15, 2015 Session

Filed June 10, 2015

Application for Permission to Appeal Denied by Supreme Court October 15, 2015

Terrill Lee Adkins and Amy Victoria Peters, Knoxville, Tennessee, for the appellant, Southern Trust Insurance Company.

James Brandon McWherter, Franklin, Tennessee, and Clinton H. Scott, Jackson, Tennessee, for the appellee, Matthew Phillips.

BRANDON O. GIBSON, J., delivered the opinion of the court, in which D. MICHAEL SWINEY, J., and THOMAS R. FRIERSON, II, J., joined.

OPINION

BRANDON O. GIBSON, J.

This appeal involves the interpretation of an insurance policy in order to determine whether the policy provided coverage for damage caused by arson. The insurer and the insured filed cross-motions for partial summary judgment on this issue. The trial court found the policy ambiguous and construed it in favor of coverage, holding that arson was covered under the policy. Accordingly, the trial court granted the motion for partial summary judgment filed by the insured and denied the motion for partial summary judgment filed by the insurer. The insurer appeals. We affirm.

I. FACTS & PROCEDURAL HISTORY

Matthew Phillips is the owner of residential real property located in Lake City, Tennessee. The property was insured under a dwelling policy issued by Southern Trust Insurance Company. On or about February 27, 2013, a fire substantially damaged the residential structure located on the insured premises. Phillips promptly reported the loss to Southern Trust and fulfilled all duties imposed on him under the policy. Nevertheless, Southern Trust denied that the fire was covered under the insurance policy. Southern Trust determined that the fire was intentionally set. Even though Phillips was not suspected of setting the fire, Southern Trust denied coverage pursuant to an exclusion in the policy providing that Southern Trust did not insure loss caused by "vandalism and malicious mischief, theft or attempted theft" if the dwelling was vacant. For purposes of this appeal, the parties do not dispute that the dwelling was vacant and that the fire was caused by arson.

Southern Trust filed a complaint for declaratory judgment in the Circuit Court of Anderson County, seeking a declaration that the policy did not provide coverage for the dwelling because, according to Southern Trust, the home "was damaged by vandalism and malicious mischief." Phillips filed an answer and counterclaim, asserting that Southern Trust was obligated to provide coverage for the loss because, according to Phillips, the home was damaged by fire, not vandalism and malicious mischief. Phillips asserted that Southern Trust's refusal to pay for the loss breached the parties' insurance contract and demonstrated bad faith.

Phillips filed a motion for partial summary judgment on the issue of whether the exclusion for "vandalism and malicious mischief" applied to his claim. He claimed that arson did not fall within the meaning of "vandalism and malicious mischief" as those terms were used in his policy. In the section of the policy entitled "Perils Insured Against," the policy described coverage for the dwelling under "Coverage A," coverage for other structures under "Coverage B," and coverage for personal property under "Coverage C." For Coverage A and Coverage B, the policy provided that it did not cover loss caused by "vandalism and malicious mischief, theft or attempted theft if the dwelling has been vacant for more than 30 consecutive days immediately before the loss." The policy did not define vandalism or malicious mischief. However, the policy listed "vandalism and malicious mischief" separate and apart from "fire" under Coverage C, which addressed coverage for personal property. Coverage C specifically provided coverage for personal property for the perils of:

1. Fire or lightning.

....

8. Vandalism or malicious mischief.

Another section of the policy also differentiated between fire and vandalism or malicious mischief, stating that the policy covered "trees, shrubs, plants or lawns, on the Described Location for loss caused by the following Perils Insured Against: Fire or lightning, ... Vandalism or malicious mischief, including damage during a burglary or attempted burglary, but not theft of property." In his motion for partial summary judgment, Phillips argued that an ordinary business person would generally view arson as distinct from vandalism. He also emphasized that this particular policy separately listed fire as an insured peril in two sections of the policy. He argued that the policy, as a whole, clearly ma[d]e a distinction between fire and vandalism' and treated losses caused by fire and losses caused by vandalism or malicious mischief as separate perils. He noted that the vacancy exclusion for the dwelling only excluded vandalism and malicious mischief, without mentioning fire or arson. Phillips cited caselaw from around the country holding that an insurance policy exclusion for vandalism and malicious mischief' does not encompass arson. He also provided the court with an opinion from another Tennessee trial court, reaching that same conclusion. At the very least, Phillips argued, the policy was ambiguous as to whether coverage would be provided for an intentionally set fire. For all these reasons, he asked the trial court to find, as a matter of law, that arson did not fall within the vandalism and malicious mischief' exclusion in the policy.

Southern Trust filed a response, along with its own motion for partial summary judgment. Southern Trust asked the court to find, as a matter of law, that arson clearly and unambiguously fell within the policy's exclusion for vandalism and malicious mischief. Southern Trust cited definitions from Tennessee's criminal statutes defining vandalism and malicious mischief, in addition to definitions from Black's Law Dictionary, which, Southern Trust claimed, generally defined the terms broadly to include any intentional destruction of property. Thus, Southern Trust asked the court to consider the dictionary definitions of the relevant terms, without regard to how the terms were treated in other sections of the insurance policy addressing other types of coverage. Southern Trust also cited several cases from other jurisdictions in which courts have held that vandalism or malicious mischief includes a fire set by an unknown arsonist.

Following a hearing, the trial court entered an order granting the motion for partial summary judgment filed by Phillips and denying the motion filed by Southern Trust. The court concluded that it was required to construe the insurance policy as a whole. In considering the meaning of the relevant terms, the trial court noted that arson and vandalism are treated as separate and distinct offenses under Tennessee's criminal code. The court found that the policy itself also distinguished between the perils of fire and vandalism and/or malicious mischief, differentiating between the two in two different sections of the policy. The trial court found the policy ambiguous as to whether arson would fall within the exclusion for vandalism and malicious mischief, in light of the policy's clear differentiation between those terms and fire. The court noted that Southern Trust could have easily defined vandalism and malicious mischief or expressed a clear intent to include arson within the exclusion, but it failed to do so. The court concluded,

Because the terms ‘vandalism’ and ‘fire’ are undefined, and are listed as two distinct perils in at least two separate sections of the policy, it is ambiguous as to which peril, ‘vandalism’ or ‘fire,’ covers arson. Giving operative effect to every provision and construing all ambiguities in favor of Mr. Phillips, the Court finds that, under the policy at issue, fire by arson is a separate and distinct peril from vandalism/malicious mischief.

The court further stated, "When an insurance company treats ‘fire’ and ‘vandalism and malicious mischief’ as two distinct causes of loss and the terms are undefined in the policy, a reasonable person would conclude that arson falls within the category of fire rather than under vandalism and malicious mischief." Accordingly, the trial court ruled that arson does not fall within the policy's exclusion for vandalism and malicious mischief.

After the trial court's ruling, the parties agreed to a consent judgment as to the amount of damages owed to Phillips. Thereafter, Southern Trust timely filed a notice of appeal to this Court.

II. ISSUES PRESENTED

Southern Trust presents the following issues, as we perceive them, for review on appeal:

1. Whether the trial court erred in finding the insurance policy ambiguous;

2. Whether the trial court erred in considering the section of the policy providing coverage for personal property when determining whether coverage existed under the portion of the policy providing coverage for the dwelling.

For the following reasons, we affirm the decision of the circuit court and remand for further proceedings.

III. DISCUSSION

The precise arguments before us have not been considered by Tennessee appellate courts. However, this same type of policy exclusion was at issue in Lorentz v. Phillips, No. 01–A–01–9509–CH00417, 1996 WL 140527 (Tenn.Ct.App. Mar. 29, 1996). In Lorentz, an insurer denied coverage after a fire loss on the basis of a policy exclusion for vandalism and malicious mischief. Id. at *1. The trial court and the court of appeals concluded that the insurer failed to prove that the vandalism and malicious mischief exclusion applied to the damage sustained by the insured. Id. at *2. The court of appeals explained that in order to prove either vandalism or malicious mischief, the insurer was required to demonstrate "malice, intention, or at the very least, knowledge." Id. at *3. Despite their investigation, however, the insurer's experts "could produce no evidence of intent or...