Sager v. Farm Bureau Mutual Insurance Co., No. 3-522/02-1433 (Iowa App. 11/26/2003)
| Decision Date | 26 November 2003 |
| Docket Number | No. 3-522/02-1433,3-522/02-1433 |
| Parties | RAMONA SAGER, Plaintiff-Appellant, v. FARM BUREAU MUTUAL INSURANCE CO. and FARM BUREAU FINANCIAL SERVICES, Defendants-Appellees |
| Court | Iowa Court of Appeals |
Appeal from the Iowa District Court for Polk County, Richard G. Blane, II, Judge.
Sager appeals the district court's judgment in favor of Farm Bureau Mutual Insurance Company. REVERSED AND REMANDED.
John Werden of Van Dyke & Werden, P.L.C., Carroll, for appellant.
Paul Swinton of Morain, Burlingame & Pugh, West Des Moines, for appellees.
Heard by Vogel, P.J., and Hecht and Vaitheswaran, J.
Robert Sager intentionally set fire to the home in which he lived with his wife, Ramona.[1] Ramona sought coverage under the couple's homeowner's policy. Her proof of loss statement included some items that were not damaged. Farm Bureau Mutual Insurance Company ("Farm Bureau") denied coverage, citing policy exclusions for intentional loss and concealment of fraud.
Ramona sued to recover payment under the policy. After considering the case on stipulated facts, the district court entered judgment in favor of Farm Bureau. This appeal followed.[2]
Ramona contends (1) the intentional loss exclusion, as previously construed by our highest court, conflicts with standard fire insurance provisions prescribed by statute and (2) formatting errors in an amendment to her policy render the intentional loss exclusion ambiguous and, therefore, unenforceable. Farm Bureau counters that recovery is "clearly barred" under the alternate concealment of fraud provision of her policy.
Our review of this law action tried to the court on stipulated facts is for errors of law. Pudil v. State Farm Mut. Auto Ins. Co., 633 N.W.2d 809, 811 (Iowa 2001). As the facts are undisputed, we do not review the findings of fact but only consider assigned errors in the district court's conclusions of law. Illinois Nat'l Ins. Co. v. Farm Bureau Mut. Ins. Co., 578 N.W.2d 670, 671 (Iowa 1998); Umthun v. Day & Zimmermann, Inc., 235 Iowa 293, 295, 16 N.W.2d 258, 259 (1944); cf. Explore Info. Serv. v. Court Info. Sys. 636 N.W.2d 50, 55 (Iowa 2001) ().
Ramona's insurance policy excludes coverage for "[i]ntentional [l]oss," defined as "any loss arising out of any act committed: (a) [b]y or at the direction of an `insured' and (b) [w]ith the intent to cause a loss." The parties stipulated that Ramona's husband purposefully set fire to their home. There was also no question that his act was an intentional loss that barred him from recovering under the policy. The questions before the district court were 1) whether her husband's intentional act also barred Ramona from recovering under the policy and 2) whether, if it did, the policy violated statutory fire insurance provisions.
The district court concluded and we agree that the first question has been decided against Ramona. See Vance v. Pekin Ins. Co., 457 N.W.2d 589, 590 (Iowa 1990). In Vance, the Iowa Supreme Court held that an intentional loss exclusion clause identical to the clause in the Sagers' policy barred an innocent co-insured spouse from recovering under a fire insurance policy. Id. at 593. Using "familiar principles of interpretation" applicable to insurance policies, the court reasoned that "an insured" as used in the clause unambiguously refers to "an unspecified insured who commits arson" and means that "if any insured commits arson, all insureds are barred from recovering." Id.
We proceed to the second question, whether the intentional loss exclusion, as construed in Vance, conflicts with our statutory scheme for fire insurance policies. See Iowa Code § 515.138 (2001). The district court rejected this argument, reasoning that "the Iowa Supreme Court was clearly aware of § 515.138 when they wrote the Vance decision." However, Vance did not address this statutory question. Therefore, the compatibility of the intentional loss exclusion clause, as construed, with Iowa Code section 515.138 is squarely before us.
Iowa Code section 515.138 sets forth standard fire insurance provisions and, with limited exceptions not applicable here, precludes insurance companies from issuing a policy "other or different from the standard form of fire insurance policy herein set forth." Iowa Code § 515.138 (Second); see also Iowa Code § 515.138 (Fifth) ( policies are to include provisions "which are the substantial equivalent of the minimum provisions of such standard policy. . . .").
The standard provisions exclude coverage for certain losses, including perils caused directly or indirectly by "(i) neglect of the insured to use all reasonable means to save and preserve the property at and after a loss. . . ." or losses occurring "[w]hile the hazard is increased by any means within the control or knowledge of the insured." Iowa Code § 515.138 (Sixth) (emphasis added).
Ramona contends that by using "the insured" rather than "an insured" in these statutory exclusion clauses, the legislature intended the exclusions to apply only to the malfeasant insured and not to an innocent co-insured party such as herself. She argues that where intentional loss exclusion clauses are construed to bar recovery to innocent co-insureds, they conflict with these statutory exclusions.
Ramona bases her argument on Watson v. United Serv. Auto. Assoc., 566 N.W.2d 683 (Minn. 1997). In Watson, the Minnesota Supreme Court, like our Supreme Court in Vance, held that the term "an insured" in an intentional loss exclusion clause "unambiguously bars coverage for innocent co-insured spouses." Id. at 689-692. The court then focused on whether the cited policy language violated Minnesota's standard statutory fire insurance provisions. On this question, the court held that the intentional loss exclusion clause it had just construed provided less protection than the State's statutory standard fire insurance policy. Watson, 566 N.W.2d at 689-692. The court reasoned that "the legislature's use of `the insured' in the Minnesota standard fire insurance policy evinces a general intent to compensate an innocent co-insured spouse despite the intentional acts of the other insured spouse." Id.
In reaching this conclusion, the Minnesota Supreme Court recognized that the statute did not contain the intentional loss exclusion language found in the policy, but noted the conflict arose precisely because the insurer decided to add language not authorized by statute. The court stated:
Because the Minnesota standard fire insurance policy does not contain a parallel "intentional loss" provision [the insurer's] "intentional loss" provision is an additional term. Therefore, we will uphold [the insurer's] "intentional loss" provision only if it affords the insured all the rights and benefits of the Minnesota standard fire insurance policy or offers additional benefits which provide more coverage to the insured than the statutory minimum.
Id. As the intentional loss exclusion clause diminished the rights and benefits afforded by statute, the court reformed the policy to permit recovery by the innocent co-insured.
Virtually every jurisdiction that has considered this statutory argument has reached the same conclusion. See Watts v. Farmers Ins. Exch., 98 Cal. App. 4th 1246, 1261 (Cal. Ct. App. 2002); Trinity Universal Ins. Co. v. Kirsling, 73 P.3d 102, 106-07 (Idaho 2003); Osbon v. Nat'l Union Fire Ins. Co., 632 So.2d 1158, 1161 (La. 1994); Borman v. State Farm Fire and Casualty Co., 499 N.W.2d 419, 422 (Mich. Ct. App. 1993); Volquardson v. Hartford Ins. Co., 647 N.W.2d 599, 610 (Neb. 2002); Lane v. Security Mut. Ins. Co., 724 N.Y.S.2d 670, 672 (N.Y. 2001).
In Volquardson, the Nebraska Supreme Court stated,
[W]hile there is no specifically designated intentional acts exclusion in the 1943 NYSFIP [New York Standard Fire Insurance Policy], it includes other provisions dealing generally with the insurer's right to void coverage based upon conduct of "the insured." In each instance, the standard policy uses language indicative of a several obligation whereby the insured bears the responsibility for his or her own conduct. We find no provision in the 1943 NYSFIP creating a joint obligation whereby the wrongful actions of one insured could prejudice the rights of an innocent co-insured.
Volquardson, 647 N.W.2d at 610.
In Lane, the New York Court of Appeals stated,
Through use of the language "the insured" in the standard policy, the statute delineates independent liabilities and obligations as to each insured to refrain from incendiary acts. Accordingly, to the extent that the "Intentional Acts" exclusion creates joint liability and bars coverage to plaintiff, an innocent insured not implicated in
her son's incendiary act, the exclusion provision is unenforceable under Insurance Law § 3404(f)(1)(A).
In Watts, the California Court of Appeals stated,
We agree that since the language adopted by the Legislature for the standard form does not specifically state that the act of any insured will be attributed to all insureds, the intent is that coverage be severable and that an innocent co-insured be able to recover for his or her proportionate share of the damaged property.
Watts, 98 Cal. App. 4th at 1261.
Farm Bureau does not address these opinions. Instead, the company focuses on two opinions that it contends reached contrary holdings. See Traders & General Ins. Co. v. Freeman, 81 F. Supp. 2d 1070, 1079 (D. Or. 2000); Dolcy v. Rhode Island Joint Reins. Ass'n, 589 A.2d 313, 315-16 (R. I.1991). As the Nebraska Supreme Court pointed out in Volquardson, both cases are inapposite. 647 N.W.2d at 609-10. In Dolcy, the Rhode Island Supreme Court alluded to the statutory issue in a footnote but noted "[t]he plaintiff does not argue that [the intentional loss] clause is `inconsistent...
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