Steigler v. Insurance Co. of North America

• Decision Date: 27 February 1978
• Parties: Herbert F. STEIGLER and Arlene R. Steigler, Plaintiffs below, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant below, Appellee.
• Court: United States State Supreme Court of Delaware

Page 398

384 A.2d 398

Herbert F. STEIGLER and Arlene R. Steigler, Plaintiffs below, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant below, Appellee.

Supreme Court of Delaware.

Submitted Dec. 19, 1977.

Decided Feb. 27, 1978.

Upon appeal from Superior Court. Reversed and remanded.

Alfred J. Lindh and Bayard J. Snyder, Wilmington, for plaintiffs-appellants.

Mason E. Turner, Jr., of Prickett, Ward, Burt & Sanders, Wilmington, for defendant-appellee.

Before HERRMANN, C. J., DUFFY and McNEILLY, JJ.

DUFFY, Justice:

In this action on a fire insurance contract brought by Herbert F. Steigler and Arlene R. Steigler, his wife, (plaintiffs), the Superior Court granted summary judgment to defendant, Insurance Company of North America (INA). That ruling is on appeal here.

I

Plaintiffs sue on an insurance policy, issued by INA, for damage to their home caused by fire on October 19, 1968. Plaintiffs, as husband and wife, owned the property as tenants by the entirety. Greenly v. Greenly, 29 Del.Ch. 297, 49 A.2d 126 (1946); Heitz v. Sayers, Del.Super., 2 W.W.Harr. 207, 121 A. 225 (1923); Kunz v. Kurtz, 8 Del.Ch. 404, 68 A. 450 (1899). INA refused to pay any claim under the policy on the ground that the fire and consequent damage resulted from deliberate burning by plaintiff Herbert F. Steigler which constituted fraud by the insured, within the terms of the contract, so as to void the policy. ¹

It is undisputed that plaintiff-husband committed fraud within the meaning of the policy by deliberately burning the residence. And it is equally undisputed that plaintiff-wife was not involved in any way in that act.

Concluding, under these facts, that the plaintiff-wife is barred from recovering the insurance proceeds, the Superior Court granted INA's motion for summary judgment. We reverse.

II

The single question presented here is whether the deliberate burning by one spouse of a residence, held in a tenancy by the entirety, bars recovery of damages by the innocent spouse who is a co-owner under a fire insurance policy covering the property. ²

This question has not heretofore been decided by a Delaware Court, and so we write on a clear slate. But the parties invoke familiar concepts relating to property law (that is, to a tenancy by the entirety), to marital property law (that is, to the rights of married women) and to equitable principles applied when one of two innocent parties must suffer a loss.

A.

While the question is new to us, it has been before a number of other courts around the Country. Generally speaking, those courts have held that an innocent spouse may not recover under a fire insurance policy for damages resulting from the other spouse's fraud by deliberate burning of their jointly owned property. 5 Appelman, Insurance Law and Practice, § 3113; 18 Couch on Insurance 2d § 74:673; 44 Am.Jur.2d Insurance § 1365; 45 C.J.S. Insurance § 822. This approach is bottomed on the premise that spouses who hold joint interests in insured property have a joint obligation to refrain from fraud, and so the fraud of one spouse necessarily becomes the fraud of the other. See, for example, California Insurance Company v. Allen, 5 Cir., 235 F.2d 178 (1956), which applied the rule to community owned property; Kosior v. Continental Ins. Co., 299 Mass. 601, 13 N.E.2d 423 (1938), which applied it to spouses who owned insured buildings as tenants in common; Jones v. Fidelity & Guaranty Ins. Corp., Tex.Civ.App., 250 S.W.2d 281 (1952); and Klemens v. Badger Mutual Ins. Co. of Milwaukee, 8 Wis.2d 565, 99 N.W.2d 865 (1959), which applied the rule to spouses who owned the property as joint tenants.

In 1973, a New Jersey Court adopted a quite different approach and held that the deliberate burning by one spouse of a residence, owned in a tenancy by the entirety, did not bar the innocent spouse's recovery of one-half the benefits under the couple's fire insurance policy. Howell v. Ohio Casualty Insurance Company, 124 N.J.Super. 414, 307 A.2d 142 (1973). The policy had been issued in the name of husband and wife and contained a standard New Jersey provision that it would be void in the event of fraud by the "insured." After reviewing New Jersey decisions, the Court concluded that the "estate of tenancy by the entirety, with its inherent doctrine of the identity of spouses, has been delimited," and declined to consider husband and wife as a single "insured." Citing Hawthorne v. Hawthorne, 13 N.Y.2d 82, 242 N.Y.S.2d 50, 192 N.E.2d 20 (1963), the Court viewed the contract-policy as several, not joint, and concluded that policy rights were "not subject to divestment or forfeiture by the unilateral actions of one spouse."

On appeal, the judgment was affirmed on an additional ground. Howell v. Ohio Casualty Insurance Company, 130 N.J.Super. 350, 327 A.2d 240 (App.Div.1974). The New Jersey Intermediate Appellate Court held that the fraud, that is, the arson, was several and the husband's act could not be imputed to the wife. But the severability of both the contract rights and the fraud was confirmed by the Court in its ruling. Thus,

". . . However, we reach this result (affirming the judgment) irrespective of whether the interests of the wife and husband in the tenancy by the entirety, in the personal property, or in the contract rights under the policy are deemed to be joint or several. The significant factor is that the responsibility or liability for the fraud here, the arson is several and separate rather than joint, and the husband's fraud cannot be attributed or imputed to the wife who is not implicated therein. Accordingly, the fraud of the co-insured husband does not void the policy as to plaintiff wife."

327 A.2d at 242.

Howell appears to be the latest case law on the subject and the New Jersey decision created a division of authority on the issue; it may, indeed, be a minority of one, but we do not meet our responsibilities by merely counting jurisdictions.

B.

INA urges the Court to follow the majority rule, contending that it is consistent with Delaware's recognition of the legal "oneness" of the husband-wife relationship, and the unity and indivisibility of property ownership held by husband and wife as tenants by the entirety. Plaintiff, on the other hand, argues that the Court should adopt the Howell rationale, contending that the oneness concept of husband and wife is a legal fiction which, when applied to the facts of this case, is unfair and irrational and serves no valid public interest.

C.

Much of the briefing is directed to the attributes of a land title held in a tenancy by the entirety. The nature of such an estate is settled law in Delaware: thus, husband and wife are seized, not merely of equal interests, but of the whole estate during their lives and the interest of neither of them can be sold, attached or liened "except by the joint act of both husband and wife." Heitz v. Sayers, supra. But, as we see this case, we are not called upon to review the law applicable to the real property interests of the Steiglers, and we have no intention of doing so. In our view, the case is fundamentally a contract dispute between an insurance company and a policy holder and so we look to the law governing that kind of problem rather than to the law governing land titles.

As we have noted, the policy contained a standard fraud provision rendering the policy void "in case of any fraud . . . by the insured relating thereto" (emphasis added); and the policy insured two persons: "Herbert F. Steigler and Arlene R. Steigler."

The critical question, of course, relates to the meaning of the word "insured" in the fraud provision. Does it mean one or both of the Steiglers? The answer is by no means clear because the word "insured" is singular while two persons are named as the "insured," i. e., Herbert F. Steigler and Arlene R. Steigler. Thus, construction of the term is required.

In resolving the ambiguity in the Steigler-INA contract we refer to two rules of construction. First, where ambiguous, the language of an insurance contract is always construed most strongly against the insurance company which has drafted it. Baltimore Life Ins. Co. v. Floyd, Del.Supr., 5 Boyce 431, 94 A. 515 (1915); Continental Ins. Co. v. Rosenberg, Del.Supr., 7 Pennewill 174, 74 A. 1073, 1076 (1909); Continental Cas. Co. v. Ocean Accident & Guar. Corp., Del.Super., 209 A.2d 743, 750-51 (1965); see Apotas v. Allstate Insurance Company, Del.Supr., 246 A.2d 923 (1968).

Second, "an insurance contract should be read to accord with the reasonable expectations of the purchaser so far as the language will permit." State Farm Mutual Automobile Ins. Co. v. Johnson, Del.Supr., 320 A.2d 345 (1974), quoting with approval from Cooper v. Government Employees Ins. Co., 51 N.J. 86, 237 A.2d 870 (1968).

Applying these principles, we hold that an "ordinary person owning an undivided interest in property, not versed in the nice distinctions of insurance law, would naturally suppose that his individual interest in the property was covered by a policy which named him without qualification as one of the persons insured." Hoyt v. New Hampshire Fire Ins. Co., 92 N.H. 242, 29 A.2d 121, 123 (1942). In that case, the Court held that arson by one of several tenants in common did not bar recovery by co-tenants who were not implicated in the crime.

In our judgment, the contract in this case can and should be read to accord with the reasonable expectations of an ordinary purchaser, that is, Mrs. Steigler had an interest in the property, the policy named her without qualification as one of the...