Opinion
Civil Action Number 99C-09-150-JOH
Submitted: May 3, 2001 Argued: June 1, 2001
Decided: June 29, 2001
Upon Motion of Plaintiff for Summary Judgment — DENIED.
Robert J. Leoni, Esq., of Morgan, Sheisby Leoni, attorney for plaintiff.
Richard K. Goll, Esq., of Goldfein Hosmer, attorney for defendants.
MEMORANDUM OPINION
Defendants Beatrix A. Goerlitz, Robert J. Goerlitz and Jonathan Goerlitz have sought coverage from plaintiff Nationwide Mutual Insurance Company for losses suffered when their home and many contents were destroyed in a fire. An adult son, Joseph, who was living with Mrs. Goerlitz at the time, set the fire. There is, however, no indication that any of the defendants knew of Joseph's plans or in any way participated in setting the fire.
The losses sustained are potentially covered by either of two separate policies issued by Nationwide. Each policy contains an exclusion for intentional conduct of "an insured." Although not a "named" insured in either policy, the son falls within the definition of insured in both policies. He was not an owner of the realty nor the owner of any significant, if any, personal property inside the house when he set the fire.
Invoking the exclusions and the son's status as "an insured," Nationwide has asked this Court to declare it is not obligated to provide any coverage. Since the basic facts are not in dispute, it has moved for summary judgment. Because the defendants, other than Joseph, are innocent of any wrong-doing, they contend they are still entitled to coverage. That is what they assert they bargained for when obtaining insurance.
The issue presented is whether an insured who seeks coverage but whose conduct did not trigger the exclusion can, nevertheless, obtain coverage for losses caused by the conduct of another insured. This Court holds that those defendants can and, accordingly, Nationwide's summary judgment motion is DENIED.
FACTS
The parties filed a stipulation of facts for the purpose of deciding this summary judgment motion. Mr. Goerlitz was the sole owner of 350 Mitchell Drive in Wilmington, Delaware, but resided in the State of Louisiana when, on February 18, 1999, a fire destroyed the house and its contents. Mr. and Mrs. Goerlitz were divorced. Defendants Mrs. Goerlitz and her children, Joseph and Jonathan, resided in the residence on February 18, 1999. Each had personal property damaged by the fire. How much is not in the stipulation or record.
In the defendants' brief, it is asserted, with no factual basis to support it, that Joseph had no personal property in the house when he set the fire. For purposes of this motion, the Court will consider that he did, certainly his own clothes.
At all relevant times, the house was insured under two insurance policies issued by Nationwide. Mr. and Mrs. Goerlitz were named insureds under a homeowner's policy and Mrs. Goerlitz was the named insured under a tenant's policy. The tenant's policy was issued after they obtained a divorce and Mrs. Goerlitz continued to live at the residence with the children.
Defendant Joseph resided in the house with her and was the natural son of Mr. and Mrs. Goerlitz. On February 18, 1999, he intentionally started the fire that caused the damage to the house and its contents. He admitted doing so to the Delaware State Fire Marshall and eventually pled guilty to arson in the second degree on November 15, 1999. He was over eighteen years old at the time of setting the fire. He told the Fire Marshall he had set the fire so that his mother, Mrs. Goerlitz, could collect the insurance proceeds to help meet some pressing financial needs. No other defendant in this matter, however, had prior knowledge of Joseph's action in starting the fire and did not participate in it.
A person is guilty of arson in the second degree when the person intentionally damages a building by starting a fire or causing an explosion. 11 Del. C. § 802.
The Nationwide tenant's policy issued to Mrs. Goerlitz contained an intentional act exclusion which states, in pertinent part:
We do not cover loss resulting directly or indirectly from:
* * *
8. Intentional act meaning a loss resulting from an act committed by or at the direction of an insured if there is intent to cause a loss. Such an act excludes coverage from all insureds.
The declaration page listed Mrs. Goerlitz as the "named insured."
The Nationwide homeowner's policy issued to Mr. and Mrs. Goerlitz also contained an intentional act exclusion provision which states, in pertinent part:
We do not cover loss resulting directly or indirectly from:
* * *
7. Intentional or criminal acts, meaning a loss resulting from an act committed by or at the direction of an insured that may reasonably be expected to result from such acts; or is the intended result from such acts. Such an act excludes coverage for all insureds.
The declaration page listed Mr. and Mrs. Goerlitz as the "named insured."
Both policies, however, defined the term "insured" is as:
"You" and "Your" refer to the named insured shown in this policy
* * *
"Insured" means you and the following who live in your household:
a. your relatives.
APPLICABLE STANDARD
Summary judgment may only be granted where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. This Court must view the evidence in a light most favorable to the non-moving party. If it is desirable to inquire more thoroughly into the application of the facts, summary judgment will be denied.DISCUSSION
The parties stipulated to the essential facts necessary to resolve the fundamental issues raised in Nationwide's motion. Joseph, the adult son living in the home damaged in the fire, acted alone. No other person listed as a named insured or falling with the definition of "an insured" knew of, or participated with, Joseph in setting the fire. Coverage under both policies implicated here is excluded for the intentional conduct of an insured. In short, therefore, the essential facts needed for resolution of this motion are not in dispute.As a matter of general public policy, such intentional conduct exclusions on insurance policies are valid and enforceable in Delaware. Farmer in the Dell, however, did not involve this factual situation or the issues here. It upheld the enforceability of an intentional conduct exclusion for acts which were expected or intended by the insured. The Court held the exclusion was triggered, if there were a showing of an intentional act coupled with an intent to cause injury or damage so long as it is reasonably foreseeable that the damage would result. Setting fire to trash next to a restaurant building met that test. Joseph's actions in setting fire to the house also meet the test. But, that is not the real issue.
Farmer in the Dell Enterprises v. Farmers Mutual Ins. Co of Del., Inc., Del.Supr., 514 A.2d 1097 (1986).
Id. at 1098.
Id. at 1099-1100.
Nationwide points to the exclusion and the definition of an insured to support its denial of coverage. While not denying Joseph's intentional act, the other family members first contend there is an ambiguity in the policies. First, they point to the persons who are the named insureds on the declaration sheets with each policy. In neither policy is Joseph a named insured.
Next, they contend that the failure to specifically name Joseph as an insured, but to define him as an insured, is what creates an ambiguity. Utilizing long-established principles of insurance contract interpretation, such an ambiguity, they assert, must be resolved in their favor resulting in coverage. Those principles include that insurance contracts are to be read to give effect to plain meaning. But, when an insurance contract is ambiguous, that ambiguity must be resolved against the insurer.
Rhone-Poulenc v. American Motorists, Inc., Del.Supr., 616 A.2d 1192, 1195 (1992).
Mason v. United Services Automobile Assoc., Del.Supr., 697 A.2d 388, 394 (1997).
The Goerlitz defendants cite Steigler v. Insurance Co. of North America in support of their ambiguity argument. There, two people, husband and wife, were listed as the named insured on the homeowner's policy. The policy contained a fraud exclusion, but it referred to the insured in the singular. The husband intentionally set fire to the home, killing his wife's parents, one of his daughters and attempting to kill his wife (she escaped).
Del.Supr., 384 A.2d 398 (1978).
Id. at 400.
Steigler v. State, Del.Supr., 277 A.2d 662 (1971).
The Steigler court found the policy to be ambiguous. It did so on several grounds. One, it rejected the traditional role that a wife's interests were indivisible from her husband's. On that basis, its next premise for finding ambiguity was Mrs. Steigler's reasonable expectation that she had an individual interest in the property and she was a named insured. Without doubt, she was an innocent insured (victim).
Steigler, 384 A.2d at 401-02.
Id. at 401.
Steigler's rejection of spousal "oneness" in an insurance context and its particular policy language do not provide much help to the defendants. It is conceded both policies here listed named insureds and that Joseph's name was not among them. But, the definitions of insured contained in both policies included relatives living in the household. Joseph, obviously, qualifies. Unlike Steigler, however, where the fraud exclusion spoke of "the insured," the exclusions here use the words "an insured." Joseph is "an insured" and there is no ambiguity in these policies.
What further differentiates Steigler is that it involved spouses. There is a plethora of cases where many courts have wrestled with the ability of one spouse to recover damages caused by the other spouse. By the same token, however, there is a dearth of authority relating to a parent/child circumstance such as this. Many of the cases involving spouses discuss the traditional spousal "oneness" role reviewed and rejected in Steigler. That discussion is inapplicable, of course, to this case.
See listing of cases in Maravich v. Aetna Life and Casualty Co., Pa.Super., 504 A.2d 896 (1986).
The defendants adopt another argument from Steigler, however, to assert they are entitled to coverage here. Once Steigler held the claims and status of the spouses were divisible, it severed the ability to obtain coverage. The wife was permitted to recover half of the proceeds. The defendants here seek to sever Joseph out of their policies, coverage and exclusion by arguing he has no insurable interest. If so, he could not be considered an insured whether for coverage purposes or for the exclusions.
It is correct, as the defendants assert, that to have an enforceable insurance contract, the potential beneficiaries have to have an insurable interest. Delaware law requires it:
No contract of insurance of property or of any interest in property or arising from property shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured as at the time of the loss.
"Insurable interest" is defined:
"Insurable interest" as used in this section means any actual, lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction or pecuniary damage or impairment.
These statutory provisions are a codification of Delaware common law. Smiley v. New Castle Mut. Ins. Co. and Malloy v. United States Fidelity Guaranty Co., appear to be the only cases to touch on this statute. Smiley is the only one which has any applicability to this case. But, the statute itself was not interpreted in Smiley, only the general concept of insurable interest was considered in the context of a fire. The "insureds" rented a house and had contents inside. They signed a contract of sale which contained a mortgage contingency. The mortgage company required them to obtain insurance, which they did. But, the mortgage application was later denied and settlement not held. They were still living in the house around a month after the aborted settlement date when the fire occurred damaging the house and contents. The Smileys sought coverage but the insurer argued they had no insurable interest and could not get coverage. The Court noted the realty was insured for a certain amount and the personal property for a separate amount. The Smileys, though, had paid a single premium for both coverages.
Draper v. Delaware State Grange Mut. Fire Ins. Co., Del.Super., 91 A. 206 (1914).
Del.Super., C.A. No. 90C-JN-151, Bifferato, J. (April 20, 1992).
Del.Super., C.A. No. 89C-JL-10, Ridgely, P.J. (June 16, 1992).
This Court, nonetheless, held the policy divisible. It held that they had no insurable interest in the realty but that the Smileys did have such an interest in the personalty. At first glance, that holding would appear to support the defendants here. Joseph had no insurable interest but the other defendants, particularly Mr. and Mrs. Goerlitz, did have such an interest and such interest is severable from their son's.
But, both Smiley and the 1914 Draper case reflect a rule that causes problems for the defendants. That rule is that, except for one case, in all other jurisdictions, only the insurer can raise the defense of lack of insurable interest. It was the insurer in both these cases which raised the defense of lack of insurable interest. So Delaware is in concert with the overwhelming majority of cases. When the policy behind insurable interest is enunciated, the reason is obvious.
Draper, 91 A. 206.
Cooch on Insurance 3d, § 41:6.
The doctrine of insurable interest is tied to the principle of indemnity and serves a number of purposes, among them the prevention of using insurance contracts as gambling or wagering contracts. Additionally, the doctrine is designed to protect against societal waste and to avoid the danger in allowing persons without an insurable interest to purchase insurance, because those persons might then intentionally destroy lives or property. [Citations omitted.]
Gossett v. Farmers Ins. Co. of Washington, Wash.Supr., 948 P.2d 1264, 1271-72 (1997).
Based on Delaware precedent and that from elsewhere and the underlying policy behind the reason for insurable interest, this Court sees no reason to permit these defendants to raise it to achieve divisibility of coverage.
But the analysis does not stop there. Even though the defendants are not entitled to raise the defense of Joseph's lack of insurable interest, the issue remains whether their claims and their non-involvement enable them to obtain coverage. On the homeowner's policy where Mr. and Mrs. Goerlitz are the named insureds, the realty is insured for $191,000, other structures for $19,180 and personal property for $143,851. In the tenant's policy, the personal property coverage limit is $30,000 and loss of use coverage limit is $6,000. Mrs. Goerlitz is the only named insured.
These splits in coverage between personalty and realty are not unusual. In Smiley, the court used them to find insurable interest on one but not the other based on the Smiley's non-ownership interest in the realty. That is not the basis for the severance or division which these defendants seek, however. They seek to sever out Joseph as an insured whose intentionally setting of the fire would otherwise, through the all-encompassing exclusion, block coverage.
When making their argument about Joseph's lack of insurable interest, the defendants use it as a segue to contend that they had a reasonable expectation of coverage for their interests. Insurance contracts should be read "to accord with the reasonable expectations of the purchasers so far as the language will permit." This principle of reasonable expectation was used, for instance, as one of the bases in Steigler to hold the provisions there to be ambiguous. But, the policies here are not ambiguous.
State Farm Mut. Auto. Ins. Co. v. Johnson, Del.Supr., 320 A.2d 345, 347 (1974) (quoting Cooper v. Government Employees Ins. Co., N.J.Supr., 237 A.2d 870 (1968)).
Steigler, 384 A.2d at 400-01.
In deciding Steigler, the Supreme Court cited, with favor, Howell v. Ohio Cas. Ins. Co. In Howell, the husband set fire to the marital home, causing much damage to the home and contents and killing himself in the process. The spouses were also named insureds and defined as insured under the policy terms at issue. The New Jersey court held that the husband's "fraud" was severable from his innocent wife's conduct and could not be attributed to her. This meant she was not barred from recovery for half the proceeds.
N.J.Super., A.D., 327 A.2d 240 (1974).
Id. at 243.
The key point in Howell is that the conduct was severed. The innocent co-insured had a reasonable expectation of the purchaser. This dichotomy of who was at fault or who was innocent allowing for the latter to recover was adopted in Hildebrand v. Holyoke Mut. Fire Ins. Co.
Me.Sup.Jud.Ct., 386 A.2d 329 (1978).
In Hildebrand, the original policy had been issued to the husband and wife as named insureds. Later, he conveyed the property to his wife alone. Shortly thereafter, he was removed as a named insured on the policy. He continued to live in the house, however, and later, he intentionally set fire to it. As of the date of the fire, he unambiguously qualified as an insured as defined by the policy. Coverage was excluded for fraud committed by "the insured."
Id. at 331.
The Maine court did not find an ambiguity between the wife alone being the named insured and the husband being considered an insured by virtue of the policy definition. Instead it construed, "the term `insured' in the first above quoted clause (the fraud exclusion) of the policy to mean a specific insured, namely, the insured who (1) is responsible for causing the loss and (2) is seeking to recover under the policy." It reached this result regardless of whether the spouses' interests were joint or several. It allowed recovery by a named insured, the wife, even though the damage was caused by another "insured." Hildebrand and Steigler were cited with approval in St. Paul Fire and Marine Ins. Co. v. Molloy. In that case, the named insureds were husband and wife. He was also included as an insured under the policy's definition of an insured. Coverage was voided by fraud committed by the insured or by neglect of the insured to save and preserve property. The court said about this provision, "[t]hus, it appears that the obligation to refrain from fraud and to preserve the property are imposed not only on the named insured, but also on the definitionally-specified family members, dependents and relatives. The husband caused a fire by negligent cigarette smoking and did not take reasonable steps to control it once started. In deciding the wife could recover, the Court stated:
Id.
Id.
Id.
Md.Ct.App., 433 A.2d 1135 (1981).
Id. at 1142.
Id.
In our opinion, whether an innocent co-insured, notwithstanding his or her spouse's misconduct, can recover under an insurance contract, depends primarily upon whether the parties intended, and thus whether the contract contemplates, the obligations of the co-insureds to be joint or several. To hold otherwise would be to deny the parties to agreements insuring jointly owned property the ability to determine the nature of the co-insureds' contractual interests and obligations. The form and degree of ownership of the insured property is important to determine, first, whether a particular insured has an insurable interest in that property, and if so, second, the amount of benefits contractually due that insured following loss. [Citations omitted.]
Id. at 1140-41.
Further, the Court saw no public policy reasons to which barred such recovery. The court viewed that the obligation of the carrier should be viewed as several for each insured person and one insured's misconduct should not bar recover by innocent co-insureds. What is important to also note about this case is that the policy exclusion referred to conduct by "the insured." This phrase is, of course, different from the "an insured" language appearing in the two policies at issue here. But, the St. Paul court's interpretation of the exclusion using the term "the insured" makes that terminology the same as saying "an insured." In short, even though the two phrases differ, the result in St. Paul, would be the same if the policy there would have used "an insured."
Id. at 1141.
Id. at 1142.
Howell, Hildebrand and St. Paul stand for the proposition that the conduct of the insured is what matters. If that insured has an insurable interest and is innocent of wrongdoing by a co-insured, there is no bar to recovery, even if that insured is a co-named insured. This result comports with the recognized principle that the purchaser has certain expectations. Among those expectations are that, if free from wrongdoing, he or she has paid for coverage and is entitled to it.
Admittedly, Joseph qualifies as an "insured" under each policy's definition. Unlike the husband and wife cases, including those discussed in this opinion, there is no indication he had any significant insurable interest. That is certainly true of the realty and most likely most of the personal property. He, however, does not seek recovery for any loss due to the fire he set; nor could he.
Nationwide's obligations are considered severable as to each person, including Joseph, insured. The policy exclusions are not ambiguous as to the named insureds and "an insured." But, that does not mean the innocent insureds are not entitled to coverage. The extent of that coverage is yet to be determined and is not the subject of the current motion.
CONCLUSION
For the reasons stated herein, Nationwide Mutual Insurance Company's summary judgment motion is DENIED.
IT IS SO ORDERED.