Jurisdictions typically follow one of three theories with respect to whether an innocent coinsured may recover under a property policy where another insured has committed an intentional act, such as arson, resulting in property damage: (1) a complete bar to coverage based on an unrebuttable presumption that the coinsureds hold joint interests in the property and joint obligations under the policy; (2) recovery permitted by innocent coinsured if it is established that his or her interest in the policy is severable from the wrongdoer; and (3) a contractual language and intent of the parties analysis.
In Postell v. American Family Mutual Ins. Co., 2012 Iowa Sup. LEXIS 102 (Nov. 16, 2012), the Supreme Court of Iowa followed the contractual language and intent of the parties theory, holding that: (1) a coinsured who sets fire to an insured dwelling in order to commit suicide has the requisite intent to “cause a loss” under the fire insurance policy; (2) an innocent coinsured, who did not participate in setting the fire, could not recover due to the subject policy’s intentional loss exclusion and (3) the innocent coinsured could not recover under the amended Iowa standard fire policy.
In Postell, Michelle and David Postell were coinsureds on a homeowner policy issued by American Family. The policy contained an intentional loss exclusion:
We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. . . .
2. Intentional Loss, meaning any loss or damage arising out of any act committed:
a. by or at the direction of any insured; and
b. with the intent to cause a loss.
The policy’s conditions also included a severability clause stating “This insurance applies separately to each insured. This condition will not increase our limit for any one occurrence.”
David intentionally set fire to the home in an attempt to commit suicide, and later died from the injuries he sustained. The home was severely damaged. Michelle submitted a claim to American Family, which was denied.
The mortgage holder on the property filed a petition for foreclosure on the destroyed residence. Michelle filed a cross petition against American Family. American Family moved for summary judgment on the basis of the policy’s intentional loss exclusion and Michelle cross-moved for summary judgment.
The trial court initially denied both motions for summary judgment. Although the trial court concluded that there was no genuine issue of material fact that David intentionally lit the fire and caused a loss to the residence, it nevertheless found that the Supreme Court of Iowa’s decision in Sager v. Farm Bureau Mut. Ins., 680 N.W.2d 8 (Iowa 2004) was determinative of the motion. In Sager, the Supreme Court of Iowa held that the standard fire insurance form required by the legislature prohibited an insurance company from applying the intentional loss exclusion to a coinsured who did not participate in the intentional act. In applying Sager, the trial court further held that the Iowa legislature’s post-Sager amendments to the standard fire policy, which replaced the phrase “the insured” with “an insured” in the standard policy’s conduct-related exclusions, were not intended to overrule the Sager decision. The trial court also denied Michelle’s motion on the basis that issues of fact remained for trial.
At trial, the court changed its position and concluded that the legislature’s amendment to the standard fire policy permitted American Family to deny coverage to an innocent coinsured.
On appeal, the Supreme Court of Iowa affirmed the decision of the trial court. First, the Postell court concluded that David had the requisite intent to cause a loss under the fire insurance policy. The court then analyzed the text of the intentional loss exclusion, examining whether the exclusion’s use of the phrase “any insured” extended the exclusion’s reach to an innocent coinsured spouse. In doing so, the court analyzed Iowa case law which evidenced a long-standing rule of construing the term “any insured” in insurance policies as barring recovery to the innocent coinsured spouse.
The Postell court rejected Michelle’s argument that the policy’s severability clause provided her coverage under the policy and noted that severability-of-interest clauses have no effect on policy exclusions. Specifically, the court explained that “the purpose of severability clauses is to spread protection, to the limits of coverage, among all of the named insureds. The purpose is not to negate bargained-for exclusions which are plainly worded.”
Finally, the Postell court agreed with the trial court that the Iowa legislature’s amendment to the standard fire policy, which replaced the phrase “the insured” with “an insured” in the conduct-related exclusions in the standard policy, was intended to narrow the intentional acts that are compensable under the standard policy, and overrule the Iowa Supreme Court’s decision in Sager, where it held that the standard policy provided coverage to the innocent spouse. Consequently, the Court concluded that American Family properly denied coverage to Michelle under the policy’s intentional loss exclusion.
Iowa has joined the jurisdictions finding that the plain and unambiguous language of the policy determines whether an innocent coinsured may recover where a coinsured has committed an intentional wrongdoing.