by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

INSURANCE; DISQUALIFICATION; CO-INSUREDS: When an home casualty insurance policy contains no exception from coverage for the arson of a co-insured, the fact that one co-insured commits arson does not cut off the right of the innocent co-insured to collect proceeds.

DePalma v. Bates County Mut. Ins. Co., 923 S.W.2d 385 (Mo. Ct. App. 1996).

Wife burned down the family home, which she and her husband owned as tenants by the entireties. The husband was innocent of any wrongdoing. He later divorced the wife and she waived any right to insurance proceeds. At trial, husband admitted that the wife hadcaused the fire intentionally, thereby forfeiting her rights in the proceeds, but insisted that he retained a contract right to compensation for loss of his interest.

The trial court awarded summary judgment to the insurer, based upon dicta in prior decisions acknowledging the "generally accepted rule" denying recovery to an innocent co-insured when damage is caused by the deliberate act of another co-insured.

But the appeals court reversed and awarded the proceeds to the husband. Characterizing this as a case of first impression, the court appears to acknowledge that very exact policy language excluding the right of an innocent party to recover would be upheld. But, absent such language, the court followed the simple precept that the terms of the policy should control. Although the policy contained an exception to coverage barring recovery by any insured if any co-insured intentionally concealed or misrepresented facts or circumstances, the court held that simple arson does not constitute fraud.

Note: The court points to a prior Eighth Circuit decision, Haynes v. Hanover Ins. Companies, 783 F.2d 136 (8th Cir. 1988), which acknowledged that there is a split in the authority on the point of whether an innocent co-insured would be permitted to recover even when the policy contains no express exclusion. But the Eighth Circuit predicted accurately that Missouri would follow the rule favoring the innocent co-insured. The court also acknowledged but refuted the holding in Short v. Okla. Farmers Ins. Co., 619 P.2d 588 (Okla. 1980), which held that arson is a fraudulent act.

For what it's worth, here are the cases cited by the Haynes decision on both sides of the question:

"Compare, e.g., Bryant v. Allstate Insurance Co., 592 F.Supp. 39 (E.D.Ky.1984); Mele v. All-Star Insurance Corp., 453 F.Supp. 1338 (E.D.Pa.1978); Short v. Oklahoma Farmers Union Insurance Co., 619 P.2d 588 (Okla.1980) (barring recovery by innocent co-insured) with Mercantile Trust Co. v. New York Underwriters Insurance Co., 376 F.2d 502 (7th Cir.1967); Hosey v. Seibels Bruce Group, South Carolina Insurance Co., 363 So.2d 751 (Ala.1978); Hildebrand v. Holyoke Mutual Fire Insurance Co., 386 A.2d 329 (Me.1978); Morgan v. Cincinnati Insurance Co., 411 Mich. 267, 307 N.W.2d 53 (1981); Howell v. Ohio Casualty Insurance Co., 130 N.J.Super. 350, 327 A.2d 240 (1974); Delph v. Potomac Insurance Co., 95 N.M. 257, 620 P.2d 1282 (1980); Ryan v. MFA Mutual Insurance Co., 610 S.W.2d 428 (Tenn.App.1980) (refusing to impute misconduct by one insured to a co-insured or to bar recovery by innocent co-insured).

Comment 2: The case does not decide public policy, but only interprets the insurance agreement. As such, the case may simply be providing a road map to insurance companies to direct them in the next draft of their policies. There would appear to be a public policy issue here as to whether insurance companies ought to be able to deny recovery to innocent co-insureds, but perhaps such a question is one that properly should be left to the legislatures.

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