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A More Practical Approach: Cracking Open the Door on the Applicability of a First-Party Property Policy’s “Intentional Loss” Exclusion

Here at the Insurance Commando Blog we appreciate creative ways to argue a policy exclusion.  We especially appreciate it when a judge adopts such arguments in upholding the application of an exclusion.  Recently, Judge Ronald Leighton of the United States District Court, Western District of Washington, did just that in IDS Prop. and Cas. Ins. Co. v. Crawford, ___ F.Supp.2d ___, 2014 WL 1494080 (W. D. Wash. April 16, 2014).

In resolving coverage in favor of a first-party insured, many courts overcome a property policy’s “intentional loss” exclusion by holding that it does not apply unless the insured also intends the specific damage.  However, Crawford might make it easier for insurers to argue the applicability of the “intentional loss” exclusion.  Following Washington law, Judge Leighton held that a homeowner’s policy’s “intentional loss” exclusion barred coverage when an insured’s house and personal property were damaged by fire in an aborted suicide attempt. Crawford, 2014 WL 1494080 at *3.  An insured making a claim for an intentionally set fire is not uncommon.  Crawford is a bit unusual because the insured admitted to setting the fire, although she denied that she intended the resulting property damage.

In Crawford, the insured had a homeowner’s policy with IDS that covered her house and personal property.  On Halloween 2011, the insured tried to kill herself by setting her garage on fire.  She poured gasoline around the garage, and inside the parked car in which she was sitting, and lit a cigarette.  When the gasoline ignited, she changed her mind and crawled out of the garage door, which had already bowed from the heat, and escaped.  The fire caused considerable damage to the insured’s house and personal property.

IDS received the Notice of Loss five days after the fire.  In the meantime, the insured admitted to the police that she intentionally set the fire in an aborted suicide attempt.  Based on this admission, IDS denied the claim, citing to the policy’s “intentional loss” exclusion.  The exclusion barred from coverage “any loss arising out of any act an insured person commits. . .with the intent to cause a loss.”

IDS filed a declaratory judgment action to confirm its denial, and then filed a motion for summary judgment on the basis that the “intentional loss” exclusion barred coverage.  The insured filed counterclaims, alleging that IDS performed an inadequate investigation and wrongfully denied her claim, and cross-moved for partial summary judgment.

IDS argued that the “intentional loss” exclusion applied because the insured admittedly started the fire on purpose.  The insured argued that for the exclusion to apply, she must have subjectively intended to cause a “loss.”  Put another way, she argued that the exclusion applied only if her purpose in setting the fire was to damage her home or property.  She claimed that because she set the fire to harm herself, not her house or personal property, the exclusion does not apply.

Judge Leighton disagreed with the insured’s interpretation of the policy.  He acknowledged that under well-settled Washington law, “intentional loss” exclusions apply only if the insured intended both the act and an injury. Western Nat’l. Assur. Co. v. Hecker, 43 Wn.App. 816, 825 719 P.2d 954, 960 (1986).  But he also cited case law which held that an insured’s intent to cause an injury can be inferred from her actions when the act and injury are “indissolubly bound.” Safeco Ins. Co. v. McGrath, 63 Wn.App. 170, 173, 817 P.2d 861, 863 (1991).  These cases also held that if intent to cause an injury is established, it does not matter that the scope of the actual injuries are greater than or different from that which was intended. Hecker, 43 Wn.App. at 825, 719 P.2d at 960.  Although these cases addressed sexual and physical assaults, Judge Leighton applied their reasoning as to intent to Crawford.

Judge Leighton noted that the insured’s intent to damage her property “must be inferred from her actions.”  He stated that houses are “necessarily damaged when they are set on fire.”  Judge Leighton held that based on the insured’s admission, a reasonable jury could only conclude that the insured subjectively intended to damage her property.  In holding that the exclusion applies, he concluded that the insured’s motivation for starting the fire was irrelevant.

In a generally tough landscape for insurers in Washington, Judge Leighton cracked open the door a little bit in support of the “intentional loss” exclusion.  Oftentimes, this exclusion is applicable only in the most obvious of situations.  Thankfully, Crawford encourages insurers to look at a loss from a more practical standpoint, and does not force insurers to be rigid in their analysis even if the results are impractical.  Insureds can no longer circumvent the exclusion by trying to “parcel out” intent from injury.  Policies are written to protect against fortuitous injury.  Allowing insureds to receive coverage for intentionally-caused injury is against the very purpose of insurance.

Insurers must be careful not to over-extend Crawford to losses in which an insured did not subjectively intend property damage.  For example, if an insured is burning leaves in his yard and the wind carries a spark to his house, causing a fire and damaging it, it would be difficult for an insurer to deny the claim based on an “intentional loss” exclusion.  On the other hand, Crawford could apply to a situation where an insured’s house and personal property is damaged after he shoots off a Roman candle in his garage.

We leave you with a word of caution: Crawford is a federal court decision.  Insurers that are parties in the state courts of Washington may have a more difficult time convincing a judge that Crawford applies, even though we think the reasoning is sound and the result is correct.

~Vasu Addanki*

*Vasu would like to thank his colleague, Mark Mills, for suggesting the topic for this edition of the Insurance Commando Blog.