NO. 89-122
I N THE SUPREME COURT O F THE STATE O F MONTANA
1990
P A T R I C I A WOODHOUSE,
p l a i n t i f f and R e s p o n d e n t ,
-vs-
FARMERS UNION MUTUAL INSURANCE COMPANY,
D e f e n d a n t and A p p e l l a n t .
A P P E A L FROM: ~ i s t r i c t o u r t of t h e F o u r t h J u d i c i a l ~ i s t r i c t ,
C
I n and f o r t h e C o u n t y of ~ a v a l l i ,
T h e H o n o r a b l e E d M c L e a n , Judge p r e s i d i n g .
COUNSEL O F RECORD:
For A p p e l l a n t :
D o n a l d L . O s t r e m argued; G r a y b i l l , O s t r e m , Warner &
C r o t t y , G r e a t Falls, Montana
For R e s p o n d e n t :
H o w a r d F. R e c h t argued; R e c h t & G r e e f , Hamilton,
Montana
S - u b m i t t e d: October 17, 1989
Decided: January 1 0 , 1 9 9 0
Filed:
~ u s t i c e John C. Sheehy delivered the Opinion of the Court.
This is an appeal from the District Court of the Fourth
Judicial District, Ravalli County. Plaintiff Patricia
FJoodhouse brought suit, seeking a declaratory judgment that
the loss of her personal property by fire be covered by her
insurer, Farmers Union Mut.ual Insurance Co. Defendant
(hereinafter "Farmers") counterclaimed, seeking a declaratory
judgment excluding coverage for the loss. The District Court
found in plaintiff ' s (hereinafter "Woodho.use" favor on a
)
motion for summary judgment. Farmers appeals from that
order. We reverse.
The issue raised by appellant Farmers is:
Whether the ~ i s t r i c t Co-urt erred in its determination
that Farmers is obligated to provide coverage for an insured
whose co-insured destroyed the property by arson.
Patricia and Alan Woodhouse were divorced on September
24, 1986. Alan Woodhouse was awarded the trailer ho.use the
parties had acquired during the marriage. The trailer house
and its contents were insured by Farmers, with Patricia and
Alan named as the insureds on the policy.
Following the divorce, ~atricia Woodhouse left many
items of personal property in the dwelling due to lack of
storage space elsewhere.
On January 5, 1987, Alan Woodhouse intentionally set
fire to the trailer house, and committed suicide within the
burning dwelling. The dwelling was totally consumed by the
fire.
Patricia Woodhouse submitted a claim to Farmers
1ns.urance for the value of her personal goods lost in the
fire. Farmers denied the claim on the basis that coverage
was excluded because the loss was intentionally caused by an
insured party.
Farmers maintains that this is a clear contract case.
They submit that the "intentional loss" exclusion of the
Woodhouse insurance policy acts to deny coverage in this
situation. The provision reads as follows:
We do not insure for loss caused directly or
indirectly by any of the
following .. . h. ~ntentional Loss, meaning any
loss arising out of any act committed: (1) by or
at the direction of an insured; and (2) with the
intent to cause a loss.
Arson by an insured, Farmers maintains, is not,
therefore, an insured risk. Alan Woodhouse was an insured
party who clearly committed an intentional loss. Patricia
Woodhouse is a named coinsured party and is therefore bound
to the contractual provisions of the policy.
Farmers cites several cases for the premise that clear
and unambiguous language of the contract controls. In
Ar~~ickv. State Farm ire and Casualty Company (8th Circuit
3988), 862 F.2d 704, the court stated:
The court sees no injustice in requiring the
company to pay only those risks it insured, where,
as here, the coverages are spelled out in clear and
unambiguous language. Bryan v. Employers ~ational
Insurance (Ark. 1988), 742 S.W.2d 557, 577. An
innocent co-partner [can] not recover under a
policy where arson was committed by a partner
because the language of the policy specifically
barred recovery. West Bend Mutual Insurance Co.
v. Salemi (Ill. 1987), 511 N.E.2d 785.
The key factor is whether the policy provision
barring recovery by an innocent co-insured is clear
and unambiguous.
Farmers cites the exclusion clause contained in the
policy noted in ~pezialetti v. pacific Employers Insurance
Co. (3rd Cir. 1985), 759 F.2d 1139, which reads:
[The] insurance shall not apply to loss or
damage .
. . [res.ulting from] any dishonest act or
omission by any insured . . ..
The court in Spezialetti denied the innocent spouse's
claim for insurance proceeds, based on the exclusionary
language.
Finally, Farmers takes issue with the District Court's
reliance on ~ u l u b i s v. Texas Farm Burea-u underwriters
Insurance Co. (Tex. 1986), 706 S.W.2d 953, for the
proposition that an insurer's obligations under such
insurance policies are "several and not joint, the wrongful
acts of one coins.ured cannot be imputed to another as a basis
for denying coverage." This, Farmers states, unfairly places
the burden of proving the innocence of the non-acting spouse
on the insurer. Farmers contends that Kulubis is bad policy,
stating that:
The law should assiduo.usly seek . . . to avoid
holding out any incentive to such actions [as
arson] and should be diligent to assure that it
permits no benefits to be derived from them by
their perpetrators. We conclude that it would be a
strange rule indeed that g-uaranteed the would-be
arsonist a minimum of one-half of the insured value
of his building ..
. even were he found guilty of
the act, as long as he arranged matters so that the
insurance company could not prove that he had let
his spouse in on the scheme.
In summary, Farmers contends that the lower court erred
by not ruling that the language of the exlusionary clause
barred coverage. They maintain that the "clear and
unambiguo.us"policy language of not covering intentional loss
applies in the case of arson. All insured parties are
thereby denied coverage. To hold otherwise would negate
clear contract-ual provisions and create potentially harmful
precedent.
Woodhouse contends that of the several jurisdictions
that have considered this same question, the majority have
ruled that the innocent coinsured should recover. Woodho.use
states that equity and public policy considerations, the
basis of many of these rulings, should also apply in the case
at bar. Woodhouse cites Hoyt v. New Hampshire Fire Insurance
Co. ( N . H . 1942), 29 A.2d 121, as one of the first such cases
tending to allow the co-insured to recover. In Hoyt, the
co.urt reasoned that an ordinary person "not versed in the
nice distinctions of insurance law" would naturally ass-ume
their individual interests covered by the insurance policy.
The insurer arg.ued in that case, as in the present, that. the
policy was a contract and the terms were clear and
enforceable. The court in Hoyt ruled that as a matter of
equity and of public policy, the wrongs of one individual
should not be imputed to another. The test, the court
stated, was not how the ins-urer construed the policy
language, b.ut what a reasonable person in the position of the
insured would have understood it to mean.
Some courts have focused on the language of the policy
to make their determination. Woodhouse cites Hildebrand v.
Holyoke Mutual Fire Insurance (Me. 1 9 7 8 ) , 386 A.2d 329, where
the co-urt scrutinized the term "insured." The insurer
argued, as does Farmers, that the word "insured" incl.uded all
named insureds. The policy excluded coverage if the loss was
caused by an "insured." The court determined that the
definition of "insured," when a claim is denied, must be
limited to include only the insureds who intentionally cause
the loss.
Although the results are undeniably harsh for Patricia
Woodhouse, the clear meaning of the contract must govern
here. We concur with Farmers that this is, plainly and
simply, a contract case. The provision clearly and
unequivocally states that a loss caused by an intentional act
of an insured party bars coverage. Alan Woodhouse was
clearly an "insured," and his act was clearly intentional.
Accordingly, we find that the loss was not covered, and
reverse the decision of the District Court.
--
A x
-. ;-UY~<6 ,JLL+
Justlce I
i'
i