FEBRUARY 2018 BAD FAITH CASES: ISSUES OF FACT REMAINED ON ALLEGED FAILURE TO INVESTIGATE EXCEPTION TO POLICY EXCLUSION (Middle District)
Wife and husband are insureds under a homeowner’s insurance policy issued to them by the insurer. A fire destroyed the home, and wife later pleaded guilty to intentionally starting the fire. The insurer denied coverage under the policy’s intentional loss exclusion. However, husband, as co-insured, argued an exception to the intentional loss provision should apply.
The exception states “the intentional loss exclusion ‘will not apply to deny payment to the “insured” who did not cooperate in or contribute to the creation of the loss if the loss [is otherwise covered] and [a]rises out of abuse to the innocent “insured” by another “insured”.’” When the insurer refused to accept coverage under this abuse exception, the husband filed suit for bad faith and breach of contract.
The insurer moved for summary judgment.
On the bad faith claim, the insured argued the insurer “fail[ed] to investigate, consider and/or alert [him] to the abuse exception to the exclusion for an intentional act by a spouse and instead attempt[ed] to lead [him] to believe that the denial had no exception, all of which was deceptive.”
The Court held that a jury could find that the insurer failed to investigate the exception to the intentional loss exclusion. Thus, the Court found material issues of fact remained, and denied summary judgment. The Court also denied summary judgment on the contract claim, holding that a question of material fact exists as to whether wife “set fire to the house in an attempt to intimidate or control . . .” husband, which would trigger the exception.