The Massachusetts Standard Fire Policy and the Innocent Co-Insured Doctrine

I wrote about Streit v. Metropolitan Casualty Insurance Company¹ in a recent blogpost. In Streit, the Seventh Circuit Court of Appeals concluded that an insurance policy “intentional loss” exclusion which precluded innocent co-insureds from recovering for a fire loss was unenforceable because it violated the minimum level of protection afforded by the Illinois Standard Fire Policy.

In Liberty Mutual Insurance Company v. Gonzalez,² a Superior Court of Massachusetts considered the interplay between the Massachusetts Standard Fire Policy³ and an “intentional loss” exclusion similar to the exclusion in Streit. In Gonzalez, Somaly Yet started a fire in a home she jointly owned with Joel Gonzalez. Both were named insureds under a Liberty Mutual homeowner’s policy. Yet intentionally set the fire after Gonzalez’s just-announced termination of their romantic relationship and his refusal of her overture to reconcile it. Yet eventually plead guilty to a charge of arson. When Gonzalez, who did not participate in setting the fire, sought payment under the policy, Liberty Mutual denied his claim, and sought declaratory relief based on an intentional loss exclusion which barred coverage for any loss arising out of an act committed by “an insured” with intent to cause a loss.⁴

In granting summary judgment for Gonzalez, the trial court concluded that the Liberty Mutual intentional loss exclusion conflicted with the minimum protections afforded by the Massachusetts Standard Fire Policy, which it interpreted to provide fire coverage to an innocent co-insured. In reaching its conclusion, the court cited to many of the same decisions the Seventh Circuit cited in Streit; decisions in which the courts considered identical or very similar statutory standard form fire insurance policies as the Massachusetts Standard Fire Policy. Unlike the phrases “an insured” or “any insured”, those courts had interpreted the phrase “the insured” used throughout the Standard Fire Policy to create a “several” or an “independent” obligation among multiple insureds, such that the proscribed conduct voids the policy rights of the malfeasant insured who committed the act, but not those of innocent co-insureds.

The trial court also concluded that a genuine issue of material fact existed whether Yet acted with the requisite intent to cause the fire loss warranting denial of Liberty Mutual’s motion for summary judgment. The court reasoned that the intentional loss exclusion did not expressly exclude recovery for losses incurred because of purposeful conduct of an insured carried out during the throes of mental illness. In that regard, the court pointed to substantial evidence of Yet’s serious mental health issues both before and immediately after her arsonist conduct. In the days following her arrest, Yet’s condition was sufficiently acute that she was sent for in-patient psychiatric treatment, and she was subsequently found incompetent to stand trial.
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¹ Streit v. Metropolitan Cas. Ins. Co., 2017 WL 3015844 (7th Cir. July 19, 2017).
² Liberty Mut. Ins. Co. v. Gonzalez, 2017 WL 3080565 (Mass. Superior Ct. June 12, 2017).
³ Mass. Gen. Laws Ann. ch. 175, § 99.
⁴ The phrases “an insured” or “any insured” used in many insurers’ “intentional loss” exclusion have been interpreted by courts to impose “joint” obligations on persons defined as an “insured” person. This means there can be no recovery for an innocent co-insured since responsibilities, acts, and failures to act of a person defined as an “insured” person will be binding upon another person defined as an “insured” person.