This month’s topic is “innocent co-insureds” and the court decision establishing that
policy exclusions for intentional or criminal acts of “any insured” in fire insurance policies are
inapplicable to innocent co-insureds. Such was the ruling in Century-National Ins. Co. v. Garcia,
et al., (2011) 51 Cal.4th 564, which was argued before the California Supreme Court by our very
own Stephen M. Losh, Esq.
The California Supreme Court held that an exclusion in a fire insurance policy precluding
coverage for losses caused by the intentional or criminal acts of “any insured” did not apply to
innocent co-insureds, because it impermissibly provided more narrow coverage than that
statutorily mandated for fire insurance policies under the California Insurance Code.
In Century-National Ins. Co. v. Garcia, et al., Jesus Garcia and his wife incurred damage to
their home when their adult son set fire to his bedroom. Mr. Garcia was the named insured under
the insurance policy issued by Century-National, under which his wife and son also qualified as
insureds. Century-National denied the Garcias’ claim and sought a declaration of no coverage
from the trial court based on a provision excluding coverage for the intentional act or criminal
conduct of “any insured.” The Garcias filed a cross-complaint for breach of contract, breach of
the implied covenant of good faith and fair dealing, and reformation. The trial court granted
Century-National’s demurrer to the cross-complaint. The appellate court affirmed. The
Supreme Court reversed.
Under the Supreme Court’s analysis, the coverage dispute turned on the question of whether
Century-National’s use of the phrase “any insured” within its intentional acts exclusion meant
that if any one insured committed an intentional or criminal act, coverage would be precluded for
all insureds, including any innocent co-insureds who did not participate in the excluded conduct.
With that backdrop, the Supreme Court stated that under California’s Insurance Code, carriers
providing fire insurance must utilize the standard forms set forth under section 2071 or provide
“substantially equivalent” coverage.
While the Court acknowledged that the statutory forms contain no express exclusion for
losses caused by an intentional or criminal act, it reasoned that Insurance Code section 533 is
statutorily read into every California insurance policy (including the 2071 statutory fire form)
and precludes coverage “for a loss caused by the willful acts of the insured.” However, in
reviewing the exclusionary language of section 533 and the statutory fire form, the Court found
that each consistently used the phrases “an insured” or “the insured” as opposed to “any
insured.” As such, the Court reasoned that the Legislature’s choice in wording represented an
“intent to ensure coverage on a several basis and protect the ability of innocent insureds to
recover for fire losses despite neglectful or intentional acts of a coinsured.” In so reasoning, the
Court stated that when viewed in its entirety, the fire protection contained in Century-National’s
policy, which purported to deny coverage to innocent insureds when a co-insured intentionally
sets fire to their home, provided markedly less favorable coverage to insureds than that provided
in the 2071 standard fire form. Consequently, the Court held that the Century-National exclusion
was to that extent invalid.