The Supreme Judicial Court of Massachusetts (SJC) has issued a decision interpreting the standard Massachusetts fire policy to allow an innocent coinsured on a homeowner’s insurance policy to recover their pro rata share of a loss intentionally caused by a coinsured.
Before this decision, a 1938 case decided by the same court had held that innocent wife could not recover on a standard Massachusetts fire insurance policy when her husband, a joint owner of the property, committed insurance fraud in an attempt to recover by burning down a property they owned.
The new decision, Aquino v. United Property and Casualty Company, held that an innocent insured under a homeowners policy providing fire insurance could recover their pro rata share of a fire loss even though a coinsured intentionally burned down the insured property. The decision found an exclusion in United Property’s policy that barred coverage when an insured intentionally damaged the property contradicted the terms of the statutory standard fire policy. The court based its decision on the distinction in the statutory policy between the actions of “an insured” and “the insured.” The court also found that the earlier 1938 decision may have resulted from an “outmoded view of marriage” as a joint undertaking which unified the rights under the policy.
The decision also dealt with the meaning of “attached structures” under Coverage B of the policy and the good faith basis of the denial by the insurer relying upon the prior court decision.
The facts of this claim might seem unusual. However, the court’s decision cited several cases where an insured under a fire policy has intentionally burned the insured property. In those circumstance, innocent coinsureds and their insurers have had to litigate coverage in circumstance like Ms. Aquino’s. For example, in this case, the Metropolitan Property and Casualty Insurance Company filed an amicus brief to protect its interests in a pending lawsuit in the United States District Court for Massachusetts where it had denied homeowner coverage based on an family member insured intentionally setting a fire in his parent’s house.
During a police standoff, Ms. Aquino coinsured sets home on fire and dies in the fire
In 2014, Wenda Aquino (Ms. Aquino) and Kelly Pastrana, her fiancé, purchased a two-family home dwelling in Chelsea. The deed to the property listed the as “tenants in common” and not as joint tenants. For the next three years, Ms. Aquino and Mr. Pastrana lived together with their five children in one unit and rented out the other unit.
On May 22, 2017, at approximately 9:00 p.m., Mr. Pastrana violently chased Ms. Aquino out of the home. As Ms. Aquino sought aid from the neighbors with their youngest child, Mr. Pastrana fired a shot in her direction but missed.
Within a short time, 911 calls brought the police. Mr. Pastrana ran back into the house as the police arrived firing a shot at the responding officer. An active shooter alarm brought police SWAT teams from Revere, Everett, Boston, Lynn, and Salem.
As the police were cordoning off the house, Mr. Pastrana came out of a basement door in the back of the home and fired on the police again. The police returned fire and immediately began evacuating all the neighbors to a nearby church where they remained until almost 3:00 a.m.
As the standoff proceeded the police noticed smoke coming from the house. Firefighters attempted to fight the fire from a distance since it was too dangerous for them to move near to the house with Mr. Pastrana inside and occasionally trading shots with the police. Negotiators tried to talk to Mr. Pastrana to surrender, but he never did.
At around 2:00 a.m., the fire subsided and the police moved in and found Mr. Pastrana dead from a gunshot wound in what was left of the house. The fire officials investigating the fire reached the conclusion that Mr. Pastrana had started the fire intentionally and that the home was a total loss.
The United Property homeowners policy on Ms. Aquino’s home
United Policy had issued Ms. Aquino and Mr. Pastrana a homeowners policy for their two-family residential dwelling with effective dates from September 3, 2016 until September 3, 2017.
The declaration page of the policy listed both Ms. Aquino and Mr. Pastrana as named insureds and had among other coverages Coverage A–”dwelling” and Coverage B–”Other Structures”.
Under Coverage A, the policy covered:
“the dwelling on the ‘residence premises’ shown in the declaration including structures attached to the dwelling.
Under Coverage B, the policy stated that:
“We cover other structures on the ‘residence premises’ set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line or a similar connection.
The policy also had an exclusion that stated:
We do not insure for loss caused directly or indirectly by any of the following:
* * *
8. Intentional loss
Intentional loss means any loss arising out of any act an “insured” commits or inspires to commit with the intent to cause a loss. In the event of such loss, no “insured” is entitled to coverage, even “insureds,” who did not commit or conspire to commit the acts causing the loss.
There was no question that Ms. Aquino was a person who “did not commit or conspire to commit the acts causing the loss.”. Mr. Pastrana was the insured who intentionally burned the dwelling down as part of the confrontation with the police.
United Property denies claim based on existing case law and the policy’s exclusion for intentional acts
Ms. Aquino filed a claim with United Property under her homeowners policy as a result of the fire including:
- destruction of the building
- destruction of the driveway, walkway, patio, retaining wall and stairs/railings
- loss of personal property
- loss of rental income and additional living expenses
- enforcement costs payable under “ordinance or law” resulting from Ms. Aquino ownership of fire-damaged and unsafe structure,
- destruction to landscaping, trees and shrubs, and
- debris removal.
Ms. Aquino’s claim eventually totaled $890,600.00
United Property denied the claim specifically citing the exclusion eight of the policy for intentional loss and the provision of the policy providing that even an innocent insured would not recover under the policy if another insured intentionally caused the loss. Also, United Property cited a 1938 case decided by the Supreme Judicial Court in 1938 which held that a wife who was an innocent coinsured on a fire policy could not collect under the policy where her husband intentionally burned the property to collect the fire insurance..
Ms. Aquino prevails, in part, in the Superior Court
Following United Property’s denial of her claim, Ms. Aquino filed a Superior Court complaint against United Property to recover the damages she sustained in the fire.
There were eight counts in the complaint: Count I was for declaratory judgment; Count II was for breach of contract; Count III was for breach of the implied covenant of good faith and fair dealing; Count IV was for promissory estoppel; Count V was for equitable estoppel; Count VI was for waiver; Count VII was for reformation of the policy; and Count VIII was for unfair and deceptive trade acts and practices. In the first seven counts, Aquino sought payment of all her claimed damages under the policy, as well as attorney’s fees, costs, and interest. In Count VIII, Aquino seeks relief under G. L. c. 93A and G. L. c. 176D for alleged unfair and deceptive trade acts and practices by United Property, for which she sought double or treble the amount of her actual damages, as well as attorneys’ fees, costs, and interest.
In the Superior Court, after the parties filed cross-motions for summary judgment, a Superior Court judge granted Ms. Aquino’s motion for partial summary judgment finding that United Property’s intentional loss exclusion, as written, violated the standard policy language mandated by Massachusetts G.L. c. 175, § 99, Twelfth. The judge also granted United Property’s motion for summary judgment denying Ms. Aquino’s claim under G.L. c. 93A and 176D for United Property alleged unfair claim practices.
On damages, the Superior Court judge only allowed Ms. Aquino to recover one-half of the losses payable due to the equal ownership interest between her and Mr. Pastrana in the insurance policy. The judge found that Mr. Pastrana by his intentional actions in burning their house down had forfeited his fifty percent portion of the policy proceeds.
On October 31, 2018, with the parties agreeing to the total damages under various policy coverages as follows:
|Dwelling/Coverage A–||$ 622,000.00|
|Other structures/Coverage B–||$ 5,170.41|
|Personal Property/Coverage C||$ 10,000.00|
|Loss of Use/Coverage D||$ 45,000.00|
|Debris Removal/Coverage||$ 25,000.00|
|Trees, Shrubs and Other Plants/Coverage||$ 7,500.00|
|Ordinance or Law/Coverage||$ 31,100.00|
Of this final amount, Ms. Aquino’s judgment amounted to a fifty percent share of the total damages, which gave her $422,885.21, plus costs in the amount of $518.47 and statutory interest of $60,177.15, for a total of $483,580.83.
After final judgment entered, both parties appealed to the Appeals Court. Upon an application for direct appellate review, the Supreme Judicial Court took the case directly bypassing the Appeals Court.
United Property’s argument on appeal
On appeal, United Property argued that its policy’s intentional loss exclusion precluded coverage for Ms. Aquino. To United Property, its policy’s intentional loss exclusion comported with the statutory provisions of G.L. c. 175, § 99, specifying the terms of the standard policy. Thus, it argued, the Superior Court had incorrectly reformed the policy because the exclusion refers to “an insured” while § 99 refers to “the insured.”
Also, United Property argued, in the alternative that the SJC’s prior 1938 case, Kosior v. Continental Ins. Co. where the SJC had ruled a husband and wife who were two coinsureds holding property as tenants in common had a joint obligation to preserve the insured property. Consequently, where Mrs. Kosior’s husband burned the property to get the insurance, his acts were imputed to her and excluded her, an innocent coinsured, from coverage.
The Supreme Judicial Court poses two questions to decide
On appeal the Supreme Judicial Court framed the questions it had to decide as whether:
- An innocent co‑insured may collect on a standard fire insurance policy when another co‑insured intentionally sets fire to the insured premises, and
- If this co‑insured may recover, how should the court determine the extent of that recovery.
In the decision the court focused on the fact that it concluded that the standard fire insurance policy set out by statute has several rather than joint rights and obligations on the insureds. As a result, the court concluded that if the insurer, United Property, had redrafted the statutorily defined policy language to make either insured responsible for the actions of the other they had violated the statute.
In the first instance the Supreme Judicial Court addressed the prior decision that United Property relied up in denying liability, Kosior v. Continental Ins. Co. The court found that this decision that had denied an innocent co‑insured spouse recovery on a standard fire policy for their home after her husband had deliberately burned the house down to recover the insurance proceeds had two infirmities.
- the decision was conclusory, because, while the 1938 court acknowledged the statute, the court did not review the then existing statutory text of G.L. c. 175. § 99, to determine whether the statute required broader coverage of an innocent co-insured, and
- the decision appeared to “be based on outdated assumptions about the marital relationship and the legal rules associated therewith.”
The court did not overrule the Kosior decision but instead distinguished it from Ms. Aquino’s case by more deeply analyzing the standard Massachusetts fire policy mandated by G.L. c. 175, § 99
United Property’s intentional loss exclusion barred by the statutory fire policy form.
Under Massachusetts law, insurance companies have been prohibited since 1881, from issuing “polices or contracts which…insure against loss or damage by fire or by fire and lightening to property or interests in the commonwealth, other than those of the standard forms set forth in [G.L. c. 175, § 99, Twelfth].”
This twelfth paragraph of that statute sets out a mandatory form that insurers must attach to their policies as a Massachusetts endorsement.
Under this standard statutory policy, the exclusions from coverage apply when there is loss by fire:
- caused directly or indirectly by…neglect of the insured to use all reasonable means to save and preserve the property at and after a loss,” or
- for a loss occurring by a hazard “by any means within the control or knowledge of the insured.” (Emphasis added).
The SJC pointed as its starting premise the rule that “when language in a statutory defined insurance policy is in conflict with that statute, the language is unenforceable.”
To the court, a legal distinction existed between the statute’s use of the definite article “the” in modifying the word “insured” and United Property’s exclusion using the indefinite article, “an,” to modify the word “insured.” A number of courts and insurance scholars have analyzed this distinction and have concluded, according to the court, that an intentional loss exclusion referencing “the insured” offers greater coverage to the innocent insured than an exclusion referencing “an insured” or “any insured.”
The court concluded and ruled:
For these reasons, we conclude that by using the article “the” and not “an” before the word “insured” in the statutory exclusion, the Legislature provided for several rather than joint rights and obligations. Had the Legislature intended to preclude recovery for innocent coinsureds, it would have drafted the statutory exclusion to apply to “an insured” rather than “the insured.”
The court went on to note that United Property’s policy did not follow the provisions of the standard policy because it had an intentional loss exclusion language which provided in part, that “Intentional loss means any loss arising of any act an ‘insured’ commits or inspires to commit with the intent to cause a loss.” (Emphasis added).
Accordingly, the court ruled United Property’ intention loss exclusion violated the statutory provisions of the Massachusetts standard fire policy and was unenforceable.
The court decides Ms. Aquino’s recovery is pro rata.
Having decided that Ms. Aquino had coverage under United Property’s homeowners policy for her fire loss, the court addressed the second question of how much Ms. Aquino could recover under the United Property policy.
The court concluded, like the Superior Court, that Ms. Aquino was entitled to recover 50 percent of the proceeds for the loss.
The justices reasoning focused on the nature of the property rights that she and Mr. Pastrana had in the property and the terms of the statutory policy language.
In this case, Ms. Aquino held title with Mr. Pastrana as tenants in common. A tenancy in common created the insurable interest; however, that interest was severable and required the division of the proceeds.
Under Massachusetts law a tenant in common has an “undivided fractional interest in the right and possession to use the entire property” up until her co-tenant’s death. However, a tenancy in common, as the court noted, does not have any right of survivorship, as do joint tenancies and tenancies by the entirety. In a tenancy in common, when one tenant in common dies their fractional interest does pass to the other owner. Instead, their fractional interest passes to their heirs at law and not the other tenant in common.
Also, since under Massachusetts law a tenant in common, by prior case decision, has an insurable interest to the extent of his or her interest in the property, the court concluded that since Ms. Aquino had not right to inherit his share, she had not right to the entire proceeds of the insurance. Instead, the court ruled, as had the Superior Court, that her recovery is limited to 50 percent.
The standard policies, as the court noted, also provided that since Mr. Pastrana had no right to recover his interest, where he intentionally set fire to the dwelling, he had completely lost his right to recovery his insured interest. The result was that the recovery was limited to 50 percent.
Her insurable interest in the property at the time of the loss “to the extent of the actual cash value of the property at the time of the loss, …[but not] in, any event more than the interests of the insured, against all loss by fire.” (emphasis added in the SJC decision).
The final rationale was that under the standard terms of the statutory policy, as found by the court, Ms. Aquino was not responsible for Mr. Pastrana’s intentional acts and therefore could not lose her right to recovery. However, under the same policy, she would not be allowed to benefit from Mr. Pastrana’s acts and receive one hundred percent recovery when she had only a fifty percent interest.
Court finds no unfair claim practice violation by United Property
The court then went on to analyze Ms. Aquino’s claims under G.L. c. 93A and 176D alleging unfair claim practices by United Property.
The court agreed with the Superior Court that there was no basis for finding liability against United Property for unfair claim practices since in the first instance it had relied upon the prior decision of the Supreme Judicial Court in the Kosior case. That reliance made the decision of United Property denying Ms. Aquino’s claim based upon a reasoned interpretation of the law and facts. The subsequent distinguishing of their case by this court did not make the original decision of United Property to deny unreasonable.
On the second part, the court addressed the claim that by modifying the statutory terms of the standard fire policy required by statute, United Property had violated General Law Chapter 93A. The court in this case noted that while this would be a violation, in order to be actionable, the violation must have caused damages. In this case, the court found that there was no causation because the initial denial of the claim by United Property under the Kosior decision was an independent and separate cause for Ms. Aquino having to file litigation.
Court rules on meaning of “attached” and “clear space” in policy
The court finally addressed the claim relating to the amount of money due under Coverage A and Coverage B.
Ms. Aquino sought to obtain additional loss payments, arguing that that the destroyed walkway, the outside staircase, the railings, and the retaining wall were not “attached” to the dwelling and should have coverage as “Other Structures” under Coverage B.
The court observed that the policy did not define what “attached” meant under Coverage A or what the term “clear space” needed for a structure to be under Coverage B meant. However, the court noted that the fact that they were undefined did not mean that they were ambiguous.
The court found that although for a structure to be “attached” to a home, more was required than the two objects be adjacent to or even touch each other. They held that “some form of connection is required beyond mere spatial proximity. The court adopted the definition that to be attached the property must be “joined or fastened to something.”
On her claim the court found that the driveway was not abutting or touching the dwelling and clearly was a separate structure that falls under Coverage B. The walkway shared the same concrete slab as the dwelling and therefore, the court concluded that it was like the stairway on the walkway “attached,” as it had a seamless connection with the outer wall and foundation of the dwelling. Likewise, the railings, which were an integral part of the stairway and walkway, were similarly attached. The retaining wall also had a connection with the stairway.
The status of the patio for which Ms. Aquino sought coverage under Coverage B, the court ruled posed a question of fact which the court deferred for further fact-finding in the Superior Court. The evidence submitted on summary judgment did not allow a ruling as a matter of law as to whether the patio was attached to the dwelling.
Final decision of the Supreme Judicial Court
The final order from the court was:
- The statutory standard policy under G. L. c. 175, § 99, Twelfth, requires insurers to impose only several obligations on their insureds. The policy language at issue here imposes joint obligations on all coinsureds by denying recovery to any coinsured for the intentional loss caused by any other coinsured. As such, the policy does not comply with G. L. c. 175, § 99, Twelfth, and must be reformed accordingly to allow [Ms. Aquino] to recover under the policy.
- [Ms. Aquino’s] insurable interest under the policy is severable from her coinsured’s, but [Ms. Aquino] is entitled only to one-half of the insurance proceeds.
- To the extent the insurer denied the plaintiff recovery, it did so based on a reasonable interpretation of Massachusetts law governing whether an innocent coinsured may recover if her coinsured intentionally set fire to the insured property, and thus did not violate G. L. c. 93A.
- The walkway, the stairway, the railings, and the retaining wall are attached to the dwelling as to fall under Coverage A.
The judgment of the Superior Court is therefore affirmed.
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