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March 2011

Century-National Ins. Co. v. Garcia ? Innocent Insured Not Subject to Intentional or Criminal Acts of Co-Insured

Policy Exclusion for Intentional or Criminal Acts of Any Insured in Fire Insurance Policy Inapplicable to Innocent Co-Insureds

(February 17, 2011) 51 Cal.4th 564; 11 C.D.O.S. 2194

On February 17, 2011, 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 Insurance Code.

In Century-National Ins. Co. v. Garcia, et al., Jesus Garcia and his wife ("the Garcias") incurred damage to their home when their adult son set fire to his bedroom.  Mr. Garcia was the named insured under a Property and Liability package 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 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.  In this regard, the Supreme Court noted that pursuant to section 2070, "[a]ll fire policies? shall be on standard form, and, except as provided by this article shall not contain additions thereto.  No part of the standard form shall be omitted therefrom except that any policy providing coverage against the peril of fire only, or in combination with coverage against other perils, need not comply with the provisions of the standard form of fire insurance policy?; provided, that coverage with respect to the peril of fire, when viewed in its entirety, is substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy."

While the Court acknowledged that 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 statutory 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 standard form.  Consequently, the Court held that the Century-National exclusion was to that extent invalid.

Significantly, the Court cited numerous cases from other jurisdictions and noted that the same reasoning might apply to cases involving fraud, and suggested that a fire insurance policy may not be void as to all insureds when a co-insured commits an act of willful concealment or misrepresentation.  However, the Court acknowledged California case law accepting the application of an exclusion to "all" insureds within the third-party liability context.  In a footnote, the Court stated that its analysis and decision was limited to fire insurance policies subject to the requirements of section 2070 and 2071 and "should not be read as necessarily affecting the validity of clauses that deny coverage for the intentional acts of 'any' insured in other contexts." 

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This opinion is not final.  It may be modified on rehearing or review may be granted by the United States Supreme Court.  These events would render the opinion unavailable for use as legal authority.

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