How many of you have been faced with a fire claim where the insurer denies coverage on the grounds that the fire was the result of vandalism and therefore the claim was excluded?
Well, a recent California Court of Appeal decision has held that insurers taking this position have to actually prove that the person who set the fire intended to destroy or otherwise damage the property in order for the exclusion to apply.
In Ong v. Fire Insurance Exchange,1 Hung Van Ong (“Ong”) owned a rental property. The tenants moved out, and the utilities were turned off. Some months later, a fire destroyed the property.
Ong filed a claim with his insurer, Fire Insurance Exchange (“FIE”). As part of its investigation, FIE retained an investigator to evaluate the origin and cause of the fire. FIE’s investigator concluded that the fire originated on the floor of the kitchen, and that it was likely a “warming” fire that became uncontrolled and spread.
Additionally, FIE’s claim notes indicated that a transient had likely started the warming fire.
The policy was an all risk policy that contained an exclusion for vandalism or malicious mischief if the property had been vacant for more than 30 days. The policy didn’t define vandalism or malicious mischief.
FIE denied coverage on the grounds that “the loss was the result of vandalism. A trespasser entered the vacant dwelling and intentionally set the fire. . . .”
Ong sued for breach of contract and bad faith. FIE moved for summary judgment on the grounds that the vacancy exclusion barred coverage. The trial court granted FIE’s motion, stating:
The unauthorized person or persons who intentionally set the fire… certainly created an obvious hazard to the dwelling without justification, excuse or mitigating circumstances.
The trial court also adopted FIE’s argument that the “malice in law” concept should apply (in criminal law, if a person intentionally does an act, but an unintended consequence results, the person can be found criminally responsible although the person did not intend the consequence of their conduct) and therefore found that because the fire was intentionally set, the vandalism exclusion applied.
Ong appealed, and the Court of Appeal reversed.
The Court of Appeal found that although someone intentionally set the fire, there was a triable issue of fact whether the fire was a “warming” fire that grew out of control, or whether the fire was intended to be an act of destruction. Because the term “vandalism” wasn’t defined in the policy, the Court of Appeal used the dictionary definition (the willful destruction of property), which is different than the concept of “malice in law” that the trial court had adopted.
The exclusion required FIE to prove that the person who started the fire intended to damage the building, which the Court of Appeal found FIE had failed to do.
This is an important decision for public adjusters and policyholder advocates to keep in mind when (1) a carrier denies coverage on the grounds of vandalism but (2) lacks the evidence to prove that the person who caused the damage actually intended the harm that resulted.