The Seventh Circuit Court of Appeal’s opinion this week in Streit v. Metropolitan Casualty Insurance Company,1 is a major victory for policyholders in Illinois. There, the Seventh Circuit affirmed the lower court judgment entered in favor of my clients, Wesley and Barbara Streit, arising out of Metropolitan’s failure to cover a fire loss to their residence in Illinois. The Seventh Circuit’s ruling establishes that an insurance policy exclusion which precludes innocent co-insureds from recovering violates the minimum level of protection afforded by the Illinois Standard Fire Policy.
Sadly, the fire was started by the Streit’s 19-year old mentally ill son who resided with them. He admitted to setting the fire, pled guilty to a charge of aggravated arson, and was sentenced to six years in prison. Even though Mr. and Mrs. Streit were innocent of any wrongdoing associated with the fire, Metropolitan, who insured the residence against the peril of fire, denied their claim for insurance benefits.
The denial was predicated on an insurance policy provision which excludes coverage “for any loss arising out of any intentional or criminal act committed: 1. by you or at your direction; and 2. with the intent to cause a loss”, an exclusion which applied to “even people defined as you or your who did not commit or conspire to commit the act causing the loss” (the intentional loss exclusion). The terms “you” and “your” were defined in the Metropolitan insurance policy as the persons named in the policy Declarations (Mr. and Mrs. Streit) and a relative of the named insureds who is a resident of the named insureds’ household (their son).
Although it used the term “you” as opposed to the phrase “an insured” or “any insured” typically seen in a homeowner’s insurance policy’s intentional loss exclusion, the effect was the same: The Metropolitan intentional loss exclusion imposed joint obligations among multiple insureds to refrain from intentionally causing a loss, such that if a loss was caused by the intentional or criminal act of one co-insured, innocent co-insureds were precluded from coverage.
Fortunately for my clients, Illinois is a Standard Fire Policy state.2 Under the powers vested by sections 397 and 401 of the Insurance Code, the Director of Insurance has promulgated certain regulations which provide for a Standard Fire Policy.3 Under the regulations, all fire insurance policies must “conform to such form of the Standard [Fire] Policy or, if another form is used, shall for the purpose of concurrence of contract be deemed to be the Standard [Fire] Policy.”4 In essence, the standard form of fire insurance guarantees a minimum level of coverage that supersedes any attempt to limit or to restrict coverage to less than the statutory minimum. Stated differently, fire insurance policies may not provide coverage less than that set forth in the standard form. To the extent an insurance policy provision omits or diminishes the minimum protections afforded by the standard form, the provisions of the standard form control and the non-compliant policy is enforceable as if it conformed to the requirements or the prohibitions of the standard form.5
Although it contains no intentional loss exclusion, the Standard Fire Policy contains other provisions dealing with exclusions for intentional, negligent, or fraudulent acts or omissions by “the insured”: (a) lines 1-6, fraudulent conduct by “the insured”; (b) lines 21-24, neglect of “the insured” to use all reasonable means to save and preserve the property at and after a loss; and (c) lines 28-32, while the hazard is increased by any means within the control or knowledge of “the insured.”
Given that no Illinois state court had ruled on the issue, the Seventh Circuit in Streit looked to courts in other jurisdictions with identical or very similar statutory standard form fire insurance policies. Those courts had interpreted the phrase “the insured” to create a “several” or an “independent” obligation among multiple insureds, such that the proscribed conduct voids the policy rights of the insured who committed the act, but not those of innocent co-insureds.
Because the Standard Fire Policy protects innocent co-insureds despite the intentional conduct of another co-insured, the Metropolitan intentional loss exclusion, which barred innocent co-insureds from recovering for a fire loss, failed to offer the Streits the minimum level of protection prescribed by the Illinois Director of Insurance in the Standard Fire Policy. As such, the Seventh Circuit concluded that the Metropolitan intentional loss exclusion was invalid and unlawful.
Surprisingly, many public adjusters and policyholder lawyers are not aware of the Standard Fire Policy. But, for myself and others here at Merlin Law Group, it is the starting point in analyzing coverage for a fire loss. The Standard Fire Policy potentially affords policyholders more coverage than they may otherwise have, given the limited number of provisions which condition, suspend, limit, restrict, or exclude fire coverage.
1 Streit v. Metropolitan Cas. Ins. Co., No. 16-3203 (7th Cir. July 19, 2017).
2 The 1943 New York Standard Fire Policy (“the Standard Fire Policy”), or a statutory version differing from it only slightly, is used in many states, including Arizona, California, Georgia, Idaho, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Nebraska, New York, and West Virginia. The Standard Fire Policy, a form consisting of 165 lines, has served as the foundation for most property insurance policies covering the peril of fire since its inception in 1943.
3 215 ILCS 5/397 and 5/401(a); 50 Ill. Adm. Code § 2301, et. seq.
4 50 Ill. Adm. Code § 2301.30.
5 215 ILCS 5/401(a), 5/397, 5/143(2), and 5/442; 50 Ill. Adm. Code §2301, et. seq.