Arson of Vacant House: Covered Fire Loss or Excluded Vandalism?

In a recent case,¹ a federal appeals court addressed the issue of whether fire damage to a vacant dwelling from an arsonist was considered distinct from vandalism, so as to not implicate an exclusion within a homeowners insurance policy. In that case, Wells Fargo Bank owned an insurance policy on an abandoned house that an arsonist set ablaze. The insured sued its insurer after the insurer refused to indemnify the insured for the loss, relying on a policy provision exclusion for damage caused by “vandalism or malicious mischief” after the property had been vacant for more than thirty consecutive days.

While the terms “vandalism” and “malicious mischief” were not defined by the policy, the insurer determined the arson fell within the exclusion, and urged the court the usually accepted meanings of the words used suggested that arson should qualify as vandalism. After reviewing different definitions of the words from different sources, however, the court noted the difficulty in deciding the case on words alone.

Consequently, the court searched the policy for connotative clues. In doing so, it noted that the policy’s personal property coverage section listed fire loss separately from loss caused by vandalism or malicious mischief. The court then looked towards the policy’s arson-reward provision<² for what it thought was the decisive bit of context. There, the policy’s sole reference to arson, indicated that arson was at least sometimes, if not always, considered a fire loss.

Ultimately, the court found that without clear language excluding loss caused by fire resulting from vandalism, and in light of other indications in the policy that arson could be considered a fire (not vandalism) loss, it could not say the policy unambiguously permitted the insurer to deny coverage for arson under the vandalism exclusion. Therefore, because the policy was ambiguous with respect to whether this particular arson was a covered or excluded loss, the court had to resolve the ambiguity in favor of the insured.
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¹ Wells Fargo Bank, N.A. v. Allstate Ins. Co., Case No. 18-4206, 2019 WL 3960614 (6th Cir. Aug. 22, 2019).
² The policy’s arson-reward provision provided that the insurer will pay “for information leading to an arson conviction in connection with a fire loss to property covered under Section I of this policy.” (Emphasis added).