The California Supreme Court recently issued a decision in Century-National Ins. Co. v. Jesus Garcia, No. S179252, holding that California Insurance Code section 533, which bars coverage for intentional conduct, does not apply to coverage for innocent co-insureds. The Court examined this issue in the context of a fire insurance policy. The insureds, Jesus and Theodora Garcia, suffered substantial property damage to their home when their adult son – who was also an insured under the policy – set fire to his bedroom. Century-National denied coverage for the Garcias’ claim citing the policy’s exclusion for claims based on the intentional acts or criminal conduct of “any insured.” The trial court agreed and granted Century-National’s demurrer on the grounds that 1) the Century-National policy defined the term “any insured,” to include relatives of the insured who lived at the insured property; 2) courts generally interpret policy exclusions for intentional or criminal acts to exclude coverage for innocent co-insureds; and 3) Insurance Code section 533 expressly sets forth California’s public policy of denying coverage for willful wrongs.
On appeal, the Garcias relied on Insurance Code section 2070, which specifically applies to fire policies and provides that fire policies must be on the standard form or provide coverage that is substantially equivalent or more favorable than the standard form. In analyzing the language of the Century-National policy, the California Supreme Court relied on case law holding that “absent contrary evidence, in a policy with multiple insureds, exclusions from coverage described with reference to the acts of ‘an’ or ‘any,’ as opposed to ‘the,’ insured are deemed under California law to apply collectively, so that if one insured has committed acts for which coverage is excluded, the exclusion applies to all insureds with respect to the same occurrence.” Id. at *3 citing Minkler v. Safeco Ins. Co. of America, 49 Cal. 4th 315, 318 (2010); Western Mutual Ins. Co. v. Yamamoto, 29 Cal. App. 4th 1474, 1486-1487 (1994). Based on this, the Court found that the Century-National Policy, as written, barred coverage for the Garcias’ claim because “even if they were innocent of wrongdoing, their fire losses were caused by another insured, who acted intentionally and criminally.” Id.
However, in analyzing the statutory standard form fire insurance policy, the Court found that it contained no express exclusion for losses caused by intentional acts or criminal conduct. Since Insurance Code section 533 is incorporated into all insurance policies, the Court had to compare the language of the Century-National exclusion to section 533, which states that “an insurer is not liable for a loss caused by the wilful act of the insured.” The Court found that Section 533’s “use of the term ‘the insured’ b[ore] directly on the instant coverage issues” because “unlike policy exclusions that refer to ‘an’ insured or ‘any’ insured, exclusions based on acts of ‘the’ insured are construed as not barring coverage for innocent co-insureds.” Id. at *4 citing Arenson v. Nat. Automobile & Cas. Ins. Co., 45 Cal.2d 81, 83 (1955) (policy exclusion for “destruction caused intentionally by or at the direction of the insured” did not bar recovery by innocent insured whose minor son started a fire at school). Since Section 533’s meaning is well settled, the Court concluded that “the standard form fire policy must be construed as including a willful acts exclusion that is protective of innocent co-insureds.” As a result, the Garcias were entitled to the broader coverage and the case was remanded back to the trial court for further proceedings.
Although this case arose in the fire insurance context and relied on a specific statutory provision governing those policies, it has much broader implications. First, it stands for the general principle that section 533 does not bar coverage for innocent co-insureds because it specifically applies only to willful acts of “the insured.” The same proposition holds true for all exclusions that bar coverage based on the acts of “the insured” instead of acts of “an insured” or “any insured.” Policyholders should always take a close look at the wording of their exclusion to see whether it bars coverage for conduct committed by “an” or “any” insured or whether it only bars coverage for conduct committed by “the” insured. As this case demonstrates, innocent co-insureds will be protected where the exclusion only refers to “the insured.”