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Intentional Act Exclusion In Fire Policy Not Enforced Against Innocent Insureds


On February 17, 2011, the Supreme Court in Century-National Ins. Co. v. Garcia, 51 Cal.4th 564 (2011), held that an intentional acts exclusion in a fire insurance policy was invalid insofar as it purported to bar coverage for innocent insureds for losses caused by other insureds’ intentional acts. The Court expressly limited its holding to fire insurance policies, and thus this decision does not affect the validity of an intentional act exclusion in any other type of policy.

Jesus Garcia, his wife Theodora, and their son were insureds under a policy issued by Century National Insurance Company that included fire insurance. The Garcias filed a claim with Century for damage caused by a fire intentionally set by the son. Century denied the claim based on an exclusion for the intentional act or criminal conduct of “any insured.”

Century filed a complaint seeking a declaration that it had no duty to pay for the Garcias’ loss. The Garcias filed a cross-complaint for breach of contract, breach of the implied duty of good faith and fair dealing and reformation. Century demurred to the cross-complaint, contending that the intentional acts exclusion barred recovery by the Garcias because their son, an insured under the policy, intentionally set fire to their home. The trial court sustained Century’s demurrer, and the Court of Appeal affirmed.

The California Supreme Court reversed, holding that an intentional acts exclusion in a fire policy cannot bar coverage to innocent insureds due to the intentional conduct of “any” insured. The Court explained that the minimum requirements for a fire policy in California are dictated by Insurance Code §§ 2070 and 2071. Section 2071 sets forth the provisions of a standard form fire policy. Pursuant to Section 2070, a fire insurance policy that does not conform to the standard provisions set forth in Section 2071 must provide total fire coverage that is at least “substantially equivalent” to coverage provided by the standard form.

The Court noted that under the terms of the Century policy, Mr. and Mrs. Garcia could not recover against Century even if they were innocent of wrongdoing because the loss was intentionally caused by “any insured;” i.e., their son. However, the Court determined the “any insured” language in Century’s intentional acts exclusion to be invalid because it did not provide coverage that was “substantially equivalent” to the coverage afforded by the statutory standard form.

Notably, the standard form contains no express exclusion for losses caused by intentional acts or criminal conduct. However, Insurance Code § 533 provides an implied exclusionary clause that is read into all insurance policies, which states that “an insurer is not liable for a loss caused by the willful act of the insured.”  [Emphasis added.] The Court noted that Section 533’s reference to “the” insured is different than the Century policy’s reference to “any” insured, in that exclusions based on acts of “the” insured are construed as not barring coverage for innocent insureds. The Court held that given the settled meaning of the language used in Section 533, the standard fire policy provisions must be read as including a willful acts exclusion that is protective of innocent insureds. Because the intentional acts exclusion in Century’s policy is more restrictive than the exclusion set forth in Section 533, the Court held, it is invalid to the extent it bars coverage for innocent insureds for the intentional act of “any” insured.

While the Century-National decision has obvious implications for all fire policies issued in California, the Court took great pains to differentiate fire policies from other types of policies, such as liability policies, because the requirements of Sections 2070 and 2071 apply only to fire policies. The Court emphasized that its decision “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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