Legal Issues

Recent Cases Involving Fire Losses

A. The Innocent Co-Insured

In Firemen's Fund Insurance Company v. Dean, 212 Ga. App. 262, 441 S.E.2d 436 (1984), the Court of Appeals deviated from previous rulings regarding the rights of innocent co-insureds in arson cases. In the earlier case of Richards v. Hanover Insurance Company, 250 Ga. 613, 299 S.E.2d 561 (1983), the court interpreted an insurance contract provision which excluded from coverage losses caused by the intentional misconduct of "the insured." The court interpreted the language against the insurance company drafter and held that the innocent spouse of an alleged arsonist was not automatically barred from recovery because of the use of the term "the" in the exclusion.

Later cases dealt with insurance companies' attempts to revise their policies to bar recovery for an innocent co-insured by the use of such phrases as "an insured" or "any insured". Cases had found that such terms bar recovery of an innocent co-insured. See Sales v. State Farm Fire, 849 F.2d 1383 (11th Cir. 1988) and Meyers v. State Farm Fire, 801 F. Supp. 709 (N.D. Ga. 1992).

The Georgia Court of Appeals in the Dean decision, however, analyzed coverage from the perspective of the State's Standard Fire Policy. The Standard Fire Policy uses the phrase "the insured" in voiding coverage for intentional misconduct. The Georgia Court of Appeals held that given the interpretation of "the insured" in the Richards decision, that regardless of the terms subsequently used by insurers in drafting their policies, an innocent co-insured in Georgia was not automatically denied coverage.

In the recent decision of Graphic Arts Mutual Insurance Co. v. Pritchett, 1995 Westlaw 619281 (Ga. Ct. of App. October 23, 1995), the court expanded the principle espoused in Dean to apply to material misrepresentations in the application of the policy. In Pritchett, the insurance company allege that the husband had made intentional misrepresentations in the policy application by falsely denying that he had had any previous cancellations of insurance policies in the preceding three years. In fact, the plaintiff had three such cancellations. The court, in expressly applying Dean, held that material misrepresentations by one insured in the policy application will not void coverage as to an innocent co-insured.

B. Policy Provisions Regarding Residency

The recent decisions of Georgia Farm Bureau Mutual Insurance Company v. Kephart, 211 Ga. App. 423, 439 S.E.2d 682 (1993) and Roland v. Georgia Farm Bureau Mutual Insurance Company, 462 S.E.2d 623 (S. Ct. 1995), provide an interesting explanation as to when the residency requirements of a policy will or will not be held applicable.

In the Kephart decision, the husband and wife purchased the house in question in 1989 with the insurance in both parties name. Shortly thereafter, the parties separated and the wife instructed the agent to drop her husband from the policy. Thereafter, the wife elected to vacate the premises and allowed her estranged husband to live in the house. Approximately two weeks before the fire, the husband and wife were formerly divorced.

The insurance policy in question stated that it covers:

The dwelling on the residence premises shown in the declarations, including structures attached to the dwelling. . ..

(a) "Residence premises" is defined in the policy as "the one family dwelling, other structures, and grounds; or

(b) That part of any other building; where you reside which is shown as the "residence premises" in the declarations.

The court first held that provisions such as those involved in the case sub judice which declare the entire insurance policy void upon misrepresentation or concealment of any material fact, fraud, or false swearing by the insured are applicable to proofs of loss and other statements made under oath by the insured. Such a provision would cover cases of fraudulent misrepresentation of material facts or circumstances, made by the insured to the company or its agents that might affect the action of the insurer in respect to settling or adjusting the claim of the insured. The court went on to hold that it is a jury question as to whether a misrepresentation may have actually affected the action of the insurer with respect to settling or adjusting a claim. As noted, whether a misrepresentation is intentional or not is generally held to be a question of fact for the jury and the jury must determine not only whether the statement is false but whether it was made with the intent of defrauding the insurance company. Absent such a finding, a misrepresentation will not be held to be material as a matter of law.