So, the tenants have moved out and you’ve turned off the gas and electric utilities. However a fire burns the house down. You turn the claim over to your insurance company for coverage. The insurance company investigates the claim and learns that the fire may have been initiated as the result of an uncontrolled warming fire started by a vagrant. The investigator finds that signs of possible habitation were present and that the relatively isolated location of the home would permit unauthorized vagrancy. The investigator found the presence of firewood in an adjacent room to where the fire occurred and there was a mattress next to the large hole in the floor supporting the theory. The investigator felt that it was possible the holes burned in the floor were the result of the vagrant attempting to throw burning wood outside when the warming fire had gotten out of control. Are you covered? These facts were presented to the California Court of Appeals for Division One. The Court held that the damage did not result from “vandalism” or “malicious mischief” within the meaning of the policy’s vacancy exclusion.
In Hung Van Ong v. Fire Ins. Exchange, 235 Cal.App.4th 901, 185 Cal.Rptr.3d 524 (Cal. App. Div. 1 2015), the Court was confronted with the facts presented above. The insurance company denied the claim indicating that the insurance company’s “investigation indicates that [the] loss was the result of vandalism.” In the denial, the insurance company stated that a “trespasser entered the vacant dwelling and intentionally set a fire on the kitchen floor.” The insurance company, Fire Insurance Exchange, relied upon the vandalism and malicious mischief exclusion in the policy which stated that the insured did not cover direct or indirect loss from “Vandalism or Malicious Mischief, breakage of glass and safety glazing materials if the dwelling has been vacant for more than 30 consecutive days just before the loss.” Vandalism was not defined in the policy.
In analyzing the coverage question, the California Court of Appeals started the analysis by applying the ordinary and popular sense of the meaning of “vandalism.” According to the Court, vandalism referred to the “willful and malicious destruction or defacement of public or private property.” The term “malicious” was defined as “having or showing a desire to cause harm to someone.”
The California Court of Appeals was dismissive of case authority from other jurisdictions which recognized that intentionally set fires satisfied the vandalism component of the vacancy exclusion. These cases were not found to be persuasive because none of them, according to the Court, involved an uncontrolled warming fire or a warming fire that got out of hand. The cases that were cited involved accelerants. Based on the record, it appeared that the vagrant had apparently kicked the firewood in an attempt to knock it out the door and stop the spread of the fire and, therefore, the fire was unintentionally incendiary. The Court noted that a vacancy exclusion, while serving to protect the insurer against the increased risks of loss that occur when premises are vacant for an extended period of time, such exclusions did not protect against all increased risks but only those risks that fell within the scope of the policy terms. Because Fire Insurance Exchange was the party that drafted the policy, then Fire Insurance Exchange had an opportunity to include property risks other than vandalism in its vacancy exclusion. As an example, Fire Insurance Exchange could have listed fire as a risk excluded under a vacancy provision, but it chose not to do so. Therefore, the Court struck down the exclusion.
Judge Rothschild dissented. Judge Rothschild was not persuaded by the majority’s finding that the common understanding of malice required actual ill will or intent to injure and because the undisputed facts did not show that the fire was vandalism. Judge Rothschild felt that vandalism did not need to be malicious as long as it was willful. In context, “willful” meant “done deliberately” and was synonymous with “intentional.”
Judge Rothschild took issue with the majority’s disposition of the willfulness issue in a footnote where the majority reasoned that because there was evidence in the record that the transient tried “to stop the spread of the fire,” there was “a triable issue of fact as to whether the fire was intended to be destructive of property.” Judge Rothschild disagreed. He did not believe that the transient’s apparent efforts to stop the spread of the fire created a disputed issue of fact as to whether intentionally starting the fire on the kitchen floor was willful destruction or defacement of property. According to Judge Rothschild, starting the fire would inevitably damage or deface the floor. Therefore, the act of starting the fire constituted vandalism under the common dictionary definition. According to Judge Rothschild, it did not matter that the person who started the fire did not intend for it to become as destructive as it became. He reasoned that the vandalism exclusion applied to both direct and indirect loss from vandalism and that starting the fire was vandalism because it was at least a willful destruction or defacement of property so that the loss was not covered. Nor did Judge Rothschild believe that it mattered that the person who started the fire did it to keep himself warm. What was relevant was the fact that someone had intentionally started the fire on a kitchen floor which constituted willful destruction or defacement of the property.
Similarly, Judge Rothschild found the majority’s analysis of the issue of malice unpersuasive. For the same reasons he stated regarding vandalism, he believed that the record showed willful destruction or defacement of property and it also showed an intent to damage the kitchen floor. The reason for the vagrant starting the fire—to keep warm—was not relevant. Starting a fire on a kitchen floor, not in a fireplace, by a transient constituted willful destruction that becomes much more likely to occur when the property is left vacant for an extended period of time. Therefore, in addition to fitting within the literal terms of the exclusion, it also appeared to be the kind of risk that the exclusion should apply to.
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