Who is an innocent co-insured?
When multiple insureds obtain an insurance policy, usually on jointly owned property, and one insured causes a loss through wrongdoing, the other insureds are considered “innocent co-insureds.” When the innocent co-insureds submit a claim to the insurer to obtain coverage for the loss, an issue arises as to whether the claim should be paid because it would benefit the insured who committed the wrongdoing.
Example: A husband and wife obtain a homeowner’s policy on their jointly owned home. The parties begin an unfriendly divorce, and the wife burns down the home out of spite. If the husband, as the innocent co-insured, submits a claim and receives coverage, the wife, as the wrongdoer, benefits because she partly owns the home. If the insurer denies coverage, the husband is punished for the wife’s wrongdoing.
There are several public policy considerations that some courts consider when determining whether or not an innocent co-insured should be compensated for his loss. Denials of claims are based on the public policies of barring the wrongdoer from benefiting from his wrongdoing and preventing the perpetration of fraud on the insurer. However, claims may be paid based on the public policies of preventing the unjust enrichment of the insurer and not allowing an innocent victim to be blamed for a wrongdoer’s acts.
Traditionally, most courts barred the innocent co-insured from recovery if a co-insured intentionally caused the loss or perpetrated some type of fraud or misrepresentation against the insurer. The principle supporting the denial of recovery was that a wrongdoer should not be rewarded, directly or indirectly, for his wrongful act.
Under the modern rule, the majority of courts allow an innocent co-insured to recover based on the public policy that he should not be penalized for another insured’s wrongdoing unless the policy provides no coverage. Generally, if the policy states that responsibility for the fraud is several or separate, rather than joint, an innocent co-insured will not be punished for another insured’s fraud. If the policy is ambiguous, it is usually construed in favor of the innocent co-insured.
Change in insurance policies
In response to the approach of allowing innocent co-insureds to recover despite another insured’s wrongdoing, insurers began inserting language in policies that voids the policy if “an” or “any” insured, rather than “the” insured, is guilty of wrongdoing. However, despite the change in policy language, courts still seek to allow innocent co-insureds to recover. They may do so by using a contract-based approach to give effect to the intent of the parties to the policy.