Insurance Coverage Available Where Transient Intentionally Started Fire, Despite Policy Exclusion for Vandalism of Vacant Property
Does a trespasser who intentionally starts a fire in another person’s property constitute vandalism? Not if the trespasser is a transient who started the fire to stay warm, says the Second Appellate District Court in a 2-1 ruling in Hung Van Ong v. Fire Insurance Exchange (2015) 235 Cal.App.4th 901. The result was a win for policyholders and a lesson for insurers with respect to interpretation of policy language. There, Fire Insurance Exchange (“FIE”) denied coverage to its insured when the insured’s property was damaged by a fire set by a squatter who was trying to keep warm. The fire apparently got out of control and the transient kicked the firewood in an attempt to knock it out the door and stop the spread of the fire. FIE denied coverage based on its policy’s vacancy exclusion which excluded coverage for losses from vandalism or malicious mischief. FIE determined that damage from the fire set by the transient constituted vandalism.
FIE’s vacancy exclusions specifically provided in relevant part: “We do not cover direct or indirect loss from: … 4. 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. A dwelling under construction is not considered vacant.” Vandalism was not defined in the policy. Based on this provision, FIE sent its insured a denial letter disclaiming coverage for his claim. The letter stated that FIE’s investigation indicated that the loss was the result of vandalism when a trespasser entered the vacant dwelling and intentionally set a fire on the kitchen floor.
The insured subsequently filed a complaint for breach of contract and insurance bad faith. FIE filed a motion for summary adjudication on the grounds that the vacancy exclusion barred coverage for the loss. The trial court granted FIE’s motion finding that the unauthorized person who intentionally set the fire did so with malice. The trial court relied on the definition of “malice in law” established in criminal cases on arson that had been cited by FIE.
The plaintiff appealed. The plaintiff argued, and two out of the three justices agreed, that the ordinary and popular sense of vandalism required an intent to destroy property, which the transient did not have. In analyzing FIE’s policy and vacancy exclusion, the Court applied contract principles, which required interpreting provisions in their “ordinary and popular sense” unless used by the parties in a technical sense or a special meaning is given to them by usage. (Hung Van Ong v. Fire Insurance Exchange (2015) 235 Cal.App.4th 901 [185 Cal.Rptr.3d 524, 527] citing Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, at p. 18 [44 Cal.Rptr.2d 370, 900 P.2d 619].)
Although the trial court applied the ordinary and popular sense of vandalism based on definitions provided in dictionaries, it failed to do the same when it interpreted the term “malice.” The trial court erroneously relied on the legal meaning of malice. The Supreme Court has acknowledged malice in the legal context is not the same as the ordinary and popular sense of malice. Malice as “universally understood by the popular mind” involves “ill-will” and not simply a wrongful, intentional act done without justification, excuse or mitigating circumstances. (Hung Van Ong, supra, 235 Cal.App.4th 901, citing In re V.V. (2011) 51 Cal.4th 1020, 1027-28 [125 Cal.Rptr.3d 421, 425, 252 P.3d 979, 983].)
The Court of Appeal found that the poor transient was just trying to stay warm and he did not intend for the fire to get out of control. Whoops! In short, the Court of Appeal determined there was no malice on the part of the transient.
In “I-told-you-so” fashion, the Court of Appeal further noted that FIE could have drafted its policy to list fire as a risk excluded under the vacancy provision but it did not do so. The trial court’s grant of summary of adjudication was reversed. In addition, the plaintiff was awarded his costs on appeal. Indeed, the Court’s decision highlights the importance of insurance companies ensuring that key terms are expressly defined in their policies and that the scope of coverage is clear—clear to the ordinary person on the street. Most important of all, squatters who start a warming fire which causes damage to property do not act with malice.
ABOUT THE AUTHOR: Janice Walshok is an associate at Tyson & Mendes LLP. She has experience with conducting civil jury trials and specializes in insurance bad faith, premises liability, and high net worth insurance issues. Contact Janice at 858.263.4121 or firstname.lastname@example.org.