Intentional Loss by an Insured With Mental Health Issues — Is It Covered?

by Bob Rutter, Rutter & Russin LLC

No insured expects to be compensated for intentionally damaging the insured’s own property. Arson is a crime, and intentionally burning a building—even if you own it—is still a crime. It is also an act not covered by insurance. A typical Intentional Loss exclusion reads:

We do not insure for damage consisting of or caused directly or indirectly by any of the following:

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8. Intentional Loss, meaning loss arising out of any act any “insured” commits or conspires to commit with the intent to cause a loss. Even “insureds” who did not commit or conspire to commit the act causing the loss are not entitled to coverage.

“Insured” is usually defined to be any relative of the named insured residing at the premises, so children, grandchildren, parents, aunts, uncles, etc. who live with the named insureds; also, other people residing at the premises under the age of 21 and under the care of the named insureds, such as adopted children, foster children, etc.

Notice that the Intentional Loss exclusion applies to the acts of any insured, and that the acts of the guilty insured negate coverage not just for that insured, but for all “innocent” insureds as well.

Bocook v. Sandy & Beaver Valley Farmers Ins. Co., 2002-Ohio-6307 (4th District) is a particularly egregious example of the unfairness of the strict application of this exclusion. The Bocooks adopted two minor children with a somewhat troubled past. Since the minor children resided with the Bocooks and were under their care, they were “insureds” under the policy.

The minor children apparently did not like being adopted or residing with the Bocooks, because one night while the Bocooks were asleep, they disconnected the phone, disabled the smoke alarm, doused the house with gasoline, and set it afire in an attempt to kill the Bocooks. Fortunately, the Bocooks escaped, but their house and personal belongings were all destroyed.

Wouldn’t any reasonable person expect insurance coverage for this loss? Afterall, the Bocooks did nothing wrong. They were actually the victims of an attempted murder. Why should they be punished?

But they were.

The insurance company denied their claim based on the Intentional Loss exclusion, and the court of appeals affirmed, noting that “although the Bocooks may be sympathetic plaintiffs, their loss simply is not covered under their insurance contract.”

But there is a ray of light in these cases – sometimes. Under Ohio law, an intentional loss exclusion in an insurance policy does not apply if the insured “was suffering from a derangement of his intellect which deprived him of the capacity to govern his conduct in accordance with reason.” See Nationwide Insurance Company v. Kollstedt, 71 Ohio St.3d 624, 646 N.E.2d 816 (1995) and Nationwide Mutual Fire Insurance Company v. Turner, 29 Ohio App.3d 73, 503 N.E.2d 212 (1986).

The test is not criminal insanity as that term is defined in Revised Code §2901.01. It is a lesser standard.

Insurers investigating intentional loss claims often overlook this aspect of Ohio law. A tragically common scenario is this. Husband and wife are named insureds. Their marriage is on the rocks. The husband – always the husband – sets the marital house on fire and kills himself in the process. The innocent wife is left with nothing, and her insurance claim is denied since the husband was an insured and committed an intentional act.

In this scenario, a deep dive into the husband’s mental health history is critical. Has he been prescribed medication? Is he not taking the medication, or perhaps over-medicating? Has he been treated for or at least displayed evidence of bipolar disorder, schizophrenia, paranoia, depression, or a litany of other mental health problems? Has his behavior at home and at work been bizarre? Inconsistent? Violent?

A person of sound mind usually does not set fire to his own house and then kill himself. But these cases need to be worked up so that the insurer cannot walk away just by claiming the fire was intentionally set by an insured. The mental health of that insured must be part of any claim investigation in order for the investigation to satisfy the standard of a fair, prompt, and thorough investigation.