3 months ago

Arson by Insured's Management Voids Coverage
Post 5156

Arson for Profit by Corporate Entity Management Voids Policy

Following a fire that destroyed The Press Bar and Parlor in St. Cloud, Minnesota the insurer denied coverage after its determination that Andrew Welsh - a controlling officer of the insured intentionally set the fire and submitted a false proof of loss. The insureds filed suit. The district court concluded Andrew's conduct barred recovery under the policy and granted summary judgment to the insurer. The Corporate entities appealed.

In Timeless Bar, Inc., doing business as The Press Bar and Parlor; Horseshoe Club, LLC; Jessie Welsh v. Illinois Casualty Company, No. 24-2245, United States Court of Appeals, Eighth Circuit (July 22, 2025)

BACKGROUND

In 2016, Andrew and Jessie Welsh, then husband and wife, purchased The Press Bar and Parlor. They managed the business through two legal entities: Horseshoe Club, LLC, which owned the real estate, and Timeless Bar, Inc., which operated the bar. Andrew and Jessie were the sole members of the LLC and the only shareholders and officers of the corporation. Illinois Casualty Company ("ICC") issued a business owner's policy that provided coverage for the bar's business property and operations. Timeless Bar was the named insured under the policy, while Horseshoe Club was an additional insured and neither Andrew nor Jessie was a named an insured nor additional insured.

Incident and Legal Proceedings

The Press Bar and Parlor in St. Cloud, Minnesota was destroyed by fire on February 17, 2020. Timeless Bar and Horseshoe Club submitted a claim to ICC, stating the fire was of unknown origin. Law enforcement found that Andrew Welsh, a controlling officer of the insured, intentionally set the fire.

ICC denied the claim based on three policy provisions: Concealment, Misrepresentation or Fraud; Dishonesty Exclusion; and Intentional Acts Exclusion.

Court's Decision

The District Court concluded Andrew's conduct barred recovery under the policy and granted summary judgment to ICC. Timeless Bar, Horseshoe Club, and Jessie Welsh appealed the decision.

KEY LEGAL POINTS

Jessie Welsh's claims were dismissed due to lack of standing as a non-insured. Andrew's conduct was deemed attributable to both business entities. The court held that Minnesota's statutory protection for innocent co-insureds did not extend to corporate entities.

CONCLUSION

The court affirmed the district court's judgment, denying coverage for the loss or damage caused by the fire.

Coverage under the policy was subject to a number of conditions. One of the listed conditions is categorized as "concealment, misrepresentation or fraud." With respect to loss or damage caused by fire, the policy, as relevant to Minnesota insureds and refused to allow an insured to recover for a fire intentionally caused by the insured.

Because neither the entities nor Jessie were involved in setting the fire, they contend the policy must be reformed to permit recovery under Minnesota's standard fire insurance policy. In relevant part, this statute provides that a policy is void only if "the insured has willfully and with intent to defraud, concealed or misrepresented any material fact or circumstance." Jessie and the entities assert that ICC's denial of coverage violates this standard and Minnesota caselaw.

Accordingly, the arsonist’s conduct was attributable to both corporate entities. To extend the innocent-insured doctrine as urged by the entities would insulate businesses from the misconduct of those authorized to act on their behalf-something that does not find support in Minnesota law or its caselaw.

As noted by the district court, the policy determination of whether coverage should be extended to innocent, nonnamed business owners rests with the state legislature, not the federal courts.

ZALMA OPINION

When a person in control of two corporate entities commits arson-for-profit he, and the corporations he controlled, committed fraud when a proof of loss was submitted saying the fire was accidental. The corporate entities could not be "innocent" co-insureds when they were controlled by the arsonist. In this case crime didn't pay.

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