A Video Explaining how to Deal with Insurance Fraud and Innocent Co-Insureds

Innocent Co-Insureds

When denying a claim for fraud, it is necessary to determine if there are any innocent co-insureds, and if so, whether the innocent co-insured is entitled to any indemnity.

The question whether arson by one coinsured spouse bars the innocent coinsured spouse from recovering under an insurance policy was one of first impression in Iowa [Vance v. Pekin Ins. Co., 457 N.W.2d 589 (Iowa, 1990)]. The Supreme Court noted that courts across the United States have developed three distinct theories of recovery to resolve the question. Several years ago, one writer critically examined those theories and the rationales for them. [The Problem of the Innocent Coinsured Spouse: Three Theories of Recovery, 17 Val.U.L.Rev. 849 (1983) [hereinafter Innocent Coinsured Spouse].]

It is still the well-settled law in Iowa that the use of the words, “any insured,” is an unambiguous phrase that precludes coverage for all insureds, including an innocent coinsured spouse. If “any insured” sets fire to a house, all insureds, including the innocent coinsured spouse, are barred compensation. In Johnson v. Farm Bureau Mut. Ins. Co., 533 N.W.2d 203, 207 (Iowa 1995) the court held that “any insured” resulted in denial of coverage to all insureds under the exclusion for bodily injury. The Iowa Supreme Court, in Vance, supra. went so far as to encourage insurance companies to purge their fire insurance policies of ambiguity by replacing the exclusion language of “the” insured with “a,” “any,” or “an” insured. Insurance companies were slow to follow the recommendation while many adopted the suggested language.

These three theories of recovery emanated from disagreements whether property or contract law should govern the interpretation of the policy. An innocent coinsured spouse may recover depending on whether the coinsureds' interests under the policy are joint or severable. To resolve this question of interpretation, some courts have used property law principles; other courts have used contract principles. So, it is not surprising that the courts have reached conflicting results even though the factual scenario in most cases is remarkably similar. Iowa decided to apply the terms of the contract and ruled against the purported “innocent spouse.”