Foran Glennon Palandech Ponzi & Rudloff

April 2015

Vandalism Vacancy & Fire Oh My

Edward Murphy

The Second Appellate District in California has recently weighed in on what constitutes vandalism and malicious mischief when an insurer denied coverage relying on the policy’s vacancy exclusion after an intentionally set fire to a vacant property.  The Second Appellate District reversed the trial court ruling on summary adjudication and held that “vandalism and malicious mischief” required “ill will” and not merely a “wrongful, intentional act.”  Yet, even the Second Appellate Court was not entirely satisfied with its decision as it was a split 2-1 ruling with a dissenting opinion in Hung Van Ong v. Fire Insurance Exchange.

Factual BackgroundThe Plaintiff purchased a home in Oregon from his brother.  The last tenants had moved from the home in February 2010, and the gas and electric utilities were turned off.  There was a fire on December 20, 2011, which the insurer’s fire investigator concluded was a warming fire that got out of control.  Evidence to support this conclusion was signs of a transient living in the home, and the fire burn patterns.  The house itself was located in an isolated area.  It was speculated that the transient may even have attempted to stop the fire.  Once the investigation was completed, the insurer denied coverage for the claim relying on the policy’s vacancy exclusion.  The insurer determined the loss was the result of vandalism after a trespasser entered the vacant home and intentionally set a fire.  The policy excluded “vandalism or malicious mischief,” if a dwelling had been vacant for more than 30 days.  Not long after the claim was denied, a lawsuit for breach of contract and insurance bad faith followed.  The insurer moved for summary adjudication arguing that the vacancy exclusion barred coverage.  The trial court agreed.  The parties stipulated to a judgment leading to this appeal.

Decision on AppealThe issue on appeal focused on what was meant by the terms “vandalism” and “malicious mischief.”  The appellate court recognized that the vacancy exclusion was to protect the insurer from the increased risk of loss to properties that were vacant for an extended period.  Yet such a provision only protected against increased risks that fell within its terms.  Neither of the terms at issue was defined in the policy.  Therefore, the question became what was the “ordinary and popular” sense of those terms. The appellate court took the trial court to task for relying on a legal meaning of malice and applying a “legal sense” of “malice in law” as found in criminal cases.  In criminal law, “malice in law” could be presumed from an intentional act if done without justification.  Looking to the dictionary and other case law, the Appellate Court held that the popular sense of “malice” was a desire to cause someone harm.  Indeed, this was the more appropriate meaning for the term as “universally understood by the popular mind.”  Applying this “malice in fact” standard there was no evidence of ill will or intent to injure.  Finally, the Appellate Court noted that the insurer could have included fire within the vacancy exclusion if it wanted to protect itself from this risk.  The trial court’s granting of summary judgment was reversed.

Dissenting OpinionNot everyone on the panel hearing the matter was satisfied with the holding.  The dissenting opinion noted that it was undisputed that a transient intentionally set the fire.  It was just that the transient did not intend the fire to grow as large and destructive as it did.  What remained was whether the fire constituted vandalism based on these facts.  The dissent argued that vandalism as defined in the dictionary only required the act be willful and need not be malicious.  The majority opinion sidestepped this by reasoning the transient attempted to stop the spread of the fire.  The dissent disagreed this was sufficient to get around it being an intentional fire.  It was vandalism and it did not matter if the person did not intend the fire to be so destructive.  Starting the fire was vandalism and the loss was not covered.

DiscussionHow to deal with the risks caused by vacant properties is one that has vexed the insurance industry for years.  There is no unanimity on how vacancy exclusions are handled in various jurisdictions.  Indeed, there are disputes over what makes a property vacant.  There is also the related question regarding theft and how that differs from vandalism when a property has been vacant for an extended period.  What have been particularly difficult have been losses arising from fires to vacant properties.  There is a split in jurisdictions on whether an arson fire to a vacant property falls within the definition of vandalism to be excluded under a policy vacancy exclusion.  Many jurisdictions do hold that an arson fire is vandalism and properly excluded.  Others have held that fire is a distinct peril from vandalism.  Under this line of reasoning, the thought is that the insurer could always explicitly exclude from coverage arson fires or fires in general if a property is vacant.  The Appellate Court in this case sidestepped this problem by distinguishing this fire from an arson fire.  As most insurers use the same policy forms in different states, there is a natural reluctance to amend a form to conform to a particular interpretation.  This is especially true when another jurisdiction may apply a different meaning.  Stay tuned, as we suspect this is not the last word on this topic.

The case is Hung Van Ong v. Fire Insurance Exchange, 2015 WL 1524464 (Cal.App. 2 Dist.)