My Spouse Intentionally Burned Down Our Home! Will Insurance Cover This?
Vincent J. Scipior, Coyne, Schultz, Becker & Bauer, S.C.

I.              Introduction

Wisconsin courts have gone back and forth over the years regarding whether an “innocent spouse” can collect insurance proceeds after their husband or wife intentionally sets fire to their home. While it usually comes down to the policy language, there are several factors that can affect the outcome, including whether the guilty spouse was mentally ill or intoxicated at the time of the fire, whether the innocent or guilty spouse has concealed information from the insurer, and whether the guilty spouse has been charged with and/or convicted of a crime as a result of the fire. This article discusses the case history, relevant insurance provisions, defenses to consider, and an insurer’s rights and obligations when presented with such a claim.

II.            Wisconsin Case Law

Before 1982,it was the rule in Wisconsin that an insured who is innocent of any wrongdoing cannot reap the benefits of an insurance policy when the intentional acts of another insured caused the property damage.[i] This rule—known as the “Bellman rule”—imputed the incendiary actions of an insured to the innocent insured and served as an absolute bar to recovery by the innocent insured based on public policy concerns to deter crime and prevent a wrongdoer from profiting from his or her own wrongful act.[ii]

a.     Hedtcke v. Sentry Ins. Co. (1982)

The Bellman rule was overturned by the Wisconsin Supreme Court in Hedtcke v. Sentry Ins. Co.[iii] In Hedtcke, a husband intentionally set fire to the family’s home several days before a divorce order would have compelled him to leave the home.[iv] The wife was not occupying the family’s home at that time but was a joint owner and a named insured on an insurance policy issued by Sentry.[v] Sentry denied the wife’s claim for damages because her husband intentionally started the fire based on the Bellman rule.[vi] After the wife filed suit, the circuit court dismissed the case, and the court of appeals affirmed.[vii] On appeal to the Wisconsin Supreme Court, the wife argued that the Bellman rule was unfair and nothing in the contract of insurance barred her from recovering merely by virtue of the fact that another insured (her husband) intentionally caused the damage to the insured property.[viii] The Hedtcke court agreed and abandoned the Bellman rule, holding that the wife’s rights must be determined in the particular factual context of the case as applied to the language of the insurance policy.[ix] On remand, however, the Hedtcke court instructed the trial court to “tailor[ ] the recovery permitted the innocent insured to guard against the possibility that the arsonist might receive financial benefit as a result of the arson.”[x] “For example, the arsonist may be denied all recovery while the innocent insured may recover a pro rata share of the insurance proceeds, according to his or her interest in the property.”[xi]

b.    Northwestern National Insurance Co. v. Nemetz (1986)

Northwestern National Insurance Co. v. Nemetz[xii] involved similar facts to that in Hedtcke. In Nemetz, a husband deliberately burned down a building jointly owned with his wife, except that the fire spread to the building next door, leading to a lawsuit and the question of liability coverage for the wife.[xiii] Although the wife was eventually absolved of liability for starting the fire, the policy at issue contained an intentional acts exclusion that barred coverage for liability “expected or intended by an insured.”[xiv] The policy also contained a “severability of interest” clause stating that the policy “applies separately to each insured person against whom a claim or suit is brought.”[xv] While the court acknowledged that the use of the term “an” insured was an “attempt[ ] to join the insureds’ obligations,” it nevertheless concluded that the “severability of interest” clause created an ambiguity, which had to be construed against the insurer.[xvi]

c.     State Farm Fire & Cas. Inc. Co. v. Walker (1990)

In State Farm Fire & Cas. Inc. Co. v. Walker,[xvii] the Wisconsin Court of Appeals made clear that the Hedtcke decision does not bar an insurer from writing its policy to deny coverage to an innocent insured. In Walker, the plaintiffs submitted a claim to their homeowners’ insurer, State Farm, after their home was destroyed by a fire.[xviii] During its investigation, State Farm learned that the husband had an active warrant for his arrest on homicide charges in another state.[xix] During an examination under oath, the husband refused to answer questions pursuant to his Fifth Amendment right against self-incrimination.[xx] State Farm thereafter sought a declaratory judgment that there was no coverage for the fire based on evidence that the husband committed arson (the husband was alone in the home when the fire started and fire investigators concluded that the fire had been set with accelerants).[xxi] The circuit court granted judgment to State Farm and the plaintiffs appealed, arguing that Hedtke compelled a different result.[xxii]

The court of appeals rejected the plaintiff’s interpretation of Hedtcke, holding that the Hedtcke court based its decision on narrow grounds, declining to address whether it would violate public policy for an insurance company to deny recovery to an innocent insured when the terms of the policy unambiguously supported the denial.[xxiii] The court explained: 

For a court to declare as a matter of public policy that an insurer may not make the obligations of the insureds joint would be to upset long-established rules of insurance contract interpretation. …

No matter what this court’s opinion is on the public policy issue of this case, it is not within the province of the appeals court to announce a public policy that has the effect of overturning long-established rules of insurance contract jurisprudence. Such a step can be taken only by the state supreme court….[xxiv]

d.    Smith v. Am. Family Mut. Ins. Co. (2007)

Following Walker, the court of appeals held in Smith v. Am. Family Mut. Ins. Co.,[xxv] that an intentional acts exclusion barred recovery by an innocent insured for a fire started by his spouse, but also ruled that a fact issue existed as to whether the spouse acted with “intent” based on her cognitive status at the time of the fire. In Walker, a wife burned down her home while intoxicated by setting fire to the curtains.[xxvi] Prior to the fire, the wife had been struggling with alcoholism, depression, anxiety, and suicidal ideation for which she was prescribed medication, and had been acting erratically and threatening to burn down the home.[xxvii] On the night of the fire, the wife called her husband (who was playing cards with friends) to tell him that she had been drinking and threatened to burn the house down, to which the husband responded, “knock it off” and “go to sleep.”[xxviii] As a result of the fire, the wife was charged with arson and ultimately convicted after entering a no contest plea.[xxix] After the fire, the husband and wife sought to recover under their homeowners’ policy with American Family.[xxx] Because the wife admitted to intentionally starting the fire, American Family denied the claim.[xxxi] After the husband and wife filed suit, the circuit court granted summary judgment to American Family, and the husband and wife appealed.[xxxii] 

On review, the court appeals reversed the circuit court’s decision on the ground that a factual question existed as to whether the wife had the mental capacity to “intentionally” set the fire.[xxxiii] In reaching this conclusion, the court agreed that American Family’s policy only covered “accidental” losses, not “intentional” losses.[xxxiv] First, the policy provided an initial grant of coverage only for “accidental direct physical loss to property.”[xxxv] While not defined by the policy, the Smith court ruled that “accidental” means “an event that is characterized by a lack of intent.”[xxxvi] Second, an intentional acts exclusion precluded coverage for “any loss or damage arising out of any act committed … by or at the direction of any insured … and … with the intent to cause a loss.”[xxxvii] The court interpreted the exclusion to apply “if [the wife] intended the act that caused the loss, i.e., setting fire to the curtains, regardless of whether [the wife] intended to cause the total loss of the home.”[xxxviii] Due to the wife’s intoxication and mental health problems, the court ruled that a disputed issue of material fact existed as to whether the wife intended to set fire to the curtains.[xxxix]

Next, the court addressed the husband’s claim that he should be entitled to recover under the homeowners’ policy as an “innocent spouse,” regardless of whether his wife intended to set fire to the curtains.[xl] After discussing Hedtcke and Walker, the court ruled that the husband was not entitled to recover if his wife intentionally set the fire because the intentional acts exclusion precluded recovery for intentional acts committed “by or at the direction of any insured.”[xli] This language, the court ruled, “creates a joint obligation of the insureds for the intentional acts of one insured, barring recovery for innocent insureds such as [the husband].”[xlii] Accordingly, the appeals court remanded the case back to the circuit court with instructions that the “policy unambiguously bars recovery to [the husband] as an innocent insured in the event that a jury finds that [the wife] intended to start the fire, precluding her recovery under the intentional loss exclusion.”[xliii]

It is important to note that Smith is an unpublished opinion issued before July 1, 2009, and therefore cannot be cited in any court in Wisconsin as precedent or authority pursuant to Wis. Stat. § 809.23(3).

e.     Kemper Indep. Ins. Co. v. Islami (2021)

Like in Smith, the court of appeals applied the Walker decision in Kemper Indep. Ins. Co. v. Islami[xliv] to hold that an innocent spouse was barred from recovering under a fire loss policy by the intentional act of their spouse. In Islami, a wife was denied coverage for a fire started by her estranged husband from whom she was legally separated.[xlv] As part of the separation, the couple agreed that the wife would have sole title to the home.[xlvi] When the wife was away on vacation, the husband started the fire to spite the wife.[xlvii] Following the fire, the husband was criminally prosecuted for arson.[xlviii] Everyone agreed that the husband intentionally set the fire and that the wife did not conspire with the husband and knew nothing about his plan or actions.[xlix] After the trial court ruled in favor of no coverage, the wife appealed.[l]

On appeal, the wife argued that her husband’s intentional acts could not be imputed to her under Hedtcke.[li] The court disagreed, holding that Walker—not Hedtcke—controlled the case, because the language of the policy unambiguously provided coverage to “no insureds” when “an insured” engages in concealment or fraud.[lii] Under the terms of the policy, the husband’s actions “voided coverage to all insureds.”[liii] The court concluded by stating, “Although our decision results in a loss of coverage to one who the parties agree—and we have no reason to doubt—is an innocent insured, this court is not authorized to rewrite the terms of the agreed-upon policy.”[liv]

On review, the Wisconsin Supreme Court affirmed the lower court’s decision.[lv] Like the court of appeals, the supreme court was not persuaded by the wife’s reliance on Hedtcke.[lvi] Applying standard principles of contract interpretation, the supreme court ruled that the plain and unambiguous terms of the policy excluded coverage for innocent spouses like the plaintiff.[lvii]

f.      Am. Strategic Ins. Corp. v. Curry (2024) 

In a recent decision, the Wisconsin Court of Appeals ruled in Am. Strategic Ins. Corp. v. Curry[lviii] that an “illegal or criminal acts” exclusion did not preclude coverage for a house fire intentionally started by the insured’s son while suffering from an episode of schizophrenia. The son testified that he started the fire “because he believed there were cameras and ‘imposters’ in the house.”[lix] He was criminally charged with arson but was found “not guilty by reason of mental disease or defect” after entering a guilty plea and was committed to the custody of the Wisconsin Department of Health Services (“DHS”) for a period of seven years.[lx]

Following the fire, the insureds submitted a claim to their homeowners’ insurer, American Strategic Insurance Corporation (“ASI”).[lxi] ASI denied the claim and commenced an action for declaratory judgment.[lxii] ASI took the position that its policy did not provide coverage for the loss under an exclusion for “illegal or criminal acts,” which stated that the policy did “not insure for a loss caused directly or indirectly by … any illegal or criminal act performed by, at the direction of, or in conspiracy with any ‘insured.”[lxiii]

At summary judgment, the insureds argued that the exclusion did not apply because their son was found not guilty by reason of mental disease or defect, which meant he “did not commit a ‘criminal’ act because he lacked the necessary intent to be convicted of arson.”[lxiv] The trial court agreed and entered summary judgment in favor of the insureds.[lxv] ASI appealed.[lxvi]

On appeal, ASI argued that the insured’s son performed a criminal act despite being found not guilty due to mental disease or defect.[lxvii] By entering a guilty plea, the son admitted that he committed all the elements of the crime of arson.[lxviii] Under Wisconsin law, when a criminal defendant enters a guilty plea and asserts an affirmative defense of not guilty by reason of mental disease or defect, the defendant “admits that but for the lack of mental capacity, the defendant committed all the essential elements of the offense charged.”[lxix]

The court of appeals ruled that the “illegal or criminal acts” exclusion was ambiguous as to the meaning of the word “criminal,” which was not defined by the policy.[lxx] On the one hand, the insured’s son committed a crime because he violated the law.[lxxi] On the other hand, the insured’s son did not commit a crime because he was found not guilty and was not subject to criminal punishment or responsibility (DHS commitments are regarded as non-punitive in nature).[lxxii] Because the word “criminal” in the exclusion was susceptible to more than one reasonable meaning, it was ambiguous.[lxxiii]

Finally, the court of appeals distinguished the facts of the case from its prior decision in Wright v. Allstate Cas. Co.,[lxxiv] in which the court held that an intentional acts exclusion applied to the insured’s actions even though he was mentally ill at the time. In Wright, a widow whose husband was shot and killed by their neighbor sought benefits from the neighbor’s homeowners’ insurer, Allstate.[lxxv] Allstate argued that coverage was barred by an intentional acts exclusion contained in its policy.[lxxvi] The widow argued that the intentional acts exclusion should not apply because the neighbor was mentally ill at the time of the shooting, and therefore he was incapable of intending to cause injury or commit a criminal act.[lxxvii] Following the shooting, the insured was adjudicated not guilty by reason of mental disease or defect.[lxxviii] The court of appeals rejected the widow’s arguments, holding that the nature of the neighbor’s act does not change because of his mental illness, and that his mental illness “did not prevent him from intending his actions.”[lxxix] “Therefore, there can be no coverage.”[lxxx]

Unlike the policy in Wright, the policy issued by ASI in Curry did not contain an intentional acts exclusion.[lxxxi] Thus, the court was presented with a different question (whether the son’s acts were “criminal,” not “intentional”).[lxxxii] Accordingly, the conclusion in Wright had no bearing on the court’s conclusion.[lxxxiii] 

Like Smith, however, Curry is an unpublished decision that cannot be cited in any court in Wisconsin as precedent or authority. While Curry was published after July 1, 2009, it is a per curiam decision (and only opinions issued on or after July 1, 2009 that are authored by a single judge or by a member of a three-judge panel may be cited for persuasive value under Wis. Stat. § 809.23(3)(b)).

III.          Relevant Policy Provisions

When presented with a fire loss claim by an innocent spouse for the intentional acts of their husband or wife, there are several important policy provisions to look for in the policy.

To begin with, most homeowners’ policies provide an initial grant of coverage only for “sudden and accidental” losses. The term “accident” is not usually defined by the policy. Wisconsin courts have defined “accident”—as used in an insurance contract—to mean an event “occurring by chance or arising from unknown or remote causes” and/or “an event which takes place without one’s foresight or expectation.”[lxxxiv] Whether a claimed loss was caused by an “accident” is typically analyzed from the viewpoint of the insured.[lxxxv] In determining whether a loss was “accidental” from the viewpoint of the insured, a circuit court will focus on “the injury-causing event,” i.e., “the incident or injury that gives rise to the claim, not the plaintiff’s theory of liability.”[lxxxvi] “Only if the facts alleged show that the injury-causing event is an accident is the policy’s initial grant of coverage triggered.”[lxxxvii] In general, intentional acts are not considered an “accident.” To be intentional, the actor must (1) intentionally act, and (2) intend some injury or harm to follow from that act.[lxxxviii]

Most homeowners’ policies contain an Intentional Acts Exclusion, which states that the policy ‘does not cover any loss caused directly or indirectly by the intentional acts of or at the direction of any insured, if the loss that occurs may be reasonably expected to result from such acts or is the intended result of such acts.’ If the policy permits payment to an innocent insured for the intentional acts of another insured, it may nonetheless include a provision that ‘payment to the innocent insured may be limited in accordance with his or her ownership interest in the property and/or reduced by payments to a mortgagee.’ 

Included in the Intentional Acts Exclusion or as a separate standalone exclusion, most policies will also contain an Illegal or Criminal Acts Exclusion, which states that the policy ‘does not cover any loss caused directly or indirectly by the illegal or criminal acts of any insured.’ The exclusion may state that it applies ‘regardless of whether or not the insured person is actually charged with or convicted of a crime.’ Additionally, the exclusion may state that it applies ‘even if the insured lacked the mental capacity to govern his or her conduct.’

The policy may also include a Misrepresentation, Fraud or Concealment clause which states that the policy ‘does not cover any loss in which any insured has concealed or misrepresented any material fact, the concealment or misrepresentation was made with intent to deceive, and the insurer relied on the concealment or misrepresentation.’ 

Most policies contain a provision concerning What You Must Do After a Loss which states that the insureds ‘will cooperate with the insurer and assist the insurer in any matter concerning a claim or suit.’ As part of its duty to cooperate, the policy usually requires the insureds to ‘submit to examinations under oath, separately and apart from any other insured.’ The policy will further state that the insurer has ‘no duty to provide coverage under the policy if any insured person fails to comply with these terms and the failure to comply is prejudicial to the insurer.’

As discussed in Nemetz, the policy may contain a Severability of Interest clause stating that the policy applies “applies separately to each insured person against whom a claim or suit is brought.” Conversely, the policy may contain a Joint Obligations provision which ‘imposes joint obligations on all insureds,’ which ‘means that the responsibilities, acts and failures of any insured is binding upon all insureds.’ This provision may appear at the very beginning of the insuring agreement.

The policy may also contain a Mortgagee clause which states that ‘a covered loss will be payable to the mortgagee named on the policy declarations, to the extent of their interest,’ and that the insurer ‘will protect the mortgagee’s interest in the event of an intentional or criminal act by an insured.’

IV.          Available Defenses

Based on the foregoing cases and policy provisions, the following defenses may be available to an insurer who is presented with a claim by an “innocent spouse” for fire losses intentionally caused by their husband or wife.

First, the Hedtcke rule, which held that an innocent insured can still recover for losses intentionally caused by his or her spouse, has mostly been rendered obsolete by updated policy language. Most newer policies, like the policies issued in Smith and Islami, provide an initial grant of coverage only for “sudden and accidental” losses and exclude coverage for losses caused by the “intentional or criminal acts of or at the direction of any insured person…” (Emphasis added.) The courts in Smith and Islami ruled that the use of the term “any insured” imposed a joint obligation upon all insureds for the intentional acts of one insured, barring recovery by the innocent insured. Assuming the insurer’s policy contains similar language, the starting position will be that the policy does not provide coverage to the innocent spouse. 

Next, intoxication and insanity are not always a defense to policy exclusions. Courts in other states are split on the issue of whether arson committed by an insane person constitutes an “intentional” act under an insurance policy. Some jurisdictions have held that coverage is not precluded under an intentional acts exclusion clause when an injury results from an insane act.[lxxxix] Courts in other jurisdictions have held that an injury inflicted by an insane person is precluded under an intentional acts exclusion if the actor understands the physical nature and consequences of the act, even if the actor is unable to distinguish right from wrong.[xc] In Wright, the Wisconsin Court of Appeals ruled that an intentional acts exclusion applied to the insured’s actions even though he was mentally ill at the time. Thus, if the policy was issued and delivered in Wisconsin, insanity cannot be raised as a defense to an intentional acts exclusion. 

There are two unpublished cases in Wisconsin, however, that carve out exceptions to the Wright rule: Curry and Smith. Curry involved a policy that contained a Criminal Acts Exclusion, but not an Intentional Acts Exclusion. Because of the ambiguous nature of the word “criminal,” the Curry court was unwilling to deny coverage to an insured who was found not guilty of arson by reason of mental disease or defect. Similarly, in Smith, the court ruled that a fact issue existed as to whether the insured actually “intended” to cause a fire because he was intoxicated and experiencing a mental health breakdown at the time of the fire. While Smith (2007) was issued before Wright (2011), there is nothing in Wright that specifically overrules Smith or precludes a trial court from ruling that a fact issue exists as to intent due to the insured’s mental health condition. Unlike in Smith, the insured in Wright had already been convicted of first-degree intentional homicide. For this reason, the Wright court concluded that no fact question existed for trial in the coverage action. If the insured has not been charged or convicted of a crime of which intent is an element, a trial court may be more willing to follow the example set in Smith. Although Smith is an unpublished case that cannot be cited, it is reasonable to assume that a trial court will find it and read it.

Even if the insurer is obligated to pay the innocent spouse (either because the policy language permits it or a factfinder determines that the guilty spouse did not act intentionally due to intoxication or a mental disease or defect), the circuit court must still tailor the recovery permitted to the innocent spouse so that it does not benefit the guilty spouse.[xci] In Hedtke, that meant the innocent spouse receiving half of the insurance proceeds pursuant to her pro rata interest in the property.[xcii] In Felder v. North River Inc. Co.,[xciii] however, the trial court awarded 100% of the insurance proceeds to the innocent spouse because the guilty spouse was dead. In that case, the husband burned the insured’s house with gasoline and then proceeded to commit suicide with a gun during the fire.[xciv] The insurer sought a declaration that the wife’s recovery should be limited to her fifty percent interest in the property under Hedtcke.[xcv] Because the husband did not survive the fire, the court ruled that the wife was entitled to full recovery.[xcvi] First, when the husband died, his interest was extinguished, and the wife became the sole owner of the property.[xcvii] Second, because the husband was dead, there was no possibility the trial court’s award would benefit the wrongdoer.[xcviii]

Ultimately, determining whether there can be a recovery without benefiting the wrongdoer is a question of law that the trial court must decide.[xcix] “Once it has been determined that a recovery without benefiting the wrongdoer can occur, it is for the trial court in the exercise of its discretion to fashion the actual recovery.”[c] The fact that the innocent spouse and guilty spouse are both alive and intend to continue their marriage does not foreclose the possibility that a fair recovery can be fashioned.[ci]

V.            Rights and Obligations

Regardless of the policy exclusions, an insurer has certain rights and obligations when presented with a fire loss claim resulting from the intentional acts of an insured.

a.     Right to an Examination Under Oath

Under most policies, the insurer has the right to conduct examinations under oath (EUO) of the insureds after a loss. If an insured refuses to attend an EUO or refuses to answer questions at the EUO (including if the insured invokes his or her Fifth Amendment right against self-incrimination), the insurer may be able to deny coverage on that basis alone. In Link v. Link, the court of appeals ruled that an insurer was not required to provide coverage for a claimed loss under its policy because the insured failed to comply with the policy’s cooperation clause.[cii] Specifically, the insured refused to provide responses to the insurer’s discovery requests in the coverage action, instead asserting his Fifth Amendment privilege.[ciii]

b.    Obligation to Provide Coverage for Losses Resulting from Domestic Abuse

The policy may contain an exception to the Intentional or Criminal Acts Exclusion for ‘property loss or damage resulting from an act, or pattern, of abuse or domestic abuse.’ This exception is based on Wis. Stat. § 631.95(2)(f), which prevents denial of coverage to a domestic abuse victim based on acts of the abuser that cause, or instill fear of causing, physical harm to the victim. It states as follows: 

Restrictions on insurance practices; domestic abuse.

(2) General prohibitions. Except as provided in sub. (3), an insurer may not do any of the following:

… (f) Under property insurance coverage that excludes coverage for loss or damage to property resulting from intentional acts, deny payment to an insured for a claim based on property loss or damage resulting from an act, or pattern, of abuse or domestic abuse if that insured did not cooperate in or contribute to the creation of the loss or damage and if the person who committed the act or acts that caused the loss or damage is criminally prosecuted for the act or acts. Payment to the innocent insured may be limited in accordance with his or her ownership interest in the property or reduced by payments to a mortgagee or other holder of a secured interest.[civ] 

A similar exception was analyzed in Islami (discussed above), in which the supreme court ruled the exception did not apply because the record lacked any evidence showing that the arson constituted “abuse” or “domestic abuse” against the wife, as statutorily defined.[cv] Under Wis. Stat. § 813.122(1)(a), “abuse” is defined to mean, among other things, “[p]hysical injury inflicted on a child by other than accidental means.”[cvi] Under Wis. Stat. § 968.075(1)(a), “domestic abuse” is defined to mean:

[A]ny of the following engaged in by an adult person against his or her spouse or former spouse …:

1. Intentional infliction of physical pain, physical injury or illness. 

2. Intentional impairment of physical condition.

3. A violation of s. 940.225 (1), (2) or (3) [sexual assault].

4. A physical act that may cause the other person reasonably to fear imminent engagement in the conduct described under subd. 1., 2. or 3.

In Islami, the supreme court commented that an act of arson could qualify as a “physical act” under the fourth definition of “domestic abuse,” but rejected a claim that the exception applied to the facts of the case because there was no evidence in the record that the wife reasonably feared imminent engagement in the sort of bodily harm described in the statute.[cvii]

c.     Obligation to Mortgagee

Even if the policy contains an intentional and/or criminal acts exclusion, the insurer may still have an obligation to satisfy any mortgages listed on the policy declarations if the policy contains such language.[cviii]

d.    Right to Subrogation

Ordinarily, an insurer does not have a right of subrogation or indemnification against its own insured.[cix] In Madsen v. Threshermen’s Mut. Ins. Co., however, the court of appeals ruled that an insurer has a right to subrogate against an insured who intentionally sets a fire, reasoning that “the wrongdoer and the insured are the same person.”[cx]

In Madsen, Threshermen’s issued a fire insurance policy to Robert and Nancy Madsen who owned a bar and grill.[cxi] The policy contained a standard mortgage clause naming a mortgagee and authorizing payments directly to the mortgagee for any loss that may occur.[cxii] After a fire destroyed the bar and grill, Threshermen’s paid the balance of the Madsens’ mortgage directly to the mortgagee listed on its policy but denied a claim submitted by the Madsens for their interest in the property on the basis that Robert Madsen intentionally set the fire.[cxiii] After the Madsens sued, a jury agreed with Threshermen’s and returned a verdict in favor of the insurer.[cxiv] On post-verdict motions, the trial court ruled that Nancy Madsen was not entitled to benefits as an “innocent insured” and denied Threshermen’s subrogation claim against Robert Madsen for the amount paid to the mortgagee ($33,050).[cxv] Cross-appeals followed.[cxvi]

On review, the court of appeals reversed both decisions.[cxvii] First, the court ruled that the language of Threshermen’s policy permitted an innocent insured such as Nancy to recover for losses intentionally caused by Robert, and that it was possible to tailor the recovery so that it did not benefit Robert.[cxviii] In short, the court ruled that Nancy was entitled to her one-half interest in the property.[cxix] “[T]o deny her any recovery because of Robert’s misconduct would be tantamount to punishing her for his misconduct.”[cxx] 

Next, the court ruled that Threshermen’s was entitled to subrogation from Robert for the amount it paid under the terms of the fire insurance policy to the mortgagee for the damages resulting from Robert’s arson.[cxxi] Additionally, the court held that Threshermen’s was entitled to consequential damages including the amount it must pay to Nancy, reasonable adjusting expenses, and reasonable litigation expenses it incurred as the natural and proximate result of Robert’s intentional conduct.[cxxii] Because the amount of consequential damages was an issue of fact to be resolved by the trial court, the court of appeals remanded the action for further proceedings.[cxxiii]

VI.          Conclusion

When an innocent spouse submits a claim for a fire loss intentionally caused by his or her spouse, the policy language and particular facts of the loss will dictate whether the innocent spouse can recover. If the policy excludes coverage for intentional acts committed by “any” insured and imposes joint obligations on “all” insureds, the innocent spouse likely cannot recover (unless the loss was caused by an act of domestic abuse per statute). If the policy permits recovery by the innocent spouse, a full investigation should be performed to determine whether the fire was started at the direction of the “innocent” spouse. If the insureds refuse to cooperate or conceal or misrepresent any facts during the investigation, the insurer may be able to deny the claim on that basis alone. An investigation should also be performed into whether a recovery can be tailored to the innocent spouse that does not benefit the guilty spouse. Regardless of whether the innocent spouse can recover, however, the insurer may still be obligated to satisfy any mortgages listed on the policy declarations page. Finally, to the extent the insurer must make payments, it may have a right of subrogation against the guilty spouse for the payments made, including the amount paid to the mortgagee, the amount paid to the innocent spouse, reasonable adjusting expenses, and reasonable litigation expenses incurred as the natural and proximate result of the guilty spouse’s intentional act. 

Author Biography: 

Vincent (Vince) J. Scipior is a shareholder at Coyne, Schultz, Becker & Bauer, S.C. in Madison with over thirteen years of experience in personal injury, insurance coverage, professional liability, products liability, and wrongful death cases in state and federal courts. Vince received a bachelor’s degree in legal studies in 2007 from the University of Wisconsin-Madison and his law degree in 2011 from the University of Wisconsin Law School. He is admitted to practice in all Wisconsin state and federal courts. He has tried cases in Adams, Columbia, Grant, Green, and Dane Counties. Vince is the current Editor of the Wisconsin Civil Trial Journal and a member of the WDC Board of Directors. Vince was recognized as a 2017 Up and Coming Lawyer by the Wisconsin Law Journal and has been included in the Wisconsin Rising Stars List by Super Lawyers Magazine since 2016.