The Burden of Proof

What is Needed for an Insurer to Reject a Claim

Whenever an insurer attempts to refuse coverage because a loss is caused by the intentional act of an insured, it must understand that it has the burden of proving that intent by a preponderance of available evidence. Denial for intentional acts without sufficient evidence can be the basis for a suit against the insurer.

In Crown Tree Service, Inc. And Anthony Koenn, Dba Crown Tree Service v. Atain Specialty Insurance Company, A Michigan Corporation Domiciled in The State of Texas and Doing Business in California, No. 16-17117, United States Court of Appeals for The Ninth Circuit (February 26, 2018) the Ninth Circuit was asked by Anthony Koenn and Crown Tree Services, Inc. (collectively, Koenn) to reverse the grant of summary judgment in favor of Atain Specialty Insurance Company.

The insurance coverage dispute arose from a commercial general liability policy sold by Atain to Koenn. The Bear Yuba Land Trust sued Koenn after he removed trees from Bear Yuba’s property under a belief the trees belonged to a neighbor. Koenn’s policy provided a duty to defend claims for property damage caused by an “occurrence,” which is defined as “an accident.”

There is inconsistent authority among California Court of Appeal cases on whether an insured’s reasonable belief, as was Koenn’s belief in this case, transforms an intentional act into an accident.

Federal courts in California, without agreement from state appellate courts, are entitled to predict what the California Supreme Court would hold. The Ninth Circuit predicted that the California Supreme Court would conclude that an insured’s subjective belief—no matter how reasonable—cannot transform an intentional act into accidental conduct.

Without reference to California Insurance Code Section 22, The Ninth Circuit reasonably concluded that the chopping down of trees without right – a trespass – even if done without guile and in error – was an intentional act.

The Ninth Circuit noted that the California Supreme Court has held that an insured’s unreasonable belief cannot turn a “purposeful and intentional act” into “an accident,” and that no California court has held that a subjective belief of a litigant may influence the accident analysis and change an intentional act into an accident.

Further, a potential for coverage does not exist merely because some California courts have interpreted the policy term “accident” differently. There are no known cases suggesting that an insurer has a duty to defend where the only potential for liability turns on resolution of a legal question.

Unless there is an accident – a fortuitous event – that is neither expected nor intended by the insured there can be no coverage under a liability insurance policy. In this case the insured intended to trespass upon the land of Bear Yuba, chopped down its trees, and caused it damage. That it subjectively believed it had a right to do so did not change the fact that intended to do what it did.

When Mentally Ill Son Sets Fire to House in an Attempted Suicide May his Innocent Parents Recover?

When an insurer denies a claim because of an intentional act exclusion the insurer must prove that the act was done by an insured, that the insured intended to do the act to damage the property the risk of loss of which was insured, and whether his co-insureds were entitled to recover indemnity for losses caused by the insured acting intentionally.

In Kentucky, in Brent Foreman, Kathleen Foreman, And Logan Foreman Appellants v. Auto Club Property-Casualty Insurance Company, 2018-SC-0618-DG, Supreme Court of Kentucky (February 18, 2021) Brent and Kathleen Foreman brought a declaratory judgment action in the circuit court to establish that Auto Club Property-Casualty Insurance Company owed payment under a homeowner’s insurance policy for property damage caused by a house fire started by their teenage son, Logan, in a suicide attempt. Auto Club denied liability based on the intentional-loss exclusion in the policy.

The circuit court granted summary judgment in the Foremans’ favor. The trial court’s judgment declared the exclusion inoperative because Logan was “of such unsound mind as to summary judgment was erroneously granted. However, because the Supreme Court found that an insured’s mental-incapacity defense applies to intentional-act exclusion provisions, summary judgment in favor of Auto Club was. The record reflects evidence that would permit an inference that Logan was aware of the nature of his actions.

For example, as the Court of Appeals notes, Logan told the official arson investigator that he obtained gasoline from the basement earlier in the evening, poured the gas around the couch and placed his books on it. A fact-finder could reasonably infer that Logan was able to understand the nature of his actions and had either the subjective intent to start a fire to end his life in a way that would cause damage to the home or that it was at least reasonably foreseeable that damage to the couch, if not destruction of the family home could happen.

Affirming the Court of Appeals’ decision reversing the trial court’s grant of summary judgment in favor of the Foremans the Supreme Court remanded the case to the trial court to allow the insureds an opportunity to litigate a lack-of-capacity defense consistent with the standard set forth in this opinion.

Although changes in public policy should not be made by judicial fiat the Kentucky legislature should note that it is time to enact greater protections for innocent co-insureds so that insurance coverage better aligns with the reasonable expectations of the insured. Logan should recover nothing from the policy but his innocent parents should not suffer as a result.

The intentional nature of an act can be inferred under certain circumstances, but not when the insured perpetrator is a minor. While an overwhelming majority of courts in other jurisdictions have applied the inferred-intent rule in cases where an adult insured sexually abused a minor, the courts are evenly split with respect to the extension of this inference to minors.[1]

Other courts have found that, based on a minors’ relative lack of experience in sexual matters, it is improper to infer an intent to injure in cases where a minor sexually abuses another minor.[2]

The Vermont Supreme Court, after acknowledging that sexual contact with a minor can be inferred as intentional, in Northern Security Insurance Co. v. Perron, 777 A. 2d 151 (Vt. 05/04/2001), said:

We conclude, therefore, that the inferred-intent rule is inapplicable in cases where it is alleged that a minor has sexually abused another minor. Rather, the trier of fact should examine the facts and circumstances of the case before it, including the circumstances surrounding the sexual conduct, as well as the minor’s “age, ability, intelligence, and experience,” Hagan, 698 N.E. 2d at 277, to determine whether the minor alleged perpetrator expected or intended his or her actions to result in harm to the victim. By declining to apply the inferred-intent standard, we do not require insurers to defend and provide coverage whenever a minor sexually abuses another minor. We merely require that the minor perpetrator’s intent be determined on a case-by-case basis. Coverage will be required only when a trier of fact determines, based on the particular characteristics and experience of the minor, that the minor did not intend to injure by his actions.

Michelle Latray appealed the trial court’s rendition of summary judgment in favor of Colony Insurance Company d/b/a Colony Specialty Insurance Company (hereinafter “Colony”) In Michelle Latray As Receiver Of The Assets Of Clifton Boatright For The Benefit Of Judgment Creditors W.L. Roberts, Dana Roberts, Erin Leigh Roberts, And Katelyn Roberts Gonzales v. Colony Insurance Company D/B/A Colony Specialty Insurance Co., No. 07-19-00350-CV, Court of Appeals Seventh District of Texas at Amarillo (January 11, 2021) was asked to determine if an intentional act alleged in suit was sufficient to refuse both defense and indemnity to the bankrupt insured.

Boatright dumped debris onto property owned by W.L. Roberts and others. The City of Kosse hired Boatright to demolish the town’s old high school. Their agreement included Boatright’s removal and disposal of the debris resulting from the demolition. Their agreement also required Boatright to obtain a policy of liability insurance prior to the commencement of demolition. An agent for Colony issued a policy covering the planned operations.

David Garrett, a friend of Boatright’s and a long-time tenant on the Roberts’ property, asked Boatright if he could take some of the debris to use for purposes of erosion control. According to Boatright, he mistakenly believed the property on which Garrett wished to place the debris belonged to Garrett when, in fact, the property belonged to the Robertses. Neither Garrett nor Boatright sought the Roberts’ permission before placing the debris on the property.

Garrett and Boatright, without the consent of the property owner, took debris from the demolition site and placed it on the Roberts’ property. By the end of the project, Garrett and Boatright had placed forty tons of debris on the Roberts’ property. When W.L. Roberts discovered the debris on his property, he filed suit against Boatright and others for illegal dumping and damage to his land. Roberts subsequently obtained a judgment against Boatright for $50,000, plus $309 in court costs.

Latray sought relief under the insurance policy issued to Boatright by Colony. When Colony denied that coverage, Latray sued Colony for breach of contract, violation of the Deceptive Trade Practices Act (“DTPA”), violation of section 541 of the Texas Insurance Code, and breach of the common law duty of good faith and fair dealing. Colony argued that because Boatright’s actions were intentional, the policy did not cover Boatright’s acts and thus, it had no duty to defend nor indemnify.

The trial court granted Colony’s motion for summary judgment and denied Latray’s motion for partial summary judgment.

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