In Ong v. Fire Insurance Exchange (No. B252773, filed 4/3/15), a California appeals court ruled that a vacancy exclusion limited to damage caused by “vandalism or malicious mischief” did not bar coverage for damage to a vacant property caused by a warming fire purposely started by a transient that got out of control and spread to other parts of the property.
In Ong, the insured’s rental premises had been vacated by tenants and the utilities turned off. Nearly two years later, the insured submitted a claim for fire damage that had just occurred. An investigator reported finding signs that a squatter had been living in the building, stating that: “[I]t appears the fire may have been initiated as the result of an uncontrolled warming fire started by an unauthorized inhabitant.” The investigator found firewood and a mattress, and concluded that holes burned in the floor were the result of the squatter attempting to throw burning wood out the door when the fire got out of control.
The policy excluded vandalism as follows: “We do not cover direct or indirect loss from: . . . 4. Vandalism or Malicious Mischief, breakage of glass and safety glazing materials if the dwelling has been vacant for more than 30 consecutive days . . . just before the loss. A dwelling under construction is not considered vacant.” The term “Vandalism” was not defined in the policy. The insurer denied coverage based on the exclusion, stating: “Our investigation indicates that this loss was the result of vandalism. A trespasser entered the vacant dwelling and intentionally set a fire on the kitchen floor.”
In the bad faith lawsuit that followed, the insurer sought summary judgment, arguing that the insured “was seeking coverage for an intentionally set fire that destroyed a vacant dwelling.” And the trial court agreed that coverage was excluded, ruling that “[t]he unauthorized person or persons who intentionally set the fire on the kitchen floor certainly created an obvious hazard to the dwelling without justification, excuse or mitigating circumstances” thus, “the dwelling was vacant as contemplated in the fire insurance policy.”
The appeals court, however, held that the exclusion would not bar coverage. The appeals court noted that the vacancy exclusion did not mention fire, but would only bar coverage if the loss were considered “vandalism” or “malicious mischief.” According to the court, that required an intent to cause damage that was not present: “‘Vandalism’ refers to ‘willful or malicious destruction or defacement of public or private property’. . . . ‘Malicious’ in turn is defined in the dictionary as ‘having or showing a desire to cause harm to someone.’” (Citing Merriam-Webster Dictionary (2012).) More specifically, the court said that: “the reasonable interpretation of ‘vandalism’ as used in the policy exclusion means malicious destruction or defacement where there is malice in fact or actual ill-will or intent to injure.”
The appeals court found that requirement was not met: “Defendant argues that a number of other jurisdictions have ‘recognized that intentionally set fires satisfy the ‘vandalism’ component of the vacancy exclusion.’ We do not find these cases to be persuasive. None appear to involve an ‘uncontrolled warming fire’ or a ‘warming fire [that] got out of hand.’ Indeed, some involved fires where an accelerant was used. . . . Here, in contrast, the transient apparently kicked the firewood in an attempt to knock it out the door and stop the spread of the fire and the fire was ‘unintentionally incendiary.’”
The court said that a vacancy exclusion protects the insurer when a property is vacant for an extended period of time, but in this case the vacancy exclusion was limited to “vandalism and malicious mischief,” which did not include damage from a fire that, while admittedly started on purpose, became “uncontrolled” and “unintentionally incendiary.”
The ruling drew a strong dissent, with the dissenting justice arguing that by requiring proof of “ill-will,” the majority was effectively imposing the standard for malice on “vandalism,” where ordinary dictionary definitions only require that the act be deliberate or intentional. And the dissenter pointed out that the mere act of starting the fire would suffice, even if it did not become uncontrollable:
“I do not agree that the transient’s apparent efforts to stop the spread of the fire create a disputed issue of fact as to whether intentionally starting a fire on the kitchen floor is willful destruction or defacement of property. Starting such a fire would inevitably damage or deface the floor. It therefore constitutes vandalism under the Webster’s dictionary definition. And it does not matter that the person who started the fire did not intend for it to become as destructive as it did. The insurance policy exclusion applies to both direct and indirect loss from vandalism. Starting the fire was vandalism (because it was willful destruction or defacement), so the loss resulting from the fire is not covered.”
The dissent pointed out that fire damage from a squatter was precisely the type of damage that would occur when a property is left vacant for an extended period, and therefore, contemplated by a vacancy exclusion. However, in ruling that the loss was covered, the majority treated the loss as equivalent to a friendly fire that became hostile and therefore covered by fire insurance, a dichotomy having roots in the earliest decisions on fire insurance.
