SJC Finds No Bad Faith By Insurer In Fatal Arson Claim / Insured Receives 50% Proceeds

Attorneys David Hassett and Michael Melville obtained a favorable ruling by the Massachusetts Supreme Judicial Court in an action arising from arson at a property owned by two insureds.  One insured committed arson at the property and died as a result of the fire.  The remaining “innocent co-insured” sought one hundred percent of the insurance proceeds following the fire.

The insurer denied the claim by the innocent co-insured for coverage relying on an intentional loss exclusion in the policy that barred recovery when any co-insured intentionally caused a loss. Following a decision by the Superior Court the insured appealed the decision, and the Supreme Judicial Court accepted the case for Direct Appellate Review.  The insurer then retained Hassett & Donnelly, P.C. to represent its interests in the appeal.

The innocent co-insured argued that she was entitled to one hundred percent of the insurance policy proceeds.  Attorney Hassett argued before the SJC that even if the innocent co-insured was entitled to recovery for the actions of the arsonist co-insured, that recovery was limited to fifty percent.  Attorney Hassett argued that, as the insureds prior to the fire owned the property as tenants in common, they each have a several fifty percent interest in the insurance policy proceeds.  The arsonist co-insured forfeited his right to recover through his bad actions.  The innocent co-insureds right to recovery was not increased, and remained fifty percent.

The innocent co-insured also argued that the insurer had violated M.G.L. c. 93A and committed bad faith by misrepresenting facts of the insurance policy, refusing to pay the claims, failing to effectuate a prompt and fair settlement and compelling the insured to commence litigation to recovery amounts owed under the policy. The innocent co-insured also argued that, by issuing a policy that contradicts the prescribed provisions of G. L. c. 175, § 99, the insurer committed a per se violation of M.G. L. c. 93A. Attorney Hassett argued that the insurer did not commit bad faith when it denied the claim as the existing Massachusetts law held that an innocent coinsured cannot recovery when an co-insured commits arson.  Because the insurer based its declination decision on a plausible, reasoned legal position, the insurer did not commit bad faith even when that coverage decision was determined to be mistaken at a later time.

The Supreme Judicial Court agreed the claimant was only entitled to fifty percent (50%) of the insurance policy proceeds following the fire loss and affirmed the lower court’s ruling. The Supreme Judicial Court further ruled that the M.G.L c. 93A claim was properly dismissed.


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