Present: All the Justices 

K & W BUILDERS, INC., DEFINED 

BENEFIT TRUST NO. 1 

 OPINION BY 

v. Record No. 970279 CHIEF JUSTICE HARRY L. CARRICO 

 January 9, 1998 

MERCHANTS AND BUSINESS MEN'S 

MUTUAL INSURANCE COMPANY, ET AL. 

FROM THE CIRCUIT COURT OF THE CITY OF SALEM 

Roy B. Willett, Judge 

 This controversy involves a fire insurance policy issued by 

Merchants and Business Men's Mutual Insurance Company 

(Merchants), covering a building in the City of Salem owned by K 

& W Builders, Inc., Defined Benefit Trust No. 1 (K&W), and 

occupied by Ahmad Thiab (Thiab) and A and N Food, Inc. (A&N) 

under an assignment of lease to A&N. Thiab and A&N were the 

named insureds in the policy, and K&W was listed as an additional 

insured. 

 Thiab and A&N used the building for the operation of a 

restaurant known as "Mixers." On April 3, 1994, the building and 

its contents were destroyed by fire. K&W made claim against 

Merchants for the loss of the building. However, Merchants 

discovered evidence that the fire had been set by or at the 

direction of Thiab or A&N, or both of them, and that one or both 

had intentionally misrepresented and concealed material facts 

during the investigation into the cause of the fire. Relying 

upon a fraud provision and a dishonest act exclusion in its 

policy, Merchants denied the claim. 

 On January 4, 1995, K&W filed a motion for judgment against 

Merchants seeking recovery of $208,000, the face amount of the 
policy, plus the sum of $17,446.77, "which represents lost rent." 

 As an affirmative defense, Merchants alleged that "Ahmad Thiab 

and/or A and N Food, Inc." had engaged in "fraudulent conduct" by 

deliberately setting the fire and had "committed concealment" and 

"made material misrepresentations," all in violation of the terms 

of the policy "so as to render the policy null and void as to all 

insureds," even an insured who is "innocent of any wrongdoing."1

 

 K&W filed a motion for summary judgment, asserting that 

there was "no genuine issue as to any material fact" and that it 

was "entitled to judgment as a matter of law." Following 

argument, the trial court denied the motion, accepting Merchants' 

interpretation of the policy that 

 any act of Ahmad Thiab and/or A and N Food, 

Incorporated which violates the "concealment, 

misrepresentation or fraud" provision or falls within 

the scope of the "dishonest or criminal act" exclusion 

contained in the policy at issue will void any coverage 

to which [K&W] might otherwise be entitled, 

irrespective of whether [K&W] was involved to any 

extent in the commission of such act. 

 Prior to trial, the parties stipulated that the only issues 

that should be submitted to the jury were "whether the fire was 

set by or at the direction of A and N Food, Inc. and/or Ahmad 

Thiab, and whether A and N Food, Inc. and/or Ahmad Thiab made 

material misrepresentations to [Merchants] during the course of 

its investigation of this fire loss." The parties also agreed 

that these issues would be submitted to the jury in a special 

 

 1 Merchants conceded below that it "found no evidence that K 

& W was involved with or participated in the wrongful acts of 

Thiab and A & N." 
verdict form. 

 The jury found that the fire had been set by or at the 

direction of Thiab and a representative of A&N and that Thiab and 

a representative of A&N had made material misrepresentations to 

Merchants. Then, consistent with its prior ruling, the trial 

court entered judgment in favor of Merchants, and we awarded K&W 

this appeal. 

 As noted previously, Thiab and A&N were the named insureds 

in Merchants' policy and K&W was listed as an additional insured. 

 The policy states that "[t]hroughout this policy the words 'you' 

and 'your' refer to the Named Insured shown in the Declarations" 

and the words "'we,' 'us' and 'our' refer to the Company 

providing this insurance." 

 The fraud provision of the policy, relied upon by Merchants 

when it denied coverage for K&W's claim, is found in the part of 

the policy related to commercial property coverage. In pertinent 

part, the provision reads as follows: 

 This Coverage Part is void in any case of fraud by you 

as it relates to this Coverage Part at any time. It is 

also void if you or any other insured, at any time, 

intentionally conceal or misrepresent a material fact 

. . . . 

 The dishonest act exclusion of the policy, also relied upon 

by Merchants when it denied coverage for K&W's claim, reads in 

pertinent part as follows: 

 We will not pay for loss or damage caused by or 

resulting from any of the following: 

 . . . . 

 h. Dishonest or criminal act by you, any of your 

partners, employees, directors, trustees, authorized 

representatives or anyone to whom you entrust the 
property for any purpose. 

 Citing Rockingham Mut. Ins. Co. v. Hummel, 219 Va. 803, 250 

S.E.2d 774 (1979), K&W argues that when, as here, the interests 

of coinsureds are severable, an innocent insured is not barred 

from recovery by the wrongdoing of another insured over whom the 

innocent insured exercises no control. In Hummel, the insured 

property was owned by husband and wife as tenants by the 

entirety. The property was destroyed by fire and the insurer 

paid the insureds the amount of the loss. The insurer later 

discovered that the husband had intentionally burned the property 

and sought to recover the amount it had paid. The wife claimed 

she was entitled to retain a share of the insurance proceeds. 

 The insurance policy covering the property named both the 

husband and the wife as the "Named Insured" and provided that the 

policy would be void "in case of any fraud . . . by the insured." 

Id. at 804, 250 S.E.2d at 775. We held that because the husband 

and wife's legal interest in the insured property was joint and 

not severable, the wife's claim was subject to the general rule 

that "[w]hen the interests of the insureds are deemed joint and 

nonseparable, . . . the innocent insured may not recover under 

the policy following a fraudulent act on the part of the other 

coinsured." Id. at 805, 250 S.E.2d at 776. 

 It follows from this holding, K&W argues, that because it 

had no joint interest with either A&N or Thiab and was innocent 

of any wrongdoing, it was entitled to recover for its loss. 

However, we made an additional holding in Hummel, a holding with 

dispositive effect here: 
 Furthermore, the form of the insurance contract was 

joint; the "Named Insured" was [the husband and the 

wife]. Thus under the policy and as the "insured", 

each spouse had . . . the joint duty to refrain from 

defrauding the insurer. If either spouse violated 

[this duty], the breach was chargeable to the "Named 

Insured" preventing either spouse from recovering any 

amount under the policy. 

Id. at 806, 250 S.E.2d at 776.2 Hence, even absent a joint 

interest between insureds and notwithstanding that one of the 

insureds may be innocent of any wrongdoing, resort must be had to 

the form of the insurance contract to determine the rights and 

liabilities of the parties. 

 At this point, it is necessary to resolve a dispute between 

the parties over whether the word "you," as used in the policy, 

refers only to the named insureds, Thiab and A&N, or to all the 

insureds, including K&W, which was listed as an additional 

insured. K&W accuses Merchants of vacillating on the subject, 

saying at one point in the course of this proceeding that "you" 

includes only the named insureds and at another point that it 

includes all the insureds, whether listed as named insureds or as 

an additional insured. 

 

 2 K&W also cites Aetna Ins. Co. v. Carpenter, 170 Va. 312, 

196 S.E. 641 (1938). There, the insurer denied coverage on the 

ground that the insured's 15-year-old daughter, acting as the 

insured's agent, deliberately set the fire. We affirmed a 

verdict in favor of the insured, holding there was no proof of 

either the incendiarism or the agency. Id. at 325, 196 S.E. at 

647. We did recognize the rule that "no fraudulent acts of an 

agent or of a third person, even though the incendiary be a 

relative, will void the policy unless the insured is implicated 

in the fraud." Id. at 327, 196 S.E. at 647. However, Carpenter

is inapposite. The case involved no policy provisions similar to 

those at issue here. Indeed, we said that if the insurer desired 

to avoid coverage for the willful or deliberate act of an agent, 

it should have included an express exception on the subject. 
 To resolve the dispute, we will agree with K&W that "you" 

includes all the insureds. When so included, K&W maintains, 

"there can be little doubt that [a] guarantee [contained in the 

policy] protects K&W as an innocent insured." 

 Entitled "Control of Property," this "guarantee" provision 

is found in the part of the policy relating to commercial 

property coverage. The provision reads as follows: 

 Any act or neglect of any person other than you beyond 

your direction or control will not affect this 

insurance. 

 After quoting this language, K&W concludes that "an innocent 

insured is not its co-insured's keeper, and if a co-insured acts 

improperly -- outside the innocent insured's direction or control 

-- such misconduct 'will not affect this insurance' with respect 

to the innocent insured." If the Control of Property provision 

is not so interpreted, K&W contends, there is ambiguity 

concerning "the question of whether the fraud clause or dishonest 

acts exclusion negate[s] coverage for all insureds based upon the 

acts of any coinsured." 

 However, to reach the conclusion K&W argues for, one must 

read the word "you," as used in the Control of Property 

provision, as though K&W were the only insured, resulting in this 

reading: 

 Any act or neglect of any person other than K&W beyond 

K&W's direction or control will not affect this 

insurance. 

Under this version, since the act or neglect in question was 

attributed to Thiab and A&N, a person or entity other than K&W 

beyond K&W's direction or control, the insurance provided by 
Merchants' policy would not be affected. However, this is an 

impermissible reading because it ignores the indisputable fact 

that there are other insureds under the policy. 

 With "you" interpreted as including K&W, the only proper 

reading of the Control of Property provision is as follows: 

 Any act or neglect of any person other than Thiab, A&N, 

or K&W beyond Thiab, A&N, or K&W's direction or control 

will not affect this insurance. 

Under this reading, since the act or neglect in question was not 

attributed to a person or entity other than Thiab, A&N, or K&W, 

the Control of Property provision simply does not apply, and, 

contrary to K&W's contention, there is no ambiguity concerning 

"the question of whether the fraud clause or dishonest acts 

exclusion negate[s] coverage for all insureds based upon the acts 

of any coinsured." 

 Indeed, the reading we give the Control of Property 

provision is entirely consistent with the view that the fraud 

clause and dishonest acts exclusion negate coverage for all 

insureds based upon the acts of any coinsured. The fraud clause 

provides that coverage is void "in any case of fraud by you" or 

"if you or any other insured . . . intentionally conceal or 

misrepresent a material fact." We read this language to mean 

that coverage will be void in the event K&W or either of its 

coinsureds acted fraudulently or intentionally concealed or 

misrepresented a material fact. The dishonest acts exclusion 

provides that the insurer "will not pay for loss or damage caused 

by . . . [a d]ishonest or criminal act by you." We read this 

language to mean that the insurer will not pay for loss or damage 
in the event any one of the three insureds commits a dishonest or 

criminal act. This exclusion, however, contains additional 

language demonstrating the error of K&W's position that an 

innocent insured is entitled to coverage notwithstanding the 

wrongdoing of others. Although a particular insured might be 

innocent of wrongdoing, the exclusion bars coverage for loss or 

damage caused by the dishonest or criminal act of that insured's 

"partners, employees, directors, trustees, authorized 

representatives or anyone to whom [that insured] entrust[s] the 

property for any purpose." 

 Similar to the situation in Hummel, the three insureds here 

had the joint duty to refrain from defrauding the insurer and 

committing dishonest or criminal acts. And, as in Hummel, if any 

one of the insureds violated that duty, "the breach was 

chargeable to the [other insureds] preventing [all the insureds] 

from recovering any amount under the policy." 219 Va. at 806, 

250 S.E.2d at 776. 

 K&W argues, however, that "[e]ven if the policy language 

could be read unambiguously to support the insurer's restrictive 

interpretation, a clause barring an innocent insured from 

recovery based on occurrences fully outside his control runs 

afoul of Va. Code § 38.2-2105 and the public policy underlying 

that statute." Code § 38.2-2105, which prescribes standard 

language for inclusion in a fire insurance policy, reads as 

follows: 

 This entire policy shall be void, if whether before or 

after a loss, the insured has wilfully concealed or 

misrepresented any material fact or circumstance 

concerning this insurance or the subject thereof, or 
the interest of the insured therein, or in case of any 

fraud or false swearing by the insured relating 

thereto. 

K&W says that "[p]lainly, this language speaks in terms of 

actions by the insured -- not any other possible insured -- as 

the trigger for voiding coverage" and that this "is consistent 

with the concept that an innocent insured (who does not share a 

joint interest in property with the wrongdoer) should not lose 

coverage based on the unratified wrongdoing of a coinsured." 

 In response to an argument by Merchants that "nothing in Va. 

Code § 38.2-2105 prevents 'the insured' as used in that section 

'from being defined as all of the identified insureds,'" K&W 

submits that "[t]o the contrary, basic rules of grammar reveal 

that 'the insured' is singular and 'all insureds' is plural." 

Furthermore, K&W asserts, "[o]ther courts have viewed 'the 

insured' in this context as referencing the individual wrongdoing 

insured and not all innocent co-insureds." 

 We disagree with K&W. With due deference to the other 

courts whose decisions K&W cites, we do not think it is 

reasonable to read the term "the insured" in Code § 38.2-2105 as 

encompassing only a wrongdoing insured. Had this been the 

General Assembly's intention, it could have expressed the 

intention merely by prescribing a standard provision stating that 

a policy shall be void as to any insured who engages in the 

proscribed conduct, thus insulating an innocent insured against a 

coinsured's wrongdoing. 

 We are not at liberty to substitute the italicized language 

for the words the General Assembly actually used. And without 
such substitution, the fraud provision and the dishonest acts 

exclusion of Merchants' policy do not run afoul of Code § 38.2-

2105 and the public policy underlying that statute. 

 Finding no error in the judgment of the trial court, we will 

affirm the judgment. 

Affirmed.