Opinion ID: 1525042
Heading Depth: 3
Heading Rank: 1

Heading: Ambiguity of the Policy

Text: Allstate argues that the Ryan doctrine is inapplicable to this case because the provisions in the policy dealing with the rights of an innocent co-insured are clear and unambiguous from the perspective of the reasonable purchaser of homeowners insurance. Allstate relies upon the following provisions in the policy to support this argument: DEFINITIONS. You or Your  means the person named on the declarations page as the insured and that person's resident spouse. Insured person  means you and, if a resident of your household: (a) any relative; and (b) any dependent person in your care. ..... INSURING AGREEMENT. The terms of this policy impose joint obligations on persons defined as an insured person. This means that the responsibilities, acts and failures to act of a person defined as an insured person will be binding upon another person defined as an insured person. ..... CONCEALMENT OR FRAUD This policy is void if it was obtained by misrepresentation, fraud or concealment of the material facts or if you intentionally conceal or misrepresent any material fact or circumstance, before or after loss. (Emphasis added in policy.) Allstate contends that because the INSURING AGREEMENT provides that acts of any insured person are imputed to every other insured person, and because the CONCEALMENT OF FRAUD section provides that misconduct by you, which is included within the definition of insured person, serves to void the policy, the policy unambiguously sets forth Allstate's intention to prevent an innocent co-insured from recovering for losses caused by the wrongdoing of an insured. The Court of Appeals agreed with this argument and based its holding thereon. Although we would be inclined to agree if these were the only provisions applicable to this case, other relevant provisions introduce a substantial amount of ambiguity into the status of an innocent co-insured under the policy. For example, in addition to the CONCEALMENT OR FRAUD provision, Allstate relied upon the following provision in its denial letters to James and Pamela Spence: LOSSES WE DO NOT COVER We do not cover loss to the property ... resulting in any manner from: ..... 6. Intentional or criminal acts of an insured person, if the loss that occurs: (a) may be reasonably expected to result from such acts; or (b) is in fact the intended result of such acts. Although there is no question that section 6, standing alone, does not allow an innocent co-insured to recover because of the joint obligations portion of the INSURING AGREEMENT, an amendment to the policy entitled Tennessee Amendatory Endorsement provides that [t]his exclusion [section 6] applies only to those persons who commit, conspire, collude, direct or acquiesce to such acts. (emphasis added). Because that amendment nullifies the joint obligations component of the INSURING AGREEMENT in the context of intentional or criminal acts of an insured, it appears to represent a complete reversal of Allstate's position toward innocent co-insureds set forth in the main policy. And since it is undisputed that James Spence had nothing to do with setting the fire, it would appear that this specific amendment would entitle him to recover. Allstate responds that this is not the case because the CONCEALMENT OR FRAUD section, not the INTENTIONAL ACTS section, governs the disposition of this case. Allstate supports this assertion by arguing that because the acts of you (in this case James and Pamela Spence) serve to totally void the policy under the CONCEALMENT OR FRAUD section, whereas the INTENTIONAL ACTS section applies to all insured persons and is merely an exclusion from coverage, it is not necessary to look further than the CONCEALMENT OR FRAUD provision in order to determine the outcome of this case. Allstate's argument is unconvincing for two reasons. Initially, it overlooks the fact that Allstate relied upon the INTENTIONAL ACTS provision in denying the claims of James and Pamela Spence in the first place. Therefore, Allstate's assertion that it is absolutely clear that only the CONCEALMENT OR FRAUD section is germane to this case is belied by its own actions. More importantly, however, the provisions at issue send fundamentally contradictory messages concerning the rights of innocent co-insureds when the policy is read in its entirety. Although the CONCEALMENT OR FRAUD provision, standing alone, precludes recovery by an innocent co-insured, the amendment to section 6 certainly contemplates such a recovery. That amendment therefore stands in marked contrast to the CONCEALMENT OR FRAUD provision. Allstate attempts to harmonize the two provisions by repeating that a violation of the CONCEALMENT OR FRAUD provision by persons defined as you serves to void the policy, while the violation of the INTENTIONAL ACTS provision by any insured person merely serves to exclude coverage for that particular occurrence. This means, it says, that the amendment to section 6 was intended to allow a recovery only for an innocent co-insured other than the named insured and his or her spouse (you). The clear implication of this argument is that the named insured and his or her spouse (you) can never be characterized as an innocent co-insured under the policy. This strained argument is questionable as matter of contractual construction, and it is definitely irrelevant to the question at hand. It is questionable on its merits because the INTENTIONAL ACTS provision, as amended, applies to every insured person; and this term by definition includes the named insured and his or her spouse. Therefore, on its face, the INTENTIONAL ACTS provision does allow a person defined as you to recover for the wrongful acts of another person defined as you. Allstate's interpretation of the policy is cogent only if the reader of the policy is able to ascertain that the CONCEALMENT OR FRAUD provision takes precedence over the INTENTIONAL ACTS provision, and there is no way to know this unless one is cognizant of the full significance of the legal term void contained in the prior provision. This fact highlights the irrelevance of Allstate's argument. The pertinent question here is whether a reasonable person, reading the insurance contract in its entirety, would realize that the INTENTIONAL ACTS provision, as amended, applies only to insured persons other than those defined as you. This construction is debatable as an abstract question of law; and we are quite certain that it would not be construed in this manner by a reasonable person purchasing homeowners insurance. In short, we are convinced that such a person would not be able to ascertain with the requisite degree of certainty Allstate's alleged intention to totally deny an innocent co-insured defined as you any recovery under the policy.