Allow me to set the stage for our story.
Bob is a homeowner in a multi-unit condo building who gets behind on his mortgage. Like many homeowners, Bob has homeowners’ insurance through… let’s call them WHNS Insurance Company (WHNS).
Before you ask, WHNS stands for “We Hire Nicholas Siewert” Insurance Company. If you don’t know who Nicholas Siewert is (gratuitous self-promotion alert), check out my author’s link on this blog post.
Anyways... Bob decides that the quickest way to solve his money issues is to flood the condo. He gets a little money, can catch up on his mortgage, and WHNS will pay to remodel his condo.
I know, I know, I never said Bob was a smart man. I just said he was a man… wait no… I just said his name was Bob… umm…
So anyway, Bob files a claim with WHNS for the damages to his condo. WHNS hires… wait for it… attorney Nicholas Siewert to investigate the claim. I know, shocking right? It’s my story, so please indulge me.
During the investigation, Bob’s interior security system records him disconnecting the water line under the kitchen sink and leaving the shutoff valve open. It then records him leaving the home and not returning for three days.
After the insurance company’s attorney sends Bob the most ironclad and defensible denial letter ever written (thank you very much), Bob’s neighbors and their insurance companies want to know if WHNS is going to pay for the damage to their condos. The plot thickens!
You see, when Bob flooded his condo, the water leaked through the shared walls with his neighbors. Not only did the adjoining condos sustain cosmetic damages to the shared walls, but the condos also suffered structural damage and thousands of dollars of destroyed personal property.
But because there is no coverage for Bob, there is no coverage for his neighbors, correct? Well, not so fast.
Expectations, Intentions and Games we Play with Them
Many homeowner insurance policies, including Bob’s, contain some variation of the following:
Coverage X does not apply to the following: bodily injury or property damage that was expected or intended by an insured.
That last phrase, “expected or intended by an insured” is our focus.
That simple five-word phrase is either your shield or a sword. In examining this phrase, Michigan courts have ruled that “intended or expected” language bars coverage for injuries or damages caused by insureds acting intentionally, despite the awareness that harm could follow. Even when the insured claims they did not intend or expect the injury or damages, that flies in the face of reason, common sense, or experience, according to the courts.
What if the policy language is slightly different? What if, instead, it reads:
Coverage X does not apply to the following: bodily injury or property damage that was caused intentionally by an insured.
In this case, the results are very different. Michigan case law suggests the phrase “caused intentionally by an insured” requires the application of a subjective standard to the insured’s actions.
This means when the harm should have been reasonably expected by the insured, the courts will find intentionality. There is case law where an insured had the specific intent to burn his property and not his neighbors, and there was no “accident,” and thus no “occurrence,” under the policy.
However, this decision was later clarified, with the court holding that accidents are evaluated from the standpoint of the insured, not an injured party (i.e., a subjective standard). Further, it is for a trier of fact to decide whether the results are or should have been reasonably expected.
Setting aside all the confusing legal language, what does this mean for you, the average insurance adjuster?
Case law suggests that when an exclusion includes the words “expected or intended,” then we need to look at whether Bob expected or intended for the flooding to occur. Which clearly, he did.
If Bob’s policy uses the phrase “intentionally by an insured.” Then the question becomes: was the damage to the neighboring condos and their personal belongings something Bob should have reasonably expected to occur? Arguably, Bob never intended to damage his neighbors’ condos or their personal property or to defraud his insurer. However, this question cannot be decided by a judge and must be decided by a jury.
This means that if the policy language states damage was “expected or intended” Bob’s neighbors and their insurers can look elsewhere. However, if the policy requires Bob to have “intentionally” caused the damages, WHNS is likely on the hook. As the law is a precise endeavor, so is the precision of the language we must use.
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