Wisconsin Supreme Court Concludes that “Innocent Spouse” May Not Recover for Spouse’s Arson and Fraud
Ismet Islami asked the Supreme Court to reverse the court of appeals decision affirming grant of summary judgment in favor of Kemper Independence Insurance Company (Kemper) denying coverage to Ismet for the loss of her home. In Kemper Independence Insurance Company v. Ismet Islami, 2021 WI 53, No. 2019AP488, State Of Wisconsin In Supreme Court (June 8, 2021) the Supreme Court rejected her argument over a rather strenuous dissent.
Ydbi Islami, from whom Ismet is legally separated, intentionally set fire to the home. All parties stipulated that Ydbi concealed facts from Kemper about his involvement in the fire with the intent to deceive, and Kemper relied upon Ydbi’s concealment and fraud to its detriment (i.e., the common law definition of fraud). The circuit court ruled the “concealment or fraud” condition in Kemper’s insurance policy covering the home (“the Policy”) barred coverage for both Ydbi and Ismet’s claims. The court of appeals agreed.
Ismet raises three arguments. First, Ismet contends that, given her legal separation from Ydbi, Ydbi is not her spouse and therefore not an “insured” for purposes of the Policy. Second, Ismet argues the Policy’s “concealment or fraud” condition is ambiguous, conflicts with the Policy’s “intentional loss” exclusion, and therefore does not bar coverage. Third, Ismet asserts she is an innocent.
Ismet and Ydbi married in 1978. In 1988, Ydbi was convicted of a number of crimes, including stalking and sexual assault of a minor, involving victims other than Ismet. Following these incidents, Ismet initially sought a divorce from Ydbi but, for religious reasons, obtained a legal separation instead. As part of the separation, which occurred in 1998, both parties entered into a Marital Settlement Agreement, under which Ismet received sole ownership of their home in Oconomowoc, although Ismet and Ydbi continued to live in the home together. Neither party proceeded with a divorce.
In 2012, Kemper issued a “Package Plus” home and automobile insurance policy covering Ismet’s Oconomowoc home and listed automobiles. Under the Policy, Ismet is listed as the “Named Insured.” However, the introduction to the Policy reads: “Throughout the policy, ‘you’ and ‘your’ mean the person shown as the ‘Named Insured’ in the Declarations. It also means the spouse if a resident of the same household.” The Policy further states that “insured” means “you and residents of your household who are . . . [y]our relatives.” Additionally, both Ismet and Ydbi are listed in the vehicle coverage section as “Operator 1” and “Operator 2,” respectively. Both parties also marked their marital status as “Married.”
The Policy also contains a “concealment or fraud” condition. As relevant to this dispute, the provision bars coverage for “all insureds” if “an insured” concealed or misrepresented a material fact, with intent to deceive and on which Kemper relied. In full, the provision reads:
Under Section 1 – Property Coverages, with respect to all “insureds” covered under this policy, we provide coverage to no “insureds” for loss under Section 1 – Property Coverages if, whether before or after a loss, an “insured” has:
1) Concealed or misrepresented any fact upon which we rely, and that concealment or misrepresentation is material and made with intent to deceive; or
2) Concealed or misrepresented any fact and the fact misrepresented contributes to the loss.
In June 2013, a fire occurred at the Oconomowoc home, damaging the property and its contents and rendering the home a total loss.
Relying on the Policy’s “concealment or fraud” condition (among other provisions), Kemper denied coverage for the loss of the home. Kemper’s declaratory relief action sought a declaration that the “concealment or fraud” condition barred coverage for both Ismet and Ydbi.
Ultimately, the circuit court granted Kemper’s motion for summary judgment, finding that Ydbi was an “insured” under the Policy, and Ismet’s and Ydbi’s legal separation in 1998 did not alter Ydbi’s status. The circuit court further found that, because Ydbi was an “insured,” the “concealment or fraud” condition barred recovery for Ismet.
Ismet contends Ydbi is not her spouse because they are legally separated; therefore, according to Ismet, Ydbi is not an “insured” under the Policy. The Policy definitions answer this question: “Throughout the policy, ‘you’ and ‘your’ mean the person shown as the ‘Named Insured’ in the Declarations. It also means the spouse if a resident of the same household.” (Emphasis added by the court)
Insurance policies are contracts to which courts apply the same rules of law applicable to other contracts. Applying the plain language of the Policy, the Supreme Court concluded that Ismet and Ydbi are “spouses” for purposes of the contract. The contract explicitly indicated the marital status of both Ismet and Ydbi as “Married.” Because the Policy expressly designates Ismet and Ydbi as spouses, Ydbi meets the definition of “you” under the Policy, which makes Ydbi an “insured.”
Additionally, both Ismet and Ydbi represented to Kemper that they were each “insureds” under the insurance contract. Ismet and Ydbi lived under the same roof of the Oconomowoc home; they are in a relationship recognized as marital under Wisconsin law, albeit legally separated; and they each considered their relationship when contracting with Kemper, as demonstrated by listing their status as “Married.” Critically, both Ismet and Ydbi also stated in their “Sworn Statement in Proof of Loss” that they were each “insureds” under the contract. With this understanding, Kemper conducted an Examination Under Oath of both Ismet and Ydbi, during which Ismet repeatedly stated for the record that Ydbi was her “husband.” Giving effect to the expectations of the parties, and applying the plain language of the contract, Ismet and Ydbi are “spouses” and therefore insureds under the Policy.
The “Concealment Or Fraud” Condition Bars Coverage For Ismet Under The Policy.
When the terms of a contract are plain and unambiguous, the Supreme Court must construe the contract as it stands. In this case, the Policy terms are plain and unambiguous, including the “concealment or fraud” condition. Because both Ismet and Ydbi are insureds under the Policy, if either so concealed or misrepresented a material fact on which Kemper relied, neither individual can recover.
As defined under the Policy, “intentional loss” means “any act an insured’ commits or conspires to commit with the intent to cause a loss.” Ydbi’s act of arson, which caused the loss of the Oconomowoc home, meets this definition. The “concealment or fraud” condition eliminates coverage not only for the insured who commits the intentional act causing loss, but for all insureds.
Ydbi committed arson, lied to Kemper in his “Sworn Statement in Proof of Loss” and Examination Under Oath, and induced Kemper to rely upon his lies. Under the “concealment or fraud” condition, the Policy provides coverage for “no insureds”—including Ismet.
The Supreme Court concluded that the circuit court properly granted Kemper’s motion for summary judgment. Ydbi is an insured under the terms of the Policy and because he “concealed or misrepresented” a material fact, “with intent to deceive” and upon which Kemper relied, the Policy’s “concealment or fraud” condition precludes coverage for Ismet.
The decision of the court of appeals was affirmed.
Although the court presumed that Ismet was innocent but was not entitled to recover under the policy because of the fraud committed by her husband, Ydbi, she also signed the proof of loss under oath making a claim for the damage caused intentionally by Ydbi. Her falsely sworn statement should have defeated her claim of innocence. That fact was not needed to be established by Kemper because the clear language of the policy made it obvious that no insured could recover if a fraudulent claim is presented to an insurer and the insurer proves if was fraudulent.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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