When a loss occurs, people often turn to their insurance companies to pay the loss. This is true whether the loss is due to a car crash, a slip and fall at one’s house, or theft. However, not all losses are insurable. Insurance companies sometimes do, and legally can, deny payment of claims based on language in the underlying policy or exclusions for certain types of losses. It is crucial to actually read the underlying insurance policy and to engage in a dialogue with one’s insurance agent to make sure the policy in fact covers what you think it does. The recent case of Southern Trust Co. v. Matthew Phillips illustrates why this is important.
In Southern Trust Co., the insured, Matthew Phillips, owned a vacant house. The house caught fire as a result of arson. Mr. Phillips, however, did not set the fire. The insurance company, Southern Trust, denied coverage for the loss due to an exclusion for losses caused by “vandalism and malicious mischief, theft or attempted theft” if the dwelling was vacant. Neither party disputed that the dwelling was vacant and that arson caused the loss. However, the parties did not agree on whether the loss was insurable.
A lawsuit for declaratory judgment was filed, which is a remedy available to both insureds and insurance companies (as well as others disputing the interpretation of a contract or document). In this case, Southern Trust asked a court to declare the rights and obligations under the underlying insurance policy while Mr. Phillips answered and counterclaimed arguing there was insurance coverage.
The arguments presented to both the trial court and court of appeals focused on how the policy was written, where within the policy certain terms were defined (i.e. “vandalism and malicious mischief, theft or attempted theft”), and the types of coverage discussed throughout the policy. In addition, both parties and the court looked to past cases dealing with insurance policy analysis.
The court of appeals issued a fairly lengthy decision describing how it reached its conclusion that fire and arson were in fact covered losses at a vacant dwelling, but that vandalism or malicious mischief were not insurable losses at a vacant dwelling. In other words, Mr. Phillips was entitled to coverage for the arson, but he wouldn’t have been had there been “malicious mischief”.
Understanding insurance policies is very important for individuals and businesses alike. Insurance agents are the gatekeeper to these discussions, but when disputes such as the one Mr. Phillips faced, occur, both insurance companies and individuals may be well served by including legal counsel in such discussions as well.
Southern Trust Co. v. Matthew Phillips, No. E2014-01581-COA-R3-CV, (Tenn. Ct. App. June 10, 2015).