INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Executive’s arson moots innocent co-insured argument
The Press Bar and Parlor was owned by Horseshoe Club, LLC, and operated by Timeless Bar, Inc., (Timeless) when it suffered a total fire loss. The bar was insured under a businessowner’s policy issued by Illinois Casualty Company (ICC). Timeless was listed as the policy’s named insured and Horseshoe appeared as an additional insured.
Andrew and Jessie Welsh were the owners of both Timeless and Horseshoe. While they were married when they purchased the businesses, they were divorced at the time of the loss. Andrew was the executive in charge of finances while Jessie handled their bar’s daily operations (except she had no access to or control of the operation’s banking activity). Neither individual appeared as a named or an additional insured under the ICC policy.
After the fire, a claim was submitted by Andrew. Both Timeless owners signed a sworn proof of loss, which included a statement that they did not know how the fire started and had no direct or indirect involvement with the incident. The loss, which was estimated at nearly $2 million, was investigated by authorities. The result was a finding that Andrew was guilty of arson. He later confessed to the crime and was convicted. ICC responded by denying coverage.
The insurer’s rejection of the claim was based upon application of three policy provisions. One was for material misrepresentation, the second was a dishonesty exclusion, and the third was an exclusion for intentional acts. Each item barred coverage. The intentional acts exclusion did contain an exception. It did not apply to innocent co-insureds when another insured is prosecuted for actions that create a loss. However, ICC did not hold that exception to apply to the circumstances. Jessie, Timeless and Horseshoe sued. When a district court ruled against them, the entities appealed.
The higher court reviewed the matter in which Jessie, Timeless and Horseshoe failed in asserting their claims. Specifically, they requested policy reformation per application of a state law, recognition that ICC breached their contract and that Jessie was owed equitable relief as an innocent co-insured. In addition, they held that declaratory judgment in their favor should have been granted and that an appraisal should have been ordered.
The court reviewed applicable state law and ruled that its application was merited as Andrew did materially misrepresent the facts of the fire loss. With regard to the argument of policy reformation, Jessie dropped her challenge to the lower court finding that she did not have standing as an insured.
That left the question of whether the innocent co-insured doctrine was applicable to corporations or limited liability companies. The court reasoned that the actions of corporate or company officers were fully attributable to such entities, so the status could not be applied. The lower court ruling in favor of ICC was affirmed.
Timeless Bar, Inc., d/b/a The Press Bar and Parlor; Horseshoe Club, LLC; Jessie Welsh v. Illinois Casualty Company—US Court of Appeals, Eighth Circuit—No. 24-2245—July 22, 2025.
