Theft Followed By Arson: One Loss Or Two? – Claims Magazine

ISSUE:

The insured owned a home which was insured under an ISO HO 00 03 04 91 policy. While the insured was away on vacation, a group of youths broke into her home, stole a desktop computer along with various other household furnishings and then attempted to destroy evidence of their identity by setting the house on fire. Local fire investigators confirmed the fact that fuel from a hurricane lamp from the insured's living room was deliberately poured on a desk and several pieces of furniture and then ignited. The dwelling and contents were underinsured. Does this scenario constitute one loss for purposes of the limits of insurance applicable to the dwelling and personal property, or, as suggested by the insured, did the theft constitute one loss and the arson a second loss?

ANALYSIS:

Based on the fact that the proximate cause of the insured's property damage was the "continuous or repeated" criminal conduct of the intruders, this scenario should be adjusted as one loss. The term "loss" is not defined in the policy but is defined in Webster's New Universal Unabridged Dictionary 847 (1989) in the insurance context as the "occurrence of an event, as death or damage of property, for which the insurer makes indemnity under the terms of a policy." The HO 00 03 04 91 Homeowners policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in . . . property damage."

No reported decisions dealing with whether this particular series of events constitutes one loss or two under a Homeowners policy have been located. The few cases interpreting the meaning of the term "occurrence" in a property insurance limits context have taken different approaches. In Slater v. United States Fidelity & Guaranty Co., 400 N.E.2d 1256 (Mass. 1980), the court held that each act of embezzlement was considered to be a separate occurrence subject to the stated limit, so as to favor the insured. The Slater court basically found "occurrence" to be ambiguous and interpreted that ambiguity in favor of broader coverage.

On the other hand, in Business Interiors, Inc. v. Aetna Ca. & Sur. Co., 751 F.2d 361 (10th Cir. Okla. 1984), the court held that an employee's embezzlement scheme accomplished through 40 separate checks over a seven-month period constituted one loss for purposes of applying the limit of liability under employee dishonesty coverage. That policy provided that "[a]s respects any one employee, dishonest or fraudulent acts of such employee during the policy period shall be deemed to be one occurrence for the purpose of applying the deductible." Id. at 362.

Similarly, in Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 61 (3d Cir. W.D. Pa. 1982), the court held that "an occurrence is determined by the cause or causes of the resulting injury" and noted that a court should determine "if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage." In other words, if there is only one cause for all of the loss, then it constitutes a single occurrence. And recently, in Peco Energy Co. v. Boden, 64 F.3d 852 (3d Cir. Pa. 1995), the court held that a five-year series of thefts of fuel oil constituted one occurrence because the thefts were part of a single continuous scheme. The court held that when a scheme to steal property is the proximate and continuing cause of a series or combination of thefts, the losses constitute part of a single occurrence.

One means of reconciling these two different approaches to determining the number of occurrences may be found in Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127 (2d Cir. British Columbia 1986). In that case, the court said that coverage in liability insurance cases is gauged by looking at the underlying conduct or cause of the liability because the purpose of a liability policy is to protect from liability for tortious conduct. In a first-party property damage policy, though, the purpose is to provide financial protection against damage to property. In such policies, the parties must have intended to provide coverage for property damage each time it occurred unexpectedly, unless the damage occurring at one point in time was merely part of a single continuous event that had already caused other damage.

While the ISO Homeowners policy does not contain the provision relied upon in Business Owners, the general rule relied upon by that court, that an occurrence is determined by the cause of the resulting damage, supports the finding that the homeowner insured suffered one loss at the hands of the criminals that damaged her property. Considering the "continuous or repeated" nature of the criminal conduct, the mere fact that the insured was able to distinguish the method by which each article of property was damaged (theft or arson) is irrelevant with respect to whether one or two losses occurred.

Therefore, based upon the reasoning relied upon in Business Interiors, Appalachian Ins., and Peco, since the cause of the loss sustained by the homeowner was the criminals' scheme (theft followed by arson), it follows that only one loss was sustained. The fact that the arson was committed by the thieves and immediately followed the theft establishes the "continuous and repeated" element of the analysis. This result is also consistent with the reasoning of Newmont Mines.