The Seventh Circuit Applies Innocent Co-insured Doctrine In Displacing The Insurance Policy’s Intentional Act Exclusion

In Streit v. Metropolitan Casualty Insurance Co., 863 F.3d 770 (7^th Cir. 2017), the U.S. Seventh Circuit Court of Appeals held that the insurance company could not rely on the policy’s intentional act exclusion to bar innocent co-insureds from receiving coverage for an arson loss because the exclusion conflicted with the terms of Illinois’ standard fire insurance policy. In this case, the insured’s son intentionally set fire to the insured home. Because the son was related to the insureds and lived in the home, the insurer denied coverage under the policy’s intentional acts exclusion. Under Illinois law, if there was a conflict between an insurance policy and the standard fire insurance policy, the standard fire insurance policy controlled. Under the Illinois standard fire insurance policy, an insurer was permitted to disclaim coverage for intentional acts only if the damage occurred by means “within the control or knowledge of the insured.” In this case, the insurance company policy permitted the insurance company to disclaim coverage so long as there was any intentional loss caused by any party, including innocent co-insurance. This provision conflicted with the Illinois standard fire insurance policy. Therefore, the Court struck down the policy’s intentional act exclusion, finding coverage for the innocent co-insureds.