Background
Martin D. Renfroe and his daughter, Sherry Lambert, jointly owned an Alabama house amid contentious disputes over the property and other assets. Before USAA issued a $500,000 homeowners policy naming both as insureds, Renfroe warned that Lambert might burn the house. Lambert later warned USAA that Renfroe might do so. The house burned several weeks later, shortly after a state court ordered it sold at auction.
USAA denied Renfroe’s claim after investigating evidence consistent with arson. The policy excluded losses intentionally caused by any insured and expressly denied coverage even to insureds who did not participate. Renfroe sued for breach of contract and bad faith. The district court declared the exclusion void under Alabama public policy, barred USAA from relying on it at trial, and entered a reduced judgment of $226,727.85 for Renfroe after a jury verdict in his favor. It separately granted summary judgment to USAA on bad faith.
The Court’s Holding
The Eleventh Circuit held that Alabama law permits the policy’s innocent-insured exclusion. Neither Alabama statutes nor Alabama precedent establishes a public-policy prohibition against such provisions. The court explained that Hosey v. Seibels Bruce Group treated co-insureds’ interests as several when a policy lacked an express contrary term, but did not prevent insurers and insureds from contracting around that default rule.
Because USAA’s policy unambiguously stated that an intentional loss caused by any insured eliminated coverage for all insureds, the district court erred by withholding the exclusion from the jury. The court vacated the breach-of-contract judgment and remanded for further proceedings. It affirmed summary judgment for USAA on bad faith because evidence that Renfroe may have committed arson—including his possible motive and proximity, a severed gas line, and his pipefitting expertise—gave USAA at least an arguable basis to deny the claim. The court did not reach Renfroe’s prejudgment-interest argument.
Key Takeaways
- Alabama public policy does not prohibit an express insurance exclusion denying recovery to an innocent insured when another insured intentionally causes the loss.
- No technical “magic words” are required when ordinary policy language clearly makes an intentional act by any insured a bar to coverage for all insureds.
- An Alabama bad-faith claim fails when the insurer had at least one reasonably arguable basis for denial at the time, even if coverage remains disputed.
Why It Matters
The decision distinguishes Alabama’s default rule protecting innocent co-insureds from an enforceable contractual provision that expressly changes that result. Insurers applying Alabama law may rely on clearly drafted innocent-insured exclusions outside contexts, such as covered domestic abuse, where a statute requires protection for an innocent co-insured.
The ruling also reinforces that bad-faith liability turns on the information available when coverage was denied. Evidence sufficient to make arson by the claimant an arguable explanation defeated bad faith even though responsibility for the fire remained contested.