Insurer must honor its obligations to innocent co-insured despite fraud by another insured in claiming fire-damaged contents
Roxanne Hicks was denied any insurance proceeds after her home burned because her husband had mis-stated some of the contents damaged in the dwelling. The Supreme Court recently ruled that Hicks, an innocent victim of the fire and the husband's fraud, was not prohibited from collecting for her losses. Her sympathetic story is explained in a prior decision at 490 Mich 888. On remand to the Court of Appeals, the insurer, the Auto Club, argued that an exclusion in its policy allowed it to refuse to compensate even an innocent co-insured after fraud by a claimant.
The Court of Appeals noted that under a Michigan statute, the company cannot exclude innocent victims from collecting insurance proceeds because of a third person's fraud. Further, since the entire insured interest was in Roxanne's name, she was entitled to collect the entire amount of the policy. The insurer could not document its claim that Roxanne's husband was half-owner of the insured property and therefore it could not limit its payment to Roxanne by one-half. The Court did reduce the trial court's judgment, however, since the policy limited the Auto Club payout to the lesser of the replacement cost or the insurance limits.