Insurance Proceeds And Fraud

For someone in Grand Prairie, Arlington, Fort Worth, Dallas, Hurst, Euless, Bedford, North Richland Hills, Roanoke, Keller, and other places in North Texas, it is likely to happen. A spouse intentionally burns the house down. Well, what happens to the insurance money? Here is a case that provides some guidance.
The case was decided in 1999, by the Texas Supreme Court. It is styled, Texas Farmers Insurance Company v. Daisy Murphy. The question posed to the court was whether an innocent spouse can recover insurance proceeds when the other co-insured spouse has intentionally destroyed the covered community property.
Here is some background.
On September 23, 1993, Robert Murphy obtained a binder on a homeowners policy covering his and his wife Daisy Murphy’s home and contents. On September 30, 1993, the home burned down. Robert sought reimbursement and Farmers investigated the claim. Farmers concluded Robert intentionally caused the fire and denied the claim.
On February 19, 1994, Farmers filed a declaratory judgment action asking the court to declare they had no liability under the policy.
Meanwhile, Daisy filed for divorce, and on March 8, 1996, she and Robert executed a partition agreement to divide their community interests in any proceeds from the policy. The divorce was final on October 11, 1996.
In Texas, until 1986, the deliberate destruction of jointly owned property by one co-insured barred recovery by other co-insureds, even when they were innocent and the policy did not expressly bar such recovery. In 1986, this changed and thus an innocent spouse is not now barred from recovery.
Farmers argued that “public policy” should not allow this recovery. To prevent an arsonist from having a community interest in any recovery, Texas courts have generally conditioned an innocent spouse’s recovery on whether and when the community interests in the insurance policy were severed.
Farmers argued that innocent spouses should not recover even if there is an after-the-fact partition. It contends that such a rule would encourage spouses to enter into sham partition agreements, after which the wrongdoing spouse might still benefit from the insurance proceeds.
Daisy responded that it would be arbitrary to deny recovery even when the culpable spouse would receive no benefit. It would also be unfair to require an innocent spouse to obtain a divorce or partition before the claim was filed or denied. First, it assumes the innocent spouse knows that the other spouse committed arson and can obtain an equitable partition before the insurance company denies the claim. Second, it encourages an innocent spouse whose home burns down to hastily partition or divorce, even though a jury may later acquit the suspected spouse of any alleged wrongdoing. Daisy contended that if recovery must be conditioned on partition or divorce, she would have until time of judgment to obtain a severance of the community estate.
This court said that neither a rule conditioning an innocent spouse’s recovery on partition or divorce is neither practical or satisfactory. Partition agreements require the consent of both spouses. The culpable spouse could still benefit by demanding, in exchange for his or her consent, a greater share of the remaining community estate. Or he or she could refuse to partition at all, leaving the innocent spouse with a choice between divorce or forfeiture. And an innocent spouse who wants a divorce might not be able to obtain it in time to protect her or his interest in any recovery. On the other hand, an innocent spouse who is committed to the marriage might enter into a partition agreement as a mere formality, fully intending to share any recovery with the culpable spouse. In short, a rule requiring partition may not effectively protect the innocent spouse’s share or prevent the culpable spouse from benefitting. Additionally, it may have the unintended consequence of encouraging divorce.
In making the ruling the court stated, “It is not the courts’ business to superintend what innocent co-insureds may do with any insurance proceeds they are contractually entitled to recover.” They said that the preferable rule is to allow innocent spouses to recover according to their contracts, regardless of partition or divorce.
One thing for certain is that an experienced Insurance Law Attorney should be consulted in these situations. The facts of the case and the wording of the policy may make a big difference in the outcome of the claim.