Court Applies Innocent Insured Doctrine to Find Coverage for Gem

By Don R. Sampen, published, Chicago Daily Law Bulletin, May 28, 2024

The 1st District Appellate Court recently applied the innocent insured doctrine to find coverage for an insured whose diamond in a ring had been replaced with a synthetic stone.

The case is Dana v. Great Northern Insurance Co., 2024 IL App (1st) 230224 (April 22). The insurer, Great Northern, was represented by Rynearson, Suess, Schnurbusch & Champion LLC of St. Louis. LaRose & Bosco, Ltd., of Oak Park represented the insured, Chrysoula Dana.

Great Northern issued a Chubb Masterpiece insurance policy for Dana’s 3.57 carat pear-shaped diamond ring valued at almost $140,000. Dana and her husband were both named insureds.

Following an argument in 2018, the husband took the ring and did not return it until after Dana filed a petition for dissolution of marriage. She then had the ring checked and found that the real diamond had been replaced by a synthetic one.

Dana initiated a claim for loss of the diamond in early 2019. She told the claim representative that she thought her husband had the real diamond removed. Great Northern investigated and apparently came to the conclusion the real diamond had been removed either by the husband, or by Dana’s own father in order to “frame” the husband.

Great Northern then denied coverage based on a policy exclusion stating that no coverage would be provided based on “the taking or other misappropriation by or directed by [a named insured or] that person’s spouse, a family member, or a person who lives with you.”

The trial court subsequently partially granted summary judgment to Great Northern, finding that the exclusion would apply, subject to, however, the innocent insured doctrine. That doctrine retains coverage for an innocent insured where the policy does not contain a clear statement that the policy is void as to all insureds in the event of wrongdoing by one of the insureds.

Although the court found a fact issue regarding whether Dana was an innocent insured, the parties later stipulated that she was. At that point the court entered judgment in favor of Dana and against Great Northern in the amount of $176,356. Great Northern appealed.

Analysis

In an opinion by Justice Mary Ellen Coghlan, the 1st District affirmed. She initially addressed application of the misappropriation exclusion. She found it sufficiently clear and applicable since one of the insureds took the ring or otherwise wrongly made use of the diamond.

She then turned to the innocent insured doctrine, which Great Northern argued improperly engrafted an innocent insured exception onto the exclusion.

Coughlan observed that the doctrine derived from the common law and allows an innocent insured to recover despite the wrongdoing of other insureds. It applies, moreover, even if the language of the exclusion could arguably be read as entirely prohibiting coverage for wrongful acts of any insured. But the doctrine would not apply if the language states clearly that coverage is excluded as to all insureds.

While the doctrine typically applies in cases involving arson or vandalism where the property is destroyed or damaged, Coughlan wrote that the reasoning of those cases would apply to the instant case as well. It would apply because Great Northern’s misappropriation exclusion did not contain a clear statement that the policy was void as to all insureds.

The court therefore affirmed in favor of Dana.

Key Point

A property coverage policy containing an exclusion for wrongful misappropriation by an insured is subject to the innocent insured doctrine unless the exclusion states clearly that coverage is excluded as to all insureds by one insured’s wrongful misappropriation.