Kemper Independence Insurance Company v. Ismet Islami, 2021 WI 53 (June 8, 2021).

Earlier this month, in Kemper Independence Ins. Co v. Islami, 2021 WI 53, the Wisconsin Supreme Court affirmed the decision of the lower court, finding that the homeowner was not entitled to coverage for the loss of her home to arson.

Though legally separated, Ydbi and Ismet Islami remained living in the same household. The fire, which occurred in June of 2013 while Ismet was out of the country, left the property a “total loss” by insurance standards. Ismet and Ydbi signed and submitted a “Sworn Statement in Proof of Loss,” in which they both alleged that the cause of the fire was unknown. After further investigation, it was determined that Ydbi started the fire. Notwithstanding the determination, there are suspicions that Ismet was the mastermind behind the fire. In response to the discovery that Ydbi started the fire, Kemper denied coverage, relying on the “concealment or fraud” condition listed on the insurance policy which “bars coverage for ‘all insureds’ if ‘an insured’ concealed or misrepresented a material fact, with intent to deceive.”

Kemper also filed a declaratory judgment action, specifically seeking a declaration that Ismet and Ydbi were both barred from coverage under the “concealment or fraud” condition listed in their insurance policy. After Kemper commenced its action, both parties filed motions for summary judgment, with the circuit court judge granting Kemper’s motion. The circuit court based its decision on the fact that, regardless of the legal separation between Ydbi and Ismet, both lived in the household and Ydbi qualified as an insured under the policy, such that the “concealment or fraud” condition barred both of them from coverage. Ismet argued not only that she was innocent, but that she was the victim of domestic abuse and thereby entitled to coverage under Wis. Stat. §631.95(2)(f), which provides a domestic abuse exception to the intentional act exclusion in most property insurance policies. The circuit court, in response to this claim, found that “because the record was devoid of any evidence of domestic abuse, Wis. Stat. § 631.95(2)(f) did not preclude Kemper from denying coverage.” Ismet appealed to the Wisconsin Court of Appeals, which affirmed the lower court’s ruling, and the Supreme Court of Wisconsin granted Ismet’s petition for review.

The Supreme Court agreed with the lower courts, relying on the plain language of the policy and insurance contract interpretation principles to conclude that regardless of a legal separation, Ydbi, is a spouse for the purposes of insurance coverage and qualifies as an “insured” under the policy with Kemper. Additionally, the Court noted that based on Wisconsin law’s distinction between legal separation and divorce, Ismet and Ydbi are still legally married, making them spouses both under the policy and state law. Next, the Court addressed the “concealment or fraud” condition listed in the policy, to which it concluded that the language used in the condition is plain and unambiguous, excluding coverage to all “insureds” even if only one “insured” violated the terms of the policy. Ismet lost coverage because “no insured” may recover when any insured, here Ydbi, engages in concealment or fraud. Finally, the Court rejected Ismet’s attempt to rely on Section 631.95(2)(f), noting that there is no evidence to show that Ismet’s relationship with Ydbi qualified as domestic abuse under the statutory definition. Based on these findings, the court concluded that the circuit court properly granted Kemper’s motion for summary judgment.

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