Metropolitan appealed to the Seventh Circuit. The Metropolitan policy excluded coverage for an intentional Loss, meaning any loss arising out of any intentional or criminal act committed:

1. By you or at your direction; and

2. With the intent to cause a loss.

This exclusion applies regardless of whether you are actually charged with or convicted of a crime.

In the event of such loss, no one defined as you or your is entitled to coverage, even people defined as you or your who did not commit or conspire to commit the act causing the loss.

The policy defined “you and your” as the persons named in the declarations and other residents including a spouse or any other person under the age of 21 in the care of these individuals.

The Standard Fire Policy provided the following limitations on coverage:

This Company shall not be liable for loss by fire or other perils insured against in this policy caused, directly or indirectly by: (a) enemy attack by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately impending enemy attack; (b) invasion; (c) insurrection; (d) rebellion; (e) revolution; (f) civil war; (g) usurped power; (h) order of any civil authority except acts of destruction at the time of and for the purpose of preventing the spread of fire, provided that such fire did not originate from any of the perils excluded by this policy; (i) neglect of the insured to use all reasonable means to save and preserve the property at and after a loss, or when the property is endangered by fire in neighboring premises; (j) nor shall this Company be liable for loss by theft.

The conditions that suspended insurance coverage included losses occurring:

(a) While the hazard is increased by any means within the control or knowledge of the insured; or

(b) While a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of sixty consecutive days; or

(c) As a result of explosion or riot, unless fire ensues, and in that event for loss by fire only.

Related: 25 U.S. cities with the highest risk of home fires

An innocent insured can still recover from a fire loss caused by another party  insured under the same policy in Illinois. (Photo: Shutterstock)

The Seventh Circuit's Decision

The circuit court affirmed. In its decision, the Seventh Circuit found that the coverage provided by the Metropolitan policy failed to conform to that required by the Standard Fire Policy. Under the Metropolitan policy, the circuit court said, an intentional loss caused by any insured party suspended coverage for all insured parties – even those who were innocent of any wrongdoing. By contrast, the circuit court explained, the Standard Fire Policy suspended coverage if the hazard was “increased by any means within the control or knowledge of the insured.” (Emphasis added.)

The Seventh Circuit pointed out that the term “the insured” was not defined in the Standard Fire Policy. It then reasoned that the inclusion of the word “the” as opposed to “an” served “as a limitation.” If one insured party committed an intentional harm but another insured party was innocent of any wrongdoing, then the insurance coverage was suspended “only as to the insured who caused the loss.” An “innocent” coinsured still could recover, the circuit court declared.

Accordingly, the circuit court ruled, under the Illinois Standard Fire Policy, Wesley Streit Jr.'s intentional act of arson suspended insurance coverage only as to him and his parents could recover. Any attempt by Metropolitan to proscribe their recovery was “invalid and unlawful.”

The case is Streit v. Metropolitan Casualty Cas. Ins. Co., No. 16-3203 (7th Cir. July 17, 2017).

Steven A. Meyerowitz, Esq., ([email protected]) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc.