Appellate court affirms $176K judgment for policyholder in case involving a synthetic diamond switcheroo
The case hinged on the innocent insured doctrine, which allows for recovery if a co-insured deliberately causes a loss.
In an insurance dispute, the Illinois First District Court of Appeals affirmed a judgment awarding a woman $176,356 after her husband replaced the diamond in her 3.57 carat engagement ring with a synthetic one, finding she was entitled coverage as an “innocent insured.”
The innocent insured doctrine is a legal concept that allows an insured to recover under an insurance contract if co-insured on the policy deliberately caused the loss.
In an April 22 opinion, authored by Judge Mary Ellen Coghlan, the appellate court affirmed the Cook County Circuit Court’s decision entering a judgment in favor of plaintiff Chrysoula Dana, who filed a complaint against Great Northern Insurance Co., for declaratory judgment and breach of contract after it denied coverage for the loss of her engagement ring diamond.
The three judge panel affirmed the trial court’s conclusion that the innocent insured doctrine applied to Dana, and was therefore entitled to coverage, entering a judgment in her favor for $176,356.68.
“We are pleased that the Appellate Court applied the innocent insured doctrine to the misappropriation exclusion in this hard-fought litigation. We hope that this ruling will protect innocent insureds, like our client, in the future,” said Dana’s attorneys, Joseph Bosco and Costa Diamond of LaRose & Bosco, in Oak Park, Illinois.
According to Coghlan, Great Northern had issued an insurance policy for Dana’s engagement ring, which featured a pear-shaped diamond valued at $139,906, with both her and her husband named as insureds on the policy. A little under a year later, Dana’s husband took her ring during an argument. After filing a dissolution of marriage petition, Dana obtained an emergency order of protection against her husband which ordered him to give her the ring back, according to the opinion.
A gemologist confirmed Dana’s suspicion that the natural diamond in her ring had been replaced with a synthetic one, and she initiated a claim for the loss of her diamond.
On appeal, Great Northern claimed the lower court “improperly engrafted an innocent insured exception on the policy’s misappropriation exclusion,” while Dana, on cross-appeal, claimed that the lower court “disregarded the plain ordinary meaning of misappropriation” in finding Great Northern properly denied coverage based on the misappropriation clause.
The court also determined that the trial court hadn’t erred in applying the innocent insured exception to Dana and finding that she was entitled to recover, disagreeing with Great Northern’s argument that “[b]y engrafting an innocent insured exception to the misappropriation exclusion, the exclusion would never apply, as any taking of insured property by another insured would necessarily involve an innocent insured. The exclusion, with such an exception, would never apply and therefore would be rendered meaningless,” the opinion said.
“The provision of the policy under which Great Northern chose to deny coverage, the misappropriation exclusion, did not contain a clear statement that the policy was void as to all insureds in the event of wrongdoing. If Great Northern intended both co-insureds to be barred from recovery in the event of wrongdoing by either one, then it should have employed policy language that expressly and clearly stated its intent,” Coghlan said, concluding ”the misappropriate exclusion could apply in situations where none of the covered individuals are ‘innocent’ in the misappropriation of the insured property.”
While Great Northern had argued Dana didn’t have a reasonable expectation of coverage based on the nature of her loss, the court disagreed, citing Dana’s insurance policy for the diamond as reason for her to expect coverage when she was deprived of the use of her diamond.
The court found it unlikely “that a reasonable person would agree to an insurance policy which made recovery under the policy contingent upon the actions of another,” and found it was reasonable for Dana “to have assumed that her ‘rights and obligations were not dependent’ upon those of her husband, particularly where, as here, the express terms of the policy did not so provide.”
However, the appellate court affirmed the trial court’s conclusion that Great Northern properly denied coverage pursuant to the misappropriation clause, concluding the phrase used in the clause, “loss caused by the taking or other misappropriation,” was clear and unambiguous.
“In this case, since one of the insureds took the ring or otherwise wrongly made use of the diamond, the misappropriation exclusion is acceptable,” Coghlan said.
The court disagreed with Dana’s argument that the company failed to investigate third parties that may have replaced her diamond, concluding that the record showed Great Northern conducted a thorough investigation which covered “all possibilities presented by the insureds.”
“Based on the findings of its investigation, Great Northern reasonably concluded that ‘the other possibilities presented by the insureds were either not covered under the misappropriation exclusion or did not constitute a loss,” Coghlan concluded.
Great Northern’s attorney, Matthew Suess of Rynearson, Suess, Schnurbusch & Champion, in St. Louis, did not immediately respond to a request for comment.
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