Wilshire Insurance v. S.A. (CA1 3/23/10)

A case about the “criminal acts” exclusion.

Wilshire’s insured went to prison for sexually assaulting S.A. in his basement. She sued him for false imprisonment. Wilshire denied coverage because its policy, while covering false imprisonment, excluded criminal acts. Wilshire filed this action for declaratory judgment that it had no coverage. Wilshire won; S.A. appealed.

The policy said that it applied to injury caused by an “offense.” S.A. argued that that meant a crime and since the policy explicitly covered false imprisonment the criminal-act exclusion couldn’t deny coverage for the crime of false imprisonment.

But Arizona Supreme Court precedent requires that contracts be construed against “indemnifying a person against loss resulting from his own willful wrongdoing.”  That construction does not render illusory coverage for the false imprisonment or other intentional acts. Intentional acts that unintentionally result in “wrongful conduct” remain covered (e.g., the security guard who detains a customer without proper cause or for too long).

S.A. argued that the precedent preceded the Arizona Victims’ Bill of Rights. The court agreed that that established a public policy to compensate victims but said that it can’t change the precedent “even where the crimes are as horrific” as in this case; that’s up to the Supreme Court. It would perhaps have been better to point out that the Bill of Rights doesn’t talk about insurance, that the insured and victim ends of things are governed by different – and to some extent opposite – principles, and that allowing people to buy insurance against committing crimes – especially “horrific” ones – is  a rotten idea. But its easier to pass the buck to the Supreme Court, especially if you want it to change the precedent.

Is that what this court wanted? Maybe not, since it ruled on only one of Wilshire’s two arguments, which means that if the Supreme Court reverses it will probably kick the case back to let the Court of Appeals rule on the other one. On the other hand, maybe the court wanted that, too.