Understanding the Innocent Insured Doctrine: A Legal Perspective

   Law clerk Andres Garcia-Rivera wrote this post, with assistance from partner Stephanie Weiner.

The Takeaway

 A recent appellate court decision underscores the importance for insurers to use clear and unambiguous language in insurance policies, especially when determining coverage exclusions that affect all insured parties under the policy.


The nuances of an insurance policy’s language can often dictate the outcome of a claim. Such was the case in a recent legal battle between plaintiff Chrysoula Dana and defendant Great Northern Insurance Company. The dispute centered around coverage for the loss of the diamond in Plaintiff’s engagement ring, which had been replaced with a synthetic one.

Case Background

Plaintiff’s ordeal began when she suspected that the natural diamond in her engagement ring had been surreptitiously substituted with a synthetic stone. During a recorded conversation between Plaintiff and her husband, George, he told Plaintiff she “would never see her ring again,” hinting at the possibility of its disappearance or removal from her possession. This cryptic statement raised suspicions about George's involvement in the subsequent loss of the diamond from Plaintiff's engagement ring. George's ominous remark, captured in the recording, suggested a premeditated intent to deprive Plaintiff of her ring or its valuable contents.

Subsequent to this recorded conversation, George made an unexpected allegation, suggesting that Plaintiff's father may have been attempting to frame George for the disappearance of the diamond. This allegation introduced a new layer of complexity to the case, raising questions about potential motives and alternate explanations for the loss of the diamond.

A gemologist confirmed Plaintiff’s suspicion that the natural diamond had been replaced with a synthetic one. The specific details regarding what happened to the stone were not made clear by the parties or the court, but it appears that Plaintiff’s husband may have been involved in the “swap.” However, it was clear that Plaintiff was not aware of the switch.

Once Plaintiff’s suspicions had been confirmed—and suspecting foul play—she filed a claim with Great Northern Insurance Company. Great Northern denied her claim under the misappropriation exclusion of the policy.

The misappropriation exclusion in the Great Northern policy explicitly stated that the policy did not cover any loss caused by the taking or misappropriation by certain individuals, including spouses or family members of the insured. Great Northern argued that since Plaintiff’s husband was implicated in the alleged diamond swap, coverage was rightfully denied under this exclusion.

However, Plaintiff invoked the innocent insured doctrine, asserting that despite her husband's alleged involvement, she was innocent of any wrongdoing and thus entitled to coverage under the Policy. This doctrine, rooted in common law, stipulates that an insured party who is innocent of wrongdoing can recover under an insurance policy even if another insured party is responsible for the loss.

In its ruling on cross-motions for summary judgment and after Great Northern and Plaintiff stipulated to her innocence, the trial court recognized Plaintiff’s status as an innocent insured and entered judgment in Plaintiff’s favor. Great Northern appealed.

Appellate Court Ruling

The appellate court affirmed the trial court's judgment in favor of Plaintiff. Its decision hinged on the interpretation of the misappropriation exclusion within the insurance policy issued by Great Northern., emphasizing the necessity for clear and unambiguous policy language,

The court noted that the misappropriation exclusion in the policy explicitly stated that coverage would not be provided for any loss caused by the “taking or other misappropriation by or directed by a person named in the Coverage Summary, that person’s spouse, a family member, or a person who lives with you.” On its face, this language, appeared to support Great Northern's denial of Plaintiff's claim because her husband, George, was involved in the misappropriation.

However, the crux of the appellate court's ruling was that the policy did not contain a specific provision clearly stating that the policy would be void for all insureds in the event of wrongdoing by one of them. It also cited the ruling in West Bend Mutual Insurance Co. v. Salemi, which established that ambiguous or unclear language in a policy regarding joint obligations and exclusions must be construed in favor of the insured. Thus, the appellate court's decision reinforced the principle that if an insurer intends to bar all insureds from recovery due to the actions of one, the policy must expressly and clearly state this intent. In this case, because Great Northern's policy lacked a clear statement that the policy would be void as to all insureds in the event of wrongdoing by one, the court concluded that Plaintiff, as an innocent insured, was entitled to coverage.

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Kerri Forsythe

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