Wilful and malicious damage - exclusions & the ‘insanity defence’
Property Insurance Aware 2
Almost all household and commercial insurance policies contain a form of wording which limits the cover offered in respect of losses arising from wilful and malicious damage. Typically the exclusion would read along the lines of: “We will not cover any loss or damage arising from any wilful or malicious act by the policyholder, a member of the family or by a person lawfully at or in their home.”
Where appropriate and applicable to the risk, the policy may go further and extend the exclusion to include any loss or damage caused by the wilful or malicious acts of tenants. Alongside insurers we are starting to see more and more inventive arguments being advanced by intermediaries and policy holders in an attempt to get around this exclusion. Time and again we see the argument advanced that the damage suffered was caused by the actions of persons of ‘unsound mind’ and that the individuals concerned were therefore not acting wilfully or maliciously. This form of defence raises both policy interpretation and public policy considerations. On the face of it, it appears that you surely cannot be of ‘sound mind’ if you, for example, set fire to your own home when you are actually in it. However, this is far from a cut and dried scenario.
A general overview
In broad terms, it is an accepted legal principle that where an insured is so insane as ‘not to be legally responsible for his acts’ he shall not be prevented from recovering under the terms of his policy. The same principle will apply where the damage has been caused by others who fall within the exclusion (e.g. family members and tenants). Attention must therefore turn to ‘what constitutes legally responsible?’
Whether a person can be held legally responsible for his acts is governed by the M’Naghten Rules. These rules are derived from the criminal case of R v M’Naghten 8 E.R. 718 and form the standard test when considering criminal liability. The M’Naghten Rules recognised that, in order to establish insanity and to accordingly avoid legal liability for their acts, it must be shown that, at the time of committing the act; the perpetrator was:
- labouring under such defect of reason as not to know the nature and quality of the act he has doing: or, if he did know it;
- that he did not know that it was legally wrong
The case law
The key case in respect of the application of this rule in terms of insurance policies is Porter v Zurich  EWHC 376 (QB)
The claimant (P) brought a claim against the respondent insurer (Z) under the terms of an insurance policy to recover losses arising out of a fire. The claim also included losses arising from subsequent thefts; however that was a separate issue and is not relevant here. Insurers had agreed to indemnify P against loss of, or damage to, his home and contents. By a general exclusion clause, the policy excluded, “any wilful or malicious act by a member of the family or by a person lawfully at or in the home.” While suffering from a persistent delusional order and an alcohol problem, and after a series of disastrous life events, P attempted to kill himself by setting fire to the house.
However, after having set the fire, P changed his mind and escaped unharmed. The house was severely damaged and rendered uninhabitable. P claimed under the policy for the fire. Z submitted that because P had started the fire intentionally he could not recover under the policy because that would be contrary to public policy or the general law of insurance, or because the fire arose from his wilful or malicious act and was therefore excluded by the general exclusion clause. P argued that his mental illness meant that he was not acting as a free agent when he started the fire, and that he had not started it deliberately, wilfully or maliciously. He argued that neither public policy nor the contractual exclusion clause prevented him from recovering under the policy.
Coulson J held that a claimant who sought to recover pursuant to a policy of insurance in respect of a fire which he himself started was faced with the difficulty that his claim was contrary to public policy and contrary to general principles of insurance law. Moreover, in the instant case, P’s policy excluded claims arising out of any wilful or malicious act. Whether an act was wilful or malicious depended on the perpetrator’s state of mind. His act was sufficient to be deemed wilful or malicious if:
- He was aware that what he was about to do risked damage of the kind that gave rise to the claim, or
- He did not care whether there was such risk or not. Ronson International Limited v Patrick  EWCA Civ 421 2 All E.R. (Comm) 334 applied.
In order to succeed in his defence, P had to prove (on the balance of probabilities) that at the time of committing the act he was insane within the meaning of the M’Naghten Rules. That was much more onerous than simply having to demonstrate that he had a mental disorder at the time of the fire. He had to show that when he started the fire his mental state was so impaired that he did not know the nature and quality of the act he was doing or, if he did know it, that he did not know that what he was doing was wrong.
He failed to demonstrate either of those things. The evidence made it plain beyond any doubt that he knew both what he was doing and that it was wrong. P was therefore unable to recover losses caused by the fire. He had acted wilfully and maliciously in starting the fire and recovery was prohibited by the policy, by the general law of insurance and as a matter of public policy.
Common examples of wilful and malicious acts which we have considered involve instances of fire and flood. The damage caused can therefore often be of high value and the effects far reaching. It is important therefore that insurers thoroughly examine the circumstances surrounding the index event and the behaviour and actions of the perpetrator in the days and weeks leading up to the event giving rise to the claim. The cases of Porter and Ronson International Limited provide clear and concise guidance on the approach adopted by the courts as to what will constitute ‘wilful and malicious damage’ and both remain good law.
It may surprise you to learn that it is actually very difficult for someone to show that they were insane at the time that the act was committed. In considering whether the policyholder has satisfied the M’Naghten Rules; insurers should give consideration to the specific nature of the acts of the perpetrator in each particular case. Some of these considerations may include, but are not limited to:
- Whether the actions were premeditated
- Whether the actions and/or subsequent actions were deliberate and consistent with somebody who knew the nature of what they were doing and that it was wrong
- In some higher value and more complex cases, insurers may even wish to consider obtaining input from an appointed medical expert or seeking sight of the perpetrator’s earlier medical records when considering whether the rules have been satisfied
This is an extremely sensitive area and it is only right that the matter is thoroughly examined before a decision on policy indemnity is taken.