When does insurance pay for losses due to criminal acts

Auto and home insurers do not cover losses for bodily harm if the injury or death caused by the insured was intentional — and that includes harm caused by the commission of a crime such as homicide. So how is it that the parents of the Columbine High School gunmen and one of the young gun suppliers settled $1.6 million in legal claims from using their home insurance policies?

The parents of the dead and injured students "couldn't go after the kids, so they went after the parents instead," says Don Griffin, a spokesperson for the National Association of Independent Insurers. "The lawyers claimed the parents were negligent in their supervision of their children and the gun supplier was negligent for selling them the weapons used in the shooting. Auto and home insurance policies don't cover criminal acts, but they do cover negligence."

Therein lies the big concern, says Griffin. "Although the Columbine settlement was made out of court, other people are using it as a precedent to make these claims." According to Griffin, there are no numbers available to measure whether these types of claims are on the rise or whether litigants are becoming more successful when they sue for damages or wrongful death. "Right now, they are decided on a case-by-case basis," Griffin says.

One highly visible case involves Andrejs and Inese Baumhammers of Mount Lebanon, Pa., whose son, Richard Baumhammers, killed five people and paralyzed a sixth during an April 2000 shooting rampage. On Aug. 23, 2001, lawyers for the two insurance companies that issued home insurance policies to Baumhammers' parents refused to make settlement offers to the families of his victims.

The insurance attorneys argued that the home insurance policies written for the Baumhammers cover accidents but exclude deliberate acts, including criminal acts such as murder. However, the parents and the families of Baumhammers' victims insist that the couple's policies cover them as defendants in a civil lawsuit because the couple was negligent by failing to notify police and mental health authorities that their son, who had a history of mental illness, kept a firearm in their home.

The factors that decide personal liability in auto and home insurance can sometimes result in tricky decisions by insurers, litigators, judges, and juries. According to Griffin, if the insured believes there is any ambiguity in his or her insurance policy, courts have consistently ruled that the insurer has an obligation to defend the insured until the insured's interpretation is either accepted or invalidated. "Our duty to defend is greater than our duty to indemnify," he says.

See how well you understand the complex issues involved in the following four personal liability scenarios.

1. A thief steals your car, runs a red light, and hit and kills a young man crossing the street. Will your auto insurer pay to defend you and cover the damages if you are sued by the victim's family?

Because your car was taken without your permission (an illegal act) and it was then used in the commission of a crime (vehicular homicide), your auto insurer has no obligation to pay damages in this instance.

However, your auto insurer will cover you, up to the personal liability limits of your policy, if your teenager takes your car, runs a red-light, and kills a pedestrian. This is because your teenager, as a member of your household, is covered under your auto policy and the death was accidental. "An auto policy protects the insured, his or her assets, and their family members," says Griffin. "We don't pay out if a thief steals your car and hurts someone because he is not a family member or anyone to whom you would give permission to drive your car."

2. Late one night, you shoot and kill a burglar who has broken into your home. Will your home insurer defend you and pay for any damages if you are sued by the burglar's family?

Your home insurer would defend you and, if it is found that the insurer is legally responsible, would pay for wrongful death damages. In most instances, the insurer would not settle this lawsuit out of court because the burglar was killed during the commission of a crime. However, there have been some instances where an intruder is shot and killed, but it is not clear that the intruder meant to rob or harm the home's occupants. Griffin says insurers have paid out damages in lawsuits brought under this scenario.

3. You lose your temper when the driver of a sports car slices through three lanes of traffic, cutting you off. You ram his car from behind, sending it off the road and the driver through the windshield — alive, but seriously injured. Will your auto insurer cover the damages if he sues you?

No, your auto insurer will not insure you for any intentional act that causes bodily harm. "You can't plead 'temporary insanity' in road rage cases," says Griffin. So even though you hadn't "planned" to injure someone before the driver cut you off, you are not covered.

The litmus test, according to Griffin, is that you failed to act as a "reasonable and prudent person" would. While lots of drivers experience bad driving manners on the roadways every day, most do not seek revenge by trying to cause bodily harm to rude drivers.

4. Your teenager and his friend find a gun that they think is unloaded in your home. Your son points it at his friend and pulls the trigger. The gun is loaded and your son shoots and kills his friend. Will your home insurer pay to defend you and cover the damages if you are sued by the victim's family?

It depends. If your child is charged with involuntary manslaughter, a criminal act, and your home insurance policy excludes coverage for criminal acts, then no, your insurer would not have to defend you. Most home insurance policies exclude "criminal acts." However, some policies are vaguely worded. On Aug. 20, 2001, the California Supreme Court ruled that insurance companies must defend some home insurance policyholders charged in wrongful death civil suits if the death was unintentional.

The case stems from the 1995 accidental home-shooting death in Los Angeles County by a young boy of a childhood friend. The parents were sued by the victim's family and Safeco Insurance Co. of America said it did not have the duty to defend the shooter's family in a wrongful death suit because the boy was charged with involuntary manslaughter, an illegal act, and the parents' policy specifically excluded coverage for an "illegal act."

However, the Supreme Court justices said in their 6-0 ruling that the policy language could reasonably be interpreted as excluding coverage only for an "intentional" or "deliberate" illegal act. Because the shooting was deemed accidental and the parents' policy covers "accidental bodily injury," the court said Safeco must defend the parents and, if the parents are found negligent, pay for any wrongful death damages.

Because we live in extremely litigious times, extra protection for your assets is a must if own a home, a car, or have children. While terms vary from one to insurer to the next, the National Association of Insurance Commissioners says that the typical home insurance policy costs approximately $481 a year and covers up to $200,000 in personal liability. But it may not be enough. Umbrella policies can provide extra liability coverage.

"For the extra $200 to $500 a year for an umbrella policy that covers $1 million or more in personal liability, it's worth your peace of mind," says Griffin. "If you hit one van full of people and cause injuries, you could lose everything."