Representing Insureds Since 1970


A key rule of insurance coverage takes a wild ride in the courts.

By Dennis T. D'Antonio,

Joshua L. Mallin, and

Jesse R. Dunbar all of which practice insurance law at Weg & Myers in New York City.

Lawyers usually focus their analysis of an insurance claim on the rights of the named insured to reimbursement as a result of a loss that the insured has suffered.

When there is more than one named insured on a policy, however, the right of the "innocent co-insured" also must be considered.

Typically, the innocent co-insurance is a spouse or other family member who was injured by the other insured's wrongdoing or omission, but played no role in the causing it.

In the early 1980s, the majority rule shifted to favor recovery for innocent co-insureds. Courts emphasized that insurance contracts created several, as opposed to joint, obligations that enabled innocent co-insureds to recover proceeds under policies. Consequently, the acts of one insured would not automatically void recovery under a policy for innocent co-insureds.

Some courts, however, took a different approach, focusing on the drafting of the insurance contract rather than stressing rules of several liability or public policy rationales. This shift sent a strong and undoubtedly welcome signal to insurers that properly drafted policies could eliminate recovery for innocent co-insureds.

In  American Economy Insurance Co. v. Liggett,  426 N.E.2d 136 (1981), for instance, the Indiana Appellate Court went so far as to provide insurers with model language, which, if adopted, would avoid the entire innocent co-insured issue.

"[T]here is no reason," the court advised, "why this implied exception cannot be made an express exception in the policy. It would be written in bold letters and red ink across the face of the policy. If you or any person insured by this policy deliberately causes a loss to property insured then this policy is void and we will not, reimburse you or anyone else for that lose."

Insurance carriers took this hint and altered the standard policy language. Consequently, the 1990 ISO form HO 003 policy reads as follows:

"'Insured' means you and residents of your household who are: a) your relatives; or b) other persons under the age of 21 and in the care of any person named above."

Further, the standard language states, "This policy is void in any case of fraud by you as it relates to this coverage at any time. It is also void if you or any other insured, at any time, intentionally conceals or misrepresents a material fact concerning: a) this policy; b) the covered property; c) our interest in the covered property; or d) a claim under this policy."


Responding to this language, courts began resolving the issue of the rights of innocent co-insureds as a matter of contract interpretation without reference to public policy considerations.

For instance, in  Vance v. Pekin Insurance Co.,  457 N.W.2d 589 (1990) the Iowa Supreme Court faced the first impression issue of "whether arson by one co-insured spouse bars the innocent co-insured spouse from recovering under an insurance policy."

The court adopted the "best reasoned rule," which posits that "recovery depends---not on property rationales or marital relationships---but on a contract analysis of the insurance policy provisions."

The court stated that "the exclusion here clearly and unequivocally says that a loss caused by an intentional act of an insured party bars coverage. Donald Vance was clearly an insured so his arson bars recovery by any insured under the policy and than includes Susan Vance.

"We think a reasonable person in Susan's position would read the policy that way."

In recent years several jurisdictions have responded to the change in policy language.

Still seeking to do equity, they have sought to reform the insurance policy to get around the all encompassing "any insured" language.

Under this approach, courts look at the statutorily mandated basic fire-insurance policy language and then change the policies at issue to read "the insured" as opposed to "any" or "an insured", so as to comport with the statute.

This "reformation" approach is well-illustrated by a 1995 decision of the Georgia Court of Appeals in  Fireman's Fund Insurance Co. v. Dean,  441 S.E.2d 436.

Given the existence of conflicting rules of law on innocent co-insureds, the ground is fertile for practitioners to advance arguments favoring or rejecting recovery for an innocent co-insured despite the case authority that exists in any particular jurisdiction.

Moreover, even a slight legislative change governing standard insurance-policy language can have profound consequences on the jurisprudence governing the innocent co-insured doctrine.




  1. Actual Case Value.

It is universally accepted that the basis and foundation of property insurance is to indemnify or restore the insured to as good a position, so far as practical, as he was in prior to the loss of damage of his property. (1) Nevertheless, there continues to be considerable disagreement as to how indemnity is defined. (2) Over the years, two distinct concepts of indemnity have been embraced by the insurance industry and the courts. On the one hand, there is "theoretical indemnity"; the idea that after recovering the insurance proceeds for a loss, the insured should be neither better off, nor worse off, than he was prior to the loss. On the other hand, there is "practical indemnity"; the idea that unless the insurance proceeds for a loss enable the insured to restore his property to as nearly as possible the same condition as it was before the loss, the insured, as a practical matter, will be worse off than he was prior to the loss. (3)

The disagreement as to the meaning of the term indemnity has culminated into disputes as to the measure of actual cash value. Standard property insurance policies compensation to the insured for the actual cash value of property damaged or lost. For example, the New York 1943 Standard Fire Policy, the form mandated for such policies by many states, provides that the insured shall be compensated:

[t]o the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality

within a reasonable time after such loss.

Over the years, three methods of determining actual cash value have emerged: A) Replacement Cost Less Depreciation, under which a deduction is made form the cost of replacement so as to accomplish theoretical indemnity; B) Fair Market Value, under which the insured receives the difference between the fair market value of the property before and after the loss; and C) The Broad Evidence Rule, under which all evidence relevant to ascertaining the true extent of the insured's loss may be considered in fixing the actual cash value of the damaged property. As will be seen by the analysis below, none of the valuation formulas are free from criticism or easily apply to all fact situations.

  1. Replacement Cost Less Depreciation.

In adjusting losses, it is very common for insurance companies to define actual cash value as "replacement cost less depreciation". Under this standard, a deduction is made from the cost of replacement so as to accomplish "theoretical indemnity"; that is, to prevent the insured whose old building has been damaged from obtaining, in effect, a new one. (4) The concern is that unless depreciation and similar factors that lessen the value are considered during loss adjustment, the principle of indemnity is violated, because the insured would be able to recover a new building in place of the old building that was destroyed. Despite its general acceptance by the insurance industry, however, this valuation method has had its share of detractors. One argument against the use of this formula is based upon a reading of the New York 1943 Standard Fire Policy itself. (5) As se forth above, the Standard Policy provides, in pertinent part, that the insured may recover actual cash value for a loss, "but not exceeding the amount which it cost to repair or replace the property." It has been argued that the limiting clause would be meaningless were it not contemplated by the drafters that on some occasion's actual cash value would exceed replacement cost. By definition, however, "replacement cost less depreciation" can never exceed replacement cost. Therefore, as some courts have argued, actual cash value and "replacement cost less depreciation" must be two different things. (5)

The argument against using the "replacement cost less depreciation" formula for determining an insured's recovery under a policy insuring the actual cash value of the lost or damaged property seems to make the most sense when the property is only partially lost or damaged. It fact may courts have held that when the insured's property has only been partially lost or destroyed, the insured is entitled to recover an amount that will enable him to fully restore the property, without allowing any deduction for depreciation with regard to the materials used. (6). The common rationale underlying these decisions is that if depreciation is deducted from the cost to restore the partially damaged property, the insured will not be able to completely restore his property, thus falling short of the objective of property insurance; which is indemnity. (7)

For example, in  Thomas v. American Family Mutual Ins. Co.,  (8) the Supreme court of Kansas squarely held that the term 'actual cash value', when applied to a partial loss, means the cost of repair without any deduction for depreciation. The insurance policy in that case provided, in pertinent part, as follows: "[T]his company does insure the insured to the extent of the actual cash value of the property at the time of the loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss" In response to the insurer's appeal regarding the trail court's holding that depreciation could not be considered in arriving at the amount of plaintiff's recovery, the Supreme Court of Kansas explained, in pertinent part, as follows:

  1. Nowhere in the policy does it provide that the cost of repair is to be reduced by a depreciation factors;
  2. The instant policy does not appear to us to be ambiguous. It does not provide for any reduction in the cost of repairs based upon depreciation and it is not for us to read such a provision into the policy;
  3. We think the better rule, absent policy provisions to the contracts, is that set forth in  Sperling v. Liberty Mutual Ins. Co.,  281 So2d 297 (Fla. 1973). In   Sperling, the court was called upon to determine the meaning of the "actual amount" of a partial loss. The court stated:
  1. "[s]ince the purpose of an insurance contract is to indemnify the owner of property against loss, the measure of value of partial destruction of a building by fire should be the cost of placing the building in as nearly as possible the same condition that it was before the loss, without allowing depreciation for the materials used'"  (Emphasis added).   Id.  at 298.
  1. Under our rules of construction governing insurance contracts, we are of the opinion [that] a reasonable person in the same predicament would not expect depreciation to be considered to reduce and impair his ability to repair his partially damaged dwelling. (9)
  1. Fair Market Value.

Despite the insurance industries embracement of 'replacement cost less depreciation', courts have not uniformly subscribed to this formula for determining the actual cash value of lost or damaged property. Another method that has been used by the courts is known as the "fair market value test", under which the insured receives the difference between the fair market value of the property before and after the loss. (10) This method, however, also has its hare of critics.

Criticism of the "fair market value test" usually begins with the recognition that a building has not recognized market value in the ordinary sense. Therefore, the argument goes, were fair market value the sole measure of actual cash value, buildings, for which there is no actual market, would have no insurable value. (11)

Some courts have suggested that a hypothetical market value could be used. (12) However, the courts which have advanced the arguments against the fair market value test have an apparent aversion to the use of a hypothetical standard. The problem, in their view, with the use of a hypothetical market value is that it does not guarantee the insured's ability to replace the property destroyed. In other words, while payment by the insurer of actual market value practically guarantees that the insured will be able to make the replacement, i.e., from the actual market, the payment of a hypothetical market value does not at all guarantee that the insured will be able to make the replacement. (13) Accordingly, the protection which the insurance ostensibly provided would be illusory and not fulfill the purpose of obtaining insurance n the first place.

  1. Broad Evidence Rule.

Dissatisfaction with the foregoing methods of measuring actual cash value has led many courts to adopt what has come to be known as the broad evidence rule, under which all evidence relevant to ascertaining the true extent of the insured's loss may be considered in fixing the actual cash value of the damaged property. (14) In  McAnarneyv. Newark Fire Ins. Co.,  (15) the case in which the broad evidence rule was first proposed, the New York Court of Appeals rejected both market value and 'replacement cost less depreciation' as exclusive formulas for the measuring of actual cash value. Instead, the Court held that in determining actual cash value, the trier of fact should consider 'every fact and circumstance which would logically tend to the formation of a correct estimate of the loss', including,   inter alia, the physical deterioration of the building and the suitability for the purposes for which it was erected. (16)

In essence, therefore, the broad evidence rule is a hybrid method of determining actual cash value which is meant to be flexible. Indeed, courts have made it clear that fair market value and 'replacement cost less depreciation' are properly considered when applying the rule. (17) In addition, the rule is meant to permit the trier of fact to consider  all  evidence relevant to the value of the property. For example, at least one court held that a letter written by the insured which asserted the amount of the loss is relevant, particularly where the claim is for an amount excess of that statement. (18)

Not surprisingly, however, the broad evidence rule has been criticized as well. Its lack of certainty or predictability are the most common complaints. (19)

B. Replacement Cost Coverage: Does the Insured Have to Actually Repair or Replace the Lost or Damaged Property in Order to Recover the Full Replacement Cost?

While standard property insurance policies provide compensation to the insured for the actual cash value of property damage or lost, the insured may secure increased compensation through a replacement cost endorsement which provides coverage for any expense in replacing the property. Replacement cost coverage was devised to remedy the shortfall in coverage which results under a property insurance policy compensating the insured for actual cash value alone. (2) That is, while a standard policy compensating an insured for the actual cash value of damaged or destroyed property makes the insured responsible for bearing the cash difference necessary to replace old property with new property, replacement cost insurance allows recovery for the actual value of property at the time of loss, without deduction for deterioration, obsolescence, and similar depreciation of the property's value. (21) Thus, while replacement cost coverage is designed, as much as possible, to place the insured in the position he would have been in but for the loss, it reimburses the insured for the full cost of repairs, even if that results in putting the insured in a better position that he was in before the loss.

Such coverage, however, is more often than not accompanied by a qualification that the insurer is at first only obligated to pay the actual cash value of the property, (22 and is to pay the remainder of full replacement cost only upon the completion of the actual repaired or replacement within a reasonable time. (23) Therefore, the requirement of actual repair or replacement does not affect the insurer's liability to pay for the actual cash value of the loss. It only affects that difference between that figure and the higher replacement cost amount. The obvious purpose of the precondition is to ensure that the insured is in need of the practical indemnity that replacement cost coverage is designed to accomplish, and to prevent the insured from directly profiting through the receipt of cash funds beyond the actual cash value of the loss. Thus, the insured is forced to repair and/or replace in order to recover the amount held back for depreciation.

Despite the facial attractiveness of the sound policies enunciated above, several courts have refused to enforce the pre-condition of actual repair or replacement. In rejecting this pre-condition, courts have reasoned that if the insured lacks the funds necessary to make up the difference between actual cash value and full replacement cost, it will be as a practical matter, prevented from making replacement, and thus denied the practical indemnity that replacement cost coverage is designed to provide. This argument is even more compelling in a case where the insurer has not even paid the actual cash value yet. (24) In  Zaitchick v. American Motorists Ins. Co.,  (25) the insurer refused to pay anything to the insured---not even actual cash value---because the insured had not yet restored the property in question. In   Zaitchick,  the court excused the insured from the pre-condition of actual repair or replacement on the ground of impossibility. Those cases cited by the insurer in favor of its position were declared by the   Zaitchick  court to be distinguishable because of a common fact. In those cases, the insurer had paid the actual cash value. The only issue, therefore, was whether or not the insurer was further obligated to pay the additional replacement cost amount. (26)

In  Coblentz et ux. V. Oklahoma Farm Bureau Mut. Ins. Co.,  (27) the Oklahoma Court of appeals went even further when it too refused to enforce the pre-condition of actual repair or replacement. In that case held that such a pre-condition is "unconscionable" in light of the fact that an insurance contract, by its very nature, is a contract of adhesion. (28) The reasoning behind this decision was explained by the court as follows:

[T]he challenged provision unreasonably favors the stronger party. Insurer required Plaintiffs to pay an extra premium to obtain replacement value coverage. Insurer then, by the terms of its insurance policy, required Plaintiff's to replace their lost property before Insurer would become obligated to pay full replacement cost. Insurer, by means of this condition precedent, placed Plaintiffs, who lacked the financial wherewithal to replace the property in a legal "Catch 22." Because Plaintiffs lacked the resources to provide for the loss (which was the purpose of their insurance contract), Insurer was able to compel them to accept the lower actual cash value of the property instead of the full replacement value coverage they expected and for which they paid. (29)

Those courts that have enforced the pre-condition of actual repair or replacement have stressed what they felt was the clearly expressed intent of the insurer that full replacement cost would not be paid unless and until actual repair or replacement had been made. (30) One of the earliest of these cases was  Tamco Corp. v. Federal Ins. Co. of New York.  (31) In that case, the court agreed with the insurer and held that the insured could only recover the depreciation holdback amount upon compliance with the rebuilding and replacement condition expressed in the policy. Until that time, explained the court, the insurer was only obligated to pay the actual cash value. Similarly, in   Bourazak v. North River Insurance Co.,  (32) the policy's extended coverage for replacement cost provided that the insurer would not be liable for loss "unless and until actual repair or replacement is completed". The 7 th  Circuit upheld dismissal of the complaint against the insurer based on the insured's failure to demonstrate compliance with the clearly expressed policy conditions.

Another recurring issue, with regard to repairs as a pre-condition to an insurers obligation to pay full replacement cost, has been whether or not the insured can recover the replacement cost when someone other than the insured makes the repairs at no cost to the insured and for no consideration. (33) Not surprisingly, the answer to that question is not so clear. While a number of courts have held that an insurer is not obligated to pay any more than actual cash value unless the insured has actually incurred replacement "costs", (34) there is certainly authority to the contrary. (35) Indeed, the issue has yet to be resolved by the highest court of any state, and many of the decisions concerning the issue include a dissenting opinion setting forth the contrary view. Therefore, this issue continues to be the subject of considerable debate.

The recent case of  Harrington v. Amica Mut. Ins. Co.,  (36) provides a poignant example of the contradicting views regarding this issue. In that case, a fire totally destroyed the insured's home. The fire policy insuring the home provided that the insurance carrier would pay no more that the actual cash value of the damage unless "actual repair or replacement [was} complete." Following the fire, the insured sold the premises in its damaged condition. In was undisputed that the insured had not made any repairs following the fire. In fact, it was the purchasers of the property who rebuilt the dwelling. Therefore, the insurer refused to pay any more than the actual cash value. In response, the insured sued to recover the difference between the actual cash value and the full replacement cost amount arguing that the policy did not require him to perform the repairs himself. The insurer, on the other hand, argued that it had satisfied its obligation under the policy when it paid the insured the actual cash value of the property, and that the insured was not entitled to replacement cost benefits because he did not sustain any pecuniary loss in connection with repairing or replacing the dwelling. In affirming an order of summary judgement in favor of the insurer, the   Harrington  court ruled as follows:

Replacement cost coverage inherently requires a replacement (a substitute structure for the insured) and costs (expenses incurred by the insured in obtaining replacement); without them, the replacement cost provision becomes a mere wager. Because plaintiff has not incurred replacement costs in this case, plaintiff's loss is defined by the building actual cash value. (37)

However, the  Harrington  opinion was not without dissent. Justice Green was of the opinion that the subject insurance policy clearly obligated the insurer to pay full replacement cost once actual repair or replacement was complete. Therefore, with respect to the insurers contention that the insured is not entitled to replacement cost benefits since the insured did not sustain any pecuniary loss in connection with repairing or replacing the property, the dissent responded as follows:

Nothing in the policy imposes the additional condition that the repair or replacement be made by the [insured] himself. Had [the insurer] intended to place that further limitation upon plaintiff's recovery, it could have done so explicitly. (citing  Ruter v. Northwestern Fire & Marine Ins. Co. of N.Y.,  72 NJ Super 229, 181 A2d 12;   Reese v. Northern Ins. Co. of N.Y.,  207 Pa.Super. 19, 215 A2d 266). The average policyholder would not read that unstated limitation on the right to recover repair or replacement costs into the policy. (citations omitted).

C. Conclusion

While the insurance practitioner may initially be of the opinion that after issues of coverage are resolved, the insurance claim itself is easily resolvable, issues concerning valuation may still cause enough division between the carrier and its insured as to require litigation, arbitration or appraisal. Because no hard and fast valuation rules exist, valuation issues may end up being harder to resolve than coverage issues. In addition, when the question of coverage can go either way, the approach utilized for loss valuation can and often is leveraged together with the coverage issues. Such situations will be eliminated only when there exists some uniform body of insurance law resolving the age-old question of what is actual cash value and what is replacement cost.


  1. APPLEMAN, INSURANCE LAW AND PRACTICE § 3823 *1842); VANCE INSURANCE 77, 760-61 (2d Ed. 1930); and see, e.g., Ingram and Giroux, Illinois Should Adopt the 'Broad Evidence Rule' in Insurance Indemnity Cases, 71 Ill. B.J. 41 (1982); Dykes, 'Actual Cash Value': The Magic Words---What Do They Mean?, 16 FORUM 397 (1981).
  2. Fisher, The rule of Insurable Interest and the Principle of Indemnity: Are They Measures of Damages in Property Insurance?, 56 IND. L.J. 448 (1981) ("[N]o universal agreement exists as to the meaning of the word indemnity, either conceptually or definitionally.")
  3. Reader III, Modern Day Actual Cash Value, 22 TORT & INS. L.J. 282.
  4. Vetich, Property Insurance Considerations for the Practicing Attorney, 47 TEX. B.J. 374 (1984) (the insurance industry defines actual cash value as "replacement cost minus depreciation").
  5. Herr, Commercial and Residential Property and Liability Insurance 17 REAL PROP., PROB. & TR.J. 638 (1982).  Jefferson Ins. Co. v. Superior Court of Alameda County,  3 Cal. 3d 398, 475 P.2d 880, 90 Cal. Rptr. 608, 611 (1970) (noting, however, that if the policy were required to read "not exceeding the amount which it cost to repair the property, "then" actual cash value" could be construed as meaning "replacement cost minus depreciation");   Citizens Sav. Bank & Trust Co. v. Fitchburg Mut. Fire Ins. Co.,  86 Vt. 267, 84 A. 970, 974 (1912).
  6. Eshan Realty Corp. v. Stuyvesant Insurance Company of New York,  202 N.Y.S.2d 899,   aff'd  12 A.D.2d 818, 210 N.Y.S.2d 256 (1961),   aff'd  11 N.Y.2d 707 (1962) (Under fire insurance policy limiting amount recoverable to actual cash value at time of loss but not exceeding amount it would cost to repair or replace property with material of like kind and quality, insured suffering partial fire loss was entitled to replacement with new materials without any deduction for depreciation);   Gibsland Supply Co. v. American Employers Ins. Co.  (1970, La. App.) 242 So.2d 310,   cert den  257 La. 987, 244 So.2d 858 (Insured under fire policy covering partially destroyed building was entitled to sum necessary to place building in substantially the same condition it was in at time of and immediately preceding the fire, as against a contention that the measure of damages was cost of restoration less depreciation);   American States Ins. Co. v. Molex, Inc.,  (1968), Ky.) 427 S.W.2d 236 (Usual measure of damages for partial loss of a building by fire is such sum as is sufficient to restore the building to the same condition it was in prior to the fire).
  7. See e.g.,  Couch on Insurance 2d § 54:101 ("depreciation should not be deducted from the cost of replacement, because that would make the sum insufficient to compete the repairs and would leave the building unfinished, so that the amount would fall short of the indemnity contracted for in the policy. Consequently, under fire policies insuring against loss to the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality, the percentage of depreciation applicable to the building as a whole in case of total loss could not be used to depreciate the cost to repair and thus reduce the loss, notwithstanding that the cost to repair exceeded the depreciated value of the building").
  8. 233 Kan. 775,666 P.2d 676 (Kan. 1983).
  9. Id.  at 679.
  10. See  generally Dykes, supra note 1.
  11. McAnarney v. Newark Fire Ins. Co.,  247 N.Y. 176, 159 N.E. 902 (1928);   Boise Ass'n of Credit Men v. United States Fire Ins. Co.,  44 Idaho 249, 256 P. 523 (1927).
  12. E.g., Bartindale v. Aetna Ins. Co.,  7 NJ Misc. 399, 145 A. 633 (1929).
  13. See, McAnarney, infra.
  14. McAnarney,  247 N.Y. 176, 159 N.E. 902 (1928).
  15. Id.
  16. Id.  59 N.E. at 905.
  17. See e.g.,   Surratt v. Grain Dealers Mut. Ins. Co.,  (1985) 74 N.C. App. 288, 328 S.E.2d 16;   Mamou Farm Services, Inc. v. Hudson Ins. Co.,  (1986, La. App. 3d Cirt.) 488 So.2d 259;   Elberon Bathing Co., v. Ambassador Ins. Co.,  (1978), 389 A.2d 439, 77 N.J. 1 (Whether the loss is total or partial, the standard for evaluating actual cash value under New Jersey standard form fire policy is the broad evidence rule, which requires the fact finder to consider all evidence an expert would consider relevant to evaluation; particularly both fair market value and replacement cost less depreciation. But, such criterion do not bind the fact finder but are instead guidelines, along with other relevant evidence).
  18. Aetna Casualty & Surety Co. v. Florentine Marble & Tile Corp.,  (1977, Tex. Civ. App. 8 th  Dist.) 549 S.W.2d 24.
  19. Ohio Casualty,  439 N.E.2d at 1169 (noting, at 1169 note 4, the suggestion that "replacement cost less depreciation should be the touchstone in the ordinary case, limiting the broad evidence test to unusual fact situations.")
  20. Higgins v. Insurance Co. of N. America,  256 Or. 151, 469 P.2d 766, 772 (1970) (replacement cost coverage, which obligates the insurer, in the event of a loss, to pay the full cost of repair or replacement, arose form a recognition on the part of insurers that the payment of actual cash value might in some cases leave the insured with insufficient funds to restore his property, and so fail to provide practical indemnity).
  21. Jordan, Pwhat price rebuilding? A look at replacement cost policies, 19 The Brief 17 (Spring 1990).
  22. One slight variation of this is when the policy provides that actual cash value will replace cost coverage unless and until actual repair or replacement is made. As a practical matter, this language will operate in the same way as the other.
  23. See e.g., BSF Inc. v. Cason,  (1985) 175 Ga. App. 271, 333 S.E.2d 154: Tamco Corp. v. Federal Ins. Co.,  (1963, N.E. Ill.) 216 F.Supp. 767 (applying Illinois law);   Bourazak v. N. River Ins. Co.,  379 F.2d 530 (7 th  Cir. 1967).
  24. See Zaitchick, infra.
  25. 554 F.Supp. 209 (S.D.N.Y. 1982),  aff'd without opinion,  742 F.2d 1441 (2 nd  Cir. 1983),   cert. denied,  464 U.S. 851 (1983).
  26. American Universal Ins. Co. v. Falzone,  644 F.2d 65 (1 st  Cir. 1981);   Kolls v. Aetna Cas. & Sur. Co.,  503 F.2d 569 (8 th  Cir. 1974);   Bourazak, supra;  and   Higgins, supra.
  27. 915 P.2d 938.
  28. In this regard, the  Coblentz  count cited   Rodgers v. Tecumseh Bank,  756 P.2d 1223 (Okla. 1988), a case which also provided the following definition of an adhesion contract:

    "The term [adhesion contract] refers to a standardized contract prepared entirely by one party to the transaction for the acceptance of the other; such a contract, due to the disparity in bargaining power between the draftsman and the second party, must be accepted or rejected by the second party on a 'take it or leave it' basis, without opportunity for bargaining and under such conditions that the 'adherer' cannot obtain the desired product or service save by acquiescing in the form agreement."

    Id. (quoting Steven v. Fidelity & Cas. Co. of New York, 58 Cal.2d 862 27 Cal. Rptr. 172, 185, 377 P.2d 284, 297 (1963)).

  29. Coblentz,  925 P.2d 938.
  30. Bourazak,  379 F.2d 530 (7 th  Cir. 1967);   Lerer Realty Corp. v. MFB Mut. Ins. Co.,  474 F.2d 410 (5 th  Cir. 1973);   Huggins v. Hanover Ins. Co.,  423 So.2d 147 (Ala. 1982).
  31. 216 F.Supp 767 (N.D. Ill. 1963).
  32. 379 F.2d 530 (7th  Cir. 1967).
  33. See e.g., C&S Mfg. V. United States Fire Ins. Co.,  (C.A. Wis. 993), 993 F.2d 1304 (insurer did not have to pay to insured the cost to repair where the aircraft manufacturer replaced the aircraft wing at no charge to the insured).
  34. See e.g., Harrington v. Amica Mut. Ins. Co.,  ___A.D.2d___, 645 N.Y.S.2d 221 (1996);   Dickler v. CIGNA Prop. & Cas. Co.,  957 F.2d 1088 (3 rd  Cir. 1992) (applying New York law);   Holley v. Allstate Ins. Co.,  562 So.2d 184 (Ala. 1990);   Ferrara v. Insurance Co. of N. America,  135 A.D.2d 366, 521 N.Y.S.2d 668.
  35. See, Ruter v. Northwestern Fire & Marine Ins. Co. of N.Y.,  72 N.J.Super. 467, 178 A.2d 640,   cert denied  37 N.J. 229, 181 A.2d 12;   Reese v. Northern Ins. Co. of N.Y.,  207 Pa. Super. 19, 215 A.2d 266.
  36. Harrington, supra.
  37. Id.  at 225.



Dennis T. D'Antonio

Joshua L. Mallin

Jesse R. Dunbar

Weg & Myers, P.C.

New York, New York.

Table of Contents

  1. The Innocent Co-insured Doctrine.
  2. How Courts Addressed the Problem of An Innocent Co-insured Before the 1970's.
  1. Era of "Joint Obligations"
  2. Public Policy Arguments Against Coverage for an Innocent Co-insured.
  1. Development of the Innocent Co-insured Doctrine
  1. Era of "Several Liability"
  2. Public Policy Arguments Favoring Coverage
  1. The Insurance Defense Bar's Reaction
  1. The Problem of the Properly Drafted Exclusion
  1. Courts' Response to this Reaction.
  1. Question of Contract Interpretation.
  1. New Trends
  1. Reformation Approach
  2. Placing the Burden of Proof on the Innocent Co-insured to Prove His Innocence in Order to Recover Proceeds Under the Insurance Policy
  1. Conclusion