STATE of Missouri, ex rel. SHELTER MUTUAL INSURANCE COMPANY, Relator, v. Honorable James Clifford CROUCH, Judge of the 38th Judicial Circuit of Missouri, Respondent, 714 S.W.2d 827

PREWITT, Chief Judge. The question presented is whether a contention that an insured intentionally burned property to receive insurance proceeds can be a defense by the insurance company when this contention was not stated in the insurance company’s letter denying the claim. David J. Meeker and Barbara A. Meeker owned a dwelling near Branson. Relator Shelter Mutual Insurance Company issued a contract of insurance, insuring the dwelling against various losses including losses due to fire. On July 18, 1983, the dwelling and contents were damaged by fire.

By letter dated September 9, 1983, Shelter advised the Meekers that because of misstatements, regarding previous losses, in the application for insurance the insurance policy was “void and was never effective” and Shelter “cannot, therefore, recognize any claim presented by you for the above mentioned loss.” Shelter attempted to return the amount of the premium paid by the Meekers, with interest. Thereafter, the Meekers filed suit on the policy, seeking damages for loss to the dwelling. Shelter’s answer stated in part: “18.

For a further and complete defense, this defendant alleges that plaintiffs intentionally burned, or caused to be burned, the insured property for the purpose of collecting the insurance provided in the insurance policy issued by this defendant to plaintiffs.” The Meekers moved to strike this and other portions of the answer because “Defendant Shelter Mutual Insurance Company has waived any defense not set out in its denial letter dated September 9, 1983” and is thus “estopped to raise any defense not set out in its denial letter”.

The respondent trial judge indicated his intention to sustain plaintiffs’ motion and strike paragraph 18 of the answer, unless prohibited. Shelter then filed its petition seeking a writ of prohibition prohibiting respondent from striking paragraph 18. This court issued a preliminary order. It is often stated that if an insurer denies liability upon a specific ground or defense, all other grounds or defenses are waived, and the insurer is estopped to assert them, at least if the original denial was made with full knowledge of the facts. See Cal vert v.

Safeco Insurance Co. of America, 660 S.W.2d 265, 271 (Mo.App.1983); Morris v. Reed, 510 S.W.2d 234, 240 (Mo.App.1974); Stone v. Waters, 483 S.W.2d 639, 646 (Mo.App.1972); 16C Appleman, Insurance Law and Practice, § 9260, at 393-394 (1981). Although for the estoppel to apply there must be some prejudicial reliance on the company’s action, under Missouri law that reliance always appears to be present because “no Missouri case has required any more than a very slight degree of prejudice to the claimant in this situation, it being held that the mere trouble and expense of bringing suit is enough.” Morris v.

Reed, supra, 510 S.W.2d at 240. The waiver and estoppel rule has been applied to deny the insurance company an additional defense where the original denial attempted to declare the policy void or nonexistent. See 16C Appleman, supra, at 395-396. See also Morris v. Reed, supra, 510 S.W.2d at 240-241; Ash-Grove Lime & Portland Cement Co. v. Southern Surety Co., 225 Mo.App. 712, 39 S.W.2d 434, 441 (1931). The cases we have found and that were cited to us do not agree on whether arson by an insured is subject to this rule. In Lawndale National Bank v.

American Casualty Co., 489 F.2d 1384 (7th Cir.1973), the insurer denied coverage claiming fraudulent misrepresentations in the application for insurance. Later, the trial court allowed the company to assert the defense of arson. On appeal the court stated that the defense of arson cannot be waived. 489 F.2d at 1388. No authority is cited to support that conclusion. A & E Supply Co. v. Nationwide Mutual Fire Insurance Co., 589 F.Supp. 428, 432 (W.D.Va.1984), following what was thought to be Virginia law, refused to follow Lawndale and found that the defense of arson was subject to waiver.

See also Mid-Century Insurance Co. v. Cherubini, 95 Nev. 293, 593 P.2d 1068, 1070 (1979) (direction to lower court to determine whether defense of arson is subject to waiver). Morris v. Reed, supra, discusses the defense of arson by an insured as if waiver or estoppel might prevent it from being raised, but determines that there was no evidence to support that defense. 510 S.W.2d at 240-241. In DeLisle v. Cape Mutual Insurance Co., 675 S.W.2d 97, 101-102 (Mo.App.1984), this district was not required to make a determination of the question now presented because the trial court had found there was no arson. .

Relator Shelter Mutual Insurance Company contends that because arson is against the public policy of Missouri, it is a defense that cannot be waived. In its brief, Shelter likens the defense of arson to the lack of an insurable interest in an insurance contract which “is a requirement of public policy against a gambling contract and cannot be waived.” Estes v. Great American Ins. Co., 112 S.W.2d 153, 156 (Mo.App.1938). See also Galati v. New Amsterdam Casualty Co., 381 S.W.2d 5, 9 (Mo.App.1964).

The Meekers agree that arson is against public policy, but contend that this does not prevent the arson defense from being subject to the rule of waiver and estoppel. We see no good reason why the public policy against arson would prevent the rule of waiver and estoppel from applying to the arson defense. If the company legitimately believes that they have an arson defense, then it should be raised when they first deny the claim. The grounds for denial should be set out then so a policyholder knows what the defense or defenses will be and can adequately prepare to meet those defenses.

If certain defenses can be raised later, an insurance company can make it impossible for an insured to know what the real defense is and thus mislead an insured into not investigating that defense. When the insured learns of the defense it may be too late for a proper investigation. The cases cited by Shelter, which state that the defense of lack of an insurable interest cannot be waived, can be distinguished from waiver of the defense of arson in that an investigation soon after the loss would not usually be necessary for an insured to rebut the defense of lack of an insurable interest.

If an insurer has a legitimate reason why it did not know of a defense of arson by an insured, and could not have known and raised it earlier, then the insurer should be able to alter or add to its initial denial. See Stone v. Waters, supra, 483 S.W.2d at 646. However, there is no such contention by Shelter here. Where no acceptable excuse is established for not raising the defense of arson committed by an insured, then an insurance company can be estopped to do so later. Shelter also claims that denying it the defense of arson might create coverage by waiver or estoppel.

Courts frequently state that although waiver and estoppel may prevent an insurer from asserting a defense to coverage otherwise provided by a policy, waiver or estoppel cannot establish coverage where none existed before. State Farm Mutual Automobile Insurance Co. v. Hartford Accident & Indemnity Co., 646 S.W.2d 379, 381 (Mo.App.1983). See also Associated Indemnity Corp. v. Miller-Campbell Co., 596 S.W.2d 383, 389 (Mo. banc 1980). However, here, prohibiting the defense of arson will not create coverage by waiver or estoppel.

If the policy is not void for misrepresentation, loss by fire to the dwelling was a covered risk. Arson by the Meekers was only a defense to avoid payment of the loss from the covered risk. The question is whether the defense of arson can be raised and whether it can or not does not create additional coverage. Respondent was correct in intending to strike paragraph 18 of Shelter’s answer. The preliminary order is quashed. HOGAN, P.J., and CROW, J., concur. MAUS, J., dissents and files dissenting opinion.

As noted in a footnote at 16B Appleman, Insurance Law and Practice, § 9090 at 576 (1981), "despite the lip service given to the doctrines announced in the following material, a caveat should be observed to the effect that, as shown in the other sections of this Volume and the succeeding volumes dealing with waiver and estoppel, the courts, in fact, frequently do extend the coverage of a policy by the application of one or the other of such doctrines. And, if they do not create a contract initially, they may prevent the company from denying its existence, which is tantamount to the same thing."