THE BURDEN OF PROOF IN AN INSURANCE CLAIM

THE BURDEN OF PROOF IN AN INSURANCE CLAIM

These days, most insurance claims are resolved without having to go to court. Should an insurance claim go to court, there is a strict process and shifting burden of proof when damage occurs at an insured property.

A typical all risk policy will provide coverage for all risks of direct physical loss or damage, except as excluded or limited elsewhere in the coverage section of the policy. The policy typically contains several exclusions, including exclusions for wear and tear and gradual deterioration. It is critical for the insurer to advise the court that the list of excluded causes of loss in an all-risk property policy guides the determination of coverage, whether for damage incurred during a catastrophic event like Irene and Super Storm Sandy, or in a fire or sinkhole collapse.

It is the responsibility of the insured to prove whether or not a policy affords coverage for a loss by establishing that it occurred within the policy period and it was a covered peril that caused the property damage. This lesser burden of proof is heavily relied upon by insurers because, if it is not met, the insurer can and will deny coverage.

In regards to policy exclusions, it is the insurance company’s burden to prove that the exclusion is applicable to the incident in question.

Various theories have developed to address the issue of multiple or sequential causation, with some courts applying the broad doctrine of “concurrent causation,” whereby coverage will be available if any one of the multiple causes of loss is a covered peril. Other courts apply the “efficient proximate cause” theory, whereby the fact finder looks at the circumstances of the loss to determine which cause was the dominant or efficient cause - - which may or may not be the initiating event in the chain of events. Anti-concurrent cause clauses have not been addressed by the highest court of several of the local jurisdictions. Lower court decisions in New York and New Jersey have upheld such exclusions, as the insureds found out in the aftermath of SS Sandy.

Example

Here is an example of how these burdens can play out in court, for an all risk insurance policy.

A homeowner in New York has hail damage protection. A heavy storm rolls through and causes hail damage to the roof. The insured must establish through sworn affidavits, expert reports, eyewitness accounts, and so on that the storm caused damage to the roof and that the storm was the sole cause of the roof damage and that wear and tear and/or lack of maintenance or past storms did not cause the loss. This is critical for an insured to understand. If the expert provides evidence that the storm simply contributed to the roof damage, then the insurance company will deny the claim and the court may very well give summary judgment in favor of the insurer.

Regarding the policy exclusions, if the insurer establishes that the wear and tear, lack of maintenance, pre-existing conditions, etc. are not covered losses under the policy, the court will shift the burden to the insured to provide evidence to allow the judge or jury to segregate covered losses from non-covered losses. If the insured or its expert fails to provide evidence to be able to segregate the contributions to the damage, the court will enter summary judgment in favor of the insurer and dismiss the insureds claim.

DID YOU KNOW THAT INSURANCE POLICIES ARE CONTRACTS AND ARE CONTROLLED BY THE RULES OF CONSTRUCTION APPLICABLE TO OTHER TYPES OF CONTRACTS?

Insurance policies are contracts and are controlled by the rules of construction developed over hundreds of years in the law of contracts. If a policy provision can be given one reasonable construction, it will be enforced as written by the court. A policy is considered ambiguous when it is reasonably susceptible to more than one reading and there is genuine uncertainty as to which of two or more meanings is proper.

If policy language is susceptible to more than one reasonable interpretation, courts must resolve the uncertainty by adopting the construction that most favors the insured. The court must adopt the construction of exclusionary clauses urged by the insured so long as that construction is not unreasonable, even if the insurer’s proposed construction is more reasonable. These general rules of construction apply because, generally, the language and terms of insurance policies are deemed to be chosen by insurance companies, leaving the insurer in control of the process. Therefore, any ambiguities regarding coverage, particularly exclusions to coverage, are constructed against the insurer.

DID YOU KNOW THAT A STORM SURGE IS A SPECIES OF FLOOD, NOT COVERED UNDER A STANDARD HOMEOWNERS’ POLICY

Damage from flooding, including flooding generated by hurricane-generated storm surge typically is not covered under a standard homeowners policy. Flood coverage requires a separate policy from the federal government’s National Flood Insurance Program (NFIP), or from a private insurance company.

FEMA flood zones define areas at risk for fresh-water flooding, which is an entirely different hazard than hurricane-driven storm surge. Extensive areas along both coasts are actually vulnerable to storm surge, yet not located within designated FEMA flood zones — and therefore homeowners are not required to carry flood insurance. Unfortunately, thousands of insureds have found that the hard way after SS Sandy hit our area in 2012; the insurers denied coverage for storm surge damage. Recently, a New York judge stated that the storm surge is not a separate peril from a flood and that the term “flood” includes “storm surges” in the ordinary meaning of the words.

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