Part 1 of this series deals with the burden of proof of showing that a claim initially was covered by the policy. Part 2 deals with the placement of the burden of proof for an exclusion. Part 3 deals with placement of burden of proof on exceptions to exclusions and whether the person making the claim was an insured. Part 4 addresses who has the burden of proof to show that a claim falls within the policy period and the burden of proof on causation and allocation of damages.
Coverage litigation presents some of the most challenging issues of any case that can be tried. The complexities of the legal issues presented are often beyond comprehension. However, the area where more mistakes are made and more cases are lost is burden of proof. This tends to be overlooked more than any other area. The published opinions are littered with litigants that had excellent claims or excellent defenses but nonetheless lost because they failed to recognize they had the burden of proof and to come forward with evidence to meet that burden.
This article will address the respective burdens of proof that the insurer and insured must carry during the course of insurance litigation in Texas. We have attempted to identify all of the issues and stages when a burden of proof issue may present itself. When possible, we have attempted to discuss the origin, evolution, and reasoning behind the particular burden of proof to address the rationale behind the rule and provide guidance when there are subsequent attempts to change or extend the rule. This series will address the respective burdens of proof in coverage litigation as they apply to the different issues that present themselves in coverage litigation.
Insured's Initial Burden of Proof on Coverage
The first issue that must be addressed in any coverage case is who has the burden of proving that there the policy covers a loss. While we will be discussing the laws in Texas, it should be noted that all 50 jurisdictions follow the rule that has been adopted in Texas. It is well established under Texas law that the insured bears the initial burden of showing that there is coverage under the insurance policy in question. Gilbert Tex. Constr. LP v. Underwriters at Lloyd's London, 327 S.W.3d 118 (Tex. 2010) ("Initially, the insured has the burden of establishing coverage under the terms of the policy."); L.P. Employers Cas. Co. v. Block, 744 S.W.2d 940 (Tex. 1988) ("An insured cannot recover under an insurance policy unless facts are pleaded and proved showing that damages are covered by his policy."); Venture Encoding Servs., Inc. v. Atlantic Mut. Ins. Co., 107 S.W.3d 729 (Tex. App.—Fort Worth 2003, pet. denied); and Bethea v. National Cas. Co., 307 S.W.2d 323 (Tex. Civ. App.—Beaumont 1957, writ ref'd) ("[P]rimarily the burden rested on [assured] to plead and prove facts showing that, special exceptions aside, the assured's death was covered by the policy").
One of the earliest Texas cases suggesting that the insured had the initial burden to prove coverage took place as a result of a hurricane. Pelican Ins. Co. v. Troy Co-op Ass'n, 13 S.W. 980 (Tex. 1890). The insured's house was destroyed during the hurricane, and evidence suggested that the storm's winds blew down the house, causing a lamp to fall, which in turn ignited a fire. The policy covered certain losses by fire and building collapse but excluded damage resulting from fire caused by a hurricane. While the supreme court devoted the bulk of its opinion to the issue of a policy exclusion, the court noted that "[t]he burden of proof was on the plaintiff to show not only that its property was destroyed by fire, but also to show that the loss occurred from a fire which the defendant had insured against." Id. Thus, the insured had the burden of establishing that the loss occurred as a result of a fire that was contemplated by the policy. While the insured prevailed at trial, the high court reversed and remanded because of the failure of the trial court to give a jury charge on the insured's burden to negate certain policy exclusions. The Pelican case is also one of the earliest Texas cases dealing with the burden of proof on policy exclusions.
Later, the Beaumont Court of Appeals expressly recognized that the insured bears the burden of pleading and proving that the loss is covered by the policy. Bethea v. National Cas. Co., 307 S.W.2d 323 (Tex. Civ. App.—Beaumont 1957, writ ref'd). The policy in Bethea covered injury sustained "[w]hile walking on a public street or sidewalk by being struck by a falling signboard, awning, brick or stone from a building (except buildings in process of construction, repair or demolition)." Id. at 324. The evidence showed that the insured was killed when a bridge he was helping to construct across the Brazos River collapsed. However, the plaintiff only alleged that the insured had been killed by being struck by "falling material" and only proved that the insured had been standing on a concrete bridge pier in the river when the accident occurred.
The court stated that "[i]n order to be entitled to recover under the policy for death caused by the assured's being struck by 'falling material,' it was necessary that the plaintiff plead and prove that 'while walking on a public street or sidewalk' the assured was fatally injured or killed by being struck by 'a falling signboard, awning, brick, or stone from a building.'" Id. The plaintiff failed in this respect and thus had not met her burden of proving coverage under the policy.
In 1965, the Texas Supreme Court suggested that the insured bore the initial burden of proof on coverage. Royal Indem. Co. v. Marshall, 388 S.W.2d 176 (Tex. 1965). There, the plaintiff-insured sued Royal after three of the plaintiff's used automobiles were damaged by fire while in a garage owned by another and not a place of business used by the plaintiff or named in the insurance policy. The policy did not provide coverage for cars held at an "unnamed location" beyond 7 days. Id. at 178. The evidence showed that the cars had been held at this unnamed location for more than 7 days prior to the fire. The insured argued for a broad definition of "location" so as to cover the cars damaged at the third party's garage and further argued that having cars at third-party locations for makeready purposes is a standard practice in the used car business; thus, the policy should be construed to afford coverage. Finally, the insured argued that the policy's provisions defining "location" were an exception to general coverage of all of the insured's automobiles.
The court rejected these arguments by first stating that courts must enforce insurance contracts as written and cannot construe policies to provide coverage that was not intended by the parties. The court noted that the provisions regarding "location" were not exceptions and agreed with the insurer that the plaintiff had the burden "to plead and prove facts showing that the damages done to his used automobiles [were] within the coverage provided in the insurance policy." Id. at 181. Because the plaintiff failed to show such coverage, the court reversed and rendered judgment that the plaintiff takes nothing.
The decision in Employers Cas. Co. v. Block, 744 S.W.2d 940 (1988), appears to mark the first time that the Texas Supreme Court expressly stated the rule that the insured bears the burden of pleading and proving coverage under an insurance policy. There, a roofer installed a roof on the Blocks' home, which began leaking. The roofer repaired the leaks, but Hurricane Allen caused more leakage. The roofer subsequently turned to its insurer, Employers Casualty, to defend a suit by the Blocks. The issue concerned the date on which the damage occurred. The court of appeals held that the insurer was required to affirmatively plead that the damages were not covered under the provisions of the policy.
However, the supreme court disagreed, noting that the insurer only argued that the damage occurred outside the policy period, which was not an argument for an exception to the policy. Rather, the court stated, the time of the insured's damage is a precondition to coverage, and the insureds had the burden to prove that the house was damaged during the policy period. ("An insured cannot recover under an insurance policy unless facts are pleaded and proved showing that damages are covered by his policy," citing Royal Indem. Co. v. Marshall, 388 S.W.2d 176 (Tex. 1965); and Bethea v. National Cas. Co., 307 S.W.2d 323 (Tex. Civ. App.—Beaumont 1957, writ ref'd)).
The Texas legislature added article 21.58 to the Insurance Code in 1991 and shifted the burden of proof regarding policy exclusions. TEX. INS. CODE ANN. art. 21.58 (Vernon 1991). By its plain language, the statute was directed at the insurer's burden, but by negative implication, the insured retained the burden to otherwise prove coverage. Shortly after the introduction of the statute, the Fifth Circuit described an instance where the insured still bore the burden of proof as to coverage, in spite of the insured's argument that the policy language was an exclusion. Sentry Ins. v. R.J. Weber Co., 2 F.3d 554 (5th Cir. 1993). Weber had an insurance policy through Sentry that covered "advertising injury," but only if it occurred in the course of advertising goods, products, or services. Caterpillar sued Weber alleging copyright infringement but did not allege that such infringement occurred in the context of advertising. Weber argued that the policy provision defining "advertising injury" was a limitation that, under the Insurance Code, Sentry was required to prove inapplicable. Id. at 556.
The court disagreed, stating that the language was not a policy limitation or exclusion but rather a provision that defined policy coverage. Thus, Weber had the burden to prove that its injuries to Caterpillar were covered by the policy. Because the underlying complaint made no mention of advertising activities, Weber could not meet its burden to show that the copyright violations came within the policy's coverage.