Claims and Bad Faith Law Blog

HOW FORTUITOUS FOR THE CARRIER THAT REFUSED TO PAY.

In Hansen Storage Co. v. Emp'rs Mut. Cas. Co., ___ F. Supp. 3d ___, No. 23-CV-362-SCD, 2024 WL 2272621 (E.D. Wis. May 20, 2024) (USMJ), the concept of fortuity as understood in Wisconsin law was expressed by a U.S. Magistrate in a bad-faith case in these terms:  "The proper focus is not whether the damage existed at the time the policy took effect, but rather whether the parties 'knew about or contemplated the damage's cause before the policy's issuance.'"  Hansen Storage, 2024 WL 227621, at *6.

    The commercial insurance policy at issue "does not list any specific covered perils.  Rather, it covers 'risks of direct physical loss unless the loss is limited or caused by a peril that is excluded.'"  Hansen Storage, 2024 WL 227621, at *4.  The Magistrate Judge described this as an "all risk" policy.  In Wisconsin, the burden of proof of fortuity is apparently placed upon the policyholder.  Hansen Storage, 2024 WL 227621, at *5.

    Here, the policyholder-plaintiff did not meet that burden in the eyes of the Magistrate Judge, who denied Hansen's motion for summary judgment.

Please read the disclaimer.  ©2024 Dennis J. Wall.  All rights reserved.  Judicial use and misuse of the "Fortuitous" concept as an Exclusion in decided cases involving all risks policies is explored by Dennis Wall in CATASTROPHE CLAIMS / INSURANCE COVERAGE FOR NATURAL AND MAN-MADE DISASTERS, § 7:4 (Thomson Reuters June 2024 Edition).

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CLASS ACTION COVID DAMAGES CLAIMS.

A motion to certify a class of insurance coverage claimants with COVID-related loss of income, expenses, and other damages was granted in part, denied in part in Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265, 2021 WL 3686668 (E.D. Va. August 19, 2021).

          The Court in that case denied the motion to certify a Nationwide Class of policyholders whose COVID-19 coverage claims have been denied by State Farm for various business interruption losses and damages.

          The Court granted the motion to certify what the Court called a "Virginia Sub-Class":

All persons or entities in the Commonwealth of Virginia with a Businessowners insurance policy issued by State Farm on Form CMP-4100, including a Loss of Income and Extra Expense endorsement on Form CMP 4705.1 or CMP 4705.2, or with the same or substantially similar terms, in effect at any time between March 23, 2020 through June 30, 2020, and who submitted claims for business income losses and/or extra expenses incurred as a result of social distancing, closure and/or stay-at-home orders issued from March 2020 forward, which Defendants denied.

Elegant Massage, 2021 WL 3686668, at *11.  How the Court reached this decision is a textbook example of Rule 23 Class Certification analysis.

          Emphasizing the discretion extended to District Judges ruling on Class Certification motions -- discretion extended even by the Roberts Court -- the Court in this case carefully considered the requirements extant under both Rule 23(a) and 23(b).

          The focus here is of course on the Court's treatment of Insurance Bad Faith Claims.  In addition, claims for various kinds of Business Interruption Coverage and the carrier's Virus Exclusion are highlighted for our purposes.

1. Rule 23(a) Numerosity. In part here pertinent, State Farm previously answered an Interrogatory in the case in which it identified 111 "claim files of insureds located in the Commonwealth of Virginia who submitted business interruption claims relating to the COVID-19 pandemic."  Elegant Massage, 2021 WL 3686668, at *5.  That was good enough to satisfy the numerosity requirement under Rule 23 "at this time."  The question of whether the  certified class would be limited later on -- clearly because some of the 111 claims were presumably not denied and so they should not be in a class of denied claims, or they did not involve Bad Faith claims and thus should not be included in a class of Bad Faith claims -- could be answered later.
2. Rule 23(a) Commonality and Typicality. The insurance coverage questions are common to the class members.  These coverage questions include resolution of the term "accidental direct physical loss," and application of the Virus Exclusion.

        The class members also presented the question in common of whether the carrier acted in good faith.

        The commonality requirement is therefore satisfied here.  Elegant Massage, 2021 WL 3686668, at *6.

        The Court held similarly that the typicality requirement of Rule 23(a) is also satisfied here.    For very much the same reasons in the eyes of the Court, the claims of the class members and the plaintiff's claims satisfy the typicality requirement.  Elegant Massage, 2021 WL 3686668, at *6-*7.

3. Rule 23(a) Adequate Representation. State Farm did not challenge the adequacy of the plaintiff's counsel to represent the class.  The Court found no evidence that the representation would be in any way inadequate.  This requirement too is satisfied.  Elegant Massage, 2021 WL 3686668, at *7.

        There are still requirements under Rule 23(b) to consider, and the Court in this case considered them all.  They are condensed here.

1. Rule 23(b) Predominance.   For all claims of all class members in this case, the Court will need to "determine the proper legal interpretation of the Defendants' 'all risk' policy as it pertains to the COVID-19 mandatory closures."   Elegant Massage, 2021 WL 3686668, at *8.   Note that the Plaintiff in this particular case initially voluntarily closed its business "[a]s a result of the policies on social distancing and restrictions on its business[.]"  Elegant Massage, 2021 WL 3686668, at *2.  One week after plaintiff's voluntary closure, however, the Governor of Virginia issued an executive order for the (involuntary) closure of recreational and entertainment businesses, a category which included businesses like the plaintiff's.   Elegant Massage, 2021 WL 3686668, at *1.

        Even after holding that the insurance coverage issues predominate here, this Court examined each count of the operative complaint to determine whether the claims alleged in those counts predominate for the class as a whole or whether they are claims unique to the individual plaintiff that filed this lawsuit.

        After refusing certification of a class for Declaratory Judgment across the nation, the Court never again turned to Count I, the Declaratory Judgment count at bar.

        Count II is a claim alleged for breach of the insurance contract common to all the class members.  The Court reviewed its previous denial of the carrier's motion to dismiss the breach of contract count and concluded that "the questions of law and fact" necessary to adjudicate Count II "predominate across each member of the purported class."  Elegant Massage, 2021 WL 3686668, at *9.

        Count III is of great interest here for the reason that it contains an alleged claim for Insurance Bad Faith.  As with the Court's previous denial of the carrier's motion to dismiss this claim, the Court again "reasoned that since 'coverage is a pre-requisite to a claim for bad faith' Plaintiff may proceed with Count III," Elegant Massage, 2021 WL 3686668, at *9, and thus so may the class members.   Simply put, "the questions of fact and law required to establish Count III for the Virginia Subclass are predominate across each member of the purported class."      Elegant Massage, 2021 WL 3686668, at *10.

2. Measurable Damages and 3. Superiority under Rule 23(b).  The Court also considered the roles of Measurable Damages and of Superiority under Rule 23(b) and held that they are met here as well.  As for proof of damages "using common proof," that determination will be made if necessary following the close of discovery.   Elegant Massage, 2021 WL 3686668, at *10.  As to Superiority, from all that has been said so far it was something of a foregone conclusion that the treatment of the interests of the class members in a class action is superior to any alternatives to adjudicate those interests; class action treatment will, the Court held, serve the interests of "efficiency, time, and uniformity of decision, and because the Court also finds that common issues predominate[.]"   Elegant Massage, 2021 WL 3686668, at *10.

The Elegant Massage decision to certify a class is a tour-de-force in the certification of class actions under Rule 23.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.  

INTERPRETING THE VIRUS EXCLUSION: "THINKING OUTSIDE THE BOX."

 

(LexisNexis)  In Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265, 2020 WL 7249624 (E.D. Va. December 9, 2020), a Federal District Court denied State Farm's motion to dismiss a Business Interruption claim based on COVID-19 despite a Virus Exclusion.

The plaintiff-policyholder is a spa.  It bought an all-risk commercial property insurance policy from State Farm.   It made claims under that policy for Business Interruption losses both for the time when it voluntarily closed its doors for business, and through the time that followed Executive Orders which required it to close.  State Farm denied the claims based in part on the policy's Virus Exclusion.

The spa sued for coverage and alleged bad-faith damages.  State Farm filed its motion to dismiss.  The District Court's analysis was simple and basic analysis of coverage under an all-risk insurance policy.

The policyholder making a claim under an all-risk policy first has to establish coverage.  Here, that meant establishing that the claimed losses were caused by "accidental direct physical loss" to the property.

The Federal Court found that Virginia Courts have applied a "spectrum of accepted interpretations" of "direct physical loss" in the case law, and the Federal Court applied the interpretation most favorable to coverage in this case since the carrier had the opportunity to limit and define the phrase in the policy, but did not.

 "Based on the case law, the Court finds that it is plausible that a fortuitous 'direct physical loss' could mean that the property is uninhabitable, inaccessible, or dangerous to use because of intangible, or non-structural, sources."  Elegant, 2020 WL 7249624, at *10.

Coverage having been established -- or more accurately in the context of this case, a plausible claim to coverage having been established -- the next step of the analysis is whether coverage under the all-risks policy is excluded.  That brings us, as it brought the Court, to the Virus Exclusion at issue here.

The burden is on the all-risks carrier to show the applicability of an Exclusion.  In this case, the all-risks carrier did not meet its burden.  This was so even in the face of a more or less standard Virus Exclusion which a vast majority of Courts across the country have interpreted to exclude Business Interruption claims arising from COVID-19.

But not in this case.  The Court in this case was not intimidated by reports of a majority view of Virus Exclusions. 

The Court's approach is a lesson in coverage interpretation and not just for interpretation of all-risks policies.  Here, the Court thought "outside the box," and counsel for policyholders and counsel for insurance companies alike would do well to take notice.

The facts alleged in the policyholder's complaint did not depend on a virus.  The policyholder did not allege either that COVID-19 was present at the spa or that COVID-19 was the direct cause of physical loss to Covered Property.  See Elegant, 2020 WL 7249624, at *13.  In basic and simple terms, the plaintiff's claim to coverage was based on alleged losses due to a threat risk, and not a virus.

Next, the Court turned its attention to the language in the all-risks policy at issue.  Interpretation of an insurance policy is a legal issue.  The Court held that, as a matter of law, the Virus Exclusion at bar "applies where a virus has spread throughout the property."  Elegant, 2020 WL 7249624, at *12.  Therefore the Virus Exclusion at bar does not apply to the facts alleged in this particular case.  To put it another way, the all-risks carrier failed to meet its burden to show that the Virus Exclusion applies to the spa's Business Interruption claims.  Elegant, 2020 WL 7249624, at *13.

Coverage was plausibly alleged, sufficiently enough to withstand the carrier's motion to dismiss based on its Virus Exclusion.  In accordance with the majority of jurisdictions in the United States, the Court also denied the carrier's motion to dismiss the policyholder's bad-faith claim, which the carrier had urged should be dismissed because there was no coverage.  However, as noted, the Court held to the contrary at this stage of the case.  Therefore, coverage having been plausibly alleged, the carrier's argument for dismissal of the bad-faith claim was politely but firmly rejected.  Elegant, 2020 WL 7249624, at *14.

To say again what was said here as recently as December 17, 2020, "The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?"

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall, Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

ALL RISKS: REQUIRING PROOF OF "UNEXCLUDED" PROXIMATE PERIL, BAD FAITH?

It's a jury question in this case.

 In Vardanyan v. Amco Ins. Co., 243 Cal. App. 4th 779, 796, 197 Cal. Rptr. 3d 195, 208-09 (Cal. 5th DCA 2015), review denied (unreported), (Cal. March 9, 2016), the policy involved was issued to the owner of a rental house.  It was an all risks policy and the insured under an all risks policy "does not have to prove that the peril proximately causing his loss was covered by the policy.  This is because the policy covers all risks save for those risks specifically excluded by the policy."  [Emphasis by the Court.]

The all risks carrier in that case convinced the trial judge that its proposed jury instruction correctly stated what the law ought to be, shifting the burden of proof to the insured to prove that the proximate peril was not excluded.  The carrier's argument embodied in that requested instruction was so convincing that the defendant moved for a directed verdict on that ground.  The lower court granted the carrier's motion for directed verdict and accordingly entered judgment in the carrier's favor, both on the insured's claim for breach of contract and on the insured's claim for breach of the implied covenant of good faith and fair dealing.

On appeal, a California intermediate appellate court ruled that the trial court had improperly shifted the burden of proof.  The appellate court reversed the entire judgment previously entered in favor of the all risks carrier in that case, including on the insured's bad faith claim, and remanded for retrial.

The time to express disagreement with the burdens of proof under an all risks policy is before it is issued, such as by expressly changing the pertinent provisions in the policy or perhaps by not issuing an all risks policy at all.  On the other hand, once premiums are collected, the time has already passed for philosophical or any other form of disagreement with how the policy ought to afford coverage.

Please Read The Disclaimer.  © 2018 Dennis J. Wall.  All Rights Reserved.

The Conclusion of What to Know About "All Risks."*

 *This is a selection from the book titled "Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters," Section 7:1 by Dennis J. Wall (©May 2017, Thomson Reuters).  This selection is reprinted with permission of Thomson Reuters.  Any further reproduction without the consent of the publisher is expressly prohibited.  Links to footnotes will take you not to the footnotes, which are all reproduced below, but instead to your Thomson Reuters West "sign in" page, if you have a Thomson Reuters West account.  In the meantime, as noted, the footnotes are all reprinted with permission below.

 

A similar approach was followed in another all-risks coverage case, National Manufacturing Co. v. Citizens Insurance Company of America.⁷ The opinion in this case was not released for publication, apparently. That is unfortunate because this is an unusually good coverage opinion. It is easy to understand as the District Judge addressed some complicated issues. At any rate, the opinion is not cited here for its precedential value, but for its analysis.

In National Manufacturing, the District Court found that exclusions in an all-risks policy were ambiguous. The exclusions were Products and Workmanship Exclusions.⁸ Under the Sebo analysis of the Supreme Court of Florida which has been quoted at length above, a finding that exclusions in an all-risks policy are ambiguous means that the exclusions will have to be interpreted “most strictly” against the insurance company, even more strictly than coverage provisions would be interpreted.

That is exactly what the Federal District Court did in the National Manufacturing case in New Jersey:

The exceptions contained in the Products and Workmanship Exclusions at best render the exclusions ambiguous and at worst incomprehensible. In light of causes of loss that are covered, the exclusions, and the exceptions to the exclusions, the policy language is circular. Under the Covered Cause of Loss section, all risks of direct physical loss are covered unless an exclusion or limitation applies. The exclusions then negate coverage under the Policy, unless the exceptions apply. The exceptions to the exclusions return the policyholder to the very place he started—the Covered Cause of Loss. The process then begins anew—covered causes of loss, exclusions, exceptions to the exclusions, and a return to covered causes of losses. Hence, the circular nature of the policy language.⁹

The National Manufacturing decision can be summed up using the five-point outline extracted above from the Sebo decision. The exclusions and their exceptions were ambiguous. (Indeed, said the District Judge in National Manufacturing, the exceptions tended to make the exclusions ambiguous.) Strict interpretation was therefore required both of the exclusions and of the exceptions to the exclusions. That interpretation returns us to the point where we began: An all-risks insurance policy provides coverage unless coverage is excluded without exception. If as in this case, coverage is not excluded without exception, we are returned to the point where we began; simply put, there is coverage under the all-risks insurance policy in that case.

It is necessary to pay close attention to the words actually used in the insurance policy to know the risks actually assumed in it.¹⁰ 

 ^{Please Read The Disclaimer.  This Blog ©2017 by Dennis J. Wall.  All Rights Reserved.}

Footnotes

7

National Mfg. Co. v. Citizens Ins. Co. of Am., No. 13-314, 2016 WL 7491805 (D.N.J. December 30, 2016) (stated Not for Publication; precedential value apparently limited accordingly in District of New Jersey). It is unfortunate that this opinion was not released for publication. It is an unusually good coverage opinion. At any rate, the decision is not cited here for its precedential value but for its analysis.

8

Faulty workmanship and materials exclusions are specifically addressed in § 7:12, infra.

9

National Mfg. Co. v. Citizens Ins. Co. of Am., No. 13-314, 2016 WL 7491805 at * 11 (D.N.J. December 30, 2016).

10

See, e.g., PBSJ Corp. v. Federal Ins. Co., 2008 WL 4070760 *11 (S.D. Fla. 2008) (Report and Recommendation of Simonton, United States Magistrate Judge, adopted by Order of United States District Judge), aff'd with opinion, 347 Fed. Appx. 532 (11th Cir. 2009): “Where there is only a single construction of the policies that give effect to each relevant provision, there is a strong likelihood that the parties intended the policies to operate that way.”

-30-

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THE ALL RISKS EXPERIENCE:  THE CONFUSION CONTINUES.

RIGHTS UNDER AN INSURANCE CONTRACT MADE BY THE FEDERAL GOVERNMENT.*

"ALL RISKS" OF NOT KNOWING* ENOUGH TO KNOW WHAT WE ...

 

... DO NOT KNOW.

*This is a selection from the book titled "Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters," Section 7:1 by Dennis J. Wall (©May 2017, Thomson Reuters).  This selection is reprinted with permission of Thomson Reuters.  Any further reproduction without the consent of the publisher is expressly prohibited.  Links to footnotes will take you not to the footnotes, which are all reproduced below, but instead to your Thomson Reuters West "sign in" page, if you have a Thomson Reuters West account.  In the meantime, as noted, the footnotes are all reprinted with permission below.

 

Regardless of the reason, the interpretation of all-risks coverage suffers from what might be called “generalist” judges' and lawyers' greater familiarity with liability insurance coverage questions, as distinct from insurance coverage “specialists” who in general terms tend to deal with all kinds of insurance questions including all-risks property insurance coverage issues.

Judges and lawyers more familiar with other legal issues and more experienced, perhaps, in dealing with other kinds of insurance issues tend to think that all insurance coverage cases are the same. They are not. All-risk coverage demands its own order of construction, and its own rules of application. That is after all why all-risk coverage is written in the first place, namely, to go straight to the exclusions and their exceptions.

An example of successful all-risk coverage analysis is given by the Florida Supreme Court in an opinion released on December 1, 2016:  Sebo v. American Home Assurance Co.⁵ Sebo involved the issue of coverage under an all-risks property insurance policy for damage resulting from many causes, including damage caused by Hurricane Wilma.

The Supreme Court of Florida approached the all-risks coverage question with an outline. The Court's all-risks coverage outline breaks out into five numbered points. Although the Court did not address them as a list, the points they addressed fit easily into five understandable issues, or rules of interpretation, as follows:

• “All-risk” is afforded a broad, comprehensive meaning.
• However, an “all-risk” policy is not an “all loss” policy.
• An all-risk policy, like every other insurance policy, is construed in accordance with the plain language of the policy.
• However, if the language of any insurance policy (including an all-risks policy) is susceptible to more than one reasonable interpretation then it is ambiguous, and when an insurance policy is ambiguous it will be strictly construed against the insurance company and in favor of the insured.
• Ambiguous exclusionaryclauses in any insurance policy, including in an all-risk insurance policy, are construed even more strictly than coverage clauses.

After following this outline, the Court concluded that the analysis of an all-risks property insurance policy depends on the language used in the exclusions and their exceptions:

In short, in all-risk policies such as the one held by Sebo, construction is governed by the language of the exclusionary provisions.⁶

 

^{Next:  The Conclusion of What to Know About "All Risks."  Please Read The Disclaimer.  This Blog ©2017 by Dennis J. Wall.  All Rights Reserved.}

Footnotes

 

5

Sebo v. American Home Assur. Co., No. SC14-897, 2016 WL 7013859 (Fla. December 1, 2016) (stated NOT RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL). As of Friday, January 6, 2017 when these words are written, the Supreme Court's opinion has not been released for publication in the permanent law reports. A motion for rehearing is pending in the Sebo case at this time.

6

Sebo v. American Home Assur. Co., No. SC14-897, 2016 WL 7013859, at *2 (Fla. December 1, 2016).

This is nowhere near the same thing as saying that in interpreting a liability insurance policy a court should examine the policy as a whole, or consult exceptions and exclusions for “insight into whether coverage exists under an insuring agreement by shedding light on what the terms it contains mean.” National Sur. Corp. v. Westlake Inv's, LLC, 880 N.W.2d 724, 739 (Iowa 2016). In interpreting an all-risks insurance policy, there is never a question what the terms contained in an insuring agreement might mean. The only insuring agreement to be found in a standard all-risks insurance policy is more or less along these lines: This policy affords coverage for all risks unless excluded.

 

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THE ALL RISKS EXPERIENCE:  THE CONFUSION CONTINUES.

THE ALL RISKS EXPERIENCE: THE CONFUSION CONTINUES.

This is a selection from the book titled "Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters," Section 7:1 by Dennis J. Wall (©May 2017, Thomson Reuters).  This selection is reprinted with permission of Thomson Reuters.  Any further reproduction without the consent of the publisher is expressly prohibited.

 

 § 7:1. Introduction and interpretation

Continued from Insurance Claims and Bad Faith Law Blog, May 30, 2017.

* * *

    The surest way to understand the nature of coverage under all-risk policies is to go straight to the exemptions to the exclusions. An all-risk property policy inherently provides coverage for “all risks,” except those which are excluded.

    It follows beyond question that the length and breadth of coverage extended under an all-risks policy depends on the exclusions from coverage in that policy.

    Yet the coverage analysis of an all-risks policy has not ended with analysis of the exclusions only. There remain the exemptions or exceptions to the exclusions in the all-risks policy; until the exemptions are interpreted and applied, the question of all-risks coverage remains an open one.

    The starting point in any coverage analysis of all-risk coverage should always be the exceptions to or exemptions from its exclusions. This is a very different analysis from the analysis used to interpret and apply many other kinds of policies, particularly casualty or liability insurance policies. There are almost certainly many factors more of cases in which courts and lawyers are called upon to interpret liability insurance policies. This is perhaps so because the amounts of money at issue under liability coverages are almost always greater than the amounts of money at issue in property insurance coverage cases. Huge amounts of money at issue always tend to draw greater attention.

 

Next:  The Generalists Rule, The Specialists Consult.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

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Insurance Claims and Bad Faith Law Blog: THE ALL RISKS EXPERIENCE: CONFUSION CONTINUES AMONG COURTS, COUNSEL, AND CLIENTS.

THE ALL RISKS EXPERIENCE: CONFUSION CONTINUES AMONG COURTS, COUNSEL, AND CLIENTS.

This is a selection from the book titled "Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters," Section 7:1 by Dennis J. Wall (©May 2017, Thomson Reuters).  This selection is reprinted with permission of Thomson Reuters.  Any further reproduction without the consent of the publisher is expressly prohibited.

 § 7:1. Introduction and interpretation

    Exclusions in first-party property insurance policies are a mixture of experience. Many exclusions in first-party property insurance policies have been interpreted by many courts in many cases for a long time. Others have not. A reliable treatment of these exclusions therefore requires that past judicial interpretations be presented here. The sections of this chapter will always include an analysis of previous judicial interpretations whenever judicial interpretations are available, whether those interpretations favor coverage or denial of coverage.

    Exclusions in first-party property insurance policies have been changed over time to meet perceived judicial interpretations of them. In general terms, the standard exclusionary language used in many first-party property insurance policies has been changed over time, as insurance company underwriters have reworked these exclusions in order to meet and indeed, overrule for future claims, the perceived judicial interpretation of such language as applied to past and present claims.

    The impact of these trends—past judicial interpretation, where available, of some exclusions, and what might be called “updated underwriting”—is obvious on potential coverage claims for damages caused by catastrophes. For everyone involved with presenting or defending catastrophe claims, understanding the very real impact of these trends has to begin with a workable understanding of settled rules of interpretation that courts have applied to insurance policy provisions including exclusions. Parenthetically, if the reader is convinced at the outset that she or he already is familiar with these rules of interpretation, you may have nothing to gain by reading this section.

    Rules of interpretation control the outcome of insurance coverage cases. Which rules are followed and how they are applied often determine the outcome. The rules that follow have been applied by courts confronting the exclusions discussed in this chapter. As in other chapters authored in whole or in part by this particular author, the subject of each section is ordinarily first approached by looking at what courts have done in cases that did not present catastrophic claims or disasters, very often followed by what courts have done when confronted with questions of insurance coverage for damages caused by catastrophes.

    To begin with, the vast majority of insurance policies at issue in the reported cases involving these questions of coverage have extended “all risk” property insurance coverage. “This type of contract has been said to cover every conceivable loss or damage that may happen except when occasioned by the willful or fraudulent act or acts of the insured.”¹ When guiding a client or a court through the words and phrases of an all-risk policy, it is crucial to always keep in mind that it is the list of excluded causes of loss in an all-risk policy “which is used to determine the true scope of the hazard coverage.”² Absent willful or fraudulent acts of the insured under an all-risk policy, there is coverage in basic and simple terms for “all risks,” unless a particular risk is excluded.³ It is thus the clear burden of the insurance company under an all-risk policy to establish that the loss comes within an expressly specified exclusion.⁴

Footnotes

1

Sun Ins. Office, Ltd. v. Clay, 133 So. 2d 735, 739 (Fla. 1961). More recently, the same proposition has been stated by a federal court in Minnesota in this fashion:

    Under an all-risk policy, coverage will exist unless a cause of loss is mentioned as an excluded cause. [Citation omitted.] Recovery will be allowed for all fortuitous losses not resulting from misconduct or fraud, unless there is a specific provision expressly excluding the loss from coverage.

Sonstegard Foods Co. v. Wellington Underwriting, Inc., 2007 WL 1501278 *4 (D. Minn. May 21, 2007) (applying Minnesota law). And by the Southern District of Iowa: "All-risk policies cover all causes of loss and physical damage to the Project property unless expressly excluded." Weitz Co., LLC v. Lexington Ins. Co., 2011 WL 3706497 *2 (S.D. Iowa May 25, 2011). Also by the Northern District of Iowa:  See Penford Corp. v. National Union Fire Ins. Co., 2010 WL 300838 *3 (N.D. Iowa Jan. 19, 2010). Also by the Western District of Wisconsin:

Since the Policy specifically provided coverage for “damage or “loss,” Advance Cable arguably need not demonstrate a financial “loss” to establish coverage for “damage.”

* * *

    Here, there can be no meaningful dispute that a physical alteration to the property occurred. Even assuming this alteration is merely cosmetic, as Cincinnati Insurance contends, there are still dents in the roof panels ranging from barely discernible to an inch or so in diameter. That the denting is minor does not alter the fact that it is still a tangible alteration to the roof. The Policy does not state that damage must reach some level of severity to trigger the coverage threshold. For that matter, the Policy neither provides that damage must be visible from a particular, unspecified vantage point to trigger coverage, nor that damage must shorten the life or undermine the structural integrity of the Property to trigger coverage.

Advance Cable Co., LLC v. Cincinnati Ins. Co., 2014 WL 975580 *10-*11 (W.D. Wis. March 12, 2014), motion to clarify granted in part, denied in part, 2014 WL 2808628 *6-*7 (W.D. Wis. June 20, 2014), aff'd with opinion, 788 F.3d 743 (7th Cir. 2015). Accord, Great Plains Ventures, Inc. v. Liberty Mutual Fire Ins. Co., 161 F. Supp. 3d 970, 978 (D. Kan. 2016) (“Based on a plain reading of the phrase “physical loss or damage,” the Court finds that the “Insuring Agreement” section of the Policy unambiguously provides coverage for hail dents on a metal seam roof. Here, the “Insuring Agreement” section states that Defendant will pay for risks of “physical loss or damage.” The court in Advance Cable held that this precise language provided coverage for cosmetic hail dents in an insured's metal roofs.”). But see Fabozzi v. Lexington Ins. Co., 23 F. Supp. 3d 120 (E.D.N.Y. 2014), a case in which the property insurance policy at issue presented both an “all risk” coverage under one part of the policy and a “named perils” coverage under another part of the same policy. The coverage invoked by the policyholder was a “named perils” coverage which included collapse as a covered loss and hidden decay as a covered cause of loss or a covered peril. In that case, the Court held: “The court finds that Plaintiffs bear the burden of persuasion at trial to prove that a collapse occurred and that the collapse was caused by a covered peril.” See Fabozzi v. Lexington Ins. Co., 23 F. Supp. 3d 120, 128 (E.D.N.Y. 2014).

    On the gratuitous addition by some courts of a so-called “fortuitous” requirement in proving all-risk insurance coverage, sometimes with detrimental effects to otherwise potentially legitimate claims to coverage, see § 7:4, infra.

2

Sun Ins. Office, Ltd. v. Clay, 133 So. 2d 735, 739 (Fla. 1961)(emphasis added). Accord, Fayad v. Clarendon Nat'l Ins. Co., 899 So. 2d 1082, 1090 (Fla. 2005). E.g., Northrop Grumman Corp. v. Factory Mut. Ins. Co., 2007 WL 2385134 *6 (C.D. Cal. Aug. 16, 2007) (California substantive law), summary judgment for policyholder rev'd and appellate opinion amended, 563 F.3d 777 (9th Cir. 2009) (remanded "for a determination of whether California's efficient proximate cause doctrine mandates coverage of the damage notwithstanding our interpretation of the contractual language."); see, e.g., Liberty Ins. Underwriters, Inc. v. Westport Ins. Corp., 2006 WL 2130728 *4 (D. Colo. July 28, 2006) (applying Colorado law); Winters v. Charter Oak Fire Ins. Co., 4 F. Supp. 2d 1288, 1291 (D.N.M. 1998) (New Mexico substantive law).

3

“[A]n all-risk policy covers any loss that the policy does not expressly exclude.” Vision One, LLC v. Philadelphia Indem. Ins. Co., 174 Wash. 2d 501, ¶ 32 at 516, 276 P.3d 300, ¶ 32 at 307 (2012).

4

E.g., Ruffin Road Venture Lot IV v. Travelers Prop. Cas. Co. of Am., 2011 WL 2463291 *3 (S.D. Cal. June 20, 2011); In re Chinese Manufactured Drywall Products Liability Litigation, 759 F. Supp. 2d 822, 829-30, 2010 WL 5288032 *3 (E.D. La. 2010) (Multi-District Litigation, Louisiana substantive law); Boardwalk Condominium Ass'n v. Travelers Indem. Co. of Illinois, 2007 WL 1989656 *5 (S.D. Cal. July 3, 2007)) (“In this case, there is no dispute that the policies issued to Boardwalk were ‘all-risk’ business owners property policies, and that certain of the property covered [specifically, the third floor units of Building 8840] sustained physical loss or damage. Travelers bears the burden of showing that one or more policy exclusions apply to prevent coverage.”); Superior Aluminum Alloys, LLC v. United States Fire Ins. Co., 2007 WL 1850838 *9 (N.D. Ind. June 25, 2007) (Indiana substantive law), app. dismissed per online docket (7th Cir. 2007); Winters v. Charter Oak Fire Ins. Co., 4 F. Supp. 2d 1288, 1291 (D.N.M. 1998) (New Mexico substantive law);see, e.g., Friedberg v. Chubb & Son, Inc., 691 F.3d 948, 951 (8th Cir. 2012) (Minnesota substantive law); Bishop v. Alfa Mut. Ins. Co., 796 F. Supp. 2d 814, 820 (S.D. Miss. 2011); Gerawan Farming Partners, Inc. v. Westchester Surplus Lines Ins. Co., 2008 WL 80711 *13 (E.D. Cal. 2008); Powell v. Liberty Mut. Fire Ins. Co., 127 Nev. 14, 252 P.3d 668 (2011) (page numbers not available at time of publication, see unnumbered two paragraphs immediately following Court's heading, "If an insurance company wishes to deny coverage under an exclusion in the insurance policy, it must show that the exclusion clearly applies to the damage").