After spending the past several weeks looking at common exclusions to the all-risk policy, this week’s blog will focus on more basic requirements that must be met in order for coverage to exist. Some will seem very straightforward, but others actually raise interesting legal issues when the right circumstances arise.

One of the most basic requirements – other than proving an insurance policy was in place – is to show that the damage suffered is covered by the policy. Most courts agree that the burden is on the policyholder to prove a loss is within the scope of the insuring agreement. However, once that burden is met, the burden shifts to the insurer to show that an exclusion applies or that the policyholder failed to comply with a policy requirement.

Another basic requirement is that the damage or loss be physical in nature — there must be some physical change to the insured property. While this may seem straightforward at first glance, interesting issues may arise.

Take, for example, Fujii v. State Farm Fire & Cas. Co., 71 Wash. App. 248 (1993). In this case, heavy rainfall caused a landslide near the Fujii’s home. The landslide caused continued instability of the slope on which the Fujii’s home was built, so they filed a claim under their homeowners insurance policy. State Farm denied coverage because no direct physical loss had occurred to the dwelling. Experts from both sides agreed that physical damage was imminent, but that no damage to the house, itself, had occurred.

The court stated,

It is undisputed that there was no discernable physical damage to the dwelling during the effective period of the policy….Under the plain terms of the policy, coverage was triggered by direct physical loss to the dwelling….Therefore, because the covered dwelling did not sustain a direct physical loss during the effective period of the policy, the trial court correctly granted summary judgment to State Farm.

Unfortunately, this put the Fujiis in a bad situation. They had just changed insurance carriers and due to the fortuity doctrine, which states that insurance companies should not be held liable for known losses, expected or intended losses, or losses that are certain to occur, they may not be able to recover from their current insurance provider as well.

The fortuity doctrine is the basis of many legal issues, and I will delve into it more next week. Stay tuned.