The Fire Casualty, & Surety Bulletins (FC&S Bulletins) had a simple vandalism claim that highlights a major difference between all risk coverage versus named peril coverage. Here is the coverage question posted with the significant language of the question bolded:
Coverage is provided on a storage facility under the CP 10 20 06 95 cause of loss form. Two of the units were rented by an individual who became delinquent, so the insured padlocked the units. After a couple of months, the insured learned the tenant had moved and could not be located. The insured cut off thee locks and entered the units to discover food containers, appliances, and trash abandoned by the tenant. Grease had spilled (or been poured) on the concrete floor. This grease ran into two other units. As this is named peril coverage, we do not believe there is coverage. However, the insured is arguing that the damage is the result of vandalism. The tenant had not been in the units for several months as they had been padlocked and there had been no tampering of the locks prior to entry. There is no way to verify if the tenant poured the grease on the floor, however, there was no other evidence of malicious damage to indicate it was an intentional act. Is the loss excluded?
The answer provided is sound assuming that proof of how the loss occurred cannot be found:
It is our opinion that the insured would have to prove that the loss was intentionally caused, which does not sound like a possibility. Without evidence showing this was an intentional act, it could not be considered a vandalism loss.
The important point has to do with burdens of proof which often become play when the loss is discovered and the cause uncertain. The general rule is that all risk is afforded so long as there is damage within the policy term and the burden is on the insurer to prove that the damage falls within an exclusion. If the coverage is under a named peril basis, the proof of the peril causing the damage is upon the insured.
Regarding exclusions in all risk policies, insurers sometimes wrongly give exclusionary language too broad an interpretation. In an excellent post on the Tennessee Insurance Litigation Blog, Rules of Interpretation for Insurance Policies, Brandon McWherter noted:
Exclusionary clauses are to be strictly construed against the insurer when drafted by the insurer. Palmer v. State Farm Mut. Auto. Ins. Co., 614 S.W.2d 788, 789 (Tenn. 1981).
…In Tennessee, exceptions, exclusions, and limitations in insurance policies must be construed against the insurance company and in favor of the insured. Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 886 (Tenn. 1991). The entire policy, however, including insuring clauses and exceptions thereto, must be read as a whole. Am. Sav. & Loan Ass’n v. Lawyers Title Ins. Corp., 793 F.2d 780, 782 (6th Cir. 1986). Further, exceptions should not be construed so narrowly as to defeat their evident purpose. Standard Fire Ins. Co. v. Chester-O’Donley & Assocs., Inc., 972 S.W.2d 1, 8 (Tenn. Ct. App. 1998).
In Ensuing or Resulting Loss, and the Burden of Proving Causation Explained Simply, I quoted a speaker who provided a fairly simple rule for the factual and legal burden of the policyholder in a typical all risk situation:
An insured seeking to recover under an "all risks" insurance policy merely has the burden of proving only that direct physical loss or damage occurred to covered property while the policy was in force. Once the insured establishes a loss apparently within the terms of an "all risks" policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excluded. The insured is not required to disprove any excluded cause of loss.
…Exclusion clauses are generally considered contrary to the fundamental protective purpose of insurance. Thus, the courts give a strict interpretation to exclusion clauses, as opposed to the liberal interpretation afforded coverage protections.
For all my Texas friends that are crying their eyes out after losing to Alabama in the BCS Championship, I would like to warn that Texas has a slightly different view of burdens of proof even in an all risk situation, as I noted in, Causation Issues to Note in Texas Property Insurance Coverage Disputes-Part II.
