In Hamilton Prop. v. The American Ins. Co., 2014 U.S. Dist. LEXIS 91882 (July 7, 2014), a hotel property was insured by American Insurance Company (American) during a Texas hailstorm. American’s denial of a claim for hail damage was upheld when the hotel property owner could not prove the damage occurred specifically during the storm in question. Specifically, American denied the claim after finding evidence that excluded causes brought about the loss.
The court considered the facts of the disputed claim to be mostly undisputed. The insured claimed the damage resulted from one hailstorm that occurred on July 8, 2009, while the policy was in effect. The insured presented evidence from a caretaker at the property who said he saw ping-pong-sized hailstones during the hailstorm. There was also evidence that nearby buildings reported substantial damage from the hailstorm. Soon after the storm, the caretaker said he observed a pattern of falling ceiling tiles in the hotel’s top floor. However, just 19 days after the July 8, 2009, hailstorm (July 27, 2009), an engineer surveyed the hotel roof for the insurer and found the roof was in decent but worn condition with no obvious hail or water damage.
A significant factor in this case was that the claim was not reported directly to the insurer until October 2011, nearly two years after the hailstorm, and approximately eight months after the insured first realized that a covered claim might exist from the 2009 storm. The owner admitted to not doing maintenance before making the insurance claim. There was also evidence that other hailstorms capable of causing the damage occurred at the property in the interim. The insurer argued that its denial of the claim was proper, because the damage likely resulted from other hailstorms occurring outside the policy period or from lack of maintenance, both of which were excluded causes. Thus, there was a substantial question as to whether the evidence could show that the damage resulted from the hailstorm in July 2009 or from the excluded causes.
The court agreed with the insurer. It found that, at best, the July 8, 2009, hailstorm was a contributing cause of the roof damage and not the lone cause of damage as the insured contended. The court ruled that the burden was on the insured to provide “evidence to allow the trier of fact to segregate covered losses from non-covered losses,” which it did not do. The court, therefore, upheld the denial of coverage, and it granted the insurer’s motion for summary judgment. Though this disposed of the insured’s claims, the court went on to consider the other issues before it, including the insurer’s late notice defense and the insured’s extra-contractual causes of action.
The parties disputed whether the notice of the loss complied with the policy requirements for prompt notice of a loss. The court noted that this was an occurrence based policy, so prompt notice was not a condition of coverage. The insurer must show prejudice in order to raise late notice as a defense against claims under the policy. The court pointed out the evidence of considerable deterioration in the building following the date of loss and the clear lack of evidence that the insured did anything to mitigate or document it. The court ruled that this was sufficient evidence that the claim investigation was compromised by the delay, and it upheld the insurer’s assertion of the defense.
The court was also not persuaded by the insured’s extra-contractual counts, including an action under the Texas Prompt Payment of Claims Act, because the insurer was held not liable under the policy. Specific defects were noted by the court with respect to each of the various extra-contractual counts as a basis warranting their dismissal.
This decision illustrates the importance of assignment of the burden of proof on the issue of allocation. It can be difficult to give the jury enough evidence for a “reasonable basis” to allocate damage between covered and uncovered/excluded causes of loss. Thus, the party with the burden of proof often has a very high hurdle to overcome — here, the insured could not overcome that hurdle. Arguably, the insured’s decision to take the aggressive position that “all” of the damage was covered (and that “none” of the damage was uncovered/excluded) made its hurdle even higher.
Also, it is notable that in its discussion of the duty to give timely notice, the court seemed to apply, or at least suggest, that the appropriate trigger of coverage is injury in fact, not manifestation. The court imported the injury in fact trigger from CGL coverage, but most courts will apply a manifestation trigger to first party coverage, even if some other trigger applies to liability insurance.