Federal Decision Applying Illinois Law Confirms Rule That Insured Has Burden of Demonstrating Coverage
Under Illinois law (and very possibly the law in every state), “[a]n insured has the initial burden of demonstrating that a claim falls within an insurance policy’s coverage. Vivify Construction, LLC v. Nautilus Insurance Co., 2017 IL App (1st) 170192, ¶16, 94 N.E.3d 281, 419 Ill.Dec. 743. See also Scott A. Blumenshine, 23 ILLINOIS PRACTICE SERIES: ILLINOIS AUTOMOBILE INSURANCE LAW §8:51 (2007) (“The insured bears the burden of proof on the question of coverage”); Allan D. Windt, 2 INSURANCE CLAIMS AND DISPUTES: REPRESENTATION OF INSURANCE COMPANIES AND INSUREDS §9:1 (6th ed. 2018) (“In general, the burden is on the insured to demonstrate that a loss is encompassed by the general coverage provisions of the insurance contract.”).
This rule was recently confirmed by the U.S. District Court for the Central District of Illinois in Reimer v. Foremost Insurance Group, No. 18-cv-3182, 2018 WL 6003848 (C.D.Ill. Nov. 15, 2018). In Reimer, the insurer issued to the insureds a commercial mobile home insurance coverage policy. The policy insured 22 mobile homes. The policy was in effect from September 6, 2016, through September 6, 2017. 2018 WL 6003848 at *1.
The mobile homes were allegedly damaged in 2016 and 2017. The damages were apparently valued at $172,000. The insureds attempted to recover that amount from the insurer. The insurer made an offer of payment for the damage, but for less than $172,000. The insureds then filed a declaratory judgment action against the insurer, seeking an order that their claim was covered and that the insurer was contractually obligated to pay them $172,000. Id.
The insurer moved to dismiss on the basis that the insured failed to satisfy the insureds’ burden to allege a covered claim. The court agreed. Specifically, the court held that the insureds had failed to allege that the damage to the mobile homes occurred when the policy was in effect. 2018 WL 6003848 at *2. The insureds’ pleading alleged only that the damage took place in 2016 and 2017, but did not allege that the damage took place during the period the policy was in effect from September 6, 2016, through September 6, 2017. In theory, the damage could have occurred at the beginning of 2016 and the end of 2017, entirely outside the policy period, in which case the insurer would have no responsibility for the damage. Accordingly, the court concluded that to survive dismissal, the insureds must allege whether the damage occurred during the 12-month period that the policy was in effect. Id.
The court also considered the insured’s argument that the insurer’s offer to pay some of the alleged damages established that the damage occurred while the insurer’s policy was in effect. The court rejected this argument because an offer to settle a claim does not prove the validity of the claim. Id. Accordingly, the court dismissed the insureds’ pleading but gave them an opportunity to replead.
The Reimer decision raises an interesting issue: what happens when the parties simply do not know the exact date that damage occurs and therefore it is impossible to identify with 100-percent accuracy which insurance policy was in effect at the time of the damage? Consider, for example, an insured that leases a car for a two-year period. At the end of the lease, the lessee returns the car in a damaged condition. But in the meantime, two different annual insurance policy periods have gone by. If the lessee cannot or will not provide the insured with the date the damage occurred, then which policy period is triggered, if either? Another factual scenario with the same issue might be an insured that leases out an apartment. A tenant might lease the apartment for many years and then leave. When the insured goes to inspect the apartment, the insured finds that it is in a damaged condition. The damage may have occurred all at once or (perhaps more likely) over the course of many years, during which time many different insurance policies were in effect. Which policy applies, if any?
Applying the rule that the insured has the burden to demonstrate coverage, the Reimer court appears to conclude correctly that no insurance would apply when the insured cannot identify which policy period in which damage occurred. In other words, the insured, who is closest to the property, has the burden of identifying when it is damaged, and bears the risk if it fails to identify the policy period in which damage occurred.
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