Insurance claims can be denied completely unless the owner or contractor can show how much damage resulted from causes covered under the policy

October 17, 2018

An appeals court recently agreed with an insurance company that coverage was properly denied because its policyholder did not present enough evidence showing how much damage occurred during the period covered by its insurance policy. This opinion could have broader implications for project owners and contractors, who may need to make insurance claims for damage resulting from both covered and excluded causes.

In the case, a hotel owner made a claim under its 2012-2013 insurance policy for property damage to its roof caused by hailstorms. There had been multiple hailstorms before and during the 2012-2013 insurance policy period. The insurance carrier obtained a judgment declaring that no coverage existed, which was affirmed on appeal.

In Texas, an insurance carrier is only required to pay for losses covered by the policy. The policyholder bears the burden to prove that its claims are covered by the policy. If property damage was caused by both covered and excluded perils, then the policyholder must present evidence sufficient to allow the court to reasonably allocate the damage.

Here, the hotel owner claimed that some of the hail damage was caused by storms which occurred during the 2012-2013 insurance policy period, but the evidence showed that some or all of the damage could have been caused by storms before the policy period started. The owner’s expert admitted that there was no way to tell which storms caused or contributed to the damage, or how much damage was caused by storms during the policy period. Under these circumstances, the court sided with the insurance company and allowed it to deny the claim completely.

The issues raised in this case can arise on construction projects. Project owners or contractors may make insurance claims for property damage which occurred over an extended period of time or which may have resulted from multiple causes. This situation can be further complicated when multiple insurance policies are involved.

For these reasons, when preparing insurance claims, owners and contractors should take care to gather evidence which would permit a reasonable determination of what damage was (or was not) caused or worsened by the perils covered under the applicable insurance policy.

Certain Underwriters at Lloyd’s of London v. Lowen Valley View, LLC, 892 F.3d 167  (5th Cir. 2018).