Nobody likes coinsurance penalties.1 For policyholders, they are often unexpected, complicated, and dear. For policyholder advocates, they will current a bunch of authorized points which can be troublesome and time-consuming to navigate. Some of these points have been addressed on this weblog, together with the coinsurance clause enforcement, agent legal responsibility, and valuation disputes.
As a fast refresher, coinsurance clauses basically impose a penalty on an insured for underinsuring their property. Failure to hold full or almost full protection leads to the insured paying a share of the loss. In his 2011 weblog submit, Larry Bache explains: “[I]f a building valued at $250,000 is insured with a policy containing an 80% coinsurance clause, the policyholder must purchase at least $200,000 in coverage. If the policyholder purchased less than $200,000, he or she would be responsible for a proportionate share of the loss.”
Whether or not a coinsurance penalty applies hinges on the worth of your property, which policyholders and their insurers typically disagree on. When such a disagreement arises, who has the burden of proving the worth of the property?
While there isn’t an abundance of legislation on the subject, it seems there’s a majority development to deal with coinsurance as an exclusion to protection. This signifies that as soon as the insured proves protection exists below the coverage, the burden of proof shifts to the insurer to show the coinsurance clause is relevant. The Fifth Circuit has defined that this burden of proof on the insurer is a heavy one, stating coinsurance clauses “are entirely prohibited by statute in some jurisdictions, greatly restricted in others, and subject in all to a strict construction and the requirement of strict proof.”2 This means courts will scrutinize an insurer’s valuation to verify it’s clearly supported by the proof. If it’s not, or even when the valuation dispute seems it may go both approach, courts will err in favor of the policyholder. My state, Oklahoma, follows this rule, holding that “the insurer has the burden of showing that a loss falls within an exclusionary clause of the policy…[and,] in case of doubt, exclusions . . . are construed strictly against the insurer.”3 The similar holds true in Texas (“A plea, the effect of which is to diminish an insured’s recovery and particularly the plea of co-insurance, is defensive and the facts supporting such a plea must be pled and proved by the defendant insurance company.”)4 and Florida (“If the insured succeeds in showing that the loss occurred within the policy period, then the burden shifts to the insurer to prove that a policy exclusion excepts the loss from coverage.”).5
Based on my preliminary analysis, Iowa,6 Kansas,7 Louisiana,8 Minnesota,9 and Virginia10 courts have additionally explicitly said that insurers bear the burden of proving coinsurance clauses apply. Most different states seem to comply with the rule that insurers bear the burden of proof when making an attempt to use exclusions, and, subsequently, would possible maintain equally relating to coinsurance clauses.
This rule appears pretty frequent sense – an insurer shouldn’t be in a position to depend on an arbitrary valuation to invoke a coinsurance clause and keep away from full fee of a declare. However, we’ve seen simply that, so it’s essential to know who bears the burden of proof in that scenario. If an insurer is attempting to use a coinsurance clause however can’t again up their valuation with clear and convincing proof, it appears most courts agree the clause doesn’t apply. And, after all, ought to this occur to you or somebody you’re representing, the attorneys at Merlin Law Group are at all times right here to assist.
1 Except for insurance coverage firms.
2 Home Ins. Co. v. Eisenson, 181 F.2nd 416, 418-19 (fifth Cir. 1950).
3 Country Mut. Ins. Co. v. AAA Constr. Ltd. Liab. Co., No. CIV-17-486, 2019 U.S. Dist. LEXIS 115935, at *6-7 (W.D. Okla. July 12, 2019) quoting Dodson v. St. Paul Ins. Co., 1991 OK 24, 812 P.2nd 372, 377 (Okla. 1991) (inside quotations omitted).
4 Tex. City T. R. Co. v. Am. Equitable Assurance Co., 130 F. Supp. 843, 863 (S.D. Tex. 1955).
5 Transamerica Leasing, Inc. v. Inst. of London Underwriters, 267 F.3d 1303, 1305 (eleventh Cir. 2001) (decoding Florida legislation).
6 Brown Twp. Mut. Ins. Asso. v. Kress, 330 N.W.2nd 291, 297 (Iowa 1983).
7 Wenrich v. Emplrs Mut. Ins. Cos., 35 Kan. App. 2nd 582, 585, 132 P.3d 970, 974 (2006).
8 Doerr v. Mobil Oil Corp., 774 So.2nd 119, 124 (La.2000); Mt. Hawley Ins. Co. v. Advance Prods. & Sys., Inc., 972 F. Supp. 2nd 900 (W.D. La. 2013) (reversed on totally different grounds).
9 Anderson v. Conn. Fire Ins. Co., 231 Minn. 469, 478, 43 N.W.2nd 807, 813-14 (1950); Reinsurance Asso. of Minn. v. Patch, 383 N.W.2nd 708, 711 (Minn. Ct. App. 1986).
10 Harper v. Penn Mut. Fire Ins. Co., 199 F. Supp. 663, 665 (E.D. Va. 1961).