I was recently contacted regarding an insurance carrier that was requiring an insured property owner to disprove a policy exclusion before providing coverage. Litigation concerning policy exclusions is not uncommon. Courts in New Jersey have routinely held the burden of establishing a cause of action is on the plaintiff. The same is true in first party insurance litigation. In such instances, the plaintiff policyholder must establish they have suffered a loss that fits within the basic policy terms. The questions remains, however, who bears the burden with regards to any exclusions in the policy.
New Jersey’s Appellate Division addressed this issue in a theft case in 1961. The policy at issue contained an exclusion for mysterious disappearance and attempted to shift the burden to the insured to prove the theft was not a mysterious disappearance: “It then became [the insurance carrier’s] burden to prove its assertion that the loss fell within the exceptions of the policy, i.e., that it was a mysterious disappearance, or that it was due to employee dishonesty.”1 The same Court ruled again in 1996 that “[t]he carrier, however, bears the burden of establishing that any matter falls within the exclusionary provisions of the policy.”2 The Supreme Court of New Jersey has also held, “The burden is the carrier's to bring the case within the policy exclusion”3
Accordingly, the burden to establish the applicability of an exclusion generally lies with the insurance carrier and not the insured. A carrier that improperly shifts the burden to a policyholder may expose itself bad faith penalties. It is important to note, however, that insurance carriers are entitled to investigate any and all exclusions. Most policies give the carrier a broad range of options, including the right to request documents or examine the insured under oath. In order to preserve your rights to indemnification, you must comply with these requests.
1 Advance Piece Dye Works, Inc. v. Travelers Indem. Co., 64 N.J.Super. 405, (App. Div. 1961).
2 Reliance Ins. Co. v. Armstrong World Industries, Inc., 292 N.J.Super. 365, (App. Div. 1996); See also Morie v. New Jersey Mfrs. Indem. Ins. Co., 48 N.J.Super. 70, (App. Div. 1958).
3 Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 399 (1970).