In litigation, parties’ burdens of proof are extremely important. Litigators must understand the burdens of proof applicable to the case they are involved in. Think of the difference between having to prove that a loss is covered pursuant to specific policy terms and having to prove only that a loss that was fortuitous and it affected the insured property. The first situation may be appropriate under a named-peril policy. The second is a policyholder’s burden of proof under an all-risk policy. A recent New York case involved the second situation and an all-risk policy.1

Channel Fabrics shipped a number of bales of woven fabric from China to a buyer in Guatemala, with an expected arrival twenty-seven days after shipment, on May 12, 2010. The shipment did not arrive at the destination until June 8, 2010. Channel Fabrics claimed a portion of the fabric was damaged when it arrived. Before June 8, 2010, Channel provided notice to Hartford of its claim for the shipment (which, at the time, was yet to arrive) pursuant to a Non–Delivery Clause of the Policy.
Channel Fabrics sold the fabric to the buyers for an amount less than the pre-arranged sale price. Over the next few months, Hartford requested and received certain documents from Channel Fabrics as Hartford investigated Channel Fabrics’ claim. In many of the emails between the parties, Hartford noted that it was reserving all of its rights under its policy. Channel Fabrics informed Hartford that it was claiming a loss from the discount provided to the buyer of $156,827.88 on the sale of 290,422 yards of fabric. With some additional air and fabric costs, the total amount claimed was $191,166.69. Hartford denied the claim.

The New York Court noted that under an all-risk policy, losses caused by any fortuitous peril not specifically excluded under the policy will be covered. According to the Court:

An insured making a claim under an all-risk policy has the initial burden to establish a prima facie case for recovery. An insured meets this burden by showing: “(1) the existence of an all-risk policy, (2) an insurable interest in the subject of the insurance contract, and (3) the fortuitous loss of the covered property. This burden has been characterized as “relatively light.

The Court noted that an insured under an all-risk policy need only show fortuitous loss and need not explain the precise cause of the loss. The Court cited Second Circuit Court of Appeals cases in support of these conclusions.

Once an insured has met its burden of establishing a prima facie case, the burden shifts to the insurer to establish that an exclusion applies. The Court stated that the insurer’s burden is a “heavy one” to negate coverage by virtue of exclusions in an all-risk policy.

It is critical for policyholders know whether they have an all-risk policy, particularly if they are in the unfortunate situation of having a claim denied by their insurer. Many people automatically think they have to specifically prove their loss is covered by the policy’s terms. As the Channel Fabrics case makes clear, their burden could be much lower.

1 Channel Fabrics, Inc. v. Hartford Fire Ins. Co., 2012 WL 3283484 (S.D. N.Y. August 13, 2012).