Burden of Proof in Coverage Litigation (Part 2)

Pre-Statute Law

Early Texas cases illustrate that the insured had the burden to plead and prove that a policy's exclusions did not apply. The decision in Pelican Ins. Co. v. Troy Co-op Ass'n, 13 S.W. 980 (Tex. 1890), concerned a loss from a fire. The fire that damaged the house occurred during or immediately after the hurricane, and some evidence suggested that the hurricane collapsed part of the house, which in turn broke a lamp that started the fire. The policy at hand contained the following exclusion: "This company shall not be liable for any loss or damage by fire caused by means of a hurricane." Id. at 981. The policy also provided that if the building should collapse by means other than fire, the insurance would "cease and determine." Id.

During the course of ensuing litigation, the court noted that these two provisions were exceptions (early cases typically referred to exclusions as "exceptions") to the general liability assumed by the insurer. The court asserted that to state a cause of action, the plaintiff's petition "should have averred that the fire did not occur from one of the excepted causes," and it was doubtful that the plaintiff so pleaded. Even if the plaintiff had properly negated the exception in its pleadings, the plaintiff had not carried its burden of proof on causation. The court held that the trial court erred by not "instructing the jury that the burden of proof was upon the plaintiff to show by preponderance of evidence that the fire was not caused by the fall of the building, nor by hurricane." Id. So, the Pelican court made clear that the insured had the burdens of both pleading and proving that policy exclusions did not apply.

From a policy standpoint, the court did not elaborate on why the burden was being placed on the insured to show that an exclusion did not apply. In most opinions handed down before 1900, the courts would state the rule and provide authority but not necessarily provide rationale or public policy statements for their holding. As a result, it is difficult from a public policy standpoint to state whether a court did or did not consider a certain public policy issue in its consideration.

In 1919, the Commission of Appeals felt compelled to follow the Pelican rule regarding exclusions. Travelers Ins. Co. v. Harris, 212 S.W. 933 (Tex. 1919). The life insurance policy at issue excluded death "resulting directly or indirectly from entering or trying to enter or leave a moving conveyance using steam as a motive power ... or happening while being in any part thereof not provided for occupation by passengers, or while being on a railway bridge or roadbed." Id. at 933. Facts at trial raised a dispute over whether the insured was killed attempting to enter or exit a steam-powered conveyance and whether he was on a railway roadbed at the time of death. Id. at 934.

The court began by noting that some foreign jurisdictions treated exclusionary clauses as defensive, thus requiring the insurer plead and prove them. But other courts "construe the exception clauses as 'taking something out of the general portion of the contract, so that the promise is to perform only what remains after the part excepted is taken away.'" Id. (internal citations omitted). Thus, those courts placed the burden of pleading and proof upon the insured to negate the exclusionary clause. Ultimately, the Harris court agreed with this second line of reasoning and relied on the decision in Pelican. "In view of the decisions by our Supreme Court, we are of the opinion that the burden rests upon the plaintiff to show that her cause of action does not fall within the excepting clause." Id. at 934. The Texas Supreme Court later approved the holding of the Commission of Appeals.

In 1940, the supreme court promulgated the Texas Rules of Civil Procedure, including Rule 94 and its requirement that a responding party must plead affirmative defenses. See Michol O'Connor and Byron P. Davis, O'Connor's Texas Rules: Civil Trials 2010 (Houston: Jones McClure Publishing, 2010), 804 ("History of TRCP 94"). In 1941, the supreme court amended Rule 94 to require that in suits upon an insurance contract, the insurer could not raise the issue of a policy exclusion as a defense unless the insurer alleged in its response that the loss fell under a policy exclusion. See also Tex. R. Civ. P. 94. Thus, Rule 94 effectively overruled the holdings of the Pelican and Harris cases that required the insured to plead the non-applicability of a policy exclusion. However, Rule 94 explicitly stated that the rule had not changed the burden of proof on the issue of a policy exclusion. In other words, the insured still had the burden of proving that a policy exclusion was not applicable. Tex. R. Civ. P. 94.

In 1965, the supreme court affirmed that the insured continued to carry the burden of proof on the exclusion issue, while recognizing the ramifications of Rule 94 on the burden of pleading. See Hardware Dealers Mut. Ins. Co. v. Berglund, 393 S.W.2d 309 (Tex. 1965). There, the Berglunds lost their beach house, boathouse, and various personal property during Hurricane Carla. The Berglunds sought to recover under two insurance policies containing various "all risks" and "named peril" clauses. The policies also contained exclusions for loss caused by flood, waves, high water, or overflow, all whether driven by the wind or not. The insurer pleaded that the damages sustained were expressly excluded by the language of the insurance contracts. The trial jury found that the vast majority of damage was caused by such water and awarded the Berglunds a small award based on other covered damage.

On appeal, the Berglunds argued that, under an "all risks" policy, the plea of loss by an excluded risk is akin to a plea of confession and avoidance, and that the insurer had the burden to prove such an exclusion. The court disagreed, holding that, while Rule 94 may have shifted the burden of pleading the exclusion to the insurer, it did not shift the burden of proof regarding the exclusion: "Here the insurance company pleaded specific exclusions which were set forth in the policy and thus raised issues of contract coverage. The burden of producing evidence to demonstrate that their losses were not attributable to the pleaded excluded hazards rested upon [the Berglunds]." Id. at 311 (discussing the prior rule from Pelican).

As the Berglunds had not carried their burden to negate the policy exclusions, the supreme court affirmed the jury's verdict and trial court judgment. See also Shaver v. National Title & Abstract Co., 361 S.W.2d 867 (Tex. 1962); T. I. M. E., Inc. v. Maryland Cas. Co., 300 S.W.2d 68 (Tex. 1957).

During this time period, the insured had to defeat the insurer's pleaded policy exclusions by a preponderance of the evidence. As already explained, the Pelican court cast the burden of proving policy exclusions upon the insured and held that the standard of proof in the jury charge should have been "a preponderance of the evidence." Pelican, at 981. See also Twin City Fire Ins. Co. v. Guthrie, 427 S.W.2d 901 (Tex. Civ. App.—Fort Worth 1968, no writ). ("Plaintiff, as the insured party under the policy, was obliged to establish by a preponderance of the evidence the negative of the company's allegations that the loss was due to a risk falling within exceptions of the policy.")

It should be noted that, during this period and continuing to the present, the party with the burden of proof not only has the burden to present evidence to a jury or fact finder establishing its position but also carries the burden to obtain a finding from the jury or fact finder as to that point. In other words, it would not have been enough that the Berglunds presented evidence negating the existence of the exclusions that had been pleaded by Hardware Dealers; they had the burden to request and obtain an issue from the jury that the exclusions did not apply. During this period, the submissions of exclusions were somewhat awkward since the question would not ask if the exclusion applied but whether the exclusion did not apply.

Post-Statute Law

The Texas legislature passed comprehensive insurance reform in 1991 and in doing so changed the burden of proof regarding exclusions to insurance coverage. The legislation added Article 21.58(b) to the Texas Insurance Code. Acts of May 27, 1991, 72d Leg., R.S., ch. 242, § 11.03(a). Article 21.58(b) of the Texas Insurance Code provided the following.

In any suit to recover under a contract of insurance, the insurer has the burden of proof as to any avoidance or affirmative defense that must be affirmatively pleaded under the Texas Rules of Civil Procedure. Any language of exclusion in the policy and any exception to coverage claimed by the insurer constitutes an avoidance or an affirmative defense.