Policyholder has Burden to Prove Exception to Exclusion Applies

The Illinois Appellate Court for the Fifth District, on an issue of first impression, in an opinion written by Justice Boie with Justices Cates and Moore concurring, applying Illinois law, affirmed the decision of the circuit court holding that it is the insured’s burden to prove that its claim falls within the coverage of its policy, including proving whether an exception to an exclusion applies to restore coverage.

In February 2011, during a period of cold weather, pipes burst at a warehouse owned by Connie and William Wells (“Plaintiffs”), causing serious flooding. Plaintiffs held a casualty insurance policy from State Farm Insurance Company (“State Farm”). State Farm denied coverage. Plaintiffs then sued State Farm for declaratory judgement to determine coverage, breach of contract, and bad faith claims practices. As an affirmative defense State Farm argued an exclusion in the policy barred coverage for damages from burst water pipes unless the Plaintiffs did their “best to maintain heat in the building.” The circuit court entered a judgment finding there was no coverage for the building’s water damage under the policy. Plaintiffs appealed.

The appellate court agreed that that there was no coverage but held that the issue before the circuit court was improperly framed: the issue “was not whether the policy exclusion applied, but whether an exception to the policy exclusion applied.” The court held that the burden rests with the insured to prove that its claim falls within the coverage of its policy. Only after the insured demonstrates coverage does the burden shift to the insurer to prove that a limitation or exclusion applies.

The policy exclusion at issue provided that State Farm was not insuring for losses caused by water leaks from frozen plumbing. But the exclusion included an exception, “unless…you do your best to maintain heat in the building or structure.” Plaintiffs had the burden of proving that they did their best to maintain heat in the building in order for there to be coverage for their loss. Having failed to meet their burden, the court held that the circuit court properly denied relief sought by Plaintiffs. Wells v. State Farm Fire & Cas. Ins. Co., 2021 IL App (5th) 190460 (Jan. 4, 2021).