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A Better Partnership
December 13, 2013

Insurance company’s burden of proof on affirmative defenses was a preponderance of the evidence.

In Stein v Home-Owners Insurance Co, the trial court erroneously required an insurance company to prove its affirmative defenses of fraud and arson by “clear and convincing” evidence rather than a “preponderance of the evidence.”  The insurance company provided fire loss insurance to a homeowner whose home was destroyed by suspected arson.  The insurance policy excluded coverage for losses that were caused by “an action by or at the direction of any insured committed with the intent to cause a loss.”  The policy also provided that it would be void if the insured intentionally misrepresented a material fact or engaged in fraud.  The insurance company denied the homeowner’s claim because it determined that the homeowner had consented to arson and made material misrepresentations during the investigation of the claim.  The homeowner filed a complaint against the insurance company alleging breach of contract.  At the jury trial, the judge instructed the jury that the insurance company was required to prove its affirmative defenses of fraud and arson by “clear and convincing evidence.”  The Court of Appeals disagreed, and held that the insurance company was only required to prove its affirmative defenses by a preponderance of the evidence.  The Court reasoned that the case involved the application of express contract provisions.  Although allegations of fraud typically require a heightened burden of proof, in this case fraud was only implicated because the contract itself excluded fraud.  Similarly, although the arson exclusion implicated a criminal act, for the purpose of this contract dispute the insurance company was only required to prove that the homeowner committed the arson by a preponderance of the evidence.

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