On 10 March 2014, Clyde & Co held the first North American focused Global Property Seminar in our London office. One of the topics that was of great interest was fortuity. The requirement that a loss be fortuitous in order to be covered is inherent in all insurance policies regardless of whether it is specifically stated. Early maritime cases held that the fortuity requirement barred recovery by the insured for any loss that was certain or expected to occur. For example, the Mississippi Supreme Court found a lack of fortuity where a ship began to sink because it was overloaded with cargo. The court held that there could be no recovery since the loss was caused by the constitutional infirmities of the vessel itself.
To this day, the burden of establishing fortuity is on the insured. While it might seem that evidence that a loss was certain to occur—for example, the collapse of a building due to a faulty foundation—would be sufficient to void coverage, this defense has proven more difficult for insurers in US courts than the concept suggests.
This is primarily because modern US courts have focused more on the subjective rather than the objective knowledge of the insured. In most jurisdictions, even if an event was a virtual certainty, courts have found the loss fortuitous as long as the insured did not know the loss would occur. As one well-known treatise has remarked, the rationale underlying the modern "subjective" fortuity doctrine seems to "negate the concept of risk taking, which forms the basis for all property and casualty insurance, transforming such insurance contracts into something more akin to the life insurance policy, which accepts the certainty of the loss, though not the timing of it. "Cozen and Bennett, Fortuity: The Unnamed Exclusion, American Bar Association (1985).
Indeed, in US courts today, the fortuity defense is often argued but seldom accepted. There are very few cases from the last ten years where a court held that a lack of fortuity voided insurance coverage. In these rare cases, the evidence generally indicates that the insured knew the loss was imminent, or the loss otherwise fell within the policy's wear and tear or inherent vice exclusions.
A recent example of one of these rare cases is Zaragon Holdings, Inc. v. Indian Harbor Ins. Co., No. 08-CV-111, 2011 WL 1374980 (N.D. Ill. Apr. 12, 2011). In that case, there was substantial evidence that the insured knew its roofs were at the end of their useful life before the storm event that damaged them. The insured had received a report in 2002 advising that the roofs in question exceeded their useable life and were in need of replacement. Over the next four years, the insured patched and repaired the roofs but did not replace them. The roofer that performed the repair work admitted in deposition that the roofs needed to be replaced due to age. Based on this evidence, the court granted summary judgment for the insurer, finding that the insured had not met its burden of establishing a fortuitous loss.
Absent evidence that the insured knew the damage was likely to occur, or evidence supporting an argument under an exclusion for deterioration, wear and tear, or inherent vice, it is increasingly unlikely that an insurer will prevail on a fortuity defense in US courts.
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