In Chartis Propriety Casualty Company v. Inganamort, the Third Circuit found that, when handling a property damage claim under an all-risk maritime policy, the insured has the burden of proving that the loss was fortuitous, and a mere showing of a loss will not suffice. In September 2011, a New Jersey family who were the owners of a 65-foot fishing vessel docked in Boca Raton, Florida, discovered that their vessel sank and sustained serious damage. They reported the loss to their insurer, Chartis Propriety Casualty Company but the company denied the claim when the insurer determined that the loss was due to poor maintenance.
The owners’ fishing vessel, Three Times a Lady, was insured by an all-risk policy, which protects against fortuitous losses including losses that are unexplainable or dependent on chance. In marine insurance contracts, all-risk policies protect owners for any fortuitous event even when the owner does not show the precise cause of loss. During the investigation, Chartis’s claims specialist found that the Three Times a Lady sank due lack of maintenance. Upon denying the claim, Chartis filed a declaratory judgment action to enforce the denial of the claim.
The case ultimately went to the Third Circuit Court of Appeals and the issue on appeal was who bears the burden of proving a fortuitous loss. Looking at other Circuit decisions, the Third Circuit held that although not a heavy burden, the insured must provide some proof that the loss was fortuitous even if it does not point to an exact cause of the loss. In other words in a case such as this, it was the owner’s burden to come forward with proof ruling out poor maintenance.
The court rejected the owners’ argument that loss was due to heavy rain, finding that nothing in the record showed an amount of rain sufficient to cause such damage immediately before the loss was reported. The court noted that not even the owners’ expert could assert the exact time of a heavy rainfall at the relevant time.
It is important to note that losses due to the negligence of an insured are generally considered fortuitous (for example an at-fault accident or fire) while losses caused by wear and tear are not. With regard to negligent maintenance, the court in a footnote noted that extending the concept of fortuity to negligent maintenance would be will be ill-advised and bad public policy. Such a rule it would create perverse incentives, converting all-risk policies into general maintenance contracts.
The important takeaway is that an all-risk policy does not include every risk and the insured still has the initial burden of proof of presenting a claim that falls within the coverage provisions of the policy. Here, showing that the vessel was seaworthy before it sank in calm waters would have been sufficient to create a presumption of fortuitous loss, resulting in a covered claim.
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