Insured Must First Prove Loss to Vessel was Fortuitous
By definition insurance only protects against contingent or unknown events that are, therefore, fortuitous. That is, anything that happens suddenly, accidentally or by chance. When a loss to property, the risk of loss of which was insured happens, it is the duty of the insured to prove that the loss was fortuitous.
In Chartis Property Casualty Company v. John Inganamort and Joan Inganamort, Civ. No. 12-04075 (WHW)(CLW), United States District Court District of New Jersey (March 20, 2019) the New Jersey court was asked to find that the insurer must first prove that a loss was excluded and change how insurance claims are resolved. The attempt was inadequate, incompetent, and unsuccessful.
Plaintiff Chartis Property Casualty Company (“Chartis”) issued a Private Client Group Yacht policy (the “Policy”) to John and Joan Inganamort (“the Inganamorts” or “Defendants”). The Policy insured Defendants’ 65-foot, 1996 Sportfish vessel, Three Times A Lady, which was berthed in Boca Raton, Florida. The Inganamorts’ yacht suffered a partial sinking while docked in Florida.
The issue at the heart of this matter is: what caused a boat to partially sink? Plaintiff claims it was a hole in Defendants’ boat brought about by years of lack of upkeep. Defendants claim “heavy rainstorms” overwhelmed the vessel, causing it to sink.
On July 2, 2012, Chartis sued the Defendants. Through its summary judgment motion, Chartis seeks declaratory judgment that insurance coverage for the alleged loss is barred and/or limited (Count I); voidance and/or rescission of the Policy based on material representations (Count II); and the right to assert additional grounds for declaratory relief, misrepresentation and/or rescission of the Policy (Count III).
Defendants failed to file the required response to Chartis’s Statement of Undisputed Material Facts, which Chartis filed appropriately. Local Rule 56.1 contemplates this situation: “any material fact not disputed shall be deemed undisputed for purposes of the summary judgment motion.”
Chartis argues that the insurance policy at hand does not cover the damage sustained by Defendants’ boat because it is an “all-risk” policy that only covers losses that the policyholders can prove were fortuitous. Defendants contend that federal law is inapplicable, and that under Florida law, “since the burden of investigation [of the accident] is on Chartis, it must likewise bear the burden of proof that there is an exception to coverage.”
Federal admiralty law controls. The fortuity rule, entrenched in federal admiralty law, states that all-risk policies in marine insurance contracts only cover losses caused by fortuitous events. Federal courts sitting in admiralty have been applying some variation of the fortuity rule in marine insurance cases for over a hundred years and in so doing, these courts have predominantly looked to federal law as precedent. Under the rule, a loss is not fortuitous if it results from an inherent defect, ordinary wear and tear, or the insured’s intentional misconduct. On the other hand, losses that arise from acts of nature or the insured’s negligence are covered.
Burden of Proof
In admiralty law, the burden of proof generally is on the insured to show that a loss arose from a covered peril. Defendants hold the initial burden. In an action under an all risks policy, the insured has typically been required to show that the loss or damage was fortuitous. The burden then shifts to the insurer, to show an exception to coverage.
Defendants contend that the partial sinking of their boat stemmed from heavy rainfall, and cite two reports written by their expert, Charles M. Stephens, a Marine Surveyor and Licensed Insurance Adjustor. Basically, Mr. Stephens believed a circuit shortage cut power to the bilge pumps (which are tasked with removing excess water on a boat), resulting in the flooding, Defendants’ theory for the boat’s sinking requires them to put forward evidence of heavy rain in the area during the applicable time period. Mr. Stephens stated that there were “5 to 15 inches of rain” in South Florida in September of 2011 based on “talking to other people,” including “people at the marina” and “the captain.”
Chartis argued that heavy rain could not have been the proximate cause of the yacht’s partial sinking. Plaintiff relies on an expert report prepared by Steven Roberts, a Certified Meteorologist that showed that rainfall occurred on three of the five dates chosen by the insured’s for the date of sinking, with the most rainfall occurring on September 12, 2011, at 1.21 inches. According to the report, this amount of rainfall happens “multiple times per year, and has a 100 percent chance of being equaled or exceeded in a given year.”
The ultimate question is: does enough evidence exist for a rational juror to find that the amount of rainfall was sufficiently fortuitous to have caused the partial sinking of the boat? The District Court found that there was not.
“Heavy rainfall” is a term that requires context to determine if the rainfall was sufficiently heavy so as to be “fortuitous.” For a rainfall to be “heavy” in south Florida such that it would implicate the “fortuitous loss” rule, there must be sufficient evidence, likely from either meteorological data or publicly available reports, as to the rain’s severity. Defendants present no such evidence from which a fact-finder could find that rainfall caused the yacht to sink. It follows then that Defendants have not met their initial burden.
As was stated by Plaintiff’s expert Mr. Morris, rainfall alone is no cause for the boat to partially submerge. The boat is intended to prevent rain water falling on the deck from entering the bilges. What is covered is not any loss that may happen on the sea, but fortuitous losses occurring through extraordinary action of the elements at sea, or any accident or mishap in navigation.
Even if Chartis’s alternative theory (a hole in the hull) as to how the boat partially sunk were not sound, it is irrelevant if the burden of persuasion is never shifted to them, as was the case before the court. Defendants failed to meet their initial burden.
The insurer defeated, with admissible evidence, every claim of the insureds as to the cause of the sinking of their yacht. The insureds, on the other hand, did everything possibly wrong in their attempt to defeat the motion for summary judgment, including a failure to follow the local rules that, in essence, admitted all of the insurer’s evidence and allegations. An old yacht, not well maintained, that sinks while it rains in Florida – something that happens with a great deal of regularity – will sink only if there is some failure in the vessel.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Passover Seder for Americans
Passover is one of the many holidays Jewish people celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the mountains, the rain, sun, the planets, the stars, and the people and wonder how did all these wonderful things come into being?
All Jewish fathers are required to teach their children, at least once a year at the Passover holiday, about the exodus from slavery in Egypt. For American Jews who have difficulty understanding Hebrew and complicated books describing the Exodus, my wife and I wrote this book to use for our own Seder where each member of the family reads part of the book.