Last week, in continuing my deconstruction of the all-risk policy, I wrote about the fortuity doctrine. This week, I want to begin looking at how courts apply the fortuity doctrine in certain circumstances.
As illustrated in Sentinel Management Co. v. New Hampshire Ins. Co., 563 N.W. 2d 296 (Minn. App. 1997), courts typically focus on the fortuity of the loss or damage actually suffered, rather than the fortuity of the cause of or the acts leading to the loss. In this case, an apartment complex suffered damage due to asbestos contamination of the buildings. The court, in making its determination as to whether or not the loss was fortuitous, first discussed what function an all-risk policy serves. Specifically, it stated that,
Generally, an ‘all-risk’ insurance policy creates a special type of coverage extending to risks not usually covered under other insurance, and recovery under an ‘all-risk’ policy will, as a rule, be allowed for all fortuitous losses not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage.
Although the insurance company argued that asbestos contamination was not fortuitous because the release of asbestos fibers through ordinary wear and tear was certain to occur, the court disagreed:
An occurrence is fortuitous if the outcome of the event is not known in advance by the insured. This element of risk is central to insurance contracts because one cannot insure against a certainty….A loss caused by a pre-existing defect is fortuitous so long as neither party knew of the defect or expected the loss.
The court further determined that,
The eventual contamination of Sentinel’s buildings was inevitable, due to the presence of asbestos-containing materials. However, it is undisputed on the record before us that neither party was aware that asbestos fibers were being released in the buildings or that the buildings were suffering damage as a result. Thus, so far as all parties were concerned, asbestos contamination was a risk inherent in owning twenty-year-old buildings, but it was not a certainty. Under these circumstances, Sentinel’s asbestos contamination constitutes a fortuitous loss because Sentinel was unaware of the asbestos damage when the insurer’s policy went into effect.
The court reached this conclusion even though the events leading to the release of the asbestos were normal residential and building maintenance activities – clearly not fortuitous acts. This is a good illustration of how courts look at whether the loss was fortuitous, not whether the acts leading to the loss were fortuitous.
Keep in mind that this court applied Minnesota law, and laws vary in different states.
Next week, I will take another look at the fortuity doctrine. Stay tuned.