My recent article, What does “Fortuitous” Mean? Why Is “Fortuity” So Important to Property Insurance? seems like a good time to restate some basic rules and concepts in property insurance that all property insurance claims practitioners should consider. Editors of the American Law Reports note the following about the concept of fortuity:
All-risk insurance covers damage resulting from all risks other than those that are specifically excluded from coverage; if a risk is not specifically excluded, it is deemed covered.
An all-risk policy, then, creates coverage of a type not ordinarily present under other types of insurance, and generally, an all-risk policy insures against risks of direct physical loss or damages from an external cause which is of a fortuitous nature; all-risk insurance generally covers fortuitous losses or events. A cause is external if damage which arises from it does not wholly result from an inherent defect in the subject matter insured or from the inherent deficient qualities, nature, and properties of the subject matter.
A fortuitous event is an event which happens by chance, unexpectedly, or without known cause, one which is undesigned or which is unplanned. More specifically, the determination of whether a loss is “fortuitous,” which is a condition precedent to coverage under an all-risk insurance plan, has three components: (1) a loss which was certain to occur cannot be considered fortuitous, and may not serve as the basis for recovery under an all-risk insurance policy; (2) in deciding whether a loss was fortuitous, a court should examine the parties’ perception of risk at the time the policy was issued; and (3) ordinarily, a loss which could not reasonably be foreseen by the parties at the time the policy was issued is fortuitous. In determining whether a loss is fortuitous, it cannot be looked upon as a matter of hindsight.
While there is some authority in the context of articulating the meaning of fortuity under all-risk coverage which focuses on whether an event is assumed by the parties to be, to a substantial extent, beyond the control of either party, this is often stated in the context of a case where that aspect of fortuity is determinative; in essence, the fortuity requirement relates to foreseeability, and a loss that could not reasonably be foreseen by the parties at the time the policy was issued is ordinarily fortuitous. It is doubtful that a single, simple definition is possible or even desirable. Thus, the fortuity concept in all-risk insurance has been said to be one which, at least so far as the parties were aware, was dependent on chance, and might be (1) beyond the power of any human being to bring the event to pass; (2) within the control of third persons; (3) a past event, such as the loss of a vessel, provided that the fact was unknown to the parties. 1
As discussed above, the concept of fortuity sits at the very heart of insurance law. Insurance is not designed to guarantee perfection or eliminate all risk. Insurance exists to protect against unforeseen and accidental loss. Federal Insurance Co. v. PGG Realty, LLC 2 is a textbook illustration of that principle and a powerful reminder that when insurers attempt to repackage accidents as inevitabilities, courts are often unimpressed.
The case arose from the dramatic capsizing of the luxury yacht Princess Gigi off the coast of the Bahamas in February 2006. The loss was total. Federal Insurance, which had issued an all-risk marine policy, rushed to court seeking a declaration that it owed nothing. Federal Insurance argued that the loss was the result of pre-existing defects, poor design, unseaworthiness, or failures by the insured that stripped the event of its accidental character. In other words, Federal argued the capsizing was not fortuitous.
The court methodically dismantled that narrative. Under federal admiralty law, an all-risk policy covers losses caused by fortuitous events, meaning losses that are not inevitable, intentional, or the result of inherent vice or ordinary wear and tear. Fortuity does not require the insured to prove precisely how a loss occurred. It only requires a showing that something unexpected happened, outside the insured’s control, and not as a certainty baked into the property itself.
That distinction mattered enormously. Despite weeks of testimony, expert opinions, and competing theories, no one could conclusively explain why the Princess Gigi lost power or exactly how water ultimately overwhelmed the vessel. What was clear, however, was that the yacht encountered unusually severe weather and lost propulsion at a critical moment. The court found the weather to be extreme and unpredictable, and the loss of power to be unexplained and speculative at best. Those facts, standing alone, were enough to establish fortuity.
Federal tried to transform uncertainty into exclusion by arguing that if the cause could not be identified, the loss must have been non-fortuitous. The court rejected that logic outright. Insurance, Judge Rakoff observed, exists precisely because not every accident is explicable. The inability to pinpoint a definitive cause does not defeat coverage; it reinforces the accidental nature of the loss.
Equally important was the court’s refusal to let hindsight masquerade as underwriting. Federal raised an array of alleged design flaws and operational shortcomings, but the evidence showed that the yacht had safely logged tens of thousands of miles before the loss and had been surveyed, crewed, and operated in a manner consistent with industry norms. Even if some imperfections existed, they did not render the loss inevitable. Fortuity is not destroyed simply because a vessel is not perfect or because negligence may have played a role.
The decision highlights that an all-risk policy is not defeated by ambiguity, mystery, or even human error. Losses caused by acts of nature, unforeseen mechanical failures, or operational mistakes remain fortuitous unless the insurer can prove that the loss was certain to occur or intentionally brought about. Federal could do neither.
In the end, the court concluded that the capsizing of the Princess Gigi was precisely the kind of accidental, unforeseen event for which insurance is purchased. The policy responded as promised, and Federal was ordered to pay the full limits. The ruling stands as a clear affirmation that fortuity is about risk, not perfection, and that insurance law does not reward post-loss second-guessing about what could have been done dressed up as inevitability.
Thought For The Day
“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.”
— Peter Drucker
1 Blumm George L., Construction and Application of “Fortuitous Event” Provision of All-Risk Insurance Policy, 24 A.L.R.7th Art. 1.
2 Federal Ins. Co. v. PGG Realty, LLC, 538 F.Supp.2d 680 (S.D.N.Y. 2008).
