Special Form Exclusions

How to Apply Exclusions

Insurance protects against risks, not certainties. The term “risk” does not cover inherent vice or mere wear and tear. The fortuity requirement is a necessary element of the concept of risk. The definition of fortuity, given in Restatement of Contracts section 291 comment a, provides:

A fortuitous event . . . is an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event, such as the loss of a vessel, provided that the fact is unknown to the parties. (Emphasis added).

All insurance contracts are governed by the fortuity requirement first discussed at length in Mellon v. Federal Insurance Company, 14 F. 2d. 997 (D.C., N.Y., 1926) where the court stated:

For some reason, whether from latent defects, wear and tear, or inevitable depreciation I cannot determine, the starboard boiler developed fractures. I cannot say that they were fortuitous, or, if they be regarded as due to latent defects, it has not been proved when such latent defects originated. . .. It must always be borne in mind that the policies are of insurance and not of warranty of soundness, and for that reason no liability arises under the perils clauses for damage to the starboard boiler. (Emphasis in the original).

It seems that the fortuity requirement should render many of the exclusions redundant and unnecessary since the exclusions, by definition, describe non‑fortuitous losses.

Implicit in the concept of insurance is that the loss occur as a result of a fortuitous event not one planned, intended, or anticipated. Oddly, the fortuity principle never appears in insurance contracts. The principle is rooted in common law and in the statutes of at least six states. The fortuity principle has the effect of an exclusion. That is, an all-risk policy might provide coverage for all risks minus named exclusions, but never provides coverage for non-fortuitous events, even though non-fortuitous events are not named exclusions in the policy. For this reason, the fortuity principle is sometimes called the unnamed exclusion.[1]

A fortuitous event is an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event, such as the loss of a vessel, provided that the fact is unknown to the parties.[2]

The purpose behind the fortuity doctrine applies with full force where a party attempts to purchase insurance against the consequences of his own ongoing wrongful conduct.[3] Some courts have equated a fortuitous loss, within the meaning of an all-risk insurance policy, with a loss arising from external or extrinsic forces, so that losses resulting from an inherent quality or defect in the item insured are not within the scope of coverage.[4] If the loss does not result from inherent defect, ordinary wear and tear, or intentional misconduct, its cause was necessarily external.[5]