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In Fry v. Phoenix Insurance Company, the insured homeowners suffered a wall collapse, after a long history of issues with the wall. There were various expert reports on problems with the wall that led the court to conclude that the insureds had knowledge of both potential problems causing the collapse, and that they failed to timely act to prevent the collapse after having been specifically warned it would occur absent certain actions.

First, coverage was properly denied because the policy only covered collapses if the causes were hidden from the insured, and such was not the case here.

Second, and of significant interest, is the court’s then finding that there was no coverage because the collapse was not the result of chance or accident, i.e., it was not fortuitous. The court specifically found that “under Pennsylvania law, a lack-of-fortuity exclusion is implied in every all-risk policy, such as the Policy at issue here.”

The court ruled that Third Circuit precedent established this principle, citing support from appellate case law: “there is an implied exclusion in every all-risk insurance policy for losses that are not fortuitous”; the “Supreme Court of Pennsylvania would recognize a ‘judicially created “fortuity” exclusion from coverage’ based on the generally accepted principle that ‘every “all risk” contract of insurance contains an unnamed exclusion — the loss must be fortuitous in nature’”; “The fortuity requirement is based on ‘[p]ublic policy considerations and the general nature of insurance,’ preventing an insurance policy ‘from providing coverage for a policyholder’s losses unless those losses are fortuitous.’”; “[W]e predict that the Pennsylvania Supreme Court would place on the insurer the burden of proving that the circumstances of the loss were such that coverage would be inconsistent with that public policy.”

The court then addressed what the Third Circuit meant by “fortuity”. “A fortuitous event … is an event which so far as the parties to the contract are aware, is dependent on chance.” “Such an event ‘may be beyond the power of any human being to bring the event to pass; it may be within control of third persons, provided that the fact is unknown to the parties. The thrust of the definition is that the occurrence be unplanned and unintentional in nature.’”

“’In essence, the doctrine precludes coverage from losses that are certain to occur.’” “’Typically, the inherent fortuity doctrines preclude coverage based on what the insured knew or should have known about its potential liability at the inception date of the insurance policy at issue….”

Moreover, the court ruled that the determination of whether a claimed loss is fortuitous is a question of law for the court. Although the court indicated the determination of fortuity was solely a legal issue, the court concluded its analysis that the loss in this case was not fortuitous because no reasonable jury could find the loss fortuitous.

As to the specific record, independent of the precise cause, all of the experts had told the insureds the wall would collapse unless they took certain actions, they did not, and the wall collapsed, i.e., no fortuity.

Thus summary judgment was granted on the breach of contract claims, and the bad faith claim was dismissed as the court’s analysis demonstrated denial was reasonable.

Date of Decision:  September 19, 2014

Fry v. Phoenix Ins. Co., CIVIL ACTION NO. 12-4914, 2014 U.S. Dist. LEXIS 131504 (E.D. Pa. September 19, 2014) (Stengel, J.)