Avis v. Hartford Fire Ins. Co.

• Decision Date: 11 April 1973
• Docket Number: No. 27,27
• Citation: 195 S.E.2d 545,283 N.C. 142
• Parties: Dwight E. AVIS and wife, Margaret C. Avis v. The HARTFORD FIRE INSURANCE COMPANY, a corporation.
• Court: North Carolina Supreme Court

Page 545

195 S.E.2d 545

283 N.C. 142

Dwight E. AVIS and wife, Margaret C. Avis v. The HARTFORD FIRE INSURANCE COMPANY, a corporation.

No. 27.

Supreme Court of North Carolina.

April 11, 1973.

Bennett, Kelly & Long, P.A., by Robert B. Long, Jr., Asheville, for plaintiff appellees.

Williams, Morris & Golding, by William C. Morris, Jr., Asheville, for defendant appellant.

BRANCH, Justice.

Plaintiffs contend the Court of Appeals erred in holding that their loss was not within the coverage afforded by the 'all risks' policy issued to plaintiffs by defendant.

The Court of Appeals concluded that coverage did not extend because the loss was not the result of a fortuitous event, but was 'the product of the inherent qualities of the property insured.'

Recovery will be allowed under a policy affording 'all risks' coverage for all losses of a fortuitous nature not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding loss from coverage. The term 'all risks' is not to be given a restrictive meaning. Egan v. Washington General Ins. Corp., 240 So.2d 875 (Fla.App.1970); Miller v. Boston Insurance Co., 420 Pa. 566, 218 A.2d 275; Fidelity Southern Fire Insurance Co. v. Crow, 390 S.W.2d 788 (Tex.Civ.App.1965); Bryant v. Continental Insurance Co., 2 Wash.App. 37, 466 P.2d 201; Annot., 88 A.L.R.2d 1124; 44 Am.Jur.2d Insurance § 1433; 13 Couch on Insurance, 2nd Ed. § 48:138. However, the cases and commentaries are unanimous in holding that 'all losses' are not included in the term 'all risks.' See e.g., British & Foreign Marine Ins. Co. v. Gaunt, 2 A.C. 41 (1921); Finkelstein v. Central Mutual Insurance Co., 8 Misc.2d 261, 166 N.Y.S.2d 989; 5 Appleman; Insurance Law and Practice, § 3092.

In the case of British & Foreign Marine Ins. Co. v. Gaunt, supra, plaintiff sued upon an 'all risks' policy for water damage to bales of wool. Although the evidence did not disclose how the cargo was damaged, it was proved at trial that the damage arose while the ship carrying the wool was in transit. In dismissing the Insurance Company's appeal, the Court stated:

'In Construing these policies it is important to bear in mind that they cover 'all risk.' These words cannot, of course, be held to cover all damage however caused, for such damage as is inevitable from ordinary wear and tear and inevitable depreciation is not within the policies. . . . Damage, in other words, if it is to be covered by policies such as these, must be due to some fortuitous circumstance or casualty.

'All risks' has the same effect as if all insurance risks were separately enumerated; for example, it includes the risk that when it happens to be raining the men who ought to use the tarpaulins to protect the wool may happen to be neglecting their duty. This concurrence is fortuitous; it is also the cause of the loss by wetting. It appears to be what happened. For wool to get wet in the rain is a casualty, though not a grave one; it is not a thing intended but is accidental; it is something which injures the wool from without; it does not develop from within. It would not happen at all if the men employed attended to their duty.

There are, of course, limits to 'all risks.' They are risks and risks insured against. Accordingly the expression does not cover inherent vice or mere wear and tear or British capture. It covers a risk, not a certainty; it is something, which happens to the subject-matter from without, not the natural behavior of that subject-matter, being what it is, in the circumstances under which it is carried. Nor is it a loss which the assured brings about by his own act, for then he has not merely exposed the goods to the chance of injury, he has injured them himself. Finally the description 'all risks' does not alter the general law; only risks are covered which it is lawful to cover, and the onus of proof remains where it would have been on a policy against ordinary sea perils.'

The court in Finkelstein v. Central Mutual Insurance Co., supra, considered a question similar to the one here presented. The court held that discoloration caused by the excessive cleaning of carpet with an ammonia solution was an accident and a fortuitous loss within the coverage of an 'all risks' policy. The court said:

'As these all-risk policies are generally available to householders and as their sale is not limited to specialists, the run-of-the-mill notion of what constitutes an accident is pertinent. The scientist's or technician's understanding in depth is not relevant. From the viewpoint of this plaintiff there was an accident here and a fortuitous loss, for clearly the carpeting was not deliberately exposed to damage.'

In Chute v. North River Ins. Co., 172 Minn. 13, 214 N.W. 473, the plaintiff sought recovery under an 'all risks' policy for a fire opal which became cracked. The plaintiff averred in his complaint that damage to the opal was not caused by any outside force but was due to an 'inherent vice' in the gem. Holding that the plaintiff could not recover under the policy, the court stated:

'The diligence of counsel has failed to furnish us any case in point or even of much help except those arising on policies of marine insurance. But they furnish, we think, a fair analogy. The contract is an 'all risk' policy, and of a kind which characterizes marine insurance more than any other. The rule of marine insurance is that, under such a policy, the insurer is not liable 'for losses resulting from inherent vice, defect, or infirmity in the subject-matter insured.' 38 C.J. 1097. In Arnould on Marine Insurance (11th Ed.) § 778, it is put thus:

'* * * The underwriter is not liable for that loss or deterioration which arises solely from a principle of decay or corruption inherent in the subject insured, or, as the phrase is, from its proper vice; as when fruit becomes rotten, or flour heats, or wine turns sour, not from external damage but entirely from internal decomposition.'

. . . Because the policy must be considered as one against damage from fortuitous and extraneous risks, it is not permissible to resort to an ultraliteral interpretation which will convert it into a contract or warranty against loss resulting Wholly from inherent susceptibility to dissolution.' (Emphasis added.)

Consideration of these cases and other authorities leads us to conclude that coverage under a policy insuring against 'all risks of physical loss' extends only when the following conditions are met:

(1) The loss must be fortuitous; i.e., caused by a fortuitous event. See generally, Annot., 88 A.L.R.2d 1124; 44 Am.Jur.2d, Insurance, § 1433.

The word 'fortuitous' means 'occurring by chance without evident causal need or relation or without deliberate intention.' Webster's Third New International Dictionary, p. 895 (1961). See also, Kirkley v. Merrimack Mutual Fire Insurance Company, 232 N.C. 292, 59 S.E.2d 629; Ballentine's Law Dictionary, 3rd Ed., p. 492 (1969); Black's Law Dictionary, 4th Ed., p. 783 (1968). A fortuitous event may be said to be one not certain to occur. British & Foreign Marine Ins. Co. v. Gaunt, supra.

( 2) The loss or damage must not result wholly from an inherent quality or defect in the subject matter. Greene v. Cheetham, 293 F.2d 933 (2nd Cir. 1961); Mellon v. Federal Insurance Co., 14 F.2d 997 (S.D.N.Y.1926); Chute v. North River Ins. Co., supra; Harvey v. Switzerland General Ins. Co., 260 S.W.2d 342 (Mo.App.1953); Glassner v. Detroit Fire and Marine Insurance Co., 23 Wis.2d 532, 127 N.W.2d 761; 43 Am.Jur.2d Insurance § 2, 5A Appleman, Insurance Law and Practice, § 3272. In other words, the damage must result from at least one extraneous cause. See British & Foreign Marine Ins. Co. v. Gaunt, supra; Chute v. North River Ins. Co., supra.

(3) The loss or damage must not result from the intentional misconduct or fraud of the insured. Sun Insurance Office, Ltd. v. Clay, 133 So.2d 735 (Fla.1961); Annot., 88 A.L.R.2d 1124. See also, Western Horse & Cattle Ins. Co. v. O'Neill, 21 Neb. 548, 32 N.W. 581.

(4) The risk must be lawful. British & Foreign Marine Ins. Co. v. Gaunt, supra.

See Gorman, All Risks of Loss v. All Loss: 'An Examination of Broad Form Insurance Coverages, 34 Notre Dame Law. 346 (1959), for an excellent discussion of coverage under 'all risks' policies and the principles set forth above.

In instant case there is no evidence or contention of intentional misconduct, fraud or unlawfulness of risk. Manifestly, plaintiffs did not know of the peril and did not intend to cause the harm that befell them. At most plaintiffs may have been negligent; without more, however, such conduct would not operate to deny coverage on the basis of intentional misconduct. For cases allowing recovery where one's negligence constituted the fortuitous event, see C. H. Leavell & Co. v. Fireman's Fund Insurance Co., 372 F.2d 784 (9th Cir. 1967); Carter Tug Service, Inc. v. Home Insurance Company, 345 F.Supp. 1193 (S.D.Ill.1971); General American Transp. Corp. v. Sun Insurance Office, Ltd., 239 F.Supp. 844 (E.D.Tenn.1965), affirmed 369 F.2d 906 (6th Cir. 1966); Redna Marine Corp. v. Poland, 46 F.R.D. 81 (D.C.N.Y.1969) (citing many cases); Egan v. Washington General Ins. Corp., supra; Finkelstein v. Central Mutual Insurance Co., supra, and cases cited therein. See also, 5 Appleman, Insurance Law and Practice, § 3092.

Defendant does not deny coverage because of a specific exclusion contained in the policy. Therefore, if the loss suffered by plaintiffs was caused by a fortuitous event and was not solely the product of the inherent qualities of the insured property, the trial judge correctly concluded that the loss suffered by plaintiffs was within the coverage of the policy.

Had plaintiffs sought recovery because the walls had decayed, deteriorated, faded or disintegrated after a period of time without the action of external forces, there could have been no recovery. This is so because such damage inevitably occurs...