Underwriters Subscribing to Lloyd's Ins. v. Magi

• Decision Date: 17 October 1991
• Docket Number: No. CS-90-0521-FVS.,CS-90-0521-FVS.
• Citation: 790 F. Supp. 1043
• Parties: UNDERWRITERS SUBSCRIBING TO LLOYD'S INSURANCE CERT. NO. 80520, Plaintiffs, v. MAGI, INC., Defendant.
• Court: U.S. District Court — District of Washington

790 F. Supp. 1043

UNDERWRITERS SUBSCRIBING TO LLOYD'S INSURANCE CERT. NO. 80520, Plaintiffs, v. MAGI, INC., Defendant.

No. CS-90-0521-FVS.

United States District Court, E.D. Washington.

October 17, 1991.

Sharon Hazzard, Danielson, Harrigan & Tollefson, Seattle, Wash., for Underwriters Subscribing to Lloyd's Ins. Certificate No. 80520.

James M. Danielson, Jeffers Danielson Sonn & Aylward, Wenatchee, Wash., for Magi, Inc.

OPINION

VAN SICKLE, District Judge.

A. PARTIES

The plaintiffs in this action are Underwriters at Lloyd's London (hereinafter "Underwriters"). They request a judicial determination that an insurance certificate to which they have subscribed does not cover damage to apples which were stored in a warehouse operated by the defendant, Magi, Inc. (hereinafter "Magi"). Magi has filed a counterclaim. It asks the Court to hold Underwriters must pay the amount claimed, together with damages, attorney fees and costs.

B. JURISDICTION/VENUE

It is not disputed Underwriters are residents of Great Britain; Magi is a Washington corporation whose principal place of business is in the Eastern District of Washington; and the amount in controversy exceeds fifty thousand dollars. The parties agree the Court has jurisdiction under 28 U.S.C. § 1332(a)(2), and venue is proper pursuant to 28 U.S.C. § 1391(a).

C. SUMMARY

Magi is a co-operative association of approximately one hundred eighty-six member orchardists who grow, store, and sell apples. It operates warehouses in three separate locations in Okanogan County, Washington. Mr. George Chapman is Magi's president and chief executive officer.

In 1989, Underwriters renewed an insurance policy which had previously been issued to Magi. The new policy, which bore certificate number 80520, insured against damage to stored apples from June 1, 1989, to June 1, 1990.

During February of 1990, Magi discovered Golden Delicious apples in its Okanogan warehouse were damaged, and filed a claim with Underwriters. Although an independent adjuster recommended payment of the claim, Underwriters declined to do so, arguing the loss was not fortuitous and therefore not compensable.

The Court holds as follows: (1) the policy covers Magi's loss in the amount of Three Hundred Seventy-seven Thousand, One Hundred Dollars ($377,100.00); (2) Magi is entitled to prejudgment interest from the date the proof of loss was submitted; and (3) Underwriters did not violate Washington's Consumer Protection Act.

D. BACKGROUND

Each autumn, a new crop of apples is harvested. Some of the apples are processed, packed into containers and sold immediately. But those apples which are of sufficient quality are stored in warehouses and sold when prices warrant, which may be many months later.

Once apples are placed in storage, they begin to deteriorate. To limit deterioration, apples are stored in specially designed warehouses which are known as "controlled atmosphere" or "CA" warehouses.

A controlled atmosphere warehouse is divided into large "rooms." Each room is a separate storage area which can be sealed. Once a room has been sealed, the operator of the warehouse can set the temperature, oxygen content, carbon dioxide content, and humidity in the room. In effect, the operator can create an artificial environment in each of the storage areas in the warehouse.

The storage of apples under artificially maintained conditions is not without risk. As a result, it is common practice for the operator of a warehouse to purchase insurance against the possibility apples will be damaged while in the operator's care. The scope of insurance coverage available to a warehouse operator fluctuates with the market; which means the operator of a warehouse can never be sure, from year to year, exactly which risks an insurance company will be willing to underwrite.

To obtain the policy which is at issue here, Magi went to Mr. Keith W. Anderson, an insurance broker. By working through an intermediary, Mr. Anderson obtained a policy from Global Special Risks, a San Francisco firm. Global Special Risks is an agent of Underwriters, and had authority to issue the policy on Underwriters' behalf.

The 1989 harvest appeared to proceed normally. Part of the crop consisted of Golden Delicious apples, which were stored in nine separate rooms in a controlled atmosphere warehouse in Okanogan, Washington. During January and February of 1990, the first of the Golden Delicious apples which had been placed in the Okanogan warehouse were removed from storage. On February 22, 1990, Mr. Chapman was notified apples were showing signs of damage. Typically, it consisted of brown discoloration over significant areas of the skin of the apple. Once informed of the damage, Mr. Chapman retained Dr. Kenneth Olsen, a horticulturalist, who visited the plant on March 15, 1990, and inspected Golden Delicious apples which had been removed recently from storage.

During March, 1990, Magi submitted notice of the loss, and Underwriters hired an independent adjuster, Maxson Young Associates, Inc., to investigate the claim. The actual investigation was conducted by a Mr. R.A. Porterfield, who examined and photographed damaged fruit at the Okanogan warehouse during a visit which occurred on March 27, 1990. As part of the investigation, Mr. Porterfield took samples of damaged apples to Dr. Olsen for analysis. When Mr. Porterfield was satisfied the loss fell within the coverage of the policy, and was not among the excluded perils, he recommended that the claim be paid. That was done by reports dated May 14, 1990, and June 12, 1990, copies of which were sent to Mr. Chapman.

Underwriters did not respond immediately to Mr. Porterfield's recommendation. As the weeks went by, Mr. Chapman began to feel acute pressure from growers whose apples had been damaged. Believing the claim would be paid, Mr. Chapman made partial payment to co-op orchardists during late July or early August of 1990 for Golden Delicious apples from the 1989 crop. However, Underwriters decided not to pay the claim, and a representative of Global Special Risks so informed Mr. Chapman during the last week of August.

E. FINDINGS OF FACT/CONCLUSIONS OF LAW

1. Fortuity

Underwriters deny Magi's loss was fortuitous. If correct, they have no obligation to pay Magi's claim.

The policy which was issued to Magi is an "all-risk" insurance policy. Dickson v. United States Fidelity and Guaranty Co., 77 Wash.2d 785, 789-90, 466 P.2d 515 (1970); Bryant v. Continental Insurance Co., 2 Wash.App. 37, 38, 466 P.2d 201 (1970). See Standard Structural Steel Co. v. Bethlehem Steel Corp., 597 F.Supp. 164, 190 (D.Conn.1984). All-risk insurance creates a "special type of coverage extending to risks not usually covered under other insurance." 13A G. Couch, R. Anderson & M. Rhodes, Couch Cyclopedia of Insurance Law, § 48:141 (2d ed.rev. 1982). The term "all-risk" should not be confused with the words "all loss," however. Intermetal Mexicana, S.A. v. Insurance Company of North America, 866 F.2d 71, 75 (3d Cir. 1989) (and cases cited therein). "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." 13A G. Couch, R. Anderson & M. Rhodes, Couch Cyclopedia of Insurance Law, § 48:141 (2d ed.rev. 1982). See 5 Appleman, Insurance Law and Practice, § 3092 at 371 (1970).¹

Regardless of its express terms, every all-risk policy "`contains an unnamed exclusion —the loss must be fortuitous in nature.'" Intermetal Mexicana, S.A. v. Insurance Co. of North America, 866 F.2d 71, 75 (3d Cir.1989) (citing Cozen & Bennett, Fortuity: The Unnamed Exclusion, XX Forum 222, 222 (Winter 1985)) (emphasis in original). The exclusion exists as a matter of public policy, because "it would encourage fraud to allow recovery on an insurance loss which is certain to occur." Insurance Co. of North America v. U.S. Gypsum Co., 678 F.Supp. 138, 141 (W.D.Va.1988) (citation omitted), aff'd, 870 F.2d 148 (4th Cir.1989).

Resolution of Underwriters' argument requires definition of the term "fortuitous," which must be decided according to Washington law. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Since the Washington Supreme Court has yet to do so, it is this Court's duty to attempt to anticipate what that definition will be. See Kisor v. Johns-Manville Corp., 783 F.2d 1337, 1340 (9th Cir.1986).

The parties have proposed competing definitions for the word "fortuitous." Underwriters submit the word "fortuitous" has essentially the same meaning as "accident," as that term has been defined in accident insurance policies in Washington. Underwriters cite Harrison Plumbing & Heating, Inc. v. New Hampshire Ins. Group, 37 Wash.App. 621, 624, 681 P.2d 875 (1984), which says, "An accident is never present when a deliberate act is performed unless some additional unexpected, independent and unforeseen happening occurs which produces the damage.... To be an accident, both the means and the result must be unforeseen, involuntary, unexpected, and unusual...." (Citations omitted.) Magi, on the other hand, cites Avis v. Hartford Fire Insurance Co., 283 N.C. 142, 195 S.E.2d 545, 548 (1973) (quoting Webster's Third New International Dictionary, p. 895 (1961)), which says, "The word `fortuitous' means `occurring by chance without evident causal need or relation or without deliberate intention.'"

Since the Washington Supreme Court has yet to define the word "fortuitous," and the parties do not agree upon its meaning, it is useful to examine decisions from other jurisdictions. A review of cases decided during the past fifteen years reveals a significant trend. While courts continue to agree that an all-risk insurance policy covers only fortuitous losses,² a new definition of the term "fortuitous" has emerged. It is now generally accepted that the term should be...