The Unwritten Exclusion: The Fortuity Principle
Most people with a working knowledge of general liability policies know that they contain a long list of excluded acts for which bodily injury or property damage coverage does not apply. This list of exclusions runs the gamut from intentional acts to acts of war and is routinely reviewed by insurers to determine if there is coverage provided in a policy for the particular circumstances presented. But did you know every policy of insurance written in the state of Wisconsin contains an exclusion that cannot be found in that list of exclusions or anywhere else in the policy?
This article explains the origin and progression of the fortuity principle in Wisconsin from its birth in the law through its present application.
II. The Principle's Origins
The fortuity principle initially appears in Wisconsin case law in the fire loss claim of Hedtcke v. Sentry Ins. Co.1 The primary issue in Hedtcke was whether an innocent insured was barred from recovery when another insured intentionally set fire to property.2 In weighing the merits of each party’s position, the court discussed two earlier Wisconsin decisions that implicitly rested upon a principle known as “fortuitousness” – the precept that “insurance covers fortuitous losses and that losses are not fortuitous if the damage is intentionally caused by the insured.”3 The Hedtcke court stated that:
Even where the insurance policy contains no language expressly stating the principle of fortuitousness, courts read this principle into the insurance policy to further specific public policy objectives including (1) avoiding profit from wrongdoing; (2) deterring crime; (3) avoiding fraud against insurers; and (4) maintaining coverage of a scope consistent with the reasonable expectations of the contracting parties on matters as to which no intention or expectation was expressed.4
In other words, the fortuity principle is intended to address those situations where a loss is not accidental. It is against public policy to allow an insured to collect insurance proceeds for a known or expected loss.
III. The Principle's Development
The fortuity principle next appeared in Wisconsin case law in K.A.G. by Carson v. Stanford,5 which involved an insurance claim stemming from the sexual molestation of a six-year-old girl.6 The circuit court had granted summary judgment to the insurer, ruling that the insured could have no reasonable expectation of coverage in his homeowner’s policy for damages caused by sexual abuse.7 The circuit court decision was upheld on appeal, not on the reasonable expectation standard, but rather based upon the fact that the conduct was such that intent could be inferred as a matter of law. Notable for the evolution of the fortuity principle, the appeals court pointed out that the circuit court’s expectation analysis (which relied on two out of state cases, Rodriguez v. Williams8 and Altena v. United Fire and Cas. Co. 9) was based on “sound legal principles and may present a viable alternative analysis to achieve the same result that we have reached.”10
The K.A.G. decision paved the way for the ruling in Hagen v. Gulrud.11 Hagen involved a second-degree sexual assault, which resulted in a civil claim for damages.12 Despite his conviction in criminal court, the jury concluded that Gulrud had unintentionally caused injuries to Hagen and awarded her damages. The insurer moved for judgment notwithstanding the verdict based on the fortuity principle.13 The appeals court, for the first time, applied the fortuity principle to exclude coverage regardless of whether the intentional act exclusion applied in the policy, citing Hedtcke and the public policy objectives pertaining to the principle of fortuitousness. The Hagen court found that the fortuity principle applied both when the loss is inconsistent with the parties’ reasonable expectations and that it is a rule of insurance contract construction. Hagen then approvingly cited language from Keeton:
For example, even though the contractual language was ambiguous, there might be no expectation at all, or the expectation might be unreasonable, thus defeating a claimed expansion of coverage beyond the letter of the contract. It seems likely, however, that, even though not often expressed, there has always been an implicit understanding that ambiguities, which in most cases might be resolved in more than just one or the other of two ways, would be resolved favorably to the insured’s claim only if a reasonable person in his position would have expected coverage.14
The Hagen court noted that no Wisconsin case had dealt with the issue at hand and looked to the Iowa Supreme Court’s analysis in Altena, eventually holding that “a person purchasing homeowner’s insurance would not expect that he or she was insuring his or her children against liability for their sexual assaults.”15 It further found that it would not want to remove the deterrent that the threat of a money judgment provides and that it is good public policy to deter sexual assaults.16 Finally, the court found that “…Gulrud’s mother would cringe at the very suggestion they were buying and selling sexual assault insurance[,]”17 which has become one of the litmus tests for determining where the lines relating to the public policy principle are to be drawn. The Hagen court read the fortuity principle into the contract and found that it applied, despite the jury’s conclusion that Gulrud had unintentionally caused Hagen’s injuries. As a result, there was no coverage based on the public policy considerations embodied by the fortuity principle. Thus, there was no coverage even though it may not have been excluded under the policy’s intentional act exclusion.
After Hagen came Ramharter v. Secura Ins.,18 which involved a claim for the infliction of emotional distress arising out of a murder-suicide. Upon review of the decisions in K.A.G., Rodriguez, Altena and Hagen, the court in Ramharter affirmed the trial court’s application of the fortuity principle on the grounds that no reasonable person would expect coverage for “damages resulting from the insured’s intentional commission of a murdersuicide.”19
Likewise, the court in Haessly v. Germantown Mut. Ins. Co.,20 held that the fortuity principle not only excludes coverage for the initial commission of an act, but also the resulting damages that reasonably flow from that act. Haessly dealt with an insured who brutally beat the woman he was living with, rendering her unable to seek help.21 She later brought a claim against the insured arising out of for his five-day delay in seeking medical treatment for her after the beating occurred. She argued that his delay in seeking treatment for her constituted a second, independent tort of negligence, which enhanced her initial injuries.22 In affirming summary judgment for the insurer, the Haessly court found that the fortuity principle was determinative of the coverage issue, as no reasonable person would expect his or her homeowner’s policy to provide liability coverage for failure to provide aid to someone that they had previously rendered helpless through an intentional act.23 The Haessly court also indicated that the public policy underpinnings of the fortuity principle were such that it would be improper to allow the person committing battery to escape the monetary consequences of having to personally compensate the victim for her injuries and it was incumbent on the wrong-doer, not the insurer, to make such reparations.24
In Prosser v. Leuck,25 limitations to the fortuity principle began to emerge. Prosser involved two juveniles who broke into a warehouse and intentionally damaged various items of personal property located within the building.26 One of the minors found a can of gasoline, a cigarette lighter, and a small plastic bottle in the warehouse and started a small fire on the window sill.27 When more gasoline was sprinkled onto the fire, the flames rose causing the minor to drop the burning bottle down a hole to the first floor and the fire spread causing extensive damage to the warehouse and its contents.28 The Prosser jury found the minor did not intend to cause damage to the warehouse by the means of fire.29 After the jury decision, however, the trial court entered judgment notwithstanding the verdict based on the fortuity principle.30 On appeal, it was found that a thirteen-year-old playing with fire was too far removed from the intentional criminal act and sexual assault cases cited in Hagen and K.A.G. to apply the fortuity principle.31 The court reached its decision based on the fact that the jury found the conduct to be negligent, not intentional. In response to the insurer’s argument that no reasonable insure would have an expectation of coverage for the minor’s actions that day, the court found that the intentional damage to property by means other than fire was not relevant to the fire damage claims being made and that the expectation of harm from a small stain on the concrete window sill was insufficient to satisfy the intent to harm requirement.32 The court concluded that:
Because a fire destroying the building and its contents is so far removed from burning small amounts of gasoline on a concrete window sill, we conclude that the destruction of the building did not result from an intentional act as that term is used in the insurance policy.33
Similarly, in Becker by Kasieta v. State Farm Mut. Auto. Ins. Co.,34 several juveniles took a car belonging to one of their parents without permission and then broke into a gas station and stole alcohol.35 On the way back home, the driver ran through a stop sign at a high rate of speed to try and jump the intersection.36 The car became airborne and went out of control, injuring several of the passengers and killing the driver.37 When one of the injured vehicle occupants brought a claim, the court considered the application of the fortuity principle, but distinguished the case from Hagen and Ramharter, finding that, unlike the intentional acts of murder and sexual assault, insurance coverage for injuries stemming from reckless driving was within the reasonable expectations of the contracting parties.38 The court went on to say that the Supreme Court “did not conclude that public policy prohibits coverage at any time that the insured is involved in the commission of a criminal act.”39Instead, the court focused on the causation issue in its coverage determination finding that “[b]ecause Becker’s injuries were caused by…reckless driving, not…other criminal acts, the trial court properly concluded the principal of fortuity does not preclude coverage in this case.”40
The fortuity principle continues to evolve and remains a powerful exclusionary tool for the courts when deemed appropriate to further specific public policy objectives. An understanding that the exclusion exists in every Wisconsin insurance contract, despite not appearing in the language of the policy, allows for a proper evaluation of its application when a claim is presented.
1 Hedtcke v. Sentry Ins. Co., 109 Wis. 2d 461, 326 N.W.2d 727 (1982).
2 Id. at 464-465, 326 N.W.2d at 729.
3 Id. at 483-484, 326 N.W.2d at 738.
4 Id. at 484, 326 N.W.2d at 738 (citing Keeton, Insurance Law, sec. 5.3(a), p.279 (1971)).
5 K.A.G. by Carson v. Stanford, 148 Wis. 2d 158, 434 N.W.2d 790 (Ct. App. 1988).
6 Id. at 160-161, 434 N.W.2d at 791.
7 Id. at 161, 434 N.W.2d at 791-792.
8 Rodriguez v. Williams, 42 Wash. App. 633, 713 P.2d 135 (1986).
9 Altena v. United Fire and Cas. Co., 422 N.W.2d 485 (Iowa 1988).
10 K.A.G. by Carson at 166, 434 N.W.2d at 793.
11 Hagen v. Gulrud, 151 Wis. 2d 1, 442 N.W.2d 570 (Ct. App. 1989).
12 Id. at 3, 442 N.W.2d at 571.
14 Id. at 5-6, 442 N.W.2d at 572 (citing Keeton, Insurance Law, sec. 6.3(a) p. 352).
15 Id. at 7, 442 N.W.2d at 573.
18 Ramharter v. Secura Ins., 159 Wis. 2d 352, 463 N.W.2d 877 (Ct. App. 1990).
19 Id. at 357, 463 N.W.2d at 879.
20 Haessly v. Germantown Mut. Ins. Co., 213 Wis. 2d 108, 569 N.W.2d 804 (Ct. App. 1997).
21 Id. 110-111, 569 N.W.2d at 805-806.
23 Id. at 117-118, 569 N.W.2d at 808.
24 Id. at 119-120, 569 N.W.2d at 809.
25 Prosser v. Leuck, 196 Wis. 2d 780, 539 N.W.2d 466 (Ct. App. 1995).
26 Id. at 782-783, 539 N.W.2d at 467.
29 Id. at 784, 539 N.W.2d at 467.
31 Id. at 786, 539 N.W.2d at 468.
32 Id. at 787, 539 N.W.2d at 469.
33 Id. at 788, 539 N.W.2d at 469.
34 Becker by Kasieta v. State Farm Mut. Ins. Co., 220 Wis. 2d 321, 582 N.W.2d 499 (Ct. App. 1998).
35 Id. at 323-324, 582 N.W.2d at 499-500.
38 Id. at 326, 582 N.W.2d at 501.
39 Id. at 327, 582 N.W.2d at 501.