The claimant was insured under an all-risks insurance policy covering a vessel. The policy did not cover engine damage unless an accidental external event caused the damage. The vessel suffered catastrophic engine failure. The court held that the insured had to come forward with evidence that an external event caused the engine damage and the claim therefore failed.
The policy covered “any loss and/or damage” to the vessel that was “accidental, fortuitous in nature and incidental” to the vessel’s use. The policy did not provide coverage for all types of damage and contained several exclusion provisions identifying types of damage that were not covered. One such provision excluded damage to the engines unless caused by “an accidental external event such as collision, impact with a fixed or floating object, grounding, stranding, ingestion of foreign object, lightning strike or fire”. At the time of the event there was no rough weather nor anything else unusual and the engine failure was described by the captain as “sudden and unexpected”. A surveyor found no evidence of an external cause and said the “most likely” cause was “fatigue failure of one or more parts”.
The choice-of-law provision was Federal Admiralty Law, which provides that under an all-risks maritime insurance policy, an insured has the initial burden to provide evidence that a fortuitous loss occurred within the policy period. Only then does the burden shift to the insurer. Once the insurer proved that the cause was damage to the engine, the insured had to prove the exception to the exclusion. Seeing no other party submitted evidence what caused the engine failure, the claim failed in the absence of evidence that an external event caused the loss.
This type of shifting of burdens, according to the wording, is one of the challenges of all-risks policies. The policy should always make it clear that an accidental fortuitous event must be proved before looking at the exceptions and that it must be an external event that is covered.
This decision is based on US law. In South Africa the burden of proving an exception rests on the insurer.
Great Lakes Insurance SCE v Wave Cruiser LLC case no. 20-14517: US Court of Appeals for the Eleventh Circuit