Texas Fortuity Doctrine Bars Coverage Under Protection & Indemnity Policy

Case:
Sosebee v. Certain Underwriters at Lloyds, London, et al.
Federal Fifth Circuit Court of Appeals
2014 U.S. App. LEXIS 8366 (5th Cir. 4/30/2014)

Following a vessel collision, the Plaintiffs sued several parties, including the owner of the utility boat with which their chartered fishing boat collided and the owner’s insurers, alleging significant personal injuries. Lafayette, Louisiana Partners Jenny Michel and Danielle Smith served as counsel for Defendant Underwriters in this action.

The United States District Court for the Eastern District of Louisiana granted summary judgment dismissing the insurers of the utility boat on grounds that coverage was not available under either of two successive Marine Protection & Indemnity policies issued (both of which were incorporated the Protection & Indemnity Form SP23 (Revised 1/56)). The District Court reasoned the first policy did not afford coverage for the loss because the vessel was not a scheduled vessel thereunder; and the second policy did not cover the loss because the policy was occurrence-based and incepted after the date of the loss. The Plaintiffs appealed the ruling on the second policy only.

On appeal, the United States Fifth Circuit affirmed the dismissal based on a straightforward application of the fortuity doctrine under Texas law. In so holding, the Fifth Circuit noted that fortuity is an inherent requirement of all insurance policies and that insurance carriers insure against a risk, not a certainty. The fortuity doctrine precludes coverage for known losses and losses in progress. Because the subject vessel collision occurred more than two weeks before the effective date of the policy and was a known loss at the time the policy took effect, the Fifth Circuit agreed the fortuity doctrine barred coverage for the accident. The Fifth Circuit further held that application of the Louisiana Direct Action statute did not change the outcome.