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Ingenco Holdings, LLC v. Ace American Insurance Company

In Ingenco Holdings, LLC v. Ace American Ins. Co., __ F.3d ____ (9th Cir. April 15, 2019), the Ninth Circuit Court of Appeals reversed the entry of summary judgment by the United States District Court for the Western District of Washington in favor of Ace American Insurance Company (“Ace”) in respect to whether coverage is afforded under a commercial property policy for damage sustained by a gas purification plant located at the Cedar Hills Landfill in King County, Washington. The Court of Appeals held that there was a question of fact relative to whether damage sustained by the gas purification facility was caused by an inherent defect in a diffuser basket intended to mitigate the impact of gas on beads intended to collect nitrogen in pressure vessels. The Court of Appeals also held that there was a question of fact relative to whether destruction of the beads caused by the failure of diffuser baskets due to defective brackets arose out of a “fortuity”. The Court of Appeals defined “fortuity” as follows:

“Courts, often drawing upon the Restatement of Contracts, have typically defined a fortuitous event as one that is dependent upon chance, taking into account the knowledge of the parties. See, e.g., Compagnie des Bauxites de Guinee v. Ins. Co. of N. Am., 724 F.2d 369, 372 (3d Cir. 1983); Magi, Inc., 790 F. Supp. at 1047-48 (collecting cases). Courts have further concluded that a fortuity inquiry should look to, among other things, whether a particular loss was certain to occur, the parties' perception of risk at the time the policy issued, and whether the loss could reasonably have been foreseen. Magi, Inc., 790 F. Supp. at 1048; Churchill v. Factory Mut. Ins, Co., 234 F. Supp. 2d 1182, 1188 (W.D. Wash. 2002) Frank Coluccio Const. Co. v. King City, 136 Wash.App. 751, 768, 150 P.3d 1147 (2007). We conclude that the Washington Supreme Court would adopt a definition of fortuity consistent with this trend. We conclude that the Washington Supreme Court would adopt a definition of fortuity consistent with this trend.”

In addition, the Court of Appeals held that there was also a question of fact relative to whether the destruction of the beads in the pressure vessels was due to an “external cause” or inherent defect excluded by the Ace property policy. The Court of Appeals characterized “external cause” as follows:

“Both parties cite the Standard Structural Steel court's explanation that, in the context of an all risks policy such as that at issue here, "a cause is external if damage which arises from it does not result wholly from an inherent defect in the subject matter or from the inherent deficient qualities, nature and properties of the subject matter." Standard Structural Steel. 597 F. Stipp. at 193 (internal quotation marks omitted). Other courts, including the district court here, have applied essentially this same definition of "external cause." See, e.g., Delta Nat. Gas Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh. Pennsylvania. No. CIV.A. 11-57-KSF. 2011 U.S. Dist. LEXIS 56669, 2011 WL 2007706. at *2 (E.D. Ky. May 23, 2011).

Based on the above definition of external cause, the Court of Appeals held there was at least a question of fact relative to whether the damage of the beads in the pressure vessel was due to an external or internal cause. Further, the Court of Appeals held that even if the cause of the damage was excluded due to an internal defect in the diffuser shield, the subsequent destruction of the absorbent beads would be covered under the policies ensuing loss exception.

Lastly, the Court of Appeals held that there was a question of fact relative to whether the actual time taken by the insured to repair the facility was reasonable for purposes of providing business income coverage under the policy.

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