Chute v. North River Insurance Co.
172 Minn. 13, 214 N.W. 473, 55 A.L.R. 938 (1927)
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Rule of Law:
An "all risks" insurance policy covers losses resulting from fortuitous, external causes, but does not cover losses that result solely from an inherent vice, defect, or natural deterioration of the insured property, unless the policy explicitly provides such coverage.
Facts:
- Plaintiffs owned a fire opal valued at $2,000, which was insured by the defendant under an 'all risks' jewelry policy.
- The policy covered 'all risks of loss or damage during transportation ... or otherwise.'
- While the policy was in force, the fire opal developed a crack.
- The opal was not cracked when the insurance policy became effective.
- The plaintiffs admitted in their complaint that the crack was due to an 'inherent vice' in the opal and was not caused by any outside force.
- Fire opals are known to be 'sensitive' and have a natural tendency to develop fissures.
Procedural Posture:
- The plaintiffs filed a complaint in a trial court to recover on an insurance policy for a damaged opal.
- The defendant insurance company filed a general demurrer, arguing that the complaint failed to state a valid legal claim for recovery.
- The trial court sustained the demurrer, dismissing the plaintiffs' action.
- The plaintiffs, as appellants, appealed the trial court's order to the present court.
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Issue:
Does an "all risks" insurance policy cover a loss that results solely from an inherent vice within the insured property, without any contribution from an external or fortuitous cause?
Opinions:
Majority - Stone, J.
No. An 'all risks' insurance policy provides indemnity against loss from fortuitous and extraneous circumstances, not a warranty of the property's quality or durability. The court reasoned by analogy to marine insurance, where it is a settled rule that an insurer is not liable for losses resulting from the 'inherent vice' or 'proper vice' of the insured subject matter, such as fruit rotting or wine souring on its own. The purpose of insurance is to protect against accidents that may happen, not against events that must happen due to the property's own nature. To interpret 'all risks' literally to cover such an event would convert the insurance contract into a warranty against natural disintegration, which is not the intended purpose unless explicitly stated.
Analysis:
This decision establishes the 'inherent vice' exclusion as a default principle within 'all risks' property insurance, even when not explicitly written in the policy. It clarifies that the term 'all risks' is not absolute but implies a requirement of fortuitousness, meaning the loss must be caused by an accidental, external event. The ruling sets a precedent that prevents insurance policies from being treated as warranties of a product's quality or durability. Future cases involving 'all risks' policies will distinguish between losses from external perils (covered) and those from the property's own internal defects or natural decay (not covered), unless the policy contains specific language to the contrary.
