United States District Court holds that an all risk marine policy covers loss with unknown cause

In Markel Am. Ins. Co. v. Pajam Fishing Corp., __ F.2d __, 2010 WL 742485 (D. Mass.), Markel provided an all risk marine insurance policy to Pajam. The policy included coverage for "accidental, direct, physical loss" to a fishing vessel called the Miss Sonya.

The Miss Sonya sank on March 24, 2008 and could not be examined. The men on the ship observed water splashing about in a compartment on the stern of the ship and followed the instructions of the coast guard to abandon the ship. The ship had been in good condition. They men felt no impact on the ship but there could have been an impact that was disguised by choppy conditions.

The policy did not define the term "accidental physical loss." The court held that the word "accident" is synonymous with "fortuitous," and that a loss is fortuitous unless it results from an inherent defect, ordinary wear and tear, or intentional misconduct of the insured. It held that the loss of the Miss Sonya was an accidental physical loss for which there was coverage.

The court rejected the insurer's argument that the insured must prove the cause of the sinking. The court held, "To establish a fortuitous loss it is generally sufficient for the insured to show only that the loss occurred." This was probably an overstatement by the court, since it went on to hold that the insured had established "that the vessel was well maintained, and that there was no intentional misconduct which caused the vessel to sink. This is sufficient 'to prove a fortuitous loss of the covered property' and the insured 'need not prove the cause of the loss.'"