Facts
- The insureds purchased an “all risk” jewelry and fur policy covering listed items against “all risks of loss or damage,” including “breakage,” during transportation or otherwise.
- The policy contained specific exclusions (e.g., breakage of glass and certain types of internal damage to watches; and moth, vermin, wear and tear, or gradual deterioration to furs), but did not expressly address inherent vice of jewelry.
- The insured schedule included a fire opal valued at $2,000.
- During the policy period, the fire opal developed a crack; it was not cracked when coverage began.
- The complaint alleged the crack was due to an inherent vice in the opal and was not caused by any outside force.
- The insurer demurred on the ground that the complaint failed to state a cause of action; the trial court sustained the demurrer, and the insureds appealed.
Issues
- Whether an “all risk” policy that includes coverage for “breakage” covers damage consisting solely of cracking caused by the insured item’s inherent defect or tendency, without any external, fortuitous cause.
Decision
- The Minnesota Supreme Court affirmed the order sustaining the general demurrer.
- The court held there was no coverage for the opal’s cracking where the complaint alleged the damage arose solely from the stone’s inherent vice and not from outside force.
- The court treated marine “all risk” authorities as persuasive and applied the rule that inherent vice is not a covered risk unless explicitly assumed by the insurer.
Legal Principles
- “All risk” coverage is construed to insure against fortuitous losses; it does not extend to loss or deterioration that occurs solely from an inherent vice, defect, or infirmity in the subject matter insured, absent clear policy language to the contrary.
- Coverage terms such as “breakage,” in an all-risk policy, are read to mean fortuitous breakage caused by external causes, not inevitable or self-generated failure due to the item’s inherent nature.
- When a complaint affirmatively pleads that the loss resulted only from inherent vice and not from any external force, it can fail to state a covered loss as a matter of law.
Conclusion
The court denied recovery under an all-risk jewelry policy for a fire opal’s cracking because the insureds alleged the damage resulted solely from the opal’s inherent tendency to crack, and the policy did not explicitly cover losses arising from inherent vice.