Opinion ID: 4387386
Heading Depth: 3
Heading Rank: 3

Heading: External Cause

Text: A determination that a particular loss is fortuitous could obviate the need to examine whether that loss was caused by an external force. Although the policy language here undoubtedly applies only to losses resulting from an “external cause,” some courts, interpreting nearly identical policy language, have held that an insured need only demonstrate that a fortuitous loss has occurred, notwithstanding “external cause” policy language. See, e.g., Atl. Lines Ltd. v. Am. Motorists Ins. Co., 547 F.2d 11, 12 (2d Cir. 1976). The Fifth Circuit addressed one such situation, explaining: As has been recognized in other circuits, it would appear that all risks insurance arose for the very purpose of protecting the insured in those cases where difficulties of logical explanation or some mystery surround the (loss of or damage to) property. It would seem to be inconsistent with the broad protective purposes of “all risks” insurance to impose on the insured . . . the burden of proving the precise cause of the loss or damage. It is not surprising, therefore, that courts which have considered claims under insurance policies with essentially the same insuring language as the policy before us have consistently refused to require the insured to demonstrate that the loss or damage was occasioned by an external cause. We similarly refuse to impose such a burden in this case. 26 INGENCO HOLDINGS V. ACE AMER. INS. CO. Morrison Grain Co. v. Utica Mut. Ins. Co., 632 F.2d 424, 430 (5th Cir. 1980). Although we find this reasoning persuasive, the Washington Supreme Court has not spoken on the issue. We need not predict, however, whether the Washington Supreme Court would read “external cause” policy language to require an insured to make a separate showing of external causation. Even assuming that the Washington Supreme Court would, unlike the Morrison Grain court, require an insured to show not only a fortuitous loss, but also an “external cause” in the all risks context, and would adopt the Standard Structural Steel definition of “external cause” as dependent on whether resulting damage arises “wholly from an inherent defect in the subject matter,” there nevertheless remains a triable issue of fact here.15 Standard Structural Steel, 597 F. Supp. at 191. As an initial matter, the district court appears to have conflated, or at the very least applied, two different definitions of “external cause.” To the extent that the district court concluded that “the incoming landfill gas was necessary and internal to the gas purification system,” it appears to have applied a plain and ordinary meaning of “external.” Whether it did so correctly is debatable. On the one hand, landfill gas was certainly essential to the operation of the Cedar Hills facility. At the same time, however, landfill gas was not an 15 Although we refrain from concluding that the Washington Supreme Court would follow a Morrison Grain-like approach, neither do we suggest that the court would adopt the Standard Structural Steel court’s view of external causation. To the contrary, although the Washington Supreme Court has not addressed the precise issue, it has, in the all risks context, suggested that an external cause can exist even in circumstances involving latent defects. See Dickson v. U.S. Fid. & Guar. Co., 77 Wash. 2d 785, 793–94 (1970). INGENCO HOLDINGS V. ACE AMER. INS. CO. 27 essential component of the facility or of the machinery itself, which existed before the first inflow of gas was ever piped in.16 Furthermore, although the landfill gas indisputably “arose” from outside the insured facility, whether it “acted” internally or externally depends on whether the borders of the insured subject matter begin at the property line or at the edge of the pressure vessel.17 These conflicts are difficult to resolve on the record before us, and perhaps, more than anything, illustrate the advantages of avoiding the “external cause” question altogether. See Morrison Grain, 632 F.2d at 430. The district court also, however, applied the Standard Structural Steel definition of “external cause,” concluding that because there was an inherent problem in the gas purification system, “the landfill gas was not an external cause.” See Standard Structural Steel, 597 F. Supp. at 193. The district court based that conclusion on its determination that because the purification system, and in particular the diffuser basket, was (1) designed to withstand landfill gas and (2) failed to do so, it must have suffered from an inherent defect. This logic, which Ace essentially reiterates on appeal, is difficult to square, particularly in the all 16 Indeed, King County, which controls the Cedar Hills landfill, has the ability to completely shut down the inflow of gas. 17 Ingenco’s argument that the object of the insurance claim, which in this case is limited to the diffuser beads, defines the physical borders relevant to an externality inquiry is not persuasive. Although Ingenco argues that Ace’s characterization of the subject matter of the policy is so comprehensive as to render any damage “internal,” Ingenco’s characterization is no less extreme, being so fine-grained as to render virtually any damage to any particular component, such as adsorbent beads, “external.” 28 INGENCO HOLDINGS V. ACE AMER. INS. CO. risks context. Although, in general, system failures of any kind can conceivably result from an inherent defect, so too might failures occur for some other, justifiably unexpected reason. See, e.g., City of Burlington, 332 F.3d at 49 (“[I]n hindsight[, ] structural defects might appear inevitable, . . . [but] an intrinsically caused loss may be just as unexpected as an extrinsically caused one.”); Morrison Grain, 632 F.2d at 430 (“[A]ll risks insurance arose for the very purpose of protecting the insured in those cases where difficulties of logical explanation or some mystery surround the (loss of or damage to) property.”). Even putting that logic aside, the district court’s conclusion that an inherent defect, and therefore an internal cause, was responsible for Ingenco’s losses fails to account for material evidence and, indeed, is inconsistent with the district court’s own determinations. The district court stated that the V32 diffuser basket was “not necessarily defective,” and acknowledged that Ingenco presented “some evidence that the [diffuser] basket may not have been defectively designed.” This observation is impossible to reconcile with the district court’s conclusion on summary judgment that an inherent defect nevertheless existed. Ingenco’s expert opined not only that resonant vibrations caused the V32 shield failure, but also that such failure was rare, that the vibrations were unforeseeable and, perhaps for that reason, that the relevant design codes do not require testing for resonant vibrations. Although Ace’s experts certainly disagree, that genuine dispute of fact is material to the questions whether (1) the gas purification system, or V32’s diffuser basket and its adsorbent beads, did, in fact, suffer from an inherent defect and (2) accordingly, whether the cause of Ingenco’s loss was internal or external. INGENCO HOLDINGS V. ACE AMER. INS. CO. 29 We therefore conclude that the district court’s grant of summary judgment to Ace on the question of whether Ingenco’s loss was the result of an “external cause” must be reversed. The district court, and to some extent, the parties, failed to consider the role of fortuity in all risks insurance disputes. There is, at least, a dispute of fact as to whether Ingenco’s loss here was fortuitous. We take no position at this juncture on the question whether the Washington Supreme Court would require a separate showing of external causation. Even assuming, however, that Ingenco must make such a showing, and even assuming that “external cause” is coterminous with “inherent defect,” there is a triable issue of fact as to whether Ingenco’s purification system, and/or its components, suffered from such a flaw.