Alabama Puts The Mystery Back Into All-Risk Coverage

Carlton Fields
Contact

“There is, one knows not what sweet mystery about this sea …”

Moby-Dick

Insuring property against loss creates an unavoidable moral hazard: policyholders often have an incentive to cause or allow their property to disappear. Early efforts to limit insurers’ exposure to that risk—such as requiring the insured to prove the cause of a loss by “direct and affirmative evidence”—proved unsustainable. Eventually, the problem gave rise to express exclusions for losses caused by “mysterious disappearance”—but even these have had only mixed success in keeping suspect claims from reaching a jury. Earlier this year, in St. Paul Fire & Marine Ins. Co. v. Britt, No. 1140423 (Ala. Jan. 29, 2016), the Supreme Court of Alabama refused to join the ranks of the disenchanted, and it gave some important ammunition to insurers. In a case of first impression, the court affirmed an award of summary judgment, finding that some things in life really are mysterious—as a matter of law.

The Case of the Mysterious Disappearance Exclusion

The concept of “mysterious disappearance” originated in theft policies. In the early Twentieth Century, policyholders making claims under theft policies bore the burden of proving that the insured property had been “feloniously taken,” but insurers established differing rules for how policyholders could satisfy that burden. Under many policies, the burden could be met only by “direct and affirmative evidence.” A showing that the property had vanished—that is, purely circumstantial evidence of theft—was not sufficient. E.g., Schindler v. U.S. Fid. & Guar. Co., 109 N.Y. Supp. 723 (App. Term 1908).

In 1943, responding to customer dissatisfaction, insurers began inserting language into those policies, to the effect that any “mysterious disappearance” of property would be “presumed to be due to theft.” This language was not intended to expand the scope of coverage, but, rather, only to lessen the evidentiary burden of policyholders whose property had been stolen. See Davis v. St. Paul Mercury & Indem. Co., 40 S.E.2d 609 (N.Car. 1946).

The practical effects of the new language included considerable litigation over how strong the “presumption” of theft should be considered, and what kind of evidence was necessary to rebut it. Thus, in 1956, insurers abandoned the presumption approach and, for the first time, made “mysterious disappearance” a distinct category of insured peril. That is, insurers promised to pay for “loss by theft … or mysterious disappearance,” or they included “mysterious disappearance” within the definition of “theft.” Courts enforced those promises, even where there was no evidence suggesting that the lost property had been stolen. E.g., Englehart v. Assurance Co. of America, 139 So. 2d 108 (La. App. 1962) (insured’s ring disappeared from atop a dresser in his daughter’s home).

The mysterious disappearance concept also migrated from theft polices to marine policies, which insure against the perils of the sea. Courts routinely recognize that, absent a specific exclusion, “all risk” marine insurance policies cover the mysterious disappearance or fortuitous loss of an insured vessel. For this reason, standard inland marine “all-risk” insurance policies often try to limit moral hazard, by incorporating mysterious disappearance exclusions.

Exclusions, however, must be narrowly construed, and some courts have not been generous. In Davis v. St. Paul Mercury, supra, which interpreted the original mysterious disappearance clause, the court provided a definition of “mysterious disappearance” that would be widely accepted. It found that a “mysterious disappearance” is

any disappearance or loss under unknown, puzzling, or baffling circumstances, which are difficult to understand.

Some cases applying mysterious disappearance exclusions follow this broad approach. They hold that coverage is excluded “in situations where no single theory can sufficiently explain the claimed loss.” Trademark Plastics Corp. v. Hartford Fire Ins. Co., No. 13-5039 (D.N.J. March 31, 2015). See also C.T.S.C. Boston, Inc. v. Continental Ins. Co, 25 Fed. Appx. 320 (6th Cir. 2001).

But other courts are much more severe. In Nussbaum Diamonds, LLC v. Hanover Ins. Co., 838 N.Y.S.2d 509 (1st Dep’t 2009), a New York appellate court held that a mysterious disappearance exclusion could apply only if

there was no plausible explanation for the loss of [the insured’s property].

On that basis, the court affirmed a ruling that denied the insurer’s motion for summary judgment. See also Lovas v. St. Paul Ins. Co., 240 N.W.2d 53 (N.D. 1976) (where theft was one plausible explanation for the disappearance of 79 hogs, even if the manner of the theft could not be explained, verdict that the loss was outside the scope of the exclusion would not be overturned,).

The Mystery of the Vanishing Debtor

In 2004, Michael Britt bought a Beneteau sailboat and insured it with St. Paul Fire & Marine Insurance Co. The policy provided coverage up to $85,000 for accidental direct physical loss or damage to the boat. Mr. Britt used the boat as his principal residence for the next seven years.

In September 2011, Mr. Britt telephoned his father to say he had landed a job as a commercial trucker. He planned to sail his boat from West Palm Beach, Florida, to Jacksonville, and store it there while he drove to Oklahoma City for his training.

Mr. Britt set sail from West Palm Beach on September 11, 2011. Four days later, members of the U.S. Coast Guard boarded the boat, off the coast of Cape Canaveral, for a “cold hit” inspection. They found it to be seaworthy. On the same day, Mr. Britt called his father again, to say that calm weather would delay his arrival in Jacksonville. He promised to call when he arrived in the capital city, but he never did. Neither he nor the boat was ever seen again.

The Coast Guard investigated the disappearance, but it discovered little more than that Mr. Britt last used his cell phone on September 17, 2011—two days after his last call to his father. Mr. Britt placed that call to call a debt-collection agency that had a lien on the sailboat. The Coast Guard determined that, when he made that call, Mr. Britt was traveling in a southerly direction. That course would have taken the boat away from Jacksonville—but into the Bermuda Triangle—where they practically invented mysterious disappearance.

Gone – But Still Insured

In February 2012, Michael Britt’s father, Willis Britt, was appointed conservator of his son’s estate, and, in that capacity, filed a claim with St. Paul for the lost sailboat. St. Paul denied the claim, asserting that the loss fell within the following exclusion:

We will not provide … Coverage for any loss or damage caused by or resulting from … mysterious disappearance ….

The elder Mr. Britt brought an action in state court in Alabama, seeking coverage and damages for bad faith. The trial court awarded summary judgment to the insured, in the amount of $74,950, and St. Paul appealed to the Supreme Court of Alabama.

In response to the appeal, the plaintiff conservator argued that the loss of the sailboat was precisely the kind of loss that “all risk” policies are designed to cover. He contended that his burden was merely to show that the loss was fortuitous—that is, that it had been caused by a chance event, outside the insured’s control, and was not an ordinary and likely consequence of using a sailboat—and he argued that the circumstantial evidence in this case satisfied that burden.

He further argued that St. Paul was impermissibly attempting to shift to the insured the burden of proving that the loss had not been a mysterious disappearance. On the contrary, he argued, it was the insurer who—like the insurer in Nussbaum Diamonds, supra—bore the burden of showing that there was no plausible explanation for the loss of the boat.

Noting that Alabama courts had not previously construed an insurance policy containing a mysterious disappearance clause, the Supreme Court determined that the exclusion in this case was not ambiguous, and it declined to construe the language in favor of the insured. It also rejected an argument that the exclusion should be construed more narrowly in an “all risk” policy than in a theft policy. Since it found that the phrase “mysterious disappearance” is not ambiguous, the court could “see no reason why the common, everyday meaning of the phrase … should vary depending on” the scope of the policy’s coverage.

The court appeared to find that the “common, everyday meaning” of the phrase is the one that Mr. Britt proposed—i.e., an event for which there is not even one plausible explanation:

If … there is evidence to support a logical inference as to what happened to the insured property, even though that evidence is inconclusive, a person of ordinary intelligence would not find the circumstances so ‘unknown, puzzling[,] or baffling” as to determine that the disappearance … was inexplicable.

Still, the court found that the insurer in this case had “carried the burden of showing that the circumstances surrounding the loss of the sailboat brought the loss within … the mysterious-disappearance exclusion”—in other words, that there was no “logical inference” explaining the boat’s disappearance that the available evidence would support. It observed that there was no shortage of speculation as to what happened to the sailboat, but it found that the evidence did not point to any of the available theories.

In other words, it was not enough—as it had been in Nussbaum Diamonds—for the insured to show that the circumstantial evidence rendered “plausible” at least one explanation for the loss. In Britt, the court held that there must be some affirmative evidence in support of at least one such explanation. Although it did not say so explicitly, the court appeared to have concluded that circumstantial evidence that plausibly supports a possible explanation is insufficient to take a loss out of the exclusion:

“There is no shortage of speculation as to what happened to the sailboat. Michael’s mother … stated … that the disappearance … could be attributed to a rogue Coast Guard employee who alerted drug traffickers to the presence of a single-passenger sailboat in the Atlantic; to modern pirates; or to the jet stream carrying the sailboat to Iceland or Ireland. … [The elder Mr.] Britt stated that he believed the sailboat was on the bottom of the Atlantic Ocean … . [A] close friend of Michael’s … believed Michael ‘just wanted to disappear is and likely living somewhere aboard [the sailboat] ad purposely ‘got lost.’

[A]ny of the speculations put forth by Michael’s family and friends are just that – speculations. There is no evidence in the record to support any theory as to what happened to the sailboat.

Summing up these considerations, the court concluded:

If the undisputed facts in this case do not constitute a mysterious disappearance, then this Court is at a loss as to what facts would.

Who Knows?

Reading between the lines, it is possible to conclude that the justices actually believed they had solved the mystery of the sailboat’s disappearance—and that they were disinclined to reward the boat’s owner for fleeing his creditors. It is at least arguable, after all, that the fact of Michael Britt’s having changed his course at about the same time he spoke with the boat’s lienholder is more than merely circumstantial evidence. Be that as it may, the court’s ruling sets a precedent, showing that mysterious disappearance exclusions can have real impact.

In Science as a Vocation, Max Weber wrote about the “disenchantment” of the world, declaring:

[I]ncreasing intellectualization and rationalization … means that principally there are no mysterious incalculable forces that come into play, but rather that one can, in principle, master all things by calculation.

Alabama has struck a blow against this trend.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Carlton Fields | Attorney Advertising

Written by:

Carlton Fields
Contact
more
less

Carlton Fields on:

Readers' Choice 2017
Reporters on Deadline

Related Case Law

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.