Fortuity Victims and the Compensation Gap: Re-Envisioning Liability Insurance Coverage for Intentional and Criminal Conduct

Abstract

Intentional and criminal act fortuity clauses are interpreted in a highly inconsistent fashion by courts and litigators, making insurance cases hinging on them costly and unpredictable to litigate. Litigants have also devised creative but costly litigation distortions as workarounds for avoiding the operation of these clauses. This, in turn, has resulted in a large group of injured accident victims who face a compensation gap as a result of courts’ and litigants’ inconsistent fortuity clause interpretation. The population of accident victims within the compensation gap is constantly expanding and contracting with the whims of varying fortuity clause interpretations. These accident victims are “fortuity victims.” This makes finding a solution to this compensation gap doubly problematic for this group of injured accident victims because it is difficult to categorize, at any one time, who will be left uncompensated. While liability insurance does not, and cannot, provide coverage for every loss, there is something slippery about the fact that identically worded fortuity clauses are interpreted to have different effects in different cases, despite remarkably similar factual circumstances in those cases.

Interpreting fortuity clauses in the liability insurance context is unpredictably problematic because the interpretive exercise is affected by the tension between two co-existing purposes of liability insurance: wealth protection and accident compensation. These purposes often cancel each other out, leaving the injured accident victim without compensation – a serious collateral effect. At the same time, because these fortuity clauses target intentional and criminal conduct, there is incentive for improper and misleading introduction of moral concerns into the interpretation. The fortuity clause can morph into a morality clause, with a host of inefficient distortion effects. To avoid these problems, there should be a more consistent interpretive solution which firmly grounds the intentional and criminal act fortuity clauses in fortuity concepts, not morality concepts. This would go a long way to bettering the accident compensation system as a whole by removing the unpredictability about which fortuity victims are left in the compensation gap. Once that occurs, there can then be a more efficient accounting as to where certain societal losses will ultimately lie – with insurers, wrongdoers, or society’s social safety net.

Part I of this article explains how fortuity is fundamental to the insurance relationship. Insurance can only insure against uncertain risks. Part II explains how liability insurance operates within the tort system and introduces the tension between liability insurance’s two often-competing purposes: a wealth protection vehicle for the policyholder and a vital and expected component of society’s accident compensation web. In Part III, the article focuses on two common liability insurance fortuity clauses, the intentional and criminal act fortuity clauses. The problems created by courts’ and litigants’ current interpretation of these fortuity clauses is dealt with in Part IV. Part V explains the causes of these problems, tracing how the historically moral nature of the clauses affects their interpretation in today’s modern insurance world which is focused on risk management, not morality. Part VI introduces an interpretive solution for the intentional and criminal act fortuity clauses. Part VII addresses some possible solutions for redress for those accident victims still left in the liability insurance compensation gap after the solution is applied. Part VIII concludes with a reminder that better predictability and consistency in insurance coverage results can be maintained if fortuity clauses remain grounded in fortuity, not morality.

Keywords: insurance, liability, tort, intentional act, criminal act, insurance coverage, insurance policy