          Case: 15-11939    Date Filed: 01/25/2016   Page: 1 of 13


                                                          [DO NOT PUBLISH]


            IN THE UNITED STATES COURT OF APPEALS

                     FOR THE ELEVENTH CIRCUIT
                       ________________________

                             No. 15-11939
                         Non-Argument Calendar
                       ________________________

                D.C. Docket No. 8:12-cv-02923-VMC-TGW


GREAT LAKES REINSURANCE (UK) PLC,

                                                              Plaintiff-Counter
                                                          Defendant-Appellant,

                                  versus

KAN-DO, INC.,

                                                               Defendant-Counter
                                                                       Claimant,

KAN-DO MARINE RESEARCH & PRODUCTS, INC.,

                                                            Defendant-Counter
                                                            Claimant-Appellee.

                       ________________________

                Appeal from the United States District Court
                    for the Middle District of Florida
                      ________________________

                            (January 25, 2016)
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Before MARTIN, ROSENBAUM, and ANDERSON, Circuit Judges.

PER CURIAM:

       This is a declaratory-judgment action initiated by an insurer, Plaintiff-

Appellant Great Lakes Reinsurance (UK) PLC (“Great Lakes”), against its insured,

Defendant-Appellee Kan-Do Marine Research & Products, Inc. (“Appellee”)1,

asking the district court to declare that the sinking of Appellee’s yacht due to

mechanical failure was not covered by an “all-risk” marine insurance policy. After

denying summary judgment to Great Lakes, the district court entered judgment in

favor of Appellee based upon stipulated facts. The court found that Appellee met

its initial burden of proving a fortuitous loss under the policy and that the policy

exclusion on which Great Lakes relied to avoid coverage was ambiguous. On

appeal, Great Lakes argues that Appellee failed to present evidence showing a

fortuitous loss and that the policy exclusion is not ambiguous. After careful

review, we affirm the district court as to the former ruling but vacate and remand

for further proceedings on the application of the exclusionary provision.

                                              I.

       On November 5, 2012, the Kan-Do, a 51-foot Bluewater Motor Yacht

owned by Appellee, sank in its “home slip” at Port Tarpon Marina in Tarpon

Springs, Florida. The Kan-Do sank due to water intrusion after the bilge-pump

       1
        Kan-Do, Inc., was originally named in the complaint but later changed in district court
proceedings to the “correct” corporate name of Kan-Do Marine Research & Products, Inc.
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system failed, preventing the boat from dewatering. The bilge-pump system, in

turn, failed because of a blown fuse.

      No one knows what caused the fuse to blow. As of October 23, 2012, the

Kan-Do’s bilge-pump system was in good working order. In general, the Kan-Do

was well-maintained.

      When it sank, the Kan-Do was covered by what the parties agree is an “all-

risk” marine insurance policy issued by Great Lakes to Appellee. The policy

provided coverage “for accidental physical loss of, or accidental physical damage

to” the Kan-Do during the policy period (“Coverage A”). The policy does not

define “accidental physical loss.” Appellee filed a claim with Great Lakes based

on the sinking of the Kan-Do. After investigating the facts and circumstances of

the loss, Great Lakes denied the claim.

      Great Lakes then filed this action in the United States District Court for the

Middle District of Florida, pursuant to the court’s admiralty jurisdiction, see 28

U.S.C. § 1333, seeking a declaration that no coverage arising out of the Kan-Do’s

sinking existed under the policy.       In pertinent part, Great Lakes disclaimed

coverage because it concluded that no “accidental” or “fortuitous” loss had

occurred and because an exclusion otherwise barred coverage. Great Lakes relied

on Exclusion “r” to Coverage A, which provided that the policy did not cover

losses for the following: “Damage to the [Kan-Do’s] engines, mechanical and


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electrical parts, unless caused by an accidental external event such as collision,

impact with a fixed or floating object, grounding, stranding, ingestion of foreign

object, lightning strike or fire.”2

       The district court denied Great Lakes summary judgment, and the case was

submitted to the court on stipulated facts. In finding for Appellee, the court issued

two rulings, both of which are challenged by Great Lakes on appeal. First, the

court ruled that the blown fuse, which caused the bilge pumps to fail, was an

accidental or fortuitous event under the policy. Second, the court found that Great

Lakes could not rely on Exclusion r because it was inconsistent with the grant of

coverage and created ambiguity in the policy. The court entered judgment in favor

of Appellee in the amount of $94,960.12. This appeal followed.

                                              II.

       We review a district court’s interpretation of a maritime insurance contract

de novo. St. Paul Fire & Marine Ins. Co. v. Lago Canyon, Inc., 561 F.3d 1181,

1189 n. 17 (11th Cir. 2009). In general, as a reviewing court, we must interpret an

insurance policy so as to give effect to the parties’ reasonable expectations




       2
        Great Lakes initially pled two other grounds for denying coverage: (1) that the loss was
due to wear and tear or gradual deterioration and (2) that the vessel was unseaworthy. Great
Lakes since has withdrawn reliance on these grounds, leaving only Exclusion r at issue in this
appeal.


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regarding the risks and protections to which they agreed. Morrison Grain Co., Inc.

v. Utica Mut. Ins. Co., 632 F.2d 424, 429-30 (5th Cir. 1980). 3

                                             III.

       Under Coverage A of the insurance policy, Great Lakes agreed to “provide

coverage for accidental physical loss of, or accidental physical damage to” the

Kan-Do subject to, among other provisions, any applicable exclusions. The parties

have stipulated that this is an “all-risk” marine insurance policy.

       In broad terms, all-risk insurance policies cover all “fortuitous” losses,

“unless the policy contains a specific provision expressly excluding the loss from

coverage.” Dow Chem. Co. v. Royal Indem. Co., 635 F.2d 379, 386 (5th Cir. Jan.

26, 1981); Goodman v. Fireman’s Fund Ins. Co., 600 F.2d 1040, 1042 (4th Cir.

1979) (“[A]ll risks policies have been construed as covering all losses that are

‘fortuitous.’”). “A fortuitous event . . . is an event which so far as the parties to the

contract are aware, is dependent on chance. It may be beyond the power of any

human being to bring the event to pass; it may be within the control of third

persons; it may even be a past event, as the loss of a vessel, provided that the fact

is unknown to the parties.” Morrison Grain Co., Inc., 632 F.2d at 431 (quoting

Restatement of Contracts § 291, cmt. a (1932)). At the very least, fortuity excludes



       3
        This Court adopted as binding precedent all Fifth Circuit decisions prior to October 1,
1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).
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intentional or fraudulent losses and normal wear and tear. City of Burlington v.

Indem. Ins. Co. of N. Am., 332 F.3d 38, 47-48 (2d Cir. 2003).

      In order to recover under an all-risk insurance policy, the insured must first

show (1) a fortuitous loss (2) that occurred during the policy period. See Banco

Nacional De Nicaragua v. Argonaut Ins. Co., 681 F.2d 1337, 1340 (11th Cir.

1982); see also Morrison Grain Co., 632 F.2d at 429-31. It is undisputed that the

loss occurred during the policy period.      The insured’s burden of showing a

fortuitous loss is “not a particularly onerous one.” Morrison Grain Co., Inc., 632

F.2d at 430. Indeed, we have recognized 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.”

Id. (internal quotation marks omitted). Therefore, the insured need not prove “the

precise cause of the loss or damage” to demonstrate fortuity. Id.

      Once the insured meets the light burden of establishing that a loss occurred

due to some fortuitous event or circumstance, the burden shifts to the insurer to

show that the loss is excluded by some language set out in the policy. See Banco

Nacional De Nicaragua, 681 F.2d at 1340; Morrison Grain Co., Inc., 632 F.2d at

431; Jewelers Mut. Ins. Co. v. Balogh, 272 F.2d 889, 892 (5th Cir. 1959).




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                                        IV.

                   A. Appellee’s Burden of Showing Fortuity

      We affirm the district court’s ruling that Appellee carried its “light” burden

of establishing a fortuitous loss.   Appellee established that the Kan-do sank

because of water intrusion after the bilge-pump system failed and that the bilge-

pump system failed because of a blown fuse. No one knows what caused the fuse

to blow. Appellee also presented evidence that the Kan-Do was well-maintained,

and Great Lakes does not assert in this appeal that the losses were caused by wear

and tear or lack of maintenance. Under these circumstances, the blown fuse is

consistent with an unexplained event that, “so far as the parties are aware, is

dependent on chance.”     Morrison Grain Co., Inc., 632 F.2d at 431 (citation

omitted).

      Great Lakes contends that without any “evidence showing what fortuitous

event caused the fuse to fail” or evidence that the bilge-pump system failed

prematurely, the insured did not meet its burden of showing fortuity because a

court cannot distinguish whether the loss was caused by a fortuitous event or a

non-fortuitous event. We disagree.

      We have long held that requiring insurance claimants to prove the “precise

cause” of loss or damage in order to recover under an “all-risk” insurance policy is

“inconsistent with the broad protective purposes of ‘all risks’ insurance.”


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Morrison Grain Co., 632 F.2d at 430. Under the circumstances here, where Great

Lakes does not contend that the losses were caused by wear and tear or lack of

maintenance, there was no need for Appellee to present evidence on the cause of

the fuse’s failure. It was enough to show that the bilge-pump system’s failure was

caused by a blown fuse.

      Nor did Appellee have to present evidence indicating that the bilge-pump

system failed prematurely. Evidence of a premature mechanical failure may, in

some instances, be persuasive to rebut an insurer’s claim that the loss or damage at

issue was occasioned by normal wear and tear or the lack of appropriate

maintenance rather than by chance. But Great Lakes has withdrawn any reliance

on the policy exclusions for wear and tear or lack of maintenance.

      In sum, we conclude that the district court properly determined that Appellee

met its initial, light burden of establishing a fortuitous loss within the policy

period. Consequently, the burden shifted to the insurer, Great Lakes, to show that

the loss was otherwise excluded under the policy.

              B. Great Lakes’s Burden of Showing an Exclusion

      Great Lakes claims that Exclusion r in the policy applies to preclude

coverage. Exclusion r states that the following is not covered under the policy:

“Damage to the Scheduled Vessel’s engines, mechanical and electrical parts,

unless caused by an accidental external event, such as collision, impact with a


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fixed or floating object, grounding, stranding, ingestion of a foreign object,

lightning strike or fire.” (emphasis added).

       Courts must enforce insurance provisions as written when they are

unambiguous and understandable. Parks Real Estate Purchasing Grp. v. St. Paul

Fire & Marine Ins. Co., 472 F.3d 33, 42 (2d Cir. 2006) (applying New York

insurance law).4 Ambiguity exists in an insurance policy when its terms are

susceptible to different reasonable interpretations. Fireman’s Fund Ins. Co. v.

Tropical Shipping & Constr. Co., Ltd., 254 F.3d 987, 1003 (11th Cir. 2001). “[T]o

negate coverage by virtue of an exclusion, an insurer must establish that the

exclusion is stated in clear and unmistakable language, is subject to no other

reasonable interpretation, and applies in the particular case and that its

interpretation of the exclusion is the only construction that [could] fairly be placed

thereon.” Parks Real Estate Purchasing Grp., 472 F.3d at 42. Any ambiguity is

resolved in favor of the insured. Id. at 42-43; Dow Chemical Co., 635 F.2d at 386.

       Here, the district court concluded that Exclusion r created ambiguity in the

policy because, giving the ordinary meaning to the operative terms in both

Coverage A and Exclusion r—such as “mechanical parts,” “machinery,” and

“equipment”—“many of the same parts of the Kan-Do could reasonably fall under

       4
         As mentioned in footnote 4 above, a choice-of-law provision in the policy provides that
New York law governs unless entrenched principles of admiralty law apply. In any case, the
parties do not suggest that choice of law affects the inquiry into ambiguity or the effect of the
exclusion.
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either Coverage ‘A’ or Exclusion ‘r,’ thus creating ambiguity.” Having found

ambiguity, the court construed the contract against Great Lakes and found that

Exclusion r did not apply to exclude coverage.

      We conclude that the court erred in finding ambiguity based on the fact that

the same terms appeared in both Coverage A and Exclusion r. “[S]imply because

one provision gives a general grant of coverage and another provision limits this

coverage does not mean there is an ambiguity or inconsistency between the two.

This is the very nature of an insurance contract; exclusions in coverage are

expressly intended to modify coverage clauses and to limit their scope.” Ajax

Bldg. Corp. v. Hartford Fire Ins. Co., 358 F.3d 795, 798-99 (11th Cir. 2004); see

also Central Int’l Co. v. Kemper Nat’l Ins. Cos., 202 F.3d 372, 374 (1st Cir. 2000)

(“[U]nder ordinary principles of contract interpretation, there is little doubt that the

exclusion is presumptively a qualification on the risk coverage.”).

      Under the terms of the policy, there is a general grant of coverage for

“accidental physical loss of, or accidental physical damage to the Scheduled

Vessel.” The policy defines “Scheduled Vessel” as the vessel, including the hull,

machinery, electrical equipment, and “all other equipment normally required for

the operation and maintenance of the vessel.” Coverage A states that coverage is

“subject to” certain exclusions, including damage to “engines, mechanical and

electrical parts” unless caused by an “accidental external event.” All told, the


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policy facially provides coverage for “accidental physical damage” to engines and

mechanical and electrical parts only if the damage was caused by an “accidental

external event.”      Put differently, the coverage for engines and mechanical

components appears to be narrower than the general all-risk coverage because it

requires an external cause. Cf. Morrison Grain Co., Inc., 632 F.2d at 430 (stating

that the insured was not required “to demonstrate that the loss or damage was

occasioned by an external cause” to establish fortuity); City of Burlington, 332

F.3d at 48 (noting that many courts have rejected “an implicit external-cause

requirement in all-risk policies”). As a result, we do not find the policy to be

ambiguous for the reason given by the district court.5

       Appellee responds that the policy is ambiguous because “accidental external

event” is not defined in the policy, so it is left with little guidance as to what is

being excluded. So, for example, Appellee asserts, it is arguable whether water

intrusion as a result of the bilge-pump system’s failure qualifies as an “external”

event. Great Lakes replies that water intrusion was not the relevant “cause,” but

rather the blown fuse or the failed bilge-pump system was, neither of which

Appellee contends is an “external event.”            The district court did not address




       5
          Notably, despite the district court’s adoption of its position on ambiguity from the
Appellee below, Appellee does not defend the court’s reasoning on appeal and instead contends
that “accidental external event” is ambiguous, an issue the district court did not reach.
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whether “accidental external event” or other specific terms in the exclusion itself

were ambiguous.

       Although contractual ambiguity is a question of law that we may resolve in

the first instance, we think the better course of action in these circumstances is

simply to vacate the district court’s ruling with respect to Exclusion r and remand

for further proceedings. See Wilkerson v. Grinnell Corp., 270 F.3d 1314, 1322 &

n.4 (11th Cir. 2001) (noting our preference for the district court to address issues in

the first instance). As we understand the exclusionary provision at issue, and as

represented by Great Lakes in its briefing, the scope of the exclusion (the

“Scheduled Vessel’s engines, mechanical and electrical parts”) is narrower than the

extent of the policy’s coverage (the “Scheduled Vessel” itself). Additional fact

finding therefore may be appropriate to determine the extent of damages. Because

further proceedings are required regardless, we leave any arguments respecting

additional sources of ambiguity in the policy for the district court to address in the

first instance.

                                          V.

       In sum, we affirm the district court’s ruling that Appellee established a

fortuitous loss covered by the all-risk marine insurance policy. However, we

vacate the court’s determination that the exclusion on which Great Lakes relied to




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avoid coverage was ambiguous. We remand for further proceedings with respect

to the application of Exclusion r.

      AFFIRMED IN PART; VACATED AND REMANDED IN PART.




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