In the 1921 case of Continental Insurance Company et al. v. United States, Reading Company, et al., the U.S Supreme Court was tasked with determining whether a railroad company could be held liable for damages caused by a fire that started on its property and spread to neighboring lands. The plaintiffs were insurance companies who had paid out claims to policyholders whose properties were damaged in the fire and sought reimbursement from the railroad company under Pennsylvania's "Firespread Statute". This law made railroads responsible for fires originating from their locomotives unless they could prove they took reasonable precautions against such incidents. The court ruled in favor of the defendants (the railroad companies), stating that while it was clear that sparks from one of their locomotives had indeed started a fire on their own land which subsequently spread to adjacent properties, there wasn't sufficient evidence proving negligence or lack thereof precautionary measures taken by them as required by state law. Therefore, according to federal common law principles applicable at that time, without proof of negligence or statutory violation directly causing damage beyond railway premises; railroads couldn't be held accountable.

In the dissenting opinion for Continental Insurance Company et al. v. United States, Reading Company, et al., Justice Holmes disagreed with the majority's decision to hold insurance companies liable for losses incurred by a railroad company during a strike that interrupted its operations. He argued that this was not an insurable risk because it did not involve physical damage or destruction of property but rather resulted from human actions and decisions (i.e., labor disputes). Furthermore, he contended that such risks were too uncertain and unpredictable to be insured against effectively. Therefore, in his view, the insurance policies at issue should not have been interpreted as covering these types of losses.