How to read an insurance policy: the known loss doctrine, part 1

The insuring agreement often incorporates the "known loss doctrine," generally with words to the effect that the policy covers "bodily injury or property damage that was not, prior to the policy period, known to have occurred by any insured."


The known loss doctrine is one of the most basic concepts of insurance coverage. Insurance is supposed to be a gamble: You pay $1.00 in premiums now as a gamble against the risk that without the insurance you would have to pay $10.00 in loss (or attorney's fees) in six months. You can play the odds by negotiating premiums against limits. If the premiums become too high vis a vis the chances of the insured event occurring (many people--but not me--say this is the case with disability insurance) or the maximum payout is too low (generally, dental insurance), you choose not to purchase the insurance.


The whole system falls apart if you purchase insurance for a loss you already know has occurred. In law school parlance, the insurance is no longer against a "fortuitous" event.


Litigation around the known loss doctrine predictably concerns what it means to be "known": who knew, what they knew, and when they knew it. The issue frequently comes up in environmental contamination litigation: An insured may argue that although there was some evidence of contamination at the time the policy began, the insured did not know the extent of the contamination. The Supreme Judicial Court of Massachusetts has stated in this context that the only requirement for the loss to be exempt from coverage is that "the insured has evidence of a probable loss when it purchases the policy." SCA Services, Inc. v. Transportation Ins. Co., 419 Mass. 528, 533 (1995).


Another common context for the known loss doctrine is construction defect litigation. Arguments frequently arise about punch lists demonstrating problems such as lack of caulking or other insufficiencies in the building envelope. Insurers argue that those punch lists show that the insured contractor was aware of probable water infiltration into the building, while the insureds argue that the punch list only demonstrated that the contractor had work to do before the job was finished.


In a future post I will discuss how the known loss doctrine applies where the insured knew of the occurrence but did not know that the occurrence could lead to liability.

Massachusetts Superior Court explores definition of "resident of your household"

Massachusetts Lawyers Weekly reports a new Superior Court case in which the court denied summary judgment to an insurer because of a factual dispute about whether the policyholder's brother was a household member. This post is based on the Lawyers Weekly summary as I have not been able to obtain a copy of the decision.

In Hingham Mut. Fire Ins. Co. v. Gee, a tree on the property of the policyholder, Michael Gee, fell on the policyholder's brother, Wan Xing. The policy excluded coverage for bodily injury to "if residents of your household, your relatives."


The insurer argued that Xing was a resident of Gee'shousehold, because the brothers and their families lived in the same apartment. The defendants argued that the brothers and their respective families maintained the apartment as two separate, financially independent households coexisting in a small space.


The court denied summary judgment, holding that there was a dispute of fact regarding Xing's financial dependence on his brother and the two families' day-to-day interactions with each other.

Getting business from insurers

Ryan Belka, an attorney at Cooke Clancy & Gruenthal LLP, emailed this question:

I am aware that insurance companies keep lists of lawyers who handle various matters and generally allocate work accordingly. My question is: as a firm or a lawyer, how do you make it on those lists? Is there a formal application process through the general counsel of the insurance company? Do insurance companies hire boards and panels in order to allocate the work? Do you apply directly to them? Can this information be found?

That's a great question and one that I would love an answer to myself, as I am expanding my own book of business with insurers.

So, for any insurance adjusters or supervisors: How do you find outside counsel? What is the best way for an attorney to get onto your list?

And for any insurance defense attorneys: What strategies have been effective for you in obtaining new business? What have you tried that has not worked?

Extreme sport means sudden death for life insurance

It’s official; if you are into base jumping, deep-sea diving or any other extreme sports, chances are that you are going to have a terribly hard time getting life insurance.
A new report from financial services research firm Cannex found that hobbies involving the sea, the sky or the racetrack can either disqualify potential policy holders from getting cover for trauma, total and permanent disablement or death – or at least make it very expensive.
The head of Cannex adviser services, Stephen Mitchell, says an extreme sport participant’s eligibility for cover will depend on how often they participate and the nature of their participation.
“If you are part of a 10-man crew in the Sydney to Hobart yacht race, death and trauma cover are standard, but if you are a lone sailor, trauma cover is out and you will only get death cover if you pay a hefty premium loading,” he says.
“The difference is in perception of risk by the insurer, who would argue that a bigger crew should mean more help at hand in an emergency. There is also the thinking that a yacht requiring such a crew would be more expensive and the crew more likely to be proficient.”
Cannex recently rated all product premiums according to gender and across four common occupation categories; professional, white collar/clerical, light manual/retail and blue collar.