Defeating the “Known Loss” Defense
Under the “Known Loss” Doctrine, an insurer is protected only from risks known to the insured prior to obtaining insurance. Astro Pak Corp. v. Fireman's Fund Ins. Co., 284 N.J. Super. 491, 496, (App.Div.), certif. denied, 143 N.J. 323, (1995). The doctrine has its roots in the prevention of fraud. Id. at 497. Insurance policies are written to protect against uncertainties. "[W]hen they are misused to protect against certainties, fraud results." Ibid. (citing Inland Waters Pollution Control, Inc. v. National Union Fire Ins. Co., 997 F.2d 172, 179 (6th Cir.1993)). In Astro Pak Corp. the Court stated, "[i]f the prevention of fraud is at the heart of [the doctrine], the 'loss' must relate to a known occurrence that would trigger indemnification by the insurer." Id. at 498, 665 A.2d 1113. The Court reasoned that "[o]nly if plaintiff knew that its acts had already subjected it to potential liability because of leakage into the surrounding land, water or air, would the insurers have a claim to a defense." Ibid. In Astro Pak, however, the Court explicitly rejected the view that knowledge of possible event equates with knowledge of an insured claim. Id. at 499, 665 A.2d 1113.
Subsequently, in CPC International, Inc. et al. v. Hartford Accident & Indemnity Company, et al., the Court stated, “that the better rule is that where there is uncertainty about the imposition of liability and no legal obligation to pay yet established, there is an insurable risk for which coverage may be sought under a third party policy." 316 N.J. Super. 351 (1998). See also Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645, 692, 42 Cal. Rptr. 2d 324, 352, 913 P.2d 878, 905-06 (1995) (en banc); Pittston Co. Ultramar Am. Ltd. v. Allianz Ins. Co., 124 F.3d 508, 518 (3d Cir.1997). The CPC Court held that as long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured, and no legal obligation to pay third party claims has been established, that there is a potentially insurable risk for which coverage may be sought in the context of continuous or progressively deteriorating property damage insurable under a third party comprehensive liability policy. CPC International, Inc., 316 N.J. Super. At 378.
In sum, even if you know about an event that occurred (such as an accident or environmental exposure) and did not disclose it while procuring your insurance policy, that does not automatically mean you are not entitled to coverage. Unless you knew of that you would ultimately have liability, you are likely entitled to proceeds under your insurance policy. But, in order to establish this you need experienced legal representation that knows how insurance companies think.
Verp and Leddy does.
