Duhaime's Law Dictionary


Known Loss Doctrine Definition:

A principle of insurance law which prevents an insured from coverage if the insured knew the loss was probable at the time of the insurance contract.

Referred to as the known loss doctrine and also as the known loss rule.

In Ferguson, Justice Dein  adopted these words:

"The known loss doctrine is based on the premise that the basic purpose of insurance is to protect against fortuitous events and not against known certainties. Parties wager against the occurrence or nonoccurrence of a specified event; the carrier insures against a risk, not a certainty.

"Under the known loss doctrine, the insurable risk is eliminated where an insured knows, when it purchases a policy, that there is a substantial probability that it will suffer or has already suffered a loss. At that point, the risk ceases to be contingent and becomes a probable or known loss....

"The known loss doctrine is to be narrowly construed and only applies when there is actual knowledge that a loss has occurred or is substantially likely to occur."

Similarly, the Supreme Court of Washington, Justice Owens presiding, added this footnote to its judgment in Mutual of Enumclaw:

"Known loss relieves an insurer of liability where the insured had knowledge of the risk or loss prior to the time the policy bound."

REFERENCES:

  • Mutual of Enumclaw Ins. Co. v. USF Ins. Co., 191 P. 3d 866 (Supreme Court of Washington, 2008; footnote #2)
  • Ferguson v. General Star Indemnity Company, 582 F. Supp. 2d 91 (United States District Court, Massachusetts, 2008)

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