First Circuit, Applying Massachusetts Law, Rules that Coverage is not Precluded Under the Known Loss Ruling
| March 24, 2009
| Insurance & Reinsurance Group
The US Court of Appeals for the First Circuit ruled that the “known loss” doctrine under Massachusetts law did not preclude coverage where, before a communication liability policy's inception date, a newspaper published articles that were the basis for a libel claim filed after the policy incepted, and where plaintiff requested damages before policy inception, because liability was not substantially certain at the time of policy inception. This means that a company may still be covered even if a request for damages and the actions in question occurred before the inception of an insurance policy.
The Boston Globe sustained a libel judgment for statements made, in part, in articles that predated coverage with Employers in Employers Reinsurance Corp v. Globe Newspaper Co, Inc. The plaintiff in the libel action requested damages before the Employers policy incepted, but filed suit only after the Globe published an additional article after the start of the policy period.
The First Circuit’s Ruling
- The First Circuit held that the “known loss” doctrine under Massachusetts law did not preclude coverage because, as of the inception date, liability was neither known to the Globe nor substantially certain. The Court reaffirmed the standard articulated in United States Liab Ins Co v. Selman that the “known loss” doctrine precludes coverage where “a specific loss has already happened or is substantially certain to happen.”
- The Court held that liability was not substantially certain as of the policy inception date because no suit had been filed, and even if one had been brought, liability was not certain. The Court noted that libel judgments formed “a class of contingent risks that are part of newspapers’ ongoing business.” The Court contrasted SCA Servs Inc v. Transportation Ins Co, which precluded coverage under the “known loss” doctrine, where the policy was obtained after a court ruled that the town waste disposal site was a nuisance, and liability was virtually certain after the nuisance finding.
- The First Circuit vacated the district court’s order denying coverage based on the known loss doctrine, and remanded for further proceedings.
The Court ruled that liability was not substantially certain for purposes of the known loss doctrine even where it stemmed, in part, from pre-inception conduct of the insured, and where the insured received a pre-inception request for damages based on that conduct. Thus, the consequences of a company’s pre-inception actions may still be covered under a policy.