First Circuit holds that "likely loss" is not a "known loss"

First Circuit holds that "likely loss" is not a "known loss"

In Employers Reinsurance Corp. v. Globe Newspaper Co., Inc., the United States Court of Appeals for the First Circuit held last month that the known loss doctrine, which I discussed here, here, and here, does not bar coverage for a libel claim against a newspaper that knew a loss was "likely" at the time that it purchased insurance, but not that the loss was "substantially certain."

The Boston Globe ran an article in March 1995 which wrongly stated that Dr. Ayash had countersigned a medicine dosage order that resulted in two patients receiving overdoses. An attorney contacted the Globe on behalf of Dr. Ayash. The Globe printed a correction. Dr. Ayash did not withdraw her demand for damages.

That was the state of affairs when the Globe applied for insurance. In its insurance application the Globe listed past and present litigation but did not list the dispute with Dr. Ayash. The Globe stated in its application that it received many threats from people seeking to have the Globe print more favorable information about them, and that it was difficult to separate the inconsequential threats from the serious ones.

Dr. Ayash subsequently sued the Globe and was awarded more that $2 million in damages.

The United States Court of Appeals held that coverage for the Globe was not barred by the known loss doctrine, stating, "The loss here may have been likely, but it was not substantially certain or known by the Globe to be so when the policy was obtained."

First Circuit holds that "likely loss" is not a "known loss"

How to read an insurance policy: the known loss doctrine, part 3

How to read an insurance policy: the known loss doctrine, part 3

In previous posts I have discussed the known loss doctrine here and here. The insuring agreement typically defines when a loss is deemed to have been known to have occurred as the earliest of when:


--An insured reports a loss to any insurer; or


--An insured receives a written or verbal demand or claim; or

--An insured becomes aware by any other means that a loss has occurred or has begun to occur.


Those definitions are important not only for the known loss doctrine, but also because insureds are required to report losses to their insurers immediately ("as soon as practicable") and their failure to do so could result in denial of coverage for the loss. (I will discuss in a future post when an insurer can get away with denying coverage as a reult of late notice).


Insureds often fear to report claims because the mere reporting of a claim may result in their premiums going up. Although I am not an expert in this subject (and any of you who are should feel free to chime in here), my understanding is that reporting a single potential claim that never materializes into an actual claim typically does not affect premiums. On the other hand, failing to report a potential claim that does materialize could substantially affect your right to insurance coverage for that claim.


The lesson: Report to your insurer any claim as soon as you learn of it.

How to read an insurance policy: the known loss doctrine, part 3