Have you ever decided against purchasing insurance and then suddenly the insurance you should have purchased would have come in handy? The thought that runs through most people’s head is “hey, maybe I can apply for insurance and have it in time before my car finally kicks the dust or before my new iPhone stops working after it took a plunge in the toilet.” However, what most people do not realize is that a loss that is known to an applicant prior to a policy’s inception is not covered.
“[L]osses which exist at the time of the insuring agreement, or which are so probable or imminent that there is insufficient ‘risk’ being transferred between the insured and insurer, are not proper subjects of insurance.” 7 Lee R. Russ in consultation with Thomas F. Segalla, Couch on Insurance § 102:8 (3d ed. 2011); see, e.g, Interstate Fire & Cas. Co. v. Abernathy, 93 So. 3d 352, 360 (Fla. 1st DCA 2012) (holding that there was no coverage under a policy when the insured knew at the time it applied for coverage that an injury had occurred four days prior to seeking coverage); Keenan Hopkins Schmidt & Stowell Contractors, Inc. v. Cont’l Cas. Co., 653 F. Supp. 2d 1255, 1272 (M.D. Fla. 2009) (“[t]he ‘known-loss’ endorsement in the Policy relieves Continental from any liability for any amounts arising out of the ‘property damage’ of which Disney was aware prior to 2000, before the inception of any policy of insurance issued by Continental to Keenan.”).
These types of losses are barred from coverage under the “known loss” provision, which is found in the insuring agreement of insurance contracts and serves to prevent coverage for losses that the insured becomes aware of prior to the inception of the policy period. See, e.g., Arnett v. Mid-Continent Cas. Co., No. 8:08-CV-2373-T-27EAJ, 2010 WL 2821981, at *4 (M.D. Fla. July 16, 2010) (finding that construction defects causing stucco cracking and leaking windows were excluded from coverage where the general contractor was aware of the loss prior to a renewal of the policy).
The Arnett case explains in detail how some damages could be “known losses,” and therefore precluded from coverage, and how some are not. The following passages from the Arnett case walk through the analysis:
RBC [the insured] does not challenge the insurers’ contention that it was aware of the damage before MCC’s first policy became effective. However, RBC disputes that it had knowledge of any damage before July 13, 2002, when GAIC’s renewal policy became effective. There is evidence that some damages had not manifested, and therefore were not ‘known,’ before the period of GAIC’s renewal policy. The pool de-humidifier was not installed until August 2002. Accordingly, the excessive humidity and moisture damage it caused did not occur until after GAIC’s renewal policy became effective. Similarly, the HVAC system caused damages to manifest after the effective date of GAIC’s renewal policy. These damages do not, therefore, constitute ‘known losses’ under GAIC’s renewal policy.
On the other hand, Rudy Brown testified that the stucco cracked and the windows leaked before the certificate of occupancy was issued on July 11, 2002. The undisputed evidence demonstrates, therefore, that RBC was aware of this damage before GAIC’s renewal policy became effective. Additional stucco cracking and water intrusion damage during later policy periods would constitute a “continuation, change or resumption” of that property damage which, under the policies, would be “deemed to have been known prior to the policy period.”
In sum, RBC has not demonstrated that it was unaware of the damage before the effective dates of MCC’s policies. MCC’s policies therefore afford no coverage for the underlying judgment. As for GAIC’s renewal policy, the known loss clause bars coverage, but only for damages related to leaking windows and stucco cracking. (citations omitted).
As illustrated by the Arnett court and discussed in more detail within the Boran Craig Barber Homes, Inc. v. Mid-Continent Casualty Co. case, an insurer cannot simply allege prior knowledge of damages without a sufficient nexus between the damage the insured is allegedly aware of and the damage that the insurer argues is a “continuation, change or resumption.” Boran Craig Barber Homes, Inc. v. Mid-Continent Cas. Co., No. 2:06-CV-89, 2009 WL 10670850, at *3-4 (M.D. Fla. Feb. 19, 2009) (holding that a genuine issue of material fact existed as to what the insured knew in the instance where the insured believed that the causes of the leaks on a project has been fixed prior to purchasing a policy, thereby alleviating any substantial probability for liability for additional leaks due to the same cause). However, the Arnett case suggests that the insured has the burden to prove lack of prior knowledge of the damage at issue. Arnett v. Mid-Continent Cas. Co., No. 8:08-CV-2373-T-27EAJ, 2010 WL 2821981, at *4 (M.D. Fla. July 16, 2010) (“RBD [the insured] has not demonstrated that it was unaware of the damage before the effective dates of MCC’s policies”).
As such, if there are allegations that an insured had knowledge of damages prior to the inception of a policy and there is a sufficient nexus between the damages, the insured will have to prove that it had no knowledge or was unaware of a substantial probability that it would be liable for such damages.