Indiana Courts Continue to Tweak Insurance Companies’ “Known-Loss Doctrine” Definitions and Scope
Insurance exists because life is full of risk. We pay an insurer a small amount of money to cover the unlikely event that requires an insured to pay a large amount of money. Insurance companies look to turn a profit by taking in more money in insurance premiums than they pay to make an insured person or business whole. Insurance companies are constantly looking for ways out of paying a claim because it goes against the insurance company’s bottom line. Insurance companies also fight hard against fraudulent claims, such as when an insured buys insurance after something bad has already happened. Courts protect insurance companies from these schemes using the “known-loss doctrine.” For example, a homeowner shouldn’t be allowed to buy property insurance while a tree lays, horizontal, in his living room.
However, Indiana courts must look at the scope of this “known-loss doctrine,” and determine who and what should be covered under an insurance policy. Such as, knowing that a tree’s core is rotten, or that someone has slipped and fallen in your store, isn’t enough to void your policy. That’s because you still don’t know, for certain, the tree will fall; and in the case of the slip and fall in your store, you aren’t sure the customer will sue you. According to case law, Indiana courts won’t void your coverage rights unless the loss was “virtually inevitable” before you bought the insurance.
In recent years, insurers have tried to broaden this concept. Many policies now include language stating there is no coverage if, “prior to the policy period,” specified policyholders or employees “knew that the ‘bodily injury’ or ‘property damage’ had occurred, in whole or in part.” In theory, this language protects multistate insurers against varying formulations of known-loss rules. See Travelers Cas. & Sur. Co. v. Neth. Ins. Co., 95 A.3d 1031, 1054 (Conn. 2014). But what’s not clear is how much work this language actually does. The Indiana courts have only looked at this language once. Ind. Ins. Co. v. Kopetsky, 14 N.E.3d 850 (Ind. Ct. App. 2014). But the sum total of their advice has been to “enforce the policy language.”
The problem with that is, insurance policies are notorious for being cryptic and unable to apply to the incalculable number of scenarios that may arise in real life. Therefore, it has been up to Indiana courts to sort this stuff out. Recently, Indiana case law has helped to sort out some of these larger questions, including: What does “injury mean? How much knowledge is required? And what are the consequences of a repair, either before or after knowledge of both a real and certain to occur injury? As you can see, there are tons of ways that these questions can go and we are lucky that we have court systems that are able to rule on these issues impartially. You can read more on these issues here.