Employers Reinsurance Corp. v. Globe Newspaper Co., Inc., ___ F.3d ___, 2009 WL 709426 (Mass. App. Ct. (1st Cir.) Jan 8, 2009)
Reversing the district court and finding that the known loss doctrine did not bar potential coverage in a libel case, the court reiterates the notion that fortuitous risk is required for coverage even under offense-based “personal and advertising injury” coverage. The first circuit thus reached a result that is inconsistent with a recent Illinois appellate court assertion by Federal, who standing in the policyholder’s shoes, sued Cincinnati Ins. Co.
Cincinnati Ins. Co. v. American Hardware Mfrs. Assoc., Inc., 898 N.E.2d 216, 237-38 (Ill. App. Ct. 2008) (“Federal contends that, if
Cincinnati’s reasoning is correct – that personal and advertising injury coverage does not to the intentional acts of the insured – the coverage would be illusory. . . . Cincinnati has not cited to any cases involving the fortuitous doctrine based on the allegations contained in the counterclaim. . . . Cincinnati has not cited to any cases involving the fortuitous doctrine based on the allegations contained in the underlying counterclaim. Based on the holding in [St. Paul Ins. Co. of Illinois v. Landau, Omahana & Kopka, Ltd., 246 Ill. App. 3d 852, 858 (1993)], the fortuity doctrine does not apply in this case.”).
Clarifying that the fortuity doctrine does not apply on the pertinent facts, absent an adjudication of liability against the insured, the court noted:
Loss in this context surely refers to the loss visited by a judgment (or settlement)-not the loss suffered by the plaintiff. Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London, 449 Mass. 621, 871 N.E.2d 418, 431 (2007) (noting that “Allmerica had knowledge of possible and actual claims ... but not probable or actual losses”). Liability insurance for the Globe is designed to compensate its loss once the Globe's liability is established. Consonantly, coverage for past acts that have not resulted in liability is permissible if the policy so provides.
Id. at *3.
This result is contrary to that reached by courts in Texas, which narrowly construe the “known loss” doctrine as if it were a “known risk” doctrine. This case further evidences the isolated view that Texas courts continue to cling to. See Matagorda Ventures, Inc. v. Travelers Lloyds Ins. Co., 203 F. Supp. 2d 704, 716 (S.D. Tex 2000) (Compounded this confusion regarding the “known risk” doctrine by conflating its analysis with that of the first publication exclusion.)
The court emphasized that a claim that has not resulted in a loss should not preclude a defense under the known loss doctrine absent proof the insured knew “that a specific loss has already happened or is substantially certain to happen.” U.S. Liab. Ins. Co. v. Selman, 70 F.3d 684, 690 (1st Cir.1995) (emphasis added). Id. at *3.
It is hard to see why as a matter of policy the Globe should not be able to obtain insurance for past acts that might lead to liability determinations in due course. This is especially so where the insurance is for a class of contingent risks that are part of newspaper's ongoing business.
Id. at *4.
At issue were articles published effecting a chemotherapy overdose to two breast cancer patients. The court reasoned,
Thus the early 1995 articles had been published when the insurance was procured, but no law suit had been filed, let alone actually adjudicated (and the October article had not even been published). Nor, even if a suit were brought, was liability certain. Here, the SJC found that Ayash was a limited purpose public figure in relation to the overdose, Ayash, 822 N.E.2d at 683, which would have required her to make the heightened actual malice showing to recover.
Id. at *4.
The court intimated that on remand there may be an applicable endorsement that applies since it would bar insurance “not for as known loss but merely when there is notice on the insured’s part, not conveyed to the insurer, of ‘circumstances which would give rise to such claim.’ ”
Id. at *5.
