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were a “substantial probability.”  Russ and Segalla, supra, § 102:8 at 21.  Despite some differences between the various labels used, we agree with the Illinois Supreme Court, which noted that the term “‘known loss’ most adequately describes the doctrine.”  Outboard Marine Corp. v. Liberty Mut. Ins. Co. (1992) Ill., 607 N.E.2d 1204, 1209-10.  Therefore, we will use the term “known loss” to encompass the fortuity principle.

General Application of the Known Loss Doctrine

Although the known loss doctrine is recognized by many jurisdictions, there is some disagreement as to how the doctrine should be applied.  Some courts have required actual knowledge on the part of the insured.  United States Liab. Ins. Co. v. Selman (1995) 1st Cir., 70 F.3d 684.  Other courts have been less stringent and have required only a “reason to know,” or “evidence of probable loss,” or determined whether a “reasonably prudent” insured would know that the loss is highly likely to occur.  Missouri Pac. R.R. v. American Home Assur. Co. (1997) Ill.App., 675 N.E.2d 1378; Outboard Marine, supra, 607 N.E.2d 1204; Carter Lake v. Aetna Cas. and Sur. Co. (1979) 8th Cir., 604 F.2d 1052.  

In the present case, both parties suggest that the known loss doctrine should depend upon a party’s actual knowledge.  We agree.  The very term “known loss” indicates that actual knowledge upon behalf of the insured is required before the doctrine will apply.3  This is ordinarily a question of fact.  See Russ and Segalla, supra, §102:8 at 24.

3  However, when determining a party’s actual knowledge, courts should keep in mind that a party may not intentionally turn a blind eye in order to avoid application of the known loss doctrine.

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