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Exactly what the insured is required to know before the known loss doctrine will apply must also be determined.  As noted above, there has been no unanimity among courts which have considered this issue.  Russ and Segalla, supra, § 102:8 at 23.  Some courts merely require knowledge of a “substantial probability” of loss.  See, e.g., Outboard Marine, supra, 607 N.E.2d at 1210.  The First Circuit, in Selman, supra, 70 F.3d at 691, adopted a “substantially certain” test.  Although these standards may seem similar, we prefer the language in Selman to that of Outboard Marine.

The term “probability” indicates the presence of contingency and fortuity, the lack of which is the very essence of the known loss doctrine.  Even if there is a probability of loss, there is some insurable risk, and the known loss doctrine should not apply.4  Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawai’i, Ltd. (1994) Haw., 875 P.2d 894, 920.  “Certainty,” on the other hand, refers not to the likelihood of an occurrence, but rather to the inevitability of an occurrence.5  Therefore, a “substantially certain” loss is one that is not only likely to occur, but is virtually inevitable.  The inquiry should be more of temporality than probability—when an event will occur, not whether an event will occur.  We also note that, because the effect of the known loss doctrine is to avoid coverage, the burden of proving that the loss was known is on the party seeking to avoid coverage.  See Sutton v. Roth, Wehrly, Heiny, Inc. (1981) Ind.App., 418 N.E.2d 229, 232 (holding that, in a breach of contract action, defendant has burden of proof on any

4  Indeed, insurance premiums are based upon the likelihood of an occurrence.  If insurers believe the likelihood of a loss is exceptionally high, they may adjust the premium rates accordingly.

5  “Certain” has been defined as “In such a condition or position that failure (to happen or to do a specific thing) is impossible; incapable of failing; destined; sure.”  Webster’s New International Dictionary (2d. ed. 1939).

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