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Housewares claims that the trial court erred by applying the “known loss” doctrine to its third-party liability insurance policies.  Both parties claim, and our research reveals, that no Indiana court has recognized this doctrine.  Therefore, this is a matter of first impression in Indiana.

The “known loss” doctrine is a common law concept deriving from the fundamental requirement in insurance law that the loss be fortuitous.  Pittston Co. Ultramar America Ltd. v. Allianz Ins. Co. (1997) 3d. Cir., 124 F.3d 508, 516.  Simply put, the known loss doctrine states that one may not obtain insurance for a loss that has already taken place.  Id.  Describing the known loss doctrine, commentators have noted that “losses 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 and Thomas F. Segalla, Couch on Insurance, § 102:8 at 20 (3d ed. 1997).

This principle has been referred to by various names, including “loss in progress,” “known risk,” and “known loss.”2  Russ and Segalla, supra, § 102:8 at 20.  “Loss in progress” refers to the notion that an insurer should not be liable for a loss which was in progress before the insurance took effect.  Id.  Although the term “known loss” has been limited to those situations where a loss has actually occurred, see, e.g., Domtar, Inc. v. Niagara Fire Ins. Co. (1997) Minn., 563 N.W.2d 724, most courts have defined the doctrine to also include losses which are “substantially certain” to occur or which

2  Few courts have defined “known risk,” and we believe it to be a poor label, as all insureds have some knowledge of a risk of loss, otherwise they would have no reason to seek insurance coverage.  See Russ and Segalla, supra, § 102:8 at 21.

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