‘Known loss’ coverage defense reinforced

(Continued - Page 2)

The insurers argued that a federal case decided under Washington law, Time Oil Co. v. Cigna Prop. & Cas. Ins. Co., 743 F. Supp. 1400 (W.D. Wash. 1990), governed. The Time Oil court held that a risk was known to the insured, and therefore not an unexpected occurrence, when the insured received notice that indicated a "substantial probability" that the loss would occur. Overton argued that Time Oil did not apply because that case involved an official EPA notice, whereas here, only a private party made the demand. The Supreme Court disagreed, holding, "The dispositive issue is not how the insured was notified of property damage, but whether the insured had notice prior to purchasing the policy."

Spokane Transformer and Overton next argued that because the insurance policies protected against liability to third parties, and the Gisselbergs did not make claim against them until after issuance of the policies, the risk of loss was not previously known to them. The harm insured against, they argued, was not the harmful event itself but their legal obligation to pay for damages as a result of that event.

The Court of Appeals agreed with this reasoning, but the Supreme Court did not. The Supreme Court noted that the policies required not just damages (the Gisselbergs’ attempt to recover money) but also "property damage" (the contamination). The policies defined the latter term as requiring physical injury to, or loss of use of, tangible property.

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