Tuesday, April 7, 2009

First Circuit holds that "likely loss" is not a "known loss"

In Employers Reinsurance Corp. v. Globe Newspaper Co., Inc., the United States Court of Appeals for the First Circuit held last month that the known loss doctrine, which I discussed here, here, and here, does not bar coverage for a libel claim against a newspaper that knew a loss was "likely" at the time that it purchased insurance, but not that the loss was "substantially certain."

The Boston Globe ran an article in March 1995 which wrongly stated that Dr. Ayash had countersigned a medicine dosage order that resulted in two patients receiving overdoses. An attorney contacted the Globe on behalf of Dr. Ayash. The Globe printed a correction. Dr. Ayash did not withdraw her demand for damages.

That was the state of affairs when the Globe applied for insurance. In its insurance application the Globe listed past and present litigation but did not list the dispute with Dr. Ayash. The Globe stated in its application that it received many threats from people seeking to have the Globe print more favorable information about them, and that it was difficult to separate the inconsequential threats from the serious ones.

Dr. Ayash subsequently sued the Globe and was awarded more that $2 million in damages.

The United States Court of Appeals held that coverage for the Globe was not barred by the known loss doctrine, stating, "The loss here may have been likely, but it was not substantially certain or known by the Globe to be so when the policy was obtained."

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