9 N.Y.3d 928 (2007)

The “known loss” doctrine precludes insurance coverage where the insured is aware of a loss before obtaining insurance that is substantially certain to occur.

Summary

This case addresses the application of the “known loss” doctrine in the context of insurance coverage for asbestos-related liabilities. The New York Court of Appeals affirmed the Appellate Division’s decision, holding that the known loss doctrine barred coverage for Foster Wheeler because it was aware of the likely asbestos liabilities before the relevant insurance policies were purchased. The court reasoned that the insured’s pre-policy awareness of a substantial probability, rather than mere possibility, of future losses triggered the doctrine.

Facts

Foster Wheeler manufactured and sold asbestos-containing products for many years. Before purchasing certain insurance policies, Foster Wheeler was already facing numerous asbestos-related lawsuits and had made significant payments to settle such claims. The insurance policies at issue were purchased after Foster Wheeler was aware of the existing asbestos liabilities. The insurers argued that the “known loss” doctrine should bar coverage because Foster Wheeler knew, before obtaining the insurance, that asbestos-related claims were substantially certain to occur.

Procedural History

The Supreme Court initially ruled in favor of Foster Wheeler, finding that the known loss doctrine did not apply. The Appellate Division reversed, holding that the known loss doctrine barred coverage. The New York Court of Appeals affirmed the Appellate Division’s decision, adopting the reasoning of the lower court.

Issue(s)

Whether the “known loss” doctrine bars insurance coverage when the insured is aware of a substantial probability of future losses before obtaining the insurance policy?

Holding

Yes, because the “known loss” doctrine precludes insurance coverage when the insured is aware of a loss before obtaining insurance that is substantially certain to occur. The Court of Appeals agreed with the Appellate Division that Foster Wheeler’s knowledge of existing asbestos claims and the substantial probability of future claims triggered the application of the known loss doctrine, thus barring insurance coverage.

Court’s Reasoning

The Court of Appeals adopted the reasoning of the Appellate Division, which emphasized the principle that insurance is intended to cover fortuitous events, not certainties. The Appellate Division noted that the known loss doctrine prevents using insurance to cover a loss that the insured knows has already occurred or is substantially certain to occur. The court distinguished between a mere possibility of future losses and a substantial probability, holding that the latter triggers the known loss doctrine. The court emphasized that Foster Wheeler’s prior payments and ongoing litigation regarding asbestos-related claims demonstrated a clear awareness of the substantial likelihood of future liabilities. "[W]here an insured is already aware of a loss at the time a policy is purchased, that loss cannot fairly be considered fortuitous, and, therefore, is uninsurable". The purpose of insurance is to protect against contingent or unknown risks of loss, not to provide coverage for known or probable liabilities.