In a previous post, the so-called shorthand 'doctrine' of 'known loss' was explored in case law that found little or no support for it in the Insurance Policy at hand.
In contrast, a United States District Judge explored "known loss" by looking at the actual language in the Insurance Policy in Download Westport Insurance Corp. v. Law Offices of Gerald J. Lindor, P.A. (S.D. Fla. Opinion Filed March 18, 2009). The case is as topical as today's news.
In Westport, the Policyholder attorney and law firm were accused of misappropriating certain loan closing funds. The claim against them was made by ex-clients, who alleged that the Insureds misappropriated funds from their trust account over time that were intended to pay off the clients' loan. According to the District Court, in a separate proceeding before the Florida Supreme Court for disbarment, the Policyholder attorney "stated that he manipulated and misappropriated client funds totaling approximately three million dollars, and that such transgressions were ongoing over the course of the preceding ten years." Download Westport Insurance Corp. v. Law Offices of Gerald J. Lindor, P.A. (S.D. Fla. Opinion Filed March 18, 2009), attached Official Slipsheet Opinion at 2. The Insureds' malpractice carrier, Westport, filed a Declaratory Judgment Action that as a result it had no duty to defend or indemnify the Insureds in this matter.
The District Judge granted Westport's Motion for Summary Judgment. In part, the District Court based its ruling on a standard provision in the Policy that excluded all Coverage for:
any claim based upon, arising out of, attributable to, or directly or indirectly resulting from ... any wrongful act occurring prior to the effective date ... if the Insured at the effective date knew or could have reasonably foreseen that such wrongful act might be expected to be the basis of a claim ....
See Download Westport Insurance Corp. v. Law Offices of Gerald J. Lindor, P.A. (S.D. Fla. Opinion Filed March 18, 2009), at 5. Although both the Insurance Company and the Federal Court referred to this provision in shorthand as a "known loss" provision, see Download Westport Insurance Corp. v. Law Offices of Gerald J. Lindor, P.A. (S.D. Fla. Opinion Filed March 18, 2009) at 2 and 5, the Insurance Company sought Summary Judgment and the District Court granted the motion in pertinent part because the quoted provision is in the Policy and not the other way around, i.e., on the basis instead of some supposed 'doctrine' of 'known loss' which is NOT in the Insurance Policy. Download Westport Insurance Corp. v. Law Offices of Gerald J. Lindor, P.A. (S.D. Fla. Opinion Filed March 18, 2009), at 5.
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