Introduction

CGL form and known loss

Montrose decision and the CGL form

Does Montrose alter CGL coverage?

Known loss doctrine

Known loss provision in the CGL insuring agreement

Common law and the Montrose endorsement

Known loss and a non-continuous trigger claim

Notice of bodily injury or property damage to whom and when?

Conclusion

Introduction

Insurance is about one thing—claims. Many other aspects of an insurance company are critical to its success, but the fact remains that they are still only supporting characters. And no discussion about claims can start anywhere but one place—the words contained in the insurance policy, or coverage form. Of course, not all policy forms are equal in their significance. However, in the property-casualty world, there can be little doubt that, at or near the top of the forms food chain are Insurance Services Office, Inc.'s (ISO) commercial general liability coverage form—CG 00 01 and American Association of Insurance Services (AAIS) commercial liability coverage form—GL-200 Ed. 1.0. These two documents are the backbone of liability insurance in America . For a substantial number of policyholders, they set out what is covered (the insuring agreements), what is not (exclusions), for how much (limits of liability), how the parties" relationship shall be governed (conditions) and what certain terms mean (definitions).

Given the significance and prevalence of these forms, and relative infrequency in which they are altered, any change that is made to them is important—even if it will only have relevance for some claims.  But when a change in these forms has the potential to be in play for every claim, regardless of type, it is elephantine.  Such is the case with the latest version of ISO's form CG 00 01 10 01 ("the current CGL form") and AAIS's amendment of form GL-200 Ed. 1.0 with the addition of form GL 09 50 12 99, which contain provisions addressing the concept of "known loss"—that one cannot insure against a loss that has already taken place.i (This article is written based on the ISO CGL form.)

There is nothing new about known loss. Indeed, the idea that one cannot purchase insurance to cover a loss that has already taken place sounds like the "Who's buried in Grant's tomb?" of insurance coverage.  However, until now, known loss is a concept that has only existed implicitly —as a common law doctrine. The current CGL form is the debutante ball for known loss. While its purpose remains the same—to ensure that no one is getting away with buying fire insurance after their building has burned down—the known loss doctrine is now right there in black and white, for all to see, and is no longer "just a legal technicality that makes for good conversation among lawyers." ii

CGL Form and Known Loss

The incorporation of the known loss doctrine into the CGL form could not have been accomplished in a more high-profile manner. It has been given the insurance policy equivalent of page one and above-the-fold placement:  the insuring agreement.  Specifically, the insuring agreement of the CGL form reads, in pertinent part, as follows:

b. This insurance applies to "bodily injury" and "property damage" only if:

(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II – Who is An Insured and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the "bodily injury" or "property damage" had occurred, in whole or in part.  If such a listed insured or authorized "employee" knew, prior to the policy period, that the "bodily injury" or "property damage" occurred, then any continuation, change or resumption of such "bodily injury" or "property damage" during or after the policy period will be deemed to have been known prior to the policy period.

c. "Bodily injury" or "property damage" which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured listed under Paragraph 1. of Section II—Who is an Insured or any "employee" authorized by you to give or receive notice of an "occurrence" or claim, includes any continuation, change or resumption of that "bodily injury" or "property damage" after the end of the policy period.

d. "Bodily injury" or "property damage" will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1. of Section II – Who is an Insured or any "employee" authorized by you to give or receive notice of an "occurrence" or claim:

(1)     Reports all, or any part, of the "bodily injury" or "property damage" to us or any other insurer;

(2)     Receives a written or verbal demand or claim for damages because of the "bodily injury" or "property damage"; or

(3)     Becomes aware by any other means that "bodily injury" or "property damage" has occurred or has begun to occur.

The current CGL form does not alter the long-standing requirement of the insuring agreement that coverage is only available for bodily injury or property damage that is caused by an occurrence that takes place in the coverage territory and occurs during the policy period. It is that last requirement—that bodily injury or property damage must occur during the policy period—that is at the heart of the known loss provision in the CGL form.

In a January 7, 1999 circular, ISO summarized the reason for the known loss amendment to the insuring agreement as follows:

In Montrose Chemical Corporation v. Admiral Insurance Company, 10 Cal. 4th 645, 42 Cal. Rptr. 2d 324, 913 P. 2d 878 (1995), the California Supreme Court held that, given the wording of the Commercial General Liability (CGL) policies involved in the litigation, the known loss rule does not bar liability coverage for claims alleging continuous or progressive injury or damage as long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured.  There are court decisions in other jurisdictions, which have ruled similarly on this issue.iii

In light of the reasoning applied in Montrose and other similar decisions, we are introducing mandatory endorsements, which revise the Insuring Agreement of the CGL policy and other affected General Liability Coverage Parts to address the issue of known injury or damage.iv

For obvious reasons, the known loss provision in the CGL form is being informally called "the Montrose Endorsement." This article examines the California Supreme Court's decision in Montrose, the circumstances that led to the so-named endorsement and whether it alters CGL coverage.