In my insurance law class, I talk in Chapter 2 about the idea of fortunity. It is mostly a theoretical concept. Insurance is intended to provide protection against unknown events that occur in the future. So obviously, the law and common sense dictate that when you buy car insurance after a car accident, the “loss in progress” doctrine will bar coverage.
In Schwartz Manes Ruby & Slovin, L.P.A. v. Monitor Liability Managers, LLC, the 6th Circuit looked at whether or not the insured reasonably could have foreseen that a claim would be made prior to the signing of an insurance policy.
The case involved legal malpractice coverage. The law firm – an Ohio firm – clearly screwed up in defending a lawsuit. The client fired the firm. The new firm asked why the firm failed to appear at the trial, particularly since its file contained a notice for the trial. The law firm did one smart thing: they put their agent on notice who apparently told no one. Then, a new policy of legal malpractice insurance was issued.
The malpractice insurer disclaimed coverage becasue prior to its policy’s inception, the law firm knew it had a motza ball of a potential lawsuit hanging out there.
The trial court and the 6th Circuit found that unambiguous language of the contract excluded any claim arising out of a wrongful act occurring prior to the effective date of the policy if the insured knew or could have reasonably foreseen that such act might be the basis of a potential lawsuit.
You can read the trial court’s ruling here and the 6th Circuit’s opinion here.