Shipper denied claim for hijacked cargo under 'known loss' clause
Freight forwarder ITN Consolidators was denied an insurance claim for a hijacked cargo shipment when a US Court of Appeals applied the "known loss doctrine", arguing that the company was aware of the theft before seeking coverage from insurer Northern Marine Underwriters. The court heard that ITN had taken out an open cover policy with NMU but found it hadn't covered the the lost shipment. It then filled in a coverage form and claimed for the loss, which NMU denied. The court said the case touched on public policy as the doctrine existed to protect insured parties from insolvent insurers. 
In I.T.N. Consolidators Inc v Northern Marine Underwriters Ltd, 2017 WL 2804888 (11th Cir. June 28, 2017), the US Court of Appeals for the Eleventh Circuit applied the “known loss doctrine” to deny coverage for a hijacked cargo shipment that was known by the policyholder to be lost prior to purchasing the insurance coverage, report Jason P Minkin and Brian J Watson of BatesCarey LLP in Chicago.

Northern Marine sold an open cover policy to freight forwarder ITN, and under the policy ITN could insure as many or as few cargo shipments as it chose.

In November 2007 ITN learned that it failed to obtain insurance coverage for a shipment that had been hijacked. After the hijacking, ITN filed a standard form to obtain coverage for the shipment under the open policy, and then filed a claim for coverage, which Northern Marine denied. In response, ITN filed suit against Northern Marine in federal court in Florida.

The district court granted summary judgment to Northern Marine, holding that the open cover policy did not cover known losses, such as the one at issue here. ITN appealed. On initial review, the appellate court agreed that the open cover policy did not cover known losses, but remanded the case to the district court to consider whether a new contract had been formed whereby Northern Marine agreed to insure the known loss in exchange for some new consideration.

On remand, the district court entered summary judgment for ITN, finding that ITN’s payment of premium after it learned of the hijacking constituted an offer to enter a new insurance contract that covered the known loss, which Northern Marine accepted by retaining the premium and continuing to do business with ITN after the claim.

Northern Marine appealed, arguing that, under new case law reflecting a change in Florida law prohibiting coverage for known losses as against public policy, there was no coverage for the hijacked shipment. The appellate court agreed, explaining that insurance necessarily involves contingencies such that the payment of a non-contingent loss is contrary to the very concept of insurance.

The appellate court pointed out that there was a public policy of protecting the public from insolvent insurers. The rule against insuring a known loss was part of that public policy, because such insurance contracts risk the solvency of the insurer. Contracts to insure against the known loss were, the appellate court said, against public policy regardless of whether an insurer knows about the loss before it agrees to the contract. Accordingly it was ruled that the policy in this case was unenforceable as a matter of Florida public policy. http://www.batescarey.com/