Missouri Pacific R.R. Co. v. American Home Assurance Co.

No. 2--96--0523

_________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT
_________________________________________________________________

MISSOURI PACIFIC RAILROAD ) Appeal from the Circuit Court
COMPANY, on its own Behalf and ) of Du Page County.
as Successor in Interest to )
Chicago And Eastern Illinois )
Railroad Company and to Texas )
and Pacific Railway Company )
and their subsidiary and ) No. 94--MR--0198
affiliated companies, )
)
Plaintiff-Appellant, )
)
v. )
)
AMERICAN HOME ASSURANCE COMPANY; )
CENTURY INDEMNITY COMPANY, as )
Successor to Cigna Specialty )
Insurance Company, f/k/a )
California Union Insurance )
Company; EMPLOYERS INSURANCE )
OF WAUSAU; FEDERAL INSURANCE )
COMPANY; FIRST STATE INSURANCE )
COMPANY; GRANITE STATE INSURANCE )
COMPANY; INTERNATIONAL INSURANCE )
COMPANY, Indiv. and as Successor )
to International Surplus Lines )
Insurance Company; LANDMARK )
INSURANCE COMPANY; LEXINGTON )
INSURANCE COMPANY; NATIONAL UNION)
FIRE INSURANCE COMPANY OF PITTS- )
BURGH, PA.; NORTHBROOK EXCESS AND)
SURPLUS INSURANCE COMPANY; STONE-)
WALL INSURANCE COMPANY; TRANS- )
AMERICA INSURANCE COMPANY, n/k/a )
Transamerica Insurance Group; )
TRAVELERS INDEMNITY COMPANY; )
UNIONE ITALIANA REINSURANCE )
COMPANY OF AMERICA; and UNITED )
STATES FIRE INSURANCE COMPANY, ) Honorable
) Bonnie M. Wheaton,
Defendants-Appellees. ) Judge, Presiding.
_________________________________________________________________

JUSTICE COLWELL delivered the opinion of the court:

Plaintiff, Missouri Pacific Railroad Company (Missouri
Pacific), appeals from the trial court's order granting partial
summary judgment. The trial court determined as a matter of law
that as of February 27, 1973, Missouri Pacific was aware of the
substantial likelihood that its employees would file numerous
claims for noise-induced hearing loss (NIHL). Consequently, the
trial court held under the "known loss" doctrine that the defendant
insurance companies (insurers) were not legally obligated to pay
Missouri Pacific's losses arising from any NIHL claims occurring
after February 27, 1973. We reverse and remand with directions.
The record shows that between 1973 and 1985 Missouri Pacific
purchased comprehensive general liability (CGL) policies from the
insurers to cover its liabilities for third-party personal injury
claims. By May 1972 Missouri Pacific had received its first NIHL
claim. NIHL is hearing loss that is caused from the continuous and
repeated exposure to workplace noise. Between 1972 and 1987,
approximately 75 employees filed claims against Missouri Pacific
for NIHL. After January 1, 1987, Missouri Pacific faced about
7,425 employee NIHL claims, which totals 99% of all NIHL claims
filed against Missouri Pacific.
In April 1994, Missouri Pacific filed a declaratory judgment
action, arguing that the defendants were legally obligated to
insure the NIHL claims. On November 6, 1995, the insurers filed a
motion for partial summary judgment. The insurers contended that
the NIHL losses were "uninsurable known loss[es]" as of February
27, 1973.
The insurers argued that a letter dated February 27, 1973,
from John Godfrey, Missouri Pacific's general attorney, to three
other Missouri Pacific officers showed that on that date Missouri
Pacific knew that there was a substantial probability that it would
face a large number of hearing loss claims in the future.
Specifically, the insurers relied on one sentence in Godfrey's
letter, which states:
"From what I have been able to read and learn from discussion
with other claim people, the industrial hearing loss is
definitely going to be one of the big claim areas in the
future."
The insurers contended that this statement demonstrates that NIHL
became an uninsurable known loss as of February 27, 1973, and that
the insurers were not legally obligated to provide coverage for any
losses due to NIHL occurring after this date.
The trial court granted the insurers' motion for partial
summary judgment. The court stated that the Illinois Supreme Court
explained the known loss doctrine in Outboard Marine Corp. v.
Liberty Mutual Insurance Co., 154 Ill. 2d 90 (1992). The trial
court said that Outboard instructed lower courts to determine only
whether the insured had knowledge of a known loss and that it was
therefore irrelevant whether the insurers knew or had reason to
know in 1973 that Missouri Pacific would face numerous NIHL claims
in the future. Accordingly, the trial court determined, the only
question was whether Missouri Pacific knew that NIHL would become
a loss.
Next, the trial court stated that under Outboard a loss
becomes an uninsurable known loss when the insured knew or had
reason to know that a "probable loss or liability would occur." In
applying this legal standard to the facts before it, the trial
court found that the February 27, 1973, letter showed that Missouri
Pacific "had reason to believe that there was a substantial
likelihood of many induced hearing loss claims." Consequently, the
trial court granted the insurers' motion for partial summary
judgment, finding that the insurers were not liable for the NIHL
claims.
On appeal, Missouri Pacific contends that the trial court
erred in determining that NIHL was an uninsurable known loss as of
February 27, 1973. Further, Missouri Pacific argues that the trial
court incorrectly found that the insurers' knowledge of NIHL at the
time they issued the policies is irrelevant. Indeed, Missouri
Pacific contends that the record shows that the insurers knew about
the problem of NIHL, but chose not to exclude coverage for NIHL
when they issued the CGL policies to Missouri Pacific.
Summary judgment is appropriate when there is no genuine issue
as to any material fact and the moving party is entitled to
judgment as a matter of law. Outboard, 154 Ill. 2d at 102.
Summary judgment is a drastic measure and should only be granted if
the movant's right to judgment is clear and free from doubt.
Outboard, 154 Ill. 2d at 102. Therefore, where a reasonable person
can draw divergent inferences from undisputed facts, summary
judgment should be denied. Outboard, 154 Ill. 2d at 102. Finally,
our review of the trial court's entry of summary judgment is de
novo. Monticello Insurance Co. v. Wil-Freds Construction, Inc.,
277 Ill. App. 3d 697, 701 (1996).
First, Missouri Pacific argues that the known loss doctrine
does not apply in this case because the doctrine can only be used
in cases of property damage, not personal injury, and because the
doctrine applies only to duty-to-defend insurance policies, not
indemnity-only policies. We agree with Missouri Pacific that the
majority of courts that have applied the known loss doctrine have
applied it to property damage claims. Moreover, we agree with
Missouri Pacific that in the cases it cites in its brief the
insurance policies at issue were duty-to-defend policies, not
indemnity-only policies. There is nothing in any of these
opinions, or in Outboard, however, that mandates, or even suggests,
that the known loss doctrine cannot be applied to personal injury
claims or to indemnity-only policies. On the contrary, the
Outboard court stated that the insurer in that case "had no duty to
defend or indemnify" the insured against the underlying action.
Outboard, 154 Ill. 2d at 106. Further, the Outboard court did not
distinguish between personal injury and property damage claims.
Accordingly, we find no legal basis for not applying the known loss
doctrine to the case at bar.
In Illinois, the known loss doctrine may be invoked when the
insured "knew or had reason to know *** that there was a
substantial probability that loss or liability would ensue due to
the [conduct] for which it is seeking coverage." Outboard, 154 Ill. 2d at 107. Indeed, it is common knowledge that by its very
nature insurance is based on contingent risks that may or may not
occur. See Outboard, 154 Ill. 2d at 103. When, however, an
insured knows or has reason to know at the time it purchases a CGL
policy that there is a substantial probability that it will suffer
or has already suffered a loss, the risk ceases to be contingent
and becomes a probable or known loss. Outboard, 154 Ill. 2d at
103. Overall, the extent of an insured's knowledge must be
determined on a case-by-case basis. Outboard, 154 Ill. 2d at 104.
In Outboard, the United States Environmental Protection Agency
(EPA) and the State of Illinois brought separate actions against
Outboard Marine Company (OMC) for the discharge of polychlorinated
byphenyls (PCBs) into several bodies of water, including Lake
Michigan. OMC tendered the defense of these actions to its
insurers pursuant to CGL policies. The insurers, however, refused
to defend OMC, alleging that the actions were not covered under the
CGL policies because they were "known risks" to OMC at the time the
policies commenced. In arguing that the actions were a known risk,
the insurers pointed the court to an administrative order the EPA
sent to OMC in February 1976. In pertinent part, the
administrative order stated:
" 'The discharge of PCB's by [OMC] *** presents an imminent
and substantial danger to the health and welfare of persons
living adjacent to and utilizing the waters of Lake Michigan
and threatens the livelihood of persons utilizing the waters
of Lake Michigan for commercial and non-commercial fishing or
other aquacultural and agricultural purposes.' " (Emphasis in
original.) Outboard, 154 Ill. 2d at 104-05.
The Outboard court agreed with the trial court that this order
demonstrated, as a matter of law, that OMC had knowledge that it
would suffer a probable loss from PCB contamination. Accordingly,
the Outboard court affirmed the trial court's grant of summary
judgment, holding that the insurers had no duty to defend or
indemnify OMC against the actions because the policies commenced
after February 1976, at which time OMC had already received the
order.
In this case, the trial court found that Godfrey's letter to
three other officers in the company served the same purpose as the
administrative order in Outboard because it gave Missouri Pacific
knowledge of a substantial probability that NIHL claims would be
made against it. On appeal, Missouri Pacific contends that while
the letter may show that it had knowledge of a risk of NIHL claims
at that time, knowledge of a risk is not equal to knowledge of a
loss. The insurers, however, emphasize that the known loss
doctrine does not require Missouri Pacific to have known the exact
nature and extent of the loss from NIHL, but only that Missouri
Pacific knew of the existence of NIHL and that a loss was probable.
We agree with Missouri Pacific that Godfrey's letter does not
show, as a matter of law, that Missouri Pacific was aware that
there was a substantial probability that NIHL was a loss. Although
the insurers choose to focus on Godfrey's writing that NIHL "is
definitely going to be one of the big claim areas in the future,"
we find that a review of the entire letter demonstrates that
Missouri Pacific was only aware that NIHL would become a problem if
the trend of filing NIHL claims continued. Indeed, Godfrey begins
his letter explaining that "[o]ver the years, we, in the claim
area, have been able to detect trends in certain areas." Godfrey
mentions whiplash and back injuries as examples of claim areas that
he has researched in the past. Then, Godfrey states that "in the
last few years, we see evidence that employees are beginning to
magnify and to make the most of heart attacks and industrial
hearing loss." After explaining that he believed hearing loss
would "definitely be one of the big claim areas in the future,"
Godfrey discusses that after "touch[ing] base" with the safety
department, operating department, and the chief medical officer, he
"hope[s] [Missouri Pacific] can get something started" concerning
a policy of protection regarding hearing guards.
We believe that these statements show that Godfrey's letter
simply related his belief that there would be a trend of employees
filing hearing loss claims in the future. Indeed, a more complete
reading of the letter demonstrates that Godfrey, as Missouri
Pacific's attorney, researched the market for current trends in the
filing of claims, as he had done in the past. During this
research, Godfrey became aware that other railroad employees often
suffered from the loss of hearing and, as the letter states, in his
opinion it appeared that hearing loss claims would definitely be
one of the major claim areas for Missouri Pacific in the future.
Consequently, after discussing the problem with the appropriate
departments, Missouri Pacific should implement a "policy of
protection" to prevent the filing of claims in that area.
We find that such speculation and discussion of a "trend" do
not satisfy the Outboard test of having knowledge of a substantial
probability that a loss will occur. Indeed, while we agree with
the insurers that it is not necessary for Missouri Pacific to have
known how many NIHL claims would be filed against it, or how much
money it would lose from those claims, the known loss doctrine
still requires Missouri Pacific to have known that there was a
substantial probability that loss would ensue due to NIHL. See
Outboard, 154 Ill. 2d at 107. In this case, we find that Godfrey's
letter does not, as a matter of law, meet this standard. Rather,
we find that the letter raises a factual question as to Missouri
Pacific's knowledge.
First, we note that there are two distinctions between
Godfrey's letter and the administrative order in Outboard. The
order in Outboard was given to OMC by a third party--the United
States government. In the case at bar, however, a letter, not an
order, was given to Missouri Pacific. Further, unlike the order in
Outboard, the letter was not from a third party; it was from a
fellow Missouri Pacific employee.
Second, nothing in Godfrey's letter shows that Missouri
Pacific had specific knowledge that it would be facing claims for
hearing loss. On the other hand, the administrative order in
Outboard did undeniably inform OMC that its discharge of PCBs had
resulted in an "imminent and substantial danger" so that there was
no doubt that OMC had knowledge that it would be facing claims for
pollution. In other words, to use the same language as the
Outboard court, Godfrey's letter does not "actually confirm[]" that
hearing loss would occur in Missouri Pacific employees, unlike in
Outboard where the court found that the administrative order
"actually confirm[ed]" that OMC's discharge of PCBs contaminated
the water. See Outboard, 154 Ill. 2d at 105.
Consequently, instead of the administrative order, Godfrey's
letter is similar to other documents in the Outboard case that the
court determined did not demonstrate that OMC had knowledge of a
substantial probability that claims would be made against it for
PCB contamination. On appeal in Outboard, several insurers argued
that various documents that predated the administrative order also
showed that OMC knew that it would suffer a loss due to PCB
contamination. In arguing that it did not know or have reason to
know about the PCB contamination on an earlier date, OMC stated
that, prior to the administrative order, "whenever it became aware
of the possibility that it may have been discharging any pollutants
***, it took steps to divert and remedy any such problem so that a
loss or liability would not arise." (Emphasis in original.)
Outboard, 154 Ill. 2d at 106. Accordingly, OMC contended, even if
it had knowledge of a risk of liability, it did not have knowledge
of a probable loss.
The Outboard court agreed with OMC that the documents that
predated the administrative order did not establish, as a matter of
law, that OMC knew of a substantial probability that claims would
be made against it for PCB contamination. Instead, the court
stated that factual questions existed concerning OMC's knowledge at
the time it purchased those policies which could not be determined
summarily. Outboard, 154 Ill. 2d at 106.
Similarly, we believe that Godfrey's letter and other
documents in the record before us raise factual questions regarding
Missouri Pacific's knowledge of NIHL in 1973 that cannot be
determined summarily. As with OMC in Outboard, the record in this
case shows that when presented with the risk of NIHL claims,
Missouri Pacific took steps to eliminate liability and any possible
loss from NIHL.
For example, a March 1976 letter explains that at one location
Missouri Pacific employees who had been wearing a certain type of
ear muff had not made any complaints regarding hearing loss in six
years. The same letter states that "Mr. German" had been working
with ear specialists to determine the "best protection available."
Accordingly, the record shows that Missouri Pacific was not
treating hearing loss as an automatic consequence of its
operations. Instead, like OMC in Outboard, Missouri Pacific
attempted to negate any future claims or possible losses by
providing protection to its employees. There would be no reason
for Missouri Pacific to implement this protection policy if it had
known that its employees would file NIHL claims. Therefore, we
find that a reasonable interpretation of Godfrey's letter shows
that the letter informed Missouri Pacific that it may be at risk of
liability for NIHL and that Missouri Pacific should attempt to
negate any such claims. Consequently, summary judgment was not
proper. See Outboard, 154 Ill. 2d at 102 (summary judgment should
be denied where a reasonable person could draw divergent inferences
from undisputed facts).
We note that several insurers erroneously argue that, if this
court concludes that February 27, 1973, is not the date at which
NIHL became an uninsurable known loss, this court must then
determine whether any factual questions exist with respect to
Missouri Pacific's knowledge at each time Missouri Pacific bought
a policy after this date. It is the insurer's burden, not the
court's, to show that a known loss exists. See Outboard, 154 Ill. 2d at 107. The trial court granted summary judgment for the
insurers, holding that NIHL became a known loss on February 27,
1973. For the reasons explained in this opinion, we reverse that
ruling, finding that factual questions exist regarding whether
Missouri Pacific knew in 1973 that there was a substantial
probability that NIHL was a loss. If the insurers wish to try to
show that Missouri Pacific had the requisite knowledge on another
date, they may do so in the trial court. In any event, the burden
is not upon this court to determine whether and on what date NIHL
became a known loss for the purpose of Missouri Pacific's insurance
policies.
Finally, we note that this court cannot ignore the public
policy ramifications of holding that an interoffice letter
describing a trend in insurance litigation constitutes knowledge of
a known loss. In essence, we would be discouraging companies from
researching safety issues. Indeed, a company would not have any
incentive to spend money investigating claims filed by others in
the industry in an effort to determine if it may face similar
losses because whatever information it learned could translate into
a known loss. Further, after conducting research a company would
be discouraged from informing its departments about a potential
liability because of the fear that any letter or memo discussing
potential claims or potential liability could be used to show that
a known loss existed.
Moreover, upon discovering that a potential liability exists,
a company would not have any incentive to institute remedial
measures because such action would not negate the requisite
knowledge under the known loss doctrine. Indeed, in the instant
case Missouri Pacific researched and implemented safety procedures
in an effort to protect its employees from hearing loss as soon as
it became aware of the possibility of a problem. Under the
insurers' reasoning, however, regardless of what Missouri Pacific
did, its actions do not negate its knowledge that NIHL was a known
loss. Creating such a deterrent to protecting the public is why
subsequent remedial measures are inadmissible in other tort claims:
persons should not be deterred from remedying a potentially unsafe
condition. Accordingly, while this court acknowledges that the
known loss doctrine may be an appropriate issue for summary
judgment, we find that in this case Godfrey's letter and the record
as a whole raise too many factual questions regarding Missouri
Pacific's knowledge of NIHL on February 27, 1973, for summary
judgment to have been proper. See Outboard, 154 Ill. 2d at 104
(summary judgment is not proper if factual questions exist with
respect to the insured's knowledge at the time it bought each
policy).
The second issue on appeal is whether the trial court properly
held that the insurers' knowledge of NIHL at the time they issued
their policies to Missouri Pacific is irrelevant to determining
whether an uninsurable known loss exists. Missouri Pacific argues
that the insurers were equally aware of any potential liability
from NIHL. Accordingly, Missouri Pacific contends, since the
insurers did not specifically exclude NIHL from their policies,
they intended their polices to cover NIHL claims. The insurers,
however, contend that Outboard explicitly asserts that an insurer's
knowledge is irrelevant under application of the known loss
doctrine. Specifically, the insurers inform this court that the
Outboard court stated:
"[T]he relevant question is whether [the insured] knew or
had reason to know that a probable loss or liability
would occur due to the [conduct] alleged in the
underlying complaints." Outboard, 154 Ill. 2d at 107.
Contrary to the insurers' contention, this sentence from
Outboard does not stand for the proposition that an insurer's
knowledge of conduct alleged to be a known loss is irrelevant under
the known loss doctrine. On the contrary, the Outboard court
stated that an insurer does not have the duty to defend or
indemnify a known loss unless the parties intended the known loss
to be covered. See Outboard, 154 Ill. 2d at 104. Accordingly, the
Outboard court acknowledges that an insurer's knowledge may be
relevant in certain cases. As a result, the trial court erred in
concluding that an insurer's knowledge concerning a known loss is
automatically irrelevant. Instead, if, as Missouri Pacific alleges
here, the parties intended the policies to cover the conduct
alleged to be a known loss, the insurers' intent, and therefore
their knowledge, regarding those policies is crucial.
A recent decision supports our finding that an insurer's
knowledge is relevant under a known loss analysis. In Atchison,
Topeka & Santa Fe Ry. Co. v. Stonewall Insurance Co., No. 94--CV--
1464 (Kan. Dist. Ct. September 18, 1995), the insurers claimed that
they were not liable for losses due to NIHL under the known loss
doctrine. The insurers contended that at the time their policies
were issued the railway company was aware of numerous articles that
indicated its workers were at risk for hearing loss. Accordingly,
the insurers argued, the railway company was not required to
provide coverage for this known loss. Santa Fe, slip op. at 3.
The Santa Fe court rejected the insurers' argument. The court
stated that the widespread dispersion of the articles on NIHL
showed that the insurers were equally aware of the risk of NIHL
when they issued the policies. Santa Fe, slip op. at 3. The court
then stated:
" 'It is well settled under the law of Illinois, as well as
most other jurisdictions, that if an insurer does not intend
to insure against a risk which is likely to be inherent in the
business of the insured, it should specifically exclude such
risk from the coverage of the policy.' " Santa Fe, slip op.
at 4, quoting Bremen State Bank v. Hartford Accident &
Indemnity Co., 427 F.2d 425, 427 (7th Cir. 1970).
We find the Santa Fe decision particularly instructive to the
case at bar and agree that, if the insurers in this case knew about
NIHL and issued the CGL policies without an exclusion, they cannot
claim that they are not liable for these losses.
The insurers correctly inform this court that the Santa Fe
decision was based on Kansas, not Illinois, law and that its
holding is not controlling upon this court. Indeed, the insurers
repeatedly state in their briefs that this court must follow the
decision in Outboard, which states that an insurer's knowledge is
irrelevant, instead of the Santa Fe decision. First, we reiterate
that we find that Outboard does not stand for the proposition that
an insurer's knowledge is never relevant under the known loss
doctrine.
Second, we find that Outboard is not instructive on this
particular issue because that case did not involve the level of
knowledge an insurer had of conduct it alleged was a known loss.
Indeed, OMC did not argue that the insurers knew that OMC had
contaminated the water with PCBs but had granted OMC coverage
anyway, which is what Missouri Pacific argues regarding the
insurers and NIHL in the case at bar. Therefore, because the only
issue in Outboard was the level of OMC's knowledge, of course the
only relevant inquiry in that case was whether the insured "knew or
had reason to know that a probable loss or liability would occur."
Contrary to the insurers' belief, our ruling does not
contradict the "fundamental principle of fortuity" or denote that
the known loss doctrine is no longer a condition precedent to
coverage. Indeed, our decision does not mean that the only way an
insurance company can avoid liability for conduct it alleges is a
known loss is to exclude specifically that conduct from its policy.
Certainly, if an insurer can show that it did not have knowledge of
that conduct, but the insured did, it would not be liable for
claims arising from that conduct--even if an exclusion did not
exist. In situations such as in the case at bar, however, where
the insured contends that the parties intended the policies to
include the conduct alleged to be a known loss, and claims that the
insurers knew about the potential liability from that conduct, an
exclusion is necessary because it shows that, although the insurers
were aware of the conduct, they did not intend their policies to
cover losses arising from it.
For example, suppose an individual, while standing in his
basement in three feet of water, calls an insurance company to
obtain flood insurance. Later, the insurer argues that it is not
liable for any loss because under the known loss doctrine the
individual knew that he had already suffered or would suffer a loss
from the water. In such a case, the insurer would not have to show
that the insurance policy excluded known losses to avoid liability;
it would have to show only that the insured knew that there was a
substantial probability he would suffer a loss from the water. See
Outboard, 154 Ill. 2d at 107. If, however, at the time the
individual called to obtain flood insurance the insurer knew that
the individual was standing in three feet of water but sold him a
policy anyway, then the insurer could not claim that it was not
liable for losses under the known loss doctrine because it also
knew about the conduct that resulted in a loss. See Santa Fe, slip
op. at 4; Bremen State Bank, 427 F.2d at 427.
The latter example is what Missouri Pacific contends occurred
in this case: the insurers knew that Missouri Pacific's employees
may experience hearing loss and file NIHL claims, but issued the
policies, which did not contain an exclusion, anyway. Accordingly,
the insurers' knowledge is relevant to this case. Indeed, to hold
otherwise ignores a fundamental tenet of insurance law. See Dash
Messenger Service, Inc. v. Hartford Insurance Co., 221 Ill. App. 3d
1007, 1014 (1991) (if an insurer does not intend to insure a risk
likely to be inherent in the insured's business, the insurer should
expressly exclude that risk from coverage of the policy).
We note that Missouri Pacific points this court to documents
in the record that it says indicate the insurers had knowledge of
NIHL. For example, Missouri Pacific states that affidavits of
certain employees demonstrate that Missouri Pacific informed the
insurers of all claims, including NIHL, throughout the 1970s and
1980s. In response, First State Insurance Company argues in its
brief that, while other insurance companies may have been informed
of NIHL claims, Missouri Pacific never informed them of any claims.
The trial court did not reach this issue because it never
considered that the insurers and Missouri Pacific could have
intended the policies to include NIHL. As a result, we decline to
address the question of which insurers, if any, knew about NIHL
when issuing their policies to Missouri Pacific. See Jeanblanc v.
Sweet, 260 Ill. App. 3d 249, 254 (1994) (a reviewing court will not
consider issues and arguments which were not considered by the
trial court).
In conclusion, nothing in Outboard suggests that an insured's
general speculation concerning potential future claims satisfies
the requirements for the known loss doctrine. Indeed, it would be
irresponsible for any company to purchase insurance for conduct
without knowing the chances of that act occurring. See Affiliated
FM Insurance Co. v. Board of Education of the City of Chicago, No.
90--C--6040, slip op. at 16-17 (N.D. Ill. October 6, 1992)
(explaining that coverage is not excluded simply because the
insured is aware of the possibility of loss because that is the
reason he or she purchases insurance), rev'd on other grounds, No.
90--C--6040 (N.D. Ill. June 3, 1993), aff'd, 23 F.3d 1261 (7th
Cir. 1994). Accordingly, we find that the trial court erred in
holding that Godfrey's letter demonstrates as a matter of law that
Missouri Pacific knew that there was a substantial probability that
NIHL was a loss.
Further, we find that the trial court erred in concluding that
an insurer's knowledge of the conduct it alleges is a known loss
is irrelevant in determining whether an insurer is liable for
losses arising from that conduct. Therefore, on remand we instruct
the trial court to consider the insurer's knowledge of NIHL when
determining whether Missouri Pacific and that insurer intended the
policies to include coverage for NIHL.
Reversed and remanded with directions.
GEIGER, P.J., and BOWMAN, J., concur.