Pre-existing Claims? Fortuity

Insurance purchasers in Grand Prairie, Arlington, Dallas, Fort Worth, Mansfield, Irving, Mesquite, Cockrell Hill, Oak Cliff, Richardson, or any other place in Texas need to know about the “known-loss” exclusion in an insurance policy.
One way of understanding this exclusion is by reading the case, Colony National Insurance Company v. Unique Industrial Product Company, L.P. This case was decided by the United States District Court, Southern District, Judge Lynn N. Hughes, on April 7, 2011. This is a summary judgment ruling.
Here is some background.
Unique is an importer and supplier of plumbing parts. Uponor, Incorporated, sells plumbing supplies to plumbers and individual customers. In 2002 and 2003, Unique supplied Uponor with swivel nuts and brass fittings. In June of 2004, Uponor notified Unique that the nuts it bought from Unique were failing and damaging houses.
Uponor and Unique met in 2006, and as a result of the meeting Unique agreed to pay damages to Uponor for losses incurred as a result of the defective supplies and in return Uponor agreed to continue to use Unique as a supplier.
In November of 2006, Uponor made another claim for losses and Uniques failed to honor this request. In September of 2007, Uponor sued Unique for its losses.
Here is the relevant insurance background.
Unique had been insured by American Wholesale Insurance from October 16, 2001, through October 16, 2005, when American chose not to renew the policy. On September 30, 2005, Unique requested liability coverage from Colony National Insurance Company. In its application, Unique disclosed it’s knowledge of failed fittings and fifty-six pending claims against Unique, and it reported that additional claims were expected. When Unique was sued by Uponor, Unique requested that Colony provide coverage and Colony refused based on fortuity.
A critical component of insurance is fortuity. A fortuity is something that occurs by chance or accident, something that could not have been reasonably foreseen. Insurance is designed to protect against unknown risks of harm and loss. This component in an insurance policy precludes coverage of a loss that is known or in progress at the time the policy is purchased. An insured cannot seek coverage for a loss that has already begun and which is or should be known to have begun. The issue in fortuity is not liability, but the insured’s knowledge of a loss before buying the policy.
The policies that Unique had purchased from Colony contained an exclusion for property damage that Unique knew of, in whole or in part, before the policy period – a known-loss exclusion. At law, Unique knows of an occurrence when it reports part of that property damage to Colony or an other insurer, when it receives a demand or claim for damages because of property damage, or when it otherwise becomes aware that property damage exists.
As the court stated and was clear from the evidence – Unique knew of the losses before buying insurance from Colony. This was in the application for insurance. Unique knew it had already paid over $300,000 to Uponor on over 56 claims. Accordingly, the occurrences described in the suits are excluded because Unique knew of the failures prior to inception of the policy and because Unique disclosed its knowldege of the failures and of the current and future claims.
This case is an easy call for the court. The language in the insurance policy is plain and the forturity rules are clear. The loss was known before coverage was purchased and that is admitted.
In this case there were a couple of other legal issues but they are not relevant to the fortuity issue but are probably the reasons this case went as far as it did in the legal system.

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