Coverage Analysis
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KNOWN LOSS

Section 22 of the California Insurance Code defines "insurance" as protecting against a "contingent or unknown event."  However, in Montrose Chemical Corp. v. Admiral Ins. Co., 10 Cal. 4th 645, 913 P.2d 878 (1995) that there was still an insurable "occurrence" for purposes of Section 22 of the California Insurance Code, even though the insured had already received demand letters from the U.S. EPA seeking to impose liability, until such time as the fact and amount of the insured's liability became final. 

Prior to Montrose, numerous California courts had ruled that insureds cannot therefore purchase insurance for losses or liabilities of which they are already aware.  In Ascon Properties v. Illinois Union Ins. Co., C.A. No. 88-0167 (C.D. Cal. November 30, 1988), affirmed on other grounds, 908 F.2d 976 (9th Cir. 1990), a federal district court ruled that a property owner could not secure coverage for the cost of remediating property which was already known to be polluted when the insured purchased it for development purposes since the pollution was by then a "known risk" and not a "contingent event."  See also Beckman Instruments, Inc. v. International Ins. Co., Case No. CV 85-8382 (C.D. Cal. Jan. 27, 1988)(insured's awareness of contamination on its property prior to policy date precludes possibility of a "contingent" event); Stauffer Chemical Co. v. American Motorists Ins. Co., Los Angeles No. C 597 389 (Cal. Super. August 4, 1989)(no coverage where insured was already aware of contamination, even though claims had not yet been filed against it) and Advanced Micro Devices, Inc. v. Great American Surplus Lines Ins. Co., 199 Cal. App.3d 791, 245 Cal. Rptr 44 (1988)(policy exclusion for known losses applied where insured had actual knowledge of contamination prior to inception of policy and was uncertain only of the extent of the problem).

In Hilbert Chu v. Canadian Indemnity Co., 224 Cal. App.3d 86, 274 Cal. Rptr. 20 (1st Dist. 1990) The Court of Appeals held that a building developer was not barred from seeking coverage under later policies merely because he had learned of unrelated construction problems and building defects prior to the inception of the policies in question.  Such later claims do not relate to a "known risk" so long as they are distinct from the older claims, such that they remain a fortuitous risk in the later years.

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