Legal Definitions - known-loss doctrine

The known-loss doctrine is a principle in insurance that denies coverage when the insured is aware, before the policy takes effect, that a specific loss has already occurred or is highly likely to happen. This is also known as the known-risk doctrine.

For example, if a homeowner purchases insurance after their house has already been damaged in a fire, the insurance company may deny coverage for that specific loss. Similarly, if a business owner purchases insurance after a lawsuit has been filed against them, the insurance company may deny coverage for that lawsuit.

Another example would be if a person purchases travel insurance after a hurricane has already been forecasted to hit their destination. If the person's flight is cancelled due to the hurricane, the insurance company may deny coverage because the loss was already known before the policy was purchased.

These examples illustrate how the known-loss doctrine works in practice. Insurance companies want to protect themselves from individuals who try to purchase insurance after a loss has already occurred or is highly likely to occur. By denying coverage in these situations, insurance companies can prevent fraud and ensure that premiums are being used to cover legitimate losses.