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Court of Appeals Refuses to Apply “Loss in Progress” and “Known Loss” Doctrines

April 11, 2002

The Houston Court of Appeals recently addressed the “loss in progress” and “known loss” doctrines, refusing to apply the doctrines in a declaratory judgment action brought by the insured. See Westchester Fire Ins. Co. v. Gulf Coast Rod, Reel & Gun Club, 64 S.W.3d 609 (Tex. App.-Houston [1st Dist.] 2001, no pet.)

In Gulf Coast, the insured was sued by adjacent landowners on the Bolivar Peninsula in multiple lawsuits that alleged the insured had dredged its land over the course of twenty years, destabilizing the coastal area, which created accelerated erosion of adjoining beaches and spoiled the habitat for several types of birds and wild animals. The petitions also alleged that the insured, through independent studies, had known the dredging caused destabilization and massive erosion.

While two of the insured's carriers undertook its defense, Westchester denied, arguing no “occurrence” was stated and that coverage was precluded by the "loss in progress" doctrine. In a declaratory judgment action brought by the insured and the other carriers, the district court agreed with the insured and found that the “loss in progress” doctrine did apply. Id. at 612. On appeal, the Houston Court of Appeals affirmed.

The court pointed out that a “loss in progress” is one in which an ongoing progressive loss that the insured is or should be aware of at the time the policy is purchased exists. The court also pointed out that a “known loss” is a loss that has already occurred and that the insured knows about or should know about at the time the policy is purchased.

Applying the concepts to the allegations in the underlying lawsuits, the court found that the petitions were inconsistent with regard to the insured's knowledge. More particularly, the court found that the petitions stated, on the one hand, that the insured had known for at least twenty years that it was causing the destabilization and massive erosion; however, on the other hand, the petitions stated that the insured was negligent in failing to ascertain the consequences of dredging the cut.

Because of the pleaded inconsistencies, the court held that it must resolve any doubt regarding coverage in favor of the insured, and, consequently, the “loss in progress” and “known loss” doctrines did not apply.