What You Don't Know Can't Hurt You, But What You Do Know Most Certainly Can
In almost every walk of life, knowledge is something people seek to obtain. Francis Bacon famously, and succinctly, coined the phrase “knowledge is power.” But in the topsy-turvy world of insurance, another famously succinct phrase may be more applicable, “ignorance is bliss.” (Thomas Gray).
There are many areas of insurance where an insured’s “knowledge” comes into play. There is the “fortuity” doctrine, which is best illustrated by the adage that you cannot insure a house that is already on fire. “Knowledge” comes up in the third-party liability context in the form of a “known loss” exclusion. In Kaady v. Mid-Continent Casualty Co., the Ninth Circuit Court of Appeals recently touched on this issue. The court found that an insured’s knowledge of cracks in the masonry does not mean that the insured knew of deterioration of deck posts and wall sheathing. An insured’s knowledge also comes into play in the first-party insurance context. With respect to “collapse” coverage, many policies provide coverage for collapse caused by “hidden decay,” unless the insured knew of the damage prior to the collapse. Hidden decay and similar concepts also come into play in the “suit limitation” provision found in all first-party policies. The suit limitation provision requires that an insured file a lawsuit against the insurer within a set period of time. Some courts have found that the suit limitation provision (typically one or two years depending on the language and jurisdiction) runs from discovery of property damage when the policy relies on “hidden” or similar language.
Unfortunately, many homeowners and associations “discover” property damage to their buildings through reserve studies, instances of water intrusion, or general inspections. If they don’t act relatively quickly, they could unknowingly lose their right to pursue insurance coverage for the property damage. Once owners and associations discover property damage, the clock is ticking. To protect their rights and preserve their claims, owners and associations should consult with a professional and/or an attorney to make sure any claim is preserved.