The "Farmers Insurance News-Alert" website is dedicated to providing the consumer and general public with detailed information concerning the Farmers Insurance Group. This includes fraud reports, consumer complaints, lawsuit's and other legal actions taken against this company. All information contained herein is for educational purposes only. Original sources, when known are sited.


The Known Prior Acts Exclusions


Like many conditions and exclusions buried in the fine print of a liability insurance policy, the Known Prior Acts exclusion is a provision most policyholders probably know nothing about until their insurance company uses it to deny a claim. With the Known Prior Acts exclusion, this situation is even more likely given that the exclusion has little to do with knowledge of prior "acts."

One version of the exclusion states:

Known prior acts. The insurance company will not cover claims or suits:

  • made or brought against the policyholder;
  • that the policyholder knew about; or
  • that the policyholder could have foreseen or discovered in a reasonable way;
  • prior to the effective date of this agreement.

And, if this agreement is a renewal, the effective date is that of the earliest preceding agreement from which we have continuously provided the protection provided by this agreement. Curiously, it is a "claim or suit" which is addressed in the Known Prior Acts exclusion, not the act which leads to a claim or suit.

The "Post-Loss Underwriting" Exclusion
Aside from its misleading title, insurance companies argue that the exclusion has a stealth-like capacity to destroy coverage. Consider the situation where one company acquires another and asks to have the new company added to its current insurance program. The acquiring company performs what it considers to be a thorough due diligence inquiry and, satisfied that the new company is not hiding any potential claims or suits, buys the new company. The acquiring company then asks its insurance company to add the new company to its existing, claims-made insurance policy. The insurance company might, with nonexistent or minimal underwriting, add the new company.

When, however, a significant claim comes in, the insurance company claims adjuster can search far and wide to find any facts which indicate that the newly acquired company could have foreseen the claim would be made prior to the date of acquisition. The insurance company, with the benefit of hindsight, might try to add its own spin to the facts to convince itself—the policyholder and a jury—that the claim was "bound" to be made. The exclusion almost is an open invitation for insurance companies to engage in "post-loss underwriting," that is, the practice of foregoing any serious underwriting investigation of a policyholder or its acquisitions until after a claim has been made.

By William G. Passannante and John P. Gasior


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