Hunton Insurance Recovery Blog

The Northern District of California recently rejected an insurer’s attempt at avoiding its duty to defend the insured based on erroneous application of a prior knowledge exclusion. The case highlights the breadth of an insurer’s duty to defend and reiterates that to avoid this duty, “it is the insurer’s burden to demonstrate there is no possible theory that would bring a single issue within coverage.”

Businesses decide to switch liability insurers or obtain higher policy limits for various reasons. In doing so, policyholders should exercise caution to avoid future claim denials (or even policy recission) based on so-called “prior knowledge” issues. Prior knowledge comes into play when the policyholder knew about facts, incidents, or circumstances that occurred before the policy incepted, which can lead to problems if the insurer asserts that the policyholder had “prior knowledge” of an incident before seeking new coverage, limits, or policies.