The basic concept of insurance is that the parties essentially wager against the occurrence or non-occurrence of risk events. The insurer insures against a risk; not a certainty. One of the fundamental assumptions in insurance law is that an insurer will not pay for a loss unless it is “fortuitous,” meaning that the loss must be accidental in some sense. The fortuity principle is often expressed with reference to certainty: losses that are certain to occur, or which have already occurred, are not fortuitous. Interstate Fire & Cas. Co. v. Abernathy, 2012 WL 1883116 (Fla. 1st DCA 2012).

In the Abernathy case, the insurer appealed a trial court ruling that a certificate of insurance a broker issued on April 18, 2007, conferred coverage for liability for an injury alleged to have occurred four days earlier, on April 14, 2007.

The facts of the case are as follows:

On April 14, 2007, the Choctaw Touchdown Club conducted a fundraiser it called the Jellyfish Festival. One of the recreational attractions at the fundraiser was an “inflatable bungee run,” supplied by Emerald Coast Entertainment, on which Dakota Abernathy (14 years old at the time) was seriously injured. The Club did not have liability insurance coverage at the time of the accident. Emerald Coast was insured under a policy issued by Interstate. Two days after the accident, a representative of the Club contacted the owner of Emerald Coast, and requested a certificate of insurance naming the Club as an additional insured under the policy. Four days after the accident, the insurance broker sent the Club a certificate of insurance stating the Club “is named as additional insured” for “[o]perations at Jelly Fish Festival on 4/13/07 to 4/14/07.”

In August 2009, Ms. Abernathy filed suit against Emerald Coast, the Club, and the manufacturer of the inflatable bungee run for negligence and products liability. The insurer undertook defense of Emerald Coast, but notified the Club that it would not defend Ms. Abernathy’s claims against the Club. Ms. Abernathy and the Club entered into a settlement agreement for a substantial sum of money, and Ms. Abernathy agreed not to execute the judgment against the Club.

Ms. Abernathy amended the complaint adding Interstate as an additional defendant and alleging breach of contract, statutory bad faith, and common law bad faith based on Interstate’s “wrongful decision to deny both a defense and coverage to defendant Choctaw Touchdown Club, Inc., although this Defendant was clearly entitled under the terms and conditions of the subject policy to both.” The amended complaint alleged that Ms. Abernathy was entitled to receive the full amount of the judgment rendered against the Club from Interstate. The certificate of insurance issued four days after the event was the sole basis for the allegation of insurance coverage. The trial court entered summary judgment in favor of Ms. Abernathy, holding the Club was covered under the Interstate insurance policy, and that the insurer was responsible for paying her damages.

The First District Court of Appeal reversed the summary judgment and directed the trial court to enter summary judgment in favor of the insurer on all claims of liability based on the principle that it is not sufficient to obtain a policy to cover a loss known to have occurred four days earlier. The Court stated:

The COI was not “a contract whereby [Interstate undertook] to indemnify [the Club] or pay or allow a specified amount or a determinable benefit upon determinable contingencies,” and therefore it did not meet the definition of “insurance.” At the time the Club requested the COI, it knew Dakota had suffered an injury at the festival it sponsored and that the Club would be legally responsible for any negligence on the part of the Club.

The Court discussed the “known loss” doctrine, which provides that if an insured knows when it purchases a comprehensive general liability policy that there is a substantial probability that it will suffer a loss, the risk ceases to be contingent and becomes a probable or known loss that will not be covered by the policy. This principle can lead to a harsh outcome for an injured party. Ms. Abernathy was seriously injured and may have permanent lasting injuries. It is not clear from the opinion what other option Ms. Abernathy may have to seek full redress for her injuries.