The Loss in Progress Rule and Insurance Policy Interpretation

A Video Explaining the Loss in Progress Rule

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Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it for insurers and their claims staff to become insurance claims  professionals.

The “Loss in Progress Rule” has been described as follows: “[t]he point at which a threat of loss is so immediate that it may fairly be said that the loss was in progress and the insured knew of it at the time the policy was applied for or issued is generally a question of fact.” [Sentinel Ins. Co. v. First Ins. Co., supra, 875 P. 2d at p. 920; Inland Waters Pollution Control, Inc. v. National Union Fire Ins. Co. (6th Cir.1993) 997 F. 2d 172, 178.]

At least one court has seen the loss in progress rule as an attempt to “swallow up” the “expected or intended” exclusion. The defense is independent of the exclusion for losses that are “expected or intended” by the insured. A majority of states, unlike California, have overruled the old marine rule under which a false representation of fact that the insured warranted to be true automatically voided coverage, regardless of the materiality of the misrepresentation.

In Chemstar, Inc., v. Liberty 1993 WL 13626320 the court concluded that “since an insurer may only insure against contingent or unknown risks of loss, a policy issued after the ‘loss in progress’ has begun does not cover such loss.”

The California Supreme Court, in Prudential LMI v. Superior Court, 51 Cal. 3d 674, 274 Cal. Rptr. 387 (1990). made it clear that there is a stark difference between first and third party insurance. The California Supreme Court said:

As one court observed, in first party cases applying the rule finding coverage only on actual occurrence of injury, no damage or injury of any kind has taken place until manifestation; the cause instead lies dormant until it later causes appreciable injury. Ins. Co. of North America v. Forty-Eight Insulations, 633 F. 2d 1212, 1222, fn. 18.

Thus, a third party insurer can be responsible if it fits within any portion of a continuing loss while the first party insurer is only responsible if it is on the risk when the loss first manifests itself. The Prudential LMI case limited the application of the decision, therefore, to first party insurance. Recent Court of Appeal decisions have found that the difference is illusory when discussing the loss in progress rule.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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