What is a Known Loss?
A known loss is a situation where the insured is fully aware of damage or loss to an item before an insurance policy becomes active. This differs from a pre-existing loss, which may not be known until after the policy is in effect.
Example of a Known Loss:
Imagine a company ships a batch of products to a client using a third-party carrier. During transit, the carrier encounters a logistical issue, and the shipment is reported as lost within the carrier's system. The company is notified about this loss. Instead of filing a claim with the carrier, the company seeks to obtain a new shipping insurance policy to cover the lost items. This action is insuring a known loss, as the shipper is already aware that the shipment has been lost before the policy was in effect. Any subsequent insurance claim for this shipment would be invalid.
Why is Insuring a Known Loss Against the Law?
Insuring a known loss is against the law for several reasons:
- Moral Hazard: Insuring known losses promotes a moral hazard, encouraging negligence by providing coverage for preventable or known issues.
- Adverse Selection: It leads to adverse selection, where those with damaged items are more likely to seek insurance, potentially inflating premiums for all.
- Maintaining Trust: The foundation of insurance is trust, and insuring known losses would undermine this, leading to fraudulent practices and erosion of industry integrity.
Why U-PIC Shipping Insurance Does Not Cover Known Losses:
At U-PIC Shipping Insurance, we adhere to the legal and ethical standards governing the insurance industry. We do not cover loss or damage that is known about before the insurance policy is issued. This approach ensures fairness, maintains trust, and upholds genuine risk coverage.
Conclusion:
A known loss is when the insurer or insured party is aware of loss or damage prior to insurance coverage. It is imperative for insurers and insured parties to maintain honesty and integrity when applying for insurance coverage. Coverage is only available for loss or damage that occurs to a shipment while in possession of the carrier. Coverage is not available for items lost or damaged prior to shipping.
