Category: Insurance Coverage

Emerging Insurance Coverage & Allocation Issues in 2013 – May 14th, 2013

The National Law Review is a proud sponsor of Emerging Insurance Coverage & Allocation Issues in 2013 Conference:

Perrin_May2013InsurCov

When:

Tuesday, May 14th, 2013

Where:

The Rittenhouse Hotel
210 W Rittenhouse Square
Philadelphia, PA

All in-house counsel and insurance professionals always complimentary at Perrin Conferences. Special Restrictions Apply. Registration fee is $895 and includes private website access to course materials, continental breakfast, refreshment breaks and networking cocktail reception. Group discounts available, please inquire.

Do You Need Employment Practices Liability Insurance?

McBrayer

According to the 2012-2013 Edition of Jury Award Trends and Statistics, the national median award for employment practice claims in 2011 was $325,000, up from $172,500 in 2010. This figure confirms what many in the employment law community already know to be true, that the number of employment practices claims has increased, and with that increase there has been an increase in the size of awards over the years as well.  There is no reason to believe that this trend will not continue, and no business should believe itself to be immune from employment practice claims.

Every business of size should seriously consider carrying Employment Practices Liability Insurance (“EPLI”) to protect itself from employment-related claims, which can encompass everything from sexual harassment, to wrongful termination, to defamation.  Although a business’s first line of defense should always be thorough up-to-date and well written HR procedures and policies, EPLI coverage can be a valuable lifeline when an expensive and lengthy lawsuit is looming and it just may save your business from financial ruin.

Costs of EPLI policies vary greatly; the price is generally based on your business type, size and associated risk of employment practices.  Insurance companies will normally want to review copies of the HR forms, policies, and manuals to assess risk probability.  If you seeking EPLI, there are some things you should be looking for in a policy. These include, but are not limited to,

  • A broad definition of “insured,” so that all directors, officers, and employees are covered;
  • A broad definition of “claim,” so that criminal, civil, and administrative proceedings are covered, as well as arbitrations and investigations;
  • A practical deductible that can be met if the insurance is needed;
  • A carve-out for claims under federal statutes; if an employee brings a whistleblower claim for exercising rights pursuant to certain statutes such as COBRA, ERISA, or OSHA, you will likely want these claims to be covered by the policy; and
  • A choice of counsel provision so that the business can utilize an employment attorney that is familiar with the business, locality, governing law, and particular claim.

As an added bonus, some EPLI insurers even offer additional services free to their customers, such as a call-in line for general employment questions or sample employee handbooks. EPLI can offer peace of mind and valuable protection in the increasingly litigious employment law arena.

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A Reminder About Pollution Legal Liability Coverage

GT Law

A recent decision from the federal district court in Pittsburgh highlights the importance of carrying environmental insurance, especially in connection with properties or facilities with an increased potential for environmental legacy liabilities. Many property owners believe that comprehensive general liability (CGL) policies adequately protect against environmental liabilities. However, standard CGL policies will typically only cover certain, very limited environmental liabilities and are by no means an effective tool for comprehensive environmental protection. Pollution legal liability (PLL) policies, designed to respond to contamination found on properties, are a far more useful and comprehensive mechanism to mitigate potential liability stemming from current or past ownership of environmentally sensitive properties.

Wiseman Oil v. TIG Insurance, 2013 U.S. Dist. LEXIS 14747 (W.D. Pa. Jan. 22, 2013), report and recommendation adopted, 2013 U.S. Dist. LEXIS 37501 (W.D. Pa. Mar. 19, 2013), involved a claim by Wiseman for coverage and for defense under Wiseman’s CGL policy for underlying claims against Wiseman under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

The CERCLA claims against Wiseman arose out of environmental contamination at property formerly owned by Wiseman. TIG asserted that it owed no such defense or coverage-related duties to Wiseman. Among other arguments, TIG asserted that the CGL policy contained an exclusion for bodily injury orproperty damage claims arising out of the release of hazardous materials “into or upon land.” However, the exclusion contained an exception to releases that were considered “sudden and accidental.” “Sudden and accidental” was not defined under the policy. TIG asserted that the CERCLA claims brought against Wiseman did not allege any sudden or accidental event and thus it had no duty to defend or otherwise provide coverage.

The case was assigned to Chief Magistrate Judge Lisa Pupo Lenihan for a report and recommendation. She clarified that TIG’s duty to defend did not hinge on whether the underlying complaint “expressly alleges specific factual predicates clearly within the applicable policy terms.” Rather, the duty to defend arose when a fair reading of the underlying complaint did not “expressly rule out the possibility of insurance coverage under the applicable policy terms.” Pupo Lenihan stated further that TIG could not reasonably conclude from the face of the underlying complaint that the allegations “precluded or negated any potential applicability” of the “sudden and accidental” qualifiers.

Based on the foregoing, Pupo Lenihan held that the language of the underlying complaint was a sufficient basis to deny TIG’s asserted grounds for summary judgment and to grant Wiseman’s motion for partial summary judgment on the question of TIG’s duty to defend.

Last month, U.S. District Judge Joy Flowers Conti of the Western District of Pennsylvania adopted Pupo Lenihan’s report and recommendation. (See 2013 U.S. Dist. LEXIS 37501 (W.D. Pa. Mar. 19, 2013).)

Although in this case Wiseman succeeded in thwarting its insurer’s summary judgment motion on the dutyto defend, in order for Wiseman ultimately to obtain coverage for its claim it will face a significant burden in demonstrating that the “sudden and accidental” exception to the policy exclusion applies. Given that the property was likely contaminated over a long period of time rather than in a single abrupt, catastrophic event, actually obtaining coverage under the policy will require a factually intensive showing that the gradual contamination was sufficiently like the abrupt event to qualify as “sudden and accidental.” In short, the case highlights the difficulty of obtaining coverage for environmental liabilities under a CGL policy.

That controversy could have been avoided if the plaintiffs had considered other insurance products that are better suited to cover this type of pollution-related risk. This is especially true of properties on which manufacturing or other environmentally sensitive operations may have occurred.

Generally speaking, PLL insurance policies can help landowners mitigate known and unknown risks associated with the acquisition and divesture of real property, and offer more robust protections for environmental risks than the CGL policy that the plaintiffs sought to rely on in the Wiseman case. In situations comparable to the facts at issue in Wiseman, a PLL policy would have been a more appropriate coverage and likely would have negated the need to bring a lawsuit to enforce the policy.

PLL coverage is the most common type of insurance to address potential environmental liabilities associated with real property.

It is generally used to address cleanup costs for environmental contamination, third-party claims for bodily injury or property damage arising from environmental contamination (both pre-existing or first occurring during the policy term), and business interruption losses resulting from a covered environmental condition or claim.

Among other things, PLL policies can also provide for protection against natural resource damages, risk stemming from non-owned disposal sites, and legal defense costs associated with all of the foregoing. PLL policies cover unknown pre-existing contamination discovered after the policy inception, as well as new conditions that occur after the inception date.

Known conditions are included under most PLL policies unless they are specifically scheduled and excluded from coverage under the policy. Capital improvement exclusions are quite common and would exclude costs of remediating known conditions, such as urban fill material, in connection with redevelopment of a property.

However, costs arising in connection with government claims stemming from known conditions can still be covered under a typical PLL policy. CGL policies will typically exclude coverage for underground storage tanks, fuel or chemical storage, waste storage and business interruption, which can be included under a PLL policy. It is also important to note that off-site disposal sites or landfills (often called “non-owned disposal sites” in PLL policies) can be scheduled onto policies. If liability arises at the disposal facility and liability attaches to your client as a generator, the PLL policy would kick in.

PLL policies also can cover re-opener type situations. In many states, parties that have received no-furtheraction determinations after cleaning up a contaminated property may be audited, and the cleanup decision re-opened to require further investigation or remediation. This is likely to occur in situations where the remediation standards governing a particular contaminant are revised, or where new data become available at a later date suggesting that remediation was not properly completed. With a PLL policy in place, costs associated with a re-opener become less of an uncertainty. PLL policies also entitle the policyholder to legal defense of any of the above situations.

PLL policies are claims-made-and-reported policies, meaning that claims must be made during the term of the policy. So, for example, Wiseman would have had to have an existing PLL policy covering the property to avail itself of that policy’s protections when the underlying CERCLA claim arose. It would not have been enough to have had the policy during ownership of the property.

Underwriting on PLL policies is typically conducted using readily available environmental documents, including Phase I and Phase II environmental site assessments, as well as other environmental reports, and agreement documents.

Wiseman offers an important lesson, especially to those that own or operate properties that have current or former facilities with environmentally sensitive operations: CGL policies are not an effective tool to manage environmental liability risks. Although not perfect, PLL policies are a more appropriate type of coverage to mitigate unknown risks associated with present and legacy property ownership. PLL policies can offer particular value to address the residual risk after a cleanup.

Kyle R. Johnson also contributed to this article.

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America’s Claims Event 2013 – June 19-21, 2013

The National Law Review is pleased to bring you information about the upcoming 17th Annual America’s Claims Event:

American Claims Act June 19-21 2013

America’s Claims Event 2013

June 19-21, 2013

Austin, Texas

We have Every Angle of the Claims Process Covered with Expertise

The 17th Annual America’s Claims Event is the ONLY industry event where senior managers, practitioners & experts involved with claims operations can get the insight they need to implement effective and tactical strategies for their claims handling process. More than 400 professionals and decision-makers from mid-size to large Fortune 500 companies attend the event to engage in idea exchanging and peer-to-peer learning. Attendees gain deep insight from the experts and obtain unparalleled access to proven solutions to confront their operational challenges.

Strategic and Tactical Intelligence YOU Can Immediately Employ in YOUR Claims Process:

  • Make better business decisions with accurate information from industry experts
  • Realize attainable goals with streamlined operations: learn how to maximize employee productivity and adapt to market trends
  • Department control: manage operations through sophisticated workflow and data-decision solutions
  • Improved customer and agent relations: easy-to-implement changes can make a significant difference on resolution time of claims

New Focuses Explore:

  • The growing talent problem; tackling recruitment, retention, competencies & organizational knowledge transfer across claims
  • Organizational branding & Market PR; harnessing the power of new & developing media to engage the client base
  • Engaging & communicating with the Customer base
  • The latest in Fraud Prevention, Preparedness & Mitigation

Keynote sessions and focused panels will tackle real world issues involving modernization, process simplification, streamlining, business growth, claims strategy, tactical efforts applications and a holistic exploration of the property casualty market in its short, medium and long term projections.

The 17th Annual America’s Claims Event is produced by Summit Business Media and presented by Claims, Tech Decisions, National Underwriter’s Property & Casualty magazines, and FC&S.

America’s Claims Event 2013 – June 19-21, 2013

The National Law Review is pleased to bring you information about the upcoming 17th Annual America’s Claims Event:

American Claims Act June 19-21 2013

 

America’s Claims Event 2013

June 19-21, 2013

Austin, Texas

We have Every Angle of the Claims Process Covered with Expertise

The 17th Annual America’s Claims Event is the ONLY industry event where senior managers, practitioners & experts involved with claims operations can get the insight they need to implement effective and tactical strategies for their claims handling process. More than 400 professionals and decision-makers from mid-size to large Fortune 500 companies attend the event to engage in idea exchanging and peer-to-peer learning. Attendees gain deep insight from the experts and obtain unparalleled access to proven solutions to confront their operational challenges.

Strategic and Tactical Intelligence YOU Can Immediately Employ in YOUR Claims Process:

  • Make better business decisions with accurate information from industry experts
  • Realize attainable goals with streamlined operations: learn how to maximize employee productivity and adapt to market trends
  • Department control: manage operations through sophisticated workflow and data-decision solutions
  • Improved customer and agent relations: easy-to-implement changes can make a significant difference on resolution time of claims

New Focuses Explore:

  • The growing talent problem; tackling recruitment, retention, competencies & organizational knowledge transfer across claims
  • Organizational branding & Market PR; harnessing the power of new & developing media to engage the client base
  • Engaging & communicating with the Customer base
  • The latest in Fraud Prevention, Preparedness & Mitigation

Keynote sessions and focused panels will tackle real world issues involving modernization, process simplification, streamlining, business growth, claims strategy, tactical efforts applications and a holistic exploration of the property casualty market in its short, medium and long term projections.

The 17th Annual America’s Claims Event is produced by Summit Business Media and presented by Claims, Tech Decisions, National Underwriter’s Property & Casualty magazines, and FC&S.

Superstorm Sandy and the Remediation of Water Damage, Mold Growth and Bacterial Threats

GT Law

As business slowly returns to normal in areas of the East Coast impacted by Superstorm Sandy, property owners are confronting questions about how best to address water damage, prevent or remediate mold and microbial growth, and address bacterial threats from potentially contaminated flood waters.  When water damage, flooding, or moisture intrusion events occur, there are a number of important considerations to take into account to address potential or actual mold, microbial, and bacterial threats:

1. Prompt Action is Essential

  • Quick action is the key to preventing water damage from becoming a significant mold, microbial or bacterial problem.
  • Act quickly to stop any ongoing source of water intrusion, evaluate the source and extent of water damage, mold-impacted building materials, and bacterial threats, and prepare an appropriate plan of action.
  • Analyze insurance policies early in the process and put carriers on notice of any water damage, mold growth, and bacterial threats promptly.  Many insurance policies require prior approval of selected consultants and contractors, as well as remedial scopes of work developed for the impacted property.
  • Determine whether there are notice obligations under existing loan agreements, management, partnership, joint-venture agreements, and leases with tenants.

2. Retain Qualified Professionals

  • Consider retaining a qualified environmental consultant with a licensed Certified Industrial Hygienist (CIH) on staff. Often, a CIH can best determine the source and extent of water damage and the appropriate scope of work to prevent or remediate mold and bacterial growth.
  • Avoid the mistake of hiring only a remediation contractor. A more prudent approach is to engage a third-party consultant or CIH to conduct an assessment of water/moisture and mold/bacteria-impacted building materials, develop the appropriate scope of work for remediation, and monitor the performance of such work by a carefully selected remediation contractor.
  • The third-party consultant/CIH should confirm that all water damage and related mold and bacterial growth have been appropriately remediated in accordance with the developed scope of work and prevailing industry standards. This provides an important double-check on the quality of the remediation.

3. Consider Carefully Whether Indoor Air Sampling is Necessary or Appropriate

  • A thorough visual assessment with moisture metering conducted by a qualified CIH is the most effective way to confirm whether mold and/or conditions conducive to mold are present, and ultimately whether mold has been remediated successfully.
  • Sampling methods for mold are not standardized and often yield highly variable results. Indoor air sampling often leads to results that are difficult to interpret, or that indicate a problem when there is none. The quantity of mold spores in air can vary greatly depending upon the season, the weather conditions, and the time of day, regardless of whether indoor mold growth actually is present.
  • There are no regulatory standards against which to compare air sampling results for health or environmental assessments. In many cases, the objective should be to demonstrate that there is a lower concentration of mold spores in indoor air than in outdoor air.
  • Before any post-mold remediation indoor air confirmation sampling is conducted, the third-party consultant/CIH should confirm via a thorough visual assessment and moisture metering that all water damaged and/or mold-impacted building materials have been remediated in accordance with the site-specific scope of work and prevailing industry standards, and that no excessive moisture or visible mold growth remains.

4. Document Assessment Findings, Remediation, and Results of Confirmation Sampling

  • It is essential to document that the assessment and remediation work conducted was thorough, and that all impacts resulting from the water intrusion event have been successfully remediated. Maintaining such documentation will help avoid future obstacles in financing, leasing and sale transactions.
  • The third-party consultant/CIH should prepare an assessment report that documents the initial assessment findings and recommendations for remediation.  Once the remediation has been completed by a qualified contractor, the consultant/CIH should prepare a second, final report documenting that the conditions identified in its assessment report were remediated in accordance with its recommendations, that no mold or bacterial growth, or conditions conducive to mold or bacterial growth, remain, and that no further investigation or remediation is necessary.

5. Communicate with Building Occupants

  • It is important to maintain open lines of communication with building occupants, and to provide information regarding the remedial measures being taken and the timetable for completion.
  • Avoid the temptation to hide the problem from building occupants, and the reluctance to provide bad news.  Sharing information with building occupants in most cases actually reduces the potential for and significance of third-party claims. It would be prudent to discuss this process with legal counsel.
  • Document any complaints received from building occupants and users, and all actions taken in response thereto, and establish a protocol for responding to information requests and complaints. If such  a  protocol is established, stick to it.

6. Don’t Cut Corners

  • Avoid the temptation and resist any contractor recommendations to simply clean porous building materials such as drywall, insulation and carpeting. The wiser approach is to remove and replace porous materials, and limit cleaning to non-porous materials. While this approach can increase demolition and replacement costs, it more effectively reduces the risk of future mold and bacterial growth and related remediation costs and thirdparty claims.
  • Evaluate incidental regulatory requirements, such as whether proper abatement of asbestos containing materials or lead paint is required in connection with the remediation project, and have any such work conducted by qualified professionals.
  • Clean and maintain HVAC systems, replace air filters, drip pans, etc., during remediation. Following these general guidelines can greatly reduce the risk that water damage becomes a significant loss or source of liability. Additional information helpful in responding to water damage, mold and bacterial growth is available from the New York City Department of Health and the U.S. Environmental Protection Agency via the links below:

©2012 Greenberg Traurig, LLP

Insurance Coverage For Superstorm Sandy Claims

The National Law Review recently featured an article by Michael J. Canning of Giordano, Halleran & Ciesla, P.C. regarding Insurance Claims for Superstorm Sandy:

 

Superstorm Sandy has devastated the New Jersey Shore and other parts of New Jersey, causing untold damages to personal residences and businesses.  For those individuals and businesses fortunate enough to have insurance coverage, particularly flood insurance coverage, steps should be taken immediately to protect your rights under your insurance policies.  The first step in the process is to identify what insurance policies you may have which may respond to the loss.  Individuals should look to their homeowner’s policies for damage to their home and to their automobile policies for damage to their automobiles.  Businesses should look primarily to their business owners or commercial property policies.  Both businesses and individuals should examine any excess or umbrella insurance policies they may have.

Once policies are identified, claims should immediately be reported to your insurers.  The fastest and simplest way of providing notice is through your insurance broker, which should be done in writing with the request that your broker provide notice to your insurer.  You should request that your broker provide you with a copy of the notice it provides to the insurer.  Most insurance agents are extremely helpful in processing claims and assisting insureds with their claims.  Notice can also be given directly to your insurer and many insurers are setting up mobile claim units at which claims can be reported.

There are different coverages available under different types of policies as discussed below.  While many policies contain standard terms and conditions, each policy has its own language and must be carefully reviewed to determine the specific coverage provided under that specific policy.  The discussion of insurance policies below is based on fairly standard language which appears in many policies but it must be emphasized that you need to review the specific language in your policy which may significantly increase or decrease the coverage provided to you.

Business Owners or Commercial Property Coverage

Sandy has caused incalculable damage to businesses.  These damages include damage to a company’s real property, its personal property and its loss of business.  There may be coverage for such losses under a company’s business owner’s policy or commercial property policy.  Business owner’s policies or commercial property policies should be carefully reviewed to determine what coverages are provided and what limits of coverage are available.

1.                  Nature of Coverage Provided:

There are generally two types of coverages provided under business owners or commercial property policies.  The first is “all risk” coverage which provides coverage to the insured’s property for all risks of direct physical loss or damage.  This is a broader form of coverage and typically is more expensive to obtain.  Under an all risk policy, there will be coverage for direct physical loss or damage to the insured’s property irrespective of the cause of loss, subject to the exclusions in the policy.

The second form of coverage is “named” peril coverage.  This provides more narrow protection than the all risk coverage and provides coverage for risk of direct physical loss or damage caused only by specifically listed perils in the policy.  Under this more limited coverage, there is coverage for direct physical loss or damage only if caused by the listed peril in the policy.  As in an all risk policy, the coverage provided is subject to the policy’s exclusions.

The most significant exclusion for Sandy-related claims will be the flood exclusion.  A typical flood exclusion defines flood to mean a general and temporary condition of partial or complete inundation of normally dry land areas due to:  (a) flood, surface water, rising water, waves, tides, tidal water, storm surge, tsunami, overflow of any body of water or their spray, all whether wind driven or not; or (b) water that backs up from any sewer or drain, or water that leaks or flows from below the surface of the ground.  Where a policy contains a flood exclusion, damage caused solely by the flood, as defined in the policy, may be excluded.

However, there is a critical distinction between damage caused by wind, which is normally covered under an all risk policy or a named peril policy, and damage caused by flood.  A storm such as Superstorm Sandy may have damages caused by both flood and wind.  To the extent the damage to the insured’s property is caused by wind, there should be coverage under the policy, subject to other exclusions, even if a flood causes additional or separate damage.  By way of example, the wind may knock a tree down onto the insured’s property causing physical damage to the property.  Rain may penetrate the property as a result of the damage caused by the tree.  This damage would likely be covered as wind is a covered cause of loss and the damage to the property, including the water damages, resulted from the wind.  However, if during the same storm a tidal surge caused water to flood other portions of the property, that damage may not be covered if there is a flood exclusion.

If a dispute arises between you and your insurer as to whether damage to your property is caused by wind or flood, it may be necessary to retain an expert in the area of cause and origin of insurance losses to determine what damage was caused by wind compared to damage caused by flood.  Additionally, eyewitness testimony will be helpful so you should speak with any of your neighbors, employees or other persons who may have witnessed how your business property has been damaged.  The same applies to individuals seeking coverage under their homeowner’s or flood policies.

2.                  Coverages Provided Under a Business Owner’s Policy or Commercial Property Policy:

Business owner’s policies and commercial property policies typically contain coverages for damage to buildings, for business personal property, and for business income / extra expense.  Other additional coverages may also be provided and the policy must be carefully reviewed for such additional coverages.

a.                  Coverage for Buildings.

The declarations page of the policy will identify which buildings owned by the insured are covered under the policy.  Values are normally provided for the buildings.  The policies may provide coverage for either the replacement cost of the structure or for the actual cash value of the structure.  The policy should be reviewed carefully to determine what type of coverage is provided for damage to the property.  If there is a covered loss, the insurer will pay the claim up to the policy limits for building coverage identified on the declarations page.  Photographs or videotape should be taken of all damage to the structure.

b.                  Coverage for Business Personal Property.

Most business owners or commercial property policies provide coverage for personal property owned by the insured.  The amount of coverage for such personal property is normally identified in the declarations page.  Upon a covered loss, the insured should carefully document and inventory all the personal property which it has lost for which it will be submitting a claim.  The insured will be required to submit a sworn proof of loss in which the insured must identify under oath all of the property it claims to have been damaged for which it is seeking insurance coverage.  Photographs or videotapes should be taken of all damaged personal property.  Unless required to do so for safety or health reasons, the damaged personal property should not be discarded until the adjuster appointed by the insurer has come to inspect your property.  If you discard any damaged property for which a claim is submitted, the insurer may disclaim coverage.  In New York policyholders can submit photographs of damaged property as proof of loss of the property.

c.                   Business Interruption Coverage.

This coverage protects the insured against loss of income resulting from damage to the insured property.  Business interruption coverage is often subject to complex deductibles and co-insurance provisions which must be carefully reviewed.  The insured should work carefully with its attorney and broker in presenting the business interruption claim.  Outside professionals, including accountants or professional adjusters, may be of assistance in presenting such a claim to the insurer.  Some of the costs incurred in calculating the business interruption loss by professionals such as accountants may be recoverable under the policy, but fees for attorneys and public adjusters typically will not be covered.

As an incentive to insureds to move quickly to restore the insured property so that business operations can commence as soon as possible, insurers will normally pay the insured’s reasonable expense to restore operations.

If there is no direct physical damage to the insured’s property, then the business interruption coverage may not apply.  However, some policies provide coverage for a business interruption loss resulting from damage to a utility service caused by a covered cause of loss.  Many businesses lost power and were unable to conduct business without sustaining any physical damage to their property.  If the business owners or commercial property policy includes a utility service – direct damage endorsement, or similar type of endorsement, there may be limited coverage for a business interruption loss caused by damage to a power supply service, including utility-generating plants, switching stations, substations, transformers and transmission lines, by wind damage.  The policy must be reviewed to determine if such coverage exists and in what amount.  Typically the amount is less than the coverage provided where there is direct physical damage to the insured’s property.

d.                  Coverage for Damage Resulting From Acts of Civil Authority.

Some policies provide this coverage which provides that when a covered cause of loss causes damage to property other than the insured’s property, the insurer will pay the loss of business income and extra expense caused by action of civil authority that prohibits access to the insured’s premises.  This coverage, if it is provided in the policy, may require that:  (1) access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage and the insured’s property is within that area but not more than five miles from the damaged property; and (2) the action of civil authorities is taken in response to dangerous physical conditions resulting from the damage or continuation of the covered cause of loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

e.                   Debris Removal.

Many policies provide additional coverage for debris removal in which the insurer agrees to pay the reasonable expenses incurred to remove debris from the covered property caused by a covered cause of loss.  Typically there will be sub limits of coverage for this additional coverage which will be identified on the declarations page or a separate endorsement to the policy.  This may be a very significant coverage as a result of the substantial debris generated from Sandy’s destruction.

Business Excess and Umbrella Policies

Many businesses may have excess or umbrella property insurance coverage.  These policies should be carefully reviewed to determine whether they provide additional coverage beyond the coverage provided in the primary policy in addition to the increased limits of coverage which may be provided in the umbrella and excess policies.  The umbrella and excess policies typically “follow form” to the primary policy, which means they are normally subject to the same terms and conditions as the primary policy.  However, some excess or umbrella policies may contain additional exclusions which may not be excluded from the primary policy, including an exclusion for flood.  Both the primary and excess and umbrella policies should be carefully reviewed in this regard.

Individuals who have suffered damage to their homes and personal property will look primarily to their homeowner’s policies and flood policies, if they have such coverage.  For damage to your automobile, you should examine your automobile policy to determine if you have comprehensive insurance coverage.

Standard Homeowner’s Policy

1.                  Dwelling Coverage:

A standard homeowner’s policy typically covers damage to the insured dwelling up to the policy limits identified in the policy.  The declarations page of the policy should be reviewed to determine the limits of coverage available.  This coverage insures the residence premises identified in the declarations page and may include materials and supplies located on or next to the residence premises used to construct, alter or repair the dwelling.  There is typically no coverage for land, including the land on which the dwelling is located.

2.                  Other Structures:

There may be coverage under your homeowner’s policy for other structures which are set apart from the residence premises.  The declarations page will identify such other structures as well as the limits of coverage.

3.                  Personal Property:

A typical homeowner’s policy provides insurance coverage for personal property owned or used by an insured.  This coverage may include damage to property owned by others while the property is on the residence premises occupied by an insured.  There also may be limited coverage for an insured’s personal property located at an insured’s residence other than the residence premises listed in the declarations page.  However, this is a limited coverage which may be 10% of the limit of liability for the personal property coverage or $1,000, whichever is greater.  The declarations page must be reviewed for the limits of coverage.  There may be endorsements issued to the policy providing for greater limits of coverage for certain specified property such as specific scheduled jewelry.  Certain property, such as non-scheduled jewelry, furs, money, securities, watercraft, trailers, and certain portable electronic equipment may have special limits of liability, typically in amounts of $2,500 or less.

4.                  Loss of Use:

Standard homeowner’s policies provide coverage for loss of use.  The declarations page must be reviewed to determine whether such coverage is provided and, if so, in what limits.  The loss of use coverage includes the following coverages:

(a)                Additional Living Expense.  If the residence premises where you reside is not fit to live in as a result of a covered loss, the insurer will cover any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living.  Payment will usually be for the shortest time required to repair or replace the damage or, if you permanently relocate, the shortest time required for your household to settle elsewhere.

(b)               Fair Rental Value.  If a portion of the residence premises is rented to others and is not fit to live in as a result of a covered loss, the policy may cover the fair rental value of such premises plus any expenses that do not continue while it is not fit to live in.

(c)                Civil Authority Prohibits Use.  If a civil authority prohibits you from use of the residence premises as a result of direct damage to neighboring premises by a peril insured against, there may be limited coverage.  This coverage may include additional living expense and fair rental value described above, but for no more than two weeks.

5.                  Additional Coverages:

Many standard homeowner’s policies provide for additional coverages which must be identified on the declarations page, an endorsement or specifically provided for in the policy.  These additional coverages include:

(a)                Debris Removal.  The homeowner’s insurer will normally pay the reasonable expense for the removal of debris of covered property if a peril insured against that applies to the damaged property causes the loss.  This expense is included in the limit of liability that applies to the damaged property.  However, if the amount paid for the actual damage to the property plus the debris removal expense is more than the limit of liability for the damaged property, an additional 5% of that limit may be available for such expense under some policies.

In addition, some policies provide for payment of the reasonable expense, up to $1,000, for the removal from the residence premises of trees on the residence premises, or a neighbor’s trees which fell on the neighbor’s premises, provided there is damage to a covered structure or the trees block the driveway which prevent the use of a motor vehicle from entering or leaving the residence premises.

(b)               Reasonable Repairs.  If this additional coverage is listed on the declarations page, the insurer may pay the reasonable cost incurred by you for the necessary measures taken solely to protect covered property that is damaged by an insured peril from further damage.  However, this coverage does not increase the limit of liability that applies to the covered property.

As in a business owner’s or commercial property policy, the coverage provided under a homeowner’s policy may be on an “all risk” basis, which provides broad coverage for damage caused by any peril, subject to specific exclusions, or the more narrow “named peril” coverage, which provides coverage for loss caused by certain listed perils.  Normally damage from wind storm but not from flood are covered.  However, the coverage provided under the homeowner’s policy is subject to certain exclusions.  Unfortunately for Superstorm Sandy-related claims, many homeowners’ policies will exclude coverage for water or flood damage.  A typical exclusion in a homeowner’s policy will provide that the insurer does not insure for loss caused directly or indirectly by:  “Flood, surface water, waves, including tidal wave and tsunami, tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind, including storm surge.”  Alternatively a named peril policy may not list flood as a covered peril.  As with commercial policies, a careful distinction must be drawn between damages caused by water or flood, which may be subject to the above exclusion, and damages caused by wind.  As in the example above, homes which have had basements or other portions of the residence premises flooded by the storm surge may be subject to the water or flood exclusion if the storm surge was the sole cause of the damages.  However, if a tree was not knocked down by the winds and caused damage to the structure, then there would likely be coverage for the wind-caused damage.

Flood Insurance Coverage

Flood insurance may be obtained for certain homes.  Most flood policies are offered through the National Flood Insurance Program (“NFIP”).  However, private insurers may offer flood coverage which may provide more coverage with higher limits than provided for in policies issued through NFIP.  These policies provided coverage for damage to the residence premises and certain personal property caused by flood.  The coverage for damage to personal property may be more limited than that provided in a homeowner’s policy.  Where an insured owns a separate flood policy in addition to a homeowner’s policy, notice of claim should be given to both insurers as there may be wind-covered loss covered under the homeowner’s policy and flood-covered loss covered under the flood policy.

Deductibles

The coverage provided by the homeowner’s policies may be subject to certain deductibles which will be identified on the declarations page.  Most significantly with regard to Sandy, most policies contain a hurricane deductible which is typically in the amount of 2% of the limits of coverage.  However, Governor Christie has issued a proclamation that the storm was not a hurricane as defined in the policies and that therefore the hurricane deductibles will not apply.  This is a very favorable proclamation for insureds in New Jersey.  The governors in New York and Connecticut have issued similar proclamations.

Automobile Coverage

Unfortunately, many victims of Sandy have had their automobiles damaged or destroyed.  Automobile liability insurance is mandatory in the State of New Jersey so all insureds should have liability coverage which protects them in the event they cause injury to another person or property.  However there are other coverages available under an automobile policy which protect the insured for damage to their own vehicle.  These are separate coverages which are not mandatory and which must be purchased from the insurer.  These coverages include comprehensive insurance coverage which covers damage to an insured vehicle.  The declarations page of the automobile policy should be reviewed to verify that such comprehensive insurance coverage has been purchased and if so in what amount.  A deductible will likely apply.  If you have such comprehensive automobile insurance coverage and your automobile was damaged or destroyed, notice of the claim should immediately be reported to your automobile insurer.

Umbrella and Excess Policies

Umbrella and excess insurance coverage is generally coverage which is provided above the insurance coverage provided in a primary insurance policy.  These policies normally insure the same risk as the primary policy but provide greater limits of coverage.  However, these policies may also provide additional coverage beyond that provided in the primary policy.  Such umbrella and excess policies should be carefully reviewed to determine if there is additional coverage provided beyond that available in the primary homeowner’s policy, flood and automobile policies.

Lost Policies

Many individuals and businesses have lost their policies in the storm.  In that event you should contact your insurance broker who should have some record of your insurance coverage.

Claims For Benefits Under FEMA

In the event a homeowner or business owner either has no insurance coverage, or the insurance coverage does not provide flood coverage, you may be able to obtain the benefits provided by FEMA.  A memorandum which details the FEMA process can be viewed at www.ghclaw.com.  It is important that anyone seeking FEMA benefits immediately register with FEMA in order that a FEMA inspector can come to your property and determine whether you are eligible for FEMA benefits.

© 2012 Giordano, Halleran & Ciesla, P.C.

New 3.8% Medicare Tax Impacts Pass-Through Entities

Hunter J. Brownlee of Fowler White Boggs P.A. recently wrote an article regarding the Medicare Tax Increase that was published in The National Law Review:

Effective for 2013, the Internal Revenue Code will impose a 3.8% tax on investment income and other unearned income. The purpose of the tax is to partially pay for the cost of health care reform.

This new 3.8% Medicare tax applies to individuals who have investment or unearned income and who have modified adjusted gross income above certain thresholds ($200,000 for single individuals or $250,000 for married individuals filing jointly).

Investment or unearned income includes:

  • Income from interest, dividends, annuities, royalties and rents, less allocable expenses, unless the income is earned in an active business.
  • Business income earned in a passive activity (for example, business income earned by a partnership or S corporation in which an individual invests, if the individual does not materially participate in the business activity).
  • Net taxable gains attributable to the sale of non-business property.

With respect to shareholders who are active in an S-corporation’s business, the 3.8% Medicare tax will have no effect because their share of the corporation’s active income will not be subject to the new tax. However, if a shareholder is not active in the business, the new tax will apply to pass-through income from the S-corporation.

The new 3.8% Medicare tax also affects limited liability companies (“LLC”) taxed as partnerships. Generally, if a member of an LLC takes the position that his distributive share of the LLC’s income is not subject to self-employment tax on the grounds that he is a limited partner and not active in the business, this income is likely subject to the 3.8% Medicare tax. However, if the member treats a portion of his distributive share of the LLC’s income as income from self-employment on the grounds that he is an active member, the 3.8% Medicare tax would not apply.

Gain from the sale of interests in pass-through entities, such as LLCs, partnerships and S-corporations, can be subject to the 3.8% Medicare tax, to the extent attributable to the entity’s non-business property. For example, if an individual owns an interest in a pass-through entity and sells that interest at a gain, the portion of the gain attributable to the entity’s passive portfolio investments and to business property used in the business in which the individual does not actively participate is subject to the 3.8% Medicare tax.

Finally, with respect to capital gains, the capital gains tax rate will be 20% in 2013 and the 3.8% Medicare tax may apply to certain high income individuals as discussed above.

©2002-2012 Fowler White Boggs P.A.

Insurer Bound by Policyholder’s Settlement of Questionable Liability Case

Neal, Gerber & Eisenberg LLP‘s Jill Berkeley recently had an article, Insurer Bound by Policyholder’s Settlement of Questionable Liability Case, published in The National Law Review:

In Home Federal Savings Bank v. Ticor Title Insurance Company, No. 1:10-cv-0999 (Sept. 6, 2012), the Seventh Circuit held that the policyholder mortgage company was entitled to be reimbursed for settling a potentially covered mechanics lien action, even when it had a meritorious defense.  The court emphasized that the choice to settle rather than risk paying for litigation and possibly losing priority of its security interest was the prerogative of the insured, when faced with abandonment by its insurer.  The insured specifically purchased coverage for subsequently filed mechanics liens to cover the risk of litigation costs of defense.  “As we see the case, Home Federal was seeking only the peace of mind it had paid for, not a windfall.”

The court affirmed the longstanding Indiana rule that when an insured elects to settle a third party claim after the insurer has wrongfully denied, the settlement is binding on the insurer so long as the claim was within the policy’s coverage and the settlement was reasonable and made in good faith.  Therefore, the Seventh Circuit reversed the ruling of the district court, finding that the court should have granted the insured’s motion for summary judgment and denied the insurer’s motion.

© 2012 Neal, Gerber & Eisenberg LLP

Crop Insurance Will Pay On Drought-damaged Crops

Aaron M. Phelps of Varnum LLP recently had an article regarding The 2012 Drought published in The National Law Review:

Varnum LLP

 

Victims of drought might be eligible for crop insurance indemnity payments if they take the right steps. According to Jan Eliassen – a private risk management education consultant for the crop insurance industry, USDA’s Risk Management Agency and several state departments of agriculture – policyholders should contact the crop insurance company that sold the policy before putting their crop acres to another use by harvesting for silage, diverting irrigation from the crops or by abandoning the acres.

Producers should give damage notice within 72 hours of discovering the damage, which can be tricky when damage is due to developing drought, Eliassen said. Producers must provide the damage notice no later than 15 days after the end of the insurance period, even if the crop has not been harvested.

It’s very important to work closely with the company before making any changes to the crop, Eliassen said. The company must appraise and release the acres before the crop is destroyed or abandoned. Producers also must continue to care for and maintain crops that have been damaged and will be taken to harvest. But how much maintenance is required in such cases? Producers are required to continue to care for the crop using generally recognized practices. They are encouraged to seek advice from agriculture experts in the area as to what that entails.

© 2012 Varnum LLP