Category: Insurance Coverage

Slogans versus substance in the battle over ObamaCare's future: ANALYSIS

An article regarding ObamaCare written by Wendell Potter of the Center for Public Integrity recently appeared in The National Law Review:

Cries of ‘Hands off my health care’ mask the benefits of the Affordable Care Act

Hands off my health care!

Remember those words from the health care reform debate of two years ago? I’m confident we’ll be seeing them on protest signs in Washington again this week as the Supreme Court hears arguments on the constitutionality of the Affordable Care Act. And we’ll see them again when the protest campaigns shift into high gear this summer.

One of the rules of effective communications is to keep it simple. In attacking something you don’t like, use as few words as possible, and make sure those words pack an emotional wallop. That’s why lies about “death panels” and a “government takeover” of health care have been so potent. Unfortunately for those advocating reform, it’s far more challenging to explain and defend a law as complicated as the Affordable Care Act.

Maybe, then, supporters of the law should co-opt the “hands off” slogan and make it their own. That would require adding just a few more words here and there to make clear what would be lost if the law is repealed, gutted or declared unconstitutional.

Here’s are some suggestions:

“Hands off my health care! Granny doesn’t need her meds all year anyway!”

The Affordable Care Act is closing the despised and even deadly “doughnut hole” in the Medicare prescription drug program, which was designed in 2003 largely by lobbyists for insurance and pharmaceutical companies who were more interested in protecting their companies’ profits than helping seniors stay alive. The way the law was cobbled together, Medicare beneficiaries get prescription drug coverage only up to a certain amount. When they reach that limit, they fall into the “doughnut hole” and have to pay about $4,000 out of their own pockets for their prescriptions before coverage resumes. As a consequence, many people stop taking their medications because they don’t have the money to pay for them. And many of them die. The Affordable Care Act has already shrunk that gap and will close it completely in 2020.

“Hands off my health care! Who cares if insurers refuse to cover sick kids?”

Before the Affordable Care Act, insurance companies routinely refused to insure children who were born with disabilities or who developed life-threatening illnesses like diabetes or cancer. It was perfectly legal for them to refuse to sell coverage to anyone — even children— who had what insurers call a “pre-existing condition.” The reform law already requires insurers to cover all kids, regardless of health status. It will apply to the rest of us in 2014.

“Hands off my health care! My 24-year-old daughter can just stay uninsured!”

Insurers have long had a policy of kicking young adults off their parents’ policies when they turn 23. Many of these young folks don’t have the money to buy coverage on their own—and a lot of them can’t buy it at all because of, you guessed it, pre-existing conditions. That’s why young people comprise the biggest segment of the uninsured population. Because the Affordable Care Act allows parents to keep dependents on their policies until they turn 26, an estimated 2.5 million young people had become insured again as of the end of last year.

“Hands off my health care! If I lose my coverage because I lose my job, so be it!”

Millions of Americans fall into the ranks of the uninsured every year when they get laid off. That’s one reason the number of people without coverage swelled to 50 million during the recession. Many of them can’t afford to buy insurance on their own and many of them have—you guessed right again—pre-existing conditions and can’t buy it at any price. Starting in 2014, not only will the Affordable Care Act prohibit insurers from refusing to sell coverage to people of any age because of their medical history, it will also provide subsidies to low-income individuals and families to help them buy insurance.

“Hands off my health care! It’s not my problem if your insurance company dumps you when you get sick!”

To avoid paying claims, insurers for years have cancelled the coverage of policyholders when they got sick. A former nurse in Texas testified before Congress in 2009 about getting a cancellation notice from her insurer the day before she was to have a mastectomy because she had failed to note on her application for coverage that she had been treated for acne. The Affordable Care Act makes it illegal for insurers to cancel policies for any reason other than fraud or failure to pay premiums.

“Hands off my health care!” Maybe we ought to think that through a little bit more before we take to the streets with those words on our placards. Insurers who profited from the way things used to be will laugh all the way to the bank if you start waving those signs, but you and people you love might live to regret it. On the plus side, at least for the special interests, you probably won’t live as long.

Slogans versus substance in the battle over ObamaCare's future

Signs from a Tea Party protest in St. Paul, Minn.Flickr Creative Commons/Fibonacci Blue

Reprinted by Permission © 2012, The Center for Public Integrity®

Protecting Your Rights as an Additional Insured: Why a Certificate of Insurance Is Not Enough

An article by Daniel J. Struck and Neil B. Posner of Much Shelist, P.C. regarding Certificates of Insurance recently appeared in The National Law Review:

When entering into some types of contracts, you likely require that your business be named as an “additional insured” on the other party’s insurance policies. You might do this so that your insurance will not be depleted by defense and indemnification costs for losses for which you might be legally liable by virtue of your relationship to the other party, rather than due to your own direct negligence.

There are many situations in which it makes sense to be named as an additional insured. If you are a building owner, for example, you want to be an additional insured on the property and general liability insurance of your tenants in case one of them damages your building or an accident occurs involving a visitor. If you are a mortgagee, you want to be an additional insured on the property and general liability insurance of your mortgagors in case there is damage to the mortgaged property that reduces its value. If you are the owner or a contractor on a construction project, you want to be an additional insured on the general liability insurance of your contractors and subcontractors in case there is an injury to one of their employees. If you are a distributor or a retailer, you may want to be an additional insured on the insurance programs of the manufacturers of the products that you sell. Other examples abound. Despite the ubiquity of additional insured requirements, however, misconceptions about them are numerous.

Your efforts to protect your business cannot stop at simply including an additional insured requirement in your commercial contracts. Even the strongest possible additional insured provision does little good if the other party does nothing to secure your status as an additional insured with its insurers. Nor are your interests served if you do nothing to confirm that your business has indeed been named as an additional insured. In this context, trust is never a suitable substitute for concrete verification, and otherwise careful and responsible businesses are too often surprised because one of two very basic pre-conditions have not been met: (1) they never actually became additional insureds, or (2) there is no insurance in effect that provides coverage for a particular accident or loss. How is it possible that such basic conditions can trip up sophisticated businesses? And what can be done to avoid these pitfalls?

A Certificate of Insurance Is Not Insurance

It is not unusual that the only evidence of additional insured status is a form document—known as a certificate of insurance—that is usually prepared by the insurance broker for the named insured. The standard certificate of insurance generally states that the additional insured is an insured under the listed policy(ies) and that nothing in the certificate supersedes, changes or replaces what is contained in the identified policy(ies). All too frequently, certificates of insurance are collected, stored away and quickly forgotten. But a certificate of insurance does not create insurance coverage or confer status as an insured, nor is it part of an insurance policy.

Additional insured status is effectively conferred through an additional insured endorsement (i.e., an amendment to the terms of an insurance policy that is expressly incorporated into the relevant insurance policy). These amendments can take the form of an endorsement that specifically names a particular additional insured, or a general endorsement that identifies some class of parties as additional insureds.

If there is a dispute about whether the necessary additional insured endorsement was actually issued, the certificate will only be one of the factors that is taken into account. For example, if there is evidence that the insurer failed to act on a request to add an additional insured, the putative insured may be able to establish that it actually is an insured. If no endorsement was ever issued, and all the intended additional insured has is a certificate of insurance, the frustrated party may have a basis for a declaratory judgment claim against the insurer, as well as claims against the named insured and its insurance broker. But being forced to sue to establish insured status is not the same as being provided with a defense against an ongoing claim.

Here are a few best practices that a party can implement to help make certain its status as an additional insured is in place:

  • At a minimum, always insist on receiving a copy of the relevant additional insured endorsement because this is the instrument that establishes its status. A certificate of insurance is not enough.
  • An additional insured endorsement does not, however, state an insurance policy’s terms and conditions. In order to avoid being surprised by unexpected policy terms (e.g., a strict notice requirement or unfavorable notice of cancellation provisions), require a copy of the entire insurance policy under which you are an additional insured and be sure to read it.
  • Retain additional insured endorsements and the relevant insurance policies for as long as there is any potential that claims triggering those policies might be made.

A Certificate of Insurance Does Not Necessarily Entitle You to Notice of Cancellation

When you require that you be named as an additional insured, is it reasonable to expect that your status will remain in effect throughout the stated term of the insurance policy? Not necessarily. For example, what if you are a landlord and there is a fire at a restaurant operated by a financially troubled tenant in one of your properties? Unknown to you, the first-party property insurance policy to which you are an additional insured was cancelled two months before the fire. You may still be able to recover under your own property insurance policy, but that will affect your loss experience.

In order to avoid such situations, additional insured provisions in commercial contracts often contain a requirement that the additional insured receive notice of a cancellation at the same time as the named insured. If your business, however, relies only on a certificate of insurance as proof of its status, you run a heightened risk of an unwanted outcome.

Certificates of insurance are form documents. The most recent version of the standard certificate of insurance—often referred to as an ACORD certificate—contains a change in its terms that has the potential to surprise unsuspecting additional insureds. The current form states that “should any of the above described polices be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions.” In contrast, the pre-2009 version provided that “should any of the above described policies be cancelled before the expiration date thereof, the issuing insurer will endeavor to mail…written notice to the certificate holder in the event the insurance policy is cancelled.”

On its face, the old ACORD certificate at least appeared to support the expectation that an additional insured should receive a notice of cancellation from the insurer. However, it was dangerous to rely on those terms because the certificate itself was not part of an insurance policy. Insurers regularly took the position that the ACORD certificate could not modify the terms of an insurance policy.

The new form, however, is even more problematic. The current ACORD certificate refers to the notice of cancellation provisions of the relevant insurance policy. If the relevant insurance policy provides that the only party entitled to receive notice of cancellation is the named insured, then the new ACORD certificate is not likely to support the argument that an additional insured is also entitled to receive notice of cancellation. It is all well and good that your commercial contracts require that you receive advance notice of any cancellation But remember that an insurer has no reason to know the terms of the contract between you and its insured. If you never insist on reviewing the actual additional insured endorsement and the relevant insurance policy, you have no way of knowing whether or not you are entitled to notice of cancellation from the insurer.

What can an additional insured do to make certain that it receives advance notice of the cancellation of an insurance policy? Following are some things you should consider and steps you can take to protect your interests as an additional insured:

  • The preferred approach is to request that the insured have its insurer provide an endorsement stating that you, as an additional insured, are entitled to the same rights as the named insured in the event of cancellation. This can take the form of a separate endorsement or an amendment to an additional insured endorsement. Although you may receive pushback from the insured and its insurers, with suitable counsel and persistence, you may be able to obtain the requested endorsement.
  • Your contractual additional insured provisions should be revised to reflect the foregoing requirements.
  • If it is not possible to secure the requested notice provisions via endorsement, the best alternative is to require that the insured provide prompt notice of cancellation and/or regular confirmations that the relevant insurance remains in force.

Additional insured status is an asset that imposes certain obligations on the party enjoying that status. Furthermore, it should not be regarded as a “freebie” to be treated in a passive manner. It is important to take an active interest in securing and knowing your rights—or risk erosion of their value. Ultimately, to be sure that you have the additional insured protection that you expect consistent with your needs, consult with your lawyer and insurance broker before signing on the dotted line.

© 2012 Much Shelist, P.C.

How September 11 Changed Insurance

Recently posted in the National Law Review an article by Jared Wade of Risk and Insurance Management Society, Inc. (RIMS) regarding the impact on the entire insurance industry  after  September 11:

We are now more than 10 years removed from the worst terrorist attack in history. In the days and months following September 11, terrorism insurance weighed so heavily on the mind of both policyholders and insurers that the federal government was forced to add backstop capacity to the market.

But Jeff Beauman, vice president of all-risk underwriting for FM Global, explains that 9/11 affected much more than just one line of coverage. It arguably had a bigger impact on the entire insurance industry than even the vast losses suggest. Contract certainty was something that few talked about — and even fewer expected — prior to the attack.

Most insurance buyers will still tell you that they want their policies quicker, but improvement has been made. Furthermore, the number of lines involved in the claims made every insurer rethink its risk appetite. The industry, like the world, will never be the same.

RM: How did September 11 change insurance?

Jeff Beauman: Probably the biggest change I’ve seen has been a much higher interest in contract certainty. If you remember, in the months following 9/11, the concern that so many clients had, particularly those affected by the event, was that the policies they had purchased had not yet been issued. The industry as a whole had not been very good at getting policies issued quickly. Since that time, the industry has been working very hard to do so.

RM: Are clients still very concerned about contract certainty? How far along has the industry come?

Beauman: It’s always going to vary from one carrier to the next, but I do think that customers are much more appreciative of companies that are able to get policies issued on time-and [those] issuing policies where the language is very well understood by both parties. In terms of FM Global, we’re now issuing about two-thirds of our master policies before the effective date and 90% within 30 days.

What that means is that our clients have the written documentation very quickly after they decide to purchase coverage with us. Generally, I think, whether you talk to policyholders or underwriters, you will find that this emphasis on contract certainty has probably been a good thing for us as an industry.

RM: How so?

Beauman: It caused us to raise our game. Beforehand, you had a process by which policies would be issued “at some point,” and people came to accept it as normal because every [insurer] was equally bad. There was no good way for a client to compare one carrier to the next.

Now, you do have an expectation on the part of clients because, after big disasters, they have seen the importance of having that policy language issued. It’s something they now ask for. It gives the client a greater sense of confidence that they know what they have as part of their overall risk management strategy.

And the terrorism event of 9/11 helped to highlight the weakness the industry had in this area because there were so many claims being made without adequate policy documentation. There were disputes that received a lot of notoriety in the courts. So September 11 helped the industry improve.

RM: Was this because dealing with terrorism claims was so new and the specific policy language was so unfamiliar to everyone? Hurricane Andrew had many claims of its own, but did the particulars of the contract language matter less in that instance because hurricane claims had been dealt with before?

Beauman: Yes, that’s right. Part of what allowed the industry to not focus on contract certainty [in the past] was that they had some personal, first-hand experience to fall back on. Terrorism was so new to everybody and the event itself was so unusual, that it did cause a wake up. When you don’t have that personal experience to fall back on, you have to rely on policy language.

RM: There must have been a lot of people after 9/11 who believed that they had coverage for terrorism but weren’t sure what it consisted of.

Beauman: Exactly. In terms of the World Trade Center, limits were purchased under the presumption that the two buildings would never be damaged in the same event. And further complicating things was that it was what is considered a “clash event” because there were a lot of lines all involved in the same event, something no one had anticipated.

You had hull coverage for aviation because you had three airplanes involved. You had a lot of automobile policies that were affected. You had life insurance, obviously. You had property insurance. You had fine arts coverage. You had a lot of types of cargo insurance. You just had a lot of smaller lines that are not typically involved in the same occurrence. That forced insurers to re-evaluate their risk appetite and how they go about establishing their maximum lines.

RM: Has there ever been a “clash event” as broad as 9/11?

Beauman: No — and I would hope that none of us ever see an event like it again. It was the worst type of clash event because it was something that had never been imagined beforehand by anyone aside from the people who perpetrated it.

Take a typical event like Hurricane Irene that just happened. Underwriters understand that there is going to be wind damage. They understand there is going to be flood damage. They understand that there is going to be some damage to automobiles and buildings. They understand that there may be some people who lose their lives. Because they can visualize it, they can establish what their risk exposure might be, and they can operate their business comfortably depending on their risk appetite. 9/11 caused all underwriters to reconsider their risk appetite to make sure they weren’t over-extended.

———-

Jared Wade is senior editor of Risk Management.

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

Broker Malpractice Claim Does Not Require Expert Testimony Proving Reasonableness of Underlying Settlement

Recently posted in the National Law Review an article by Dana Ferestien of Williams Kastner  regarding the reasonableness of an underlying products liability settlement is not a prerequisite to a broker malpractice claim.

 

On September 12, 2011, United States District Judge Lonny Suko ruled in Colman Coil Manufacturing, Inc. v. Seabury & Smith, Inc., 2011 U.S. Dist. LEXIS 102238, that expert testimony regarding the reasonableness of an underlying products liability settlement is not a prerequisite to a broker malpractice claim.

The insured manufacturer had been sued for damages caused by an ammonia link in their equipment. Their liability insurer, Wausau, provided a reservation of rights defense, but filed a separate coverage action seeking a declaration that the policy’s total pollution exclusion eliminated coverage. Based upon advice from both their personal coverage counsel and appointed defense counsel, the insured elected to settle the products liability lawsuit for $1.15 million, with the insured paying $450,000 of the settlement. The insured then sued its broker, Seabury & Smith, alleging that their negligence had resulted in incomplete insurance.

Seabury & Smith argued on summary judgment that the professional malpractice claim failed, as a matter of law, because the insured did not have any expert to establish the reasonableness of the underlying settlement. Judge Sukorejected the argument, noting that there is no Washington authority imposing any expert testimony requirement. Judge Suko distinguished this scenario from cases in which there has been a consent judgment to settle the underlying liability claim. The Court concluded that it is for the finder of fact to weigh whether the insured acted reasonably in settling the underlying claim.

© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

How the NCAA Has Used the Term “Student-Athlete” to Avoid Paying Workers Comp Liabilities

Recently posted in the National Law Review an article by Jared Wade of Risk and Insurance Management Society, Inc. (RIMS) regarding the how and the why of the NCAA’s creation and widespread promotion of the term “student-athlete.”

Anyone who has spent much time following college sports should be aware of the NCAA’s hypocrisy. It demands purity from its “amateur” “student-athletes” while at the same time taking in billions in revenue from their on-field and on-court efforts. And whenever the nation expresses outrage at the revelation of yet another “scandal” in which a player received some compensation for their athletic abilities, there is much hand-wringing and finger-pointing from the sport’s governing body, which in turn imposes sanctions and other penalties against the offending schools and players.

Well, never before has anyone detailed this NCAA hypocrisy better than Taylor Branch did in the latest cover story of The Atlantic, “The Shame of College Sports.”If this sort of stuff interests you, the looooong account is well worth your time to read.

For our purposes, however, the most interesting excerpt chronicles the how and the why of the NCAA’s creation and widespread promotion of the term “student-athlete.” According to Branch, the main reason that former NCAA head Walter Byers, in his own words, “crafted the term student-athlete” and soon made sure it was “embedded in all NCAA rules and interpretations” was because it was an excellent defense against being held liable for workers compensation benefits that those injured in athletic competition could seek.

“We crafted the term student-athlete,” Walter Byers himself wrote, “and soon it was embedded in all NCAA rules and interpretations.” The term came into play in the 1950s, when the widow of Ray Dennison, who had died from a head injury received while playing football in Colorado for the Fort Lewis A&M Aggies, filed for workmen’s-compensation death benefits. Did his football scholarship make the fatal collision a “work-related” accident? Was he a school employee, like his peers who worked part-time as teaching assistants and bookstore cashiers? Or was he a fluke victim of extracurricular pursuits? Given the hundreds of incapacitating injuries to college athletes each year, the answers to these questions had enormous consequences. The Colorado Supreme Court ultimately agreed with the school’s contention that he was not eligible for benefits, since the college was “not in the football business.”

The term student-athlete was deliberately ambiguous. College players were not students at play (which might understate their athletic obligations), nor were they just athletes in college (which might imply they were professionals). That they were high-performance athletes meant they could be forgiven for not meeting the academic standards of their peers; that they were students meant they did not have to be compensated, ever, for anything more than the cost of their studies.Student-athlete became the NCAA’s signature term, repeated constantly in and out of courtrooms.

Using the “student-athlete” defense, colleges have compiled a string of victories in liability cases. On the afternoon of October 26, 1974, the Texas Christian University Horned Frogs were playing the Alabama Crimson Tide in Birmingham, Alabama. Kent Waldrep, a TCU running back, carried the ball on a “Red Right 28” sweep toward the Crimson Tide’s sideline, where he was met by a swarm of tacklers. When Waldrep regained consciousness, Bear Bryant, the storied Crimson Tide coach, was standing over his hospital bed. “It was like talking to God, if you’re a young football player,” Waldrep recalled.

Waldrep was paralyzed: he had lost all movement and feeling below his neck. After nine months of paying his medical bills, Texas Christian refused to pay any more, so the Waldrep family coped for years on dwindling charity.

Through the 1990s, from his wheelchair, Waldrep pressed a lawsuit for workers’ compensation. (He also, through heroic rehabilitation efforts, recovered feeling in his arms, and eventually learned to drive a specially rigged van. “I can brush my teeth,” he told me last year, “but I still need help to bathe and dress.”) His attorneys haggled with TCU and the state worker-compensation fund over what constituted employment. Clearly, TCU had provided football players with equipment for the job, as a typical employer would—but did the university pay wages, withhold income taxes on his financial aid, or control work conditions and performance? The appeals court finally rejected Waldrep’s claim in June of 2000, ruling that he was not an employee because he had not paid taxes on financial aid that he could have kept even if he quit football. (Waldrep told me school officials “said they recruited me as a student, not an athlete,” which he says was absurd.)

The long saga vindicated the power of the NCAA’s “student-athlete” formulation as a shield, and the organization continues to invoke it as both a legalistic defense and a noble ideal. Indeed, such is the term’s rhetorical power that it is increasingly used as a sort of reflexive mantra against charges of rabid hypocrisy.

Today, the term “student-athlete” is intended to carry with it the nobility of amateur athletics that the NCAA epitomizes.

Originally?

It was a good protection for keeping those carried off the field from suing the schools.

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

Fan Death Re-Emphasizes MLB Ballpark Safety

Recently posted in the National Law Review an article by Risk and Insurance Management Society, Inc. (RIMS) regarding risk, death and baseball…

Risk, death and baseball: three exciting topics that have unfortunately converged to become a grave concern for Major League Baseball this season. One fan recently died in Rangers Ballpark in Arlington, Texas, while reaching over a railing for a ball. Last summer, another fan fell 30 feet and fractured his skull.

Rangers Ballpark, the site of a recent fan death that has caused all MLB teams to re-evaluate fan safety.

Risk, death and baseball: three exciting topics that This, combined with some other high-profile incidents at ballparks in recent years, has led all teams to reconsider the height of their safety railings and ponder other potential solutions to keep spectators safe.

Yesterday, ESPN’s “Outside the Lines” program featured a great investigative report into the matter. You can watch Texas Rangers owner/legend Nolan Ryan discuss the controversy here. And below is the opening paragraphs of their written story.

Ronnie Hargis remembers his right hand brushing Shannon Stone’s shorts as he tried to grab the 6-foot-3-inch firefighter who went over a front-row railing in Section 5 of Rangers Ballpark in Arlington.

But Hargis missed. Stone’s 6-year-old son Cooper, who had been standing next to Hargis, saw his dad fall 20 feet to the concrete below. Stone, 39, died about an hour later.

Even though Hargis struggles to come to terms with the events of July 7, he does not believe that the 33-inch railing that Stone fell over was too low. He joins a cadre of fans who disagree with the Rangers’ decision to raise all front-row railings to 42 inches in response to Stone’s fall and two other falls before it.

As officials with other Major League Baseball ballparks say they’re currently reviewing their railings, baseball fans are divided on whether to raise the railings, keep them where they are, or implement alternative safety measures, such as nets.

It isn’t just the Worldwide Leader who is interested in how teams are keeping fans safe, however.

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

Washington Court of Appeals Rules that Liability Insurer Defending under Reservation of Rights is not Entitled to Reimbursement in the Absence of Express Policy Language Expressly Reserving Such a Right

Recently posted in the National Law Review an article by Dana Ferestien of Williams Kastner regarding when a liability insurer provides a reservation of rights defense, is it ever entitled to reimbursement of defense costs paid if a court later determines that there is no duty to defend?

 

On July 25, 2011, the Court of Appeals addressed what had been an open question in Washington:

The coverage dispute arose from claims that Immunex had artificially inflated the price of prescription drugs. After litigation had been pending for several years and Immunex had already incurred substantial defense fees and costs, Immunex tendered the claims to National Surety, its excess liability insurer, for defense and indemnity. National Surety denied coverage for the claims, but agreed under a reservation of rights to provide a defense with the right to reimbursement if a court later determined that there was no duty to defend.

The King County Superior Court determined that there was no coverage and, therefore, National Surety owed no duty to defend Immunex. But the trial court also ruled that National Surety was obligated to pay Immunex’s defense costs until the date that the court confirmed the claims were not covered, unless National Surety could establish actual prejudice resulting from Immunex’s late tender. Immunex appealed the finding of no coverage, and National Surety cross-appealed the trial court’s determination that its ruling applied prospectively only.

After agreeing that there was no coverage for the underlying claims, the Court of Appeals affirmed that National Surety remained obligated for defense costs incurred up until the trial court’s summary judgment rulings unless National Surety could prove actual prejudice resulting from Immunex’s late tender. Relying upon Washington cases noting the broader scope of a liability insurer’s duty to defend, the court reasoned that “payment of defense costs for claims that are potentially covered is part of the bargained-for exchange between the insurer and the insured” and the reservation of rights defense provides an insurer with “the benefit of insulating itself from a bad faith claim and possibly coverage by estoppel.”

Notably, the court indicated that its decision may have been different had National Surety’s policy included express language reserving to the insurer the right to reimbursement in the event that it defends a claim under a reservation of rights and then obtains a court determination of no coverage. Whether the Court of Appeals would actually enforce such a provision remains to be seen. But liability insurers now should give careful consideration as to whether to include a reimbursement provision in policies issued to Washington insureds.

In reaching this outcome, the Court of Appeals rejected several arguments advanced by National Surety. The court declined to draw any distinction between instances where an insurer defends under a reservation of rights because Washington law is unresolved as to the meaning of policy language as opposed to instances where a claim involves unresolved questions of fact for which there may or may not ultimately be coverage. The Court of Appeals also rejected reimbursement based upon theories of unilateral implied contract or unjust enrichment. And the court declined to reach a different outcome because National Surety had yet to reimburse Immunex for any of its defense costs, explaining that such a result would improperly reward insurers who withhold defense costs payments.

© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

Wisconsin Supreme Court Addresses Issues Concerning the Default Judgment Statute, the Direct Action Statute, and Personal Liability for Corporate Officers

Recently posted  posted in the National Law Review an article by Heidi L. Vogt and Jessica M. Swietlik of von Briesen & Roper, S.C. regarding the Wisconsin Supreme Court issued a decision in Casper, et al. v. American International South Ins. Co.

 Casper, et al. v. American International South Ins. Co., et al., 2011 WL 81

On July 19, 2011, the Wisconsin Supreme Court issued a decision in Casper, et al. v. American International South Ins. Co., et al., 2011 WI 81 (“Casper”) in which it addressed three issues: 1) the excusable neglect standard relative to default judgments; 2) whether an insurance policy must be delivered or issued in the State of Wisconsin in order to subject the insurer to a direct action under Wis. Stat. §§ 632.24 and 803.04(2); and 3) whether a corporate officer may be held personally liable for non-intentional torts that occur within the scope of employment.

The Casper case arises from a motor vehicle accident. Mark Wearing, a co-employee of Bestway Systems, Inc. (“Bestway”) and Transport Leasing/Contract Inc. (“TLC”), struck the Caspers’ minivan from behind, seriously injuring all five passengers in the Caspers’ vehicle.

Investigators learned that Wearing was under the influence of oxycodone, diazepam, and nordiazepam when the collision occurred. At the time of the accident, Wearing was en route to make a delivery for a Bestway customer. Jeffrey Wenham, the CEO of Bestway, had allegedly approved a driving route for Wearing on this particular delivery that required him to drive 536 miles through several states overnight. Wearing claimed he was told he would be fired if he did not complete the route as planned. However, Wenham had never met Wearing and the route that Wenham apparently approved was designed a year and a half prior to the accident. An expert hired by the Caspers opined that the route violated the hours of service requirements of the Federal Motor Carrier Safety Regulations (“FMCSR”) and was unsafe.

The Caspers brought suit against fourteen named defendants, including: Mark Wearing, his co-employers Bestway and TLC, Bestway’s CEO Jeffrey Wenham, and TLC’s excess insurer, National Union Fire Insurance Company of Pittsburgh PA (“National Union”). The appeals in this case stem from three orders issued by the trial court, all of which were affirmed by the court of appeals: 1) its order granting National Union’s request for a 7-day extension to file its answer and denying the Caspers’ motion for default judgment against National Union on the grounds that National Union had demonstrated excusable neglect; 2) its order granting summary judgment to National Union on the grounds that under Kenison v. Wellington Ins. Co., 218 Wis. 2d 700, 582 N.W.2d 69 (Ct. App. 1998) the Caspers could not maintain a direct action against National Union because its insurance policy was not issued or delivered in Wisconsin; and 3) its order denying Wenham’s motion for summary judgment on the Caspers’ claims for negligent training and supervision. The Wisconsin Supreme Court considered each of these issues separately, and affirmed in part, reversed in part, and remanded with instructions consistent with its decision.

The court affirmed on the first issue, holding that the trial court did not erroneously abuse its discretion by finding that National Union’s “lost in the mail” excuse amounted to excusable neglect such that granting an extension and denying the motion for default judgment was appropriate. The court noted that “although courts should be skeptical of glib claims that attribute fault to the United States Postal Service,” it was satisfied that a reasonably prudent person could neglect a deadline when correspondence gets lost, as was the case with National Union here.

Second, the court reversed on the direct action issue and thereby explicitly overruled Kenison. In doing so, the court acknowledged that the court of appeals properly applied Kenison as it lacked authority to ignore it. In Kenison, the court of appeals concluded that Wis. Stat. § 631.01 limited the application of the direct action statute, § 632.24, to insurance policies issued or delivered in Wisconsin. The Casper court disagreed. After carefully examining the plain language and the legislative history of Wis. Stat. §§ 631.01, 632.24, and 803.04(2), the court concluded that “Section 803.04(2) explicitly and § 632.24 by necessary implication are intended to apply to liability insurance policies delivered or issued for delivery outside Wisconsin, so long as the ‘accident, injury or negligence occurred in this state.’” Accordingly, the Caspers should have been allowed to maintain a direct action against National Union even though its policy was neither issued nor delivered in Wisconsin because the accident occurred in Wisconsin.

With regard to the third issue, the Wisconsin Supreme Court agreed with the lower courts that there are some instances where corporate officers like Wenham can be held personally liable for non-intentional torts committed in the course of employment. Both the trial court and the court of appeals had ended their inquiries there, finding that issues of fact existed regarding Wenham’s alleged negligent supervision and training of Wearing such that summary judgment was not appropriate on those claims. However, the Wisconsin Supreme Court considered and ultimately reversed on public policy grounds, holding that even if Wenham’s approval of the route that allegedly violated the FMCSR was a cause of the accident, “the results are so unusual, remote, or unexpected that, in justice, liability ought not be imposed.”

Justice Bradley issued an opinion concurring in part and dissenting in part, and Chief Justice Abrahamson joined in Justice Bradley’s concurrence/dissent.

©2011 von Briesen & Roper, s.c

The New Wave of Insurance Construction Defects? Four States Enact Statutes Favoring Coverage for Faulty Workmanship

Recently posted in the National Law Review an article by Clifford J. Shapiro and Kenneth M. Gorenberg of Barnes & Thornburg LLP about whether construction defects are covered by commercial general liability (“CGL”) insurance policies and briefly discuss four new statutes in various states.

 

 

Courts across the country remain split on the issue of whether claims alleging construction defects are covered by commercial general liability (“CGL”) insurance policies. The primary battle ground has been whether such claims involve an accidental “occurrence” within the meaning of the CGL policy coverage grant. Now this issue is getting substantial attention from state legislatures. Four states recently enacted new legislation addressing insurance coverage for construction defect claims, and each statute favors coverage,albeit in different ways and to varying degrees. These statutes signal that the battle over whether construction defects constitute an “occurrence” may have shifted from the courts to state legislatures. The four new statutes are discussed briefly below.

Colorado

Section 13-20-808 of the Colorado Code, effective May 21, 2010, creates a presumption that a construction defect is an accident, and therefore an “occurrence” within the meaning of the standard CGL insurance policy. To rebut this statutory presumption, an insurer must demonstrate by a preponderance of the evidence that the property damage at issue was intended and expected by the insured. The statute expressly does not require coverage for damage to an insured’s own work unless otherwise provided in the policy, leaving that potentially to be decided by Colorado’s courts. In addition, the act does not address or change any policy exclusions, the scope of which will also remain an issue possibly to be determined in court. Thus, it appears that the Colorado statute resolves in favor of coverage that construction defect claims give rise to an accidental “occurrence” under the CGL policy coverage grant, but leaves most other insurance issues affecting coverage in the construction defect context subject to further attention by the courts.

Hawaii

Chapter 431, Article 1 of the Hawaii Revised Statutes provides that “the term ‘occurrence’ shall be construed in accordance with the law as it existed at the time that the insurance policy was issued.” The statute does not declare what the “the law” is now or what “the law” was at any time in the past. However, the preamble explains that the appellate court decision in Group Builders, Inc. v. Admiral Ins. Co., 231 P.3d 67 (Hawaii 2010) “invalidates insurance coverage that was understood to exist and that was already paid for by construction professionals,” and that the purpose of the statute is to restore the coverage that was denied. While not necessarily clear from the appellate court decision, coverage arguably was denied for both defects in the insured’s own work and also consequential property damage caused by faulty workmanship.

Thus, it appears that the legislature’s intent was to allow insurers to deny coverage under policies issued after May 19, 2010 to the extent permitted by the courts based on Group Builders and whatever further judicial decisions may follow, but to require application of the more favorable judicial interpretations of coverage for construction defects that the Hawaii legislature believes existed before that time. In other words, the Hawaii statute appears to be an attempt to preserve more favorable treatment of coverage for construction defect claims for projects currently underway which were insured under policies issued before Group Builders was decided.

This approach, of course, still leaves it to the courts to interpret the applicable law with respect to any particular claim (i.e., the law that existed at the time the policy was issued). But we cannot help but think that the Hawaii courts may be influenced going forward to find more readily in favor of coverage due, at least in part, to the part of the preamble to the legislation that states: “Prior to the Group Builders decision … construction professionals entered into and paid for insurance contracts under the reasonable, good-faith understanding that bodily injury and property damage resulting from construction defects would be covered under the insurance policy. It was on that premise that general liability insurance was purchased.”

Arkansas

Arkansas Code Section 23-79-155 (enacted on March 23, 2011) requires CGL policies offered for sale in Arkansas to contain a definition of occurrence that includes “property damage or bodily injury resulting from faulty workmanship.”It is unclear whether this requirement applies to policies previously issued. The act also states that it does not limit the nature or types of exclusions that an insurer may include in a CGL policy. Thus, the numerous exclusions related to construction defect claims contained in the typical CGL insurance policy are not affected by the Arkansas statute, and the judicial decisions that have interpreted those exclusions presumably remain good law.

South Carolina

Enacted on May 17, 2011, South Carolina Code Section 38-61-70 provides that CGL policies shall contain or be deemed to contain a definition of occurrence that includes property damage or bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself. However, whether the South Carolina statute will change the law in South Carolina is unclear because the statute was immediately challenged in court. On May 23, 2011, Harleysville Mutual Insurance Company filed a complaint in the South Carolina Supreme Court seeking injunctive relief and a declaration that the new statute violates several provisions of the U.S. and South Carolina constitutions, particularly with respect to existing insurance policies at issue in pending litigation.

Conclusion

The new state statutes are intended to overrule, at least to some extent, judicial decisions that denied insurance coverage for construction defect claims. The thrust of these statues is to require construction defects to be treated as an accidental “occurrence” within the meaning of the CGL insurance policy. As such, the legislation generally should make it easier for policyholders in the affected states to establish at least the existence of potential coverage for a construction defect claim, and thereby more easily trigger the insurance company’s duty to provide a defense. Whether these statutes will also result in increased indemnity coverage for construction defect claims, however, remains to be seen. Among other things, the statutes generally do not alter the exclusions that already apply to construction defect claims, and they leave the interpretation of the meaning of these exclusions to the courts.

In short, while this new wave of statutes increases the complexity and divergence among the states of this already fractured area of the law, they also appear to increase the likelihood of insurance coverage for construction defect claims in Colorado, Hawaii, Arkansas and South Carolina.

© 2011 BARNES & THORNBURG LLP

Evaluating Insurance Policies After Japan’s Earthquake

Posted on July 14, 2011 in the National Law Review by Risk Management Magazine of Risk and Insurance Management Society, Inc. (RIMS) information about an essential first step is to review insurance coverages for losses caused by natural catastrophes.

Shock and tragedy were the emotions most felt throughout Japan when the March earthquake and tsunami ravaged the nation. But companies doing business there have since moved on to planning mode, looking for ways to mitigate their losses, both those already suffered and the inevitable ones to come from similar exposures in the future.

An essential first step is to review insurance coverages for losses caused by natural catastrophes. Of particular importance is the potential availability ofcontingent business interruption insurance coverage for lost sales to Japanese customers or lost supplies from Japanese producers.

Property insurance policies obviously cover direct property damage caused by natural disasters. But those same policies also cover other types of business losses. Time element coverage pays for the lost profits when damaged property affects a policyholder’s day-to-day operations. The amount covered generally depends on the time it takes to resume normal business operations. Time element coverage can be triggered by damage either to the policyholder’s property or a third party’s property, and the most common kinds are business interruption, extra expense and contingent business interruption.

Business Interruption

The purpose of business interruption coverage is to restore the policyholder to the financial position it was in before the property damage occurred. To recover these losses, the lost profits, at a minimum, must relate to the event that caused the policyholder’s property damage. Once the insured demonstrates covered property damage, the measure of the loss generally is the difference between expected profits during the recovery period after the event and actual profits during that period, less any unrelated losses.

Perhaps the only recent U.S. event comparable to Japan’s earthquake is Hurricane Katrina. In Consolidated Cos. v. Lexington Ins. Co., the Fifth Circuit Court of Appeals ruled that business interruption losses resulting from Hurricane Katrina were covered without requiring proof to a level of specificity that the loss stemmed solely from damage to the policyholder’s property as a result of the hurricane. The insurance carrier argued that the policyholder had to prove what its likely performance would have been had Katrina taken place but not damaged the policyholder’s property, reasoning that, even absent damage to the policyholder’s property, profits would have been reduced because of the generally depressed economic conditions following the hurricane. Instead, the court concluded that the loss should be calculated as if Katrina had not struck at all.

Coverage for this interdependent business interruption loss can extend to locations that are distant from the damaged property if the policyholder can show that the undamaged facility operated in concert with the damaged one. An example would be a policyholder’s remote facility outside of Japan that cannot receive inventory because of damage to the policyholder’s manufacturing plant in Japan.

Extra Expense

Extra expense coverage aims to cover additional costs the policyholder incurs to minimize or avoid interruption of its business. Examples of such coverage are: additional utility costs needed to resume business operations; additional costs to store business equipment; moving costs to relocate to temporary facilities; and costs expended for the temporary repair or replacement of property. Most policies also contain a related coverage, similar to extra expense, typically called expense to reduce loss coverage, to reimburse additional costs incurred to mitigate property damage.

Contingent Business Interruption

Many policies protect against profits lost when a policyholder’s supplier or customer cannot conduct business because of property damage “of the type” covered under the policyholder’s policy. This coverage would provide, for example, recovery to a manufacturer of computers outside of Japan that suffers lost profits as a result of a supplier’s inability to provide required components because of damage to the supplier’s Japanese facility. Similarly, a policyholders’ profits affected by property damage to the facilities of a Japanese customer are recoverable. Covered costs also include losses incurred when a civil authority prevents access to the policyholder’s facilities, or when damage to property in the vicinity of the insured property prevents ingress to, or egress from, the policyholder’s facility.

John Banister, Erica Dominitz, Barry Fleishman, Helen Michael, Carl Salisbury and Caroline Spangenberg are all partners at Kilpatrick Townsend & Stockton.

Risk Management Magazine and Risk Management Monitor.  Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.