The Law

Legal Spotlight

A look at the latest legal cases impacting the industry.
By: | September 14, 2016 • 4 min read

Unhealthy Air Caused Physical Damage

On four nights in July and August, 2013, the Oregon Shakespeare Festival Association cancelled performances at its open-air theater in Ashland. Nearby wildfires impacted air quality and dusted theater surfaces with soot.

R9-15-16p14_LegalSpotlight.inddThe theater filed a claim with its property insurer, Great American Insurance Co., for loss of business income due to building damage.

The insurance company denied the claim, saying there was no physical damage to the property. Therefore, it said, the policy’s business income provisions were not activated.

On June 7, the U.S. District Court for the District of Oregon disagreed.

It rejected the insurer’s argument that damage was not physical, stating that “while air may often be invisible to the naked eye, surely the fact that air has physical properties cannot reasonably be disputed.”

It also rejected the insurance company’s argument that the claim was excluded because the cancellations were voluntary. The court noted the air quality ratings on those days were “unhealthy,” and that a “period of restoration” was needed for repairs, citing the time spent by theater employees changing air filters and cleaning soot and ash from theater surfaces.

Advertisement




Exclusions for smog or pollutants were rejected as well. There was no evidence “any fog or haze … could have combined [with smoke] to create ‘smog,’ ” the court ruled, and the pollutant exclusion did not apply because it related to restoration due to “enforcement of or compliance with any ordinance or law.”

Scorecard: The court ordered the lawsuit to be tried before a jury to determine the amount of damages.

Takeaway: Damage does not always have to be structural or physical if it renders a property unusable.

Title Insurer May Be on Hook for $2.05 Million Claim

In 2005 and 2006, Johnson Bank purchased two title insurance policies from First American Title Insurance Co. in the total amount of $2.05 million for two parcels for which it loaned money to the property owners. The property owners defaulted on their loan to the bank when it was discovered the land could not be developed commercially.

In 2010, the bank purchased the land at a trustee’s sale for $102,000, and a year later, filed a claim against First American because the title insurer had not revealed the commercial development restrictions.

At dispute was the date on which the damage claim should be based — with the value being $2.05 million or $102,000.

Johnson Bank argued it should be the day the title insurance was issued. The insurer said the damages should be based on the value of the properties when they were foreclosed, arguing that a loss is not incurred until the date of the foreclosure (at which point the real estate market had significantly declined).

The policy language was ambiguous as to when the date of loss should be calculated.

A lower court in Arizona ruled in favor of the insurance company. An appeals court reversed that, deciding that because First American “failed to discover and timely disclose” the restrictions on commercial development, the policy was breached when the loans were made.

On appeal, the Supreme Court of the State of Arizona upheld the latter decision on June 13, although it returned the case to a lower court for further proceedings.

“The insurer has complete control of the title defects against which it insures; it is in the best position to avoid such risks and prevent resulting loss by conducting thorough and accurate title searches,” the court ruled.

Scorecard: The title insurance company may be required to pay $2.05 million to the bank.

Takeaway: Allowing the title insurer to use the foreclosure date would allow it to profit from its defective title in a depreciated real estate market.

Insurer Fails to Win New Trial

On March 13, 2010, brothers Amaury and Amed Villa cut a hole in the roof of an Eli Lilly and Co. warehouse and storage facility in Enfield. Conn. They deactivated the security system and stole more than 40 pallets of pharmaceuticals, valued at about $60 million.

R9-15-16p14_LegalSpotlight.inddEventually both men pleaded guilty to the theft, and National Union Fire Insurance Co. paid out more than $42 million in claims to Eli Lilly.

As subrogee, National Union later filed a negligence suit against Tyco Integrated Security, formerly known as ADT Security Services. Tyco provided the security for the warehouse. National Union accused it of failing to warn Eli Lilly of the security system’s failures.

It also failed to tell Eli Lilly about additional thefts, according to the lawsuit, which also claimed that a Tyco employee knew the thieves.

Tyco said that its employee was distantly related and had “little or no interaction” with them.

A jury concluded on April 4, 2016 that Tyco was not negligent in its protection of “confidential details of Eli Lilly’s security” or in failing to warn the company of previous thefts. It found Amaury and Amed Villa each liable in the amount of $10 million.

Advertisement




On June 22, the U.S. District Court for the Southern District of Florida denied the insurance company’s request for a new trial or to amend the verdict.

“On the case presented before the jury, the evidence was sufficient to resolve the matter the way it did in favor of Tyco,” the court ruled.

Scorecard: The imprisoned two brothers were ordered to pay $10 million each to the insurance company, but Tyco will not have to pay any damages.

Takeaway: National Union needed to establish a “manifest injustice” occurred for a new trial to be ordered.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

After 20 years in the business, Navy Pier’s Director of Risk Management values her relationships in the industry more than ever.
By: | June 1, 2017 • 4 min read

R&I: What was your first job?

Working at Dominick’s Finer Foods bagging groceries. Shortly after I was hired, I was promoted to [cashier] and then to a management position. It taught me great responsibility and it helped me develop the leadership skills I still carry today.

R&I: How did you come to work in risk management?

While working for Hyatt Regency McCormick Place Hotel, one of my responsibilities was to oversee the administration of claims. This led to a business relationship with the director of risk management of the organization who actually owned the property. Ultimately, a position became available in her department and the rest is history.

R&I: What is the risk management community doing right?

Advertisement




The risk management community is doing a phenomenal job in professional development and creating great opportunities for risk managers to network. The development of relationships in this industry is vitally important and by providing opportunities for risk managers to come together and speak about their experiences and challenges is what enables many of us to be able to do our jobs even more effectively.

R&I: What could the risk management community be doing a better job of?

Attracting, educating and retaining young talent. There is this preconceived notion that the insurance industry and risk management are boring and there could be nothing further from the truth.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

In my 20 years in the industry, the biggest change in risk management and the insurance industry are the various types of risk we look to insure against. Many risks that exist today were not even on our radar 20 years ago.

Gina Kirchner, director of risk management, Navy Pier Inc.

R&I: What insurance carrier do you have the highest opinion of?

FM Global. They have been our property carrier for a great number of years and in my opinion are the best in the business.

R&I: Are you optimistic about the US economy or pessimistic and why?

I am optimistic that policies will be put in place with the new administration that will be good for the economy and business.

R&I: What emerging commercial risk most concerns you?

Advertisement




The commercial risks that are of most concern to me are cyber risks, business interruption, and any form of a health epidemic on a global scale. We are dealing with new exposures and new risks that we are truly not ready for.

R&I: Who is your mentor and why?

My mother has played a significant role in shaping my ideals and values. She truly instilled a very strong work ethic in me. However, there are many men and women in business who have mentored me and have had a significant impact on me and my career as well.

R&I: What have you accomplished that you are proudest of?

I am most proud of making the decision a couple of years ago to return to school and obtain my [MBA]. It took a lot of prayer, dedication and determination to accomplish this while still working a full time job, being involved in my church, studying abroad and maintaining a household.

R&I: What is your favorite book or movie?

“Heaven Is For Real” by Todd Burpo and Lynn Vincent. I loved the book and the movie.

R&I: What’s the best restaurant you’ve ever eaten at?

Advertisement




A French restaurant in Paris, France named Les Noces de Jeannette Restaurant à Paris. It was the most amazing food and brings back such great memories.

R&I: What is the most unusual/interesting place you have ever visited?

Israel. My husband and I just returned a few days ago and spent time in Jerusalem, Nazareth, Jericho and Jordan. It was an absolutely amazing experience. We did everything from riding camels to taking boat rides on the Sea of Galilee to attending concerts sitting on the Temple steps. The trip was absolutely life changing.

R&I: What is the riskiest activity you ever engaged in?

Many, many years ago … I went parasailing in the Caribbean. I had a great experience and didn’t think about the risk at the time because I was young, single and free. Looking back, I don’t know that I would make the same decision today.

R&I: What about this work do you find the most fulfilling or rewarding?

I would have to say the relationships and partnerships I have developed with insurance carriers, brokers and other professionals in the industry. To have wonderful working relationships with such a vast array of talented individuals who are so knowledgeable and to have some of those relationships develop into true friendships is very rewarding.

R&I: What do your friends and family think you do?

My friends and family have a general idea that my position involves claims and insurance. However, I don’t think they fully understand the magnitude of my responsibilities and the direct impact it has on my organization, which experiences more than 9 million visitors a year.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]