Risk Scenario

The Best Intentions

Construction executives let their emotions get the best of them after an onsite death, with dire policy consequences.
By: | November 3, 2014 • 7 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Water Everywhere

Workers with the O’Hanlon Construction Company are used to seeing the white pickup truck with the green municipal seal driven by Yakima County code inspector Ty Davis on the job site. Davis is a 25-year veteran of the position. So when Davis drives up to the site of a municipal tunneling project being run by O’Hanlon, no one is particularly surprised or concerned.

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Affable, fit and seemingly inseparable from his mobile device and a Styrofoam cup of coffee with cream and sugar, Davis made his way from the pickup truck, waving a friendly hello to the foreman on the job, Hector Lopes.

“Hector my man, how are we today?” said Davis, walking up to the where Lopes was overseeing a crew of three that was building the forms to lay an asphalt hiking and biking path on the floor of the tunnel.

“I’d be a lot better if those Seahawks would play some run defense,” said Lopes, pausing from his work to shake Davis’ hand.

“Ahh, they’ll get it together, it’s early yet,” Davis said.

Davis nods to the crew doing the concrete work in the tunnel.

“How’s it goin’ down there?” he asked.

“Oh, it’s goin’,” said Lopes. “The rain ain’t helpin’, but we’re trying to get it done on time.”

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“You mind if I go down and have a look?” said Davis.

“Sure thing,” said Lopes. “It’s break time, anyway.”

“Hey guys!” Lopes called to the crew. “Break. Ty’s comin’ down for a look, too.”

The crew complied, following Lopes up to the food trucks across the street.

Davis walked carefully down the existing bike path to the tunnel floor. Lopes no sooner got to the other side of the street when a horrendous noise shattered the calm of the morning. Lopes sprinted back to the site and couldn’t believe what he saw when he looked down to the tunnel.

“Ty!” Lopes screamed.

A portion of the tunnel wall had given way, burying Ty Davis under two tons of concrete, mud and water.

***

John O’Hanlon, the son of the company founder and a close friend of Ty Davis, was overwhelmed by Davis’ death. Even though the culpability for a faulty soil analysis could lie with many parties, O’Hanlon felt he must formally communicate his grief and his commitment to do the right thing by sending an e-mail to county officials.

“We will do everything in our power to see that Ty Davis’ family is provided for,” the e-mail read, in part.

“Words cannot express my shame and horror that mistakes our company made played a part in the death of my beloved friend,” the distraught e-mail concluded.

The same evening the e-mail is received, the head of the Yakima County Board of County Commissioners was interviewed on television saying that executives with long-time county contractor O’Hanlon Construction Company were devastated at their “failure” and had vowed to do what they could to make things right.

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Excuse Me?

Sharon Holmes, the retail broker with whom O’Hanlon placed their professional liability coverage, was working on a renewal when something she saw in her e-mail inbox caused her to stop. It was a construction risk newsletter that contained news of the latest legal findings, settlements and other developments in the construction risk management world.

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“What?” Holmes said as she clicked on the e-mail, her attention having been caught by the word “O’Hanlon” in the subject line.

“Contractor admits fault in death of county employee …” Holmes said, reading aloud.

“They can’t be serious,” she said out loud, reaching for her phone and hastily dialing a number.

“John, it’s Sharon Holmes,” Holmes said.

“I’m sorry … who?” John O’Hanlon said.

“Sharon Holmes, I’m your professional and general liability insurance broker,” Holmes said after a pause.

“Oh … yeah … what can I do for you, Sharon?” O’Hanlon said.




“What you can do for me …” Holmes began, and then stopped herself from saying something she might regret.

“Ummm …” she said, collecting her thoughts.

“John, I’m looking at an industry newsletter in my inbox that refers to you making a statement to public officials that seems to take responsibility for the death of a code inspector at one of your job sites.”

“Huh? Well, yeah. I had to say something, Ty was my friend. We’ve been working with Yakima County for more than 20 years,” O’Hanlon said.

“John, that may be true, but I wish you had consulted with me before you made any statements,” Holmes said.

“The truth is the truth, he died in our tunnel,” O’Hanlon said.

Holmes again composed herself, seeking the right delivery.

“John. I’m sorry you lost a friend. I’d be upset too if I lost a friend. But I need to meet with you and Billy [O’Hanlon, John’s brother and the company CEO] on this. We need to go over the insurance coverage implications as soon as possible.”

“Well, Ty’s funeral is today, so today is out,” O’Hanlon said.

“Tomorrow then, can you do it tomorrow?” Holmes asked.

“Sure … tomorrow,” O’Hanlon said weakly.

Holmes hung up with O’Hanlon and immediately dialed the Seattle offices of a major national construction risk carrier.

“Hey, Brian, it’s Sharon Holmes.”

“Hey Sharon, I had a feeling I’d be hearing from you this morning,” said Brian Snyder, the regional claims executive for the carrier.

“So you saw it,” said Holmes.

“Yep. Just hit my inbox this morning. I can check the policy … as can you … but I’m pretty sure what it’s going to say,” Snyder said.

“We go four days without being notified of a job site death, I’m pretty sure coverage will be denied,” Snyder said.

“I’ll check the policy,” Holmes said weakly.

“Suit yourself. Sorry about this,” Snyder said in conclusion.

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A Direct Hit

Ty Davis’ widow and children filed a lawsuit against O’Hanlon Construction, Yakima County and three subcontractors alleging that their failure to conduct competent soil testing resulted in the inspector’s death.

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An investigation commissioned by the Davis family concluded that the soil study ordered by O’Hanlon on behalf of the county failed to take into account possible shifts in the water content of the project soil due to variations in rainfall and the municipal water table.

Upon notice of the lawsuit, O’Hanlon’s carrier told the company that it had no plans to provide for the company’s defense. A recorded, broadcast admission of guilt and a failure to notify the broker or the carrier in a timely manner effectively voided the company’s professional liability coverage, said the carriers’ attorneys, in a letter to Sharon Holmes and the O’Hanlons.

“We should sue them! How were we supposed to know?” Billy O’Hanlon said to his brother John, after the grief of Ty Davis’ death faded and they started taking a more pragmatic assessment of their situation.

“Besides, being transparent in our dealings with the county has been a hallmark or our relationship. There’s no value in that?” Billy thundered.

At his older brother Billy’s urging, John O’Hanlon called Sharon Holmes and broached the topic of O’Hanlon disputing the carrier’s refusal to pay for a legal defense.

“I don’t see how you could win, and I think you’d be throwing good money after bad,” Holmes said.

“I strongly advise against it. I’m not trying to be harsh, John, but you should not have said what you said without A, talking to me or B, talking to an attorney,” Holmes said.

O’Hanlon’s attorneys mount a game defense, pointing to the contractor’s long, and nearly blemish-free service record with the county and good documentation of transparency being a hallmark of the company’s business dealings.

All to no avail.

A jury found O’Hanlon, the three subcontractors, and the county liable for the death of Ty Davis to the tune of $8 million in loss of income, pain and suffering.

O’Hanlon, which thought it was doing the right thing by apologizing, and was the only entity to apologize, is the only defendant uncovered by insurance.

O’Hanlon is out of pocket to the tune of $4 million, not including court costs.

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Risk & Insurance® partnered with XL Group to produce this scenario. Below are XL Group’s recommendations on how to prevent the losses presented in the scenario. These “Lessons Learned” are not the editorial opinion of Risk & Insurance®.

1. Contact your broker first: At the first sign of trouble on any project, promptly contact your broker to report the circumstance. Late, or non-reporting of an incident, large or small, can result in your Professional Liability coverage being denied.

2. Be mindful of your actions post-incident: Understand that taking actions to explain, admit fault, mediate, finger point, or recommend fixes or alternatives to a circumstance prior to notifying your broker may also result in your coverage being denied.

3. Have a communication plan: Create a circumstance reporting protocol within your organization to be followed by all employees, including designating a “quarterback” to coordinate external communications.

4. Align your philosophy with your coverage: Ensure your own best practices are not in conflict with the terms of your insurance coverage.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

Robotics Risk

Rise of the Cobots

Collaborative robots, known as cobots, are rapidly expanding in the workforce due to their versatility. But they bring with them liability concerns.
By: | May 2, 2017 • 5 min read

When the Stanford Shopping Center in Palo Alto hired mobile collaborative robots to bolster security patrols, the goal was to improve costs and safety.

Once the autonomous robotic guards took up their beats — bedecked with alarms, motion sensors, live video streaming and forensics capabilities — no one imagined what would happen next.

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For some reason,  a cobots’ sensors didn’t pick up the movement of a toddler on the sidewalk who was trying to play with the 5-foot-tall, egg-shaped figure.

The 300-pound robot was programmed to stop for shoppers, but it knocked down the child and then ran over his feet while his parents helplessly watched.

Engaged to help, this cobot instead did harm, yet the use of cobots is growing rapidly.

Cobots are the fastest growing segment of the robotics industry, which is projected to hit $135.4 billion in 2019, according to tech research firm IDC.

“Robots are embedding themselves more and more into our lives every day,” said Morgan Kyte, a senior vice president at Marsh.

“Collaborative robots have taken the robotics industry by storm over the past several years,” said Bob Doyle, director of communications at the Robotic Industries Association (RIA).

When traditional robots joined the U.S. workforce in the 1960s, they were often assigned one specific task and put to work safely away from humans in a fenced area.

Today, they are rapidly being deployed in the automotive, plastics, electronics assembly, machine tooling and health care industries due to their ability to function in tandem with human co-workers.

More than 24,000 robots valued at $1.3 billion were ordered from North American companies last year, according to the RIA.

Cobots Rapidly Gain Popularity

Cobots are cheaper, more versatile and lighter, and often have a faster return on investment compared to traditional robots. Some cobots even employ artificial intelligence (AI) so they can adapt to their environment, learn new tasks and improve on their skills.

Bob Doyle, director of communications, Robotic Industry Association

Their software is simple to program, so companies don’t need a computer programmer, called a robotic integrator, to come on site to tweak duties. Most employees can learn how to program them.

While the introduction of cobots into the workplace can bring great productivity gains, it also introduces risk mitigation challenges.

“Where does the problem lie when accidents happen and which insurance covers it?” asked attorney Garry Mathiason, co-chair of the robotics, AI and automation industry group at the law firm Littler Mendelson PC in San Francisco.

“Cobots are still machines and things can go awry in many ways,” Marsh’s Kyte said.

“The robot can fail. A subcomponent can fail. It can draw the wrong conclusions.”

If something goes amiss, exposure may fall to many different parties:  the manufacturer of the cobot, the software developer and/or the purchaser of the cobot, to name a few.

Is it a product defect? Was it an issue in the base code or in the design? Was something done in the cobot’s training? Was it user error?

“Cobots are still machines and things can go awry in many ways.” — Morgan Kyte, senior vice president, Marsh

Is it a workers’ compensation case or a liability issue?

“If you get injured in the workplace, there’s no debate as to liability,” Mathiason said.

But if the employee attributes the injury to a poorly designed or programmed machine and sues the manufacturer of the equipment, that’s not limited by workers’ comp, he added.

Garry Mathiason, co-chair, robotics, AI and automation industry group, Littler Mendelson PC

In the case of a worker killed by a cobot in Grand Rapids, Mich., in 2015, the worker’s spouse filed suit against five of the companies responsible for manufacturing the machine.

“It’s going to be unique each time,” Kyte said.

“The issue that keeps me awake at night is that people are so impressed with what a cobot can do, and so they ask it to do a task that it wasn’t meant to perform,” Mathiason said.

Privacy is another consideration.

If the cobot records what is happening around it, takes pictures of its environment and the people in it, an employee or customer might claim a privacy violation.

A public sign disclosing the cobot’s ability to record video or take pictures may be a simple solution. And yet, it is often overlooked, Mathiason said.

Growing Pains in the Industry

There are going to be growing pains as the industry blossoms in advance of any legal and regulatory systems, Mathiason said.

He suggests companies take several mitigation steps before introducing cobots to the workplace.

First, conduct a safety audit that specifically covers robotics. Make sure to properly investigate the use of the technology and consider all options. Run a pilot program to test it out.

Most importantly, he said, assign someone in the organization to get up to speed on the technology and then continuously follow it for updates and new uses.

The Robotics Industry Association has been working with the government to set up safety standards. One employee can join a cobot member association to receive the latest information on regulations.

“I think there’s a lot of confusion about this technology and people see so many things that could go wrong,” Mathiason said.

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“But if you handle it properly with the safety audit, the robotics audit, and pay attention to what the standards are, it’s going to be the opposite; there will be fewer problems.

“And you might even see in your experience rating that you are going to [get] a better price to the policy,” he added.

Without forethought, coverage may slip through the cracks. General liability, E&O, business interruption, personal injury, cyber and privacy claims can all be involved.

AIG’s Lexington Insurance introduced an insurance product in 2015 to address the gray areas cobots and robots create. The coverage brings together general and products liability, robotics errors and omissions, and risk management services, all three of which are tailored for the robotics industry. Minimum premium is $25,000.

Insurers are using lessons learned from the creation of cyber liability policies and are applying it to robotics coverage, Kyte said.

“The robotics industry has been very safe for the last 30 years,” RIA’s Doyle said. “It really does have a good track record and we want that to continue.” &

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]