The Law

Court Rules Mail Room Clerk’s Clerical Error No Excuse for Late Reporting

A rogue letter left Johnson & Bryan Inc. $80,000 short after a J&B mail room clerk misplaced an important claims letter.
By: | September 28, 2018 • 2 min read

Johnson & Bryan Inc. (J&B), brokered a property insurance policy for clients Ellen and Joseph Brooks with Hanover Insurance. When the Brooks’ property was vandalized, J&B submitted a claim to Hanover on their behalf. Hanover denied the claim, stating the Brooks’ failed to comply with the initial policy by not installing a fence around their property. The Brooks’ blamed J&B for this oversight and asserted negligence in a demand letter.

However, J&B never received that letter, which instructed the brokerage to “tender this demand letter to your errors and omissions carrier.” The Brooks’ letter also stated J&B had 20 days to respond, or the claimants would file a lawsuit against J&B.

A J&B mail room clerk, thinking the letter only pertained to the Hanover case, forwarded it to the insurer. Sure enough, 20 days later, the Brooks’ filed suit. J&B notified its insurer, Republic-Franklin Insurance Company. When Republic reviewed the Hanover folder and discovered the letter, it denied the claim.

J&B had to hire its own attorney to defend against the underlying Brooks’ lawsuit, which later settled for $80,000.

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However, still feeling like they’d received the short end, J&B took Republic to court with a civil action suit alleging claims for breach of contract, negligence and bad faith, and for attorneys’ fees and litigation expenses that stemmed from the underlying suit.

Republic said it denied J&B’s claim on the grounds that the broker failed to notify the insurer in a timely manner after receiving the demand letter from the Brooks’. J&B argued that, due to clerical error, they had not seen the letter until Republic discovered it.

A district court granted Republic’s motion to dismiss, stating J&B failed to comply with its policy’s notice provision. It saw J&B’s “excuse” for delay as unreasonable under state law.

In the Court of Appeals, the court ruled: “[State] courts determined that when a delay in notice is due to the insured’s own negligence, the delay is unreasonable as a matter of law … the insured failed to demonstrate sufficiently a justification for failing to comply with the policy’s notice requirements. In the light of these decisions, we agree with the district court.”

Scorecard: Despite the clerical error, Johnson & Bryan Inc., will not receive defense costs or attorney reimbursement from its insurer, Republic-Franklin Insurance Company.

Takeaway: Dutiful employees know the value in reading company documents carefully. Training is key to make sure documents get into the right hands, especially if the company faces legal action.

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

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