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The Law

Legal Spotlight

The latest decisions impacting the industry.
By: | December 10, 2014 • 5 min read

Jury Rules in Favor of Insured

Sometime between Jan. 12, 2009 and February 5, 2009, one or more individuals entered the disc jockey’s room at the Cabo Wabo Cantina and Memphis Blues nightclub in Fresno, Calif., and stole about $140,000 of electronic equipment including HD televisions, speakers and sound mixers.

Fresno Rock Taco, which operated the cantina and nightclub, reported the theft to the police upon the advice of its broker, and filed a claim with National Surety Corp., a Fireman’s Fund Co., for the equipment, property damage and for loss of business income. It had two insurance policies with respective limits of $2.6 million and $6.1 million.

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Fresno Rock, along with Zone Sports Center LLC, owner of the property at the time of the theft, filed suit against National Surety when the claim was denied.

The insurance company alleged the loss of equipment was due to repossession rather than theft, according to court documents.

Cabo Wabo denied repossession was involved, and noted in court documents that a search of the premises by the state Department of Insurance for possible insurance fraud “revealed no wrongdoing of any kind and no charges of insurance fraud or any other crime have been filed against anyone connected to this matter.”

After a trial in the U.S. District Court for the Eastern District of California, Fresno Division, a jury ruled on Aug. 22 that Cabo Wabo and Zone Sports had suffered a covered loss and did not make a false claim to the insurance company.

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It ordered the insurer to pay $2.2 million to Cabo Wabo for business interruption losses and about $275,000 to the property owner for property damage losses.

Scorecard: The insurance company was ordered to pay $2.5 million for the claim.
Takeaway: National Surety’s belief that the theft was questionable and that security measures were inadequate did not sway the jury.

Insurer Need Not Pay Auto Settlement

Tyler Roush was driving his mother’s car on Aug. 3, 2009 when he struck and severely injured a pedestrian, Lloyd Miller.

Miller and his wife Nancy filed suit against Roush and his parents, Sharon and George Roush, and Brash Tygr, which owned and operated a Sonic Drive-In restaurant in Carrollton, Mo. The parents owned 75 percent of Brash Tygr; Tyler and his brother Brandon each owned another 5 percent.

The company was covered as part of a commercial lines master policy issued to Sonic Insurance Advisory Trust by Hudson Specialty Insurance Co. The CGL policy had a Hired and Non-Owned Auto Liability endorsement, under which the family and franchise sought coverage.

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Hudson provided a defense, under a reservation of rights, until the family rejected that defense and settled the Millers’ lawsuit for $5.8 million in compensatory and punitive damages, according to court documents. At the same time, the family admitted that Tyler Roush was “conducting the business of Brash Tygr” during the accident.

Tyler Roush, who had not worked for the restaurant for a long time, had been on some errands for his mother at the time of the accident. While he was depositing his mother’s paycheck at a local bank, an employee had handed him some bank deposit bags for use by Sonic Drive-In, according to court documents.

Because of that action, the U.S. District Court for the Western District of Missouri-Kansas City ruled that Roush had “a dual purpose” in his travels and was acting “in the course of [the restaurant’s] business.”

On appeal, the U.S. 8th Circuit Court of Appeals on Oct. 7 disagreed. In a 2-1 decision, the majority ruled there was no dual business purpose. It ruled that “picking up the bags was a matter of convenience, not necessity, for Brash Tygr and the Sonic Drive-In.”

In his dissent, Judge Kermit Bye said it was uncontroverted that Brash Tygr used such deposit bags and that the company did not have “a limitless supply.” Thus, at some point, an employee would have needed to “make a special trip to the bank for deposit bags if Tyler Roush had not brought them to his parents’ home.”

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The court also ruled that Hudson had not been given an opportunity to contest coverage in the wake of the family’s admission that Tyler Roush had been acting in the course of business.

Scorecard: The insurance company did not have to cover any of the $5.8 million in settlement costs.
Takeaway: Accepting the deposit bags “was a ‘casual and incidental’ aspect of a purely personal trip that did not give that trip a dual business purpose under Missouri law,” according to the court’s majority opinion.

Insurer Must Pay for Explosion Costs

In 2009, A.H. Meyer’s plant in Winfred, S.D., exploded for the second time in five years. The cause was heptane, a highly volatile solvent manufactured by Citgo Petroleum Corp., which is used in the production of beeswax.

After the first explosion in 2004, A.H. Meyer redesigned the plant so that electrical switches were at least five feet away — the recommended distance — from the 150-gallon storage “kettle” of heptane at the factory. In the previous plant, the distance had only been four feet. The company also added a ventilation system, as recommended.

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Nonetheless, an explosion occurred in 2009 when heptane spilled from the kettle and an employee pressed a switch to turn off a pump, according to court documents. Nationwide Insurance Co., which paid for the damage, filed a subrogation suit against Citgo, the manufacturer, and Barton Solvents, the supplier of the heptane.

It argued the companies were liable and negligent because the warnings were inadequate. A safety expert it hired said that the ventilation system meant to reduce risk was actually the reason for the explosion.
Nationwide also argued the companies had provided an express and implied warranty of the heptane.

Both the Circuit Court of the Third Judicial Lake County and the state Supreme Court disagreed, granting the defendants’ motion for summary judgment.

The South Dakota Supreme Court ruled that both the supplier and manufacturer “collectively warned that heptane was volatile and explosive,” and that A.H. Meyer complied with all safety recommendations.

“Ultimately, Nationwide’s inadequate warning claim is based on nothing more than the fact of the accident, speculation, and conjecture,” it ruled.
It also said that pointing out danger is not the same as a warranty, which implies a promise.

Scorecard: Nationwide’s attempt to subrogate the costs for repair were denied.
Takeaway: A safety warning is “an alert,” while a warranty is a “promise that the thing being sold is as represented,” the court ruled.

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: Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

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

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

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

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

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

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

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

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

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

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

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

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

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

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

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

Favorite movie is definitely “Good Will Hunting.”

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

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

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

The Grand Canyon. It is just so vast. A close second is Stonehenge.

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

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

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

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

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

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

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