The Law

Legal Spotlight

A look at the latest legal cases impacting the industry.
By: | May 24, 2016 • 4 min read

Court Sinks Subrogation

On March 17, 2012, the commander, a vessel owned by Nature’s Way Marine, ran aground in the mouth of a narrow channel of the Mississippi River near Crown Point, La., owned and operated by Crown Point Holdings LLC.

R6-16p14_LegalSpotlight.inddAs it maneuvered to free itself, the movements created “extreme wave wash” that broke the mooring lines of two of Crown Point’s vessels, the Port Gibson and the Buccaneer, grounding them on a mud bank.

On March 21, the Port Gibson began to take on water and sank, pulling the Buccaneer down with it. After raising the ships, it was discovered Port Gibson’s hull was punctured by a bolt-studded piece of timber.

Osprey Underwriting Agency Ltd., which issued Crown Point marine hull insurance on the Port Gibson and the Buccaneer, paid for salvage and damage expenses and then, as subrogee, it sued Nature’s Way for reimbursement, arguing the Commander’s maneuvers caused the sinking of Crown Point’s vessels.

A district court in Louisiana ruled against Osprey. It said Osprey failed to prove the Commander’s actions caused the sinking, and even if the causation could be determined, Crown Point’s failure to warn anyone of the timber impaled in the hull was a superseding cause of the sinking.

Advertisement




On March 25, the U.S. 5th Circuit Court of Appeals upheld that decision. It concluded that experts from both sides “vehemently” disagreed with how the hull impalement occurred, and that marine law required negligence to be a “substantial factor” in the damage.

Scorecard: Osprey will not be reimbursed for its costs to salvage and repair the vessels.

Takeaway: Under general maritime law, “negligence must be a ‘substantial factor’ in the injury.”

Legal Fees Contested

On Dec. 29, 2011, William R. Kowalski and Hawaii International Seafood filed suit against Anova Food LLC, claiming patent infringement and false advertising. The lawsuit accused Anova of using Kowalski’s “tasteless smoke” process to treat tuna, although Anova advertised the fish were treated by a “clearsmoke” process.

Anova retained Gary Grimmer as local counsel in Hawaii to represent it.

On Oct. 12, 2012, Anova requested a defense from the Hanover Insurance Co. and its subsidiary, Massachusetts Bay Insurance Co. (“Hanover”). Defense was granted under a reservation of rights, and the insurer agreed to pay Grimmer in accordance with its litigation guidelines and fees.

Hanover’s claim that it only agreed to hire Grimmer and not Zobrist conflicted with its payment of some of Zobrist’s legal fees, the court ruled.

Hanover stated it would not pay, however, for any fees paid by Anova prior to the claim being made.

The insurer said it would not apply the exclusion for injuries “arising out of” infringement of intellectual property, but would not indemnify Anova for any punitive damages.

On Dec. 11, 2012, the Zobrist law firm, which had a history with Anova’s intellectual property issues, filed its appearance as counsel of record for Anova, and was subsequently paid $284,624 by Hanover.

A year later, Hanover informed Anova it was transferring defense in the case from Grimmer to two other attorneys. At that time, it said that any continued involvement by Zobrist “will need to be funded directly” by Anova.

On June 19, 2014, Hanover asked for a court determination that it need not defend nor indemnify Anova. The insured filed a counterclaim for breach of contract and bad faith, arguing Hanover owed it a defense, and the unpaid balance to Zobrist of $385,153.

Anova reached a settlement with Kowalski in April 2015.

The U.S. District Court for the District of Hawaii ruled on March 24, 2016 that Hanover did have a duty to defend Anova but did not have to pay for legal services prior to Anova’s request for a defense.

Advertisement




Because factual questions remained about the legal fees paid to Zobrist, the court denied Anova’s motion for summary judgment on its claim that Hanover breached its contract.

Scorecard: Additional court proceedings will determine whether Hanover must pay $385,153 for Zobrist’s legal fees.

Takeaway: Hanover’s claim that it only agreed to hire Grimmer and not Zobrist conflicted with its payment of some of Zobrist’s legal fees, the court ruled.

Request for Defense Denied

In 2009, Larry Naquin was using a land crane owned by Elevating Boats LLC (EBI) to move a “test block” when the welding holding the crane to its base failed.

Naquin jumped from the crane house, breaking both feet and sustaining a lower abdominal hernia. He was never able to return to physical work.

R6-16p14_LegalSpotlight.inddIn May 2012, a federal jury in Louisiana awarded Naquin $2.4 million for physical and emotional pain and lost wages. EBI appealed and the negligence verdict was upheld.

Subsequently, EBI sued State National Insurance Co. and London insurers, accusing them of breaching their contracts by denying EBI’s request for defense and indemnification.

On March 22, the U.S. 5th Circuit Court of Appeals agreed with a lower court in dismissing EBI’s lawsuit.

Scorecard: The insurers are not responsible for indemnifying EBI.

Takeaway: EBI’s policy offered indemnity for the company “as owner of the Vessel,” and it was not triggered because the accident occurred on land. &

Anne Freedman is managing editor of 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.

Advertisement




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.

Advertisement




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. &

____________________

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]