The Law

Legal Spotlight

A look at the latest legal cases impacting the industry.
By: | October 1, 2016 • 4 min read

$1 Million Theft Excluded from Coverage

In July 2012, John Moon, one of the owners of Alphacare Services Inc., which performed payroll services for Construction Contractors (Contractors), told Contractors that AlphaCare did not have enough assets to pay payroll, taxes or benefits expenses for Contractors’ subscribers.

A well-dressed man put money in the jacket

Eventually, auditors informed Contractors that Moon (who was charged in May 2016 by the U.S. Attorney’s Office and is awaiting trial for wire fraud) had wire-transferred about $930,000 from Construction Contractors’ funds to use for personal and AlphaCare expenses, leaving the company with substantial unpaid tax liabilities, according to court documents.

On Jan. 10, 2013, Contractors purchased a crime insurance policy, which included coverage for employee theft, from Federal Insurance Co. It advised the insurer there was still about $1 million that was unaccounted for.

Contractors later discovered the missing $1 million was stolen by check, and it submitted a claim for that amount with the carrier, according to court documents.

Federal Insurance denied the claim, saying all of the losses were a single loss under the policy because the insured had already discovered there was a loss prior to taking on the policy.

After a hearing in the U.S. District Court for the Northern District of Ohio at Toledo, the court agreed.

On July 11, the U.S. 6th Circuit Court of Appeals upheld the decision.

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“Because Construction Contractors discovered the wire fraud prior to the policy’s execution and the check theft and wire fraud constitute a single loss, the check-theft loss is excluded from coverage under the policy,” the court ruled.

Scorecard: The insurance company does not need to pay the $1 million theft claim.

Takeaway: The insured was aware of the loss “even if ‘the exact amount or details … are unknown.’ ”

Ruling Modifies ‘Care, Custody and Control’

In January 2013, Texas Trailer Corp., under the direction of the American Bureau of Shipping (ABS), tested a container designed by EPMP Ltd. and SandCan LLC to store and deliver sand from a mine to a well site.

Applying excess weight to the container deformed the corner castings and subsequent tests deformed the container, eventually causing a crack in the corner casting weld. The crack constituted a failure of the certification test.
EPMP and SandCan sued both Texas Trailer and ABS for damages. Texas Trailer (TTC) sought a defense from National Union Fire Insurance Co., but the insurer said the policy did not cover the damage.

After a jury found that only ABS had been negligent, not Texas Trailer, TTC sued National Union for reimbursement of litigation costs in excess of its $100,000 per occurrence retained limit, and breach of contract. The carrier sought a summary judgment on the trailer company’s claims.

On June 28, the U.S. District Court in the Northern District of Texas ruled in favor of National Union.

At issue was whether an exclusion for damage of property in the “care, custody or control” of the insured excluded coverage of the claim. The insured argued the container was only within its “physical control,” and not its “care, custody or control.”

The insurer “need only show that the property was ‘under the immediate supervision of the insured and [was] a necessary element of the work involved,’ ” the court ruled. “ABS may have designed the tests, but TTC actually performed them.”

Scorecard: National Union was not required to pay Texas Trailer’s litigation costs.

Takeaway: TTC’s argument that it acted under ABS’ guidelines was not sufficient to prevent the court from ruling that TTC had “care, custody or control” of the container.

The Meaning of ‘Collapse’

In 2014, renovations at the Masters Apartments revealed “substantial structural impairment” due to decayed rim joists.

CHL LLC, owner of the Seattle apartment complex, submitted a claim to American Economy Insurance Co., which had issued commercial property insurance from 1999 to 2005. An engineer hired by the insurer said the structural damage occurred between 1999 and 2002, and that a building inspector would classify it as a “dangerous” building.

American Economy denied CHL’s claim, saying the damage did not trigger coverage, as “collapse,” as defined by the policy from 2002 to 2005, required the building to fall down or be in imminent danger of falling down for a claim to be paid. (Prior to 2002, the term “collapse” was undefined.)

The insurance company filed a lawsuit in the U.S. District Court for the Western District of Washington at Seattle seeking a judgment that it did not need to indemnify the claim.

On July 7, the court ruled in favor of the insurance company and dismissed the case.

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Given that Masters Apartments remained upright for 12 years after the apparent decay occurred, the court ruled, the building did not reach a state of collapse between 1999 and 2002, when American Economy provided coverage.

Scorecard: The insurance company did not need to pay for renovations to the apartment complex.

Takeaway: Depending on the state, interpretation of “collapse” can range from a building that has a non-imminent substantial impairment of structural integrity to a building that has actually fallen down.

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

Wawa’s Director of Risk Management knows that harnessing data and analytics will be key to surviving the rapid pace of change that heralds new risk exposures.
By: | July 27, 2017 • 5 min read

R&I: What was your first job?

My first job was at the age of 15 as a cashier at a bakery. My first professional job was at Amtrak in the finance department. I worked there while I was in college.

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

A position opened up in risk management at Wawa and I saw it as an opportunity to broaden my skills and have the ability to work across many departments at Wawa to better learn about the business.

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

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The advancements in analytics are a success for the industry and offer opportunities for the future. I also find value in the industry focus on emerging and specialty risks. There is more alignment with experts in different industries related to emerging and specialty risks to provide support and services to the insurance industry. As a result, the insurance industry can now look at risk mitigation more holistically and not just related to traditional risk transfer.

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

Developing the talent to grow with the industry in specialization and analytics, but to also carry on the personal connections and relationship building that is a large part of this industry.

Nancy Wilson, director, quality assurance, risk management and safety, Wawa Inc.

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

I have had successes at all of the RIMS events I have attended. It is a great opportunity to spend time with our broker, carriers and other colleagues.

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

I think the biggest challenge facing most companies today is related to brand or reputational risk. With the ever-changing landscape of technology, globalization and social media, the risk exposure to an organization’s brand or reputation continues to grow.

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

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The changing consumer demands and new entrants into an industry are concerning. This is not necessarily something new but the frequency and speed to which it happens today does seem to be different. I think that is only going to continue. Companies need to be prepared to evolve with the times, and for me that means new risk exposures that we need to be prepared to mitigate.

R&I: Are you optimistic about the U.S. economy or pessimistic and why?

I try to be optimistic about most things. I think the economy ebbs and flows for many reasons and it is important to always keep an eye out for signs of change.

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

I am fortunate to have opportunities professionally that make me proud, but I have to answer this one personally. I have two children ages 12 and 9 and I am so proud of the people that they are today. They both are hardworking, fun and kind. Nothing gives me a better feeling than seeing them be successful. I look forward to more of that.

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

This is really hard as there are too many favorites. I do prefer books to movies, especially if there is a movie based on a book. I find the movie is never as good. I have multiple books going at once and usually bounce back and forth between fiction and non-fiction.

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

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I have eaten at a lot of different restaurants in many major cities but I would have to pick Horn O’ Plenty in Bedford, PA. It is a farm to table restaurant in the middle of the state. The food is always fresh and tastes amazing and they make me feel like I am at home when I am there. My family and I eat there often during our trips out that way.

R&I: What is your favorite drink?

I do love a good cup of coffee (working at Wawa helps that). I also enjoy a good glass of wine (red preferably) on occasion.

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

Vacations aside, I do get an opportunity to travel for work and visit our food suppliers. The opportunities I have had to visit back to the farm level have been a very interesting learning experience. If it wasn’t for my role, I would have never been able to experience that.

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

My husband, kids and I recently did a boot-camp-type obstacle course up in the trees 24 feet in the air. Although I had a harness and helmet on, I really put my fear of heights to the test. At the end of the two hours, I did get the hang of it but am not sure I would do it again.

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

The first people that come to mind are those who are serving our country and willing to sacrifice their own lives for our freedom.

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

Every day is different and I have the opportunity to be involved in a lot of different work across the company.

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

My husband and children have a pretty good sense of what I do, but the rest of my family has no idea. They just know I work for Wawa and sometimes travel.




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