The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | December 14, 2016 • 4 min read

Social Engineering Claim Fails

In March 2013, an employee in Apache Corp.’s Scotland office received a telephone call informing the company of a changed bank account for Petrofac, a vendor. The Apache employee replied that a formal request on Petrofac letterhead was required.

A week later, Apache’s accounts payable department received an email from petrofacltd.com (the true website was petrofac.com) with an attached letter related to the change of bank account. The email said the letter had been sent by mail as well.

The Apache employee called the phone number on the letter to confirm the request and subsequently, about $7 million was sent to the new bank account in payment of invoices. Within the month, Apache learned that it had been duped, and was able to retrieve “a substantial portion of the funds.” It did lose about $2.4 million, according to court documents.

Businessman Sitting In Front Of Computer Holding Calculator

It filed a claim with Great American Insurance Co. under the “computer fraud” provision of its crime-protection insurance policy, which had a $1 million deductible. The insurer denied the claim, stating the “loss did not result directly from the use of a computer nor did the use of a computer cause the transfer of funds.”

A Texas court ruled on behalf of Apache, after it had filed suit. The U.S. 5th Circuit Court of Appeals reversed that decision on Oct. 18.

“The email was part of the scheme; but, the email was merely incidental to the occurrence of the authorized transfer of money,” the court ruled, noting that “few — if any — fraudulent schemes would not involve some form of computer-facilitated communication.”

Scorecard: The insurance company did not have to cover the $2.4 million loss.

Takeaway: The decision will limit coverage for crime policy claims related to social-engineering scams.

‘Faulty Workmanship’ Dooms Claim

In December 2011, Kim’s Asia Construction removed the existing roof at Powerline Imports Inc. and installed a new one. Powerline said the new roof “leaks worse than before it was replaced,” according to court documents.

Additional repairs did not resolve the problem and eventually, Kim’s Asia Construction stopped responding to Powerline’s phone calls. Powerline engaged a new contractor to remove and dispose of the new roof, and filed suit against Kim’s in the Superior Court of Bergen County, N.J.

Kim’s sought defense and indemnification from State Farm Fire and Casualty Co., under its business liability insurance policy. The insurance company initially granted a defense but filed a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania seeking a judgment that it owed neither defense nor indemnification.

That judgment was granted to State Farm on Oct. 5.

The court ruled that “faulty workmanship” is not considered an occurrence that would trigger a bodily injury or property damage claim.

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“Under Pennsylvania law, such claims are not covered under the definition of ‘accident’ required to establish an ‘occurrence’ under the policy,” the court ruled.

Scorecard: The insurer does not have to defend the construction company in the lawsuit filed against it for “negligent construction” of a new roof.

Takeaway: The policy defined an occurrence as “an accident,” and the lawsuit did not allege “anything ‘unexpected,’ ‘unintentional,’ or ‘fortuitous’ about the damage to the roof.

Insurer Need Not Cover Thefts

John Clemmons was an estate lawyer who stole $1.3 million from his clients and gambled it away, according to reports. He was disbarred and sentenced to 18 years in prison.

The new administrator of two of the estates filed suit against Clemmons for misappropriating the funds and failing to account for the assets. It also claimed Clemmons failed to obtain adequate surety bonds as required by state law.
Hanover Insurance Co., which had issued a legal professional liability policy to Clemmons, sought a court declaration that it had no obligation to defend or indemnify Clemmons.

Businessman Being Arrested

The U.S. District Court in Nashville, Tenn., agreed with the insurer on Sept. 30.
The policy, the court ruled, excluded any claims caused by the “insured committing any intentional, dishonest, criminal, malicious or fraudulent act or omission.”

In addition, it said that the negligent failure to purchase surety bonds in the state’s mandated amounts were “outside the scope of coverage” of the policy, and that the claim was filed about a year after the claims-made policy lapsed.

The court also ruled that failure to obtain proper surety bonds “was not a ‘substantial factor in producing the damage or injury’ to the estates,” citing the attorney’s theft as the “substantial cause of the loss.”

Scorecard: The insurer does not have to defend or indemnify the incarcerated attorney for breach of fiduciary duty and misappropriation of funds.

Takeaway: The claims are outside the scope of coverage because the attorney “could have reasonably foreseen” the misappropriation claims against him and that Hanover would not have provided coverage for his thefts.

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]