The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | April 7, 2017 • 4 min read

Court Limited Extra Expenses

In 2012, Welspun Tubular, which manufactures pipes in Little Rock, Ark., was contracted by Enterprise Products Partners to manufacture 180 metric tons of pipe for a pipeline from Cushing, Okla., to Houston, Texas.

Production was supposed to commence on July 25, 2012, with final delivery on Aug. 31, 2013, but a fire damaged the facility on July 14, 2012. Welspun and Enterprise agreed that a portion of the production would shift to Welspun Tradings, an affiliated company in India.

Welspun had a commercial insurance policy issued by Liberty Mutual Fire Insurance Co., which covered property damage, loss of business income and extra expenses at the Little Rock facility. A forensic accountant calculated the lost business income at $28 million, direct mitigation expenses of $13.4 million and nearly $500,000 in indirect overhead costs.

Liberty paid about $415,000 as “extra expenses” in reimbursement of a portion of the direct costs, leaving unpaid $13 million, as well as nearly $500,000 in indirect overhead costs.

A partial settlement was reached, and Liberty Mutual paid Welspun $22.3 million in lost business income and $1 million for “extra expenses,” to cover direct costs, based on a $1 million policy limit.

Because they disputed the amount owed Welspun for mitigation expenses — which Welspun claimed were $13.5 million to shift production to India so the entire order was not lost — both parties filed suit.

A U.S. District Court judge in the Eastern District of Arkansas ruled on Feb. 2 that the insurer did not have to “pay more than it would have paid had the business loss occurred rather than been averted.”

He granted Liberty Mutual’s request to dismiss the case.

Scorecard: The insurance company does not have to pay Welspun $13.5 million.

Takeaway: The issue revolved around the amount the insurer would have paid if Welspun had been unable to make up the lost production.

Professional Services Not Included in Coverage

On April 22, David McBride was using a cutting torch to remove bolts from a “digester lid” as part of a project to upgrade a wastewater treatment plant in Dexter, Mich.

Sparks from the torch ignited methane gas inside the tank and caused an explosion that injured McBride and killed Michael Koch, a pipefitter.

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After the accident, McBride and the estate of Koch filed a wrongful death action against Orchard Hiltz & McCliment (OHM), the engineering and architecture firm that designed the upgrade and was project engineer for the construction.

XL Specialty Insurance Co., which had issued professional liability coverage to OHM, defended it in the lawsuits.

OHM, which was listed as an additional insured on the policies of two contractors involved in the project, filed a lawsuit seeking pro rata defense and indemnification from those insurance companies: Phoenix Insurance Co. (which provided commercial general liability coverage to A.Z. Shmina, the project’s general contractor) and Federated Mutual Insurance Co., (which provided CGL coverage to Platinum Mechanical — the employer of Koch. Platinum subcontracted with Regal Rigging & Demolition — the employer of McBride.)

Both Phoenix’s and Federated’s policies excluded professional services, and the U.S. District Court for the Eastern District of Michigan dismissed OHM’s suit.

On appeal to the U.S. 6th Circuit Court of Appeals, OHM argued the professional services exclusion did not apply because “some of the underlying allegations implicate ‘general project operations and work place safety’,” which OHM was not responsible for.

The appeals court said the policies issued by Phoenix and Federated “were never intended to cover professional negligence claims.”

“The substance of the underlying claims is that OHM is liable for failing to properly plan for, and take preventative measures to ensure, the safe removal of the digester tank lids it required as part of the overall treatment plant upgrade project,” according to the court’s opinion on Jan. 20.

Scorecard: The CGL carriers will not have to contribute to indemnify or defend the engineering firm.

Takeaway: The failure to supervise worksite safety was part of the firm’s professional services.

Malicious Acts Not Covered

For several months in 2015, Catalent found softgel capsules in the wrong place at its manufacturing facility in France. One batch of capsules was found in another batch of product, and capsules were found on an empty shelf on the floor. Catalent believed the incidents were “deliberate, malicious acts,” as part of a plan to extort money.

Because of the misplacements, the French pharmaceutical regulatory agency closed the facility for five months, leading to a loss in excess of $10 million.

Catalent filed a business interruption claim with U.S. Specialty Insurance Co., which denied the claim. The insurer then sought court approval of that denial. Because Catalent never received a demand for money, the U.S. District Court for the Southern District of New York upheld that denial.

The court said the policy unambiguously required that any alteration of stock be combined with a threat “made specifically against the insured,” with a loss defined as money “surrendered by or on behalf of the insured as an extortion payment … .”

Scorecard: The insurance company does not have to pay $10 million for business interruption.

Takeaway: No coverage existed because there was no extortion money requested or paid.

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

After 20 years in the business, Navy Pier’s Director of Risk Management values her relationships in the industry more than ever.
By: | June 1, 2017 • 4 min read

R&I: What was your first job?

Working at Dominick’s Finer Foods bagging groceries. Shortly after I was hired, I was promoted to [cashier] and then to a management position. It taught me great responsibility and it helped me develop the leadership skills I still carry today.

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

While working for Hyatt Regency McCormick Place Hotel, one of my responsibilities was to oversee the administration of claims. This led to a business relationship with the director of risk management of the organization who actually owned the property. Ultimately, a position became available in her department and the rest is history.

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

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The risk management community is doing a phenomenal job in professional development and creating great opportunities for risk managers to network. The development of relationships in this industry is vitally important and by providing opportunities for risk managers to come together and speak about their experiences and challenges is what enables many of us to be able to do our jobs even more effectively.

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

Attracting, educating and retaining young talent. There is this preconceived notion that the insurance industry and risk management are boring and there could be nothing further from the truth.

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

In my 20 years in the industry, the biggest change in risk management and the insurance industry are the various types of risk we look to insure against. Many risks that exist today were not even on our radar 20 years ago.

Gina Kirchner, director of risk management, Navy Pier Inc.

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

FM Global. They have been our property carrier for a great number of years and in my opinion are the best in the business.

R&I: Are you optimistic about the US economy or pessimistic and why?

I am optimistic that policies will be put in place with the new administration that will be good for the economy and business.

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

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The commercial risks that are of most concern to me are cyber risks, business interruption, and any form of a health epidemic on a global scale. We are dealing with new exposures and new risks that we are truly not ready for.

R&I: Who is your mentor and why?

My mother has played a significant role in shaping my ideals and values. She truly instilled a very strong work ethic in me. However, there are many men and women in business who have mentored me and have had a significant impact on me and my career as well.

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

I am most proud of making the decision a couple of years ago to return to school and obtain my [MBA]. It took a lot of prayer, dedication and determination to accomplish this while still working a full time job, being involved in my church, studying abroad and maintaining a household.

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

“Heaven Is For Real” by Todd Burpo and Lynn Vincent. I loved the book and the movie.

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

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A French restaurant in Paris, France named Les Noces de Jeannette Restaurant à Paris. It was the most amazing food and brings back such great memories.

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

Israel. My husband and I just returned a few days ago and spent time in Jerusalem, Nazareth, Jericho and Jordan. It was an absolutely amazing experience. We did everything from riding camels to taking boat rides on the Sea of Galilee to attending concerts sitting on the Temple steps. The trip was absolutely life changing.

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

Many, many years ago … I went parasailing in the Caribbean. I had a great experience and didn’t think about the risk at the time because I was young, single and free. Looking back, I don’t know that I would make the same decision today.

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

I would have to say the relationships and partnerships I have developed with insurance carriers, brokers and other professionals in the industry. To have wonderful working relationships with such a vast array of talented individuals who are so knowledgeable and to have some of those relationships develop into true friendships is very rewarding.

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

My friends and family have a general idea that my position involves claims and insurance. However, I don’t think they fully understand the magnitude of my responsibilities and the direct impact it has on my organization, which experiences more than 9 million visitors a year.




Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at [email protected]