The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | July 6, 2017 • 4 min read

Court Rules on Electronic Data Exclusion

Beginning in 2007, Country World Media Group stored boxes of taped television shows, master copies and field footage at offices used by Country World Productions in Wisconsin.

In 2014, the media group discovered that Best Built Inc., lease manager for the premises, threw the boxes of tapes and other items, valued at about $1 million, in the trash.

The media group filed suit against Country World Productions (CWP), Best Built, VHC (owner of the property) and Craig Kassner, owner of Best Built, along with their insurance companies, claiming breach of contract and negligence.

Erie Insurance Co., which provided CWP with a commercial general liability policy, denied the claim, saying that the loss of “electronic data” was excluded from the policy’s definition of property damage.

On April 27, 2016, a circuit court in Wisconsin ruled Erie did not have a duty to defend CWP against the claim because of the electronic data exclusion. It dismissed Erie from the case.
CWP appealed to the state Court of Appeals, arguing Erie was liable for CWP’s ultimate settlement with Country World Media Group, as well as for all defense costs.

The appeals court ruled on May 2 that the media group experienced a loss of both intangible electronic data contained on the tapes, as well as the physical loss of the tapes themselves.

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“The loss of the physical tapes constitutes property damage, as the policy defines that term, and is therefore covered,” the court wrote in reversing the lower court decision. It ruled that Erie had a duty to defend CWP on the claims, returning the case to the circuit court to enter a judgment in CWP’s favor, and to determine damages for Erie’s breach of contract.

Scorecard: The court will determine damages owed CWP for Erie’s failure to provide a defense.

Takeaway: While the property damage coverage excluded intangible electronic property, it did not exclude the tangible physical videotapes that held the TV shows and other footage.

Court: Insurer Should Have Investigated Misrepresentations

In April 2013, Sunwest Metals Inc. suffered a catastrophic fire at its recycling facility, and filed a claim with Star Insurance Co. under its Scrap Dealers Program policy.

While nearly two-thirds of Sunwest’s revenue came from paper processing, the insurance program limited policy issuance to companies that derived no more than 15 percent of their revenue from paper and plastics.

Through its broker, Thomas Dunlap Insurance Agency, Sunwest represented that nearly all of its revenue came from metals processing, according to court documents.

After Sunwest filed a claim for fire damage, Star rescinded the policy based on Dunlap’s misrepresentations, according to court documents.

A trial in the U.S. District Court for the Central District of California resulted in a judgment in favor of Sunwest of nearly $978,000, and the court determined Star had waived its right to rescind the policy by failing to investigate evidence of misrepresentation.

The U.S. 9th Circuit Court of Appeals agreed on May 18, ruling that Star had “information that ‘distinctly implied’ material misrepresentations, and that it failed to satisfy its duty to investigate such evidence. The duty of inquiry requires an insurer to not only ask questions, but also to investigate answers.”

It noted that Sunwest’s website advertised paper and plastic recycling, and that Star had made several site inspections that noted “substantial paper processing.”

The court also ruled the district court was correct when it reduced Star’s $978,000 claims payment by $232,000, to reflect the actual loss, when taking into account the amount of the recovery Sunwest received from Dunlap for “making erroneous representations to Star.”

Scorecard: Sunwest was awarded a total of $978,000 for property damage to its recycling facility.

Takeaway: The insurance company waived its right to rescind the policy because it ignored information that “distinctly implied” a misrepresentation of facts.

Carfax Denied a Defense in Antitrust Case

In 2013, about 470 auto dealers filed suit against Carfax Inc. for $50 million, claiming that it monopolized the sale of vehicle history reports by using “exclusive dealing arrangements” (a violation of the federal Clayton Act) and by “agreements in unreasonable restraint of trade” (a violation of the federal Sherman Act).

Illinois National Insurance Co. refused to defend Carfax in the federal antitrust suit, saying the Special Risk Protector policies it issued excluded coverage for, among other things, antitrust violations, unfair competition, or violations of the Sherman Act or the Clayton Act.

Arguing that the underlying lawsuit stigmatized and disparaged its company (both covered under the policy), Carfax filed suit against Illinois National seeking a ruling that the insurer had a duty to defend, as well as repay it for any defense costs.

The auto dealers’ lawsuit was eventually dismissed, but has been appealed.

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On May 16, the Supreme Court of the State of New York dismissed the lawsuit against Illinois National.

“It is this anticompetitive injury, rather than disparagement, that forms the basis of the [underlying] litigation,” the court ruled.

The court ruled Illinois National did not have a duty to defend or to contribute to any defense costs.

Scorecard: The insurance company does not have to defend Carfax.

Takeaway: The underlying lawsuit was based on antitrust allegations, which were excluded under the policy.

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