The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | July 27, 2017 • 4 min read

Court Rules for Agent in Duty of Care Case

In November 2013, two truckloads of copper were stolen from trucks owned by now-defunct Atic Enterprises Inc., which transported general freight.


Atic had an insurance policy with Westchester Fire Ins. Co., sold to it by Cottingham & Butler.

When Atic purchased its initial policy, covering the period of July 2012 to July 2013, it never informed Cottingham & Butler that it transported copper, instead listing that it transported canned goods, paper products, nonalcoholic beverages and general merchandise.

When a renewal of the policy was discussed, Cottingham & Butler sent a side-by-side comparison of the proposed 2013-2014 policy and the 2012-2013 policy. The newer policy explicitly excluded copper (a change from the prior policy), but Atic did not update the cargo it transported to include copper.

When the two truckloads of copper were stolen, the claim was denied. Atic filed a lawsuit against the insurance agent, claiming negligence, arguing that Cottingham & Butler owed a duty of care to the insured, that it breached that duty and that the breach caused the insured’s damages.

The U.S. District Court for the Western District of Kentucky dismissed Atic’s claim. On May 23, the U.S. 6th Circuit Court of Appeals agreed with that decision.

“We find that Cottingham & Butler had no such additional duty [of care] under Kentucky law, and even if it did, that the company satisfied that duty,” the appeals court ruled.

It noted the insurance agent sent many documents to the trucking company notifying it of the copper exclusion, even though the trucker did not admit that it transported copper.

It also noted that a “duty to advise” an insured occurs when the insured pays the agent consideration beyond a mere payment of premium; where there is an extended period of time which would “put an objectively reasonable insurance agent on notice that advice is being sought and relied on;” or when an insured clearly asks for advice.

None of those factors occurred in the case, the court ruled.

Scorecard: The insurance agent was not negligent when a copper theft claim was denied.

Takeaway: Since Atic never informed the agent that it was hauling copper, the agent had no reason to further advise the trucker about the exclusion.

Professional Services Not Covered Under Policy

Morningstar Consultants Inc. was hired to inspect construction projects of Centex Homes. Its alleged failure to competently do that resulted in property damage to certain construction projects and lawsuits in eight states for negligence.

Morningstar sought defense and indemnification from State Farm Fire and Casualty Co., which had issued it commercial general liability policies from 2000 to 2012, and again from 2012 to 2016.

State Farm declined, citing provisions in the policies for damage or injury related to “rendering or failure to render any professional services or treatment.”


Morningstar filed a lawsuit charging the exclusion is inapplicable because it holds no professional licenses, and that the exclusion, if enforced, would “render the … policies meaningless.”

State Farm countersued, seeking to dismiss the lawsuit. The U.S. District Court for the District of South Carolina upheld State Farm’s motion on May 24.

The court ruled that Morningstar’s arguments were “implausible,” noting it offered no argument to back up its claim that the lack of professional licenses would impact the insurance policy. It also said that the CGL policies provided other coverages regardless of its professional services exclusion and thus, were not meaningless.

Scorecard: State Farm does not have to defend or indemnify the building inspector.

Takeaway: The professional services exclusion was unambiguously listed in the policies.

Debris Removal Not Covered by Flood Endorsement

In October 2012, a Long Branch, N.J., apartment complex owned and managed by Oxford Realty Group Cedar, CLA Management and R.K. Patten LLC, (“Oxford”) suffered flood damage from Superstorm Sandy.

Oxford filed a claim with Travelers Excess and Surplus Lines Co. under a flood endorsement to a property policy that provided flood coverage limited to $1 million. Oxford filed a $1 million claim for flooding and $208,000 for debris removal costs.

Travelers paid Oxford $1 million, and rejected the debris removal claim, saying the policy was limited to $1 million for flood damage. In April 2014, the New Jersey Superior Court ruled in favor of Travelers, finding the policy to be unambiguous about coverage limits, and that the $500,000 additional coverage for debris removal listed in the policy “must yield” to the $1 million coverage for all losses caused by the flood.

That decision was reversed by the N.J. appellate division, which ruled the $1 million cap only applied to Oxford’s buildings, rather than an insured occurrence, and that Travelers must pay for the debris removal. The state’s Supreme Court reversed again, on May 25.

“Although the policy assigns debris removal a coverage sublimit, it does not constitute a self-contained policy provision outside the application of the $1 million flood limit,” the court ruled.

Scorecard: Travelers does not have to pay $208,000 for debris removal costs.

Takeaway: The flood endorsement “controls the extent of flood coverage and it is not modified by the rest of the policy’s terms.”

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Marine

Crewless Ships Raise Questions

Is a remote operator legally a master? New technology confounds old terms.
By: | March 5, 2018 • 6 min read

For many developers, the accelerating development of remote-controlled and autonomous ships represents what could be the dawn of a new era. For underwriters and brokers, however, such vessels could represent the end of thousands of years of maritime law and risk management.

Rod Johnson, director of marine risk management, RSA Global Risk

While crewless vessels have yet to breach commercial service, there are active testing programs. Most brokers and underwriters expect small-scale commercial operations to be feasible in a few years, but that outlook only considers technical feasibility. How such operations will be insured remains unclear.

“I have been giving this a great deal of thought, this sits on my desk every day,” said Rod Johnson, director of marine risk management, RSA Global Risk, a major UK underwriter. Johnson sits on the loss-prevention committee of the International Union of Maritime Insurers.

“The agreed uncertainty that underpins marine insurance is falling away, but we are pretending that it isn’t. The contractual framework is being made less relevant all the time.”

Defining Autonomous Vessels

Two types of crewless vessels are being contemplated. First up is a drone with no one on board but actively controlled by a human at a remote command post on land or even on another vessel.

While some debate whether the controllers of drone aircrafts are pilots or operators, the very real question yet to be addressed is if a vessel controller is legally a “master” under maritime law.


The other type of crewless vessel would be completely autonomous, with the onboard systems making decisions about navigation, weather and operations.

Advocates tout the benefits of larger cargo capacity without crew spaces, including radically different hull designs without decks people can walk on. Doubters note a crew can fix things at sea while a ship cannot.

Rolls-Royce is one of the major proponents and designers. The company tested a remote-controlled tug in Copenhagen in June 2017.

“We think the initial early adopters will be vessels operating on fixed routes within coastal waters under the jurisdiction of flag states,” the company said.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.”

Once autonomous ships are a reality, “the entire current legal framework for maritime law and insurance is done,” said Johnson. “The master has not been replaced; he is just gone. Commodity ships (bulk carriers) would be most amenable to that technology. I’m not overly bothered by fully automated ships, but I am extremely bothered by heavily automated ones.”

He cited two risks specifically: hacking and fire.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.” — Rolls-Royce Holdings study

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty, asked an even more existential question: “From an insurance standpoint, are we even still talking about a vessel as it is under law? Starting with the legal framework, the duty of a flag state is ‘manning of ships.’ What about the duty to render assistance? There cannot be insurance coverage of an illegal contract.”

Several sources noted that the technological development of crewless ships, while impressive, seems to be a solution in search of a problem. There is no known need in the market; no shippers, operators, owners or mariners advocate that crewless ships will solve their problems.

Kinsey takes umbrage at the suggestion that promotional material on crewless vessels cherry picks his company’s data, which found 75 percent to 90 percent of marine losses are caused by human error.


“Removing the humans from the vessels does not eliminate the human error. It just moves the human error from the helm to the coder. The reports on development by the companies with a vested interest [in crewless vessels] tend to read a lot like advertisements. The pressure for this is not coming from the end users.”

To be sure, Kinsey is a proponent of automation and technology when applied prudently, believing automation can make strides in areas of the supply chains. Much of the talk about automation is trying to bury the serious shortage of qualified crews. It also overshadows the very real potential for blockchain technology to overhaul the backend of marine insurance.

As a marine surveyor, Kinsey said he can go down to the wharf, inspect cranes, vessels and securements, and supervise loading and unloading — but he can’t inspect computer code or cyber security.

New Times, New Risks

In all fairness, insurance language has changed since the 17th century, especially as technology races ahead in the 21st.

“If you read any hull form, it’s practically Shakespearean,” said Stephen J. Harris, senior vice president of marine protection UK, Marsh. “The language is no longer fit for purpose. Our concern specifically to this topic is that the antiquated language talks about crew being on board. If they are not on board, do they still legally count as crew?”

Harris further questioned, “Under hull insurance, and provided that the ship owner has acted diligently, cover is extended to negligence of the master or crew. Does that still apply if the captain is not on board but sitting at a desk in an office?”

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty

Several sources noted that a few international organizations, notably the Comite Maritime International and the International Maritime Organization, “have been very active in asking the legal profession around the world about their thoughts. The interpretations vary greatly. The legal complications of crewless vessels are actually more complicated than the technology.”

For example, if the operational, insurance and regulatory entities in two countries agree on the voyage of a crewless vessel across the ocean, a mishap or storm could drive the vessel into port or on shore of a third country that does not recognize those agreements.

“What worries insurers is legal uncertainty,” said Harris.

“If an operator did everything fine but a system went down, then most likely the designer would be responsible. But even if a designer explicitly accepted responsibility, what matters would be the flag state’s law in international waters and the local state’s law in territorial waters.


“We see the way ahead for this technology as local and short-sea operations. The law has to catch up with the technology, and it is showing no signs of doing so.”

Thomas M. Boudreau, head of specialty insurance, The Hartford, suggested that remote ferry operations could be the most appropriate use: “They travel fixed routes, all within one country’s waters.”

There could also be environmental and operational benefits from using battery power rather than conventional fuels.

“In terms of underwriting, the burden would shift to the manufacturer and designer of the operating systems,” Boudreau added.

It may just be, he suggested, that crewless ships are merely replacing old risks with new ones. Crews can deal with small repairs, fires or leaks at sea, but small conditions such as those can go unchecked and endanger the whole ship and cargo.

“The cyber risk is also concerning. The vessel may be safe from physical piracy, but what about hacking?” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]