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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.

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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.”

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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

The Profession

Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

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

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

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

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

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

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

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

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

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

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

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

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

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

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

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

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

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

Favorite movie is definitely “Good Will Hunting.”

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

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

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

The Grand Canyon. It is just so vast. A close second is Stonehenge.

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

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

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

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

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

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

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

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

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