The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | August 29, 2017 • 4 min read

School District Protected in Contaminated Water Suit

In august 2016, Butler area school district received test results indicating its water supply was tainted with lead and copper from the school’s pipes. The school district informed students and their families of the contamination in mid-January 2017.

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On February 7, parents filed a class-action lawsuit against the western Pennsylvania school district, seeking an unspecified monetary settlement for allegedly hiding the lead and copper levels for months and putting their children in harm’s way.

The district held a general liability policy through The Netherlands Insurance Co. and an umbrella policy from Peerless Insurance Co. The insurers believed they did not have to defend the district because the water contamination claims fell under their policies’ general exclusions for pollutants. More specifically, the claims fell under exclusions for lead exposure.

On February 17, 2017, Netherlands and Peerless informed the school district that they would not participate in the defense of the school nor would they pay for the parents’ monetary damages recoverable by law. The insurers sought a court declaratory judgment stating that neither had an obligation to defend the school district.

The judge ruled that the policies presented by both insurers exclude damages “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants,’ ” but noted that Pennsylvania courts have found this language to not accurately describe the degradation over time that causes lead exposure from lead-based paint.

Similarly, the lead and copper elements of the school district’s water system degraded over time, rendering the lead and copper bioavailable.

Additionally, the judge said that because there was no specific copper exclusion in the policies, the insurers were obligated to provide defense coverage in the class-action suit.

Scorecard: The two insurance companies, Netherlands and Peerless, have a duty to defend the Butler Area School District.

Takeaway: Where exclusion language is deemed ambiguous, courts more often than not rule in favor of insureds.

Insurer Not Responsible for Landslide Damages

Dimitri and mary chaber owned and operated a motorcycle business in St. Albans, W. Va., when rock and soil slid down a hill at the back of the property. The landslide damaged the shop on February 19, 2014, and the Chabers, covered by Erie Insurance, submitted a claim.

Erie sent an adjuster to examine the property damage totaling nearly $4,000. The adjuster determined that seasonal climate change caused the landslide.

The Chabers believed the landslide originated from an improperly performed excavation. After the adjuster explained to the Chabers that their policy specifically stated earth-movement events were excluded from coverage, the Chabers filed suit.

In February 2016, a state circuit court granted the Chabers a declaratory judgment stating that evidence showed natural and man-made interaction caused the landslide. The policyholder, then, could expect coverage for the landslide, because the policy did not unambiguously exclude damage caused by man-made earth-movement events.

Erie argued that the language within the policy unambiguously excluded coverage for all earth movement, regardless of whether it is man-made or natural.

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In an appeal held in April 2017, the Supreme Court of Appeals of West Virginia reversed the declaratory judgment granted to the Chabers and found the language of the exclusion unambiguously embraced both natural and man-made causes.

Scorecard: Erie Insurance does not have to cover $4,000 in landslide damages incurred by its policyholder.

Takeaway: If a policy excludes a particular event unambiguously, the exclusion should apply regardless of the event’s cause.

‘Pervasive Odor’ Covered Under Policy

Residents were plagued with a pervasive odor coming from the Hillcrest Coatings Inc., plant located near Attica, N.Y.

Hillcrest operated a glass and paper recycling facility and was sued for allegedly creating the odor due to negligent operation. Hillcrest sought coverage from its general liability policy issued by Colony Insurance Co. Colony refused coverage and did not budge.

Hillcrest sued in state court, seeking a declaratory judgment that Colony had a duty to defend and indemnify the plant. The court ruled that Colony must defend Hillcrest, but the indemnification issue proved nonconclusive.

Colony appealed the ruling and countered that its policy contained a hazardous materials exclusion that exempted it from covering the defense for the underlying suit. The exclusion barred coverage for bodily injury or property damage that may have been caused by the discharge of hazardous materials. Within Colony’s definition, waste materials — such as glass or paper — used in the recycling process are a type of hazardous material.

The case was brought in front of a New York appellate panel of five judges. The court ruled in favor of Hillcrest, because “foul odors are not always caused by the discharge of hazardous materials,” the panel said.

Further, no claims of bodily harm or property damage were filed with the underlying suit. Because the hazardous material exclusion was triggered by bodily harm and physical damage, the court determined Colony had a duty to defend Hillcrest.

Scorecard: The cause of the odor could not be linked to a discharge of hazardous materials, therefore the insurer must defend Hillcrest Coatings Inc.

Takeaway: For an exclusion to be triggered, the policy language must directly apply to the situation at hand.

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 Risk All Stars

Immeasurable Value

The 2017 Risk All Stars strengthened their organizations by taking ownership of improved risk management processes and not quitting until they were in place.
By: | September 12, 2017 • 3 min read

Being the only person to hold a particular opinion or point of view within an organization cannot be easy. Do the following sound like familiar stories? Can you picture yourself or one of your risk management colleagues as the hero or heroine? Or better yet, as a Risk & Insurance® Risk All Star?

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One risk manager took a job with a company that was being spun off, and the risk management program, which was built for a much larger company, was not a good fit for the spun-off company.
Rather than sink into inertia, this risk manager took the bull by the horns and began an aggressive company intranet campaign to instill better safety and other risk management practices throughout the organization.

The risk manager, 2017 Risk All Star Michelle Bennett of Cable One, also changed some long-standing brokerage relationships that weren’t a good fit for the risk management and insurance program. In her first year on the job she produced premium savings and in her second year is in the process of introducing ERM company-wide.

Or perhaps this one rings a bell. The news is trickling out that a company is poised to dramatically expand, increasing the workforce three- or four-fold. Having this knowledge with certainty would be a great benefit to a risk manager, who could begin girding safety, workers’ comp and related programs accordingly. But things sometimes don’t work that way, do they? Sometimes the risk manager is one of the last people to know.

The Risk All Star Award recognizes at its core, creativity, perseverance and passion. The 13 winners of this year’s award all displayed those traits in abundance.

In the case of 2017 Risk All Star winner Steve Richards of the Coca-Cola Bottling Company, the news of an expansion spurred him to action. He completely overhauled the company’s workers’ compensation program and streamlined its claim management system. The results, even with a much higher headcount, were reduced legal costs, better return-to-work experiences for injured workers and a host of other improvements and savings.

The Risk All Star Award recognizes at its core, creativity, perseverance and passion. The 13 winners of this year’s award all displayed those traits in abundance. Sometimes it took years for a particular risk solution, as promoted by a risk manager, to find acceptance.

In other cases a risk manager got so excited about a solution, they never even considered getting turned down. They just kept pushing until they carried the day.

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Butler University’s Zach Finn became obsessive about what he felt was a lackluster effort on the part of the insurance industry to bring in new talent. The former risk manager for the J.M. Smucker Co. settled on the creation of a student-run captive to give his risk management students the experience they would need to get hired right out of college.

The result was a better risk management program for the university’s College of Liberal Arts and Sciences, and immediate traction in the job market for Finn’s students.

A few of our Risk All Stars told us that the results they are achieving were decades in the making. Only by year-in, year-out dedication to gaining transparency about her co-op’s risks and learning more and more about her various insurance carriers, did Growmark Inc.’s Faith Cring create a stalwart risk management and insurance program that is the envy of the agricultural sector. Now she’s been with some of her insurance carriers more than 20 years — some more than 30 years.

Having the right idea and not having a home for it can be a lonely, frustrating experience. Having the creativity, the passion and perhaps, most importantly, the perseverance to see it through and get great results makes you a Risk All Star. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, perseverance and passion.

See the complete list of 2017 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]