The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | October 12, 2017 • 4 min read

Trailer Not a Warehouse

A temporary storage trailer was stolen from LaptopPlaza in December 2013. Approximately $711,000 worth of goods were inside.

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The company held a warehouse insurance policy through Starr Indemnity & Liability Co. and brought the case before the insurer. Starr, however did not believe its policy should cover a temporary trailer, because it was not technically a warehouse.

LaptopPlaza argued that the trailer was a temporary solution while it renovated its Miami-based warehouse. The trailer, therefore, was being used in a warehousing capacity, argued the company.

Starr followed Black’s Law Dictionary’s definition: a warehouse is a “building used to store goods and other items.” LaptopPlaza argued that Merriam-Webster’s Collegiate Dictionary defined warehouse as a “structure or room for the storage of merchandise.”

The Second Circuit court of New York said, “The trailer fits neither definition. It is not a building. Nor does it fit the latter definition, as a trailer is designed for the transportation, and not the storage, of merchandise.

“LaptopPlaza has offered no persuasive argument that the trailer in this case … should be considered a ‘warehouse,’ ” it continued.

In its appeals brief, LaptopPlaza explained how the company recently updated its policy with Starr in November 2013, because it moved locations. The warehouse coverage was modified during this change, said LaptopPlaza. It pointed to a policy clause covering property that was not within the warehouse but was warehoused elsewhere — off premises. The court, however, said this clause did not apply; the trailer was on the premises.

The court determined the stolen goods were not covered under property damage insurance; the definition of warehouse did not apply to the trailer.

Scorecard: Starr is not responsible for the loss of the stolen merchandise. The trailer was not defined as a warehouse under the insurance policy.

Takeaway: When taking measures outside of normal business operations, get clear advice on how it might impact coverage.

Tornado Damages Partially Covered

A building was destroyed by a 2010 tornado. Olga Despotis Trust, the building’s owner, held a policy with Cincinnati Insurance Company. In February 2011, the Trust claimed the loss of the building, valuing the actual cash value (ACV) at $1.4 million. CIC determined that the ACV of the building was $800,000, and issued a check for that amount. The Trust insisted the additional funds were due.

In April 2011, a court-ordered appraiser determined that the total amount of replacement cost equaled $1.5 million, with the lost rent income at $94,000. The ACV of the building was estimated at slightly more than $1 million.

CIC paid the ACV but did not pay the replacement cost value, believing it didn’t need to pay for replacement costs. In its policy, CIC required damaged properties to begin renovation within two years of the date of loss. By 2015, the Trust had not begun to rebuild.

The Trust argued, however, that waiting for the appraisal value delayed renovation. The two parties filed cross-motions for summary judgment.

“The Trust cannot maintain a claim for breach of contract based upon a payment that occurred in March 2011, prior to when the parties fully engaged in the appraisal process provided for in the Policy,” said the district court.

In the 2017 appeal, the Eighth Circuit panel solidified the court’s ruling.

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“The court was unpersuaded by the trust’s argument that CIC’s undervaluation of the ACV prevented the trust from rebuilding or that the additional $256,000 ACV would have caused the trust to start the rebuilding process,” the panel said, concluding that CIC did not have to pay the remaining balance.

Scorecard: Cincinnati Insurance Company is off the hook for additional replacement cost fees.

Takeaway: If a policy requires action on the insured’s part and the insured does not abide by the written policy, then insurers are likely to gain the legal advantage.

Sublimit Does Not Apply to Flood Loss

In October 2012, superstorm sandy wreaked havoc on the eastern coast of the United States. New Jersey Transit suffered extensive damage to its tracks, bridges, tunnels and power stations, which it immediately reported.

NJ Transit sought $400 million in coverage for windstorm damage, but its excess insurers claimed the damage was caused by flooding and invoked a $100 million flood damage sublimit.

NJ Transit took underwriters from the seven excess insurance carriers — including Lloyd’s of London, Ironshore Specialty Insurance Co. and Torus Specialty Insurance Co. — to court. The transit service argued that the water damage came from a “named windstorm” and not from storm surge, as the defendants alleged.

The excess insurers defined storm surge as a “surge of water,” which fell under the policies’ definition of flood.

The judge was not convinced: “Here there is no real dispute that New Jersey Transit’s water damages were caused by Superstorm Sandy … a named windstorm,” the judge said.

“Thus, this court finds that the flood sublimits in New Jersey Transit’s policies do not apply.”

Scorecard: A $100 million sublimit for flood losses does not apply to NJ Transit’s claim for coverage of Superstorm Sandy damage. Excess insurers will be responsible for covering windstorm damage.

Takeaway: A surge of surface water may be considered flood, but where that surge is caused by another independent peril, such as a named windstorm, then a flood sublimit will not apply.

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

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As risk manager for a cloud computing and software company, Laurie LeLack knows that the interconnected economy and cyber security remain top risks.
By: | December 14, 2017 • 4 min read

R&I: What was your first job?

One of my first jobs was actually at a local insurance agency when I was a high school student, before I had any idea I was going to get into insurance. After college, I was a claims analyst at Sunbeam.

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

I fell into it after college, where I studied international business. I had a stack of resumes, and Sunbeam came to Florida from Rhode Island, so I applied. I interviewed with the director of risk management and just stuck with it and worked my way up.

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

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Getting a holistic view of risk. Risk managers are understanding how to get all stakeholders together, so we understand how each risk is aligned. In my view, that’s the only way to properly protect and serve our organizations.

R&I: What could the risk management community do better?

We’ve come a long way, but we still have to continue breaking down silos at organizations. You also have to make sure you really understand your business model and your story so you can communicate that effectively to your broker or carrier. Without full understanding of your business, you can’t assess your exposures.

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

Being on the East Coast, I like Philadelphia.

Laurie LeLack, Senior Director, Corporate Risk and Americas Real Estate, Citrix Systems Inc.

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

Organizations understanding their cyber risk exposures and how this line of insurance can best protect them. Five to ten years ago, people shrugged it off as something just for technologies companies. But you can really see the trend ticking up as a must-have. It was always something that was needed, but people came to their own defining moments as we got more involved in electronic content and social media globally. Cyber risk is inherent in the way we do business today.

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

The advent of security and contractual obligations. These are concerns as we all play a part in this big web of a global economy. There’s that downstream effect — who’s going to be best insulated at the end of the day should something transpire, and did we set the right expectations?

R&I: Is the contingent commission controversy overblown?

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I think so. At the end of the day, it’s all about the transparency you’re getting from the people you work with. I think some best practices in transparency came out of the situation, but we were working on a fee basis, so it wasn’t as much of an issue for us as it may have been for other companies.

R&I: Are you optimistic about the U.S. economy or pessimistic and why?

I’m cautiously optimistic. We seem to be stable in terms of growth, and I’m hoping that the efficiencies and the economies of scale we achieve through technology will benefit us. But I’m also worried about the impact that could have on the number of jobs globally.

R&I: Who is your mentor and why?

Robert O’Connor, my former director when I was first on-boarded at Sunbeam, gave me so many valuable tidbits. I’ll call him to this day if I have an idea I want to bounce off him. He’s a good source of comfort and guidance.

R&I: Of what accomplishment are you most proud?

I have two very empathetic, healthy and happy boys. Eleven and soon-to-be 14.

On the professional side, there were a lot of moments during my career at Citrix where we were running a very lean organization, so I had the opportunity to get involved in many different projects that I probably wouldn’t have had in other larger organizations.

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

My favorite movie is Raiders of the Lost Ark.

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

A place in Santa Barbara called Bouchon.

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

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Caverns in Gatlinburg, Tennessee. They were interesting. It was cool to see these stalagmites and stalactites that have been growing for millions of years, and then just above ground there are homes from the 1950s.

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

Riding on the back of my husband’s Harley.

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

I like educating people and helping them find their ‘aha’ moment when you highlight areas of risk they may not have thought about. It allows people to broaden their horizons a little bit when we talk about risk and try to explore it from a different angle. I try not to be the person who always says “No” because it’s too risky, but find solutions that everyone is comfortable with given a risk profile.

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

I tell my kids I protect people and property and sometimes the things you can’t feel or touch.




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