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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 the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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

See the complete list of 2018 Risk All Stars.

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