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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]