The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | November 1, 2017 • 5 min read

Batteries Included: Insurer Must Pay for Pollution Damages

Between 1982 and 2009, Exide Technologies Inc. rented property from The Wattles Co. to operate its battery manufacturing facility. After the tenants left, Wattles sued Exide for roofing and floor damages caused by sulfuric acid fumes and acid leaks released during the manufacturing process.

As of June 2016, Wattles was awarded $1.4 million in damages and more than $860,000 in attorneys’ fees.

Exide turned to its insurer, Ace American Insurance Co., for coverage. Ace, however, claimed it had no duty to pay the claim. According to the insurer, Exide had proposed a pollution exclusion for the policy, but it was omitted from the final policy by mistake.

Both parties agreed the exclusion was intended, argued Ace. In addition, the damages done to Wattles’ roof and floor fell under exclusions for general wear-and-tear — a by product of Exide’s battery operations.

The Georgia federal court was unconvinced.

“The problem with Ace’s reformation claim is that, at best, Ace has produced evidence that the parties to the Ace policy may have intended for it to include a pollution exclusion, but no evidence that they actually did so intend,” the judge said.

“The fact that Exide’s contamination of the premises — i.e., its pollution of the building — was an insured risk is dispositive.”

He found Ace was not only liable for the entire loss exceeding a $2 million deductible up to Exide’s $60 million policy limit, but Ace was also liable for losses stemming from Exide’s defense of Wattles’ underlying suit.

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That amount, the judge determined, was still unclear, and he directed the parties to submit supplementary evidence concerning Exide’s defense costs moving forward.

Scorecard: Ace American Insurance Co. can’t rely on an alleged policy error to deny coverage of pollution damages.

Takeaway: The adage “It’s the thought that counts” will not hold in court. A policy and its exclusions require explicit and detailed language.

Secondary Damages Not Excluded

Superstorm Sandy hit the Atlantic coast in 2012, bringing with it wind, storm surge and flood damage claims. In New York, property owner 7001 East 71st St. LLC returned after the storm to a single-story shopping center, where the owner found flooding and damages to the building’s roof, ceiling and walls.

7001 East held a $3 million policy with Chubb Custom Insurance Co. and a $5 million policy with Continental Casualty Co. Repair estimates reached more than $14 million.

The property owner filed claims with both insurers for property damage and lost profits. The damages, 7001 East claimed, allowed for rainwater to enter the building through holes in the roof created by Sandy’s severe winds. Chubb and Continental both denied coverage, pointing to flood exclusions in each policy.

In two separate hearings, 7001 East took the insurers to court.

The court looked at the damages done, finding flood and rainwater intrusion through the roof as the main two causes.

In Chubb’s case: “These are separate and distinct losses caused by separate and distinct physical forces,” said the court judge.

“Because a jury could find that rainwater and flooding caused damage to distinct parts of the shopping center, the policies’ exclusions for flooding do not bar coverage for the parts of the shopping center damaged by rainwater.”

The judge ruled that the water damages only extended from the holes in the roof, which were caused by wind. Therefore, Chubb was responsible for coverage, because its policy did not exclude wind damage.

Continental, however, had a wind exclusion in its policy and was not liable for the damages.

Scorecard: Chubb’s policy contained a covered hazard — wind — which left the insurer responsible for flood damages. Continental’s policy excluded both flood and wind, allowing the insurer to walk away.

Takeaway: Courts will take into account whether or not excluded damages are a direct result of a covered hazard. In such cases, the court looks to the primary cause of damages to determine coverage.

Insurer Not Responsible for Intentional Fraud

The owner of a hair salon in a Florida strip mall felt cheated. The tenant believed the mall owner, JG Gulf Coast Town Center, LLC, and the real estate manager, CBL & Associates Properties, fraudulently inflated the tenant’s utility rates. Its energy bills went from $500 per month to almost $700.

A class action suit was brought against the owner and manager.

CBL and Gulf sought insurance coverage for the underlying action from its insurer, Catlin Specialty Insurance Co.

The insurer argued that, in its policy, it did not cover claims where a client intentionally and knowingly committed wrongful acts. Catlin had no legal obligation to pay any defense costs or damages incurred, according to the insurer.

CBL and Gulf argued they were entitled to insurance coverage because the underlying action involved alleged “negligent acts, errors or omissions in the rendering of professional services” — something explicitly covered by Catlin’s policy. Each asked for declaratory judgment.

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This policy clause came in to question. The court determined an action, error or omission must be negligent in conduct in order for the policy to apply, and because CBL and Gulf were not negligent in their actions but instead intentional, Catlin did not have to pay for the underlying suit.

“Because the only reasonable interpretation of the allegations in the underlying action sound in intentional conduct, and the policy does not cover such acts, Catlin’s motion for judgment on the pleadings is granted and CBL defendants’ motion for judgment on the pleadings is denied,” said the court judge.

Scorecard: Catlin Specialty Insurance Co. does not have to cover the mall owner for a fraud suit.

Takeaway: Businesses must have a plan in place to minimize the risk of employees engaging in fraudulent activities. Insurers typically exclude coverage for such illegal actions.

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]