The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | December 14, 2017 • 5 min read

Wall Collapse Contractor’s Responsibility

Taja construction llc was renovating a row home when the east wall of the property collapsed. It sought to recover repair costs under its insurance policy through Peerless Insurance Company, but Peerless determined the collapse was caused by Taja.

During renovation of the row home, Taja planned to deepen the home’s basement and create a larger living space. The site’s engineer recommended that, when the crew excavated the basement, they do it in sections. They would be wise to reinforce each section with concrete underpinning, he said.

Taja’s owner directed his subcontractors to excavate without any underpinning, insisting his team do it all at once. Various people, including the engineer, subcontractors and a neighboring construction company, warned Taja’s owner that he needed structural underpinning to proceed safely.

He did not heed the advice.

A few hours after the basement had been fully excavated without any underpinning, the property’s east wall collapsed. Taja filed a claim of $400,000 for repair costs, but Peerless said defects in construction/workmanship and damages from earth movement were excluded in its policy.

The district court granted summary judgment to Peerless, holding the exclusions applied. It deemed the workmanship exclusion in the Peerless policy would “not pay for loss caused by an act, defect, error, or omission (negligent or not) relating to … construction [or] workmanship.”

Because the owner deliberately ignored warnings of potential collapse, workmanship was the main cause of the fall.

In appeals court, Taja argued that even though the workmanship exclusion applied, the policy stated coverage would be restored if there was an “ensuing loss.”

Coverage should have been preserved, said Taja, when a loss excluded under the policy — like workmanship — resulted in subsequent loss otherwise covered, the company said.

Although the wall collapsed due to a workmanship defect, Taja believed it was entitled to recover the losses that resulted from the collapsed wall. The cost of repair was an ensuing loss from workmanship error.

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The court, however, did not agree. It said the wall collapsed due to movement of the earth’s surface, which was excluded in the Peerless policy. Had the structure been underpinned, the court said, the earth’s surface would have had the support it needed. Unfortunately, the structure was not underpinned, and the earth’s surface gave way.

Scorecard: Peerless is not responsible to cover losses stemming from a workmanship error. Taja will need to foot the bill.

Takeaway: Disregarding expert advice and knowingly performing faulty work will preclude coverage for any losses stemming from negligence.

Sublimit Part of Policy, Not an Exclusion

Five years ago, superstorm sandy wreaked havoc on the East Coast. Howard Hughes Corp. sustained damage to its commercial buildings located in Manhattan and turned to its insurer, XL Insurance America Inc., to cover the $150 million in storm surge damages.

XL filed suit, seeking a declaratory judgment releasing it from covering HHC’s damages. Its policy excluded property damage in “high hazard flood zones” caused by storm surge from named storms.

Additionally, because HHC held multiple policies with other carriers, XL said its policy limited liability to no more than “its proportion” of $50 million since other insurers provided coverage.

HHC argued the policy provision was ambiguous. The term “high hazard flood zones” referred to another clause in XL’s policy, which limited coverage to losses occurring during a 72-hour period or less. The superstorm did not fit in this clause, said HHC.

The trial court agreed with XL. The judge stated, “There was never … flood coverage for ‘high hazard flood zone’ properties because the initial attachment point is at, or above, an amount equal to the imposed sublimit.

“In other words,” he continued, “coverage for ‘high hazard flood zone’ properties are covered by other insurers and not part of [XL’s] layer of coverage.”

HHC took the case to appeals court. There, the appellate division found the exclusion applied only to the 72-hour limit. Instead of creating an exclusion, the endorsement as a whole created a $50 million sublimit within the policy.

“Moreover, [XL’s] and the motions court’s interpretation — that there is no coverage for HHC’s high hazards flood zone properties — renders superfluous the endorsement’s phrase ‘for more than its proportion of $50 million,’” the court said.

Scorecard: XL Insurance America Inc. is liable for $50 million in storm surge damages incurred by Howard Hughes Corp.’s property.

Takeaway: When writing policies, the best practice is to explicitly state an exclusion to prevent confusion.

Wavier Wording Questionable

A new jersey security guard for allied barton security services was hired to monitor Schering-Plough Corporation. While on duty, he tripped over a 50-pound bag of ice melt and fell down the company’s basement stairs. The tumble resulted in limited mobility in his shoulder and arm, severe headaches and body pain.

He filed a workers’ compensation claim with Allied Barton and a negligence suit against Schering-Plough. In court, the worker was awarded $45,500 in workers’ comp and $900,000 for the negligence suit. Schering-Plough appealed.

In its argument, Schering-Plough said the worker signed a waiver when he was hired at Allied Barton. In that waiver, the worker gave up his rights to file a lawsuit related to any work injury, and to prove that the waiver held weight, Schering-Plough pointed to several out-of-state cases where similar workers’ compensation waivers had been up for debate.

Pennsylvania, Alabama, Massachusetts and Washington, D.C., all examined similar cases in which a worker had waived their lawsuit-filing rights.

In each, the state’s supreme court determined the language in the waiver held firm, and the injured worker was not allowed to file suit against the employer, because he or she had already waived those rights upon date of hire.

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The New Jersey appellate court assigned to the case broke from precedent.

It questioned the wording of the waiver. Allied Barton titled the document “Workers Comp Disclaimer,” which, according to the court, was misleading. The company was asking its employees to waive tort suit rights, not workers’ compensation claims rights.

Additionally, the court questioned whether or not the waiver was acceptable under workers’ comp law.

“Not all employment contracts that limit the rights of the employees are contracts of adhesion,” said the court. “Although a court may enforce a contract of adhesion, such contracts are unenforceable, if unconscionable.”

Scorecard: The appellate court determined that the waiver may be unconscionable in nature and moved to send the case to the New Jersey Supreme Court.

Takeaway: A break from precedent opened the door for injured workers to challenge the legality of signed waivers based on their wording.

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

More from Risk & Insurance

More from Risk & Insurance

R&I Profile

Achieving Balance

XL Catlin’s Denise Balan stays calm and focused when faced with crisis.
By: | January 10, 2018 • 6 min read

In the high-stress scenario of kidnap or ransom, the first image that comes to mind isn’t necessarily a yoga mat — at least, not for most.

But Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin, who practices yoga every day, would swear by it.

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“I looked at these opposing aspects of my life,” she said. “Yoga is about focus, balance, clarity of intent. In a moment of stress, how do you respond? The more clarity and calmness you maintain, the better positioned you are to provide assistance in moments of crisis.

“Nobody wants to be speaking to a frenetic person when either dealing with a dangerous situation or planning for prevention of a situation,” she added.

“There’s a poem by [Rudyard] Kipling on that,” added Balan’s colleague Ben Tucker. “What it boils down to is: If you can remain calm, you can manage through a crisis a lot better.”

Tucker, who works side by side with Balan as head of U.S. terrorism and political violence, XL Catlin, has seen how yoga influences his colleague.

“The way Denise interacts with stakeholders in this process — she is very professional and calm in the approach she takes.”

Yin and Yang

Sometimes seemingly opposite or contrary forces may actually be complementary and interconnected. In Balan’s life, yoga and K&R have become her yin and yang.

She entered the insurance world after earning a juris doctor degree and practicing law for a few years. The switch came, she said, when Balan realized she wasn’t enjoying her time as a commercial litigator.

Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

In her new role, she was able to use her legal background to manage litigation at AIG, where her transition from law to insurance took place. She started her insurance career in the environmental sector.

In a chance meeting in 2007, Balan met with crisis management underwriters who told her about kidnap and ransom products.

She was hooked.

Because of her background in yoga, Balan liked the crisis management side of the job. Being able to bring the calmness and clearness of intent she practiced during yoga into assisting clients in planning for crisis management piqued her interest.

She then joined XL Catlin in July 2013, where she built the K&R team.

As she became more immersed in her field, Balan began to notice something: The principles she learned in yoga were the same principles ex-military and ex-law enforcement practiced when called to a K&R-related crisis.

She said, “They have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.”

“K&R responders have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Many understand yoga to be, in itself, one type of meditation, but yoga actually encompasses a group of physical, mental and spiritual practices. Each is a discipline. Some forms of yoga focus on movement and breathing, others focus on posture and technique. Some yoga is meant to relax the mind and create a sense of calmness; other yoga types make participants sweat.

After having her second child and working full-time, Balan wanted to find something physical and relaxing for herself; a friend suggested yoga. During her first lesson, Balan said she was enamored with it.

“I felt like I’d done it all my life.”

She dove into the philosophy of yoga, adopting the practice into her daily routine. Every morning, whether Balan is in her Long Island home or on a business trip, she pulls out her yoga mat to practice.

“I always travel with my mat,” she said. “Daily practice is the simplest form of connection to routine to maintain my balance — physically and mentally.”

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She said the strangest place she has ever practiced was in Lisbon. She was on a very narrow balcony with a bird feeder swarming with sparrows overhead.

After years of studying and practicing, Balan is considered a yogi — someone who is highly proficient in yoga. She attends annual retreats with her yoga group, where she is able to rejuvenate, ready to tackle any K&R event when she returns.

In 2016, Balan visited Tuscany, Italy, where she learned the practice of yoga nidra, a very deep form of meditation. It’s described as the “going-to-sleep stage” — a type of yoga that brings participants to a state of consciousness between waking and sleeping.

“It awakens a different part of your brain,” Balan commented. “Orally describing it doesn’t quite do it justice. One has to practice Nidra to fully understand the effect it has on your being.”

Keeping a level head during a crisis is key in their line of business, Tucker said. He can attest to the benefit of having a yogi on board.

“I’ve seen her run table-top exercises where there is this group of people in a room and they run an exercise, a simulation of a kidnap incident. Denise is very committed to what we’re doing,” said Tucker.

“She brings that energy. She doesn’t get flustered by much.”

Building a K&R Program

When Balan joined XL Catlin, she was tasked with creating the K&R team.

Balan during a retreat in Sicily, Italy, 2017

She spent time researching and analyzing what clients would want in their K&R coverage. What stuck out most to Balan was the fact that, in these situations, the decision to purchase kidnap and ransom cover is rarely made because of desire for reimbursement of money.

“I asked why people buy this type of coverage. The answer was for the security responders,” she said.

“These are the people who sit with the family. They’re similar to psychologists or priests,” Balan further explained. “Corporations can afford to pay ransom. They buy [K&R] because it gives them access to these trained and dedicated professionals who not only provide negotiation advice, but actually sit with a victim’s family, engaging deep levels of emotional investment.”

“I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Balan described these responders as people having total clarity of purpose, setting their intentions to resolve a crisis — a practice at the very heart of yoga. She knew XL Catlin’s new kidnap program would put stock in their responders.

“I’ve worked closely with the responders to better understand what they can do for our clientele. These are the people who run into danger — warrior hearts married to dedication to our clients’ best interests.”

But K&R is more than fast-paced crisis and quick thinking; Balan also spent a good deal of time writing the K&R form and getting the company’s resources in order. This was a huge task to tackle when creating the program from the ground up.

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“A lot of my day-to-day is speaking with brokers and finding ways to enhance our product,” she said.

After a few months, she was able to hire the company’s first K&R underwriter. From there, the program has grown. It’s left her feeling professionally rewarded.

“People don’t often get that opportunity to build something up from scratch,” she said. “It’s been an amazing experience — rewarding and fun.”

“She brings groups of people together,” said Tucker. “She’s created a positive environment.”

Balan’s yogi nature extends beyond the office walls, too. Her pride and joy, she said, are her kids. And while it may seem like two large parts of her life are opposite in nature, Balan’s achieved balance through her passions.

“[Yoga] has given me the ability to see beyond only one aspect of any situation” she said. “I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” &

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