The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | February 20, 2018 • 6 min read

Insurer Must Pay for Hail Storm Damage

A hail storm pelted apartment complex Grand Reserve one wintry March morning. Wind and hail stones wreaked havoc on the 55-building complex. Nine months later, when the complex was able to understand the full scope of the damage done, it filed a claim with its insurer.

Property-Owners Insurance Co. then spent the next seven months investigating the claim. In the end, the insurer decided to cover $159,000 for damages done to the roof and an additional $46,700 in depreciation costs once repairs were made.

Grand Reserve retained an independent adjustor named Brian Dansby, who estimated the complex sustained at least $1.3 million in damages. Property-Owners offered $26,700 for wind and hail damage but refused to pay any more for damages done to the complex buildings’ roofs.

Grand Reserve sued Property-Owners, stating that the insurer’s payments thus far had been “extremely disproportionate” to the total amount of actual loss the complex faced. At trial, the jury rendered a $552,000 verdict for the complex.

Property-Owners filed an appeal. It claimed that Dansby was inaccurate in his assessment of the damages done to the complex’s buildings. The insurer also called into question the validity of the adjustor’s qualifications and methodology during his assessment of damages.

According to Property-Owners, the initial trial abused its discretion when it allowed Dansby to testify. The court had not acted as the “gatekeeper to ensure that speculative and unreliable opinions do not reach the jury.”

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In addition to the faulty testimony, Property-Owners said, the complex had failed to introduce sufficient evidence of the damages done by the hail storm to its facilities.

The appellate court did not agree: “Property-Owners argues that Dansby offered ‘at best’ speculative evidence of damages, but its attacks on Dansby’s credibility and the accuracy of his estimate are misplaced because ‘we have stressed’ that ‘[i]t is the jury’s task — not [the court’s] — to weigh conflicting evidence and inferences, and determine the credibility of witnesses,’ ” the court said.

Further, the court reminded Property-Owners that the adjustor in question had been in the business for 26 years and performed more than 1,000 roof assessments in his career. The court ruled in favor of Grand Reserve.

Scorecard: Property-Owners Insurance Co. will cover up to $552,000 in repairs to Grand Reserve’s roofs, which were damaged in a hail storm.

Takeaway: If an insurer does not believe it should have to pay for damages to its insured’s property, it is best practice to write exclusions into the policy before a claim is brought forth. Otherwise, any ancillary argument against payment might not hold up in court.

Worker Can’t Petition for Comp Reinstatement

In 2009, worker Wilner Dorvilus filed a workers’ comp claim petition alleging he sustained a work-related injury while packing machine parts onto a cart. While packing his cart, another cart hit him in his lower back, which left him with a lumbosacral strain and sprain.

The Pennsylvania Workers’ Compensation Judge granted the claim petition, calling for medical and disability compensation from the worker’s employer, Cardone Industries. Dorvilus’s employer appealed to the state’s Workers’ Compensation Appeal Board, which affirmed the judge’s assessment but reversed the award of disability benefits.

Dorvilus petitioned for review, but the court affirmed the board’s decision.

In 2013, Cardone Industries filed a termination petition that stated Dorvilus’s injury had fully recovered, but was denied the petition because Dorvilus was able to provide enough evidence that he needed continued medical treatment.

Keeping an accurate record of each ruling can work in favor of the insurer if a claimant tries to challenge a former ruling.

On July 21, 2013, Dorvilus received his final disability compensation payment.

Then, two years later, Dorvilus filed for a reinstatement petition. According to him, his injury had worsened and caused him a loss of earnings. Cardone Industries was not willing to pay. The employer moved to dismiss the petition, because Dorvilus had not received disability for two years.

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Dorvilus argued that his petition was well within the three-year deadline, but the employer argued that Dorvilus was never entitled to any wage loss compensation. He received disability compensation for his injury, but the courts revoked the award of wage-loss compensation.

“[Dorvilus] proved a work injury, but he did not prove that it caused a disability. He cannot now seek reinstatement after the three-year statute of limitations has run, based upon his collection of compensation payments reversed on appeal. For these reasons, we affirm the Board,” wrote the judge.

Scorecard: Wilner Dorvilus’s benefits will not be reinstated. Cardone Industries will not have to continue to pay on the injured worker’s disability compensation.

Takeaway: Long-lasting claims may face more than one court hearing. Keeping an accurate record of each ruling can work in favor of the insurer if a claimant tries to challenge a former ruling.

Negligence Suit Results in Split Decision

Dorel Juvenile Group, Inc. manufactured a faulty car seat that, when involved in a crash, caused a child to be permanently disabled. The parents filed suit.

Schiff Hardin, LLP represented Dorel in the suit against the parents and was the primary contact for Dorel’s excess insurer, Ironshore Europe DAC.

Ironshore was concerned that the case might result in an award or settlement in excess of $6 million, which is when the excess carrier’s policy would kick in.

According to Ironshore, Schiff seemed optimistic. They told Ironshore the trial was going “pretty well” among other affirmative sentiments that predicted a positive outcome.

Yet, Dorel was hit with a $34 million verdict. Ironshore immediately sued Schiff for negligent misrepresentation, blindsided by the court’s decision. The insurer claimed that Schiff falsely “predicted the future” and made Dorel’s trial seem less pressing an issue than it was.

Additionally, Ironshore also alleged Schiff withheld critical information regarding the developments of the lawsuit, which led the insurer to believe its excess policy was not at risk.

Schiff filed to dismiss Ironshore’s claims. Schiff claimed that it had attorney immunity under Texas law, which states that attorneys are allowed “to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.”

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The judge reviewing the case said, “Even if [Schiff’s statements during trial] were the sort of misrepresentations that could give rise to liability … [Ironshore] has not alleged facts showing that it would have been reasonable for Ironshore to rely on Schiff’s assessment that trial ‘was fine’ or that it ‘went pretty well’ in determining whether the jury might award a particular sum of money.”

In regards to omission, however, “Ironshore has alleged that statements made by Schiff were either misleading when made or became misleading based on a failure to disclose subsequent developments. This is adequate to state a claim for negligent misrepresentation.” Ironshore’s suit was allowed to proceed.

Scorecard: The one claim stating Schiff provided negligent misrepresentation in regards to predicting the future was thrown out. However, the court determined negligent misrepresentation partially stands, because Schiff failed to disclose important information during Dorel’s trial.

Takeaway: Insurers that don’t want to get hit with an unexpected bill should be clear upfront on their expectations for communication with counsel. &

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

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.