2222222222

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.”

Advertisement




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.

Advertisement




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.”

Advertisement




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

High Net Worth

Your High Net Worth Client Wants to Live in the Danger Zone? Here’s What Your Resiliency Plan Should Look Like.

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

Advertisement




Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

Advertisement




Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

Advertisement




“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]