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.”


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.


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.”


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

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Marine

Crewless Ships Raise Questions

Is a remote operator legally a master? New technology confounds old terms.
By: | March 5, 2018 • 6 min read

For many developers, the accelerating development of remote-controlled and autonomous ships represents what could be the dawn of a new era. For underwriters and brokers, however, such vessels could represent the end of thousands of years of maritime law and risk management.

Rod Johnson, director of marine risk management, RSA Global Risk

While crewless vessels have yet to breach commercial service, there are active testing programs. Most brokers and underwriters expect small-scale commercial operations to be feasible in a few years, but that outlook only considers technical feasibility. How such operations will be insured remains unclear.

“I have been giving this a great deal of thought, this sits on my desk every day,” said Rod Johnson, director of marine risk management, RSA Global Risk, a major UK underwriter. Johnson sits on the loss-prevention committee of the International Union of Maritime Insurers.

“The agreed uncertainty that underpins marine insurance is falling away, but we are pretending that it isn’t. The contractual framework is being made less relevant all the time.”

Defining Autonomous Vessels

Two types of crewless vessels are being contemplated. First up is a drone with no one on board but actively controlled by a human at a remote command post on land or even on another vessel.

While some debate whether the controllers of drone aircrafts are pilots or operators, the very real question yet to be addressed is if a vessel controller is legally a “master” under maritime law.


The other type of crewless vessel would be completely autonomous, with the onboard systems making decisions about navigation, weather and operations.

Advocates tout the benefits of larger cargo capacity without crew spaces, including radically different hull designs without decks people can walk on. Doubters note a crew can fix things at sea while a ship cannot.

Rolls-Royce is one of the major proponents and designers. The company tested a remote-controlled tug in Copenhagen in June 2017.

“We think the initial early adopters will be vessels operating on fixed routes within coastal waters under the jurisdiction of flag states,” the company said.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.”

Once autonomous ships are a reality, “the entire current legal framework for maritime law and insurance is done,” said Johnson. “The master has not been replaced; he is just gone. Commodity ships (bulk carriers) would be most amenable to that technology. I’m not overly bothered by fully automated ships, but I am extremely bothered by heavily automated ones.”

He cited two risks specifically: hacking and fire.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.” — Rolls-Royce Holdings study

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty, asked an even more existential question: “From an insurance standpoint, are we even still talking about a vessel as it is under law? Starting with the legal framework, the duty of a flag state is ‘manning of ships.’ What about the duty to render assistance? There cannot be insurance coverage of an illegal contract.”

Several sources noted that the technological development of crewless ships, while impressive, seems to be a solution in search of a problem. There is no known need in the market; no shippers, operators, owners or mariners advocate that crewless ships will solve their problems.

Kinsey takes umbrage at the suggestion that promotional material on crewless vessels cherry picks his company’s data, which found 75 percent to 90 percent of marine losses are caused by human error.


“Removing the humans from the vessels does not eliminate the human error. It just moves the human error from the helm to the coder. The reports on development by the companies with a vested interest [in crewless vessels] tend to read a lot like advertisements. The pressure for this is not coming from the end users.”

To be sure, Kinsey is a proponent of automation and technology when applied prudently, believing automation can make strides in areas of the supply chains. Much of the talk about automation is trying to bury the serious shortage of qualified crews. It also overshadows the very real potential for blockchain technology to overhaul the backend of marine insurance.

As a marine surveyor, Kinsey said he can go down to the wharf, inspect cranes, vessels and securements, and supervise loading and unloading — but he can’t inspect computer code or cyber security.

New Times, New Risks

In all fairness, insurance language has changed since the 17th century, especially as technology races ahead in the 21st.

“If you read any hull form, it’s practically Shakespearean,” said Stephen J. Harris, senior vice president of marine protection UK, Marsh. “The language is no longer fit for purpose. Our concern specifically to this topic is that the antiquated language talks about crew being on board. If they are not on board, do they still legally count as crew?”

Harris further questioned, “Under hull insurance, and provided that the ship owner has acted diligently, cover is extended to negligence of the master or crew. Does that still apply if the captain is not on board but sitting at a desk in an office?”

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty

Several sources noted that a few international organizations, notably the Comite Maritime International and the International Maritime Organization, “have been very active in asking the legal profession around the world about their thoughts. The interpretations vary greatly. The legal complications of crewless vessels are actually more complicated than the technology.”

For example, if the operational, insurance and regulatory entities in two countries agree on the voyage of a crewless vessel across the ocean, a mishap or storm could drive the vessel into port or on shore of a third country that does not recognize those agreements.

“What worries insurers is legal uncertainty,” said Harris.

“If an operator did everything fine but a system went down, then most likely the designer would be responsible. But even if a designer explicitly accepted responsibility, what matters would be the flag state’s law in international waters and the local state’s law in territorial waters.


“We see the way ahead for this technology as local and short-sea operations. The law has to catch up with the technology, and it is showing no signs of doing so.”

Thomas M. Boudreau, head of specialty insurance, The Hartford, suggested that remote ferry operations could be the most appropriate use: “They travel fixed routes, all within one country’s waters.”

There could also be environmental and operational benefits from using battery power rather than conventional fuels.

“In terms of underwriting, the burden would shift to the manufacturer and designer of the operating systems,” Boudreau added.

It may just be, he suggested, that crewless ships are merely replacing old risks with new ones. Crews can deal with small repairs, fires or leaks at sea, but small conditions such as those can go unchecked and endanger the whole ship and cargo.

“The cyber risk is also concerning. The vessel may be safe from physical piracy, but what about hacking?” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]