The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | March 5, 2018 • 6 min read

Insurer Not Responsible for Former Worker

Joel Palmer was involved in a civic organization for the Bella Vista neighborhood. He served in various roles throughout the organization, including president. In 2011, Palmer resigned from the board.

On March 10, 2012, Palmer filed a conservatorship petition over 614 Kater Street, a house located in the Bella Vista neighborhood. The property owners were furious, claiming that the petition was littered with falsities and was a backhanded way to “run the owner … out of the neighborhood.”

The petition was ultimately denied, but the owner filed suit against Palmer, his attorney and Bella Vista, claiming Palmer co-conspired with Bella Vista.

Bella Vista argued it did not have anything to do with the petition and filed preliminary objections. Palmer, too, filed preliminary objections. The court dismissed all claims against Bella Vista but overruled Palmer’s objections. At trial, the jury ruled in favor of the property owners. Palmer and his attorney owed $277,000 in attorney’s fees and emotional and punitive damages.

Twin City Fire Insurance Company provided coverage for Bella Vista and controlled its defense during the suit. Palmer initially sought defense coverage from Twin City, which agreed to the defense “under a reservation of rights until it was established that Palmer was not entitled to coverage under the policy.”

In the policy, Twin City covered “loss on behalf of any Insured Person … for a Wrongful Act by the Insured Person … duly elected or appointed” to the board of Bella Vista. It defined a wrongful act as an action “committed by an Insured Person, solely by reason of their serving in such capacity.”

When Bella Vista was dismissed from the case, Twin City withdrew its coverage of Palmer, stating that he no longer served Bella Vista or its board, and therefore did not qualify for coverage.

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In the following suit, the clause “solely by reason of their serving in such capacity” became the deciding factor on whether Palmer’s defense would be covered. His tenure at Bella Vista also came into question. Ultimately, the court ruled in favor of Twin City; Palmer would receive no defense.

Scorecard: Joel Palmer resigned from the Bella Vista board in 2011. The conservatorship petition was posted on March 10, 2012. By this point, Palmer no longer associated with Bella Vista, therefore breaking ties with the neighborhood’s insurer Twin City.

Takeaway: Insurers must provide clear language as to who and what is covered under a policy. Otherwise, it can lead to confusion over coverage and possible extraneous claims.

Employer Must Pay PTD

Oneal Gillispie sustained compensable injuries to his back, right shoulder and neck in March 2014 while working for Estes Express Lines Inc. Following injury, Gillispie underwent two surgeries, extensive treatment for his lumbar spine and had a spinal cord stimulator inserted and removed. After all was said and done, Gillispie was released to temporary light-duty work with permanent restrictions in April 2017.

Estes was unable to provide Gillispie with appropriate work accommodations to match the restrictions placed on him and so did not bring him back in to work. Without light-duty options, Gillispie remained on his temporary total disability (TTD) benefits.

In the state of Oklahoma, where Estes and Gillispie are located, the statutory maximum of TTD is 104 weeks. When the 104 weeks passed, Gillispie filed for permanent total disability (PTD) benefits as he was still restricted by light-duty requirements and was not working.

Evaluating and establishing return-to-work programs for light-duty workers can save businesses and their workers’ comp insurers money, time and productivity in the long run.

Estes denied PTD benefits, stating that Gillispie’s light-duty work restrictions proved he was capable of employment and did not qualify for PTD. The employer said that in contrast to TTD, PTD can be awarded “only after consideration of [Gillispie’s] ability to earn wages in any employment for which the worker is suited and reasonably fit” has been determined.

At the time of trial, Gillispie was under a temporary ten-pound work restriction and awaiting neck surgery. The Workers’ Compensation Commission said these temporary restrictions prevented the worker from doing light-duty assignments due to light work involving up to 20 pounds of lifting. The commission argued Gillispie could not return to work yet.

Further, the commission pointed to a workers’ comp ruling that stated PTD can only be attached to a claim after the percentage of permanent disability from the injury had been adjudicated and the worker had reached maximum medical improvement (MMI). When a worker has exhausted their 104-week allotment of TTD, PTD benefits can be collected if the worker has not reached MMI.

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Gillispie had yet to reach his MMI. Additionally, the court said that “a determination of PTD during the healing period is not a final adjudication of permanent disability, but rather a temporary determination of a claimant’s compensation status.”

Estes was found liable for PTD compensation.

Scorecard: Following a serious work injury, Oneal Gillispie will receive permanent total disability benefits from his employer Estes Express Lines Inc.

Takeaway: Evaluating and establishing return-to-work programs for light-duty workers can save businesses and their workers’ comp insurers money, time and productivity in the long run.

Imposter Not Covered Under Computer Fraud

Posco Daewoo America Corp. imports and exports chemicals. Allnex USA Inc. is a leading supplier of specialty chemicals. Allnex owed Daewoo for a shipment of products, but an imposter stepped in before the bill could be settled.

The imposter posed as an employee of Daewoo and created a fake email account. They then sent an Allnex employee fraudulent emails requesting wire payments be sent. Over the next few months, the imposter was able to gain a total of $630,058 from Allnex through four separate bank accounts.

Then the fraud was discovered.

Allnex recovered $262,444, but Daewoo still wanted the remaining $367,613 to satisfy its original bill. Allnex disagreed. The company said that the unrecovered wire payments to the imposter satisfied the balance owed, and it was not responsible to pay that amount again.

Daewoo turned to its insurer Travelers Casualty and Surety Company of America. Daewoo said Travelers should indemnify it for the loss caused by the imposter, but Travelers denied the claim.

Travelers pointed to the policy’s computer fraud provision: “[t]he Company will pay the Insured for the Insured’s direct loss of, or direct loss from damage to, Money, Securities, and Other Property directly caused by Computer Fraud.”

In Travelers’ eyes, computer fraud was defined as “when someone hacks or obtains unauthorized access to or entry to a computer in order to make an unauthorized transfer.” The insurer said that no Daewoo computer w as hacked. The imposter used their own computer and created a fake account.

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The court agreed, granting Travelers’ motion to dismiss without prejudice.

Scorecard: Because the account that was used to trick Allnex was not from a Daewoo computer, the computer fraud clause does not cover the lost money.

Takeaway: The digital age opens the door to many kinds of cyberattacks. Insurers can best prepare by writing detailed policies with specific exclusions when needed. This clearly defines coverages and avoids lengthy legal affairs down the road. &

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.