2222222222

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.

Advertisement




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.

Advertisement




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.

Advertisement




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 digital producer and staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Manufacturing

More Robots Enter Into Manufacturing Industry

With more jobs utilizing technology advancements, manufacturing turns to cobots to help ease talent gaps.
By: | May 1, 2018 • 6 min read

The U.S. manufacturing industry is at a crossroads.

Faced with a shortfall of as many as two million workers between now and 2025, the sector needs to either reinvent itself by making it a more attractive career choice for college and high school graduates or face extinction. It also needs to shed its image as a dull, unfashionable place to work, where employees are stuck in dead-end repetitive jobs.

Advertisement




Added to that are the multiple risks caused by the increasing use of automation, sensors and collaborative robots (cobots) in the manufacturing process, including product defects and worker injuries. That’s not to mention the increased exposure to cyber attacks as manufacturers and their facilities become more globally interconnected through the use of smart technology.

If the industry wishes to continue to move forward at its current rapid pace, then manufacturers need to work with schools, governments and the community to provide educational outreach and apprenticeship programs. They must change the perception of the industry and attract new talent. They also need to understand and to mitigate the risks presented by the increased use of technology in the manufacturing process.

“Loss of knowledge due to movement of experienced workers, negative perception of the manufacturing industry and shortages of STEM (science, technology, engineering and math) and skilled production workers are driving the talent gap,” said Ben Dollar, principal, Deloitte Consulting.

“The risks associated with this are broad and span the entire value chain — [including]  limitations to innovation, product development, meeting production goals, developing suppliers, meeting customer demand and quality.”

The Talent Gap

Manufacturing companies are rapidly expanding. With too few skilled workers coming in to fill newly created positions, the talent gap is widening. That has been exacerbated by the gradual drain of knowledge and expertise as baby boomers retire and a decline in technical education programs in public high schools.

Ben Dollar, principal, Deloitte Consulting

“Most of the millennials want to work for an Amazon, Google or Yahoo, because they seem like fun places to work and there’s a real sense of community involvement,” said Dan Holden, manager of corporate risk and insurance, Daimler Trucks North America. “In contrast, the manufacturing industry represents the ‘old school’ where your father and grandfather used to work.

“But nothing could be further from the truth: We offer almost limitless opportunities in engineering and IT, working in fields such as electric cars and autonomous driving.”

To dispel this myth, Holden said Daimler’s Educational Outreach Program assists qualified organizations that support public high school educational programs in STEM, CTE (career technical education) and skilled trades’ career development.

It also runs weeklong technology schools in its manufacturing facilities to encourage students to consider manufacturing as a vocation, he said.

“It’s all essentially a way of introducing ourselves to the younger generation and to present them with an alternative and rewarding career choice,” he said. “It also gives us the opportunity to get across the message that just because we make heavy duty equipment doesn’t mean we can’t be a fun and educational place to work.”

Rise of the Cobot

Automation undoubtedly helps manufacturers increase output and improve efficiency by streamlining production lines. But it’s fraught with its own set of risks, including technical failure, a compromised manufacturing process or worse — shutting down entire assembly lines.

Advertisement




More technologically advanced machines also require more skilled workers to operate and maintain them. Their absence can in turn hinder the development of new manufacturing products and processes.

Christina Villena, vice president of risk solutions, The Hanover Insurance Group, said the main risk of using cobots is bodily injury to their human coworkers. These cobots are robots that share a physical workspace and interact with humans. To overcome the problem of potential injury, Villena said, cobots are placed in safety cages or use force-limited technology to prevent hazardous contact.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them.” — David Carlson, U.S. manufacturing and automobile practice leader, Marsh

“Technology must be in place to prevent cobots from exerting excessive force against a human or exposing them to hazardous tools or chemicals,” she said. “Traditional robots operate within a safety cage to prevent dangerous contact. Failure or absence of these guards has led to injuries and even fatalities.”

The increasing use of interconnected devices and the Cloud to control and collect data from industrial control systems can also leave manufacturers exposed to hacking, said David Carlson, Marsh’s U.S. manufacturing and automobile practice leader. Given the relatively new nature of cyber as a risk, however, he said coverage is still a gray area that must be assessed further.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them,” he said. “Therefore, companies need to think beyond the traditional risks, such as workers’ compensation and product liability.”

Another threat, said Bill Spiers, vice president, risk control consulting practice leader, Lockton Companies, is any malfunction of the software used to operate cobots. Then there is the machine not being able to cope with the increased workload when production is ramped up, he said.

“If your software goes wrong, it can stop the machine working or indeed the whole manufacturing process,” he said. “[Or] you might have a worker who is paid by how much they can produce in an hour who decides to turn up the dial, causing the machine to go into overdrive and malfunction.”

Potential Solutions

Spiers said risk managers need to produce a heatmap of their potential exposures in the workplace attached to the use of cobots in the manufacturing process, including safety and business interruption. This can also extend to cyber liability, he said.

“You need to understand the risk, if it’s controllable and, indeed, if it’s insurable,” he said. “By carrying out a full risk assessment, you can determine all of the relevant issues and prioritize them accordingly.”

By using collective learning to understand these issues, Joseph Mayo, president, JW Mayo Consulting, said companies can improve their safety and manufacturing processes.

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it.” — Joseph Mayo, president, JW Mayo Consulting

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it,” Mayo said. “They can also use detective controls to anticipate these issues and react accordingly by ensuring they have the appropriate controls and coverage in place to deal with them.”

Advertisement




Manufacturing risks today extend beyond traditional coverage, like workers’ compensation, property, equipment breakdown, automobile, general liability and business interruption, to new risks, such as cyber liability.

It’s key to use a specialized broker and carrier with extensive knowledge and experience of the industry’s unique risks.

Stacie Graham, senior vice president and general manager, Liberty Mutual’s national insurance central division, said there are five key steps companies need to take to protect themselves and their employees against these risks. They include teaching them how to use the equipment properly, maintaining the same high quality of product and having a back-up location, as well as having the right contractual insurance policy language in place and plugging any potential coverage gaps.

“Risk managers need to work closely with their broker and carrier to make sure that they have the right contractual controls in place,” she said. “Secondly, they need to carry out on-site visits to make sure that they have the right safety practices and to identify the potential claims that they need to mitigate against.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]