The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | April 9, 2018 • 5 min read

Marijuana ‘Modifications’ Not Covered

Kvg properties, inc. took westfield insurance company to court after the insurer refused to pay for damage done by former tenants.

The tenants had been growing marijuana inside KVG’s industrial business units, which the company rented out. The illegal farming “project” was revealed to KVG only after DEA agents executed a search warrant. Immediately, KVG filed eviction actions against the tenants in several units.

KVG also learned the marijuana growing operations seriously damaged its property: The tenants removed walls, cut holes in the roof, added HVAC ductwork and gas lines, and damaged the existing heaters and air conditioning units. The walls, floors and ceilings were damaged due to prolonged exposure to moisture.

KVG obtained eviction orders for the tenants. Then, the company contacted its property insurer, Westfield, with the extent of the damages: $18,183 for the electrical systems, $74,550 for the HVAC systems and $418,162 for replacing and repairing the units in general.

Westfield denied coverage. The policy, the insurer said, excluded coverage for illegal or dishonest acts. While marijuana may be legal at the state level, the insurer said, it’s still an illegal federal offense. Additionally, unauthorized construction was not covered under the policy; the tenants removed walls without permits.

In court, KVG conceded that illegal and dishonest activities were excluded in the policy, however, the company argued the tenants were actually vandalizers who destroyed the property without KVG’s knowledge. The policy included vandalism, KVG said, and therefore the damages should be covered by Westfield.

The court dismissed this theory. Instead it found that the Westfield policy was sound in excluding acts illegal or dishonest in nature. The tenants, while acting without authority or permission from KVG, were there under the guise they would be conducting “office and/or light industrial businesses.” Their operations fell under the dishonest act exclusion.

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Further, the court said, the property policy excluded unauthorized construction. Again, KVG did not condone its tenants’ activities, however its property still went through unauthorized construction, with walls being removed and holes being drilled into the roof. The policy, the court concluded, held firm.

Scorecard: Westfield is not responsible for the property damages caused by illegal marijuana growers who rented out space from KVG Properties.

Takeaway: When renting out part of one’s business or property, be sure to review coverages surrounding the behavior and actions of tenants.

Adjustor Considered Part of Team

The owners of SO Apartments, LLC, learned a wind and hail storm caused damages to one of their rental properties in the state of Texas.

They contacted Everest Indemnity Insurance Company to issue a claim. Everest sent an adjustor to assess the damages, but the property owners were not happy with the results. They believed the adjustor failed to address all of the damages done to their property, and the insurer consequently chose not to act.

To make matters worse, the owners alleged, Everest ignored their “pleas for help,” instead acting unprofessionally.

In the owners’ eyes, their insurer had done the bare minimum. They failed to accept, deny or pay the claim in a timely manner, and they had sent an adjustor who “conducted an outcome-oriented investigation and under-scoped [the buildings’] damages.”

In court, the owners pointed to the policy, which stated that Everest would provide coverage for losses stemming from hailstorm damage. They cited breach of contract. They also named the adjustor as a defendant, citing civil conspiracy.

Everest brought the action to appeals court, because it did not see why the adjustor was included in the claim. It argued its adjustor was improperly joined into the court case because the owners had not brought a solid claim against him.

“The acts of the employees or agents are acts of the principal,” said Everest, and “employees and agents cannot conspire with one another unless they act outside the scope of their employment or for their own personal benefit.”

The owners did not allege the adjustor and Everest conspired outside the scope of employment, the insurer argued. The adjustor should not be included.

The court, however, did not agree with Everest’s logic. The adjustor was not improperly joined, the court confirmed, because he was hired by Everest in the first place. The claim — and the actions that were taken afterwards — stemmed from the adjustor’s decisions. The case, the court said, would move to state court for further investigation.

Scorecard: An adjustor is equally liable for the suit brought against their employer. Everest and the adjustor will both be called as defendants.

Takeaway: Employees of one’s company, whether directly working for the company or hired by contract, represent the company at the time of employment, making them liable for any lawsuits that may arise from their actions.

No Wages Lost Due to ‘Occupational Disease’

Following the terrorist attacks on september 11, 2001, many clean-up crews were called to the World Trade Center site. Zdzislaw Usewicz worked as an asbestos handler during recovery. Later, however, he began to feel sick. A treating physician found Usewicz suffered from depression, asthma, rhinitis, gastroesophageal reflux disease and post-traumatic stress disorder, all stemming from his time spent on site.

Usewicz filed for workers’ comp with his employer Nozbestos Construction Corporation, who accepted the claim. Usewicz was cleared to work under the condition he avoid lead exposure.

Then, on July 28, 2012, Usewicz was let go from his job. Nozbestos said Usewicz could not continue working if he couldn’t wear a mask. Due to excessive coughing, Usewicz was unable to keep the mask on during a full day of work.

Usewicz filed an occupational disease claim, asserting he had been working in a continuously lead-contaminated environment during his employment.

A workers’ comp judge found Usewicz was last exposed to lead in November 2011 while working for Nozbestos. The judge also concluded that the occupational disease claim should be viewed as together with the original workers’ comp claim from Usewicz’s time spent at the World Trade Center.

As of July 28, 2012, Usewicz had no causally-related loss of earning, said the judge. His cessation of employment was related to his initial workers’ comp claim, not lead exposure or occupational disease like he alleged.

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In appeals court, physicians testified that while Usewicz was exposed to lead toxicity throughout his career, the coughing could be linked back to medical conditions from his work at the World Trade Center. Being an asbestos handler was also a principal cause of his disability. The appellate court upheld the judge’s decision.

Scorecard: The court determined that Zdzislaw Usewicz’s disabilities most likely stemmed from a workers’ comp claim from 2001 and not lead exposure. He will not receive benefits for his occupational disease claim.

Takeaway: Working with hazardous waste can lead to various worker health and safety issues. Employer best practice is to have safety at the forefront to avoid claims from even happening.

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.