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

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

R&I: What is your favorite book or movie?

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

R&I: What is the riskiest activity you ever engaged in?

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

R&I: If the world has a modern hero, who is it and why?

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

R&I: What about this work do you find the most fulfilling or rewarding?

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]