The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | November 2, 2015 • 6 min read

Court: Misrepresentation Voids Claim

An 18-year-old employee of Sky High Athletics in Nevada attempted to do a backflip when being trained as a trampoline instructor and broke his neck, leaving him a quadriplegic.


Sky High, which runs trampoline-lined fitness centers, filed a workers’ compensation claim for the worker with Companion Property and Casualty Group, which agreed to provide benefits.

After an investigation, however, Companion discovered that, contrary to statements on the fitness center’s application, employees routinely used the trampolines at the center. The application stated that employees were stationed at the front desk and dining area, and “they do not teach nor are they out on the trampolines,” according to documents.


112015_legal_trampoline230x300In November 2012, Companion sued Sky High, claiming it misrepresented information in its workers’ compensation application, according to documents. Sky High countered that Companion knew employees used the trampolines because they had already paid benefits for such injuries. It filed counterclaims against the insurer for delaying payments to the employee.

After a trial in U.S. District Court for the District of Nevada, a jury decided on Sept. 21 that Sky High made a “negligent misrepresentation” to the insurance company, but ruled that Companion was also negligent in the case.

It ordered Sky High to pay $8 million in damages to Companion for making false statements, but decreased the amount by 40 percent, due to Companion’s own negligence in the case.

That reduced the award to $4.8 million, which was further reduced to $3.49 million because of some setoffs in the case, according to published reports.

The brokers involved in the case were also sued by Companion, but reached a settlement prior to trial.

Scorecard: The fitness center must pay $3.49 million for misrepresentations in its workers’ compensation insurance application.

Takeaway: False statements on insurance applications will void coverage.

Insurers Unable to Recoup $132.5 Million

On Sept. 12, 2008, Robert Sanchez, engineer of a passenger train owned by Metrolink and operated by Connex, ran through a red signal in the Chatsworth area of Los Angeles because he was distracted by text messages on his cell phone, according to a federal investigation.

The train collided with a Union Pacific freight train, injuring more than 100 people and killing 24, including Sanchez.

Lloyd’s of London and other insurers paid out $132.5 million from excess railroad claims made policies issued to Metrolink and Connex, and other layers of excess insurance totaling $146 million, over a $4 million self-insured retention.


Subsequently, the insurers filed suit seeking reimbursement from Connex, and its parent company, Veolia Transportation Inc., claiming the policies excluded coverage for bodily injury “which the insured intended or expected or reasonably could have expected.”

The insurance companies argued that the railroad had knowledge of “multiple violations” of its no-cell-phone-usage policy by train employees and that such a disaster “reasonably could have been expected,” according to court documents.

In dismissing the case on Sept. 18, Los Angeles Superior Court Judge Elihu Berle said that argument was not sufficient under New York law, under which the case was tried.

The insurers’ argument “fundamentally fails to meet the more stringent New York standard, which requires that a reasonable person in [the railroads’] position would know that the injuries and damage resulting from the Chatsworth accident would flow immediately and directly from [the railroads’] intentional acts.”

He noted that neither Sanchez nor any other Connex engineer ever previously caused injury or damage because of a violation of the cell phone policy, and that Connex was not aware of the cell phone violation until the National Transportation Safety Bureau investigation.

At the same time, Berle dismissed a suit by the railroads against the insurance companies, arguing breach of contract, bad faith and fraud because the litigation was filed after a “policy release and agreement,” which “released all of the claims [insurers] had against [the railroads] at the time.”

The court ruled the claims in the lawsuit filed by the insurers fell within the scope of the agreement.

Scorecard: The insurers will not be reimbursed for $132.5 million in claims following the train crash.

Takeaway: An intentional act, even if it ultimately causes damage, is considered accidental under New York law unless the damage flows “directly and immediately from the act.”

Insurers Need Not Defend in Spyware Case

On July 30, 2010, Crystal and Brian Byrd leased a laptop computer from Aspen Way, a rent-to-own franchisee of Aaron’s Inc. On Dec. 22, 2010, an Aspen Way store manager came to repossess the computer, under the mistaken impression that the couple’s account was delinquent.

112015_legal_spotlight230x300The store manager showed Brian Byrd a picture taken with the computer’s webcam that showed Byrd using the computer, and the Byrds later discovered that Aspen Way had installed spyware known as “Detective Mode” on the computer.

Detective Mode gave Aspen Way access to private emails, keystroke logs for user names and passwords, financial information and personal photos, according to court documents.

The Byrds filed a class-action lawsuit alleging a violation of the U.S. Electronic Communications Privacy Act (and some other claims that were later dismissed) against Aaron’s and Aspen Way (collectively called Aspen Way) in May 2011.

They said their computer was accessed nearly 350 times and that the information was “transmitted via unencrypted email and forwarded to unknown persons and locations.”

Aspen Way sought defense and indemnification from Hartford Fire Insurance Co. and three Liberty Mutual Insurance Corp. subsidiaries, which had issued primary and umbrella policies. All agreed to defend under a reservation of rights.

The insurers sought a court judgment that they need not defend Aspen Way, and on Sept. 25, the U.S. District Court for the District of Montana, Billings Division, ruled in their favor.

The court ruled that coverage was triggered in all of the policies by the allegations of “personal and advertising injury,” which was defined as injury arising out of publication “of material that violates a person’s right of privacy.”

However, because a Recording and Distribution Exclusion precluded coverage for any “violation of a federal statute that prohibits the transmitting or distribution of material or information,” the court ruled defense and indemnity was not covered.


The court also ruled the insurance companies did not owe a duty to defend Aspen Way in a Washington State lawsuit, which was settled in February 2015, when Aspen Way entered into a consent decree that required it to pay $150,000 to the state and agree not to install any such software, while not admitting any violations of the state’s Consumer Protection Act and Computer Spyware Act.

Scorecard: The insurers need not pay to defend or indemnify Aspen Way. The Liberty Mutual subsidiaries may be due reimbursement of funds they paid for defense already, depending on further court proceedings.

Takeaway: Although Aspen Way argued the exclusion was ambiguous due to the phrase “arising directly or indirectly out of any action or omission,” court rulings determined that a policy term is not automatically invalidated because it is found to be ambiguous.

The late Anne Freedman is former managing editor of Risk & Insurance. Comments or questions about this article can be addressed to [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]