The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | June 1, 2017 • 4 min read

Insurer Must Pay $13.5 Million

On Feb. 7, 2010, a gas blow operation was being performed at the Kleen Energy Systems power plant in Middletown, Conn.

As part of the operation, a large amount of natural gas was vented into areas where welding and other work was being performed. An explosion killed six workers and injured 50 others.

The injured workers and the estates of the deceased obtained a $13.5 million judgment against subcontractor Bluewater Energy Systems Inc., and the workers subsequently filed suit, seeking indemnity from National Union Fire Insurance Co., which had issued Bluewater a commercial umbrella insurance policy.

National Union denied coverage, saying the power plant project was insured under a contractor controlled insurance “wrap-up” program, and that the umbrella policy excluded coverage for “any liability arising out of any project insured under a ‘wrap-up’ or any similar rating plan,” according to court documents.

The workers said the term “wrap-up” was “ambiguous,” and the U.S. District Court for the District of Connecticut agreed.

In an opinion dated April 6, the court ruled the insurance company “had a duty to explain its definition [of wrap-up] to the insured so that the insured could understand the significant coverage limitation.”

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“Although insurance experts and attorneys may debate the contours of a ‘wrap-up or similar rating plan,’ the Court cannot find a reasonable layperson … would have understood and expected – based on the language of the contract – that liability was excluded … ,” the court ruled.

Scorecard: The insurance company must pay $13.5 million on the claim.

Takeaway: Because of the ambiguity related to the wrap-up program, the law requires a ruling most favorable to the insured.

Completion of Work at Center of Dispute

On June 1, 2011, Tarhonda Palmer was struck by a train at a railroad crossing in Adel, Ga., causing extensive injuries including severe burns and traumatic brain injury.

In a lawsuit she filed against Norfolk Southern Corp. on March 14, 2012, she said her ability to see the approaching train was impaired by overgrown vegetation and other factors. She later amended the lawsuit to include NaturChem Inc., which was contracted to apply herbicide and monitor the crossing.

NaturChem alerted Liberty Surplus Insurance Corp. of the claim and sought coverage. The insurance company agreed to pay 50 percent of the defense costs, under a reservation of rights.

In September 2014, Liberty filed suit in the U.S. District Court for the Middle District of Georgia and sought a ruling that would eliminate its coverage obligations.

The insurer argued that NaturChem had completed its herbicide application at the crossing 90 days prior to the accident and that the policy’s “completed work exclusion” applied. The court disagreed and dismissed the case in June 2016.

On appeal to the U.S. 11th Circuit Court of Appeals, Liberty lost its argument again. The court said the policy provided coverage for bodily injury that occurred “out of acts or omissions at the ‘job location.’” Because the work included maintenance and monitoring of the crossing, the work was not concluded, it ruled.

“To conclude otherwise would require the Court to read language into the Policy that does not exist,” according to the opinion issued April 4.

Scorecard: The insurance company must defend and indemnify NaturChem.

Takeaway: The court ruled the insurer was “requesting relief from the consequences of the inartfully drafted, yet plain, terms of its insurance policy.”

Court: Insured Missed Notification Deadline

On July 10, 2014, VHT Inc. sent a letter to Zillow, an online real estate marketplace, demanding that it remove VHT images from its site. The photos were only to be used for sales or marketing, according to VHT, but Zillow was also using them in connection with Zillow Digs, a home improvement and design application.

Zillow requested further information from VHT, but never removed the images. On July 8, 2015, VHT filed suit, claiming copyright infringement and liability.

Two days after receiving notice of the lawsuit, Zillow notified National Union Fire Insurance Co. of Pittsburgh, which had issued it a claims-made Specialty Risk Protector policy, to cover claims related to online media content.

National Union initially agreed to provide a defense under a reservation of rights, but later denied coverage because the claim was outside of the policy period. It should have been notified when the original letter was received instead of when the lawsuit was filed, it said.

A jury eventually ruled that Zillow should pay $8.3 million to VHT.

On Sept. 15, 2016, National Union sought a court ruling that it had no duty to defend or indemnify Zillow, and on April 13, 2017, the U.S. District Court for the Western District of Washington agreed.

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The court disagreed with Zillow’s argument that the lawsuit notification was a “separate and distinct claim” from VHT’s original letter. It ruled the two claims involved the “same relevant acts,” and that the policy required notification within 45 days after the end of the policy, which was July 19, 2014.

Scorecard: The insurer does not have to defend or indemnify Zillow for the $8.3 million jury award.

Takeaway: The court found no meaningful difference between the original letter and the litigation for coverage purposes.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]