The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | December 14, 2017 • 5 min read

Wall Collapse Contractor’s Responsibility

Taja construction llc was renovating a row home when the east wall of the property collapsed. It sought to recover repair costs under its insurance policy through Peerless Insurance Company, but Peerless determined the collapse was caused by Taja.

During renovation of the row home, Taja planned to deepen the home’s basement and create a larger living space. The site’s engineer recommended that, when the crew excavated the basement, they do it in sections. They would be wise to reinforce each section with concrete underpinning, he said.

Taja’s owner directed his subcontractors to excavate without any underpinning, insisting his team do it all at once. Various people, including the engineer, subcontractors and a neighboring construction company, warned Taja’s owner that he needed structural underpinning to proceed safely.

He did not heed the advice.

A few hours after the basement had been fully excavated without any underpinning, the property’s east wall collapsed. Taja filed a claim of $400,000 for repair costs, but Peerless said defects in construction/workmanship and damages from earth movement were excluded in its policy.

The district court granted summary judgment to Peerless, holding the exclusions applied. It deemed the workmanship exclusion in the Peerless policy would “not pay for loss caused by an act, defect, error, or omission (negligent or not) relating to … construction [or] workmanship.”

Because the owner deliberately ignored warnings of potential collapse, workmanship was the main cause of the fall.

In appeals court, Taja argued that even though the workmanship exclusion applied, the policy stated coverage would be restored if there was an “ensuing loss.”

Coverage should have been preserved, said Taja, when a loss excluded under the policy — like workmanship — resulted in subsequent loss otherwise covered, the company said.

Although the wall collapsed due to a workmanship defect, Taja believed it was entitled to recover the losses that resulted from the collapsed wall. The cost of repair was an ensuing loss from workmanship error.


The court, however, did not agree. It said the wall collapsed due to movement of the earth’s surface, which was excluded in the Peerless policy. Had the structure been underpinned, the court said, the earth’s surface would have had the support it needed. Unfortunately, the structure was not underpinned, and the earth’s surface gave way.

Scorecard: Peerless is not responsible to cover losses stemming from a workmanship error. Taja will need to foot the bill.

Takeaway: Disregarding expert advice and knowingly performing faulty work will preclude coverage for any losses stemming from negligence.

Sublimit Part of Policy, Not an Exclusion

Five years ago, Superstorm Sandy wreaked havoc on the East Coast. Howard Hughes Corp. sustained damage to its commercial buildings located in Manhattan and turned to its insurer, XL Insurance America Inc., to cover the $150 million in storm surge damages.

XL filed suit, seeking a declaratory judgment releasing it from covering HHC’s damages. Its policy excluded property damage in “high hazard flood zones” caused by storm surge from named storms.

Additionally, because HHC held multiple policies with other carriers, XL said its policy limited liability to no more than “its proportion” of $50 million since other insurers provided coverage.

HHC argued the policy provision was ambiguous. The term “high hazard flood zones” referred to another clause in XL’s policy, which limited coverage to losses occurring during a 72-hour period or less. The superstorm did not fit in this clause, said HHC.

The trial court agreed with XL. The judge stated, “There was never … flood coverage for ‘high hazard flood zone’ properties because the initial attachment point is at, or above, an amount equal to the imposed sublimit.

“In other words,” he continued, “coverage for ‘high hazard flood zone’ properties are covered by other insurers and not part of [XL’s] layer of coverage.”

HHC took the case to appeals court. There, the appellate division found the exclusion applied only to the 72-hour limit. Instead of creating an exclusion, the endorsement as a whole created a $50 million sublimit within the policy.

“Moreover, [XL’s] and the motions court’s interpretation — that there is no coverage for HHC’s high hazards flood zone properties — renders superfluous the endorsement’s phrase ‘for more than its proportion of $50 million,’” the court said.

Scorecard: XL Insurance America Inc. is liable for $50 million in storm surge damages incurred by Howard Hughes Corp.’s property.

Takeaway: When writing policies, the best practice is to explicitly state an exclusion to prevent confusion.

Wavier Wording Questionable

A New Jersey security guard for Allied Barton Security Services was hired to monitor Schering-Plough Corporation. While on duty, he tripped over a 50-pound bag of ice melt and fell down the company’s basement stairs. The tumble resulted in limited mobility in his shoulder and arm, severe headaches and body pain.

He filed a workers’ compensation claim with Allied Barton and a negligence suit against Schering-Plough. In court, the worker was awarded $45,500 in workers’ comp and $900,000 for the negligence suit. Schering-Plough appealed.

In its argument, Schering-Plough said the worker signed a waiver when he was hired at Allied Barton. In that waiver, the worker gave up his rights to file a lawsuit related to any work injury, and to prove that the waiver held weight, Schering-Plough pointed to several out-of-state cases where similar workers’ compensation waivers had been up for debate.

Pennsylvania, Alabama, Massachusetts and Washington, D.C., all examined similar cases in which a worker had waived their lawsuit-filing rights.

In each, the state’s supreme court determined the language in the waiver held firm, and the injured worker was not allowed to file suit against the employer, because he or she had already waived those rights upon date of hire.


The New Jersey appellate court assigned to the case broke from precedent.

It questioned the wording of the waiver. Allied Barton titled the document “Workers Comp Disclaimer,” which, according to the court, was misleading. The company was asking its employees to waive tort suit rights, not workers’ compensation claims rights.

Additionally, the court questioned whether or not the waiver was acceptable under workers’ comp law.

“Not all employment contracts that limit the rights of the employees are contracts of adhesion,” said the court. “Although a court may enforce a contract of adhesion, such contracts are unenforceable, if unconscionable.”

Scorecard: The appellate court determined that the waiver may be unconscionable in nature and moved to send the case to the New Jersey Supreme Court.

Takeaway: A break from precedent opened the door for injured workers to challenge the legality of signed waivers based on their wording.

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

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]