The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | October 15, 2013 • 6 min read

Age Dispute Leads to Insurance Lawsuit

The Washington National Baseball Club filed suit against Westchester Fire Insurance Co., after the insurer denied a $1 million claim under its commercial crime insurance coverage.g of a 16-year-old Dominican Republic native to a minor league contract, for a $1.4 million signing bonus and a modest salary, according to the lawsuit. In actuality, Esmailyn Gonzalez was 20 years old, his real name was Carlos Alvarez Lugo, and he “kicked back $300,000 of his bonus” to Jose Rijo, at the time a special assistant to the National’s general manager, according to the lawsuit.

10152013LegalSpotlightBaseball“The revelation of Lugo’s true age immensely lessened the significance of Lugo’s baseball skill set,” it stated. “The $1.4 million signing bonus thus represented a complete loss resulting from the employee dishonesty, theft and fraud of Rijo, Baez [the National’s director of Dominican Republic Operations] and Lugo.”

The Nationals reported the incident to Westchester and submitted “an extensive and detailed proof of loss package to the ACE Group,” the insurer’s parent company. After three months, the Nationals were told the investigation was ongoing. Two years after the initial proof of loss was submitted, the claim was denied.

The baseball team noted that Chartis, the National’s excess loss insurer, paid its claim in excess of the Westchester policy liability limit “on precisely the same facts.”

The lawsuit charges Westchester with breach of contract and breach of duty of good faith. A hearing is scheduled, as of press time, in the Superior Court of the District of Columbia on Oct. 18.

Scorecard: The Washington Nationals are seeking $1 million after a baseball player lied about his age.

Takeaway: The timeliness of response to a claim may make a big difference in the ultimate disposition of a case when it reaches the courtroom.

Litigation Addresses Time Issue in Refusing Indemnification

Though it was years after an insurer began providing a defense to an insured, the company may still be able to disclaim coverage, according to a ruling by the New York Supreme Court Appellate Division.

The court remanded the case to a lower court to decide if Arch Insurance Co. should be required to indemnify H&H Builders Inc. and 206-208 Main Street Associates Inc. for about $9 million in property damage resulting from the collapse of a building and damage to others in Queens, N.Y.

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H&H Builders was construction manager on a 2007 Main Street Associates project to construct a three-story office and retail building, with an underground parking garage. During excavation, the adjacent building collapsed and other buildings sustained damage.

The commercial general insurance policy excluded damage claims “arising out of subsidence, falling away, caving in or other movement of earth.” Arch agreed to provide a defense to litigation that started in October 2007. In January 2010, the insurer informed the insured that it reserved its right to disclaim coverage based on the earth movement exclusion. The court ruled H&H and Main Street Associates were unable to “demonstrate that they were prejudiced” by that delayed decision, and that the decision should be “left to the trier of fact.”

Scorecard: The insurer may not be responsible for about $9 million in claims resulting from the collapse of one building and damage to others.

Takeaway: The potential prejudice resulting from a delayed decision of indemnification is more important than the timing of that decision.

Decision to Reject Independent Counsel Upheld

A California appeals court upheld a lower court ruling that a group of insurers had no responsibility to pay for independent legal representation in a case involving soil and groundwater contamination in the City of Modesto.

Of the six insurers, only Great American Insurance Co. agreed to provide independent counsel to MBL Inc., a supplier of dry cleaning products including perchloroethylene (PCE). MBL, which was named in a number of lawsuits related to the creation of a hazardous waste site, refused to accept counsel retained by the insurers, arguing a conflict of interest.

MBL argued the insurance companies had a conflict of interest because they had offered general reservations of their right to decline coverage due to various exclusions.

In a related action, Great American also sought contributions from the other insurers to pay for the independent counsel. Great American ultimately paid $66,500 to MBL’s independent counsel in this action. With the exception of Great American, the other insurers filed a legal complaint arguing they were not obligated to provide independent counsel and had no duty to defend MBL “because MBL’s refusal to accept appointed defense counsel breached its contractual duty.”

In the Aug. 26 ruling in the Sixth Appellate District of the Court of Appeal of the State of California, Associate Justice Eugene Premo wrote that a conflict of interest would mean that the appointed counsel would have to “choose which master to serve.” In this case, the actions of counsel could not control the outcome of coverage issues as they were based on contractual issues; could not control government demands to monitor and clean up pollution; and could not control the facts as to when certain damage occurred, he wrote.

The opinion also rejected MBL’s argument that the insurers had conflicts of interest because they represented other parties in some of the actions. Since MBL was not entitled to independent counsel, Great American was not entitled to contributions from the other insurers.

Scorecard: Great American Insurance Co. will not receive contributions from other insurers for the $66,500 it paid to retain independent counsel for an insured.

Takeaway: Insurers are not required to provide independent counsel unless there is an actual, not just a theoretical, conflict of interest.

Insurer Remains on the Hook for Lifetime Benefits

The Supreme Court of Texas rejected a petition from Liberty Mutual Insurance Co. to revisit the lifetime workers’ compensation benefits paid to a claimant.

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The insurer asked the court “to re-open determinations for eligibility for permanent lifetime income benefits — a procedure the Legislature deliberately removed in 1989. The Legislature’s choice is clear, and it is not our province to override that determination,” ruled the majority six-judge opinion of the court.

A dissenting three-judge opinion disagreed: “While the Court’s rationale makes sense for anatomical losses, it defies reason for functional losses. Advances in medicine and science offer previously unforeseen therapies and treatments that enable some persons who once seemed permanently injured to regain bandaged footfunctionality.”

The case involved Ricky Adcock, who suffered an injury to his right ankle, underwent reconstructive surgery and lost the use of his hand and foot due to complications. In 2008, Liberty sought a reassessment when it learned that Adcock was able to walk and handle objects, indicating he no longer had total and permanent functional loss of his ankle and hand.

The lower court ruled the Texas Workers’ Compensation Act is written to require lifetime income benefits to be “paid until the death of the employee.” The act permits temporary benefits and supplemental income benefits to be reopened for benefits determinations. The Texas Department of Insurance asked the court to rule in favor of Liberty, but the state high court upheld the lower court ruling.

“When the Legislature expresses its intent regarding a subject in one setting, but, as here, remains silent on that subject in another, we generally abide by the rule that such silence is intentional,” according to the majority opinion.

Scorecard: The insurance company remains responsible to pay the claimant lifetime disability benefits.

Takeaway: Courts are generally constrained by the written law, regardless of whether medical advances have made the law out of date.

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

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]