The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | April 7, 2014 • 5 min read

Third Party Can Pay Retention

The Supreme Court of Florida ruled that an insured fulfilled its self-insured retention even though the amount required for a settlement was paid by a third party. Intervest Construction of Jax Inc. had a general liability insurance policy with General Fidelity Insurance Co. Intervest also had a contract with one of its subcontractors, Custom Cutting Inc., (CCI) that required CCI to indemnify it for any damages resulting from its own negligence. CCI had a CGL policy with North Pointe Insurance Co.

R4-14p16_LegalSpotlight.inddIn this case, a homeowner sued Intervest for damages after suffering serious injuries falling from attic stairs installed by CCI in a home built by Intervest. Intervest then sought indemnification from CCI.

All of the parties agreed to a $1.6 million settlement of the homeowner’s claim, and North Pointe agreed to pay Intervest $1 million of that amount, which it then used to pay its $1 million self-insured retention.

Intervest and General Fidelity split the remaining $600,000 owed to the homeowner, under a reservation of rights. Intervest filed suit seeking $300,000 from General Fidelity, while the insurance company argued that Intervest did not fulfill its self-insured retention and that Intervest was responsible to pay the entire $600,000.

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A district court ruled that Intervest did not exhaust its retained limit, but the U.S. 11th Circuit Court of Appeals “expressed skepticism” of that analysis and asked the Florida Supreme Court to decide.

The state’s high court ruled the insured did not have to pay the self-insured retention from its own pocket.

Scorecard: General Fidelity must pay the entire $600,000 to the homeowner to fulfill the settlement agreement.

Takeaway: The ruling benefits the insurance programs of many large companies that include policies that name them as additional insureds.

Court Dismisses Data Breach Lawsuit

A federal judge in the Southern District of Ohio dismissed a class-action lawsuit filed against Nationwide Mutual Insurance Co., which alleged violations of the Fair Credit Reporting Act, negligence and invasion of privacy following the theft of personal data of 1.1 million people who had sought insurance quotes.

U.S. District Judge Michael H. Watson ruled the plaintiffs did not have standing to bring an FCRA claim because they did not allege violation of any of the statute’s specific requirements. The judge also ruled the plaintiffs’ alleged injuries of “identity theft, identity fraud, medical fraud or phishing” were “based on their fears of hypothetical future harm that is not certainly impending.”

While the court ruled the plaintiffs did have standing to bring an invasion of privacy claim, the judge ruled the data was stolen, and that the insurance company “took no action” to publicize the data.

Scorecard: Nationwide did not have to pay damages for losses, alleged wrongful conduct or expanded customer services such as credit monitoring for more than the year that was provided.

Takeaway: The risk that stolen data will be sold and lead to identity theft is “speculative” and does not translate to a concrete injury sufficient to pursue a legal claim.

NY Court Reverses Decision on Policy Exclusions in Highly Watched Case

Asked to reconsider its prior opinion in a case, the New York Court of Appeals ruled that an insurance company’s failure to defend an insured does not impact the insurer’s ability to later cite policy exclusions to reject the claim.

In the original decision, the court ruled that when an insurer breached its duty to defend, it could not later rely on exclusions to escape indemnifying the insured. In making that decision, the court ignored its own precedent stating that an insurer is not liable to indemnify an insured if coverage is disputed, even if it had previously breached its contractual duty to defend the insured.

Underlying the lawsuit is a $3.1 million legal malpractice judgment against Jeffrey Daniels, an attorney who was also a principal of Goldan LLC, which failed to repay loans made to it by K2 Investment Group and ATAS Management Group.

After the judgment, Daniels assigned to the plaintiffs his rights against American Guarantee & Liability Insurance Co., which had insured him.

American argued the policy’s “business enterprise” exclusion meant any claims resulting from actions of the insured as an officer, manager or employee of an enterprise would be denied.

The court vacated its prior opinion, which had upheld the summary dismissal of the lawsuit. The case will now go to trial on whether the exclusion should be upheld.

Scorecard: American Guarantee & Liability Insurance Co. may be held responsible for the payment of a $3.1 million legal malpractice judgment.

Takeaway: The New York decision protects insurers from automatic liability if they breach their duty to defend.

Court: No Duty to Defend

R4-14p16_LegalSpotlight.inddGeneral Star National Insurance Co. prevailed in its lawsuit filed in the U.S. District Court for the Northern District of Illinois that argued it had no duty to defend a bank appraisal firm and its chairman of the board, who were accused of defrauding the government.

Adams Valuation Corp. (AVC) and Douglas Adams had a real estate errors and omissions liability insurance policy with General Star.

The duty to defend related to an underlying whistleblower action filed by former Mutual Bank of Harvey (Ill.) employee, Kenneth Conner, who alleged he repeatedly informed the bank that it “grossly overvalued the collateral on commercial real estate loans based on falsely inflated appraisals provided by AVC.”

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That overstated value reduced the bank’s liability for Federal Deposit Insurance Corp. assessments, according to court documents.

Conner, who was fired by the bank, was also a party to the duty-to-defend suit, arguing that the alleged conduct falls within General Star’s policy.

U.S. District Judge Rebecca R. Pallmeyer disagreed, ruling the insurance policy’s exclusion for any claims “arising out of a dishonest, fraudulent, criminal or malicious act or omission, or intentional misrepresentation,” relieved the insurer of the duty to defend.

Scorecard: The insurer will not have to defend the underlying False Claims Act lawsuit against its insureds.

Takeaway: The court noted there is a distinct difference between false statements “about” professional services versus false statements generated “as part of” professional services.

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]