Ask Tim

Ask Tim, Episode #31 -- Conditional Renewal Notices

In today's episode of the Ask Tim podcast, I take a look at the requirements in New York Insurance Law Section 3426 regarding when insurance carriers have to send conditional renewal notices on commercial lines policies. Also, a generous IIABNY colleague buys me lunch. Here are the highlights:

Carriers must send conditional renewal notices on some commercial lines policies to the first-named insured, at the address shown on the policy, and to the insured's authorized agent or broker. They must send a notice if they are conditioning renewal upon:

• Change of limits
• Change in type of coverage
• Reduction of coverage
• Increased deductible
• Addition of exclusion
• Some premium increases in excess of 10 percent

Future episodes will explore Section 3426 in more detail. 

Download Episode 31 of Ask Tim

Leave a Comment

Order in the Court: Contractor's Condition Endorsement

Yangtze Realty, LLC v. Sirius America Insurance Co.

The plain meaning of the exclusionary clause invoked by the defendant bars coverage for, inter alia, property damage arising out of work performed on behalf of the insured by a subcontractor where no prior written agreement exists indemnifying and holding harmless the insured in the event of a loss (see Wilson v Sirius Am. Ins. Co., 44 AD3d 754). The defendant submitted evidence showing that the property damage in the underlying action was caused by the work of a subcontractor hired by the insured plaintiffs, and that the insured plaintiffs' written agreement with this subcontractor did not contain the required indemnity and hold harmless language. Accordingly, the defendant established, prima facie, that it was not obligated to defend and indemnify the plaintiffs in the underlying action (see Global Constr. Co., LLC v Essex Ins. Co., 52 AD3d at 656).

via scholar.google.com

Some insurance carriers have attached so-called "contractor's conditions" endorsements to Commercial General Liability policies covering contractors. A typical such endorsement will condition coverage on the named insured contractor obtaining hold harmless agreements and/or additional insured status from its subcontractors. If the named insured fails to obtain these things, the endorsement reduces or eliminates coverage for ensuing losses.

For those who may be inclined to think that the courts would never enforce such an endorsement, read this December 13, 2011 opinion from the New York Supreme Court Appellate Division, Second Department. The appellate justices dispatched the named insured's claim in four short paragraphs.

The lesson: Be aware of what's in the CGL policies your contractor clients are buying. Make sure your clients are aware. Document that your clients are aware. Look for better options in the market, including the excess line market, if need be.

No one wants to be surprised this way at claim time.

Leave a Comment

Order in the Court: More Labor Law Decisions, Late Notice of Claim

It's a Friday afternoon, and I'm getting caught up on some court decisions that hit my email inbox a while back. Here are three of them that are of special interest:

• Flores v. ERC Holding, LLC. The New York Supreme Court Appellate Division, First Department threw out an injured construction worker's claim under Labor Law Sections 240 and 241. The construction project's owner and general contractor were not liable under 240 and 241, the court said, because the worker was not on the actual construction site at the time of the injury. He was preparing and moving steel beams, destined for the building under construction, at his employer's premises. The court said he was not performing construction work or in a construction area at the time of the injury, and therefore 240 and 241 do not apply.
• National Union Fire Insurance Company of Pittsburgh, PA v. Great American E&S Insurance Company. An electrical contractor, believing that Workers' Compensation benefits would be the exclusive remedy for an employee injured on a job site, took more than a year to report the incident to its Commercial General Liability insurance carrier. The contractor was required to hold harmless the owner and general contractor, both of whom were named in the employee's lawsuit. However, the CGL carrier denied coverage due to late notice of the claim from the insured. The trial court sided with the contractor, but the appellate court reversed the decision.:

 "Although a reasonable good faith belief of nonliability may, in certain circumstances, excuse a failure to give timely notice ..., such circumstances do not exist here. (The contractor) contends that because it believed Best's exclusive remedy was under the Workers' Compensation Law, it could not be held liable for her injuries. However, this claimed belief was not reasonable under the circumstances... Moreover, (the contractor) never sought clarification of the coverage at issue, either from its counsel or insurance carrier...It was not reasonable for (the contractor) to believe that (the injured worker) would not seek further recovery from the site owner and project manager, both of which (the contractor) had agreed to defend and indemnify. In the face of this indemnification requirement, coupled with the fact that (the injured worker) was taken by ambulance to the hospital and remained out of work for over a month, (the contractor) is unable to show a reasonable belief in nonliability."

• Medina v. City of New York. In this Labor Law case, the First Department ruled partly in favor of the injured worker and partly in favor of the owner. The court ruled that the worker's claim under 241 should be returned to the trial court because there were questions of fact as to whether the worker was performing demolition work at the time of the injury (the trial court had thrown this claim out.) However, the court dismissed his claim under 240 because his injury did not result from a hazard "directly flowing from the application of the force of gravity to an object or person." Since this was not a gravity-related injury, 240 does not apply.

I think it's interesting how the First Department is resisting broader interpretations of 240 and 241. The courts have traditionally read these laws as providing very broad protections for injured construction workers. These decisions show that even 240 and 241 have their limits.

Are any of you seeing these narrower interpretations in Labor Law cases? Give us the details in the comments.

Leave a Comment

Ask Tim, Episode #28 -- The Fellow Servant Rule

In this episode of the Ask Tim podcast:

• Tim wishes J.B. a merry Christmas, leaving J.B. speechless
• Tim discusses the "fellow servant rule" and how it applied under common law before there was a Workers' Compensation system.
• New York workers who suffer injuries on the job can sue if they suffer "grave injuries," such as death, dismemberment, paralysis, amputation, etc.
• The Commercial General Liability policy covers the employer when one employee injures another, but it does not cover the employee who caused the injury.
• Businesses who want to protect certain employees against these types of lawsuits need a special endorsement on their CGL policies.

For more information, visit the Big "I" Virtual University page on Commercial General Liability.

Download Ask Tim Episode #28

Leave a Comment

Coverage For an Ad On the Side Of a Race Car

Question from an IIABNY member: My client has a commercial general liability policy covering his construction business.  Question comes up as he, along with other sponsors, is putting his company name on a race car.  My gut reply was that he is covered under the personal and advertising limit of his CGL.  Do you agree or disagree?

Answer: The ISO CGL policy provides limited coverage for injuries arising out of advertising. Coverage B, Personal and Advertising Injury Liability, paragraph 1.a. states:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. 

The policy defines “personal and advertising injury” as:

 …injury, including consequential "bodily injury", arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;

d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

e. Oral or written publication, in any manner, of material that violates a person's right of privacy.

f. The use of another's advertising idea in your "advertisement"; or

g. Infringing upon another's copyright, trade dress or slogan in your "advertisement".

Therefore, the policy covers injury resulting from an advertisement if the injury arises out of the use of someone else’s idea in the insured’s ad or violating someone else’s copyright in the ad. Your insured has coverage if someone sues him because they claim that he put their advertising idea on the side of the race car.

Coverage A., Bodily Injury & Property Damage Liability, excludes coverage for:

"Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any aircraft, "auto" or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and "loading or unloading."

Since this exclusion applies only to autos owned or operated by or rented or loaned to any insured, and your insured does not own, operate, rent or borrow the race car, it is conceivable that the insurance would cover him if he were sued by someone who was injured by the race car. At the very least, I think the policy should provide defense coverage. The New York State Court of Appeals (the state’s highest court) held in Fitzpatrick v. American Honda Motor Co., Inc. that:

…an insurer's duty to defend is called into play whenever the pleadings allege an act or omission within the policy's coverage. Even where there exist extrinsic facts suggesting that the claim may ultimately prove meritless or outside the policy's coverage, the insurer cannot avoid its commitment to provide a defense, since "[a] complaint subject to defeat because of debatable theories …must [nevertheless] be defended by the insured."

I’m not a lawyer, but it’s hard for me to see how an injured person could prove that your insured was negligent and therefore responsible for his injuries. I suspect that a good lawyer could get the suit thrown out, meaning that the insurer would pay only defense costs. 

As a side note, Randy Maniloff and Jeffrey Stempel's book General Liability Insurance Coverage: Key Issues in Every State, which I wrote about last summer, was a big help when I was answering this question. It's how I found the New York court decision that I cited. Proof again that underwriters and claim adjusters need to keep this book handy.

Leave a Comment

Order in the Court: Labor Law, Deadlines

Lots of interesting decisions have been coming out of the New York appellate courts recently.

• Last February, the New York Supreme Court Appellate Division, Second Department ruled that the federal Longshore and Harbor Workers Compensation Act does not prevent a legal action under New York Labor Law Sections 240 and 241 against a party who is neither a vessel owner nor the injured worker's employer. These sections of the Labor Law are, of course, New York's infamous "scaffolding law," which makes owners and general contractors of projects absolutely liable for injuries involving a height elevation when the injured worker was not given certain adequate safety devices.
• The First Department ruled in late October that a user's privacy-protected Facebook content is not necessarily safe from being discovered as evidence in a legal action. 
• An insurer's failure to promptly deny a liability claim based on late notice of loss prevented it from obtaining a default judgment against its insured.
• Another insurer that did promptly deny a liability claim for late notice lost anyway because there is a question as to whether its insured had a reasonable belief that it was not liable for the loss.
• An insurer's letter to a hospital denying a claim for no-fault benefits "pending adjuster's review" and "investigation" was not sufficient to meet the law's 30-day deadline for paying or denying a claim. 

The moral: Claim adjusters, deny your claims on time.

Leave a Comment

 

Pollution Coverage in the New York Business Auto Policy

Question: We understand that pollution is not excluded under the Business Auto in NYS.  For example, if a fuel dealer is delivering fuel or has an accident, the pollution liability would not be excluded as it can be in other states. 

Many contractors have mobile equipment at job sites.  They put portable fuel tanks in the bed of pick up trucks and go to the job sites to refuel the equipment.  We are questioning pollution liability from this situation.  My first thought is that since the tanks are portable equipment, they would be covered under the CGL and not BA.  However, since the fueling operation applies to unloading of a vehicle, perhaps there could be coverage. 

We would appreciate your input.

Answer: In the ISO Business Auto Policy, CA 00 01 03 10, SECTION II – LIABILITY COVERAGE, A. Coverage, the insuring agreement states: 

We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of a covered "auto". 

We will also pay all sums an "insured" legally must pay as a "covered pollution cost or expense" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of covered "autos". However, we will only pay for the "covered pollution cost or expense" if there is either "bodily injury" or "property damage" to which this insurance applies that is caused by the same "accident". [EMPHASIS ADDED] 

We have the right and duty to defend any "insured" against a "suit" asking for such damages or a "covered pollution cost or expense". However, we have no duty to defend any "insured" against a "suit" seeking damages for "bodily injury" or "property damage" or a "covered pollution cost or expense" to which this insurance does not apply. We may investigate and settle any claim or "suit" as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements.

All business auto policies issued in New York contain the equivalent of ISO endorsement CA 01 12 04 09, New York Changes in Business Auto, Business Auto Physical Damage, Motor Carrier and Truckers Coverage Forms. That endorsement changes the definition of “covered pollution cost or expense” to state: 

"Covered pollution cost or expense" means any cost or expense arising out of: 

a. Any request, demand, order or statutory or regulatory requirement; or 

b. Any claim or "suit" by or on behalf of a governmental authority demanding that the "insured" or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". 

As you pointed out, the endorsement also deletes the Pollution Exclusion from the Liability Coverage. 

To see how this applies, suppose a contractor loads a 20-gallon container of gasoline or diesel on the back of a pickup truck for delivery to a job site. While en route to the site, the driver is stung by a bee that flies in through an open window. He loses control, strikes a car that had slowed down for traffic in front of him, and a pile-up ensues. During the collision, the fuel container flies off the back of the truck and breaks when it hits the ground, spilling its contents all over the grassy median. Subsequently, the NYS Department of Environmental Conservation orders the contractor to clean up the spilled fuel and treat the contaminated ground. The Liability Coverage in the BAP should cover the cost of the clean-up and soil treatment because it is a cost arising out an order by a governmental authority and covered property damage occurred as a result of the same accident. 

Now take the same situation, but instead of striking a vehicle, the pick-up veers onto the median and overturns. The only property damaged is the insured’s own truck. In this situation, there is no coverage for the cost of cleaning up the spilled fuel and treating the soil because there was no bodily injury or property damage, covered by the Liability Coverage, caused by the same accident. The driver is probably injured and the insured’s truck has been damaged, but neither of these losses is covered by the Liability Coverage (PIP and Physical Damage are the applicable coverages for those losses.) 

To summarize, the pollution coverage under a New York BAP is tied to the simultaneous occurrence of covered bodily injury or property damage. If there’s no covered BI or PD, there’s no coverage for pollution.

Follow-Up Question: Understood that there has to be an accident to trigger the BA pollution coverage.  

So if the pick up that is hauling the portable fuel tank is in an accident and we have a spill there could be coverage, while a spill during the fueling process where no accident involved would not trigger coverage. 

However, since this is not a permanently attached tank, would that perhaps put it the arena of CGL coverage in lieu of BA?  I recall in ’86 when ISO made change that the example of a cherry picker could trigger BA or CGL depending on circumstances.

Answer: I don’t think the CGL policy will cover the loss because of the following in the exclusions:

This insurance does not apply to:… 

f. Pollution

(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":…

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any insured or any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the "pollutants" are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor. However, this subparagraph does not apply to:

(i) "Bodily injury" or "property damage" arising out of the escape of fuels, lubricants or other operating fluids which are needed to perform the normal electrical, hydraulic or mechanical functions necessary for the operation of "mobile equipment" or its parts, if such fuels, lubricants or other operating fluids escape from a vehicle part designed to hold, store or receive them. This exception does not apply if the "bodily injury" or "property damage" arises out of the intentional discharge, dispersal or release of the fuels, lubricants or other operating fluids, or if such fuels, lubricants or other operating fluids are brought on or to the premises, site or location with the intent that they be discharged, dispersed or released as part of the operations being performed by such insured, contractor or subcontractor;… [EMPHASIS ADDED] 

Therefore, coverage does not apply to injury or damage arising out of the dispersal of fuel (which certainly falls within the policy’s definition of “pollutants”) if the fuel was transported by the insured or brought to the site by the insured and the fuel was not contained within a vehicle part (i.e., fuel tank.)

Leave a Comment 

Does An After-School Coach Need Her Own Liability Insurance?

Question: I got an email from an extremely nervous elementary teacher who is a compensated independent contractor coaching volleyball for a charitable organization after school. She was advised by the league that she was covered with CGL insurance by the organization. I advised her to get coach's liability insurance because she is an compensated independent contractor. Please advise..who's right or wrong?

Answer: I'm going to assume that the league has a standard ISO Commercial General Liability Coverage Form (CG 00 01 12 07). Section II--Who Is An Insured states:

1. If you are designated in the Declarations as:

a. An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner.

b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business.

c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers.

d. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your "executive officers" and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.

e. A trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees.

2. Each of the following is also an insured:

a. Your "volunteer workers" only while performing duties related to the conduct of your business, or your "employees," other than either your "executive officers" (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. However, none of these "employees" or "volunteer workers" are insureds for:

(1) "Bodily injury" or "personal and advertising injury":

(a) To you, to your partners or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), to a co-"employee" while in the course of his or her employment or performing duties related to the conduct of your business, or to your other "volunteer workers" while performing duties related to the conduct of your business;

(b) To the spouse, child, parent, brother or sister of that co-"employee" or "volunteer worker" as a consequence of paragraph (1)(a) above;

(c) For which there is any obligation to share damages with or repay someone else who must pay damages because of the injury described in paragraphs (1)(a) or (b) above; or

(d) Arising out of his or her providing or failing to provide professional health care services.

(2) "Property damage" to property:

(a) Owned, occupied or used by,

(b) Rented to, in the care, custody or control of, or over which physical control is being exercised for any purpose by

you, any of your "employees," "volunteer workers," any partner or member (if you are a partnership or joint venture), or any member (if you are a limited liability company).

 Under these terms, the league, its executive officers, directors, volunteers and employees are all insureds. Whether or not the teacher who contacted you is an insured depends on whether or not she can reasonably be considered an employee of the league. If she’s an employee, then the league’s CGL policy covers her; if she’s not, then she needs to get her own coverage. The CGL policy’s definition of “employee” does not help, so a court would probably look at how other organizations (the IRS, the New York Workers’ Compensation Board) would label her. The WCB has a list of 10 criteria for determining an independent contractor on its Web site, as does the IRS. As insurance guys, the determination of whether someone is an employee or independent contractor is above our pay grade, but at least you can refer the teacher to this information so she can make her own determination. If she doesn’t want to take the chance, she might want to just buy her own policy.

Leave a Comment

Book Review: 'General Liability Insurance Coverage: Key Issues in Every State'

Occasionally, I’ll answer a research question for an IIABNY member and I’ll be asked, “How do you know this stuff? How do you get these answers so fast? You must be the answer man!” It’s flattering, but I would be lying if I called myself a walking insurance encyclopedia. I’m not. I’m only half kidding when I tell people my job is to look stuff up. After all, one of my titles is “director of research,” and what is research other than looking things up? I can get answers quickly for IIABNY members because I have some excellent research tools, and I’ve become adept at using them (nine years on the job will do that for you.)

Last winter, I got another great research tool, one that will serve me well for a long time to come. Often, a member will ask me if there are any court decisions that might bolster his position in a dispute over a claim. Sometimes I can find one, but they can be hard to find given the resources I have. Now, however, it’s a little easier, at least with regard to commercial general liability coverage. That’s because I have a terrific book by Randy Maniloff and Jeffrey Stempel titled General Liability Insurance Coverage: Key Issues in Every State (Oxford University Press, New York, trade paperback, 514 pp., $125.00.) If you underwrite or sell CGL coverage or if you adjust CGL claims, you need to have a copy of this book in your office.

Maniloff and Stempel have examined a number of CGL coverage issues, such as:

• When does the insured have a right to independent counsel?
• How do you determine how many occurrences took place?
• Is faulty workmanship an occurrence?
• What triggers coverage for latent injury and damage claims?
• Coverage for innocent co-insureds when another insured committed the harm.
• How the qualified and absolute pollution exclusions apply.
• Just how far indemnification agreements in construction contracts can go.

Each chapter has the same structure. A few pages (four to six) discussing the issue and the different approaches taken by courts, followed by a survey of statutes and/or court precedents in each of the 50 states. I of course made a beeline for the discussions of New York law after each chapter. The section on indemnification agreements quotes a provision from New York General Obligations Law Sect. 5-322.1 that prohibits indemnification for the indemnitee’s own negligence. The discussion of the duty to defend cites the New York Court of Appeals’ decision in Fitzpatrick v. American Honda Motor Co., Inc. and quotes an illustrative passage from the opinion. The chapter on whether faulty workmanship is an occurrence is especially valuable given that this is a major area of dispute right now (South Carolina has actually enacted a law to answer this question.) The material is well-organized and it’s easy to find the section and state you’re looking for.

Maniloff and Stemple couldn’t cover everything in one book, and some areas of the law are still developing. Still, I would have liked to see some discussion of cyber liability issues. A review of personal and advertising injury coverage as it relates to web sites, email and social media tools would also be interesting. And, though it’s a completely separate policy, I’d like to see a review of employment practices liability issues such as disparate treatment and disparate impact claims, harassment, and wage discrimination claims.

Those are nitpicks, however. This is an excellent resource, one that I hope will see future updates as the body of case law grows. I highly encourage everyone reading this to make sure their offices have a copy.

Leave a Comment

 

ISO Announces New General Liability Classifications for Alternative Energy and Nanotechnology

JERSEY CITY, N.J., May 31, 2011 — ISO has announced new general liability classifications for alternative energy sources and nanotechnology. ISO is introducing most of the new classifications with accompanying estimated loss potentials.

“With heightened interest to reduce the carbon footprint, establish energy independence, and increase the use of renewable resources, alternative power is a priority for many,” said Beth Fitzgerald, vice president of commercial lines and modeling at ISO. “In response to the growing demand for alternative energy, ISO introduced classifications for risks in three main areas: biofuels, solar energy, and wind energy. The new classifications will allow for future evaluation of the loss experience of those emerging markets.”

via www.iso.com

Interesting sign of the times. Apparently, ISO now has information with enough statistical credibility to support these new classifications. I wonder what classifications we can't imagine right now will show up in the Commercial Lines Manual within the next 10 years?

Leave a Comment