A Collapse is a Collapse is a Collapse?; What’s your Problem? More on Improvements & Betterments; ISO’s New CGL Data Breach Exclusions; Labor Law Claims Continue to Keep New York’s Courts Busy

A Collapse is a Collapse is a Collapse?;

What’s your Problem? More on Improvements & Betterments;

ISO’s New CGL Data Breach Exclusions;

Labor Law Claims Continue to Keep New York’s Courts Busy

A Collapse is a Collapse is a Collapse?

“Is a Collapse a Collapse if nothing actually Collapses?”1 If we could channel Gertrude Stein, she might answer, “A Collapse is a Collapse is a Collapse.”

Here’s the loss that triggered the headline: On March 23, 2003, Rose Wangerin and her tenants, Alex and Karen Herrera, awoke to find that the floor in their upstairs bathroom had dropped approximately four inches overnight. There were also similar drops in the hallway outside the bathroom and on the first floor at the bottom of the stairs. In addition, the ductwork in the basement had also shifted downward. Was this a covered collapse loss? The insureds2 said yes, New York Central Mutual said no, and a court case ensued.

The court quoted the following wording in the NY Central Policy:

“The policy…specifically covers ‘physical loss to covered property involving collapse (emphasis added) of a building or any part of a building, but only if such collapse is caused by, among other things, ‘hidden insect or vermin damage.’ While the policy does not define what constitutes a collapse, it provides that a ‘collapse does not include settling, cracking, shrinking, bulging or expansion.’”3

According to the court, “the clear modern trend is to hold that collapse coverage provisions, which define collapse as not including cracking and settling, provide coverage if there is substantial impairment of the structural integrity of the building or any part of a building.” Based on that, the lower court and the appellate court ruled in favor of the insureds.

Drawing the line between collapse and wear and tear has been difficult. ISO has tried for years to make it clear that a structure must fall down to trigger collapse coverage. After many changes over the years, the current ISO Homeowners Form 3 (HO 00 03 05 11) collapse coverage reads, in part, as follows:

Collapse

a. The coverage provided under this Additional Coverage – Collapse applies only to an abrupt collapse.

b. For the purpose of this Additional Coverage – Collapse, abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.

c. This Additional Coverage –

Collapse does not apply to:

(1) A building or any part of a building that is in danger of falling down or caving in;

(2) A part of a building that is standing, even if it has separated from another part of the building; or

(3) A building or any part of a building that is standing, even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion

ISO commercial lines Special Form (CP 10 30 10 12) has this wording in the collapse coverage section:

…Additional Coverage, Collapse, applies only to an abrupt collapse…abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.

In both forms, collapse coverage is limited to certain specific causes. One of the covered causes is collapse due to hidden decay that’s unknown to the insured.

The loss in Wangerin versus New York Central Mutual occurred prior to the promulgations of the current forms.

Would a loss like this be covered under the current wording? For what it’s worth, I think so. The collapse appears to have been due to hidden decay unknown to the insured. It was abrupt (it happened sometime during the night) and it was a caving in of a part of a building. An insurer might argue that the house can be occupied for its intended purpose, but would you live in a house with that kind of damage?

What’s your Problem? More on Improvements & Betterments

An agent in Fairfield, CT writes: “I read your article in the Advocate (re improvements and betterments). What about the situation where the landlord pays for the I&B, but the lease requires that the tenant insure them should they be damaged in the future?”

That’s actually a good situation. The lease is clear, the tenant has to insure the I&B. and that’s what the tenant should do. (The time to argue about it was before signing the lease.) The insurance should be written as building coverage. Your insured has a clear insurable interest—it will suffer an economic loss should the additions be damaged. The building owner will want it to pay for the repairs, if there’s no insurance.

The amount of insurance should be based on the replacement cost of additions. In the distant past, the specific additions to be covered could be spelled out in a commercial property policy, but that’s not always possible today. Confirm with the underwriter what the coverage is to be and put it in writing.

ISO’s New CGL Data Breach Exclusions

Insurance companies really don’t want to cover cyber-liability claims under a commercial general liability policy—and that’s before Target had 40 million customers’ credit card information stolen. However, attorneys see possible coverage for some claims under the CGL. A leading insurance defense attorney writes:

“ISO can’t ignore the fact that, under its CGL policy, coverage is provided for personal and advertising injury, which is defined, in part, as the offense of an oral or written publication, in any manner, of material that violates a person’s right of privacy. Data breach + personal information being revealed = no surprise that attempts have been made to obtain coverage, for such losses, under a provision that addresses violation of the right of privacy.”4

To avert such claims, ISO has filed two new CGL endorsements: CG 21 06 05 14 (Exclusion – Access Or Disclosure Of Confidential Or Personal Information And Data-Related Liability – With Limited Bodily Injury Exception) and CG 21 07 05 14 (Exclusion – Access Or Disclosure Of Confidential Or Personal Information And Data-Related Liability – Limited Bodily Injury Exception Not Included).5

In “belt and suspenders” fashion, the ISO endorsements exclude coverage for both Coverage A –Bodily Injury And Property Damage Liability and Coverage B – Personal and Advertising Injury Liability, even though coverage claims appears to be most likely under Coverage B.

The exclusions are very broad. Here’s some of the wording:

Access Or Disclosure Of Confidential Or Personal Information And Data-related Liability Damages arising out of:

(1) Any access to or disclosure of any person’s or organization’s confidential or personal information, including patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of nonpublic information; or

(2) The loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data. This exclusion applies even if damages are claimed for notification costs, credit monitoring expenses, forensic expenses, public relations expenses or any other loss, cost or expense incurred by you or others arising out of that which is described in Paragraph (1) or (2) above.

Notice that paragraph (2) states that the exclusion applies “even if damages are claimed for notification costs, credit monitoring expenses, forensic expenses, public relations expenses or any other loss, cost or expense.” Those are exactly the costs faced by a firm whose records are stolen.

The two versions differ in only respect: CG 21 06 provides limited bodily injury coverage, just as its heading indicates, CG 21 07 does not. It applies only to claims arising out of the inability to access or manipulate data. It does not apply to claims arising out of disclosure of confidential information, etc. That’s exactly what insureds are concerned about when they think of cyber-liability. The bodily injury coverage is very limited.

Another caveat: the exclusion isn’t limited to cyber claims. Paragraph (1) excludes patents, trade secrets, etc. Furthermore, the form excludes disclosure of confidential or personal information and data-related liability. This will clearly give insurers grounds to deny claims that don’t readily come to mind when we discuss cyber fraud. (The words “cyber” and “fraud” do not even appear in the exclusion.) Personal information can be revealed the old-fashioned way: someone can steal paper or computer records by breaking and entering or just finding a lost laptop. That’s excluded too.

I’ll conclude by quoting a few lines from Randy Maniloff ’s column in White and Williams’ e-newsletter Coverage Opinions. (White and Williams are leading insurance defense attorneys.):

“Like all new exclusions, ISO’s Data Breach exclusion(s) can be expected to be tested on several fronts. First, even when the exclusion is raised in a situation where it clearly applies, efforts will be made to pick it apart to create an ambiguity. That’s just how coverage disputes work. Second, as the world of data breach emerges, and no doubt hacking and technology are everevolving, situations may arise that were not contemplated by the exclusion – because they didn’t exist at the time that the exclusion was drafted. That’s just how new exposures work. Third, ISO’s new exclusions, and their Impact statements, can be expected to be used by policyholders seeking coverage for data breaches under policies that do not yet have the new exclusion. That’s just how policyholder counsel works.”6

Marketing Opportunity: Tell your insureds and prospects about these new exclusions now; they’ve been filed in all states and approved in New York, New Jersey, and Connecticut and most other states. Tell them even if your companies aren’t using these endorsements yet. Point out that ISO is clearly worried about cyber losses—so they should be too. And insurers will argue that even policies without these exclusion don’t provide coverage. Your recommendation: cyber risk management and cyber insurance. And it just so happens that you can help them with both.

Labor Law Claims Continue to Keep New York’s Courts Busy

Sections 200, 240, and 241 Labor law claims are a constant problem in New York.7 Recent court cases have somewhat narrowed the scope of the laws. That’s not a good solution as courts are an expensive place to win your argument, but it’s something.

In one case, Flossos v. Waterside Redevelopment Company8, the building owner hired Pelar Painting Company to paint an apartment that has just become vacant. Georgios Flossos, an employee of Pelar, climbed on a ladder to paint the ceiling. As he was painting, a piece of the ceiling fell on him and he and the ladder wound up on the floor. The ladder was fine, but Flossos was injured. Section 240 case, right? After all, fall from an elevated position is the basic 240 claim. The Queens Supreme Court said, yes. But the appellate court says no.

It ruled that the statute’s purpose is to protect against gravity-related accidents as falling from a height or being struck by a falling object that wasn’t properly hoisted or secured. Section 240(1) applies where the falling of an object is related to “a significant risk inherent in … the relative elevation … at which materials or loads must be positioned or secured.” The appellate court wrote that the “plaintiff must show that, at the time the object fell, it was being hoisted or secured… and must show that the object fell because of the absence or inadequacy of a safety device of the kind enumerated in the statute.” In the appellate court’s opinion, Flossos’s claim didn’t meet the standard required by the statute.

In another labor law case, this time based on Section 200, Brett Bellreng, an employee of the contractor engaged to renovate the roof of a building, was injured when he fell through a roofing deck after he disconnected his lifeline. He stated that he disconnected the lifeline in order to work on a portion of the roof he could not reach with the lifeline on. Section 200 is much broader in scope than 240 and 241 (the so-called “scaffold law” statutes). It applies to virtually all types of construction accidents, but it does not impose absolute liability. In section 200 cases, defendants can argue that they did not exert control and are therefore not culpable.

This time the lower court ruled in favor of the defendants, the owner and general contractor. It said that while the defendants monitored the timing and quality of work, that was not sufficient supervision or control to trigger Labor Law section 200 or common law negligence.9 The plaintiff appealed, but the Appellate Division of the Fourth Judicial Department affirmed the lower court’s decision.

Why did the plaintiff appeal the lower court’s decision? Most likely his attorney was handling the case on a contingent fee basis—that is, Bellreng would only have to pay his attorney if the attorney collected damages for him. While attorneys can’t be sure what the outcome will be in any one case, experienced negligence lawyers know that they will win a sufficient number of cases to more than offset expenses on those cases that are lost. The fees on successful cases can be huge; one-third is the typical contingent fee. (A very successful plaintiff’s attorney once told me that when he’s asked what he charges, he replies “I don’t charge anything at all. In fact, I’m going to give you two-thirds of everything I collect.”)

Unfortunately, that arithmetic doesn’t apply to the insurance company. Win or lose, it has to pay its attorneys and when it loses it has to pay the award too.

1 Lead-in to an article by Steven E. Peiper in “Coverage Pointers” Volume XV, No. 10 Nov. 8, 2013 Hurwitz & Fine, Buffalo, NY http://www.hurwitzfine.com/shownews.php?type=coverage&id=502 (accessed 12/24/13)

2 Oddly, the owner, Rose Wangerin, and her two tenants were all named as insureds on the policy. However, that wasn’t an issue in this case.

3 Rose Wangerin et al. v. New York Central Mutual Fire Ins Co. NY Supreme Court, Appellate Division 3rd Dept. 515723 November 7, 2013 4 Randy Maniloff “More On ISO’s Just-Filed CGL Data Breach Exclusions” http://www.coverage opinions.info/CoverageOpinionsVol2Issue18.pdf (accessed 12/24/13)

5 ISO has also filed exclusions for OWNERS AND CONTRACTORS PROTECTIVE LIABILITY and PRODUCTS/COMPLETED OPERATIONS LIABILITY forms exclusions (CG 33 53 05 14 and CG 33 59 05 14). These exclusions deal only with bodily injury as OCP and Products/Completed Operations forms do not include personal injury coverage. The language is the same as the CGL endorsements.

6 http://www.coverageopinions.info/ThePublication.html (accessed 12/27/13)

7 I’ve written about New York Labor Law claims before, most recently in the February 4, 2013 issue of the Insurance Advocate.

8 108 A.D.3d 647, 970 N.Y.S.2d 51 (2d Dep’t 2013) 9 Bellreng v. Sicoli & Massaro, Inc., 108 A.D.3d 1027, 1030-1031 (4th Dep’t July, 2013)