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Murder, Examination Under Oath & the 5th Amendment; Lead Paint Claims and the Pollution Exclusion; Landlords’ Additional Insured Coverage Primary; Small Businesses Need Fiduciary Liability Insurance; Short Takes

Jerry Trupin

Murder, Examination Under Oath & The 5th Amendment

The headline read “Ohio Homeowner Charged With Murder, Arson Declined EUO” (“EUO” is insurance shorthand for “examination under oath”). The story: Lester Parker, co-owner with his wife of a home in Hamilton Ohio, was accused of torching their house and causing the death of a firefighter who responded to the blaze. Because Parker wouldn’t appear for an EUO, Cincinnati Insurance Company filed a declarative judgment action asserting that it had no duty to provide coverage for his claim.

Parker countered that he had constitutional protection against possible self-incrimination. “Taking the Fifth” has become a piece of American folklore. The constitution’s fifth amendment protection against self-incrimination is probably one of the few Bill of Rights amendments that 99 out of 100 people can identify. My guess is that the other two are the first and second amendments. The remaining seven are in a class with the second stanza of the Star Spangled Banner.

However, the constitution’s protection against self-incrimination is not unlimited. The amendment reads, in the pertinent part: “(No person) shall be compelled in any criminal case to be a witness against himself.” The key words are “in any criminal case.” An EUO is not part of the criminal case. It is part of a civil process—an insurance claim. Claimants do not have to participate in an EUO, but courts have regularly ruled that if they choose not to appear, they lose their insurance claims. The Ohio judge in this case agreed. The insurance company did not have to cover the claim.[i]

Don’t think that arguments over EUOs only occur in fly-over country—our courts can be just as tough when claimants don’t appear for an EUO. Here’s a recent one in our backyard: Integrative Pain Medicine in Brooklyn, NY, provided medical services to a no-fault client and took an assignment of benefits. Allstate disputed the claim and demanded an EUO. The injured party, Reginald Thawney, failed to appear for the EUO. Integrative sued in Civil Court, requesting a second opportunity for Thawney to appear. The Civil Court agreed. Allstate appealed and the appellate court ruled no second chance. Absent an acceptable excuse, you only get one chance to appear for an EUO.[ii]

Practice Point: You’ve probably never had a client subjected to an EUO. I haven’t. But then my clients are perfect. I’ve never had one who was at fault in an auto accident—at least according to their versions.

EUOs are becoming more common—the fact that claims people refer to them by an acronym is the tip-off. An EUO is a powerful weapon for an insurance company. It’s similar to a deposition before a civil trial, but its scope can be much broader and lying at an EUO is a total defense to the claim. In other civil claims, the party can have the opportunity on the witness stand to explain.

If you do have a client who has been requested to appear for an EUO, tell him to run, not walk, to a competent and experienced claims attorney. Parker’s attorney appears to have not been up-to-speed on insurance law. He advised Parker not to appear.

Lead Paint Claims and the Pollution Exclusion

The Georgia Supreme Court (that state’s highest court) has ruled that a standard pollution exclusion eliminates coverage for lead paint claims.[iii] All justices on the court concurred.

The wording of the exclusion read:

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”:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.

“Pollutant” is defined in the policy as

“any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

Both the exclusion and the definition follow current ISO wording that is used in most states, including New York.

Commenting on this case in Coverage Pointers, a bi-weekly e-newsletter reporting on significant New York insurance cases, Earl Cantwell wrote: “Several parties filed amicus briefs since this was an issue of ‘first impression’ in Georgia. This decision was brief, clear, and unanimous so the issue is settled, at least in Georgia.[iv]

However, the NY Court of Appeals, our highest court, has ruled that such exclusions do not exclude coverage for lead paint poisoning cases.[v] The NY Court of Appeals case on this issue involved both a primary policy, which specifically excluded lead claims and also contained the standard ISO pollution exclusion, and an umbrella policy, which just contained a standard pollution exclusion. The court decided that the primary policy excluded the lead paint claim, but that the umbrella policy did not.

Does the Georgia decision portend a change in New York? I asked a leading insurance company defense attorney, Dan Kahane of Hurwitz and Fine, and his response is: “The short answer is ‘No.’ That’s the long answer as well!” Dan went on to cite numerous cases.

He pointed out that the Court of Appeals decision is based on older pollution exclusion wording, but that the one in Nassau County ruling for coverage was based on current wording. He wrote that the overwhelming trend in recent cases “has been to hold that such clauses do not exclude contaminants such as lead paint poisoning.”[vi]

Nevertheless, I’m a “belt-and-suspenders” guy. When discussing pollution coverage with clients, I refer to the current version of the exclusion as being “silent on lead.”

Small Businesses Need Fiduciary Liability Insurance

I’ll bet your clients have 401k or other retirement plans for their employees. And that they don’t realize they’re in plaintiff attorneys’ gun-sights over the administration of their plans. Often the operation of small business plans is outsourced to one of the huge and well-respected mutual fund or investment companies. Clients feel that the companies will handle all the details and that they have no worries. They’re wrong. ERISA (Employee Retirement Income Security Act) defines plan fiduciaries as: “Anyone who…exercises any authority or control over management or disposition of plan assets (emphasis added).”[vii] It doesn’t matter that they’re not named in the trust agreements as fiduciaries, if they have “authority or control,” they’re fiduciaries. As such, they have a heavy responsibility. A fiduciary must act first for the benefit of the beneficiary.

With regard to employee benefit plans, fiduciaries are responsible for, among other things:

  • Selection and monitoring of the investment options made available to Plan participants;
  • Selection and monitoring of service providers to the Plan;
  • Ensuring that fees charged are reasonable and not excessive;
  • Prudently determining the fees paid by the Plan.

For more than 10 years, attorneys have been arguing on behalf of plan participants that the fees paid to investment firms were excessive. Until recently, the targets of this litigation were the largest firms with hundreds of millions or even billions of dollars in their retirement plans. That’s changing. Smaller firms are now on the radar. A Minnesota auto body firm with fewer than 100 employees and a plan that had less than $9 million dollars in assets is being sued for failing to meet its fiduciary duties.[viii]

The owners and principals of small businesses are fiduciaries. They can be sued personally for failing to meet their duties. These lawsuits are expensive to defend and resolve. Fiduciaries can’t escape by blaming the service providers they hired. For fiduciary responsibility, the buck stops at their desks. It’s not expensive coverage. Your clients should carry it.

SHORT TAKES ON SIGNIFICANT TOPICS

Top 10 Employment Discrimination Claims in 2016

The EEOC (U.S. Equal Employment Opportunity Commission) has published its list of the top-10 employment discrimination claims in 2016:

  • Retaliation: 42,018 (45.9% of all charges filed)
  • Race: 32,309 (35.3%)
  • Disability: 28,073 (30.7%)
  • Sex: 26,934 (29.4%)
  • Age: 20,857 (22.8%)
  • National Origin: 9,840 (10.8%)
  • Religion: 3,825 (4.2%)
  • Color: 3,102 (3.4%)
  • Equal Pay Act: 1,075 (1.2%)
  • Genetic Information Non-Discrimination Act: 238 (.3%)

(The percentages add up to much more than 100% because most charges allege multiple violations.)

This list demonstrates that employment discrimination is an exposure clients need to deal with. Point out to clients that employees do not have to file an EEOC complaint to institute an action against their employers, and even if the EEOC declines to take action on a claim, an employee can, and often does, pursue the matter on her or his own.

As always, loss prevention is the first step in protecting against claims—that’s the province of HR professionals. Insurance is the second step and that’s where we come in.

Proposed Designated Premises Endorsement and Hired/Non-Owned Auto Coverage

Here’s another problem with the ISO revised designated premises: What if the policy includes hired/non-owned (H/NO) auto coverage? That’s a common way of arranging coverage, especially for smaller firms that don’t have any other auto exposure. It’s another reason to be wary of the proposed change. (ISO doesn’t have an H/NO endorsement for its CGL form, but many insurers use their own forms. ISO does have an H/NO endorsement for its BOP program.)

I wrote about the proposed endorsement and why I don’t like it in the January 30, 2017 issue of the Insurance Advocate. I didn’t see the H/NO issue.[ix] In brief, the new designated premises endorsement does not contain the broadening wording “and operations necessary or incidental to those premises.” Coverage away from the premises is limited to activities related to the coverage description in the declarations. Often, the coverage description is not an accurate description of the insured’s business, either due to mistakes when the policy was issued or changes in the nature of the business as time goes by. This doesn’t affect coverage—the insurer can correct classification mistakes on audit. However, when the new endorsement is part of the policy, an insurer can argue that coverage doesn’t apply to accidents away from the premises. For example, suppose a bookstore added a cafe to its operation. Is there coverage when the store caters a coffee hour at a customer’s office? (That’s the problem I originally saw.) The H/NO twist deals with coverage when an employee uses a car to pick up supplies for the cafe. Is there coverage? I don’t know for sure, but I don’t want a client to go to court to find out. My previous advice stands: avoid the new version of the designated premises endorsement.

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[i]   “Ohio Homeowner Charged With Murder, Arson Declined EUO” Claims Journal December 15, 2016 http://www.claimsjournal.com/news/midwest/2016/12/15/275636.htm

[ii]   Integrative Pain Medicine, P.C. v. Allstate Ins. Co., 2016 N.Y. Slip Op. 51525(U) (App. Term, 2d Dep’t Oct. 13, 2016)]

[iii]  Georgia Farm Bureau Mutual Insurance Company v. Smith, et al. No. S15G1177 March 21, 2016

[iv]  Earl Cantwell “Lead Paint Claims Not Covered Due To Pollution Exclusion” Coverage Pointers Volume XVIII, No. 16 (No. 472) Friday, January 27, 2017 http://www.hurwitzfine.com/news/coverage-pointers-volume-xviii-no-16

[v]    Westview Associates v. Guaranty National Insurance Company, 95 N.Y.2d 334, 740 N.E.2d 220, 717 N.Y.S.2d 75 (New York Court of Appeals, 2000)

[vi]   See, e.g., Lefrak Organization, Inc. v. Chubb Custom Ins. Co., 942 F.Supp. 949 (S.D.N.Y.1996) (pollution exclusion clause does not preclude coverage for lead paint poisoning); Cepeda v. Varveris, 234 A.D.2d 497, 651 N.Y.S.2d 185 (1996) (same); G.A. Ins. Co. v. Naimberg Realty Assoc., 233 A.D.2d 363, 650 N.Y.S.2d 246 (1996) (same); General Accident Ins. Co. v. Idbar Realty Corp., 163 Misc.2d 809, 622 N.Y.S.2d 417 (1994) (same); Generali–U.S. Branch v. Caribe Realty Corp., 160 Misc.2d 1056, 612 N.Y.S.2d 296 (1994) (same); Atlantic Mut. Ins. Co. v. McFadden, 413 Mass. 90, 595 N.E.2d 762 (1992) (same). But see Oates by Oates v. State of New York, 157 Misc.2d 618, 597 N.Y.S.2d 550 (1993)

[vii]  IRS Retirement Plan Definitions https://www.irs.gov/retirement-plans/plan-participant-employee/definitions

[viii]  Debbie Damberg and Tony Severson, as representatives of a class of similarly situated persons, and on behalf of the LaMettry’s 401K Profit Sharing Plan v  LaMettry’s Collission, Inc., Steven P. Daniel, and Joanne M. LaMettry https://www.bloomberglaw.com/public/desktop/document/Damberg_et_al_v_LaMettrys_Collision_Inc_et_al_Docket_No_016cv0133?1485438374

[ix]   Another insurance maven, Bill Wilson, pointed out this problem in his blog: Designated Premises, Operations and Projects Endorsements Feb 14, 2017 https://insurancecommentary.com/designated-premises-operations-and-projects-endorsements/