It Takes More Than an Injury to Trigger Liability, Flood Insurance Debris Removal Coverage Gaps, Risk Purchasing Group Coverage Shortcomings, 10 Most Expensive Hurricanes to Strike the U.S.

It Takes More Than an Injury to Trigger Liability

Michael Mossberg slipped and fell into the water while disembarking from a friend’s sailboat. Mossberg was injured and sued the marina where the boat was docked. The Supreme Court of Nassau County ruled in his favor and Crow’s Nest (the marina) appealed. The appellate court reasoned that the marina had “no duty to protect or warn against an open and obvious condition that is inherent or incident to the nature of the property, and that could be reasonably anticipated by those using it.” The appellate court stated that a slippery condition on a dock is necessarily incidental to its nature and location near a body of water.1

This decision interested me for two reasons. First, it’s good to see a court rule that not every injury per se entitles the injured party to recover damages. The injured party must show that the property owner breached some duty owed to the injured party.

Second, it made me think of a mishap I was involved in one of the last times my sailing partner and I sailed our boat. As we approached the dock, he would take the wheel and I would jump onto the dock to tie a line that would stop the boat before it slammed into the dock. This time, I slipped and sprawled spread-eagled on the dock. When my partner jumped off the boat to come to my aid, his feet went through the planks on the dock and he wound up in the water standing on the pontoons that support the dock.

Neither of us was seriously injured. If I had been hurt, I wouldn’t have sued. I fell because I was long past the use-by date for jumping off a moving boat. Even if the dock was slippery, that’s a hazard you assume when you use a marina. My partner would have presented a different situation had his injuries been serious enough to make a claim. The planks were rotten, but the rot was not visible from above. Discussing the incident with other boaters at the marina, he found out that one of them had noticed the condition when he docked his dinghy. The other boater had informed the marina manager that repairs were needed. So I think my partner would have had a viable claim. The marina had notice of a defect, the defect was not evident to my partner, and the marina owed a duty to provide a safe dock.

And that’s the way it should be. Injuries alone aren’t enough—there has to be negligence by the other party to sustain a claim.

Watch Out for Flood Insurance Debris Removal Coverage Gaps

Michael and Geraldine Torre owned a house on the Jersey shore that was inundated by Sandy. Liberty Mutual, as Write-Your- Own (WYO) servicing agent for the National Flood Insurance program, paid $235,751 to the Torres for damages to their home. The Torres also wanted coverage for the cost to remove the sand and other debris that Sandy deposited on the grounds outside of their house. Liberty denied coverage for that portion of the claim.

The Torres sued. They argued that “insured property,” the term used by their National Flood policy to describe their coverage, means not only the specific structures and items of property that are insured by their policy but their entire parcel of land. Liberty Mutual responded that “insured property” means only the property insured under the National Flood policy and that the NFIP did not cover land.

The US District Court for New Jersey ruled that the Torres’ Standard Flood Insurance policy calls for the insurance company to pay the expenses to remove debris of insured property anywhere, but that payment for removal of debris the insured does not own is limited to debris that is on or in an insured building or structure. There is no coverage for removal of non-owned debris outside the perimeter of the insured building.

The court decided in favor of Liberty Mutual and the Torres appealed to the U.S. Court of Appeals for the Third Circuit. The appeals court affirmed the lower court’s decision.2

That’s not what the Torres hoped for and, since they probably never read the policy, not what they expected; nevertheless I think the court got it right. Insureds bear a special burden when suing on a loss covered by a Federal insurance program like NFIP. Because a Federal insurance policy is not written by an insurance company but is set out in a law passed by Congress, the rule that ambiguities are resolved in favor of the insured and against the insurance company does not apply. I think this decision would be the same even if the case involved a non-Federal insurance policy with the same wording.

Better coverage is provided by the ISO flood insurance endorsement (CP 1065 1012)

“We (the insurance company) will pay your expense to remove debris of Covered Property and other debris that is on the described premises, (emphasis added) when such debris is caused by or results from flood.”

Notice that the ISO flood form covers the cost to remove “any other debris that is on the described premises.” It is well settled insurance law that “described premises” includes the entire property surrounding the insured’s building. Score one for ISO.

Debris removal provisions differ markedly in various policies. For example, until the most recent revision, the ISO commercial property forms limited debris removal to the “expense to remove debris of covered property (emphasis added).” That doesn’t include debris of tenant’s property on an owner/s property or items that are not covered property such as sand and dirt, etc. This was changed in 2012 to read the “expense to remove debris of covered property and other debris (emphasis added).” That’s a big improvement. However, the 2011 ISO homeowners policy still limits debris removal coverage to covered property. Of course, in all cases the damage has to have been caused by a covered cause of loss.

Learning Point: Many insurers use their own flood coverage forms to provide flood insurance. Many do not use the broader ISO debris removal wording; some follow NFIP or are even more restrictive. Watch out for it. It can be an expensive coverage gap.

All That Glitters Is Not Gold— Risk Purchasing Group Coverage Shortcomings

Risk purchasing groups allow groups of unrelated insureds in the same industry to band together to get the advantages of group insurance when buying liability insurance. Insurance law in most states bans property-casualty group insurance for unrelated insureds, often referred to as “fictitious groups insurance.” However, risk purchasing groups are authorized by the Federal Liability Risk Retention Act of 1986 and Federal law supersedes state law.

A risk purchasing group differs from a risk retention group, which is also authorized by the Risk Retention Act. A risk retention group is a risk-bearing insurance entity similar to an insurance company. A risk purchasing group centralizes the purchasing function. Unlike a risk retention group, the actual risk of loss for a purchasing group is borne by one or more insurance companies, not the members of the group.

The coverage forms used by risk purchasing groups are usually equal to or better than the forms offered by the standard market. This is especially true for smaller insureds that don’t have the leverage of substantial premiums to obtain the better policy wording offered to larger insureds.

However, like all general rules, there are exceptions. I ran into two when reviewing proposals for a client last week. Both involved the pollution exclusion.

In response to the Superfund toxic site crisis and the resulting pollution claims that inundated insurance companies starting in the late 1970s and early 1980s, insurance companies introduced pollution exclusions starting in 1986. The first version of the exclusions applied only to “sudden and accidental” pollution. However, court interpretations of “sudden and accidental” rendered that wording almost entirely ineffective. The next generation of pollution exclusions took the approach of totally excluding pollution claims, but there were often some exceptions to the total pollution exclusions that triggered coverage under certain circumstances.

Over the years, the exceptions to the exclusions have grown. Two of the biggest expansions of coverage via the exception route were coverage for bodily injury or property damage claims arising from a hostile fire3 and coverage for bodily injury claims sustained within a building caused by smoke, fumes, vapor or soot from equipment used to heat, cool or dehumidify the building, or to heat water for personal use by building occupants. The latest version of the ISO CGL contains both coverage expansions. Providing coverage for such claims is appropriate. They can produce large claims, but they don’t pose the catastrophic exposures associated with superfund toxic waste sites that were the rationale for pollution exclusions in the first place.

In one proposal that our client received, the pollution exclusion was amended by endorsement to a total exclusion with only one exception: coverage for claims arising from hostile fire. Another proposal eliminated all the exceptions leaving no coverage for any pollution claims. Both were offering protection that was much less than what is available in the market. Other than listing the form number and title of the endorsement in a list of almost two dozen forms or endorsements to be attached to the policy, there was nothing to alert the insured to the change.

Learning Point: Despite their reputation for superior coverage, proposals from risk purchasing groups must be carefully reviewed just like any other proposal. Don’t let your insureds fall into a trap. And don’t expose yourself to E&O claims.

Most Expensive Hurricanes to Strike the U.S.

Predictions are that this will be a mild hurricane season.4 Let’s hope so because we’ve been taking a beating. Here are the ten most expensive hurricanes to strike the U.S., listed in descending order. (All are valued in 2014 dollars.) Notice that all but two occurred after 2004 and that all the states in the Northeast were struck by at least one of the ten storms; Florida was hit by seven of them.5

  1. Hurricane Katrina Aug. 25-30, 2005 States impacted: Alabama, Florida, Georgia, Louisiana, Mississippi, Tennessee Estimated insured loss $48,383 billion
  2. Hurricane Andrew Aug. 24-26, 1992 States impacted: Florida, Louisiana Estimated insured loss $23,785 billion
  3. Hurricane Sandy Oct. 28-31, 2012 States impacted: Connecticut, District of Columbia, Delaware, Maine, Maryland, North Carolina, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Virginia, Vermont, West Virginia Estimated insured loss $19,307 billion
  4. Hurricane Ike Sept. 12-14, 2008 States impacted: Arkansas, Illinois, Indiana, Kentucky, Louisiana, Missouri, Ohio, Pennsylvania, Texas Estimated insured loss $13,539 billion
  5. Hurricane Wilma Oct. 24, 2005 State impacted: Florida Estimated insured loss $12,125 billion
  6. Hurricane Charley Aug. 13-14, 2004 States impacted: Florida, North Carolina, South Carolina Estimated insured loss $9,083 billion
  7. Hurricane Ivan Sept. 15-21, 2004 States impacted: Alabama, Delaware, Florida, Georgia, Louisiana, Maryland, Mississippi, North Carolina, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia Estimated insured loss $8,639 billion
  8. Hurricane Hugo Sept. 17-22, 1989 States impacted: Georgia, North Carolina, Puerto Rico, South Carolina, Virginia Estimated insured loss $7,055 billion
  9. Hurricane Rita Sept. 20-26, 2005 States impacted: Alabama, Arkansas, Florida, Louisiana, Mississippi, Tennessee, Texas Estimated insured loss $6,624 billion
  10. Hurricane Frances Sept. 3-9, 2004 States impacted: Florida, Georgia, North Carolina, New York, South Carolina Estimated insured loss $5,583 billion.