Will a Business Interruption Policy Help Businesses Suffering from Covid-19? In California, the short answer is probably No.
|Posted on October 25, 2020 at 5:05 PM|
(Page 24 of PDF)
With businesses suffering unprecedented losses as a result of business closures related to Covid-19, many are asking if there could be any help from traditional insurance policies designed to pay for a business’s loss of income. In order to determine whether or not there could be coverage, we need to look at both the words of the insuring agreement, and how a jurisdiction interprets the words.
The importance of jurisdiction is seen in states like Iowa where a judge held that "The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations" C&J Fertilizer, Inc. v. Allied Mutual Insurance Co, 22 Ill.227 N.W.2d 169 (Iowa 1975). In such a jurisdiction, a court could find that there is coverage under a Business Interruption Policy if a policy holder reasonably believed there should be coverage even if reading the policy would prove otherwise.
Unlike Iowa, courts in California do not look to the reasonable expectations of the applicants or intended beneficiaries unless the contractual terms are ambiguous or unconscionable. If the terms of the written agreement are clear and explicit, courts will look to the writing alone to determine the intentions of the parties.
California Civil Code:
1638. The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.
1639. When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone….
1649. If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.
Therefore, the starting point for whether or not there should be coverage in California under a business interruption policy is to look to the writing alone to see if it clearly communicates the intentions of the parties. For this, we need to look at the words of the insuring agreement.
Business Income (and Extra Expense) Coverage Form CP 00 30 10 12 Insuring Agreement:
We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. [Covered Causes of Loss commonly include perils such as fire, lightning, explosion, windstorm, hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action, falling objects, weight of snow, ice, or sleet, water damage, and sometimes collapse.]
As we see in the insuring agreement, coverage only applies if there is direct physical loss of or damage to property at premises described in the policy, and the loss must be caused by or result from a covered cause of loss. With Covid-19, the loss of business income has been caused by the suspension of operations, but it has not been caused by direct physical damage to property at the premises, and it has not been the result of a covered cause of loss like fire, lightning, or hail. Therefore, a plain reading of the policy would determine that there is no coverage under a standard Business Interruption policy for loss of income resulting from Covid-19.
There are two additional coverages where insureds can find coverage for a loss of business income even when there is no damage at the insured’s premises: Civil Authority and endorsement CP 15 08 06 07 Business Income from Dependent Properties.
Civil authority coverage will pay for “the actual loss of Business Income [the insured] sustain[s]…caused by action of civil authority that prohibits access to the described premises.” This sounds like it could provide coverage for businesses being forced to closed by the government’s mandates to reduce the spread of Covid-19, but the coverage only applies when the access is prohibited as a result of damage within one mile of the insured premises, and the damage must be the result of a covered cause of loss. With respect to closures caused by Covid-19, there is no physical damage caused by a covered cause of loss, and so there would be no coverage.
Similarly, endorsement CP 15 08 06 07 extends Business Income coverage to losses suffered away from the insured’s premises, but the locations need to be named—often a supplier, recipient, manufacturer, or anchor store—and the damage at these locations must be the result of a covered cause of loss. Again, with respect to closures caused by Covid-19, there is no physical damage caused by a covered cause of loss, and so there would be no coverage.
With traditional business interruption policies unlikely to pay for loss of income resulting from Covid-19, what kind of insurance should a business purchase to cover loss of income resulting from a pandemic such as Covid-19? The answer is pandemic insurance. After the SARS outbreak in 2003, the Wimbledon Tennis Tournament began purchasing pandemic insurance at a cost of roughly $1.9 million every year. In 2020, the tournament was cancelled due to Covid-19, and they filed a claim on the insurance policy. After paying a total of $31.7 million over the past 17 years, Wimbledon was expected to receive a payout of $142 million in 2020 from their pandemic insurance policy. Absent a specific pandemic insurance policy, traditional business interruption policies are unlikely to provide for business interruption losses because the losses do not arise out of damage to the premises, and they are not caused by what the policy considers a covered cause of loss.
Objection, Relevance: Using the legal rules of evidence to improve your business reasoning and writing
|Posted on October 25, 2020 at 4:50 PM|
Using the legal rules of evidence to improve your business reasoning and writing
If you have ever watched a courtroom drama, you have probably heard the phrase, “Objection, relevance.” What does this mean, and how can it help our thinking, writing, and, as a bonus, maybe make us more informed viewers of our favorite TV shows? In this writing guide, we will use the legal rules of evidence to help writers focus on what is helpful, necessary, and to the point.
In order for evidence to be used in a trial, it must be relevant. If it is irrelevant, the evidence is said to be inadmissible and cannot be used. Attorneys can’t use it, and juries shouldn’t hear it. If one side tries to use information that is not relevant, the other side should protest to the judge, arguing that the information should not be allowed because it is not relevant. Or, as it is commonly stated, “Objection, Relevance.” The other side is then given an opportunity to explain to the judge why the evidence is relevant, and should be allowed.
Federal Rule of Evidence 401 tells us that evidence is relevant if:
a) It has any tendency to make a fact more or less probable than it would be without the evidence; and
b) The fact is of consequence in determining the action. (Fed R. Evid. 401)
Rule 401a: Helpful
Evidence that has “any tendency to make a fact more or less probable than it would be without the evidence,” must be helpful in proving something. For example, imagine you saw someone drink five shots of tequila before getting into a car, and you want to prove that the individual was intoxicated. Is evidence that someone drank five shots of tequila helpful in proving the individual’s intoxication? Of course. If the evidence has “any tendency” to make it more or less probable that the individual was intoxicated than it would be without the evidence, the first element of relevance is satisfied.
Rule 401b: Necessary
In addition to being helpful in proving something, what the evidence is trying to prove must also be necessary, or “of consequence,” in determining the outcome of the action. If the person who consumed the five shots of tequila is being charged with Driving While Intoxicated, then proving the driver’s intoxication is necessary in determining the outcome of the DWI action against him. The driver’s intoxication is “of consequence in determining the action” because if he was not intoxicated, he can’t be convicted of Driving While Intoxicated. But what if the tequila testimony is being offered in a product defect lawsuit against a car manufacturer because when the man stumbled into the car, the airbags immediately detonated, and the man suffered serious bodily harm? Whether or not the man drank tequila has nothing to do with whether or not the car manufacturer made a defective car that exploded. In both cases, the tequila consumption is helpful to prove the fact that the man may have been intoxicated. But although intoxication is necessary to charges of DWI, intoxication has nothing to do with whether or not the car manufacturer made a defective product that caused our tequila-drinker harm. Therefore, evidence of the five shots of tequila would be relevant and allowed in the DWI case, and irrelevant—and therefore not allowed—in the product defect lawsuit.
Straight to the Point
I’ll leave you with one more rule of evidence to help you with your business reasoning and writing. It’s Federal Rule of Evidence 403. It says that even if evidence is relevant, courts may still exclude it if “its probative value is substantially outweighed by a danger of…unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”
Imagine in our DWI case that the driver had been drinking five shots of tequila every night in the same bar for the past 20 years. There may be 1,000 people lined up who can testify that it is the habit of this individual to consume five shots of tequila every night. Is this evidence relevant to whether or not the individual consumed five shots of tequila, was intoxicated, and should be charged with Driving While Intoxicated? Of course. This evidence is helpful in proving the man was probably intoxicated, and proving intoxication is necessary to the DWI case. But at some point between the testimony of witness one and witness 1,000, any new value that the testimony could add will be substantially outweighed by the testimony’s waste of time or its needless presentation of cumulative evidence.
Application to Writing: Focus
How can we use these rules of legal relevance to improve our business reasoning and writing?
Focus. Judges and business leaders don’t pick up memos on a Saturday morning because they’re hoping the memos will make them laugh, cry, or feel inspired. Give decision-makers the information that is helpful and necessary to making wise decisions. Don’t waste your reader’s time discussing a company’s strengths and weaknesses if the company said they’re already past this and request from you an implementation plan. Sharing extra information—even if expertly researched and beautifully written—doesn’t make you look smart or thorough. It suggests that you can’t tell the difference between what’s important, and what’s not.
Your readers are busy. Don’t waste their time. Give them only the information that is helpful and necessary to make the decisions they need to make.
|Posted on October 25, 2020 at 4:40 PM|
Do you really need Uninsured/Underinsured Motorist (UM/UIM) if you have health insurance? In these difficult times, people are becoming increasingly creative when it comes to cutting costs. One suggestion I heard was to reduce auto insurance costs by eliminating UM/UIM coverage. The person proposed that UM/UIM is unnecessary if you have health insurance. With over 90% of those in the U.S. now having health insurance coverage, I can see why this suggestion is appealing, but this cost-saving strategy is based on the misunderstanding that UM/UIM and health insurance cover the same things. Health insurance is designed to cover medical bills. UM/UIM coverage is designed to give the car that caused your damages the coverage you wish that car had.
Although policies vary by carrier, UM/UIM is designed to provide coverage to another driver in the event that you are in an accident with a vehicle that either has no insurance (UM) or has less insurance than is necessary to cover the damages in the accident (UIM). A vehicle that commits a “hit-and-run” is also often included in UM/UIM coverage. The individuals that are covered by a typical UM/UIM policies include the insured, the insured’s family members, and any person occupying the insured’s covered vehicle. The damages that are covered often include bodily injury to a covered person and property damage caused by an auto accident. Property damage includes damage, destruction, or loss of use to a covered person’s tangible property.
To illustrate the difference between health insurance and UM/UIM coverage, imagine you or a family member is in a serious car accident with an uninsured vehicle. If you have health insurance, hopefully your medical bills will be covered. But what if you or your family member requires long-term care, suffers from life-long extreme pain and suffering, is permanently disabled, or dies? These tragedies are not covered by health insurance policies, but could be covered under a UM/UIM policy if caused by someone with no insurance, insufficient insurance, or a hit-and-run.
Similarly, what if you or your business suffers property damage as a result of a car accident caused by someone with no insurance, insufficient insurance, or as a result of a hit-and-run? Imagine the driver hits a power pole that knocks out power to your business for a day or you can’t access your business because your entrance is blocked by police investigators? This may qualify as loss of use of tangible property resulting from an auto accident. Therefore, this type of incident may be covered by UM/UIM, but would have nothing to do with health insurance.
In evaluating whether or not you want to purchase UM/UIM coverage, you may want to know the odds that you will be in a car accident with an uninsured or underinsured motorist. Let us start with a look at the likelihood of being injured in a car accident at all—whether or not the other driver has sufficient insurance.
• There is an average of 6 million car accidents in the U.S. every year.
• More than 90 people die in car accidents every day.
• 3 million people in the U.S. are injured in car accidents every year.
• Around 2 million injured in car accidents experience permanent injuries every year.1
According to the Insurance Information Institute, there were 40,231 deaths by vehicle accidents in 2017. That corresponds to a one in 103 chance of dying as a result of a vehicle accident.2
Now that we have a glimpse of the likelihood of being in an accident, you may want to know the likelihood of being in an accident with an uninsured motorist? This largely depends on where you live. Below is the Insurance Information Institute’s 2015 list of the “Top 10 Highest and Lowest States by Estimated Percentage of Uninsured Motorists.” As you can see, if you’re in a car accident in Florida, there’s a one-in-four chance that the other driver has no insurance at all.3
Rank State Percent uninsured Rank State Percent uninsured
1 Florida 26.7% 1 Maine 4.5%
2 Mississippi 23.7 2 New York 6.1
3 New Mexico 20.8 3 Massachusetts 6.2
4 Michigan 20.3 4 North Carolina 6.5
5 Tennessee 20.0 5 Vermont 6.8
6 Alabama 18.4 6 Nebraska 6.8
7 Washington 17.4 7 North Dakota 6.8
8 Indiana 16.7 8 Kansas 7.2
9 Arkansas 16.6 9 Pennsylvania 7.6
10 D.C. 15.6 10 South Dakota 7.7
Even if the driver has insurance, there is a question as to whether or not the driver has enough insurance. Every state has a minimum auto insurance liability limit. However, one third of the U.S. population lives in states where the required per personal auto liability limit is less than the average cost for an inpatient stay at a hospital in the USA.5 A study funded by the Bill and Melinda Gates Foundation that was published in the January 2019 issue of a public health journal found that the average cost for an inpatient stay at a hospital in the U.S.A. in 2016 was $22,543.4
Compare this with the minimum liability limit of $15,000 in California, Pennsylvania, New Jersey, and Louisiana; and $20,000 in Michigan, Massachusetts, Iowa, and Hawaii. In Florida, the per person liability auto liability limit is $10,000. This means that even if you are in an accident with someone who has insurance, in many cases, the insurance the other driver carriers will be insufficient to pay for the average inpatient stay at a hospital.
State Per Injured Person Limit5 Population Rank Population6
California $ 15,000 1 37,747,267
Florida $ 10,000 3 21,646,155
Pennsylvania $ 15,000 5 12,813,969
Michigan $ 20,000 10 10,020,472
New Jersey $ 15,000 11 8,922,547
Massachusetts $ 20,000 15 6,939,373
Louisiana $ 15,000 25 4,652,581
Iowa $ 20,000 31 3,167,997
Hawaii $ 20,000 41 1,416,589
The danger of using an example including medical bills is that it risks reinforcing the belief that UM/UIM is unnecessary for those who have health insurance. It is true that if you have perfect health insurance that covers all of the bills of your hospital stay, and you and your caregivers do not miss any work or experience any loss of income, and you do not experience any pain and suffering or die, your perfect health insurance in this perfect situation may have been enough for you. Unfortunately, there are no perfect accidents. A recent study found that 66.5% of personal bankruptcies cited medical issues as the reason for the bankruptcy. Of these, 88% (58.5% of total bankruptcies) were specifically caused by medical bills. The remainder were caused by those who had to take time off of work and were not getting paid due to medical issues. With UIM coverage, you can give the driver who hit you the coverage you wish that driver had.7
Another danger of writing this article as an insurance professional who also happens to be an attorney is that I’ve heard people say that the only people who insist on others buying UM/UIM are attorneys because attorneys want to go after the policies to get paid. It is true that most plaintiff attorneys get paid based on the amount that they are able to recover. If the attorney is able to help an injured party recover a larger amount, the attorney will get paid a larger amount. The typical fee for a car accident often ranges between 25% and 40% of the amount recovered. To this end, if you want to ensure that no attorney gets paid a large amount in the event that you or a loved one dies or is permanently disabled in a horrible car accident by an uninsured, financially insolvent driver, you could avoid purchasing a UM/UIM policy. This way, in a 1/3 contingency fee situation, instead of an attorney receiving $100,000 and your family receiving $200,000, you can ensure that both you and the attorney will receive nothing.
When deciding on whether or not to purchase UM/UIM coverage, you can ask if you would want coverage in case you are in an accident with an uninsured or underinsured motorist that causes you or someone in your household to miss work, causes significant pain and suffering, causes a permanent life-altering disability, death, or property damage. This is what UM/UIM is designed to cover. If you’re relying on health insurance, you probably have no coverage.
1. https://www.driverknowledge.com/car-accident-statistics/ which points to other sources:
5. Automobile Financial Responsibility Limits by State (As of June 2019). Insurance Information Institute. (See attached).
6. http://worldpopulationreview.com/states/, http://worldpopulationreview.com/countries/
|Posted on June 22, 2020 at 4:30 PM|
Are you legally required to pay for expenses associated with an event that has been cancelled due to the coronavirus disease 2019 (COVID-19)? It may be helpful to know that long before the inevitable COVID-19 legal contract cases, there were the Coronation Cases of 1902.
The Coronation Cases were a group of lawsuits in England arising out of contracts to view the coronation of King Edward VII and Queen Alexandra.1 Many people had rented rooms specifically to view the procession, but the coronation had to be postponed when Edward’s appendix ruptured two days before the ceremony.
The individuals who had rented rooms to watch the procession wanted to get out of their rental contracts. Likewise, individuals who purchased tickets to watch sporting events or attend conventions during the COVID-19 outbreak want to get out of their contracts for cancelled events. But can they?
In 1902, the contractual defense of impossibility was available, but this was not enough to help people get out of paying for their rooms. Here’s why: The defense of impossibility is only available if performing the contract is objectively impossible. Edward’s illness didn’t make renting a room impossible. That is, the buildings hadn’t collapsed. Tenants were still able to occupy rooms along the would-be parade route and look out large windows to the empty streets below.2
The similar but distinct defense of impracticability did not suffice, either. This defense is only available when there is an unforeseen contingency that would result in an increased cost or burden far beyond what either party anticipated. For example, instead of renting a room to watch a modern day coronation or procession, you rent an entire building. What if the building you’ve rented isn’t destroyed, but the surrounding buildings collapse, and now you can only get to the building you rented by helicopter. It’s not impossible to get to your building, but the defense of impracticability will relieve your obligation to rent the building because of the unforeseen increased cost or burden.3
Frustration of Purpose
The unavailability of these defenses for the coronation cases led to the defense of frustration of purpose (also called commercial frustration).
The defense of frustration of purpose is available when 1) the principal purpose of the contract is substantially frustrated, and 2) the nonoccurrence of the event that caused the frustration was a basic assumption of the contract.4
The legalese in that second point is thick, but it means that the parties didn’t anticipate, insure against, or assume the risk of the frustration in any way. To give an example: If you make travel plans to go on a cruise during a pandemic because you’re offered a 14-day cruise for $140, you can’t say that the nonoccurrence of the cancellation is a basic assumption of your contract. You know there’s a good chance of cancellation, and that’s why you’re getting a great price.
Unlike such a cruise, it is safe to say that it was a basic assumption of those entering contracts in 2019, before the novel coronavirus spread, that their 2020 events wouldn’t be cancelled. They had no way to predict that attendees would need to self-quarantine for 14 days or that governors and the president would issue states-of-emergency declaring, “Don’t go.” If the warnings and cancellations that came during the pandemic substantially frustrated the principal purpose of the contracts, those seeking to void their 2020 coronavirus-impacted contracts can thank the Coronation Cases of 1902 for creating the defense of frustration of purpose.
How will the cases of cancelled contracts due to COVID-19 differ from the Coronation Cases of 1902? The coronavirus legal cases may have two new twists: supervening illegality and public necessity.
When a contract becomes illegal, the contract is void. For example, if we formed a contract to buy and sell Cuban cigars in 1961, and then the U.S. government declared in February 1962 that it is illegal to buy and sell Cuban cigars, our contract would be void. We can’t sue each other for nonperformance of our Cuban cigar contract any more than if we were suing each other for breaching contracts to illegally buy and sell heroin or cocaine on the street.
What does this mean for contracts during the COVID-19 outbreak? At the time of writing this, some nations and states are asking or encouraging individuals to self-quarantine or avoid travel. But other nations and states are requiring shutdowns and travel bans. If a declaration from the government makes performing your contract illegal, the contract becomes unenforceable, and any monies exchanged should be returned.5
Similarly, in tort law there is the defense of public necessity. This defense excuses otherwise tortious conduct if the conduct is necessary to avert an imminent public disaster. For example, ordinarily, your neighbors would need to compensate you if they diverted floodwaters on to your property, damaging your land. However, if they diverted floodwaters on to your land to save a city, their conduct would be excused because it was made with the purpose of alleviating the effects of a public disaster. Because of the defense of public necessity, the neighbors would owe you no money even if their actions caused harm to your property.6
Is it a stretch to suggest that the defense of public necessity—a defense that is normally only applied in tort law—might be available as a defense in coronavirus contract disputes? Perhaps. But even if it is not technically illegal to take a flight or stay at a hotel, the government has asked individuals to avoid travel or to self-quarantine. The Center for Disease Control has calculated that, in a worst case scenario, as many as “1.7 million people could die” from COVID-19.7 If traveling is required to perform a contract, but not traveling is necessary to alleviate the effects of an imminent public disaster, then the contractual damages resulting from not traveling should arguably be excused under the defense of public necessity.
In fact, traveling in spite of these warnings at some point could subject someone to liability for the tort of negligence (causing damages by breaching one’s duty to act like a reasonable person)8 or even battery (committing a voluntary, intentionally harmful or offensive contact to another person).9
Contract litigation arising out of the coronavirus pandemic of 2020 is almost certain. As we contemplate contract defenses in the coronavirus legal cases of 2020, it is helpful to look back to defenses once employed in the Coronation Cases of 1902.
1. Krell v. Henry (1903, C. A.), 2 K.B. 740. See also Heme Bay Steam Boat Co. v. Hutton (1903, C. A.), 2 K.B. 683.
2. 17B C.J.S. Contracts § 688, February 2020 Update (citing Inc. v. Eustace, 290 S.W.3d 332 (Tex. App. Eastland 2009), reh'g overruled (June 11, 2009)). See id. § 689 (legal impossibility). As to destruction of subject matter, see id., § 696 to § 699.
3. The defense of impracticability was established in 1916—after the Coronation Cases. Mineral Park Land Co. v. Howard ,172 Cal. 289 (1916). But like the defense of impossibility, the defense of impracticability would not apply to either the 1902 Coronation Cases or 2020 coronavirus cases. Jennifer Camero, “Mission Impracticable: The Impossibility of Commercial Impracticability,” 13 U.N.H.L. Rev. 1, 3–4 (2014); Sheldon W. Halpern, “Application of the Doctrine of Commercial Impracticability: Searching for ‘The Wisdom of Solomon',” 135 U. Pa. L. Rev. 1123, 1132 (1987).
4. 17A Am. Jur. 2d Contracts, § 638, Applicability of doctrine of frustration of purpose; Restatement (Second) of Contracts § 265.
5. Restatement (Second) of Contracts § 264, Prevention by Governmental Regulation or Order, provides: “If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the nonoccurrence of which was a basic assumption on which the contract was made.” The common law thus excuses performance of a contract where it is made impossible or impracticable by a supervening governmental action. 2 A.L.R.7th, Art. 3 (2015).
6. Monica E. Eppinger, “The Challenge of the Commons: Beyond Trespass and Necessity,” 66 Am. J. Comp. L. 1, 18 (2018); Restatement (Second) of Torts, § 196 & cmts. a, b; Spade v. Lynn, 52 N.E. 747, 747 (Mass. 1899) (Holmes, J.); Surocco v. Geary, 3 Cal. 69 (1853) (trespass by the Alcalde of San Francisco, who destroyed plaintiff's house in attempt to halt the progression of a fire in the city, excused without obligation to compensate the homeowner under public necessity doctrine).
7. Sheri Fink, “Worst-Case Estimates for U.S. Coronavirus Deaths,” New York Times Online (March 13, 2020), https://www.nytimes.com/2020/03/13/us/coronavirus-deaths-estimate.html.
8. See Kenneth S. Abraham, The Forms and Functions of Tort Law, 2-3 (2d ed. 2002) (describing these elements as the “four elements of any cause of action in tort.”;); Alan Calnan, “The Fault(s) in Negligence Law,” 25 Quinnipiac L. Rev. 695, 749 (2007).
9. Restatement (Second) of Torts, § 13.
|Posted on March 25, 2019 at 2:15 PM|
The webinar that I did for the SILA Foundation (Sila.org) about Defamation, Libel, Slander, Insurance Coverage, and Freedom of the Press is available here: http://www.silafoundation.org/2019/02/webinar-defamation-libel-slander/
Do liability insurance policies cover defamation?
Court Affirms $350k Verdict for Lawyer Smeared on Avvo.
Can you sue Facebook, Yelp, Avvo or other social media platforms for defamation?
Section 230 of the Communications Decency Act of 1996
New York Times Co. v. Sullivan, 376 U.S. 254 (1964)
Hutchinson v. Proxmire, 443 U.S. 11 (1979)
Gertz v. Robert Welch, Inc., 418 U.S. 323, 351 (1974)
|Posted on March 20, 2019 at 12:20 AM|
Pro Se Clinic Helps WWII Veteran and Family Avoid Eviction
By: Diane Roth
FBA-Inland Empire Review, Issue 16, Spring, 2015
A World War II veteran, his wife, and 15-year old dependent granddaughter can stay in their home thanks to our Pro Se Clinic volunteers.
WWII veteran Mr. A of Hesperia called PSLC for help when he received a foreclosure notice from his bank. He had gotten behind on his payments and was days away from losing his home. He and his wife were disabled and physically unable to make it to the court or the clinic in Riverside. We thought we would be unable to help until volunteer attorneys Manfred Schroer of Grand Terrace and Dwight Kealy of Temecula stepped up and worked out a cooperative arrangement to help the veteran obtain Chapter 13 bankruptcy protection.
“You think you know everything about a person when you’ve collected the information necessary to file a chapter 13 bankruptcy,” Mr. Kealy said. “This is what I thought until a 15-year-old young woman came in, hugged the old veteran, and said, ‘Hi Dad.’ When she left the room, I looked up from the documents that I thought contained all of the veteran’s information, and asked, ‘So, you have a dependent?’ it turns out that the girl is their granddaughter who has lived with them since she was 14 months old.”
The morning 341(a) Creditor Meeting consisted of a conference cal with Mr. Schroer and the trustee’s attorney in Riverside and Mr. Kealy at the veteran’s house with the clients and a notary. Mr. Kealy then collected the notarized documents and delivered them to the trustee’s attorney prior to the confirmation hearing. The plan is unusual and creative; the trustee’s attorney said it was the first time she had recommended confirmation in a situation like this. But the plan was confirmed.
“I know they don’t make TV shows about bankruptcy court,” Mr. Kealy said. “But ‘plan confirmed’ to a new bankruptcy attorney sounds like ‘not guilty’ to a defense attorney. It means that the veteran, his wife, and 15-year-old granddaughter would be able to continue living in their house together.”
This was Dwight’s first bankruptcy case and his first court appearance, having been sworn in this year. Manfred is a seasoned bankruptcy attorney who’s our most dependeable and big-hearted volunteer (more than 200 hours donated to the clinic in 2012). They are now a mutual admiration society. As Dwight says:
“Most of you might think that the actual practice of law is not all that exciting, but it can be. Volunteering with PLSC in the past months has given me the opportunity to save a WWII veteran and his family from eviction, help a mother get custody of her children, and help others start a new life after a difficult marriage. Volunteering at PLSC also gives you the opportunity to surround yourself with people who want to help other people. As a new attorney, I am grateful for the opportunity to work with experienced volunteer attorneys like Manfred Schroer who are willing both to help me learn the practice of law and to give me examples of using the law to help others.”
This is not the usual case, as we don’t ordinarily make house calls. But your contributions of just a few hours in the clinic can help keep a couple in their 80’s from becoming homeless or help a disabled person get social security benefits. We are most in need of volunteers on the District Court side, primarily to advise litigants on procedural matters. No formal sign-up procedure. Just stop by after your court appearance for an hour or two.
|Posted on March 8, 2019 at 5:40 PM|
This article originally appeared in the Winter, 2018 edition of Resources Magazine, a Publication of the National Alliance for Insurance Education and Research, www.scic.com/news/post/discourse-discord-and-defamation
By Dwight M. Kealy, J.D., MA, CIC, AAI
In the tumult of our modern public discourse, do you ever wonder how someone can blatantly tell a mistruth about another person, and get away with it? Truth be told, if you say or write a false defamatory statement of fact about someone else, you could get sued, and your Commercial General Liability Policy could possibly provide you with a defense and pay damages under Coverage B, “Personal and Advertising Injury.”
The Coverage B insuring agreement states that “This insurance applies to ‘personal and advertising injury’ caused by an offense arising out of your business but only if the offense was committed in the ‘coverage territory’ during the policy period.” The definition of “Personal and Advertising Injury” is limited to seven named offenses. One of these seven offenses is the “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.” Slander and libel are both forms of the tort of defamation. Slander occurs when the defamation is oral. Libel occurs when the defamation is in writing. Defamation exists when one communicates a 1) false, 2) defamatory, 3) statement of fact, of or concerning the plaintiff, and 4) publishes it to a third party. Let us look at each of these.
1) Falsity: Notice that the first element of defamation is that the published statement has to be false. If what someone says is true, it is not defamation no matter how bad the statement is.
2) Defamatory: You might not like people talking about you. This might be especially true if what people are saying is not true. However, people saying untrue things about you will only meet the definition of the tort defamation if what the people are saying is considered defamatory. To be defamation, the statement would have to be one that would subject the plaintiff to scorn or ridicule, or lower the plaintiff’s reputation in the eyes of a respectable minority of the community.
3) Statement of fact, of or concerning the plaintiff: You might eat at a restaurant tonight, lean over to the table next to you and say, “This meat tastes like rat meat.” I hope this is false, satisfying the first element of defamation. I think the restaurant owner would find this defamatory, satisfying the second element. But what you are saying will not be defamation because you are not communicating a statement of fact. You are offering your opinion. If, on the other hand, you lean over to the table next to you and say, “Don’t order the spaghetti because this restaurant uses rat meat in its marinara sauce,” now you have made a statement of fact of or concerning the restaurant. The requirement that the statement be a statement of fact eliminates statements that are opinions, exaggerations, and jokes. Many of the negative business reviews posted on social media have avoided litigation based on this element. So long as the customer is offering an opinion and not fabricated false defamatory facts, the customer will not be found liable for defamation. However, when reviewers move beyond opinion and offer false defamatory facts, they may be found liable for defamation.
4) Published to a third party: For a statement to be libel or slander, the statement must be published to a third party. When we think of publishing, we often think of books and things that are printed. Remember, defamation can also be oral (slander), and so the publishing requirement does not refer exclusively to printing. A statement is published to a third party when the party committing the defamation causes a third party to see or hear the false defamatory statement of fact. The third party can be anyone other than the person or entity about which the statement is made. If you tell the owner of our hypothetical restaurant that he is using rat meat, that is not defamation. You are not communicating the statement to a third party. You are communicating it directly to the restaurant owner. A statement is only defamation if it is communicated to a third party.
At this point, you may be thinking that there must be limitations to what defamation the CGL Policy will cover and who can be sued for defamation, or we would see defamation lawsuits every day. Indeed, there are limitations on what the U.S. Supreme Court has decided is defamation and provisions that determine when the CGL Policy will pay damages for defamation.
The Supreme Court case, New York Times Co. v. Sullivan, 376 U.S. 254 (1964), changed defamation litigation in the United States. This case arose after the New York Times printed an advertisement soliciting funds for Martin Luther King, Jr. The advertisement stated that the Alabama police had arrested Dr. King seven times. In fact, he had been arrested four times. According to L.B. Sullivan of Montgomery, Alabama, this was a false defamatory statement of or concerning him because he was the Public Safety Commissioner at the time. An Alabama state court agreed, awarding Sullivan $500,000 in a defamation case against the newspaper.
The concern after this decision was that the press might be reticent to publish newsworthy stories because of the threat of litigation from government officials. It was feared that this could have a chilling effect on the 1st Amendment right to a free press. Because of its importance, the case was accepted by the Supreme Court, and the Alabama court’s decision was overturned. The Times v. Sullivan decision clarified that, “the 1st Amendment protects the publication of all statements, even false ones, about the conduct of public officials except when statements are made with actual malice (with knowledge that they are false or in reckless disregard of their truth or falsity).” This precedent makes it unlikely that public officials will win in a defamation lawsuit against the press unless the press knew the statement was false or showed reckless disregard to the truth or falsity of the statement. Later cases extended this standard not only to public officials, but to matters of public concern, as well. Consequently, individuals will avoid defamation for false statements against public officials or on matters of public concern unless the statements are made by someone who knows the statements are false, or who shows reckless disregard to whether the statements are true or false.
This standard has been tested lately in the public discourse concerning the appointment of a new Supreme Court Justice. Accusations were made against the nominee. Then, accusations were made against his accusers. Then social media exploded with what was, at times, false, defamatory statements of fact against these people—both the nominee and his accusers. The conduct of a Supreme Court Justice is clearly a matter of public concern, which means that someone could only be found liable for defamation if the person who made the statement showed malice. With no corroborating facts, making these types of statements could satisfy the malice standard because of a reckless disregard to truth or falsity.
The most important Coverage B exclusion relating to defamation is Exclusion b. Material Published with Knowledge of Falsity. If the statement is made against a public official or matter of public concern, it will only be defamation if the statement is made with knowledge of falsity or reckless disregard to its truth or falsity, and the CGL Policy will not defend or pay damages if the person making the statement knew it was false. It is only in the window of a statement showing reckless disregard to the truth or falsity where the CGL Policy may get involved to defend or pay damages relating to defamation against a public official or on a matter of public concern.
For statements about private persons that are not matters of public concern, we do not need to see reckless disregard to the truth or falsity. So long as the statement is false, defamatory, of or concerning the plaintiff, and published to a third party, the CGL Policy should respond if the person who made the statement did not know the statement was false.
The CGL Policy also excludes J. Insureds in the Media and Internet Type Business and K. “personal and advertising injury” arising out of an electronic chat room or bulletin board the insured hosts, owns, or over which the insured exercises control. Insureds in the media and internet-type businesses or those who host, own or exercise control over chat rooms or bulletin boards should seek specific policies to address their potential liabilities.
A case can be made that with the seeming anonymity of the internet and the spontaneity of Twitter, Instagram, and other social media platforms that can instantly spark a heated no-holds-barred exchange, we have become dulled to the simple importance of taking time to know the facts and to consider what we say. Defamation litigation still exists. If precision of speech and accuracy in public discourse are to be thrown out the door, individuals may be sued for making false statements, and their CGL Policy may come to the rescue, providing a safety net for holders through its window of specified provisions.
You don't go to the beach without sunscreen, but you have a California business without earthquake insurance?
|Posted on December 2, 2018 at 10:15 PM|
You don’t go to the beach without sunscreen, but you have a California business without earthquake insurance? You pay the parking meter, but you don’t have protection for your lost business income if your business gets shut down because an earthquake wipes out all power and water to your business? There is a chance that you don’t get sun burned and a chance that you don’t get a parking ticket. What are the chances of your business not experiencing an earthquake loss?
The likelihood of a 6.7 earthquake occurring in California during the next 30 years is about…100%.
Estimated Likelihood of an Earthquake to Occur in CA in the Next 30 Years:
Source: Uniform California Earthquake Rupture Forecast
What does a 6.7 earthquake look like?
The magnitude 6.7 Northridge earthquake in 1994 caused over $25 billion in damage, $49 billion in economic losses, and “at least 50% of small businesses were still not open nine months after the disaster.” -CA Senate Insurance Committee: 4/24/14
Damage from a rupture of the San Andreas fault is estimated at $1 trillion. And pressure is building. The 800-mile San Andreas fault divides the Pacific and North American Plates. The Pacific Plate is slipping northwest at a rate of 33 to 37 millimeters per year. The San Andreas fault relieves this tension with a rupture about once every 150 years. The last major quake was the 7.9 magnitude Fort Tejon quake—159 years ago. That quake was so powerful that the soil liquefied, causing trees as far away as Stockton to sink into the ground. The southeast section has been building tension for over 300 years since its last rupture.
A recent study shows that the ground around the fault is buckling. The Los Angeles Basin, Orange County San Diego County and the Bakersfield area are sinking 2 to 3 millimeters per year. Meanwhile, Santa Barbara and San Luis Obispo Counties, and a large portion of San Bernardino County, are rising at the same rate. What has not moved? The San Andreas fault.1
“The springs on the San Andreas system have been wound very, very tight. And the Southern San Andreas fault, in particular looks like it’s locked, loaded and ready to go.”2
-Thomas Jordan, Director of Sothern California Earthquake Center 5/4/16
Even though pressure is building on the San Andreas and there is about a 100% chance of a 6.7 earthquake in California in the next 30 years, only 10% of homeowners have earthquake coverage and only 9.3% of commercial properties have earthquake insurance.
Some businesses may believe that they do not need earthquake insurance because they are not located on the San Andreas fault. There are over 2000 faults throughout California, and the Northridge earthquake was not along the San Andreas fault either. Even without direct physical damage from an earthquake, California businesses should also ask how long they can survive without:
- Water: With old pipes and the main aqueducts that provide Southern California with its water crossing the San Andreas fault a total of 32 times, a major earthquake on the Southern San Andreas would sever 88% of Southern California’s water supply. No water means no sewer too. “The worst hit areas may not have water in the taps for 6 months.” -USGS, The ShakeOut Scenario. 2008.
- Electricity/Communications: Power lines cross the San Andreas fault 141 times. Fiber optic cables cross the fault 90 times. The USGS estimates it will take three to ten days to restore electricity to 75% of businesses “capable of receiving power.” The remaining 25% may wait “one to four months.” -USGS, The ShakeOut Scenario. 2008.
- Transportation: The Northridge earthquake collapsed seven freeway bridges. The Santa Monica Freeway damage was restored in three months. Nearly 200 other bridges were damaged. The USGS estimates that in a large San Andreas earthquake, roads and highways will be impassable initially because of debris, damage to bridges, and lack of power for traffic signals. Rail traffic will also cease for one to two weeks.
Depending on the season of the earthquake, transportation could also be hampered by the existence of wildfires. In its 2008 ShakeOut study, the USGS estimated that there would be 1,600 ignitions of which 1,200 [would] be too large to be controlled by one fire engine company.
These earthquake risks that occur away from a business’s premises are real, but often ignored. Contact an insurance professional committed to protecting your business from the risks you may face--including the risk California businesses are most likely to experience.
• Photos of the Northridge quake: http://www.theatlantic.com/photo/2014/01/the-northridge-earthquake-20-years-ago-today/100664/
|Posted on August 19, 2016 at 1:00 AM|
A Look at Bail Bonds and Bonds to Release Attachments in the CGL Policy
This article originally appeared in the Winter, 2015 issue of Resources Magazine, a publication of The National Alliance for Insurance Education and Research.
Most people do not think of the Commercial General Liability (CGL) Policy as a place to get payment for bonds, but the CGL Policy provides payment for two types of bonds: (1) up to $250 for the cost of bail bonds, and (2) the cost of bonds to release attachments. This coverage is found in the Supplementary Payments section of the CGL Policy.
Bail is a deposit made to a court of law, intended to encourage individuals to show up for their trial. For example, if you are involved in a traffic accident, you may need to go to court to face trial. An effective way to ensure that you show up for trial is to hold you in jail until your trial date. Instead of waiting in jail for your trial, you would probably prefer to pay a bail amount that would allow you to go home and live your normal life until your trial date arrived. Let us say that a judge sets your bail at $10,000. If you write a check to the court for $10,000, you are free to go home. If you appear for your trial, you will get your bail money back. If you do not show up for your trial, you will not get your money back.
If you do not have the money to post bail, you can purchase a bail bond. In California and several other states, the cost of a bail bond is set at 10% of the total amount. This means that if you need to post $10,000 bail, you can go to the corner bail bond shop and pay $1,000—10% of the total bond amount—to purchase a bail bond. The bail bond company will then post the $10,000 bail with the court. The bail bond company will get the $10,000 back when you show up for trial. If you do not show up for trial, bail bond companies are often affiliated with bounty hunters who have the job of hunting you down and delivering you to court so that the bond company can receive its $10,000.
The Supplementary Payments section of the CGL Policy will pay up to $250 for bail bonds “required because of accidents or traffic law violations arising out of the use of any vehicle to which the Bodily Injury Liability Coverage applies” (CG 00 01 04 13, Insurance Services Office, Inc., 2012).
What does a $250 bail bond purchase? In 2014, 19-year old Justin Bieber was arrested after allegedly arguing with police, smelling like alcohol, and trying to race a yellow Lamborghini against a red Ferrari in a residential area of Miami Beach. After an hour in jail, a Miami judge released Bieber with a $2,500 bond. If this bond price was set at 10% of the total bond, then the $250 available from the CGL Policy’s Supplementary Payments section would have been enough to cover the cost of the $2,500 bond needed to release Justin Bieber from jail.
Now that you understand how bonds work and what bond you can purchase for $250, there is still a question of when a CGL Policy would pay for such a bond. The $250 is for “bail bonds required because of accidents or traffic law violations arising out of the use of any vehicle to which the Bodily Injury Liability Coverage applies” CG 00 01 04 13, ISO, 2012, Page 8. Coverage A of the CGL Policy excludes aircraft, autos, or watercraft. When would there be bodily injury relating to a traffic law violation arising out of the use of a vehicle that would not be excluded by the aircraft, auto, or watercraft exclusion?
To answer this, you need to remember the difference between an auto and mobile equipment. Both autos and mobile equipment are considered vehicles. Autos are not covered under the CGL Policy, but liability from mobile equipment is covered. Therefore, going back to the example of Justin Bieber in 2014, imagine that instead of racing a yellow Lamborghini, he was racing a yellow forklift. If there was an accident or traffic law violation triggering coverage, Supplementary Payments could have paid up to $250 for the cost of the $2,500 bond he needed to stay out of jail. [See Footnote 1 below].
In offering payment for the bonds, the insurance policy makes it clear that the insurance company does not need to furnish the bonds. That is, they do not need to pay the $2,500 to the court. The supplementary payment is only for the $250 necessary to purchase the bond from a bond company.
Bonds to Release Attachments
The CGL Policy Supplementary Payments Section also pays for “the cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance” CG 00 01 04 13, Insurance Services Office, Inc., 2012, Page 8. An attachment is a legal process to seize property through the courts. It can be an action to take property to satisfy a debt, or to take back property that was wrongfully taken.
To understand how bonds work with the attachment process, imagine that I accuse you of stealing my baseball card collection. You say that you did not steal my baseball card collection and that the baseball cards in your possession have always been your cards. The legal claim to return wrongfully disposed personal property to the rightful owner is called “replevin.” In order to get back my baseball card collection, I would file a replevin lawsuit against you. I am the plaintiff. You are the defendant.
In the common law tradition, the plaintiff (in this case, me) was entitled to the immediate return of the personal property when the replevin lawsuit was initiated. If the plaintiff won the lawsuit, the plaintiff got to keep the personal property and recover damages for the original wrongful detention of the personal property. If the plaintiff lost the lawsuit, the plaintiff had to return the property. This means that in the common law tradition, I would get the baseball cards back immediately when I filed the lawsuit. If I won the replevin lawsuit, I would get to keep the cards. If I lost the lawsuit, the baseball cards would be returned to you.
In the majority of jurisdictions today, the plaintiff is required to post a security bond when initiating a lawsuit for replevin. The bond is to cover damages (plus interest) suffered by the defendant as a result of being without the property in the event that the plaintiff loses the replevin lawsuit. For example, what if people visit your store because of your baseball card collection? You may lose business as a result of being without your baseball cards. If you win the replevin lawsuit that I file against you, you would be entitled to get your cards back as well as financial damages for any lost business that you suffered as a result of being without your baseball card collection. The plaintiff bond that I, the plaintiff, had to purchase when initiating the lawsuit is designed to cover the financial damages you might suffer while being without your baseball cards.
Imagine that you were really attached to your baseball cards and did not like the idea that you had to turn them over to me just because I called them “mine” and sued you for the cards. Or, imagine that the personal property I claim is mine is something more personal—like your pet dog—or something crucial to your business operations—like all of the coin laundry machines in your coin laundry machine business. You probably are not excited about giving me your pet dog even if I post a plaintiff bond along with my lawsuit. You want to keep your property. To address this issue, the defendant can purchase a defendant bond. The defendant bond enables the defendant to keep the property during the lawsuit. The amount of the defendant bond is designed to pay damages (plus interest) to the plaintiff if the plaintiff wins the lawsuit.
Now you know that an attachment is a legal process to seize property through the courts. You also know how bonds work in the attachment process. What are the “bonds to release an attachment” that are covered by the CGL Policy?
To explain bonds to release attachments, imagine that you own a coin laundry machine business and you owe me $20,000. Your laundry machines are worth $20,000. You make about $10,000 per month from these laundry machines. This is your only income. I go to court to start the attachment process so that I can get your laundry machines and sell them to satisfy the $20,000 debt that you owe me. If I take the laundry machines, you will have no more income.
As we saw with the defendant who wanted to keep the baseball cards (or dog, etc.) in the replevin action, you could get a bond to release the attachment on the laundry machines. The bond to release the attachment would allow you to keep the attached property (the laundry machines). It would cover the $20,000 owed, plus any interest on the $20,000. This would allow you to continue operating your coin laundry business so that you could earn the money to cover your obligation without ever losing the machines.
The Supplementary Payments section of the CGL Policy pays for “the cost of bonds to release attachments.” Therefore, assuming a one-year attachment with an annual interest rate of 10%, the bond necessary to release the $20,000 attachment would be at least $22,000. In a state that charges 10% for such a bond, the cost of the bond would be $2,200. The insurance policy would pay this $2,200 for the bond to release the attachment.
Although the Supplementary Payments section states that “payments will not reduce the limits of insurance,” it will only pay for the cost of bonds to release attachment when the “bond amounts [are] within the applicable limit of insurance” CG 00 01 04 13, Insurance Service Office, Inc., 2012, Page 8. For example, in Graf v. Hospitality Mutual Insurance Company, 754 F.3d 74 (First Circuit, 2014), a court ruled that an insurance company was not required to pay for the cost of an attachment bond after the insurance company had exhausted its limits.
In the above case, Hospitality Mutual Insurance Company issued a Liquor Liability Policy to Torcia and Sons, Inc., owner and operator of the Fat Cat Bar and Grill. Graf, a patron who was injured while on Fat Cat’s premises, secured a judgement in her favor. Hospitality paid $500,000, exhausting the per-person, per-incident policy limit. This was not enough to pay for the entire judgement awarded to the plaintiff. To collect the remaining balance, Graff secured an attachment on Torcia’s liquor license. Just as in the earlier example, the laundry operator wanted to keep the machines necessary to stay in business, Torcia wanted to retain the license in order to keep Fat Cat in business. Torcia wanted a bond to release the attachment on the liquor license and argued that its CGL Policy should pay for it. Hospitality refused because it had already paid the full policy limits, and argued that it did not have to pay because the cost of the attachment bond was not “within the applicable limit of insurance.” The court agreed. The supplementary payment for the cost of bonds to release attachments is paid in addition to any damages paid under coverage A and B. However, since the payment for these bonds has to be “within the applicable limit of insurance,” there will be no payment for the cost of these bonds once a policy’s limits are exhausted.
Keep in mind that the insurer is under no obligation to furnish a bail bond or the bond to release attachments. Even though there is a supplementary provision that indicates that the CGL will provide for payment for the cost of a bail bond and the cost of a bond to release attachments, it is important to understand the terms under which the policy will make these payments.
Footnote 1: Although not mentioned in the published article, a more likely example of the bail bond getting covered by the CGL policy would come from the Aircraft, Auto or Watercraft exclusion’s exception that will cover parking an ‘auto’ on, or on the ways next to, premises owned or rented by the insured (Exclusion G). If an employee totals Bieber’s Lamborghini while the employee is parking a guest’s car on the street in front of the business, there could be coverage for the Lamborghini from the CGL Policy, and there could be a bail bond required because of the accident or traffic law violation. CGL coverage applies and so the required bail bond would be covered by the CGL policy.
The contents of this article come from my book Understanding the CGL Policy. The book is available as an ebook or paperback at https://www.lulu.com/shop/search.ep?keyWords=dwight+kealy&type= or as an audiobook at https://www.audible.com/pd/Understanding-the-Commercial-General-Liability-Policy-Audiobook/B07G5JBS45?source_code=AUDFPWS0223189MWT-BK-ACX0-124130&ref=acx_bty_BK_ACX0_124130_rh_us or wherever you purchase audiobooks.
|Posted on October 7, 2015 at 12:25 AM|
The article below originally appeared in the Fall, 2015 issue of Resources Magazine, a publication of The National Alliance for Insurance Education and Research. The content and illustration come from my book Legal Concepts for Insurance Agent Ethics: How Agents Get Sued and Lose Their Licenses. The book is available as an ebook or paperback at https://www.lulu.com/shop/search.ep?keyWords=dwight+kealy&type=
Not only is it part of human nature to want to share the blame for accidents with others, sometimes it really is—at least partly—someone else’s fault. For example, a brown car runs a red light, hitting a blue car that had a green light. We are inclined to say that the driver of the brown car was at fault for the accident. But what if the red traffic light facing the brown car had only been red for half a second? This means the blue car only had a green light for half a second. How did the blue car rush into the middle of the intersection so quickly to get hit by the brown car? Imagine that the driver of the blue car was intoxicated, speeding, texting, and was going to run a red light, except that the light turned green immediately before the he entered the intersection.
Is the driver of brown car in this situation still at fault for running the red light and hitting the blue car? Absolutely. The brown car ran a red light causing damage to the blue car. But should we consider the actions of the drunk driver who rushed into the intersection putting himself in a position to be hit by the brown car? Should the actions of the blue car’s driver deem the brown car’s driver less negligent, or at least limit the amount that the brown car driver should have to pay as damages? States have answered “yes” to this question in three different ways: contributory negligence statutes, comparative fault statutes, and modified comparative fault statutes.
Negligence is defined as the failure to exercise the degree of care which a reasonable person would exercise in a given set of circumstances. In order to pursue a claim for negligence, a plaintiff—that is, the injured party—needs to show that the defendant owed the plaintiff a duty of care, breached the duty, and that breaching the duty caused the plaintiff damages. The common law tradition of contributory negligence holds that if a plaintiff is in any way at fault in contributing to his own damages, then he is barred from recovery.
Imagine that you have an old two-story house. On the upstairs floor you have a room that you know has a dangerous floor on the right side. You know to walk on the left side of that room because you might fall through the floor if you walk across the right side. If a guest wanders into the room and walks on the right side, falls through the floor, and is injured, it is likely that a court or jury would find that you have breached the duty to act like a reasonable person (in failing to repair the dangerous condition) and that your breach caused the damages. In this example you would be liable for injuries to the guest.
But, what if the person who falls through the floor is a burglar? Imagine that a burglar breaks into your house at night and is sneaking around the upstairs room when he falls through the floor. The burglar is injured and sues you for negligence. How do you feel about being found at fault for the burglar’s injuries? If you think it would be unjust to find you negligent for causing the burglar’s injuries, you might like the principle of contributory negligence. Using that analysis, we see that the burglar contributed to his own injuries by trespassing and committing a felony. Since the burglar contributed to his injury, the burglar would be barred from recovery in a contributory negligence jurisdiction.
Sometimes a complete bar to recovery does not seem as just as it does in the scenario where the burglar is injured. Instead of a burglar, let us use Mother Teresa as an imaginary example. Imagine that while she was still living, she came to visit a quiet city in the United States. She sees a fallen and injured homeless person across the street. She wants to cross the street to help the homeless person. She looks both ways to make sure that there are no cars approaching. It looks safe to cross, so she crosses the street. She does not cross at the crosswalk. (There is a crosswalk at the next intersection.) Meanwhile, Damon—the future defendant—is driving 65 miles per hour in a 35 mile per hour zone, fleeing the scene of a crime, and talking on the phone.
Damon hits and injures Mother Teresa. It is hard to imagine her suing anyone, but perhaps the hospital sues on her behalf to recover the cost of providing her medical care. A jury comes back and finds that Damon is 99% at fault and Mother Teresa is 1% at fault. The jury feels that they have done justice because Damon is really the one at fault. At the same time, they want to acknowledge that Mother Teresa was in the road, and was not using the cross walk. The jury assigned 1% fault to Mother Theresa for contributing to her own injuries. In a contributory negligence jurisdiction, Mother Teresa would be barred from recovery. She (or the hospital) would not prevail in a negligence lawsuit against Damon because she contributed to her own injuries.
You may feel that while contributory negligence provides a fair result in barring the burglar from recovery, it is not fair to bar Mother Teresa from recovery when she was only 1% at fault. In both cases, the plaintiffs contributed to their injuries and would be barred from recovery.
Many states have agreed that the contributory negligence system is too severe, and have moved to either a comparative fault system or a modified comparative fault system. The only remaining contributory negligence jurisdictions in the United States are Alabama, Maryland, North Carolina, Virginia, and Washington D.C.
In a move to soften the harsh bar to recovery of a contributory negligence system, some states have moved to a comparative fault system. In those states, the plaintiff’s recovery is reduced by his own percentage of fault. Let’s look at another car accident. The defendant’s car hits the plaintiff’s car. The defendant’s car has $10,000 in damages, while the plaintiff’s car has $20,000 in damages. The plaintiff sues the defendant for $20,000. The case goes to trial and a jury determines that the defendant and plaintiff were each 50% at fault. In a comparative fault jurisdiction, the plaintiff’s recovery is reduced by his percentage of fault. In this case, the plaintiff was 50% at fault, so instead of getting $20,000, the plaintiff will get $10,000 (50% of $20,000). Similarly, the defendant can collect from the plaintiff. In this case, the defendant suffered $10,000 in damages and the plaintiff was 50% at fault. Thus, in addition to the plaintiff having a right to collect $10,000 from the defendant, the defendant has a right to collect $5,000 from the plaintiff.
What if there were a greater disparity in fault? Using the same damages—defendant $10,000 and plaintiff $20,000—if the defendant was found 60% at fault and the plaintiff 40%, the defendant would owe the plaintiff $12,000 (60% of the plaintiff’s $20,000 damages); and the plaintiff would owe the defendant $4,000 (40% of the defendant’s $10,000 damages).
In a comparative fault state, what would happen to the burglar who fell through the homeowner’s floor? The burglar’s recovery would be reduced by his percentage of fault. If a jury determines that the burglar’s injuries are worth $1 million and that the burglar is 90% at fault, they might be thinking that they gave the defendant a victory. But what they are effectively doing is reducing the burglar’s recovery by 90%; 90% of $1 million is $900,000. The jury did not eliminate the burglar-plaintiff’s recovery—they reduced it by $900,000.
Comparative Fault Recovery Example
Plaintiff’s Injury $ 1,000,000
Plaintiff’s Fault (90%) - 900,000
Plaintiff’s Recovery 100,000
This means that the homeowner (or his insurance company) in the comparative fault jurisdiction would have to pay the burglar $100,000 if the jury determines that the homeowner was 10% at fault.
Another Comparative Fault Example
You are a grocery store owner. There is a spill of spaghetti sauce reported on aisle six. It takes you about five minutes to send a maintenance person to clean it up. Before he can get there, a patron steps in the spill and falls sustaining injuries. The patron sues you for negligence in failing to clean up the spill in a timely fashion.
The case goes to trial and a jury determines that the plaintiff / patron’s damages were $1 million and that the plaintiff was 51% at fault. As we have seen, in a comparative fault state, the plaintiff’s $1 million recovery will be reduced in proportion to his percentage of fault. The plaintiff was 51% at fault; 51% of $1 million is $510,000. This means that the patron is able to recover $490,000 from you, the negligent store owner. Comparative fault is used in some of the most populous states such as California, New York, and Florida.
Modified Comparative Fault
Some states feel that contributory negligence is too harsh in completely barring a plaintiff from recovery when the plaintiff is at any fault, and also feel that comparative fault is too generous to plaintiffs who are mostly at fault. In response, a modified comparative fault system is employed. This system bars a plaintiff from recovery if she is more at fault than the defendant. For example, in Texas, a “…claimant may not recover damages if his percentage of responsibility is greater than 50 percent” (emphasis added) (Texas Civil Practice and Remedies Code, Section 33.001 Proportionate Responsibility).
Using the grocery store example above, let’s consider the outcome in a modified comparative fault jurisdiction. The facts are the same. You and your lawyer await the jury’s decision. At the trial the jury starts by saying that you and the client are each about equally responsible. Your attorney is a little nervous. However, the jury continues by stating, “Even though both parties are about equally responsible, the patron should have seen the spaghetti sauce on the floor, and stepped around it – it is not a clear liquid.” For this reason, the jury finds that the owner is 49% at fault, and the patron is 51% at fault.”
Your attorney smiles. What happened? In Texas, and other modified comparative fault states, the plaintiff is barred from recovery if her percentage of responsibility is greater than 50%. Since the jury said that the plaintiff is 51% at fault, the plaintiff is barred from recovery, and you, the store owner, owe nothing. Although the percentage of fault, and its application, varies by statute, modified comparative fault is used in the majority of states.
|Posted on September 28, 2015 at 2:40 PM|
The commercial general liability (CGL) policy is the standard insurance policy used for construction liability risks. Because of this, a question often arises as to whether or not the policy that’s in force when the work was done will pay for construction defects. To answer the question, we need to look at how different policy forms and jurisdictions handle construction defects.
The CGL policy is sold to contractors in three different forms:
•The Occurrence Form is designed to cover occurrences that take place during the policy period.
•The Manifestation Occurrence Form is designed to cover occurrences that first manifest during the policy period.
•The Claims Made Form is designed to cover claims that are reported during the policy period.
To explain the form differences, imagine that my grandparents go to the same coffee shop every day for 20 years. They like this coffee shop because they use these special blue metallic cups that make your lips tingle when you have your first few sips of coffee. Every year the coffee shop has an annual occurrence form CGL policy with $1 million per occurrence and per aggregate limits. After 20 years, my grandparents learn that it is not necessarily a good idea to drink coffee every day out of a metallic cup that makes your lips tingle. It turns out that the metal is dangerous and my grandparents are now experiencing various lip and throat cancers arising out of their contact with the metal cups for the past 20 years.
The occurrence form policy states that it will pay bodily injury or property damage that occurs during the policy period. When did the bodily injury to my grandparents occur in the example above? I imagine that their attorney will think the bodily injury occurrence took place at least once during each of the past 20 years. The attorney would have 20 million reasons to find that an occurrence took place during each of the past 20 policy periods because if it occurred during a policy period, the policy should pay. The insurance company might have thought that the most they would pay for any one occurrence is $1 million.
It is true that the most they would pay for any one occurrence during any one year is $1 million, but we have 20 annual policies each with $1 million limits. All together, that would be $20 million worth of coverage available for the 20 occurrences that took place over 20 different policy terms.
Unlike the occurrence form policy, the claims made and manifestation occurrence policies would each only pay $1 million in the above situation. The claims made form pays for claims that are made during a policy period. It would only pay $1 million because the claim for damages would only be paid by the one claims made form policy in force when the claim was made.
The manifestation occurrence policy would only pay $1 million because it only covers occurrences that first manifest during a policy period. Sometimes “manifest” is defined as “to become apparent to a common observer.” Sometimes “manifest” is defined as the time when an occurrence is reported to the insurance company. However manifest is defined, it is clear that it can only “first” manifest once. Even if the occurrence occurred over multiple policy years, it could only “first” manifest itself during one policy. The manifest occurrence form in force when the occurrence first manifests would be the only policy obligated to pay for the occurrence.
Construction Defect Coverage
When analyzing the coverage forms for construction defect coverage, we have to ask whether a construction defect is ever, by itself, an occurrence.
The ISO CGL policy defines an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” (CG 00 01 04 13, ISO Properties Inc., 2012, Section V, Paragraph 13). The occurrence, claims made, and manifestation occurrence policies all require “bodily injury” or “property damage” that was caused by an “occurrence.”
A construction defect is a problem with the design or construction of a structure resulting from a failure to design or construct in a reasonable workmanlike manner. For example, if I build a concrete wall without the appropriate rebar and it looks likely that the wall will fall over during the first breeze, we might say that the absence of the rebar is a construction defect. But, before the wind blows and the wall falls down, do we have an occurrence?
States have answered whether a construction defect is an occurrence in three different ways.
1) If the damage was the result of the intentional act of construction, it is not an occurrence.
The first school asks if the damage was the result of an intentional act. If it was the result of an intentional act, it was not an accident. If it was not an accident, it does not meet the definition of an occurrence. This position favors insurance companies and makes it difficult for a policyholder to find coverage for a construction defect because the act of construction is an intentional act. (For example, see Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Co. (Pa. 2006). 908 A.2d 88.
2) If the damage is the unintended result of faulty workmanship, it is an occurrence.
The second school focuses on whether or not the damage was unintended. If it was unintended, it sounds like it was an accident. If it was an accident, then it sounds like an occurrence. This position favors coverage for the policyholders. (For example, see United States Fire Insurance Co. v. J.S.U.B., Inc.(Fla 2007). 979 So. 2d 871).
3) Whether or not there was an occurrence depends on what property is damaged.
The third school holds that if there is damage to a property other than to the contractor’s work, there is an occurrence. If the damage is to the contractor’s own work, there is no occurrence. (For example, see French v. Assurance Co. of America, (4th Cir. 2006) 448 F.3d 693).
You may recognize this from the CGL policy’s exclusions for the insured’s product and work. However, policyholders are usually not required to prove the absence of exclusions. They only need to prove the occurrence. The insurance company then has the duty to defend, pay, or prove any applicable exclusions. This school inappropriately forces the policyholder to prove not only that an occurrence took place, but that it was not excluded.
I offer information on all three schools because of the fluid nature of construction defect litigation. States can change from one school of thought to another with the passing of a law or new court decision.
If a jurisdiction follows the first school, the construction defect will probably not be an occurrence because construction is an intentional act, intentional acts are not accidents, and therefore are not occurrences.
If a jurisdiction follows the second school, the construction defect probably will be an occurrence because the damage was unintended and if it was unintended, it can be an occurrence.
If a jurisdiction follows the third school, the construction defect will only be an occurrence if the damage is to property other than the property worked on by the policyholder.
Latent Defects and the Manifestation Occurrence Policy
When analyzing coverage for construction defects under a manifestation occurrence policy, we need to dig deeper into the definition of a construction defect.
A construction defect can be either a patent defect or a latent defect. A patent defect is one that is readily discoverable or “apparent by a reasonable inspection” (CA Code of Civil Procedures § 337.1e). A latent defect is one that is not readily discoverable or apparent by a reasonable inspection.
The manifestation occurrence form is designed to cover only “bodily injury” or “property damage” that first manifests and appears during the policy period. Since a latent defect is one that, by definition, is not readily discoverable or “apparent by a reasonable inspection,” the manifestation occurrence form would not provide coverage for latent defect occurrences even in a jurisdiction that views construction defects as occurrences. The only construction defects for which the manifestation occurrence policy would provide coverage would be for patent defects because only patent defects would have the ability to manifest and appear during the policy period.
Even if a policyholder is able to prove that the construction defect was an occurrence triggering coverage, the insurance company will have the opportunity to prove that coverage should be denied because of an applicable exclusion. The most common exclusions cited for construction defects are the CGL policy’s exclusions for:
•J) that particular part of real property on which you or your subcontractor was performing operations;
•K) your product; and
•L) your work.
These exclusions suggest that what the CGL policy is intending to cover is not a contractor’s defective product or work, but the damage resulting from a contractor’s defective work. Repairing defective materials or poor workmanship is a commercial risk not passed on to a liability insurer (F&H Construction v. ITT Hartford Ins. Co. (2004) 188 Cal.App.4th 364, 372).
|Posted on June 29, 2015 at 2:40 PM|
To get on a job, contractors often have to show proof of insurance and name the individuals hiring them as additional insureds on the contractors’ commercial general liability (CGL) policies. By doing this, the individuals hiring the contractors hope that the additional insured endorsement will defend them in case they get sued for something relating to the contractor’s work. Whether or not this is true depends on the additional insured endorsement.
Additional Insured Endorsement CG 20 10–11/85 and beyond
The most common additional insured endorsement for contractors is the CG 20 10.
The CG 20 10 changed significantly after the November 1985 edition. In the November 1985 edition – called the CG 20 10 11 85 – the entity being added as an additional insured was only an insured “with respect to liability arising out of ‘your work.'” The “your work” refers to the work of the named insured – that is, the contractor. “Your work” includes the contractor’s ongoing operations and completed operations.
After 1985, the entity being added as an additional insured using the CG 20 10 was only an insured “with respect to liability … caused … by your ongoing operations.” “Ongoing operations” does not include completed operations. Therefore, the change from “your work” in the CG 20 10 11 85 to “ongoing operations” in later versions effectively removed completed operations coverage for the additional insured.
Sample Ongoing Operations Occurrence
To understand the effect of this change, imagine a property owner hiring a contractor to build a brick wall. While building the wall, the contractor drops a load of bricks on top of a line of cars. This causes property damage arising out of the contractor’s ongoing operations. The car owners sue the property owner.
If the property owner was named as an additional insured on the contractor’s CGL policy using CG 20 10 11 85, the property owner should be covered. This is because the CG 20 10 11 85 provides coverage for liability arising out of “your [the named insured/contractor’s] work,” and “your work” includes both the named insured’s ongoing and completed operations. If the property owner was named as an additional insured using the CG 20 10 after 1985, the property owner would also be covered as an additional insured on the contractor’s policy because the CG 20 10 after 1985 provides coverage for ongoing operations, and this was an ongoing operations exposure.
Sample Completed Operations Occurrence
Two months after the contractor finishes the wall, the wall falls on a line of cars. This is property damage out of the contractor’s completed operations. Once again, the car owners sue the property owner.
If the property owner was named as an additional insured using the CG 20 10 11 85, the property owner would have coverage for the completed operations exposure as “your work.” If the property owner was named as an additional insured using the CG 20 10 with an edition date after 1985, the property owner would not have coverage for the completed operations exposure under the contractor’s CGL policy. The CG 20 10 after 1985 does not provide coverage to the additional insured for completed operations. It only provides coverage for ongoing operations, and this was a completed operations exposure.
Additional Insured Endorsement CG 20 37: Completed Operations
To address the CG 20 10’s gap in completed operations coverage after 1985, the Insurance Service Office (ISO) created CG 20 37 Additional Insured – Owners, Lessees or Contractors – Completed Operations. As the name implies, this endorsement provides coverage to the additional insured for completed operations. It does not provide coverage for ongoing operations.
Using our wall example, if the contractor named the property owner as an additional insured using CG 20 37 (Completed Operations), there would be no coverage for the sample ongoing operations occurrence. There would only be coverage for completed operations exposures. The CG 20 37 is not necessary if a business is able to get the CG 20 10 11 85 because the CG 20 10 11 85 provides coverage for “your work,” and “your work” includes both the ongoing operations of the current CG 20 10 and the completed operations of the current CG 20 37.
Blanket Additional Insured Endorsements
“Blanket” – also called “automatic” – additional insured endorsements are endorsements that the insurance company provides to automatically add as additional insureds, those individuals or entities 1) for whom the named insured is performing operations, and 2) with whom the named insured has agreed in writing to name as an additional insured. A positive feature of the blanket endorsement is insurance agencies can often send out these endorsements without requesting permission from the insurance carriers. This often makes the blanket endorsements quicker to process. A negative feature is the written contract requirement.
Blanket Additional Insured Endorsement CG 20 33 Additional Insured–Owners, Lessees or Contractors–Automatic Status When Required in Construction Agreement with You
The blanket additional insured that most resembles the CG 20 10 is the CG 20 33. A significant difference between the CG 20 10 and CG 20 33, is CG 20 33’s requirement that there must be a written contract or agreement between the additional insured and the named insured. As a way to explain the significance of the written contract requirement, imagine a custom home building project. For this project there is an owner, a general contractor and 15 subcontractors.
General Contractor signs a written contract to build a house for owner. The contract requires the general contractor to have a CGL policy that names the owner as an additional insured. The contract also requires all subcontractors to have a CGL policy that names the owner as an additional insured.
The general contractor hires 15 subcontractors to help with the project. The general contractor and each subcontractor sign a written contract. The contract requires each subcontractor to name general contractor and owner as additional insureds on the subcontractors’ CGL policies. Each subcontractor sends the owner an endorsement showing the owner is an additional insureds on the subcontractors’ CGL policies using blanket CG 20 33.
The problem with this scenario is that there is no written contract between the owner and the subcontractors. The CG 20 33 requires a written contract between the named insured and the additional insured.
Imagine that there is a massive claim at the job site and the owner is sued. The claim involves the work of the 15 subcontractors. The owner thinks he or she is an additional insured with direct rights to the 15 subcontractor CGL policies. What the owner really has are 15 pieces of paper from 15 subcontractors saying owner is named as an additional insured using CG 20 33. The CG 20 33 required a written contract between the additional insured and the named insured. There was no written contract between the owner and subcontractors.
One way to avoid the owner’s situation would have been for the owner to be named as an additional insured using CG 20 10. The CG 20 10 does not require a written contract between the named insured and additional insured. A second solution would have been for the owner to enter a written contract with each subcontractor. A third option would have been for the owner to be named on the subcontractors’ policies using CG 20 38.
Blanket Additional Insured Endorsement CG 20 38 Additional Insured–Owners, Lessees or Contractors–AUTOMATIC STATUS FOR OTHER PARTIES WHEN REQUIRED IN WRITTEN CONSTRUCTION AGREEMENT
The primary distinction between the CG 20 33 and the CG 20 38 is that the CG 20 38 provides coverage for upstream parties. Upstream parties are the entities or individuals above the level where an entity is contracting. Whereas the CG 20 33 only provides additional insured status where there is a direct written contract, the CG 20 38 extends coverage to “any other person or organization you are required to add as an additional insured under the contract or agreement.”
Using our custom home example, the subcontractors signed a contract with the general contractor saying they would name the general contractor and owner as additional insureds, but the subcontractors did not sign a contract with the owner. There was no coverage for the owner under the subcontractors’ policies when they used the CG 20 33 because the CG 20 33 requires a written contract between the named insured and the additional insured. If the subcontractors used the CG 20 38, the owner would have additional insured status because the owner is a “person or organization [the named insured is] required” to add as an additional insured under the contract with the general contractor.
If someone is told that they just need to be named as an additional insured to protect themselves in a construction project, they may need more information. Does the person want to be an additional insured for ongoing or completed operations? Do they have a written contract agreement? Do they want coverage from subcontractors? A careful review of additional insured endorsements is essential to protect those looking for coverage as additional insureds.
|Posted on May 30, 2015 at 12:05 AM|
Note: This article originally appeared in the September 8, 2014 issue of the Insurance Journal.
The commercial general liability (CGL) occurrence form policy is like a row of briefcases each filled with $1 million.
Inscribed on the front of each briefcase is a year representing a specific annual policy period. Each briefcase has a combination lock. If you have the right combination, you can open the briefcase and take as much money as you need to pay damages covered by that year’s policy.
The above describes a row of CGL insurance policies that each have $1 million occurrence limits and $1 million aggregate limits. The occurrence limit is the most the policy will pay for any one occurrence. The aggregate limit is the total amount the policy will pay, regardless of the number of occurrences. If you have an occurrence that is covered by the policy, you have the right combination to access the policy’s $1 million limits. Once the aggregate limit is paid, the briefcase is empty.
The Right Combination
What is the right combination? Coverage A of the CGL policy is designed to cover bodily injury or property damage caused by an occurrence during the policy period. If there is an occurrence during a policy period for which the insurance applies that is not excluded by the policy, you have the right combination to open the brief case.
Which policy will pay depends on when the occurrence happens. If your client receives a lawsuit this year that says they caused covered occurrences in each of the last four years, you would have the correct combination to go to the four prior policy/briefcases. This means that your insured has access to a total of $4 million because they are going to open four different briefcases that each has a maximum of $1 million. Their current policy would not pay unless the occurrence also took place during the current policy period. This is true even though they received the lawsuit (claim) this year. The correct combination is based on when the occurrence took place; not when the claim is made.
The Prior Work Exclusion
Many CGL policies for contractors contain a prior work exclusion. The prior work exclusion changes the combination on the briefcases so that there is no coverage for any occurrences arising out of work the contractor completed prior to the policy period. If a 2014 policy had a prior work exclusion, it is saying that it will not cover any occurrences arising out of work done prior to 2014. This is true even if the occurrence takes place during 2014. The exclusion creates a wall between the 2014 and 2013 briefcases.
Speaking of walls, imagine that you are a mason, and in 2013, you built a wall. In 2014, the wall fell on a person causing bodily injury. You get sued. You go to the 2014 briefcase, enter the combination, and you get a letter back apologizing that you do not have the correct combination. There is no coverage because, although there was an occurrence during the 2014 policy period, the policy/briefcase contains a prior work exclusion. This exclusion excludes any work that you did prior to the 2014 policy. You built the wall in 2013 and so there is no coverage from the 2014 CGL policy with the prior work exclusion even though the occurrence happened in 2014.
You then try to open the 2013 policy/briefcase. Once again you get a letter back apologizing that you do not have the correct combination. The 2013 letter is shorter. It just says that they only pay occurrences that occur during the 2013 policy period and your occurrence took place in 2014.
If a 2014 policy has a prior work exclusion, there is no coverage for occurrences that take place during 2014 that arise out of work that the insured did prior to 2014. The 2014 policy will deny coverage because, even though the occurrence took place during 2014, the policy excludes occurrences arising out of prior work. Previous policies will deny coverage because the 2014 occurrence did not take place during their policy periods and they only pay for occurrences during their policy periods. If you are considering a policy with a prior work exclusion for your insured, evaluate the insured’s risk of being sued for any work that they have ever done in the past.
The Sunset Provision
Whereas the prior work exclusion is designed to eliminate exposures from the past, the sunset provision is designed to reduce exposures in the future. Imagine that you are the insurance company that owns that row of briefcases, each filled with $1 million. That is your money. Over the years, maybe you have had to pay some money out of the briefcases for covered occurrences, but hopefully there is still some money in those briefcases. At some point, you would like to put some of that money in your own pocket. You risked money. Now you are looking for your reward.
But what if someone sues today for an occurrence that took place four years ago, or 10 years ago? If a policyholder has the right combination to open the briefcase from four or 10 years ago, you need to make sure the money is available for the policyholder. Does the insurance company need to keep the money available in the briefcases forever?
The sunset provision changes the briefcase/policy combination so that there is no coverage available if the policyholder does not report a claim within a certain amount of time.
A two year sunset will say that there is no coverage unless the policyholder reports a claim within two years of the end of the policy period. A three year sunset requires reporting the claim to the insurance company within three years, and so on. After the designated period of time in the sunset provision has passed, the sun has set on the policyholder’s opportunity to file a claim against the policy.
Imagine that the 2012 policy/briefcase has a two-year sunset provision and you are an electrician. You were working on a project in 2012 when a pedestrian was injured on the jobsite. The pedestrian eventually sues the project’s owner, developer, and general contractor. More time passes and then you get added as a defendant in the lawsuit. The 2012 briefcase holds the money to pay damages for 2012 occurrences. If you notify your 2012 policy within the two year sunset provision (2013, 2014), you have the right combination to open the policy/briefcase.
When you celebrate the arrival of 2015, two years will have passed since the end of your 2012 policy. The sun has set on your policy. Not only has the combination been changed on the briefcase, the insurance company owner walked into that room, picked up the 2012 briefcase, and walked out with it. If you are the insurance company, it’s a Happy New Year. You finally get to enjoy whatever money is left in the 2012 briefcase. If you are the policyholder, the sun has set on your opportunity to file a claim against the 2012 policy.
Depending on your state and its applicable statutes of limitation, the sunset provision may not be as scary as it sounds. This is because a statute of limitation is essentially a sunset provision imposed by law. Just like the CGL sunset provision required notice of a claim within a certain amount of time, statutes of limitation require people to file their lawsuits within a certain amount of time.
For example, California might say that if you want to sue the contractor who installed the irrigation system on your new house, you need to sue the contractor within one year after the close of escrow. (Cal. Civil Code § 896 (g)(7)). If you decide to sue this contractor after the statute of limitation has passed, you will be barred from recovery.
Statutes of limitation vary by state and the type of work performed. If your client always does work that has a statute of limitation shorter than policy’s sunset provision, they may not have a problem with the sunset provision. Just remember that there is no coverage for claims made after the sunset period ends.
If you are considering a CGL policy with a sunset provision for an insured, you should evaluate their risk of being sued after the sunset period ends.
|Posted on December 10, 2013 at 7:10 PM|
Dear Contractors: The wall you just built may not be covered by your insurance the way you think it is. This is because although the commercial general liability (CGL) policy may cover bodily injury or property damage to others resulting from your product or work, the policy specifically excludes damage to your property, product or work.
It is important for agents working with contractors to understand that the products and completed operations limit does not change what is covered under the policy. This limit is simply the bucket of money available to pay for occurrences arising out of the contractor’s products and completed operations. The CGL policy pays for certain damages caused by an occurrence that occur during the policy period. Coverage comes from the policy in force when the occurrence takes place; not necessarily from the policy in force when the work was done.
If the contractor’s property, product and work are excluded, what does the CGL policy cover for contractors?
Broadly speaking, the CGL policy is designed to cover bodily injury, property damage, or personal and advertising injury to others. If a contractor builds a wall and it falls on someone else’s car that would be property damage to others. Similarly, if the wall falls and injures a stranger walking down the street, that would be bodily injury to others. Both of these should be covered under the CGL policy. However, if the wall simply falls and the only damage is to the wall itself, then there is no property damage or bodily injury to others. The CGL policy specifically excludes: “J) that particular part of real property on which you or your subcontractor was performing operations, K) your product, and L) your work.”
What the CGL policy is intending to cover is not the defective product or work, but the damage resulting from the defective work. Courts call this damage “resulting damage.” Courts have held that the CGL policy coverage applies only to resulting damage caused by the defective work of the insured. Coverage does not apply to the cost incurred to repair and replace the contractor’s defective work. The risk of replacing or repairing defective materials or poor workmanship has been considered a commercial risk that is not passed onto a liability insurer. F&H Construction v. ITT Hartford Ins.Co. (2004) 188 Cal.App.4th 364, 372.
Imagine that a particularly bad painter is hired to paint all of the walls in a hotel. All of the walls need to be repainted at a cost of $100,000. The painter also regularly spilled paint, causing $100,000 in damage to the carpets. The hotel feels like it is owed $200,000 for its damages and files a claim against the painter’s CGL policy. Assuming that the contractor was not intentionally painting the carpet, there should be coverage for the $100,000 in damage to the carpets because this damage resulted from the contractor’s work on the walls. However, the $100,000 in damage to the walls will be excluded as the contractor’s product, work, or that particular part of property on which the contractor was performing operations.
Occurrence and Aggregate Limit for Products and Completed Operations
Some contractors (and insurance professionals) will argue that there must be coverage for the contractor’s product and completed operations because the policy has a specific occurrence and aggregate limit for products and completed operations. Limits show how much money is available to pay certain kinds of occurrences. These limits are subject to the policy’s insuring agreement and exclusions. Limits do not change the provisions on who, or what, is insured or excluded in the policy.
Too often I hear people in the contractors’ insurance industry talk about how the CGL policy will cover contractors for 10 years or that the CGL policy they are selling is a 10-year statute of limitations policy. To this, I suggest the following:
If an insurance agent tells you that you are covered in the future with your current occurrence policy, ask for this in writing along with a copy of the agent’s own professional liability insurance policy, because the agent’s professional liability policy may be the only policy that will provide you with future coverage.
The above statement is intended to make insurance agents feel uncomfortable and think about how they are presenting policies to their clients. Does the CGL policy say that it covers occurrences 10 years in the future? Of course not. Does the CGL policy say that it will cover contractors for any work that they do during the policy period up until the applicable state’s statute of limitations? No.
The CGL policy states that it will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” that is caused by an occurrence that occurs during the policy period.
If there is an occurrence during this policy year that arises out of work that the contractor has completed, then this year’s CGL policy will pay out of the products and completed operations limit. This is true even if the work was completed prior to this year’s policy period. Coverage is triggered and paid out of the products and completed operations limit if there was an occurrence that occurs during the policy period arising out of products or completed operations.
Imagine that a contractor has an occurrence policy for the year 2014. If there is an occurrence after 2014 arising out of work that the contractor completed in 2014, the first question that the 2014 insurance company will ask is whether the occurrence took place during 2014. The insurer is not asking when the contractor did the work. The insurance company is asking when the occurrence that caused the bodily injury or property damage took place. If there is no occurrence during the policy period in which the work was completed, then the policy in place when the work was completed has no duty to pay or defend.
The CGL policy provides coverage for bodily injury or property damage to others resulting from the contractor’s completed operations. It even has a designated limit for these kinds of occurrences. The contractor – and insurance professionals – just need to understand that 1) the limit does not remove the exclusions for the insured’s product or work, and 2) the limit does not change that the policy responds to occurrences that occur during a policy period; not work that takes place during a policy period.