Pennsylvania Superior Court Finds Coverage Under CGL Policy For Product Defect Claims.

Policyholders seeking defense costs for products liability claims received welcome support from a Pennsylvania appellate court which rejected an excessively restrictive view of the scope of coverage offered under commercial general liability (CGL) policies. The court in Indalex, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa., reversed, or at least slowed, what appeared to be a trend in that state toward expanding the notion that product defect claims amounted to complaints of "faulty workmanship" that lacked the "fortuity" contemplated under an occurrence-based CGL policy. In deciding that the manufacturing and design defect claims at issue in Indalex-constituted an "occurrence" and thus were covered, the opinion reaffirms one of the basic purposes of purchasing a standard CGL policy, namely, to protect against third-party personal injury and property damage claims purportedly arising from the manufacturer's product. It also underscores the breadth of an insurer's duty to defend and instructs on the proper analysis a court should apply in determining whether that duty exists. A court must consider all claims asserted against the policyholder and may not focus on what it deems to be the "gist" of the action, as the duty to defend is triggered so long as one claim falls within the scope of coverage.

The coverage dispute in Indalex arose out of products liability litigation against door and window manufacturer Indalex, in which the plaintiffs claimed they suffered mold related health issues and property damage from water leaking through Indalex's purportedly defective doors and windows. When Indalex's primary policies were exhausted, National Union Fire Insurance Co. of Pittsburgh, Pa., which issued a commercial umbrella policy to Indalex, refused to defend, claiming that there had not been an "occurrence" which triggered coverage. The lower court agreed, relying upon a line of Pennsylvania cases holding that claims brought for faulty workmanship "do not present the degree of fortuity contemplated" by the definition of an "occurrence" in a general liability policy.

On appeal, the Superior Court of Pennsylvania reversed, holding that the underlying complaint did not limit its claims based solely on faulty workmanship but included claims alleging damage to property other than the insured's own product, and thus covered under the CGL policy. The court also noted that the policy's definition of "occurrence" contained subjective language, as "occurrence" was defined as "including continuous or repeated exposure to conditions which results in bodily injury or property damage, neither expected nor intended from the standpoint of the insured." Arguably, Indalex did not expect the mold related health problems purportedly suffered by its customers.

In reaching its conclusion, the appellate court distinguished the line of cases relied upon by the trial court. Two of those cases, according to the Superior Court, involved contract and warranty claims against the insured for property damage to the insured's product due to faulty workmanship. By contrast, the claims asserted against Indalex were not confined to physical damage to the insured's own product but involved "off the shelf" products that had failed, causing personal injuries and property damage to someone other than the policyholder.

The Indalex court also concluded that the trial court did not apply the proper analysis in deciding whether National Union had a duty to defend. By applying the "gist of the action" doctrine, under which a court may disregard asserted tort claims if it determines that the gist of the complaint is based on a contractual dispute, the trial court ignored legally viable tort claims pled against Indalex. Noting that the Pennsylvania Supreme Court had never applied the "gist of the action" doctrine in the insurance context, the-Indalexcourt concluded that its application in determining an insurer's duty to defend was inappropriate.An insurer has a duty to defend the entire suit when any claim asserted against the policyholder is potentially covered and thus a court must consider all claims in determining whether that duty exists. The gist of the action doctrine, the appellate court concluded, is therefore "inconsistent with the duty to defend."

Indalex should, correctly, put the brakes on a trend in Pennsylvania toward limiting the scope of commercial liability insurance in products defect cases. As a majority of courts have held, third-party personal injury and property damage purportedly caused by design or manufacturing defects in the insured's product constitute an "occurrence" and thus may be covered under a CGL policy. Those claims should not be shoehorned into the faulty workmanship exclusion. The opinion also serves as a reminder that, when analyzing an insurer's duty to defend, a court may not disregard tort-based claims in suits against the insured. Because the duty is triggered if there is even a possibility of coverage, as determined by the language of the complaint against the policyholder, a careful analysis of all of the underlying claims is required.

New York's Worst Law - The Scaffold Law!

The 129 year old Scaffold Law, unique to New York, has made the state the most expensive state in which to build a project - from a house, to a school or hospital, to the World Trade Center or a new Tappen Zee Bridge.

This law makes the contractor AND the property owner absolutely liable for any gravity related injury on a construction job site, regardless of fault.

In the case of large public projects, the added insurance and settlement costs can run into hundreds of millions of dollars. Thus hundreds of projects don't get built each year which costs the state tens of thousands of construction jobs with good benefits.

Even if the construction company has provided all of the safety training and equipment that the law requires and the injury was caused by employee negligence, the contractor and property owner still bear 100 percent of the cost.

The law as written treats good, responsible contractors and owners - who provide safety equipment and training - the same as it does the bad actors who don't.

Finally, many insurance companies are no longer willing to write policies for construction projects in New York

Foreclosure Relief for Homeowners!

Effective January 10th, the Federal Government implemented new rules to ensure that borrower's don't get stuck with mortgages they can't afford - and the nation doesn't fall into another housing crisis.

The new rules create a special category of qualified loans that have even higher standards. With these types of mortgages, a borrower's debt to income ratio has to be less then 43% and the loan can't have risky features like negative amortization and interest-only payments.

Points and fees will be limited - no more then 3% for a loan of more than $100,000.

There are also welcome changes for distressed homeowners.

Mortgage servicers will now have to call you by the time you are 36 days late on your payments and with limited exceptions, servicers cannot initiate a foreclosure until you are more then 120 days delinquent.

Finally, if you're having trouble making payments, your loan servicer will have to work harder to help find a solution.

What if Santa had to buy Insurance?

Not only that, but what kind of insurance would he need, and for that matter would he even qualify?

Right off the bat, Santa’s house and workshop are located in a protection class 10. In general terms, this means there would be no responding fire department in the event of a fire at his dwelling or workshop.

While Santa would need property-insurance protection, he would find himself limited to high-risk property markets that may struggle to establish an accurate value for his home and business property. He also doesn’t need a personal-auto policy as his only vehicle – his sleigh – is for business use (this is, however, a commercial-auto exposure, which I will address later).

What’s left? Maybe life insurance? I’m pretty sure Santa would have a tough time finding coverage based simply on his age and, not to be rude, he would also be a few pounds over the maximum acceptable weight.

Sounds like he’s going to face some barriers when it comes to personal insurance, but maybe we could help him out with his business insurance. We already know the property policy is going to be a tough one to write for the workshop, but what about general liability? Santa is a toy manufacturer and that’s not an easy class of business to write. His products are used by children, distributed worldwide, and failure of or injuries from his product could be subject to multiple jurisdictional lawsuits. 

I’m afraid that, with the type of product he is producing and his worldwide distribution, this would also be a tough policy for him to procure.

Santa may also have a need for errors and omissions or professional-liability insurance. He claims he knows when you are sleeping and knows when you’re awake. He also claims to know if you’ve been bad or good…so be good for goodness sake! 

What would happen if Santa arrived when you were awake or, even worse, you had been good but yet your gift was delivered in error to another party currently on the naughty list? Without proper professional-liability protection and the Ebenezer Scrooge of attorneys, Santa might find himself in some serious litigation without the proper cost of defense being provided. 

Now you may be thinking, “Who would take Santa to court?”

But may I remind you that this would not be his first time! You may recall he appeared in court to face some identity-theft claims that arose while he was working for a department store on 34^th street. The charges were later dismissed, but there were still defense costs associated.

Now let’s explore that business-auto policy. We have some big problems here! First, Santa uses a custom vehicle mainly for delivery purposes and while it’s only used one day of the year, his delivery radius is huge, he travels many miles, and let’s not forget about those icy conditions. 

Santa also has some potential loss and MVR issues. The claimant’s grandson insists that Santa was involved in a hit and run when his grandma got run over by a reindeer while returning home on Christmas Eve. Santa also had a theft claim when it was reported the Grinch attempted to steal Christmas. Then there’s the problem of trying to put a value on his vehicle. All in all, I think a commercial-auto policy is out of the question.

Now what he might want to consider is an aviation policy, although he’ll need to go to a specialty market for that. Maybe we could do something to help with his eight reindeer, although I doubt there are any livestock mortality tables for flying reindeer. Perhaps we could try to offer him some kind of equipment breakdown coverage? No, that won’t work – all manufacturing is done by hand not by machine.

This leads me to another tough policy – workers’ compensation.  Oh my, where do I begin? Santa’s workforce uses older manual tools and would be subject to repetitive motion and other injuries. We also have a potential issue as his entire workforce has a height challenge. Hopefully he is in compliance for that but I’m not familiar with what OSHA or ADA requirements exist in the North Pole. 

Santa may need to consider an employer’s protection liability policy. Santa has an aging workforce and, let’s face it, with a diet of mostly candy they could have a lot of potential health issues, so I’m pretty sure workers' comp and group health are going to be tough to get. 

I guess Santa could look to a disability policy for himself, but treading across icy roof tops and sliding down into confined spaces, I’m sure, will make even the most warm-hearted underwriter still issue a decline notice.

Well one thing is clear: being Santa’s insurance agent or company would be a difficult task. I guess Christmas is not meant to be underwritten but to be enjoyed in the company of our loved ones. So parents, assure your kids that Santa will be passing through yet another successful year without incident, albeit self-insured, and, in his words, a Merry Christmas to all and to all a good night.

Employees expect health care premiums to rise because of ACA

Employees understand they that will bear part of the added costs of health care plan improvements mandated by the health care reform law in the form of higher premiums, according to a survey released Tuesday.

Just over half — 54% — of employees working for large employers expect the premiums they have to pay for coverage will increase in the next 12 months, the National Business Group on Health survey found.

Employees understand “there is no free lunch. You can't add to benefit packages without costs going up,” NBGH President and CEO Helen Darling said Tuesday at a briefing in Washington.

The Patient Protection and Affordable Care Act has forced nearly all employers to upgrade their health care plans to meet new requirements. For example, plans have to extend coverage to employees' adult children up to age 26, while annual and lifetime dollar limits were eliminated.

Still, while employees, as well as their employers, face higher costs because of benefit upgrades required by the health care reform law, few employees are worried that their employers will terminate plan coverage.

Just 10% of employees believe their employers will terminate coverage in the next three to five years.

While only a minority — 40% — of employees say they are familiar with the ACA, more employees are aware of specific provisions of the law.

For example, 69% of respondents said they are at least somewhat familiar with the requirement that individuals, starting in 2014, must either enroll in a health care plan or pay a fine.

How will Obamacare affect YOU!

October 1st is a significant day in US Healthcare history, the first true step in the implementation of the Affordable Health Care Act.

October 1st is the first day that Uninsured Americans may purchase health insurance from health care exchanges. The coverage begins January 1st, 2014 - the enrollment period lasts through March 31st.

What are the effects on employees and businesses?

* Effective January 1st, 2014, most people, with exceptions, will be required to have health insurance or pay a penalty if they don't. The penalty starts at $95 or 1% of your annual income - whichever is higher - and is phased in over time to $695 or 2.5% of income by 2016.

* If you as an individual have job based insurance.......If you like it, you can keep it. You're considered covered. If you don't like the plan, you may be able to change to marketplace coverage by exploring the options and enrolling in a new plan. But be careful, most people with job provided insurance will not qualify for subsidies for coverage through the exchange.

* If you are a full time employee.......The law requires most employers to provide affordable minimum essential health insurance coverage to full time employees or face financial penalties (beginning in 2015). Full time is defined as at least 30 hours per week.

* What employers are affected?........The provisions mandating coverage apply to 'large' employers with 50 or more FULL-time employees. Employers failing to comply, can face penalties (again, beginning in 2015).

Small businesses, with fewer than 50 full time employees, do not have to provide coverage to their employees nor are they subject to financial penalty. Businesses with fewer then 25 full time employees who pay on average less than $50,000 a year may be eligible for the Small Business Health Care Tax Credit if they contribute at least 50% toward employee premium costs.

* If you are a part time employee.......If you do not have job-based coverage, you may be able to buy health insurance in the marketplace exchange and possibly obtain a subsidy based on income to lower the costs. You may also qualify for low-cost coverage or free coverage through Medicaid.

* If you are on Medicare......... You need do nothing. Medicare isn't part of the Health Insurance Marketplace. If you have Medicare, you are already covered and the exchange won't affect your Medicare choices, nor will your benefits change.

*Young People............If a parents plan covers children, they can be added or kept on the health insurance plan until they turn 26 years of age.

* Pre-existing conditions.......No-one can be turned away or charged a higher premium for coverage if they have a pre-existing condition.

Hope this helps!

Cyber: The Risk That Keeps Managers Awake At Night

Email and social media have quickly become the most common way to communicate. Electronic data is growing at an exponential pace. So it should come as no surprise that cyberrisk is fast becoming the largest risk management challenge faced by executives at companies big and small. The cost of a data breach, regardless of its cause, can be incredibly expensive and time consuming. While reported costs vary, costs per breach have been reported as high as $10 million. (NetDiligence Cyber Risk Claims Study, 2013)

Given the high cost per incident, management awareness of cyberrisk is at an all-time high, according to the 2012 Cost of Cyber Crime Study by The Ponemon Institute, a well-respected cyber research firm. The report found that most risk managers view cyber insurance to be a key piece of their strategy for mitigating their company’s cyber exposures. While only about a third of companies in the study currently have a policy, nearly 40 percent say they now plan to purchase one in the next year. So there still is much education and awareness to come.

The Ponemon study results were validated by independent reports from Advisen and Zurich Insurance Group, as well as Verizon. Viewed together, several significant trends are clear: 

Million Dollar Security Data Breaches
The average financial impact to companies per incident was $9.4 million. Most incidents involved the loss of confidential business information. (The Ponemon Institute: Managing Cyber Security as a Business Risk: Cyber Insurance in the Digital Age)

Evolving Risk
Mobile devices and cloud computing pose an increasingly significant risk. Nearly three-quarters of the risk managers polled said they now have a mobile device security policy. Aggregation of data into large databases also poses an increasing hazard. (Advisen and Zurich: A New Era in Information Security and Cyber Liability Risk Management, October 2011)

Improving Insurance Options
Cyberrisk insurance coverage is a critical part of a risk manager’s toolkit today. Over the past decade, insurance carriers have become more sophisticated and comprehensive in their product offerings. (The Ponemon Institute: Managing Cyber Security as a Business Risk: Cyber Insurance in the Digital Age)
Cyber Incidents Increasing
Data breaches continue to grow. The number of compromised records across the reported incidents “skyrocketed back up to 174 million after reaching an all-time low in the [2011] report of four million.” (Verizon: 2012 Data Breach Investigations Report

More Than an IT Issue

Cyberrisk now ranks among the most important insurable risks, along with natural disasters, fires and other catastrophic events. More than three-quarters of respondents characterized cyberrisk as greater than or equal to losses from a natural disaster, business interruption, fires, etc. (The Ponemon Institute: Managing Cyber Security as a Business Risk: Cyber Insurance in the Digital Age.) 

In many states, a cyberrisk event will trigger regulatory requirements requiring a business to notify affected customers within 72 hours of the breach, as well as find, fix and protect the data from another attack. Credit monitoring is often required to be offered to the customers affected, among other possible remedies. The costs, on average, Ponemon reports, were $188 per record during 2012. Cyber insurance policies will cover the financial costs of the event, up to the limits of the policy. But almost all policies give the company access to a sophisticated response team employing forensics techniques that will meet the regulatory requirements.

Rapid response is critical for mitigating the financial and reputational impact of a cyber event. Bailey points out that if customer records are stolen during an attack, the costs can escalate even faster depending upon the number of records and the industry affected. Even a small company can face a multimillion dollar loss. Having an incident response plan in place is one of the most important things a company can do. Not only will it help engage customers, media and other stakeholders in a proactive way, but also it can prove extremely beneficial in helping to mitigate any damages resulting from a cyberrisk event.

There are generally two types of coverage available under a cyber liability policy:

• Third Party Coverage: This coverage would include security and privacy liability coverage, including coverage for regulatory proceedings and legal defense costs. An important option, especially depending upon your industry, is internet media liability coverage.

• First Party Coverage: This coverage would include the costs of a forensic investigation as well as legal, public relations and notification expenses ‒ including credit monitoring for affected individuals. Reputational costs, usually difficult to identify and assess, are mitigated by these kinds of services. It will also include coverage for loss of business income, and includes the cost of replacing digital assets. It can also include coverage of cyber extortion threats and reward payments.

NetDiligence, in its annual discussion of cyberrisk trends, reported in their 2013 Cyber Claims Study that the average claim now runs about $3.5 million. Claims, the analysis noted, range from a low of $13,000 to a high of $10.5 million.

Costly claims may account for the fact that, according to the Ponemon study, satisfaction with the policies remains high among those who have purchased them. In addition, nearly two-thirds of the respondents also said the coverage is an important part of their risk management strategy and that the mere purchase of coverage “made the company better able to deal with security threats.”