Tag Archives: insurance policies

PROPERTY LOSS AND BUSINESS INTERRUPTION CHECKLIST FOR COMMERCIAL INSUREDS

Blogger:  Lee M. Epstein

 

Beyond the personal toll extracted by Hurricanes Harvey and Irma, the property and business losses are projected to be among the greatest caused by a natural disaster. As the recovery efforts continue in earnest, the following Checklist is offered to assist those who have suffered a loss and are planning to submit an insurance claim for any property loss and business interruption suffered.

□    Restore service to any property protection systems that have been damaged, such as
     sprinklers and alarms

       □    If property protection cannot be restored, post a watch

□    Notify all insurance companies whose policies may be implicated

       □   Consider whether notice should be given to excess insurance companies or to
           insurance companies whose policies have expired

□    Prepare a preliminary report describing:

      □    The type of loss

      □    The date and time of the loss

      □    The location of the loss

      □    A contact person at the company

      □    The property involved, including: buildings, equipment and stock

□    Determine if:

      □    The property is protected from further damage

      □    Any buildings require temporary enclosures

      □    Any utility lines have been damaged and require repairs

□    Identify and separate damaged and undamaged property

□    Commence salvage operations

□    Determine whether:

      □    Production can be restored at the damaged facilities

      □    Damaged equipment can be repaired

      □    Substitute facilities and equipment are available and necessary

      □    Lost production can be made up through inventory, overtime, or other
           suppliers

□    Formulate a plan with the insurance company’s input for making repairs, 
     securing substitute facilities and equipment and undertaking other loss
     mitigation efforts

□    Set up accounting procedures to track:

      □    Property Damage

            □    Create separate accounts for all loss-related expenses

            □    Implement procedures for collecting and maintaining all loss-related
                 documentation  in accordance with insurance policy terms, including
                 invoices, contracts and manpower hours

            □    Inventory damaged and undamaged goods

      □    Business Interruption

            □    Determine the “period of interruption”

            □    Determine the quantity of lost production as reflected in inventory 
                 records, production records and sales records. Compute what the business
                 would have normally produced, had there been no loss, then see how many                    
                 units were actually produced.  The difference is the gross lost production.
                
            □    Deduct any sales or production that can be continued or made up through
                 the use of existing inventory, the utilization of other plants, the utilization
                 of overtime hours or other loss mitigation efforts.  The difference is the
                 net lost production.

            □    Multiply the net lost production by the marginal value of a single
                 production unit.

            □    Add back the extra costs associated with replenishing inventory and loss
                 mitigation efforts.

□    Prepare and submit claim

      □    Summarize

            □    Date, location and type of loss

            □    Amount claimed

      □    Break down the amount claimed

            □    Property damage

                  □    Real property

                  □    Equipment

                  □    Stock and supplies

                  □    Demolition and debris removal

      □    Business Interruption

            □    Interruption Period

            □    Sales value of lost production

            □    Expenses incurred to reduce the loss

□    Attach supporting documentation for each element of the property damage and
     business interruption

□    Press for written extensions of time to submit claim and to file suit if necessary

□    Seek prompt payment of claim by insurance company

□    If a dispute over a claim arises, determine

      □    Whether appraisal is appropriate or beneficial

      □    Whether litigation will expedite payment of claim

 

For more information, please contact Lee M. Epstein, Weisbrod Matteis & Copley PLLC

START SPREADIN’ THE NEWS…NEW YORK’S HIGHEST COURT SAYS PRO RATA ALLOCATION IS LEAVING TODAY

new_york_1

Guest Blogger: John G. Koch, Weisbrod Matteis & Copley PLLC

In a much anticipated decision, New York’s highest court handed policyholders a significant victory in In re Viking Pump, Inc. & Warren Pumps, LLC, Insurance Appeals, No. 59 (N.Y. May 3, 2016).  In the context of long-tail bodily injuries or property damage spanning multiple policy periods, the Court declared that policy language is the King of New York and trumps all else when determining whether the “all sums” or “pro rata” allocation approach applies to a liability insurer’s indemnity obligation.  Specifically, the Court held that the “all sums” approach applies to an insurer’s indemnity obligation where the policy contains language inconsistent with a pro rata approach. In this case, the Court reasoned that a “non-cumulation” or “anti-stacking” clause is inconsistent with allocating an insurer’s liability on a pro rata basis.  Although Viking Pump dealt only with the duty to indemnify, its ruling applies to the broader duty to defend and bolsters existing case law recognizing that the duty to defend language in most general liability policies cannot be reconciled with a pro rata allocation approach.

To put the Viking Pump decision in context, insurers usually prefer a pro rata approach, meaning they can only be liable for their share of a loss based on the time period their policies were in force compared to the overall period that the long term injury or property damage occurred.  This rests on the legal fiction that a single indivisible loss taking place over many years can be treated as one occurrence in each successive policy period, which is an expedient method for dividing the indivisible loss among multiple successive policies based upon each policy’s time on the risk, as opposed to the extent of actual injury or damage that took place during any specific period.  Id.  As the Court stated, the foundation of this approach is that no insurer will have to pay for any injury or damage that occurs outside of its policy period.  Viking Pump, slip op. at 11-12.

Insurers usually prefer the pro rata approach because their risk is typically reduced and the risk of lost policies, insurer insolvencies or other gaps in coverage may fall upon the policyholder.  In contrast, under the “all sums” approach, each successive insurance policy triggered by a long term injury or damage is, essentially, jointly and severally liable for the entire loss up until the policy’s limits are exhausted.  Under this approach, the insured may target one or many insurers for the entire loss, leaving it to the insurers to seek contribution from one another.

Prior to Viking Pump, insurers often brandished Consolidated Edison Co. of New York v. Allstate Insurance Co., 98 N.Y.2d 208 (2002), to assert that New York is a “pro rata” state.  But in Viking Pump, the Court of Appeals distinguished and limited the reach of Consolidated Edison by pointing out that it never formed a blanket rule for pro rata allocation and that the policies in Consolidated Edison did not contain non-cumulation or similar clauses.  Viking Pump, slip op. at 11-12.

The Viking Pump Court held that non-cumulation clauses are antithetical to the concept of a pro rata allocation.  Non-cumulation clauses essentially provide that where a single loss triggers successive policies, any amount paid by a prior policy will reduce the limits of the policy containing the non-cumulation clause.  The original purpose of the clause was to prevent policyholders from double dipping when the industry made the switch from accident based policies to occurrence based policies.  Non-cumulation clauses are inconsistent with a pro rata allocation because they “plainly contemplate that multiple successive insurance policies can indemnify the insured for the same loss or occurrence,” whereas the entire premise underlying pro rata allocation is that an insurer cannot be liable for the same loss to the extent the loss occurs in another insurer’s policy period – hence the legal fiction that a separate occurrence takes place in each successive policy period.  Id. at 18 (emphasis added).  The two provisions are logically inconsistent.  Thus, adopting the pro rata approach would render the non-cumulation clause superfluous in violation of New York’s principles of policy interpretation. For this reason, the Court determined that the “all sums” approach applies to policies containing a non-cumulation clause.

In addition to the pro rata versus all sums allocation issue, the Court determined that the proper method for allocating between primary and excess layers of insurance under the “all sums” method is vertical exhaustion – meaning that a single primary policy may be required to respond to the long term loss up to its policy limits, at which time the excess coverage above that policy is pierced on an all sums basis.  The Court rejected the argument that horizontal exhaustion should apply, where all primary coverage would have to be exhausted before any excess coverage must respond to a loss, noting that the excess coverage was tied to the exhaustion of only the underlying policy, not prior or subsequent policies.  Thus, the Court ruled that vertical exhaustion is the appropriate method.

Although Viking Pump specifically addressed the effect of non-cumulation clauses, it undoubtedly stands for the propositions that: (1) no blanket rule controls how an  insurer’s indemnity obligation must be allocated, and (2), where language or a clause in an insurance policy is inconsistent with the pro rata approach, pro rata allocation does not apply.

The latter point is especially important when considering the issue of whether the duty to defend is subject to pro rata allocation.  Most general liability policies provide that the insurer has a duty to defend “any suit” in which at least one potentially covered claim is alleged.  New York courts have interpreted this language as requiring the defense of the entire lawsuit so long as at least one claim is at least in part potentially covered.  A pro rata allocation is inconsistent with the language obligating insurers to “defend” “any suit” if at least one potentially covered claim is alleged.  Thus, the reasoning in Viking Pump suggests that the “all sums” approach is the appropriate method respecting the duty to defend and is consistent with the duty to defend language found in most liability policies.

To learn more, contact John G. Koch

Weisbrod Matteis & Copley Uncovers Massive Fraud In the Adjustment Of Superstorm Sandy Claims

I, and several colleagues, recently had the good fortune of joining the law firm of Weisbrod Matteis & Copley (“WMC”) and opening its first office based outside of Washington, D.C. in Philadelphia, PA. In addition to representing corporate policyholders in maximizing insurance recoveries, WMC is one of the leading firms in the country representing individuals who have been left high and dry by their insurers after a major disaster, such as Hurricane Katrina or Superstorm Sandy, strikes.

For nearly ten years, the firm has represented the whistleblowers who first discovered fraudulent engineering reports after Hurricane Katrina. It remains the only firm in history to prove to a jury that a FEMA-contracted insurer committed fraud in adjusting Hurricane Katrina claims.

WMC is now bringing that experience to bear for the benefit of home and business owners who continue to suffer so greatly in the aftermath of Superstorm Sandy. The firm represents nearly 1300 Sandy victims who are seeking a fair adjustment of their flood insurance claims by FEMA. Unfortunately, that adjustment process is rife with fraud.

On the positive side, both congress and the media are taking note. Recently, WMC partner, August Matteis, appeared on a television news segment along with Congressman Tom MacArthur to discuss the fraud. You can view that segment by clicking here. Most recently, Matthew Krauss, another WMC attorney, appeared on Maggie Glynn’s radio show to further explain how Sandy victims are being underpaid. That interview can be heard by clicking here.

Victims of natural disasters have suffered enough. If nothing else, FEMA owes them an honest adjustment of their insurance claims.

 

For more information, please contact Lee M. Epstein.

It’s Your Funeral: Failure to Produce Insurance Policies in Funeral Scam Case Results in Court Imposed Sanctions

its your funeral
PNC Bank was recently sanctioned by a federal court for failing to produce insurance policies in a case involving an alleged “Ponzi” scheme.  See Jo Ann Howard and Associates PC et al. v. J. Douglas Cassity et al., Case No. 4:09-cv-01252 (E.D. Mo., July 22, 2015). The “Ponzi” scheme was run by executives of National Prearranged Services (“NPS”) who pocketed proceeds from funeral services contracts rather than safeguarding them with a trust or an insurance policy. PNC was linked to scheme as the successor in interest to NPS trustee, Allegiant Bank and Trust Co., and found liable for $390 million in compensatory and punitive damages.

In resisting disclosure of its insurance policies, PNC argued that its insurers had not acknowledged coverage and, even if they had, any available insurance had already been exhausted by prior claims. In rejecting those contentions, the court relied on Federal Rule of Civil Procedure 26(a(1)(A)(iv), which requires disclosure of any insurance policy which “may” cover the claims at issue.

In addition to ordering the immediate disclosure of any applicable insurance policies, the court also agreed that an award of sanctions was warranted. To that end, the court allowed the plaintiffs to submit for the court’s consideration a specific amount of attorneys fees to be awarded as sanction.

Finally, and perhaps most problematic for PNC, the court also agreed to review any communications that PNC had with its insurers for possible disclosure to the plaintiffs. The plaintiffs argue that those communications could reveal inconsistent positions taken by PNC.

This case underscores two equally important points. First, insurance policies that may cover a claim at issue are often subject to disclosure and discovery, but are frequently overlooked. Second, failure to timely disclose and produce such insurance polices may lead to the imposition of sanctions.

Questions? Let me know.

Insuring Success: The Transfer of Insurance Assets in Corporate Mergers and Acquisitions

Corporate America is in a constant state of flux. Mergers, acquisitions and spin-offs continue unabated. As a consequence, virtually every major insurance coverage case involves an examination of the corporate policyholder’s history and its rights to insurance for liabilities caused by predecessors and after-acquired entities.

While great care is devoted to documenting and perfecting these sophisticated corporate transactions, all too often, not enough attention is paid to the transfer of insurance assets.  For example, to the extent that insurance assets are addressed, transferring documents often deal only with the disposition of currently in force insurance policies and are silent with respect historic insurance policies.  As we now know, however, long tail liabilities arising out of asbestos, environmental and other exposures often trigger coverage under insurance policies dating back decades.

Equally troublesome is the virtually universal inclusion of so-called “anti-assignment” clauses in insurance policies that purport to require the insurer’s consent before rights under an insurance policy are transferred.  A typical “anti-assignment” clause provides as follows: “Assignment of the interest under this policy shall not bind the company until its consent is endorsed thereon.”  Insurers argue that these clauses are designed to prevent policyholders from saddling insurers with risks they never anticipated nor underwrote.

Courts throughout the country have been grappling with these and other issues.  Although holdings vary from jurisdiction to jurisdiction, some general legal principles have emerged:

  • After a merger, the insurance assets of the predecessor entity typically transfer, along with any liabilities, to the successor entity.
  • The transfer of insurance assets pursuant to other corporate transactions, such as asset purchase agreements, is largely dependent on the wording of the agreement.
  • “Anti-assignment” clauses typically do not bar the transfer of insurance assets and rights after a merger or for losses that occur before the transfer.
  • A successor entity is generally not entitled to insurance coverage under its own insurance policies for liabilities of after-acquired subsidiaries that are based on events that occurred prior to the transfer.

All of this suggests that great care should be devoted to the treatment of insurance assets in any corporate transaction.

Questions? Contact Lee Epstein at Weisbrod Matteis & Copley PLLC.

New York High Court Refuses to Enforce Policy Provision That Would Nullify Coverage

Property insurance policies typically include a clause limiting the time (one to two years) after a loss within which the insured may sue the insurer. Generally, those clauses are enforced by the courts, and lawsuits commenced by insureds after the limitations period expires are dismissed. New York’s highest court, however, recently refused to enforce a contractual statute of limitations where the insured was unable to commence suit before the two-year limitation period expired. See Executive Plaza, LLC v. Pierless Insurance Company, (Feb. 13, 2014).

In addition to the two-year limitation period, the insurance policy in Executive Plaza also contained a clause that allowed for the recovery of “replacement cost,” but only after the damaged property is actually repaired or replaced. A fire destroyed the insured’s building, and it could not be reasonably replaced within two years. The insurer denied coverage based on the two-year limitation period.

Although New York courts had previously enforced even shorter limitations periods, the Executive Plaza Court refused to enforce the two-year limitations period because the insured was not able to commence suit before the limitations period expired. “A ‘limitation period’ that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim.”

This case serves as an important reminder that insurance policies (and, indeed, all contracts) must be interpreted and applied in a reasonable manner. Insurance policy provisions, even if clear and unambiguous, should not be enforced if it will render coverage valueless.

Questions? Contact Lee Epstein at Weisbrod Matteis & Copley PLLC.

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