Some of the biggest pitfalls for policyholders lie camouflaged among seemingly “standard” policy conditions—often overlooked during the procurement or renewal process. This is especially true of allocation clauses, found most commonly in Directors & Officers (D&O), Errors & Omissions (E&O), and Professional Liability (PL) policies. In our policyholder-side coverage practice, we are seeing insurers relying on these clauses more and more as an excuse to pay only a small fraction of the defense in mixed-claim cases, i.e., suits involving both clearly covered claims and claims that the insurer contends are not covered. We urge policyholders and brokers to review such clauses carefully and seek to modify them as necessary to ensure the complete defense to which the policyholder is entitled under the law.
With few exceptions, an application or warranty statement is an essential document to secure insurance coverage, and can actually possess great power to determine or limit coverage. Insurers may seek renewal applications or updated warranty statements, even when a policy is merely a renewal. While the application process may seem almost ceremonial, failure to engage fully in the application and warranty process can lead to unnecessary coverage disputes, or even the loss of coverage.
By statute, California law holds that willful misconduct—where an insured intends to cause someone harm—is not insurable as a matter of public policy. For years, insurance companies have sought to expand this prohibition to exclude coverage where anyone acts deliberately, regardless of the intent of the insured, or the insured’s intent to cause harm.
Volcanoes, hurricanes, and polar vortexes—oh, my! From the ongoing eruption of the Kilauea volcano in Hawaii, to huge winter storms, massive mudslides, and the unfortunately reliable hurricane season, it seems like natural disasters have been near constant over the past year. In addition to the catastrophic toll these events take on people and communities, the toll on a business can be high. Understanding the full range and implications of your company’s risks, and putting the right coverage in place to protect against those risks, is vital. When a natural disaster strikes, having appropriate levels of property damage, business interruption and contingent business interruption insurance can be three keys to stability.
Remember the “good” ol’ days when the run-of-the-mill theft involved someone physically taking something tangible? That is so 20th century. Now, thieves and fraudsters are able to use computers and the internet to carry out much more complex schemes. The insurance industry has attempted to keep up with the technological evolution in the coverage it provides, but insurers have also used unclear policy language and the complexity and individualized nature of today’s fraudulent schemes to avoid covering the resulting losses. A slew of courts over the past few years have decided whether crime policies—particularly those with a computer fraud coverage component—cover complex, technology-related fraudulent schemes. The Eleventh Circuit recently joined the fray and ruled that computer fraud coverage did not apply to a policyholder’s $11 million loss.
Developers need to keep an open mind to protect themselves against construction defect claims. Insurance is a vital tool, but it should not be the only one in a developer’s risk management toolbox.
Another useful tool—the ability to disclaim all liability for future construction defect claims when the property is sold to a third party and converted to condominiums—was recently upheld in South Carolina. In Long Grove at Seaside Farms, LLC et al. v Long Grove Property Owners’ Association Inc. et al., the South Carolina Supreme Court dismissed a previously accepted writ of certiorari as improvidently granted, thereby upholding the decisions of the trial and appellate courts dismissing defective construction claims brought by a condominium association against the original developer of an apartment complex.
Insurance agreement language that precludes coverage in CGL policies for “expected or intended” injuries has been analyzed in nearly every jurisdiction, and courts have consistently held that bodily injury or property damage is excluded only if the insurer can demonstrate resulting damage was expected or intended by the insured. In Certain Underwriters at Lloyd’s, London v. Connex Railroad LLC, an insurer-friendly variation of these provisions was called into question in possibly the worst texting and driving scenario imaginable. Still, a California Court of Appeal applying New York law refused to bar coverage.
Recently the Eleventh Circuit spent a lot of ink discussing how the marketing and sale of sashimi-grade tuna is affected when myoglobin reacts with oxygen to produce oxymyoglobin, and with carbon monoxide to form carboxymyoglobin before oxidizing into metmyoglobin—or, in other words, how quickly raw tuna meat turns from bright red (good) to brown (not so good). In the end, the court held, it doesn’t really matter—at least as to insurance coverage for advertising injury—unless the insurance company is given proper notice. And not just notice of a claim, but notice of the specific claim for which coverage is requested.
It is axiomatic that in order to obtain insurance coverage a policyholder must first establish that a claim falls within a policy’s insuring agreement before coverage under the policy is triggered. For construction claims brought under CGL policies, that frequently means showing that the damages at issue constitute “property damage” caused by an “occurrence” (where “occurrence” is generally defined as “an accident”). While this requirement may often seem like a simple factual question, in the context of a subcontractor’s faulty workmanship, the analysis has proven more difficult. Where alleged faulty work causes damage only to the insured’s own work product, is the property damage accidental?
Artificial Intelligence (AI) is a hot topic in industries from manufacturing to the medical profession. Developments in the last ten years have delivered AI technology, once a fiction reserved for the movies, to private corporations and even to everyday homes. Examples include:
- 2004 Defense Advanced Research Projects Agency (DARPA) sponsors a driverless car grand challenge. Technology developed by the participants eventually allows Google to develop a driverless automobile and modify existing transportation laws.
- 2005 Honda’s ASIMO humanoid robot can walk as fast as a human, delivering trays to customers in a restaurant setting. The same technology is now used in military robots.
- 2011 IBM’s Watson wins Jeopardy against top human champions. It is training to provide medical advice to doctors. It can master any domain of knowledge.
- 2012 Google releases its Knowledge Graph, a semantic search knowledge base, likely to be the first step toward true artificial intelligence.
- 2013 BRAIN initiative aimed at reverse engineering the human brain receives $3 billion in funding by the White House, following an earlier billion euro European initiative to accomplish the same.
- 2014 Chatbot convinced 33% of the judges it was human and by doing so passed a restricted version of a Turing Test.