The Law

Legal Spotlight

The latest decisions impacting the industry, including an insurer’s duty to defend and a coverage dispute following an equipment explosion.
By: | April 8, 2015 • 5 min read
You Be the Judge

Insurer Has Duty to Defend Marker Maker

On April 25, 2012, Too Market Products Inc. filed suit against Creation Supply Inc. in U.S. District Court in Oregon.

04012015_legal_spotlight_markersToo Market Products sells colored markers in a square body and end-cap.

In its lawsuit, Too Market alleged trademark infringement, violation of trade dress (the image or appearance of the product), and unfair competition against Creation Supply, when it imported and sold a competing line of markers in a similar shape. Too Market sought a permanent nationwide injunction against the sale of Creation Supply’s markers.

Creation Supply sought a defense from Selective Insurance Co. of the Southeast, which had issued it a business owners’ policy on Aug. 19, 2011. The policy excluded personal and advertising injury “arising out of infringement of copyright, patent, trademark, trade secret or other intellectual property rights.”

The exclusion related to the “use of another’s advertising idea in your ‘advertisement.’ ” But it did not apply to infringement “in your ‘advertisement,’ of copyright, trade dress or slogan.”

The U.S. District Court ruled Selective had a duty to defend, while denying allegations of breach of contract and bad faith. The insurer appealed the case to the Appellate Court of Illinois, First Judicial District. A Feb. 9 ruling upheld the lower court decision.


The appeals court ruled that retail store displays of that type of marker, in which the “shape and design of the marker is prominently displayed” constituted an advertisement under the policy.

Scorecard: Selective must defend Creation Supply in a trademark infringement case.

Takeaway: While the court ruled the in-store display was an advertisement, the opinion warned that its conclusion “does not mean that all retail product displays constitute advertising activity … .”

Claims Following Explosion Are Denied

On Dec. 7, 2009, a large pressure chamber used to grow synthetic quartz crystal exploded, throwing a four-ton fragment hundreds of feet. Other flying debris killed a man walking to his truck one-quarter mile away.

04012015_legal_spotlight_crystalThe owners of the pressure chamber, NDK America and NDK Crystal Inc. knew there were some concerns with its pressure chambers, which displayed some signs of cracking and future cracking when the contents were under pressure of 29,000 pounds per square inch.

Two years earlier, when NDK was in litigation with EPSI, the designer and manufacturer of the pressure chamber, EPSI and one of NDK’s experts warned against continued operation of the pressure chambers without performing inspections. As part of that litigation, NDK alleged that the pressure chambers, known as autoclaves, were “were defectively or negligently manufactured and showed signs of cracking and leaking.”

That case settled a few months prior to the 2009 explosion. After the explosion, Nipponkoa Insurance Co., Ltd., which had issued an “all risk” property insurance policy to NDK, filed suit, seeking a declaratory judgment that the policy did not cover the insured’s property or business interruption losses because it had been warned about the possibility of an explosion but continued to use the autoclaves anyway.

Thus, it argued, the explosion was not “fortuitous,” and that the autoclaves were not damaged by the explosion because they were valueless.

NDK argued that defects and cracking were not the cause of the explosion, and that its insurer acted with bad faith and breached its insurance contract.

The U.S. District Court for the Northern District of Illinois ruled that the explosion, while possible, was not inevitable and thus was a “fortuitous” event. However, the court also ruled that the autoclaves were “inherently dangerous and defective,” and that NDK provided no evidence that the machinery had any “actual cash value” other than as scrap metal.


In fact, it noted that the company argued in the earlier litigation against EPSI that the autoclaves were “unreasonably dangerous and defective … and were in need of replacement.”

The court also ruled that business interruption losses were not covered because the expected profits submitted by NDK were “an ‘expected’ or target goal, and not an actual projection of profits.”

Scorecard: Nipponkoa did not have to pay nearly $10 million for the autoclaves or for any business interruption losses.

Takeaway: As long as the explosion was merely a risk, even if a heightened risk, it was an insurable event.

Claims-Made Reporting Requirement Upheld

On Dec. 23, 2009, attorney Thomas Aul was notified by clients Melissa and Kenneth Anderson that they were “dissatisfied” with the legal representation he offered in the Andersons’ purchase of a commercial property in Delafield, Wis.

04012015_legal_spotlight_ComBldgIn a letter to Aul, the Anderson’s new attorney informed Aul that the terms of the transaction were “unfair and unreasonable,” that Aul had a conflict of interest in the matter, and that the transaction violated “the rules of attorney professional responsibility.” It sought payment of $117,125.

Although Aul had a claims-made-and-reported policy with Wisconsin Lawyers Mutual Insurance Co. (WILMIC) at that time, he did not report the claim until March 2011, nearly a year after the policy expired on April 1, 2010.

In March 2012, the Andersons filed suit against Aul and several real estate and investment companies owned by Aul, alleging breach of fiduciary duty, legal malpractice (negligence), breach of contract and misrepresentation contrary to Wisconsin state law.

In addition to compensatory damages, the lawsuit also sought punitive damages for “malicious” conduct and “intentional disregard of [their] rights.”

In May 2012, WILMIC intervened in the lawsuit, and defended Aul under a reservation of rights. It sought and received a summary judgment, declaring that the policy did not provide coverage for the claim.

An appeals court reversed that decision, determining that Wisconsin’s “notice-prejudice statutes” superseded the policy’s notice requirement. The notice-prejudice statutes state that an insured’s failure to furnish timely notice of a claim will not bar coverage unless timely notice was “reasonably possible” and the insurer was “prejudiced” by the delay.

A four-judge panel on the Supreme Court of Wisconsin reversed the case again, ruling that the policy’s requirements should be upheld.

“We conclude that the legislature did not intend to .. make the strict reporting requirement underlying claims-made-and-reported policies unenforceable in this state,” the panel ruled on Feb. 25.


Scorecard: The insurance company was not required to indemnify its insured following claims of legal malpractice, breach of fiduciary duty and other allegations.

Takeaway: A ruling upholding the claim would have converted all claims-made-and-reported policies into pure claims-made policies or occurrence policies.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at
Share this article:

Cyber Risks

Risk Managers Struggle With Cyber Security

Ten percent of respondents to AM Best have a cyber security policy.
By: | April 8, 2015 • 2 min read

Cyber attacks have become an almost daily event affecting all sizes and types of businesses — and many businesses still struggle with information security deficiencies and common security weaknesses that can elevate their risk for data breaches.

In its “2014 State of Risk Report,” which surveyed 476 information technology and security professionals located in more than 50 countries, Trustwave found that one of five (21 percent) businesses do not have data breach incident-response procedures in place and about the same amount (20 percent) do not have a process that enables reporting of security incidents.

It also found that more than three in five (63 percent) businesses do not have sophisticated methods to control and track sensitive data and that less than half (49 percent) fully encrypt stored sensitive data.


“Businesses must look at security as an imperative,” said Michael Aminzade, vice president of global compliance and risk services at Trustwave, in Reston, Va.

“Understanding their risk level is the first step. By identifying their largest security shortfalls and rectifying them, businesses can stay ahead of the criminals and decrease their risk of getting breached.”

As for the insurance industry, A.M. Best identified cyber security as one of the most serious emerging risks facing insurers in its report titled “Cyber Security Presents Challenging Landscape for Insurers and Insureds.”

“These discussions will get increasingly more robust in 2015 as the insurance industry continues to ‘peel the onion’ on this evolving issue,” said Fred Eslami, a senior financial analyst at A.M. Best in Washington, D.C.

He added that it involves not only identifying general underwriting processes, the number of policies, types of coverage, policy forms, and limits and exclusions, but also how insurers manage and mitigate the many cyber risks and the ever-increasing threats of cyber-attacks on their own companies.

A.M. Best found that just 10 percent of respondents said they had a dedicated cyber security policy, while another 10 percent said they bundled such coverage with errors and omissions, property/business interruption and general liability policies.

Nearly three in 20 (13 percent) respondents admitted that their companies had been targets of data breaches or cyber attacks.

Tom Starner is a freelance business writer and editor. He can be reached at
Share this article:

Sponsored: Berkshire Hathaway Specialty Insurance

Healthcare: The Hardest Job in Risk Management

Do you have the support needed to successfully navigate healthcare challenges?
By: | April 1, 2015 • 4 min read

BrandedContent_BHSIThe Affordable Care Act.

Large-scale consolidation.

Radically changing cost and reimbursement models.

Rapidly evolving service delivery approaches.

It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.

After all, this is more than just a business.

The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.

But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.

“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.

Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.

The Foundation: Financial Strength

BrandedContent_BHSIBerkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.

For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.

But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.

For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.

“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.

Keeping Things Simple

BrandedContent_BHSIHealthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.

Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.

“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.

Claims: More Than an After Thought

Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.

In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.

And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.

“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”

Responding To Ebola: Creativity + Flexibility

BrandedContent_BHSIThe recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.

Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.

BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.

These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.

At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance, Berkshire Hathaway Specialty Insurance

Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.

“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.

It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.

To learn more about BHSI Healthcare, please visit

Berkshire Hathaway Specialty Insurance ( provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.



This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

Berkshire Hathaway Specialty Insurance ( provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance.
Share this article: