Unhealthy Air Caused Physical Damage
On four nights in July and August, 2013, the Oregon Shakespeare Festival Association cancelled performances at its open-air theater in Ashland. Nearby wildfires impacted air quality and dusted theater surfaces with soot.
The insurance company denied the claim, saying there was no physical damage to the property. Therefore, it said, the policy’s business income provisions were not activated.
On June 7, the U.S. District Court for the District of Oregon disagreed.
It rejected the insurer’s argument that damage was not physical, stating that “while air may often be invisible to the naked eye, surely the fact that air has physical properties cannot reasonably be disputed.”
It also rejected the insurance company’s argument that the claim was excluded because the cancellations were voluntary. The court noted the air quality ratings on those days were “unhealthy,” and that a “period of restoration” was needed for repairs, citing the time spent by theater employees changing air filters and cleaning soot and ash from theater surfaces.
Exclusions for smog or pollutants were rejected as well. There was no evidence “any fog or haze … could have combined [with smoke] to create ‘smog,’ ” the court ruled, and the pollutant exclusion did not apply because it related to restoration due to “enforcement of or compliance with any ordinance or law.”
Scorecard: The court ordered the lawsuit to be tried before a jury to determine the amount of damages.
Takeaway: Damage does not always have to be structural or physical if it renders a property unusable.
Title Insurer May Be on Hook for $2.05 Million Claim
In 2005 and 2006, Johnson Bank purchased two title insurance policies from First American Title Insurance Co. in the total amount of $2.05 million for two parcels for which it loaned money to the property owners. The property owners defaulted on their loan to the bank when it was discovered the land could not be developed commercially.
In 2010, the bank purchased the land at a trustee’s sale for $102,000, and a year later, filed a claim against First American because the title insurer had not revealed the commercial development restrictions.
At dispute was the date on which the damage claim should be based — with the value being $2.05 million or $102,000.
Johnson Bank argued it should be the day the title insurance was issued. The insurer said the damages should be based on the value of the properties when they were foreclosed, arguing that a loss is not incurred until the date of the foreclosure (at which point the real estate market had significantly declined).
The policy language was ambiguous as to when the date of loss should be calculated.
A lower court in Arizona ruled in favor of the insurance company. An appeals court reversed that, deciding that because First American “failed to discover and timely disclose” the restrictions on commercial development, the policy was breached when the loans were made.
On appeal, the Supreme Court of the State of Arizona upheld the latter decision on June 13, although it returned the case to a lower court for further proceedings.
“The insurer has complete control of the title defects against which it insures; it is in the best position to avoid such risks and prevent resulting loss by conducting thorough and accurate title searches,” the court ruled.
Scorecard: The title insurance company may be required to pay $2.05 million to the bank.
Takeaway: Allowing the title insurer to use the foreclosure date would allow it to profit from its defective title in a depreciated real estate market.
Insurer Fails to Win New Trial
On March 13, 2010, brothers Amaury and Amed Villa cut a hole in the roof of an Eli Lilly and Co. warehouse and storage facility in Enfield. Conn. They deactivated the security system and stole more than 40 pallets of pharmaceuticals, valued at about $60 million.
As subrogee, National Union later filed a negligence suit against Tyco Integrated Security, formerly known as ADT Security Services. Tyco provided the security for the warehouse. National Union accused it of failing to warn Eli Lilly of the security system’s failures.
It also failed to tell Eli Lilly about additional thefts, according to the lawsuit, which also claimed that a Tyco employee knew the thieves.
Tyco said that its employee was distantly related and had “little or no interaction” with them.
A jury concluded on April 4, 2016 that Tyco was not negligent in its protection of “confidential details of Eli Lilly’s security” or in failing to warn the company of previous thefts. It found Amaury and Amed Villa each liable in the amount of $10 million.
On June 22, the U.S. District Court for the Southern District of Florida denied the insurance company’s request for a new trial or to amend the verdict.
“On the case presented before the jury, the evidence was sufficient to resolve the matter the way it did in favor of Tyco,” the court ruled.
Scorecard: The imprisoned two brothers were ordered to pay $10 million each to the insurance company, but Tyco will not have to pay any damages.
Takeaway: National Union needed to establish a “manifest injustice” occurred for a new trial to be ordered.
Agribusiness Goes High Tech
Farmers and ranchers are using sophisticated technology to increase productivity and reduce injuries.
The use of sophisticated technology boosted agricultural productivity and reduced worker injuries, but it brought new exposures for farmers and ranchers.
Drones, robots, RFID tags and precision farming are just some of increasingly sophisticated technologies used in agribusiness.
Mike Williams, senior product director for Travelers’ agribusiness division in Hartford, Conn., said drones are broadly used in agribusiness, not only for determining topography, the moisture content of the soil and the health of crops, but also to collect data — and even locate animals.
“A rancher who has miles of pasture fencing is using drones, instead of driving a truck or ATV all that way, to make sure the fence is not broken or damaged so cattle won’t wander,” Williams said.
“If a cow has wandered from the herd, they can use a drone to help locate that animal, especially if there is bad weather and the rancher doesn’t want to risk sending employees out because they could get injured.”
But there are risks: Drones could run into wind turbines, collide with helicopters spraying chemicals on crops, or start wildfires if they fall in brushy or grassy areas, he said.
The Federal Aviation Administration now requires licensed pilots to operate drones for commercial purposes, and the drones must be within the operator’s line of sight.
Farmers and ranchers are also using tracking and sensors, such as RFID tags, on cattle to track their location, their weight and what they are being fed, so that they can more efficiently manage their herds, said Glenn Drees, managing director, food and agribusiness at Arthur J. Gallagher & Co. in Cincinnati.
Agricultural robots are used to harvest, irrigate and weed fields.
Then there is precision farming, which uses GPS technology and satellites to gather soil information and weather data. Farmers and ranchers can analyze the information and respond, based on identified conditions, such as providing chemicals to just certain portions of a field, Drees said.
That not only boosts productivity, but also lessens the use of pesticides — a concern in consumers’ minds right now, said Tami Griffin, national practice leader for Aon’s food system, agribusiness and beverage practice in Kansas City, Mo.
Cyber Security Concerns
But as technology use increases, so does concern about cyber security.
“There is a lot of information going onto a data platform, such as seed traits, chemical usage and soil conditions,” Griffin said. “There are concerns about how that data may be used — especially in the wrong hands.”
In March, the FBI warned farmers about the risk of data breaches, including whether agricultural data could be used to manipulate the market and cause economic harm. There is also fear that an anti-GMO activist could hack into a system, gain access to the location of GMO crops and sabotage the yield.
Farmers should review their contracts with the companies that provide precision farming data services for them to determine who owns the data, and what the company does to protect the data, Griffin said.
Farmers should also know whether the firms follow best practices such as having two-factor authentication measures, how they are monitoring their systems, and how they are making sure there is no unauthorized access to that data.
Typical general liability policies would have gaps in coverage for technology risks and a stand-alone cyber policy would be needed to cover data breaches, Drees said.
“Small to mid-sized farmers may not need these policies, but they should make sure any third-party firm providing precision farming data services on the cloud has a cyber policy,” he said, adding that farmers also need to ask such firms how they safeguard information.
Farmers who have sensitive machinery embedded in their tractors and equipment should make sure they are storing it properly, protecting it from the dust or hay particles constantly moving around, Williams said.
Farmers also need a well-thought-out contingency plan if something happens to the smart equipment and they don’t have access to the data that they’ve been using to improve efficiency, he said. Business continuity insurance could come into play, depending on the type of loss.
“Certainly something such as a fire or severe weather that could damage the smart equipment could trigger coverage, but not just a temporary loss of connectivity,” Williams said.
Many agribusinesses now use solar panels to provide energy to farms, methane digesters for dairies or confinements that capture manure and convert methane gas into energy to run farms or sell back to the grid, said Julie K. Barnhil, divisional vice president at Great American Insurance Group in Cincinnati.
Jeffrey Cruey, the carrier’s divisional president, added that one of the biggest exposures from newer technologies is from mechanical breakdowns and electrical disturbances.
Failures of equipment such as tractors are not covered under a typical farm policy — which is typically covered under a vehicle policy — but separate equipment breakdown coverage will cover the failure of a GPS attached to a tractor, as well as loss of farm income.
There’s also emerging technology pertaining to “agritainment” — when farmers and ranchers provide entertainment venues, such as concerts, pick-your-own-fruit excursions, hayrides or haunted houses, said Kevin Poll, director of product development for personal property and commercial farm at ISO, a Verisk Analytics business in Jersey City, N.J., that drafts policy language that carriers can adopt for their own products.
Using drones with these activities might require separate coverage not currently provided under a typical farm policy, Poll said.
At year end, ISO will introduce policy language for a variety of endorsements that provide coverage options for farmers that engage in agritainment, and in the following year, it will look at developing language for the use of drones on farms.
“Vertical farms are a hot topic now — there could potentially be skyscrapers built that are devoted to farming in urban environments,” he said. “We’re looking at what kinds of coverage such a farm would need.”
With all of the new exposures, however, Steve Simmons, associate vice president of agribusiness risk management at Nationwide Mutual Insurance Co. in Des Moines, Iowa, emphasized that smart technologies in farming and commercial agribusiness are reducing, rather than increasing losses.
“These new technologies save lives, reduce damages and costs to property. We need to encourage farmers to make an effort to use them because they’re very good for the industry,” he said.
Technology also has a great opportunity to more efficiently use freshwater supply, which is very important in raising crops especially in drought areas, Drees said.
By 2050, the world population is expected to reach 9.6 billion — “which means that farmers will have to increase food production to feed that many people,” he said. &
Your Workers’ Safety May Be at Risk, But Can You See the Threat?
Deadly violence at work is covered extensively by the media. We all know the stories.
Last year, ex-reporter Bryce Williams shot and killed two former colleagues while they conducted a live interview at a mall in Virginia. In February of this year, Cedric Larry Ford opened fire, killing three and injuring 12 at a Kansas lawn mower manufacturing company where he worked. Also in 2015, 14 people died and 22 were wounded by Syed Farook, a San Bernardino, California county health worker, and his wife, who had terroristic motives.
Active shooter scenarios, however, are just the tip of the iceberg when it comes to violence at work.
“Workplace violence is much broader and more pervasive than that. There are smaller acts of violence happening every day that directly impact organizations and their employees,” said Bertrand Spunberg, Executive Risks Practice Leader, Hiscox USA. “We just don’t hear about them.”
According to statistics compiled by the FBI, the chance that any business will experience an active shooter scenario is about 1 in 457,000, and the chance of death or injury by an active shooter at work is about 1 in 1.6 million.
The fact that deadly attacks — which are relatively rare — get the most media attention may lead employers to underestimate the risk and dismiss the issue of workplace violence as media hype. But any act that threatens the physical or psychological safety of an employee or that causes damage to business property or operations is serious and should not be taken lightly.
“One of the core responsibilities that any organization must fulfill is keeping employees safe, and honoring that duty is becoming more challenging than ever,” Spunberg said.
“Workplace violence is much broader and more pervasive than that. There are smaller acts of violence happening every day that directly impact organizations and their employees. We just don’t hear about them.”
— Bertrand Spunberg, Executive Risks Practice Leader, Hiscox USA
Desk Rage and Bullying: The Many Forms of Workplace Violence
Bullying, intimidation, and verbal abuse all have the potential to escalate into confrontations and a physical assault or damage to personal property. These violent acts don’t necessarily have to be perpetrated by a fellow employee; they could come from a friend, family member or even a complete stranger who wants to target a business or any of its workers.
Take for example the man who killed three workers at a Colorado Spring Planned Parenthood in April. He had no affiliation with the organization or any of its employees, but targeted the clinic out of his own sense of religious duty.
Companies are not required to report incidents of violence and many employees shy away from reporting warning signs or suspicious behavior because they don’t want to worsen a situation by inviting retaliation. It’s easy, after all, to attribute the occasional surly attitude to typical work-related stress, or an office argument to simple personality differences that are bound to emerge occasionally.
Sometimes, however, these are symptoms of “desk rage.”
According to a study by the Yale School of Management, nearly one quarter of the population feels at least somewhat angry at work most of the time; a condition they termed “chronic anger syndrome.” That anger can result from clashes with fellow coworkers, from the stress of heavy workloads, or it can overflow from family or financial problems at home.
Failure to recognize this anger as a harbinger of violence is one key reason organizations fail to prevent its escalation into full-blown attacks. Bryce Williams, for example, had a well-documented track record of volatile and aggressive behavior and had already been terminated for making coworkers uncomfortable. As he was escorted from the news station from which he was terminated, he reportedly threatened the station with retaliation.
Solving Inertia, Spurring Action
Many organizations lack the comprehensive training to teach employees and supervisors to recognize these warning signs and act on them.
“The most critical gap in any kind of workplace violence preparedness program is supervisory inertia, when people in positions of authority fail to act because they are scared of being wrong, don’t want to invade someone’s privacy, or fear for their own safety,” Spunberg said.
Failing to act can have serious consequences. Loss of life, injury, psychological harm, property damage, loss of productivity and business interruption can all result from acts of violence. The financial consequences can be significant. In the case of the San Bernardino shootings, for example, at least two claims were made against the county that employed the shooter seeking $58 million and $200 million.
Although all business owners have a workplace violence exposure, 70 percent of organizations have no plans in place to avoid or mitigate workplace violence incidents and no insurance coverage, according to the National Institute for Occupational Safety & Health.
“Most companies are vastly underprepared,” Spunberg said. “They don’t know what to do about it.”
Small- to medium-sized organizations in particular lack the resources to develop risk mitigation plans.
“They typically lack a risk management department or a security department,” Spunberg said. “They don’t have the internal structure that dictates who supervisors should report a problem to.”
With its workplace violence insurance solution, Hiscox aims to educate companies about the risk and provide a solution to help bridge the gap.
“The goal of this insurance product is not so much to make the organization whole again after an incident — which is the usual function of insurance — but to prevent the incident in the first place,” Spunberg said.
Hiscox’s partnership with Control Risks – a global leader in security risk management – provides clients with a 24/7 resource. The consultants can provide advice, come on-site to do their own assessment, and assist in defusing a situation before it escalates. Spunberg said that any carrier providing a workplace violence policy should be able to help mitigate the risk, not just provide coverage in response to the resultant damage.
“We urge our clients to call them at any time to report anything that seems out of ordinary, no matter how small. If they don’t know how to handle a situation, expertise is only a phone call away,” Spunberg said.
The Hiscox Workplace Violence coverage pays for the services of Control Risks and includes some indemnity for bodily injury as well as some supplemental coverage for business interruption, medical assistance and counseling. Subvention funds are also available to assist organizations in the proactive management of their workplace violence prevention program.
“Coverage matters, but more importantly we need employees and supervisors to act,” Spunberg said. “The consequences of doing nothing are too severe.”
To learn more about Hiscox’s coverage for small-to-medium sized businesses, visit http://www.hiscoxbroker.com/.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Hiscox USA. The editorial staff of Risk & Insurance had no role in its preparation.