Category Archives: Business Insurance

Business Insurance

Florida Dropped From 2020 “Judicial Hellholes” List

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Each year the American Tort Reform Association (ATRA) publishes a list of “Judicial Hellholes”  — places where ATRA says laws and court procedures are applied in an “unfair and unbalanced” way in civil cases, usually to the disadvantage of defendants.

Since the issue of social inflation has been trending in recent months, it’s no surprise that the mention of ATRA’s report in our Daily newsletter garnered an unprecedented number of clicks.

Florida — a former number one Judicial Hellhole — doesn’t even make the cut this year.

“Florida took great strides toward improving its legal climate in 2019,” ATRA says “Although there is much work to be done, the election of Governor Ron DeSantis (R) has heralded a sea change in Florida’s legal landscape, beginning with the appointment of several new Florida Supreme Court justices. This new court is deferential to legislative efforts to stop lawsuit abuse and poised to correct the course set by the prior activist court.”

DeSantis in 2019 also signed into law a measure aimed at curbing assignment of benefits (AOB) litigation in the state. AOB is a standard insurance practice and an efficient, customer-friendly way to settle claims. As a convenience, a policyholder lets a third party – say, an auto glass repair company – directly bill the insurer. In Florida, however, legislative wrinkles have spawned a state of affairs in which legal fees can dwarf actual damages paid to the policyholder – sometimes tens of thousands of dollars for a single low-damage claim.

The measure DeSantis signed puts new requirements on contractors and lets insurers offer policies with limited AOB rights, or none at all. But it excludes auto glass repairs. The number of auto glass AOB lawsuits statewide in 2013 was over 3,800; by 2017, that number had grown to more than 20,000.

This year, the Philadelphia Court of Common Pleas took over the top spot for 2019. It is one of the preferred jurisdictions for asbestos litigation and home to an $8 billion product liability verdict. California, New York City, Louisiana, and St. Louis all rank in the top five.

Some of the trends noted in the ATRA report include:

  • the trial bar’s push to use public nuisance law to shift costs associated with public crises to businesses;
  • lead paint and climate change litigation;
  • the opioid and vaping crisis; and
  • new rights of action against employers.

Three Illinois counties – Cook, Madison, and St. Clair – made the list.  Antonio M. Romanucci, president of the Illinois Trial Lawyers Association, called the ATRA report misleading.  “The deceptively titled ‘Hellholes’ report is part of [ATRA’s] ongoing campaign to deny access to the court system that our tax dollars fund,” Romanucci told Illinois Radio Network. “ATRA’s annual publicity stunt demeans the U.S. Constitution and attacks citizens’ Seventh Amendment right to trial by jury.”

Romanucci said the number of civil lawsuits filed in Illinois has been declining since 2010 and was down 47 percent. And medical malpractice cases have dropped 32 percent since 2003.

Business Insurance, Business Risk

Is a Global Recession Imminent? If So, Businesses Can Protect Themselves with Credit Risk Insurance

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By Loretta Worters, Vice President – Media Relations

The credit crisis of 2007-2008 was a severe worldwide economic crisis considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s, to which it is often compared.  “Everyone was impacted, not just those working in banks.  Because the price of debt, the ability to get financing changed, a lot of things happened.  So, everyone is impacted by credit every day, whether they know it or not,” said Tamika Tyson, senior manager, credit with Noble Energy, in this video interview.

Tyson, who is also a non-resident scholar with the Insurance Information Institute, said what she is most concerned about is debt repayments that are coming due. “If a global recession happens, as economists are predicting, and it happens in conjunction within an election, it can be difficult for companies to refinance any mature debentures they have coming in 2020,” she said.  “Leadership needs to be thinking about the risks in their company.  Not just the credit risks, but all risks related to their business.”

What leads to credit risk and how can companies protect themselves?

The main microeconomic factors that lead to credit risk include limited institutional capacity, inappropriate credit policies, volatile interest rates, poor management, inappropriate laws, low capital and liquidity levels, direct lending, massive licensing of banks, poor loan underwriting, laxity in credit assessment, poor lending practices, government interference and inadequate supervision by the central bank.

Doing a comprehensive risk assessment is a great idea for everyone within an organization, noted Tyson.  “Once an assessment is made as to how much risk they are exposed to, then they can develop a strategy to help protect the company. If there’s more risk in the system than a company is willing to take, then they should consider obtaining credit risk insurance,” she said.

What is Credit Risk Insurance?

Credit risk insurance is a tool to support lending and portfolio management.  It protects a company against the failure of its customers to pay trade credit debts owed to them. These debts can arise following a customer becoming insolvent or failing to pay within the agreed terms and conditions.

What can impact credit risk?

The factors that affect credit risk range from borrower-specific criteria, such as debt ratios, to market-wide considerations such as economic growth. Political upheaval in a country can have an impact, too.

For example, political decisions by governmental leaders about taxes, currency valuation, trade tariffs or barriers, investment, wage levels, labor laws, environmental regulations and development priorities, can affect the business conditions and profitability.

“At the end of the day, political risks have the ability to impact credit risks.  Credit risks rarely impact political risks,” she said.  “We have a lot of different views right now on the political spectrum so until we know how that’s going to work out, it’s going to create risk in the system, and we’ll see how different companies react to that,” Tyson said.

“We all talk about biases.  Everyone thinks they’re better off and it’s always someone else that has the issue.  It’s the same when looking at a risk assessment or reviewing someone’s financials; everyone thinks they’re doing fine, but then they discount what’s going on with other people.  That’s why it is imperative companies self-evaluate as they evaluate those they transact business with.”

“Know your portfolio, know your customers and understand your risk tolerance,” said Tyson.  “Know, too, there are a lot of tools available to help you mitigate against those risks.”

 

Business Insurance

When Must Insurers Defend Motelsin Trafficking Cases?

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Hotels and motels are routinely used for sex trafficking. Two recent lawsuits highlight the complexity of determining who bears legal costs associated with trafficking.

Human trafficking is a crime with enormous individual and societal impacts, and it relies on legitimate businesses to sustain it. Motels, for example – and, arguably, insurers.

“Hotels and motels are routinely used for sex trafficking,” reports the Polaris Project, a nonprofit that aims to “eradicate modern slavery.” Two recent lawsuits involving insurers of motels used by traffickers highlight the complexity of determining who bears legal costs associated with such activities.

Duty to defend

Both cases revolve around “duty to defend” — an insurer’s obligation to provide a legal defense for claims made under a liability policy. Before proceeding, let me say: I’m not a lawyer.  Everything that follows is based on published reporting, and no one should act on anything I write without first consulting an attorney.

In the first case, a woman sued motel operators for letting her be trafficked at their motels when she was a minor. The Insurance and Reinsurance Disputes Blog says, “The allegations of physical harm, threats, being held at gun point, and failure to intervene were wrapped up into claims ranging from negligence per se to intentional infliction of emotional harm.”

One of the motels sought defense from its insurer, Nautilus Insurance Co. Nautilus argued it was not obligated to defend based on a policy exclusion for claims arising out of assault or battery. The court agreed, and an appellate court affirmed.

In other words, the motel owners were on the hook for their own legal costs.

In the second case, a court found the insurer – Peerless Indemnity Insurance Co. – must defend its client in a suit brought by a woman claiming she was imprisoned by a man grooming her for prostitution while the owners turned a blind eye. A lower court had dismissed the case, finding insufficient evidence the motel was engaged in trafficking. An appeals court overturned that decision.

“The relevant question,” the judge said, is whether the victim’s injuries constitute personal injury. This is because the definition of personal injury under the policy included injuries arising from false imprisonment.

Because her injuries, at least in part, arose from false imprisonment, the judge said, “the answer to that question is ‘Yes’.”

So, the court said, Peerless must pay to defend the motel.

Trafficking is a $32 billion-a-year industry. Insurers might want to review their policy language to avoid funding defenses of criminals and businesses that enable them.

Language matters

The differences between these rulings seem to have more to do with nuances in policy language than trafficking facts.

In the Nautilus case, the appeals court found the exclusion – stating Nautilus “will have no duty to defend or indemnify any insured in any action or proceeding alleging damages arising out of any assault or battery” – unambiguous. It declared: “Nautilus had no duty to defend and indemnify” because the claims “arose from facts alleging negligent failure to prevent an assault or battery.”

The Peerless case involved two policies – a general liability and an umbrella – both of which contained exclusions for “‘personal and advertising injury’ arising out of a criminal act committed by or at the direction of the insured.”

The “personal” in “personal and advertising injury” includes false imprisonment.

To a non-lawyer like me, this seems as unambiguous as the Nautilus case: the Peerless policies excluded personal injury “arising out of one or more” of a variety of offenses, including false imprisonment.

The U.S. District Court for the District of Massachusetts disagrees. Its analysis goes into semantic tall grass, parsing phrases like “arising out of” and “but for” and is peppered with case law citations like:

  • “Ambiguities are to be construed against the insurer and in favor of the insured” and
  • “The insurer bears the burden of demonstrating that an exclusion exists that precludes coverage.”

It would exceed the bounds of my non-existent legal training – and the length of a blog post – to critique the court’s analysis. I recommend reading the decision.

But it doesn’t take a lawyer to see insurers have a stake in reviewing and possibly tightening their policy language to avoid having to fund defenses of criminals and businesses that enable them.

Trafficking is a $32 billion-a-year (and growing) industry, according to the Polaris Project.  With that kind of money involved, cases like these won’t just go away.

Business Insurance, Business Risk, Health & Safety

Despite Safer Skies, Aviation Claims Rise: What’s Up With That?

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 Flying has never been safer.

You’re more likely to die from being attacked by a dog than in an airline accident (see chart).

Today’s aircraft contain more sophisticated electronics and materials than those flying in the 1960s. When they bump into each other or come down too hard, they cost more to repair.

And yet, according to a recent Allianz Global Corporate & Specialty (AGCS) report, the aviation sector’s insurance claims continue to grow in number and size.

The report – Aviation Risk 2020 – says 2017 was the first in at least 60 years of aviation in which there were no fatalities on a commercial airline. The year 2018, in which 15 fatal accidents occurred, ranks as the third safest year ever.

Of more than 29,000 recorded deaths between 1959 and 2017, the report says, fatalities between 2008 and 2017 accounted for less than 8 percent – despite the vast increase in the number of people and planes in the air since 1959.

So, what gives?

Safety is expensive

Some of the reasons for the increased claims are good ones: Safer aircraft cost more to repair and replace when there are problems.

The report analyzed 50,000 aviation claims from 2013 to 2018, worth $16.3 billion, and found “collision/crash incidents” accounted for 57 percent, or $9.3 billion. Now, this may sound bad, but the category includes things like hard landings, bird strikes, and “runway incidents.”

The AGCS analysis showed 470 runway incidents during the five-year period accounted for $883 million of damages.

Engine costs more than the plane

Today’s aircraft contain far more sophisticated electronics and materials than those flying in the 1960s. When they bump into each other or come down too hard, they cost more to repair.

“We recently handled a claim where a rental engine was required while the aircraft’s engine was repaired,” said Dave Watkins, regional head of general aviation, North America, at AGCS. “The value of the rental engine was more than the entire aircraft.”

When entire fleets have to be grounded – the report cites the 2013 grounding of the Boeing Dreamliner for lithium-ion battery problems and the more recent fatal crashes involving the Boeing 737 Max – costs can really soar. Boeing reportedly has set aside about $5 billion to cover costs related to the global grounding of the 737 Max.

Even after a fix is found, the task of retrofitting a fleet takes considerable time – and, in the aviation industry, time truly is money.

Liability awards take off

Compounding the claims associated with the costs of safer flight, the report says, liability awards have risen dramatically.

“With fewer major airline losses,” Watkins said, “attorneys are fighting over a much smaller pool and are putting more resources into fewer claims, pushing more aggressively for higher awards.”

Today’s aircraft carry hundreds of passengers at a time. With liability awards per passenger in the millions, a major aviation loss could easily result in a liability loss of $1 billion or more.