This is the second post in our series regarding coverage issues affecting emerging companies. This post addresses the insurance application process. The application is a critical part of the process because insurance companies use it to assess whether they want to take on the risk, and if so how much premium to charge. The carrier can attempt to rescind an insurance policy if there was a material (but not necessarily intentional) misstatement or omission of fact in the application. Rescission of an insurance policy means it is as if the policy was never issued and the policyholder simply gets a refund of the premium paid and the carrier walks away.
First, it is critical to understand that an insurance application is not a form that can be completed by anybody in your organization. For many policies, the application will be attached and actually become part of the policy when it is issued. When a claim is made, the application will be one of the first places the carrier looks to see whether the insured is entitled to coverage or vulnerable to a rescission claim.
by David Smith
and Dennis Cusack
On November 6, 2015, Toyota announced that it plans to invest $1 billion in a Silicon Valley research center for artificial intelligence. On November 10, Volkswagen said it had hired away from Apple its lead expert on self-driving cars. (Yes, Apple too has a secret car project.) While analysts’ views differ on when, most agree that it is only a matter of time before fully autonomous vehicles become mainstream.
The US Department of Transportation called recent innovations by car manufacturers a “revolution in safety.” Historically, automakers (strongly encouraged by insurers) have focused on engineering vehicles to enhance occupant protection in the event of a crash. That’s why automobiles today have a range of airbags – front, rear, side and even curtains – as well as a long list of safety enhancements, including structural reinforcements to the passenger compartments and advanced safety belts.
Today, vehicle safety has expanded into technologies that help prevent or mitigate crashes. Vehicles can automatically brake to avoid or minimize accidents, self correct steering if the driver wanders out of his or her lane, and can parallel park better than many humans. They do this by means of a variety of sensors, connected to a central computer running sophisticated software. By use of sensors and cameras, today’s modern car can “see” round corners, keep a steady (and safe) distance from the vehicle in front, and anticipate and prevent a crash. All of these technologies, though, still require an attentive driver with hands on the wheel.
High Fire Season Followed by El Niño Sets California Policyholders On Collision Course With Property Insurers
Regular readers of the SFGate website saw two familiar headlines on September 10, 2015. The first – “Northern California wildfire explodes in size” (last accessed September 28, 2015) – would not have been unusual on any summer day in California, particularly in the last four years as an historic drought has ravaged the Western United States. Wildfires, always a feature of the dry season in the West, have increased in size and intensity as the yearly average precipitation levels continue to fall.
The second – “El Niño Odds Rise Again, Tracking to Be a Blockbuster” – was more unusual, and almost certainly more welcome to local readers. The El Niño weather phenomenon, which refers to a band of abnormally warm water in the central equatorial Pacific, is generally associated with large storms in the United States, and the West Coast in particular. News of the impending 2015-2016 El Niño has raised hopes that heavy rains will replenish water supplies that have been devastated by four-plus years of meager rainfall. But this year’s El Niño may have more damaging effects, especially in areas impacted by fire.
When heavy rains follow wildfire, the results can be deadly. According to the U.S. Geological Survey, after a wildfire “even modest rainstorms can produce dangerous flash floods and debris flows.” Multiple fire-related factors can contribute to mudslides. The most obvious is the tendency of wildfires to damage vegetation and root systems, which hold soil in place and provide barriers to mudslides and flooding. Hillsides denuded of vegetation are far more susceptible to mudslides during a storm.
The interplay of fire and weather has crucial implications in the context of first party property insurance, where causation determines coverage. Most property policies exclude damage caused by earth movement and water damage and, as a result, policyholders who suffer damage from mudslides are almost guaranteed to have their claims denied. But policyholders, particularly in western states, should not be afraid to push back on a denial if the mudslide occurs in an area previously damaged by fire.
and David Smith
Self-driving cars are coming. In fact, Tesla Model S owners woke up on the morning of October 15, 2015 to discover that a software download to the cars has made them capable of steering and changing lanes at high speed, slowing and stopping, and self-parking, in “Autopilot” mode. The future is now, and self-driving cars bring with them a host of unanswered questions relating to safety, liability, and the insurance for protecting against liability.
Over the next few months we’re going to produce a series of articles looking at issues affecting insurance raised by autonomous vehicles, and how those issues may develop and change as the degree of autonomy – and the number and types of autonomous vehicles on the roads – grows. For many years the insurance industry has been a prime mover in the field of vehicle safety. One of the main concepts behind the drive to develop autonomous vehicles is to reduce crashes, particularly ones that result in serious injury. 95% of fatalities from car crashes result from human error. How will the insurance industry keep up, and how will it adapt to the changing scenarios?
by John Green
We encounter the following scenario from time to time: The defense counsel just scored a big victory, knocking out a key cause of action. The only problem is—the carrier now says that claim was the only covered cause of action, and since that claim has been dismissed, the insurer has no ongoing duty to defend. Can that be right?
The short answer is no. The duty to defend is based on the “potential” for coverage. That means that, if there is any “potential” that liability will ultimately be established on a covered ground, there is a duty to defend. For example, if an insured is sued for intentional battery, but could be found liable based on negligence, there is a potential the ultimate liability will be covered, and thus the insurer has a duty to defend.
by John Green
Several solar panel manufacturers and their distributors have been sued in class actions alleging that certain models of panels are defective and need to be replaced. Class actions can be very expensive to defend, and the ultimate liability can also be significant, depending on the number of panels at issue and the facts.
Fortunately, a manufacturer or distributor that is sued may have insurance to help defray these costs. As will be explained below, there are strong arguments that these claims are covered by general liability insurance (CGL), a type of policy purchased by virtually every business.
Read the full article on Solary Industry's website:
Claims For Defective Solar Panels Could Be Covered By General Liability Insurance
by John Green
Companies often monitor or record conversations between their employees and customers for training or quality control purposes. You’ve probably heard messages to this effect yourself. These announcements are meant to satisfy laws that prohibit monitoring or recording unless both parties to the call consent. Despite such precautions, however, companies sometimes run afoul of these laws and find themselves facing class action lawsuits alleging calls were recorded without the required notice.
Read the full article on the Corporate Counsel website.
Policyholders seeking insurance funds to settle a case often face an insurer’s demand that some amount should be allocated to uncovered claims or parties. The issue arises often under directors and officers liability (D&O) policies, when settlements resolve the liability of covered directors and the uncovered company. But general and professional liability and errors and omissions insurers also demand to allocate settlements.
by John Green
In 2003, the California Supreme Court ruled that a company’s contractual transfer of insurance rights to a subsequent purchaser was invalid, as it violated the policy condition against assignments without insurer consent. (Henkel Corp. v. Harford Accident & Indemnity Co.) The decision was surprising to many, as Asset Purchase Agreements routinely assign insurance policies along with other assets and liabilities of the seller. Many of these companies faced enormous exposure for so-called “long-tail exposures”—claims that individuals had been exposed to an injurious substance over a substantial period of time. Such liabilities are generally covered by the historical insurance policies issued at the time of such exposure or injury, and these policies are transferred as part of the sale to provide coverage for this assumed liability. The Henkel decision frustrated the intent of these transactions. It left purchasers holding the bag on liabilities without the assets that were intended to pay for such liabilities, and it gave a windfall to insurers who had agreed to cover those liabilities.
On April 30, 2015, we blogged about Hartford Casualty Insurance Company v. J.R. Marketing, LLC, Case No. S211645, then set for oral argument in the California Supreme Court. [see the prior post: California’s “Independent” Cumis Counsel Regime Faces a Novel Challenge] The Court decided the case on August 10, 2015, ruling that Hartford could seek reimbursement of unreasonable or excessive fees directly from Cumis counsel. We’ll outline here the implications of the ruling and suggestions for how policyholders and Cumis counsel might respond.
On the one hand, the Court took pains to describe its ruling as very narrow. Hartford had denied coverage and resisted paying the defense invoices even after the trial court found it owed a duty to defend. Squire Sanders, representing J.R. Marketing, then obtained an enforcement order requiring Hartford to pay its invoices within thirty days, but giving Hartford the right to seek reimbursement of uncovered fees and costs, including unreasonable or excessive fees, once the case was over. By the end of the case, Squire had been paid $15 million. The Court repeated that its decision was grounded in the enforcement order, which Squire had drafted and gave Hartford an express right to reimbursement. In that context, the Court held that allowing Hartford to recover from Squire in the first instance was consistent with the law of unjust enrichment and would not interfere in the attorney-client relationship. Running through the decision, including Justice Liu’s concurring opinion, is an undercurrent of suspicion that Squire, with an unsophisticated client and an enforcement order in hand, felt it had carte blanche to bill to its heart’s content.