| Q&A of the Week |
Must Property Deductible Be Met for Business Income Insurance to Apply?
A Kentucky subscriber recently asked the following question:
Our insured has a large $2 million property deductible. However the period of restoration begins immediately after the loss. Must the insured prove that the deductible for direct damage will be exceeded, before the carrier will pay for the loss of business income?
ANSWER: Generally, business income policies do not require that the property deductible be exceeded in order to be triggered. BI policies often have a time deductible—usually seventy-two hours—before they kick in, but if the period of restoration on your policy begins immediately, then there is no time deductible either. As long as a the elements necessary to trigger the policy occur—direct physical damage that causes a suspension of operations during the period of restoration—then the $2 million property deductible would not have to be met. |
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| Litigation Watch |
Number of Occurrences under Discussion
The plaintiff filed a complaint seeking a declaratory judgment that an attack by two dogs constitutes three separate occurrences within the meaning of the policy language. This case is Verlus v. Liberty Mutual Insurance Company, 2015 WL 7170484.
Jean and Joanne Verlus were walking on the street when they were attacked by dogs owned by Taylor. When the dogs attacked, Jean and Joanne ran in opposite directions in an attempt to escape the dogs. Joanne was bitten on her buttocks and middle finger, but then managed to crawl to higher ground out of reach of the dog that had attacked her. That dog barked at her for a short time and then left to join in on the other dog's attack on Jean. The two dogs then bit Jean in the groin area and feet.
When Jean and Joanne sued the dogs' owner, a judgment in the amount of $1,076,494 was entered in their favor. Liberty Mutual Insurance Company paid $314,619 inclusive of interest, arguing that the attack was only one occurrence. The Verlus plaintiffs then filed this lawsuit seeking a judgment that the attack by the dogs constituted three separate occurrences, requiring payment of $900,000 by the insurer.
The United States District Court for the Southern District of New York, noted that the issue presented to it was straightforward: does the attack by the dogs constitute one or three occurrences under the terms of the policy. Jean Verlus argued that the attack on her was once occurrence; Joanne argued that the attack on her was the second occurrence; and then Jean argued that when the second dog joined in the attack on her, this was a third occurrence. The insurer countered that the attack by the two dogs was one continuous act, such that it should be considered the result of one occurrence.
The U.S. District Court said that in New York, courts generally apply the unfortunate event test to determine whether there are one or more occurrences within the meaning of an insurance clause limiting coverage to a certain amount per occurrence. This approach rejects other approached that would equate the number of occurrences with either the sole proximate cause or by the number of persons damaged. However, the unfortunate event test will not apply when an insurance policy indicates an intent to aggregate separate incidents into a single occurrence.
Comparing the language limiting the liability per occurrence in the policy with the language cited in an earlier New York Court of Appeals case, it was clear to the District Court that the policy in this instance evinced an intent to aggregate the incidents into a single occurrence. The policy included unambiguous language that bodily injury resulting from any one accident or from continuous or repeated exposure to substantially the same general harmful conditions shall be considered to be the result of one occurrence.
The court boiled down the plaintiffs' arguments to the following: there were three separate and distinct attacks by two dogs; the attacks were temporarily and spatially separate since the two plaintiffs were attacked almost fifty feet away from each other and the attack on Jean was longer in duration; and, the attacks were not causally connected. The court did not accept these arguments. The court found that the attack by the dogs constituted continuous or repeated exposure to substantially the same general harmful conditions and thus qualifies as one occurrence. The court said that although Jean and Joanne were not exposed to the exact same conditions, they were exposed to the same general conditions, that is, a simultaneous attack by two dogs. The policy language makes clear that this is treated as one occurrence.
The motion of the insurer for summary judgment was granted.
Editor's Note: The U.S. District Court rules that the plain language of the policy limits the liability here to one occurrence. The injured people were exposed to the same general conditions, that is, the continuous or repeated exposure of the attacks by the dogs. |
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| Fraud of the Week |
Insurance Company Fraud—Maryland
AMOUNT: $100 million+
A con artist who had created an insurance company admitted that between 2008 and 2013 he falsified wire transfers, bank statements, and letters of credit to make it look to financial rating and auditing companies that his company could afford to cover more possible losses than it actually could. The company took in more than $100 million in premium from more than 5,000 policyholders who did not have the coverage they thought they did. The company specialized in liability coverage for bars, clubs, and entertainment companies. He paid himself $96,000 per month and owned four homes and multiple vehicles. When he was arrested, federal agents found guns, disguises, and what seemed to be a hit list including a judge who was overseeing the liquidation of his company and an elected official. He has been sentenced to thirty-seven years in prison and $137 million in restitution.
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