contractors involved in the project, filed a lawsuit seeking pro rata defense and
indemnification from those insurance companies: Phoenix Insurance Co. (which
provided commercial general liability coverage to A.Z. Shmina, the project’s
general contractor) and Federated Mutual Insurance Co., (which provided
CGL coverage to Platinum Mechanical — the employer of Koch. Platinum
subcontracted with Regal Rigging & Demolition — the employer of McBride.)
Both Phoenix’s and Federated’s policies excluded professional services, and the
U.S. District Court for the Eastern District of Michigan dismissed OHM’s suit.
On appeal to the U.S. 6th Circuit Court of Appeals, OHM argued the
professional services exclusion did not apply because “some of the underlying
allegations implicate ‘general project operations and work place safety’,” which
OHM was not responsible for.
The appeals court said the policies issued by Phoenix and Federated “were never
intended to cover professional negligence claims.”
“The substance of the underlying claims is that OHM is liable for failing to
properly plan for, and take preventative measures to ensure, the safe removal of the
digester tank lids it required as part of the overall treatment plant upgrade project,”
according to the court’s opinion on Jan. 20.
SCORECARD: The CGL carriers will not have to contribute to indemnify or defend
the engineering firm.
TAKEAWAY: The failure to supervise worksite safety was part of the firm’s
MALICIOUS ACTS NOT COVERED
For several months in 2015, catalent found softgel capsules in the wrong place at its manufacturing facility in France. One batch of capsules was found in another batch of product,
and capsules were found on an
empty shelf on the floor. Catalent
believed the incidents were
“deliberate, malicious acts,” as part
of a plan to extort money.
Because of the misplacements,
the French pharmaceutical
regulatory agency closed the facility
for five months, leading to a loss in
excess of $10 million.
Catalent filed a business
interruption claim with U.S.
Specialty Insurance Co., which denied the claim. The insurer then sought court
approval of that denial. Because Catalent never received a demand for money, the
U.S. District Court for the Southern District of New York upheld that denial.
The court said the policy unambiguously required that any alteration of stock be
combined with a threat “made specifically against the insured,” with a loss defined
as money “surrendered by or on behalf of the insured as an extortion payment … .”
COURT LIMITED EXTRA EXPENSES
In 2012, welspun tubular, which manufactures pipes in Little Rock, Ark., was contracted by Enterprise Products Partners to manufacture 180 metric tons of pipe for a pipeline from Cushing, Okla., to Houston, Texas.
Production was supposed to commence on July 25, 2012, with final delivery
on Aug. 31, 2013, but a fire damaged the facility on July 14, 2012. Welspun and
Enterprise agreed that a portion
of the production would shift to
Welspun Tradings, an affiliated
company in India.
Welspun had a commercial
insurance policy issued by Liberty
Mutual Fire Insurance Co., which
covered property damage, loss of
business income and extra expenses
at the Little Rock facility. A forensic
accountant calculated the lost
business income at $28 million,
direct mitigation expenses of $13.4
million and nearly $500,000 in indirect overhead costs.
Liberty paid about $415,000 as “extra expenses” in reimbursement of a portion
of the direct costs, leaving unpaid $13 million, as well as nearly $500,000 in indirect
A partial settlement was reached, and Liberty Mutual paid Welspun $22.3
million in lost business income and $1 million for “extra expenses,” to cover direct
costs, based on a $1 million policy limit.
Because they disputed the amount owed Welspun for mitigation expenses —
which Welspun claimed were $13.5 million to shift production to India so the
entire order was not lost — both parties filed suit.
A U.S. District Court judge in the Eastern District of Arkansas ruled on Feb. 2
that the insurer did not have to “pay more than it would have paid had the business
loss occurred rather than been averted.”
He granted Liberty Mutual’s request to dismiss the case.
SCORECARD: The insurance company does not have to pay Welspun $13.5
TAKEAWAY: The issue revolved around the amount the insurer would have paid
if Welspun had been unable to make up the lost production.
PROFESSIONAL SERVICES NOT INCLUDED IN COVERAGE
On april 22, david mcbride was using a cutting torch to remove bolts from a “digester lid” as part of a project to upgrade a wastewater treatment plant in Dexter, Mich.
Sparks from the torch ignited methane gas inside the tank and caused an
explosion that injured McBride and killed Michael Koch, a pipefitter.
After the accident, McBride and the estate of Koch filed a wrongful death action
against Orchard Hiltz & McCliment (OHM), the engineering and architecture
firm that designed the upgrade and was project engineer for the construction.
XL Specialty Insurance Co., which had issued professional liability coverage to
OHM, defended it in the lawsuits.
OHM, which was listed as an additional insured on the policies of two
TAKEAWAY: No coverage existed because there was no extortion money
requested or paid.
SCORECARD: The insurance company does not have to pay $10 million for