losses occurring during a 72-hour period or less. The superstorm did not fit in
this clause, said HHC.
The trial court agreed with XL. The judge stated, “There was never … flood
coverage for ‘high hazard flood zone’ properties because the initial attachment
point is at, or above, an amount equal to the imposed sublimit.
“In other words,” he continued, “coverage for ‘high hazard flood zone’
properties are covered by other insurers and not part of [XL’s] layer of coverage.”
HHC took the case to appeals court. There, the appellate division found the
exclusion applied only to the 72-hour limit. Instead of creating an exclusion, the
endorsement as a whole created a $50 million sublimit within the policy.
“Moreover, [XL’s] and the motions court’s interpretation — that there is no
coverage for HHC’s high hazards flood zone properties — renders superfluous
the endorsement’s phrase ‘for more than its proportion of $50 million,’” the
SCORECARD: XL Insurance America Inc. is liable for $50 million in storm
surge damages incurred by Howard Hughes Corp.’s property.
TAKEAWAY: When writing policies, the best practice is to explicitly state an
exclusion to prevent confusion.
WAVIER WORDING QUESTIONABLE
A new jersey security guard for allied barton security services was hired to monitor Schering-Plough Corporation. While on duty, he tripped over a 50-pound bag of ice melt and fell down the company’s
basement stairs. The tumble resulted in limited
mobility in his shoulder and arm, severe headaches
and body pain.
He filed a workers’ compensation claim with
Allied Barton and a negligence suit against
Schering-Plough. In court, the worker was
awarded $45,500 in workers’ comp and
$900,000 for the negligence suit. Schering-Plough appealed.
In its argument, Schering-Plough
said the worker signed a waiver when
he was hired at Allied Barton. In that
waiver, the worker gave up his rights
to file a lawsuit related to any work
injury, and to prove that the waiver
held weight, Schering-Plough pointed to several out-of-state cases where similar
workers’ compensation waivers had been up for debate.
Pennsylvania, Alabama, Massachusetts and Washington, D.C., all examined
similar cases in which a worker had waived their lawsuit-filing rights. In each, the
state’s supreme court determined the language in the waiver held firm, and the
injured worker was not allowed to file suit against the employer, because he or she
had already waived those rights upon date of hire.
The New Jersey appellate court assigned to the case broke from precedent.
It questioned the wording of the waiver. Allied Barton titled the document
“Workers Comp Disclaimer,” which, according to the court, was misleading.
The company was asking its employees to waive tort suit rights, not workers’
compensation claims rights.
Additionally, the court questioned whether or not the waiver was acceptable
under workers’ comp law.
“Not all employment contracts that limit the rights of the employees are
contracts of adhesion,” said the court. “Although a court may enforce a contract
of adhesion, such contracts are unenforceable, if unconscionable.”
WALL COLLAPSE CONTRACTOR’S RESPONSIBILITY
Taja construction llc was renovating a row home when the east wall of the property collapsed. It sought to recover repair costs under its insurance policy through Peerless Insurance Company, but Peerless
determined the collapse was caused by Taja.
During renovation of the row home, Taja planned to deepen the home’s
basement and create a larger
living space. The site’s engineer
recommended that, when the crew
excavated the basement, they do it
in sections. They would be wise to
reinforce each section with concrete
underpinning, he said.
Taja’s owner directed his
subcontractors to excavate without
any underpinning, insisting his team
do it all at once. Various people,
including the engineer, subcontractors and a neighboring construction
company, warned Taja’s owner that he needed structural underpinning to
He did not heed the advice.
A few hours after the basement had been fully excavated without any
underpinning, the property’s east wall collapsed. Taja filed a claim of $400,000
for repair costs, but Peerless said defects in construction/workmanship and
damages from earth movement were excluded in its policy.
The district court granted summary judgment to Peerless, holding the
exclusions applied. It deemed the workmanship exclusion in the Peerless policy
would “not pay for loss caused by an act, defect, error, or omission (negligent
or not) relating to … construction [or] workmanship.” Because the owner
deliberately ignored warnings of potential collapse, workmanship was the main
cause of the fall.
In appeals court, Taja argued that even though the workmanship exclusion
applied, the policy stated coverage would be restored if there was an “ensuing
loss.” Coverage should have been preserved, said Taja, when a loss excluded under
the policy — like workmanship — resulted in subsequent loss otherwise covered,
the company said.
Although the wall collapsed due to a workmanship defect, Taja believed it was
entitled to recover the losses that resulted from the collapsed wall. The cost of
repair was an ensuing loss from workmanship error.
The court, however, did not agree. It said the wall collapsed due to movement
of the earth’s surface, which was excluded in the Peerless policy. Had the
structure been underpinned, the court said, the earth’s surface would have had
the support it needed. Unfortunately, the structure was not underpinned, and the
earth’s surface gave way.
SCORECARD: Peerless is not responsible to cover losses stemming from a
workmanship error. Taja will need to foot the bill.
TAKEAWAY: Disregarding expert advice and knowingly performing faulty
work will preclude coverage for any losses stemming from negligence.
SUBLIMIT PART OF POLICY, NOT AN EXCLUSION
Five years ago, superstorm sandy wreaked havoc on the East Coast. Howard Hughes Corp. sustained damage to its commercial buildings located in Manhattan and turned to its insurer, XL Insurance America
Inc., to cover the $150 million in storm surge damages.
XL filed suit, seeking a declaratory judgment releasing it from covering
HHC’s damages. Its policy excluded property damage in “high hazard flood
zones” caused by storm surge from named storms. Additionally, because HHC
held multiple policies with other carriers, XL said its policy limited liability to no
more than “its proportion” of $50 million since other insurers provided coverage.
HHC argued the policy provision was ambiguous. The term “high hazard
flood zones” referred to another clause in XL’s policy, which limited coverage to
SCORECARD: The appellate court determined that the waiver may be
unconscionable in nature and moved to send the case to the New Jersey
TAKEAWAY: A break from precedent opened the door for injured workers to
challenge the legality of signed waivers based on their wording.