Category Archives: Legal Environment

Proper protection is key in a sharing economy

Whether you’re sharing rides, homes, workspaces, driveways, food experiences, or even, as in China, umbrellas and basketballs, the sharing economy continues to expand into new areas.

And so do the associated risks and liability.

From today’s I.I.I. Daily, via The New York Times: “Airbnb, the peer-to-peer vacation rental and hospitality site, is facing a lawsuit in which a guest says that the company did not perform appropriate background checks on a host who allegedly sexually assaulted her. According to the plaintiff, a background check would have uncovered information that the owner had been arrested and charged with battery, preventing him from listing property on Airbnb according to the terms of service.”

Whether you’re looking to rent out your space to someone or rent a space from someone via a peer-to-peer network, it’s important to know whether you’re insured.

Some tips on peer-to-peer home rental from the I.I.I.

Note: Airbnb has a Host Protection Program that provides hosts and landlords up to $1 million coverage for property damage and liability claims that occur in a listing or on an Airbnb property, during a stay.

But here are the risks that the Airbnb policy doesn’t cover:

“The Host Protection Insurance program does not apply to liability arising from (1) Intentional Acts including: (i) Assault and Battery or (ii) Sexual Abuse or Molestation – (by the host or any other insured party), (2) Loss of Earnings, (3) Personal and Advertising Injury, (4) Fungi or Bacteria, (5) Chinese Drywall, (6) Communicable Diseases (7) Acts of Terrorism, (8) Product Liability, (9) Pollution and (10) Asbestos, Lead or Silica.”

 

Why are securities class action filings at record high?

Federal class action securities fraud filings hit a record pace in the first half of 2017 and are on track for a year-end total that hasn’t been seen since 2001.

From Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse:

“Over the past six months, plaintiffs initiated 226 securities fraud class actions in federal court, more than in any equivalent period since enactment of the Private Securities Litigation Reform Act of 1995 (PSLRA).”

The first half of 2017 saw 4.7 percent of U.S. exchange-listed companies sued in federal securities class actions:

“If activity continues at the same pace, 9.5 percent of exchange-listed companies will be the subject of filings in 2017—the highest annual rate since 1997.”

Pharmaceutical firms were the most common targets of filings, according to the report.

A significant factor in the record number of filings? The continued upsurge in merger objection lawsuit filings. The D&O Diary has more on this trend.

Both traditional and M&A-related filings were at record levels. Traditional filings increased from 95 in the second half of 2016 to 131 in the first half of 2017. At the same time, M&A-related filings rose from 57 to 95.

Covered perils: advertising injury

Insurance Information Institute research manager Maria Sassian brings us an insurance consideration for our next shop at the mall or online:

Insurers have to worry about everything, it seems. For example, the standard commercial general liability policy covers advertising injury. So what constitutes an advertisement?

How about the modest hang tag, the thing that dangles from a piece of clothing as it sits on display at the store? This from a discussion at Gen Re’s blog:

Some courts have broadly construed the definition of advertisement, and policyholders have successfully argued that product packaging and point of sale retail displays qualify as “advertisements.” In E.S.Y., Inc. v. Scottsdale Ins. Co., 139 F. Supp. 3d 1341, 1355 (S.D. Fla. 2015), a competitor sued the insured, alleging it sold clothes with infringing designs and labels on the clothes and its hang tags. The court held that a “hang tag” constituted an “advertisement” such that the insurer owed a duty to defend. The court reasoned that the “hang tag” was not part of the product itself, and “had the additional function of attracting consumers to the garments themselves and to the brand more generally.”

 

Will your baby need to learn to drive?

“They’ll be driving soon,” a friend said recently when I sent him a photo of my two young sons. “Hoping car will do that,” I responded, only half-joking.

But if you think about it, we may not be so far from that scenario and insurers are among those saying sooner, rather than later for self-driving cars.

From across the pond, this:

“Babies born today may never have to take a driving test.”

Axa UK’s chief executive Amanda Blanc told The Telegraph that autonomous vehicles could be on the roads within 15 years.

In preparation Ms. Blanc said it is crucial for the insurance industry to build a framework for what happens in the event of a car accident that is caused by a computer, rather than a human.

“Driverless cars will not be able to take to the roads [without that],” she added.

Insurers know that new technology, particularly the rise of autonomous driving, will drive a big shift in liability claims and they are preparing accordingly.

For example, in our earlier post we reported that Allianz has already started building teams of engineers with experience in automotive and driverless technology.

The Trump administration is set to unveil revised self-driving guidelines within months, according to this Reuters report.

Despite advances in safety, the impact of collision/crash, particularly motor-related, is the main driver of liability loss activity in the United States, according to Allianz’s latest global claims review.

Check out the I.I.I. issues update Self-Driving Cars and Insurance.

Man-made earthquakes in Oklahoma – a headache for insurers

I.I.I. research manager Maria Sassian and I.I.I. chief actuary James Lynch take a closer look at man-made earthquakes, based on a presentation by Kelly Hereid, Chubb Tempest Re at Reinsurance Association of America’s Cat Risk Management 2017 conference:

In Oklahoma, for each barrel of oil extracted by energy companies, seven to 10 barrels of wastewater are produced. Oil and gas companies use a technique called ‘dewatering,’ which allows a cheap separation of oil and water, making old geologic formations economic. The water, which sits underground for millions of years getting saltier and nastier with the passage of time, must be disposed of safely. Oil companies send it to disposal wells where it is injected deep into the earth. This disposal process has been linked to an increase in earthquakes because the injected wastewater counteracts the natural frictional forces on underground faults and, in effect, “pries them apart”, thereby facilitating earthquakes. Because of wastewater disposal earthquakes on natural faults are occurring faster than they would have happened otherwise.

The spate of earthquakes in Oklahoma (Figure 1) over the past few years has driven earthquake insurance take-up rates in that state from 2 percent to 15 percent (higher than in California).  According to NAIC data from S&P Global Market Intelligence and the I.I.I., direct premiums written from earthquake insurance in Oklahoma increased by over 300 percent from 2006 to 2015 (Figure 2). The Oklahoma market has been declared noncompetitive as only four companies combine to write a 55 percent market share. The action gave the state Insurance Department the right to approve rate changes in advance. Some insurers suggested a better solution would be to encourage competition rather than increase regulation.

Due to the volatile nature of the risk there is potential for insurance market surprises. Earthquake liability could harm energy prices and create an environmental risk problem for insurers. Some economists argue that housing prices could fall by nearly 10 percent following strong (MMI VI) shaking, which is not uncommon in magnitude 5+ earthquakes. Lawsuits over loss of value could get big fast.

The 2016 Pawnee earthquake was the largest in the Oklahoma historical record with a magnitude of 5.8.

One of the problems for insurers is that lots of wells are injecting so it’s tough to tell which company caused the earthquake. It’s also tough to tell if an earthquake has been induced since an induced earthquake looks the same on a seismograph as a natural earthquake. The USGS 2014 seismic hazard update is being incorporated into earthquake risk models now, but the update doesn’t contemplate induced earthquakes, which are now covered in USGS annual rate forecasts instead.

In recent years, the rate of injection has fallen due to regulation in the form of a mandated 40 percent decrease in wastewater disposal in key earthquake regions, falling oil prices and new geologic targets which produce less water. And it looks like reductions in injection volume are reducing activity. However, some experts believe the damage has already been done. Above-normal earthquake activity may continue for several decades, with fewer but potentially stronger earthquakes.

Oklahoma is a hotspot for earthquakes linked to wastewater disposal, but it’s not alone. Concerns in Texas led to the closing of a wastewater injection site near the Dallas-Fort Worth International Airport and there is evidence that some of the earthquakes that occurred in California decades ago may have been induced.

Check out the I.I.I. issues update Earthquakes: Risk and Insurance.

@united: Do You Have A Reputational Risk Policy?

While the social media firestorm following the forcible removal of a passenger from a United Airlines flight highlights the importance of crisis and reputation risk management, it also underscores the potential liability airlines face from balancing duties to their customers, employees and to shareholders.

USA Today reports that three things govern a carrier’s relationship with its passengers: contracts of carriage, the U.S. Department of Transportation and laws approved by Congress:

United’s dispute with a passenger forcible removed from a Sunday flight shines a spotlight on the contracts that set rules and expectations between carriers and travelers.

“Those contracts are well thought through. They are generally fair and balanced, and they reflect the market,” said Roy Goldberg, a partner at Steptoe & Johnson who practices aviation law in Washington, D.C. “As a general matter, passengers have rights, but airlines have rights, too.”

A Reuters analysis of federal data shows U.S. airlines are bumping passengers off flights at the lowest rate since 1995.

Many insurers and brokers offer reputational risk policies that include crisis management and PR services to assist companies before, during and after a crisis.

More on the story in today’s I.I.I. Daily, via the Wall Street Journal:

On April 11 Oscar Munoz, head of United Airlines, apologized for the forcible removal by the police of Dr. David Dao, a passenger, from United Express Flight 3411 in Chicago. The apology came two days after the altercation led to the widespread expression of anger on social media, including millions of angry posts in the airline’s rapidly growing market in China. Politicians in Washington, D.C., also condemned the airline’s forcible removal of a passenger. Munoz sent a message to employees of United Continental Holdings Inc. apologizing for an incident he characterized as horrific and acknowledging the general public outrage, which he said he shared. The message was in sharp contrast to Munoz’s initial response.

FAA guidance for planning and preparing for your next airline trip here.

Impact Of Collision/Crash Top Cause of Liability Loss In U.S.

Despite advances in safety, the impact of collision/crash, particularly motor-related, is the main driver of liability loss activity in the United States.

The impact of collision/crash accounted for close to half (42 percent) of the value of business liability claims in the U.S., according to the latest global claims review by Allianz Global Corporate & Specialty (AGCS).

New technology will drive a big shift in liability claims, AGCS warns. For example, the rise of autonomous driving presents new loss scenarios for insurers:

“A decline in car ownership in favor of motor fleets, car-sharing and driverless taxis could see insurers move away from providing millions of single annual motor insurance policies to drivers, instead providing large policies purchased by manufacturers, fleet owners and operators.”

The shift to product liability will require insurers to develop technical expertise and not rely on historic data and driver profiling for pricing. Allianz has already started building teams of engineers with experience in automotive and driverless technology.

(Read this Insuring California blog post for more insight on how driverless cars will change auto insurance.)

The growing “sharing economy” also raises new liability questions:

”A road traffic accident featuring an autonomous car share vehicle could involve the vehicle manufacturer, software provider and the fleet operator, as well as third parties involved in the accident. This would make liability harder to apportion and claims more complex to settle.”

AGCS Global Claims Review analyzes over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of €8.85bn (US$9.3bn), paid by AGCS, and other insurers, between 2011 and 2016.

Over 80 percent of losses arise from these 10 causes:

See Insurance Information Institute (I.I.I.) information on litigiousness here.

Sugar: The Next Tobacco?

Is sugar the next tobacco? Liability insurance experts say it could be.

Excessive, but not always obvious use of sugar (also salt) in food has the potential for systemic loss, a recent Lloyd’s report found.

The potential loss scenario unfolds if excessive levels of sugar are found to be harmful by scientific studies and if courts find food producers and/or the distribution chain liable for resulting damages.

“A societal shift may make the addition of significant amounts of sugar to our food unacceptable, with liability risks affecting food manufacturers (and possibly distributors and retailers).”

A sample footprint in the report (below), starting from sugar beet and cane farming to sugar and confectionary manufacturing and spreading to various other food manufacturers, wholesalers, retailers, and food and drink outlets shows the widespread distribution of sugar and the potential impact on many customers:

“Historical data suggests that the spread would also be amplified by the presence of large corporates with large insurance cover and funds.”

Businesses address their liability concerns through many types of risk management, of which insurance is an important component, according to the Insurance Information Institute.

A Swiss Re study indicated that the United States in 2013 had the largest commercial liability insurance market in the world both in premium volume ($84 billion) and as a percentage of Gross Domestic Product (0.50 percent).

Case Of The Missing Comma

Grammarians and legal eagles among you will want to read about how a punctuation mark known as the Oxford comma is the crucial factor in a class action involving overtime pay for truck drivers.

This is just one of the items covered in our Insurance Information Institute (I.I.I.) Daily newsletter today, a must-read publication for anyone in and around the insurance industry. (Sign up by emailing daily@iii.org).

Citing the New York Times, the I.I.I. Daily reports that on March 13 the U.S. Court of Appeals for the First Circuit handed down a lengthy court decision that is seen as a grammar lesson that could lead to an estimated $10 million loss for a dairy company in Portland, Maine.

The backstory: In 2014 three truck drivers filed a lawsuit seeking more than four years of overtime pay they alleged that Oakhurst Dairy had denied them unfairly. Under Maine law, workers have to be paid 1.5 times their normal rate for each hour worked in excess of 40 per week, with some exceptions.

Punctuation refresher: Grammarians are very polarized about whether a comma should be placed before the last of a series of items in a list, and some insist on what is referred to as the Oxford comma, one preceding the final item, while others habitually omit it. The absence of the comma can change meaning.

Comma in question: The state law involved in the case says that overtime rules do not apply to “The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: 1) Agricultural produce; 2) Meat and fish products; and 3) Perishable foods.” The question before the court was whether the law intended to exempt distribution of the three categories or packing for their shipping or distribution.

The decision: The appeals court ruled in favor of the drivers, after finding that the absence of a comma after “shipment” led to uncertainty about whether the law exempts applies to delivery drivers who distribute perishable foods, although they do not pack them. The appeals court reversed a lower court decision that denied truckers overtime.

If you’re surprised at the $10 million difference a comma can make, consider how important it is to draft insurance contracts and policy language that use words and punctuation correctly. This Deepwater Horizon coverage dispute is a good example.

Minimizing Human Error At The Oscars

One week since we were left scratching our heads following the botched best picture announcement at the 89th Academy Awards ceremony, the liability ripples from an apparent act of human error continue to spread.

Just to recap: the mix-up occurred after a PricewaterhouseCoopers partner mistakenly handed presenter Warren Beatty the wrong envelope for the best picture award.

As the LA Times reported early on, the mistake instantly turned into a public relations nightmare for the accounting firm which has handled the balloting process for the Academy Awards for 83 years.

For its part, PwC quickly moved to mitigate damage to its brand, issuing an apology and accepting full responsibility for the mixup.

Brian Cullinan and Martha Ruiz, the two PwC partners involved, have been permanently removed from all Academy activities. PwC said the partners did not follow through protocols for correcting the error quickly enough.

Whether or not the Academy will terminate its contract with PwC, industry lawyers say there are a number of potential liability issues that could arise, per this article by The Hollywood Reporter.

Others say public perception and doubts about PwC’s expertise could be a costly risk factor going forward.

As the fallout continues, the two PwC accountants involved now need security protection due to the public backlash.

While this human error did not happen in the process of crunching the numbers, it does highlight how important it is for businesses to manage their professional liability risks.

Insurers have developed professional liability policies to meet the unique needs of a wide range of industries. Crisis response and helping businesses to protect their reputation are among the services insurers provide.