“Expected & Intended Injury” – But Not Damage!

This one comes from personal experience (and you know who you are if you’re reading this!).

General Liability is, obviously, not intended to cover incidents that are intentionally done with knowledge they will cause harm. But there is an exception to this: coverage applies if you knowingly cause injury in effort to otherwise preserve persons or property. Here is the (very brief) exclusion and exception from the 2013 CGL:

a. Expected Or Intended Injury “Bodily injury” or “property damage” expected or intended from the standpoint of the insured. This exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property.

The real-world example I was provided for something of this nature is a crane operator who has to drop a load to prevent a catastrophic failure. If they intentionally drop a load, and that injures someone, the CGL will provide coverage if that action was taken to prevent a larger event occurring.

As a side note, there is a bevy of case law regarding this “expected or intended” exclusion and how it applies, whether the language is ambiguous, and whether coverage hinges on the intention of the act or the intention of the damage. It’s definitely worth looking into.

However, for our purposes, what I wanted to discuss is what is not in the exclusion: specifically you will note the exception provides coverage only for “Bodily Injury”, which is only 1/2 of the CGL’s BI & PD coverage. I.e., the unendorsed CGL does not cover expected or intended¬†Property Damage; only BI.

In the example of a crane operator dropping a load you can see how this could be incredibly problematic: you are almost assured to cause property damage in such a case. But, going by the strict “4 corners” of the policy, you’re not going to be covered for such even if your intent was to prevent a much large instance of property damage.

Thankfully, some carriers do offer proprietary wording to add this back, and such is even included on “enhancement” endorsements among even the smaller/mutual carriers of the world. However, even some national carrier brands don’t address this in their policy and, when I brought this to them, they were flummoxed how to respond. My key partners asked for language I could provide them (and this particular one eventually manuscripted!), while others essentially shrugged.

In the end this is an incredibly easy fix for a carrier – it literally takes adding only three words to the exception (“or Property Damage”). The fact that it does need to be manually added can be troublesome – it’s going to need approval. While troublesome, and likely frustrating to carrier personnel, it’s precisely these type of esoteric situations by which brokers live and die. A client can go to nearly any broker/carrier and get an unendorsed ISO policy; if you’re not giving them a reason not to then that’s precisely what’s going to happen.

CAT Express v. Muriel (previously Hammer) – Employee/Independent Contractor Status and the Limit of IL DOI to Adjudicate

This is a piece of case law that has me pretty confused. If anyone has any insight please contact me!

The IL First District Appellate Court recently issued a ruling in CAT Express v. Mureil. The ‘overview’ of this is:

CAT Express is a trucking company that purchased an IL Workers Compensation Assigned Risk “Pool” policy. They declared 6 clerical employees and paid about $1200 in premium. Upon audit the carrier (Liberty) categorized CAT Express’s [no idea how a possessive apostrophe works there to be honest –ed] independent contractor truckers as “employees”. This boosted premium to over $350K.

CAT engaged NCCI, who handles IL Work Comp rating disputes, and NCCI declined to hear stating they cannot determine whether someone is an employee but can only interpret NCCI Work Comp rating and rules. NCCI advised CAT of their right to appeal to the Director of Insurance (at the time Jennifer Hammer but the pleading was updated to reflect the current Director, Robert Muriel). The DOI investigated and said that these independent contractor truck drivers were employees for purposes of Work Comp premium and that the audit of $350K was appropriate.

CAT Express appealed. The subject of the appeal was actually never heard as the First District IL Appellate court asked the parties to submit supplemental briefs to explain why the Director of Insurance even had the authority to determine employee status in the first place. Both parties did, and they concurred that the Director did have that authority.

Long story short – the court found these briefs uncompelling and rules the Director of Insurance *did not* have authority to determine employment status for purposes of premium calculation. I would suggest reading the opinion, but they make a handful of specific notes:

    1. The Director/Department has only the authority vested to it by legislation, and that authority is [that which] “may be necessary and proper for the efficient administration of the insurance laws of this State‚ÄĚ [such as enforcing rules].
    2. The Director/Department does have the authority to hear appeals for the application of rating systems/rules, such as hearing appeals from NCCI’s rulings.
    3. The Director/Department erred in taking up this matter after NCCI declined. In short, the determination made – that these independent contractor truckers were employees – is outside the “necessary and proper” administration of insurance law and is instead a legal determination that should be made by courts. The Director had no jurisdiction over this particular dispute.

The reason I find this puzzling is that I’ve been through NCCI dispute processes, up to presenting in front of the board for my district, and determining employees *for the purposes of premium only* is absolutely a function of the rules and ratings of NCCI. For coverage disputes absolutely not, but who is and is not an employee (or more specifically what payroll should and should not be captured) is in their manual.

So I’m not sure why NCCI declined or if such was appropriate – perhaps it was the way the grievance was worded. I no longer have access to NCCI online so I can’t review the specific parts of the manual that apply.

Secondly, and more broadly, the classification of a party for the purposes of premium calculation seems exactly within the “necessary and proper” purview of the Director. I am emphasizing “for the purposes of premium calculation” as that is from the ruling itself – the court uses that specific phrase.

To clarify: The determination of “employee” is only for purposes of generating premium. The Department classification is not, to my knowledge, relevant in any other capacity. For example, being an “employee” for purposes of Work Comp premium doesn’t mean you’re also an “employee” for, say, benefits eligibility.

That said I am out of my comfort zone; I suppose there could be some legal ramification of which I am unaware. Perhaps there is precedent that a determination of employee status on WC is a de facto determination elsewhere under law. If that is the case I would follow the theory, but no such information was provided in the opinion.

As a rhetorical tool – assuming the classification of “employee” for Work Comp rating is inconsequential elsewhere, review the situation while changing the term. For example, instead of using “employee status” use “chargeable exposure”. Is it proper for a Director of Insurance to determine the chargeable exposure for Work Comp policies? Perhaps I’m being a tad disingenuous but I do think doing such can be clarifying.

This is especially true because there are situations where those whose payroll is captured (for premium purposes) on a policy may not be eligible for benefits. Or, more often, those whose payroll isn’t captured are ultimately eligible for benefits. In fact this happens quite a lot and is why I suggest having work comp even if you have no employees; because the legal determination of an employee is separate and distinct from the premium determination of an employee (though it is true they try to be aligned as much as possible).

I found Davis v. Ed Hickman, P.A., March 2020 (editorial here; full opinion here) which is an Arkansas Appeals Court decision that found a worker was not entitled to benefits even though his payroll was captured for purposes of Work Comp premium and explicitly states that payroll being captured for purposes of work comp premium is simply a factor in determining employee/independent contractor status and not a determinant by itself. Granted AR DOI legislative authority may be broader, and I’m not sure how a “Work Comp Commission” ruling compares to a DOI appeal, but it’s still another piece that adds confusion.

For what it’s worth I don’t have a horse in this race – I don’t particularly care where a matter is adjudicated as long as it’s transparent and fair. I do admit to incredible frustration as a broker when dealing with Workers Compensation; it is by far the most troublesome policy to administrate and inquiries are often met with conflicting responses. So if you’re reading any level of annoyance in this post, that’s probably why.

Big Results From Small Teams: Organizational Education

This will be a bit more abstract of a topic than usual, but it is no less important.

One of the greatest challenges of broker-dom is knowledge. Being an insurance broker is, after all, a professional service. Certainly we have physical “products” in the form of policies but mostly what we are selling is ourselves, our knowledge, and our service.

Because there is so much that goes into writing insurance coverage it is absolutely vital that every organization have an information sharing procedure. But I hesitate to use that word – procedure – because I often find the process is over formalized. Straight truth time: how many formal “monthly meetings” have you been in – not that you’ve lead – where you’ve felt engaged, where you’ve wanted to participate, and where the meeting went over because everyone was so invested in the topic? I’m guessing very few (and if not please let me know your secrets!).

But because education is not just an organization disseminating information from point A to point B, excitement and participation are crucial to your organization’s learning ability. A traditional “meeting” format is perfect for disseminating information but it’s very poor for creating new information. And new information – about what needs to be addressed, how current obstacles already are addressed, about what client requests are coming in – is exactly what you need to foster an organic, positive learning environment.

I suggest every organization encourage staff to create their own learning sessions among themselves. This allows them to choose times that are convenient, topics that are relevant, and participants that are engaged. Some of the best knowledge I have gained is through simple 4 person meetings where we were all excited to bring some new quirk of our job to show everyone.

It’s also through this “ground-up” method that you’ll find out individuals predilections – who is excited about what aspects of problem solving? Who is good at finding relevant information to a question that was posed? Who is adept at creating deliverables to enhance this new-found knowledge? You will get drastically more input from a handful of engaged people than you will with an entire team, even if you mandate “everyone bring one topic of discussion”. That’s old thinking – get that out of here!

Once these “mini-sessions” take off you’ll find them an incredible resource for more traditional organization-wide needs. After all, if there’s a hot topic among the mini teams there’s a good chance it’ll be important elsewhere. I can’t tell you the number of topics that have arisen in one of these small “learning sessions” that showed a need for organization-wide education.

One of the coolest aspects of these sessions is getting to know everyone’s passion. Everything in your organization – absolutely everything – is complex when you look at the details. There is no small job – just big people who think jobs are small. So when you start running learning sessions like this you’ll get a massive amount of insight and expertise you never knew you needed. Everything from how to save a few computer clicks for a task that’s performed 2,000 times a day, to better ways to send information between teams, to how to make invoices look cleaner, to… all sorts of topics you never knew you needed because the “top down” approach simply doesn’t allow it.

In short, every single person in your organization is a thought leader and it takes creativity to tap that. These individuals are mired in day to day work and often don’t have the opportunity to voice their opinion in an appropriate setting – and a “team wide meeting” is not an appropriate setting. People need to be able to be open and honest, and be able to talk to their peers rather than someone who controls their vacation days. It’s only through empowerment of the individual, organically, can you start to see what needs there are to address.

Finally, it is incredibly important to memorialize all of this. Having a good info-sharing plan in your organization isn’t enough because once those people leave, their info is gone as well. This is where the more traditional process takes place – have your learning session teams write down notes and topics of discussion. It doesn’t need to be anything serious – really just what people brought up and how it was addressed; think of it like meeting “minutes”. These can then be reviewed for commonality.

If you want to take it a step further, there are so many technology tools to help you. Everything from message boards, to knowledge bases, to Wikis. Heck, if someone wants to let them send out a newsletter to team members with topics or circumstances they find particularly interesting.

Many organizations tend to look at “education” and internal info as a very straightforward process. But brokers deal in ambiguity every day. And even when we’re dealing with literal policy contract language, every exception has a caveat has a circumstance where it doesn’t apply. A good broker is good because of how they deal with that complexity and ambiguity. If you’re not innovating your education methods you’re doing yourselves, and your clients, a disservice.

Reviewing the Unendorsed CGL Pollution Exclusion

As a broker, I tell my clients never to rely upon their CGL for pollution related liability. Although I choose those words carefully – “rely upon” – as in some situations the CGL can be somewhat responsive to pollution loses. In fact I once had an educator say he refers to the Pollution Exclusion as a “sieve” and I think that phrasing fits – there is some coverage but it must be a specific case that allows it to go through the “sieve”.

Below is a line-by-line analysis of the unendorsed ISO CGL Pollution Exclusion. Note this is 2007 wording as that is what my notes are predominantly for; I’m not aware of any significant changes since but please let me know if otherwise!

So let’s begin:

[This insurance does not apply to…]

f. Pollution

(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened dis-charge, dispersal, seepage, migration, release or escape of “pollutants”:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured. However, this subparagraph does not apply to:

Pollution at an owned/rented premises is referred to as “Premises Pollution” (natch) and is typically the primary (coverage A) insuring agreement of a standalone pollution policy.

Note that this exclusion applies at your premises regardless of whether they solely exist there (such as a storage tank) or if they were brought to your premises, even by a third party. If the “escape” of pollutants happens on your premises, coverage is excluded.

The exceptions to this:

(i) “Bodily injury” if sustained within a building and caused by smoke, fumes, vapor or soot produced by or originating from equipment that is used to heat, cool or dehumidify the building, or equipment that is used to heat water for personal use, by the building’s occupants or their guests;

(ii) “Bodily injury” or “property damage” for which you may be held liable, if you are a contractor and the owner or lessee of such premises, site or location has been added to your policy as an additional insured with respect to your ongoing operations performed for that additional insured at that premises, site or location and such premises, site or location is not and never was owned or occupied by, or rented or loaned to, any insured, other than that additional insured; or

(iii) “Bodily injury” or “property damage”arising out of heat, smoke or fumes from a “hostile fire”;

To summarize, we are adding back coverage for:

i. HVAC/Plumbing mechanicals releasing smoke

ii. Off-Premises work for an Additional Insured, and only for ongoing operations. We will see more restrictions later; this coverage grant is not nearly as broad as it seems.

iii. Smoke & fumes due to a fire at your premises

Continuing the exclusion:

(b) At or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste;

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for:

(i) Any insured; or

(ii) Any person or organization for whom you may be legally responsible; or

Naturally the CGL is not the policy for you if you handle waste in any capacity. This can be a catch for certain contractors, manufacturers, etc. who may handle, or haul debris that’s not theirs.

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured’s behalf are performing operations if the “pollutants” are brought on or to the premises, site or lo cation in connection with such operations by such insured, contractor or subcontractor. However, this subparagraph does not apply to:

Here we see the additional limitations I mentioned earlier. The best way to visualize this is: if the pollutants are either yours, or from someone you hired, there is no coverage. This reinforces the intent of the CGL to not be a true “pollution” policy – if you handle pollutants, if you have an existing exposure for them, then CGL is not intended to protect from that.

There are a handful of exceptions here but, again, they are limited.

(i) “Bodily injury” or “property damage”arising out of the escape of fuels, lubricants or other operating fluids which are needed to perform the normal electrical, hydraulic or mechanical functions necessary for the operation of “mobile equipment” or its parts, if such fuels, lubricants or other operating fluids escape from a vehicle part designed to hold, store or receive them. This exception does not apply if the “bodily injury” or “property damage” arises out of the intentional discharge, dispersal or release of the fuels, lubricants or other operating fluids, or if such fuels, lubricants or other operating fluids are brought on or to the premises, site or location with the intent that they be discharged, dispersed or released as part of the operations being performed by such insured, contractor or subcontractor;

(ii) “Bodily injury” or “property damage”sustained within a building and caused by the release of gases, fumes or vapors from materials brought into that building in connection with operations being performed by you or on your behalf by a contractor or subcontractor; or

(iii) “Bodily injury” or “property damage”arising out of heat, smoke or fumes from a “hostile fire”.

There is a lot to unpack here, but I’d summarize these as:

i. Obviously your equipment is going to have “pollutants” inside of it (fuels, oil, etc.) and the CGL does cover unintentional release of those. However note the incredibly strict requirement that such release must be from a part of the vehicle designed to store those pollutants. In practical terms this means something like extra fuel you may bring in a can, or extra oils and lubes, will not be covered if they spill since those didn’t escape from “that part of the vehicle” designed to hold them. This really is only for (e.g.) an accident with your mobile equipment that releases incidental fuels and such.

ii. Once again we see a very specific set of wording here with “materials brought into that building“. The number of cases this is likely to apply will be very limited.

iii. This is similar to “hostile fire” wording we’ve seen before.

We have one final section to exclusion 1:

(e) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured’s behalf are performing operations if the operations are to test for, monitor, clean up, remove,contain, treat, detoxify or neutralize, orin any way respond to, or assess the effects of, “pollutants”.

Similarly to waste handling, the CGL is not sufficient if your operations are to otherwise work with pollutants (testing for, cleaning, etc.). The exclusion is fairly strict here – even if the liability is from a subcontractor you do not have coverage. This means simply “subbing out” your pollution related items (say requesting a survey before a job begins) is not enough to insulate you. You will need to review your sub’s coverages, request to be an AI, and/or otherwise look at your own policy.

Section 2 of the policy deals with the “non-liability (i.e., statutory) costs associated with pollutant losses:

(2) Any loss, cost or expense arising out of any:

(a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, “pollutants”; or

(b) Claim or “suit” by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, “pollutants”.

However, this paragraph does not apply to liability for damages because of “property damage” that the insured would have in the absence of such request, demand, order or statutory or regulatory requirement, or such claim or “suit” by or on behalf of a governmental authority.

This is important as standalone pollution coverage is available for these costs, many of which are quite substantial, especially if you’re dealing with waterways. Since this is also a completely separate section to the exclusion (item 2 instead of item 1) it also means that if you otherwise have coverage under the CGL for a pollution loss, you still won’t have statutory/regulatory compliance costs paid.

The Pollution Exclusion is one of the hardest to parse. For a personal “internal summary” I reiterate what I said before: my advice is to never rely on the CGL for pollution coverage. Even if you are “lucky” enough to have some sort of pollution loss covered you’re still bare for any sort of continued testing and regulatory compliance, costs which can accrue for literal years.

In a future article we will look at options for some coverage here, on the Auto, as well as a sample standalone policy. Stay tuned!