Exploring How the Insurance Industry Facilitates Today's Business World - Part 2

By Jessica Cambridge

PART TWO

Introduction

??????????? Celebrated the week before Thanksgiving, Global Entrepreneurship Week (November 13th through the 19th) encourages those across the globe to coordinate with one another in the pursuit of promoting various business initiatives. We are all thankful to those who have decided to further pursue their entrepreneurial dreams and initiatives. Within the United States alone, the diversity of business ownership has increased by 25 percent as noted by Yelp, pointing out that this increase only occurred between January to July of 2022 to January to July of 2023. In fact, Yelp also determined that across the United States every state and Washington D.C. have far exceeded the number of new business openings across every business category examined on Yelp. This even exceeds the pre-pandemic levels of 2019.

??????????? Internationally, the World Bank anticipates that as the demand for workers increases globally 600 million jobs will need to be added by 2030 to address such a need. No matter the business entity, risk mitigation strategies will need to be employed. Like any other contract, an insurance policy carries with it many different provisions that could have both significant and varying impacts. Many may not understand the true and sometimes devastating consequences that can result from not having the proper insurance coverage in place to truly accommodate their business needs. Hopefully, the case examples discussed in the second part of this global entrepreneurship series will help to encourage further examination of one’s insurance policies. For example, what is excluded from coverage given the policy exclusions present in the insurance policy? If there are exclusions present, will additional forms of coverage be needed? If so, what? ????????? ???????????

A Case Sampling: Warehouses, Apartment Complexes, and Staffing Agencies

??????????? The three case illustrations below demonstrate just how various policy exclusions can operate across multiple business sectors. The first example explores how the pollution exclusion, which is present in many commercial general liability policies (“CGL”), operated to prevent coverage under the policy for personal and building property damage that resulted from a contractor’s application of a floor sealant. Next, the second case examines how a pollution exclusion found within a CGL policy can impact apartment complex owners and those who own restoration companies. Finally, the last case example will address how those employed in a professional services capacity also need to examine particular exclusions that may prevent coverage for those activities that fall under the umbrella of professional services, such as those performed by staffing agencies.

?(1)? Cincinnati Ins. Co. v. Becker Warehouse, Inc.

There are many moving parts in a supply chain, and this case in particular shows how

those who supply, store, and purchase food products can be impacted when a pollution event occurs. Here, multiple entities stored their food products at a warehouse facility jointly owned by Becker Warehouse, Inc. and Becker Transportation, Inc. (“Becker”). A construction company applied a floor sealant to a concrete floor as a part of its contract with Becker to construct a warehouse addition. Following this application, it was alleged that food contamination occurred. Lack of proper ventilation was pointed out as a possible cause. In the lawsuit against Becker, it was alleged by the food product and food ingredient owners that the xylene fumes generated from the application contaminated the food. In turn, Becker sought defense and indemnification from its insurer, which the insurer denied, citing the pollution exclusion within the CGL policy. Ultimately, the Court found that the CGL did, in fact, exclude the fumes generated from the sealant application, noting that the exclusion was unambiguous, and that xylene constituted a pollutant that would not be covered by the CGL policy issued to Becker. The Court added that the pollutant need not be a traditional form of environmental damage to be excluded from such policy coverage.

?(2)? Quadrant Corp. v. American States Ins. Co.

Those who operate apartment complexes, and those hired to perform restoration work can

also be impacted by pollution exclusions present in CGL policies. Roy Street Associates, the apartment building owner, hired Pacific Restoration, a restoration company, to apply deck waterproofing sealants, and the sealants used contained multiple chemicals, including toluene diisocyanate (“TDI”). In fact, TDI can have very significant impacts on one’s respiratory system. Following the application, a tenant sued both the apartment building owners and the restoration company after being overcome by the fumes generated from the deck sealant and becoming ill. ??Here, both parties ended up settling with the affected tenant; however, the owners sought coverage under their CGL policies in place. The restoration company was not a party to the suit brought here. In response, the insurers argued that the resulting injuries from the toxic fumes were excluded because of the pollution exclusions present in the policies at issue.

Ultimately, the Court found that the fumes generated from the waterproofing material would not be covered under the policy because of the pollution exclusion; however, this did not make the CGL policy an illusory insurance contract. Rather, the plain language of the contract specifically excluded such pollution events from coverage. The circumstances present here demonstrate how while other injuries incurred under the policy, such as slip and fall cases, could be covered other claims subject to the pollution exclusion would not be covered per the applicable exclusion. This lack of coverage can have a significant impact as detailed here. Afterall, regular maintenance and upgrades of apartment complexes are routine events. ???

?(3)? Energy Ins. Mutual Limited v. Ace American Ins. Co.

The final case example here shows how another exclusion, the professional services/liability

exclusion, can impact those who work for a staffing agency and where such services are considered that of a professional nature and, therefore, excluded from coverage per the policy’s professional liability exclusion. The professional liability exclusion at issue and provided here for strictly illustrative purposes specified that “This insurance does not apply to any liability arising out of the providing or failing to provide any services of a professional nature.” In this 2017 case, a staffing agency, Comforce Corporation (“Comforce”) was hired by Kinder Morgan, an oil and gas pipeline owner and operator, to supply temporary workers. The staffing agency had secured a commercial general liability (CGL) policy and an umbrella policy containing a professional services exclusion, excluding coverage for those situations which constituted ‘services of a professional nature.’ In addition, Comforce had also secured a specified professions professional liability insurance policy. The temporary employees secured through the staffing agency worked as construction inspectors. When an excavator struck a pipeline owned by Kinder Morgan, gasoline was released and then was ignited by a subcontractor performing welding activities for the excavator. Following this, multiple employees were killed, and other employees suffered significant injury. Expansive resulting property damage also ensued.

??????????? After an investigation, it was determined that failure to properly mark a pipeline was the source of the problem here. Subsequently, the pipeline owner’s excess insurer sought settlement payment and defense costs that it had incurred from the staffing agency’s umbrella insurer. Even though the Court determined that the professional services exclusion prevented coverage here, this did not make the insurance contract an illusory one. The Court also emphasized that the scope of “professional services” is broader than that of the definition of a profession alone, noting that “Courts have applied the professional services exclusion broadly to bar coverage for damages resulting from a wide range of professional services that extend ‘beyond those traditionally considered ‘professions,’ such as medicine, law, or engineering.” As a result, the Court determined that “[t]he failure to mark the pipeline squarely falls within the ambit of the professional services exclusion.” As demonstrated with the case discussed above, the consequences of such an exclusion are not to be underestimated. Prior to trial, for example, the underlying lawsuits against Kinder Morgan were settled. After Kinder Morgan had exhausted the limits of its excess liability policy, its excess general liability indemnity policy insurer agreed to pay more than $30 million to Kinder Morgan for its settlement costs associated with those lawsuits.

?Conclusion

??????????? As entrepreneurship continues to expand and to also evolve, so does the world of insurance. Afterall, innovation in the marketplace – in any marketplace - is not only a key but rather a pivotal component. No matter the size of the business, its impact can be felt even on a global scale. According to the World Bank, “Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies.”

??????????? As with any business, times change, and businesses should and need to follow suit. Going forward, the United States Small Business Administration (“SBA”) advises the utilization of a four-step process when examining business insurance needs. First, assess your risks. This step may involve a meeting across department areas to really understand the scope and type of risk exposures companywide. ?Second, find a reputable licensed agent. As new forms of coverage either develop or further develop, it’s important to consult with an experienced insurance professional to better understand the nuances of a particular form/s of coverage. Next, shop around. When shopping around, ask questions. ?Finally, re-assess every year. It’s easy enough to forget this last step, especially when thoughts of business expansion are front and center. In the process of deciding what product lines or product ventures are involved, it would be a good time to have such discussions and re-evaluate. When it comes time to renew coverage, make time to have that discussion about how new business opportunities may have also necessitated the need for new or expanded policy offerings.

??Synapse Services LLC does offer a wide range of insurance product offerings, including environmental, professional liability, cyber, stock throughput, and property insurance coverage options. Please contact one of our producers if you are interested in receiving more information about the coverage options available.