Check it out: hurricane-proof houses.
UPDATE: This link was good when I posted it, but it has since gone behind the New York Times’ firewall. (I don’t like reading the Times anyway). So I offer you instead this link to a post at AgentBlog, which has an actual story about the houses. At the end of the post, it points back to me, but you know there is no point in following the link.
I am away from a computer most of the day so blogging will be light today. See you next week.
Hat tip to John Parnass and his fine construction law blog for writing about this case. A bank evacuated its building, which housed other tenants too, after a structural engineer’s report said the building was ready to fall down. A few days later, it was found the report was wrong and there was nothing wrong with the building. I wonder what the engineer said: "Whoops! Hey, these things happen, right?"
The court correctly analyzed the bank’s property insurance policy, including the bank’s claim it was owed expenses for acting in case of "imminent loss or damage." The court said the policy meant an imminent real loss, not an imminent fake loss. The court also rejected the bank’s argument that the word "or" means "imminent" applies only to "loss" and not to the word "damage."
MikeTheActuary has a link to a good article about the growing use of CAT bonds, although he points out they are still just a small piece of the puzzle. See my prior post on the Kamp Re CAT bonds here.
I generally agree with the result, but I don’t like the court’s analysis in Amin Realty v. Travelers Property Casualty Co., 2006 WL 1720401 (E.D. N.Y. June 20, 2006). The court found that a general contractor’s liability was uncovered for defective concrete that had to be replaced because of shoddy work of a subcontractor, along with a number of steel beams and supports it had attached to.
The court’s initial reasoning was on the right track: defective workmanship, whether by a general contractor or a subcontractor, is never covered by a Commercial General Liability policy. The moral hazard problem is simply too great, and if you have any personal experience with contractors, you know what I’m talking about. Defective work that causes damage to property other than itself, however, is another matter, as are tear-out damages. Basically, I think it’s not controversial that the cost of pulling out the bad concrete and putting in new is uncovered. One of the simplest justifications, which is not discussed in the case, is that a CGL usually does not cover property damage arising from ongoing operations, so no matter what you call the damages, they are not covered. Other insurance is available for that, including an additional insured endorsement where the subcontractor insurers the general contractor for liabilities arising out of the sub’s negligence for ongoing operations. For that reason, I’d also say the cost of replacing the steel beams is not covered by the GC’s insurance either.
Even though the court didn’t say it the way I would like, I’d be OK with the case if the court hadn’t muddled up the Business Risk exclusions. The court relied heavily on an analysis I find to be less than optimal: that the entire building was the general contractor’s "product," and fell under the "Your Product" exclusion. Damages to any part of the building, such as water infiltration after operations are completed, therefore aren’t covered by the GC’s liability insurance, under the court’s view. I don’t think a building is the GC’s product or that the GC has any product at all, nor do I think the "Your Work" exclusion applies, partly because the GC doesn’t do any "work" on a construction site and also because of the subcontractor exception to that exclusion, which the court failed to even discuss.
I read a lot of blogs and publications to see what the public says about insurance law, because it reminds me of an important fact: to people who aren’t deeply immersed in insurance coverage law, none of this makes any sense whatsoever. On the surface, insurance coverage does not appear to operate like people expect — it doesn’t comport with their understanding of the way the world should work. But buried beneath the surface, sometimes way down beneath, there are rules and policies that make a whole lot of sense, and it is possible to explain them and how they fit into the order of the world.
So I read with interest this newspaper column in the Lodi News-Sentinel in which the writer appears outraged that the California Court of Appeal overturned a $260,000 jury verdict, and found that State Farm could not be liable for negligent claims investigation where there was no coverage in the first place. I remember seeing this case, Benavides v. State Farm, a couple months ago and didn’t pay it much attention because it seemed like a no-brainer. On reading it now, it still seems like a no-brainer, but I like the court’s explanation: with first party insurance, a negligent investigation can’t frustrate the expectations of the insured, because the insured shouldn’t have any expectations where there is no coverage under the contract to begin with. (See page 10 of the opinion). It’s good to keep in mind how difficult it is for people, some of them judges who read legal briefs in coverage litigation, to understand and accept this concept: merely because someone suffers damage, it does not obligate the insurer to do something about it.
The ancedotal lead in newspaper stories has been popular for more than 20 years, but more often than not it’s a barrier to doing a good story. This story from the Associated Press, on the cancellation of homeowners policies or drastic premium increases on Long Island and other coastal areas in the Northeast, is excellent if you look beyond the obligatory anecdote that starts and ends it. Two main points emerge from this story. First, behind the run-up in premiums are huge increases in median home values in coastal areas combined with a growing risk averseness of reinsurers. Second, the pressure for public subsidies of homeowners insurance is growing as fast as premiums: Citizens Property Insurance Co., a Florida state-run insurance pool and an insurer of last resort, is receiving 40,000 applications a month and is on a pace to eclipse State Farm as the state’s largest home insurer. For another example of point number two, check out this post by RiskProf about new rules for Fannie Mae and Freddie Mac mortgages that allow homeowners to qualify with policies that contain a deductible up to 5 percent of the home’s value.
Truth is both stranger and stupider than fiction. According to the BBC, a British insurer has dropped the policies, annually renewed since 2000, taken out by three sisters in Scotland meant to pay for the cost of bringing up Christ if one of them had a virgin birth. In return for a yearly premium of £100 (all apparently donated to charity by the insurer), the policies theoretically would pay £1million upon proof of the divinity of the child. I could say more about this but I really wouldn’t be saying anything you’re not thinking yourself. The policies were withdrawn after complaints from the Catholic Church. There is a goodly amount of discussion of this story in English blogs, about which I have one comment: you would think a Catholic priest would know the difference between the Virgin Birth and the Immaculate Conception. (Keep scrolling until you get to the entries for June 22).
The always interesting Ted Frank has some interesting thoughts about differing standards for lawyers and doctors who make mistakes or, at least, are behind a less than optimal result. Ted’s point is that lawyers get the benefit of the doubt in their actions, even if they lose, while doctors get sued. Ted studies this stuff for a living, and I don’t, but here a couple of my thoughts.
The differing standards may be because, due to vastly improved health care over the last 100 years, we have come to expect good health in a way we don’t necessarily expect to win in civil litigation. Win? Heck, a lot of people don’t even expect justice will be done in litigation. Anyone who doesn’t know that litigation is a brutal beast that is just waiting to eat you alive hasn’t been paying attention, and has certainly never read Dickens’ Bleak House or watched Boston Legal. (After all these years, who would have thought we’d find out William Shatner is a really good actor?) Also, if a lawyer messes up a case or is insufficiently diligent, one of the most effective sanctions is to fire the lawyer and withdraw all your business from him. It doesn’t really work out the same way with a doctor. A mistake that impinges on the integrity of your body also has a qualitatively worse effect than losing a case, especially if the losing litigant is an institution. Anyone have any other ideas?
A good FOB (friend of the blog) sent me a great story last week from the Wall Street Journal about a civil case brought against Purdue Pharma L.P. over spiraling legal costs incurred by the drug company in defending nearly 1,400 lawsuits over Oxycontin, the company’s prescription painkiller. I’ve been saving it for the right day, which is now, because I’m traveling.
Here’s the money graph: (as a former newspaper reporter, I know cool newspaper slang like saying "graph" for "paragraph")
"Though squabbles over insurance aren’t uncommon, this case went to extremes. Steadfast, based in Schaumburg, Ill., alleges that privately held Purdue hired 40 law firms in 32 states to fight the OxyContin claims. Purdue’s legal team includes 322 partners, 849 associates and 1,023 paralegals, Steadfast says. All told, they billed the company for more than 1.2 million hours of work, Steadfast alleges."
The total bill: more than $400 million in defense costs. The insured and the policyholder reportedly compromised at $200 million. The WSJ site is subscription only, so I can’t provide a link to the story, but here’s the next best thing: a link to the WSJ legal blog.
Here’s some more stuff you should know: most newspaper reporters hate lawyers (really, who doesn’t?), so stories like this one are very fun for reporters to write. I wrote a number of stories attacking lawyers myself (reporters always refer to what they write as "stories," never "articles"). One of my favorites was a story where I made fun of a federal judge who wanted the General Services Administration to buy land worth a couple million bucks in downtown Phoenix for a new courthouse rather than accept a free site from the city about six blocks away. His reason: the expensive site was closer to where all the lawyers were. Now, of course, I’ve seen the light and I would never make fun of a judge, especially if he wants to locate the courthouse closer to my office.