August 2017 E-Bulletin
This month's E-Bulletin topics include:
- Multiple Exposures and Policy Limits: Consider the Options
- Clerical Error Update
- Can Construction Defect Cases Be Heard with AF?
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Multiple Exposures and Policy Limits: Consider the Options
Imagine you are handling a liability claim for a multi-car rear end collision, and your insured's Property Damage policy limits are $10,000. Your insured was the third car of four (R1), and there is a disagreement regarding liability. Based on liability arguments made by other parties, your exposure includes full damages to the cars that were ahead of your insured. The insurer of the second car filed in arbitration against your company and the company for the fourth car (R2), in the amount of $8,100 (including the $500 deductible).
The owner of Car 1 does not carry collision coverage on her 1997 Nissan Sentra. The damage to Car 1 noted in the police report is estimated at $1,500—$2,000, but the owner has not presented a claim for her damage. What options do you have as Respondent 1 in this scenario?
You could raise an Affirmative Defense (AD) of Multiple Exposures and state that in addition to the Applicant's claim, there is a potential claim for damage to Car 1, citing the officer's estimate of damage in the police report. The police report might suffice as evidence to support the exposure of Car 1, but the arbitrator may or may not find the information in the police report sufficient to prove the exposure. Some reasons why the arbitrator may find it insufficient include:
The police report estimate of damages is not an actual repair estimate.
The damages could exceed the value of the Nissan, and the actual exposure could be relatively low.
The Respondent has not submitted documentation that the Car 1 owner has actually presented a claim.
Another option is to request a deferment. Your Deferment Justification would explain that time is needed to investigate the potential claim of the Nissan owner as well as any potential out-of-pocket claims (including those of the Applicant's insured), and to either rule them out or document that the amount of claims presented is truly above the $10,000 liability limits. The Guide for Arbitrators considers out-of-pocket expenses as support for an AD of limits as follows:
"...Stating that the Applicant may have out-of-pocket expenses is not enough to uphold an Affirmative Defense for insufficient limits. There must be proof that out-of-pocket expenses exist to uphold for this reason. For the Affirmative Defense to be denied, the Applicant will indicate it will make its insured whole for out-of-pocket expenses in the Affirmative Pleadings section (Guide for Arbitrators, Page 23)."
Article Second (d) is intended to protect member companies from paying more than policy limits. Requesting a deferment to allow time for unknown exposures to be presented or quantified is an ideal option to help protect the responding company while preserving the Applicant's recovery rights.
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Clerical Error Update
AF is always listening to our members regarding our products and services, making sure they provide the highest possible quality and member satisfaction.
Based on member feedback, the following change to the definition of Clerical Error (noted by underline) will be effective for all cases heard on and after July 1, 2017, with the exception of cases filed in the NYPIP forum.
"Clerical Error — A mistake made by Arbitration Forums' staff or the arbitrator(s). Examples of AF staff error include not providing proper notice of the Materials Due Date or not assigning a requested three-person panel. Arbitrator errors include mathematical errors; switching the parties when recording the liability decision; referencing the lack of or need for evidence that was, in fact, submitted; applying, on his/her own, a state regulation or statute from a state other than the loss state; or misapplying an AF Rule or procedure. It is at AF's sole discretion to determine whether a correctible error was made."
For further clarification on this change, please see Page 58 in the Reference Guide to Arbitration Forums' Agreements and Rules.
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Can Construction Defect Cases Be Heard with AF?
Construction defect cases can be rather complex and involve multiple parties. There are often matters of liability to be sorted out, but there are also disputes over coverage and defense. It is common practice in the world of construction for the general contractor to require that it be named as an additional insured on its sub-contractors' liability policies. Because construction defects are often not discovered for quite some time after substantial completion of the project, a contractor may have been insured with multiple carriers between completion and notice of the defect, leading to disputes concerning time on risk and defense costs.
AF's Special Forum is designed to process construction defect cases as a concurrent coverage matter and/or contribution among co-defendants. Our rules define a construction defect dispute as "Special Arbitration: A dispute among one or more Casualty insurance companies or entities that are 'Self-Insured' for a construction defect claim involving completed operations resulting in damages to real property for which one or more Insurers or Self-Insurers provided defense and/or indemnity for the construction defect claim and allege that one or more other Insurers or Self-Insurers provided concurrent coverage for the same construction defect claim."
AF's Special Forum provides our members with an opportunity to defend their insured and settle construction defect claims with the damaged party, then to pursue contribution from the responsible party's insurer. This allows you to cap costs and save time in your recovery efforts. Members may also defend and indemnify a co-named insured and file arbitration in the Special Forum for recovery of those costs. Of course, the Special Forum can also be used to sort out matters with non-signatory insurers or self-insured parties with written consent.
Construction defect cases in the Special Forum are heard by arbitrators certified in construction defect claims. AF is always looking for experienced claims professionals to serve as arbitrators. If you have experience in construction defect claims and have an interest in serving as a construction defect arbitrator, please visit our website's Becoming an Arbitrator page.