Property/Inland Marine Case Scenarios
Understanding different types of insurance claims and how they relate to various insurance products can be helpful. Being able to identify possible exposures or gaps in coverage can be useful information when assessing coverage needs.
The information below is a general summary of the cited claim. Please refer to the citation itself for a complete copy of the cited claim. Additionally, the Claims Summary is not an affirmative statement as to the availability of insurance coverage for a particular Client or insured. Please refer to the actual terms of your policy or quotation regarding definitive terms and conditions of coverage.
CLAIMS SUMMARY 1
A pipeline contractor had secured a builder’s risk policy. In turn, the pipeline contractor decided to contract with a gas transmission company so that the Apex Pipeline Wasatch Loop project, which encompassed the installation and construction of a 28-mile gas pipeline along a right of way throughout a Utah mountain range, could be completed. During the initial part of the project, construction, and roadway improvements had to occur to access the right of way; this involved excavation, and an exceptional amount of precipitation fell during the fall and winter seasons. This level of precipitation damaged the access roads constructed by the contractor and made it challenging to travel and work along the right of way, which also increased equipment and labor costs. Following this, the pipeline contractor filed a claim with its building risk insurer for the access road damage, environmental control equipment damage, and additional losses relating to the right of way. In response, the building risk insurer agreed to pay for the losses associated with the access roads and environmental control equipment but declined to pay for the right of way losses. The pipeline contractor received $1,486,949 for the claim but was denied the remaining claim losses that totaled more than $17 million based on the insurer’s conclusion that the right of way did not constitute covered property and that there was no damage to it. Here, the Court determined that the right of way constituted covered property under the builder’s risk policy. The right of way was considered a structure under the terms of the policy, and the policy did not further limit the definition of structure within the policy. The policy’s land exclusion did not prevent coverage, and the additional coverage for the site preparation would not be inconsistent with this policy’s interpretation. View Citation >
DID YOU KNOW: A builder’s risk policy can include coverage for physical loss or damage to a construction site. A policy’s definition of covered property can vary significantly, and it may even include a right of way as a covered structure under the policy. Significant amounts of rain can be common occurrences at any construction site and can even impact the transportation of materials. Resulting debris removal can also result in increased costs.
CLAIMS SUMMARY 2
A general contractor for two different projects secured a first-party, builder’s risk policy. One of the projects involved the construction of a six-story, 57-unit condominium, and an extremely heavy rainstorm lasted for five days in which each daily rainfall average was five times the typical average. In addition, winds surpassing 20 miles per hour also affected the area. As a result, water entered through unfinished openings and defectively constructed waterproofing components at the construction site, leading to water damage to the building’s interior. After a thorough investigation of the damage, the general contractor submitted the claim to its builder’s risk insurer about one year following the incident. The insurer argued that the damage was caused by flood testing in which the deck drains were blocked, and the deck was filled with about seven inches of water. The claim was denied, and the general contractor filed suit to resolve liability for the wind-driven rain. At this stage of the proceedings, the Court found that it was unable to determine whether the defective construction or the weather conditions caused the loss at issue, so summary judgment was denied. Even though the builder’s risk policy was an all-risk policy, certain exclusions, such as defective construction and specified weather conditions, were present within the policy. View Citation >
DID YOU KNOW: A builder’s risk policy can cover damage to a construction site caused by a windstorm or hail. There may be exclusions for defective construction under a builder’s risk policy, preventing coverage for resulting property damage attributed to the defective construction.
CLAIMS SUMMARY 3
An exploration and production company had secured a builder’s risk policy, encompassing coverage for physical damage and third-party legal and contractual liabilities, for the site of an oil and gas development project. The deepwater drilling and production project was $400 million, allowing for an estimated 80 to 100 million barrels of oil equivalent. During the construction of the compliant tower, a mainline on a crane mounted on a barge failed, leading to the suspended deck section falling into the Gulf of Mexico. Before the construction began, the exploration and production company had secured a contract with a contractor for the engineering, fabrication, and installation of the compliant tower, which would be used as an offshore drilling and production tower. The crane had been previously inspected, but design and other condition issues were not identified. After the second installation of the module onto a previously constructed support frame for the compliant tower, the wire rope of the crane failed, and the second module was dropped to the sea floor. The exploration and production company was the primary insured and received more than $72 million under its builder’s risk policy for the losses associated with the dropped module, but not for the delayed production costs that it incurred. In turn, the exploration and production company sued the engineering firm that inspected the crane and its parent company and initiated arbitration with the contractor. The dispute with the contractor was subsequently resolved. The exploration and production company sought $90 million in damages from the company responsible for the design, manufacturing, and marketing/sale of the crane. However, the damages award still had to be determined at trial. Here, the Court determined that the engineering firm was an Additional Insured under the builder’s risk policy. Even though the engineering firm was a subcontractor and was subject to approval by the exploration and production company, the Court found that other sections of the contract would not change this subcontractor status. This case demonstrates the varying and expansive costs of an equipment malfunction in a construction project. View Citation >
DID YOU KNOW: A builder’s risk policy can cover your construction site from physical loss or damage, including property damage. Construction sites can have a wide array of forms. This case shows how malfunctioning equipment on a construction site can have very costly effects, including but not limited to property damage.
CLAIMS SUMMARY 4
A company hired to construct a dock in the Mississippi River had secured a builder’s risk policy. The company hiring the construction company to complete the project was named as an additional insured, and it owned the dolphins to be installed. As part of this dock project, the construction company installed mooring dolphins in the river. While construction was still in process, one of the dolphins was hit by a vessel. Following this, the construction company repaired the damaged dolphin, and incurred $1.254 million to do so; it then submitted the claim to its builder’s risk insurer. The claim was paid, and an additional $485,000 was also paid to the construction company. This payment was paid to the company that hired the construction firm to complete the dock project minus the hiring company’s share of the deductible. In response to paying out more than $1.7 million for this claim, the builder’s risk insurer sought recovery from the owner of the vessel that damaged the mooring dolphin. The Court found that the $1.254 million sought from the builder’s risk insurer for the repair costs was justified in the subrogation action, and the portion of the $485,000 paid to the company that hired the construction firm was also recoverable. This helps to illustrate how a builder’s risk policy can operate when damage caused by another occurs during the construction process and significant property damage results. View Citation >
DID YOU KNOW: A builder’s risk policy can protect against property damage that occurs during the construction of a dock. This example shows how property damage may be caused by a third party during the construction process. Under the builder’s risk policy here, the damages incurred were recoverable under the terms of the policy.
CLAIMS SUMMARY 1
Over two years, a contractor and its affiliates rented fourteen pieces of equipment from an industrial equipment company. Part of the lease agreement between the two required that the equipment be insured, and a contractor’s equipment all risk policy form was secured. The contractor filed for bankruptcy, and the industrial equipment company’s insurer was able to pursue its claims against the now-bankrupt contractor and its insurer following the rental equipment damage. It was determined that one of the endorsements provided coverage for the damaged rental equipment, but the industrial equipment company’s insurer would only be able to recover $324,870.48, and once the $70,000 deductible was factored in this amount would total $303,310.48. Under the policy’s schedule of equipment, each piece of equipment had a $5,000 deductible if its value was under $250,000, which was the case here. The industrial equipment company’s insurer argued that it was due $1,000,000. Ultimately, the Court found that a prorated share of $303,310.48, representing a 30.8 percent share of the contractor’s insurer, was the appropriate damages award. This case shows how a contractor’s equipment policy can provide coverage for damaged rental equipment given the circumstances presented here. View Citation >
DID YOU KNOW: Equipment insurance is a form of insurance that can cover lost, damaged, or stolen equipment even while in transit. One coverage benefit can even include the replacement costs for covered tools and equipment. Here, securing a contractor’s equipment policy was a condition specified within the lease agreement, and under the circumstances presented recovery was available for the damaged rental equipment.
CLAIMS SUMMARY 1
An insured cargo carrier sought coverage from its motor truck cargo insurer for the loss of its stolen cargo. When the loss occurred, the cargo was stored in a trailer on a lot. This trailer was later attached to a scheduled tractor under the policy of the thief and removed. The Court emphasized that there was no requirement that limited coverage to only a particular person who attaches the trailer to the tractor. Rather, the loss of the cargo here occurred when the trailer containing the cargo was attached to the tractor and then taken from the lot. A breach of contract on the part of the motor truck insurer was established. As required under the policy, the tractor and the trailer were physically attached at the time of loss and were covered under the policy. View Citation >
DID YOU KNOW: Motor truck insurance can cover your cargo and warehouse (if the load cannot be delivered on the same day for up to 75 hours) both loading and unloading. It can include coverage for damage and replacement costs in the event of damage by collision, fire, water damage, equipment failure, or even theft. Even though the thief removed the insured’s cargo contained in the trailer, the trailer was then attached to a covered tractor under the policy.
CLAIMS SUMMARY 2
An auto transporter’s tractor-trailer was hauling a nine-passenger vehicle consolidated load when it caught fire. The source of the fire was attributed to the heat generated from a failed wheel bearing. The estimated damage of the eight vehicles totaled $244,376. The auto transporter had secured a motor truck cargo policy. One of the shippers involved sued the auto transporter for damage to two of its vehicles from the fire, and the auto transporter sought policy coverage and defense and indemnification costs for $244,376. The insurer argued that it had no duty to defend or indemnify the auto transporter and argued that the policy coverage available was limited to $237,500 in cargo loss. At this stage of the proceedings, additional depositions and briefings were to still be held. The Court did note that the insurer did not owe a duty to defend, but it still indicated that a claim for indemnification would still be a possibility since the source of the fire, the maintenance of the trailer, and the policy interpretation were still outstanding issues. View Citation >
DID YOU KNOW: Motor truck insurance can include coverage for damage and replacement costs that result from fire and equipment failure. The source of the fire was still to be determined here, but one possible source of the fire was a failed wheel bearing (equipment failure).
CLAIMS SUMMARY 1
A company provided rail testing services to railroad companies. As part of this testing, some of the cars remain on the tracks permanently while other cars could be used on both roads and train tracks (high railers). When the cars were removed, the rail testing services personnel would typically remove them at night and take them by road to a motel. The rail testing services company had secured a comprehensive railroad property insurance policy, which included a policy endorsement for railroad rolling stock and equipment. An accident occurred on a Texas highway, and one of the high railers was damaged. Following this, the rail testing company sought coverage for property damage and business interruption, but coverage was denied because the insurer noted that the location of the accident was the highway rather than the railway. The insurer argued that the high railer car should be classified as a motor vehicle and not rolling stock or equipment, so coverage would not apply. At issue here was whether the high railer car constituted rolling stock at the time of the accident on the highway. The Court determined that because the insurer did not differentiate between rolling stock being operated on the railway as opposed to the highway, the claim was covered under the policy. Lost business income was also recoverable under the railroad business income coverage endorsement. View Citation >
DID YOU KNOW: Rolling stock coverage can include coverage for physical damage that results from either self-propelled or non-propelled vehicles that operate on a railroad line. This case was unique because the high railers could operate on both roads and train tracks, and the policy did not distinguish between rolling stock being operated on the railway as opposed to the highway.
CLAIMS SUMMARY 1
A jewelry salesperson had two garment bags containing jewelry in the trunk of his car. Shortly after leaving his home, he noticed a noise coming from the rear of the vehicle, so he pulled over to examine the cause. He left the car running while he went to inspect it further. While he was busy checking the exhaust pipes, a thief was able to get into the car and drive away. The salesperson was not more than two feet from the car while he was outside of the vehicle before the theft occurred. The car was eventually found, but the jewelry was missing. Some of the missing jewelry was manufactured by one jewelry manufacturer/marketer in particular, and this jewelry manufacturer/marketer had secured a jeweler’s block insurance policy. The policy covered direct physical loss to the applicable jewelry, subject to certain exclusions. Theft of the jewelry was covered, but the insured or designated employee had to be in or upon the vehicle when the theft occurred. The insurer denied the claim, citing the fact that there was no evidence that the jewelry salesperson was physically touching the car when the theft occurred. Here, the Court determined that the circumstances present here met the requirements of an exception to the vehicle theft exclusion. Because the term was ambiguous, the fact that the salesperson was near the vehicle when the theft occurred was sufficient. View Citation >
DID YOU KNOW: Specie insurance provides coverage for valuable items that are often difficult to replace or reproduce. Coverage can include diamonds and precious stones. As was the case here, the vehicle was eventually recovered, but the jewelry was never found.
CLAIMS SUMMARY 1
A bed manufacturer entered into a warehouse service agreement with a warehousing and transportation company. Under this agreement, the warehousing and transportation company would both store and transport foundations and other bedding accessories for the bed manufacturer. After storage and transport were complete, the bed manufacturer would send payment within 45 days of receiving an invoice. Under the warehouse service agreement, the warehousing and transportation company was responsible for providing sufficient pallets, boxing, and labels for product shipping. During the first year of this agreement, adequate shipping materials were provided, but in 2017 less expensive and lower-quality pallets were provided. Even though the bed manufacturer expressed concerns about the lower-quality pallets and the risk of product damage, the advice was not followed. Product damage was discovered in 2019 when the bed manufacturer performed a regular inventory at the warehouse and found significant product damage. Following this discovery, the bed manufacturer refused to send payment for the warehouse services provided, which were estimated to be about $90,000. By 2020, the warehouse operator unilaterally ended the warehouse service agreement, and an estimated $227,192.77 was due on the bed manufacturer account. The bed manufacturer sued the warehouse operator, and a settlement agreement of $104,300 was reached by the parties, which included the return of the bed manufacturer’s products. The judge instructed the parties to work with the insurance company to determine claim coverage and damages. Prior to this, the warehouse operator had secured a commercial inland marine insurance policy, and this policy included a warehouse legal liability coverage form. The warehouse operator had filed a claim with its insurance company, and the first offer of settlement by the insurance company following its inspection of the damaged products was $51,975 (based on the warehouse receipt). This amount was based on the warehouse legal liability coverage section. The bed manufacturer rejected this offer. The inland marine insurer was asked if it would increase its settlement offer, and the warehouse operator also sought defense and indemnification expenses from its insurer because it intended to pursue a counterclaim against the bed manufacturer. In summary, the Court found that the commercial inland marine insurer had a duty to defend under the provisions of the policy. The warehouse operator’s motion for summary judgment was granted. View Citation >
DID YOU KNOW: Warehouse legal liability coverage is intended to respond to the direct physical loss or damage of property during the storage, cross-docking, or other services provided by the warehouse operator. Here, the goods from the bed manufacturer were received by the warehouse operator, and damage was discovered when the bed manufacturer performed its regular inventory inspection at the warehouse. The physical loss of the property occurred while stored at the warehouse.
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