Resort hotels are really nice places to play golf or tennis, to swim, to go horseback riding or simply to rest and relax for a weekend or longer. Some of these resorts, while they can be expensive, can outshine some of the very best and expensive hotels around the U.S.
It is not uncommon to find vaults in each room. This service makes it much more convenient for guests than having to go to the front desk and open a safe deposit box. It also is reassuring to the guest that because there is only one key to the vault, valuables certainly will be safe. Of course, the guest has to guard the key carefully because it will cost considerably more to replace a lost key than it normally would. The idea is to penalize the guest for being careless.
In one such resort, a great mystery arose over a period of several days. The money, jewelry and other valuables stored in these individual vaults disappeared. The guests thought it had to be Houdini's ghost, since there was only one key to each vault and it was being closely guarded.
It took some sleuthing, but management finally decided that the thief had to be one or more employees. There was no other explanation. The problem was that the thieves could not be identified. It soon turned out that there were more problems confronting the resort hotel.
For one, the employee dishonesty bond limit was so low that it was even embarrassing to mention it as a possible means for reducing what was to be a big settlement by the resort. The resort also maintained an innkeepers liability policy and a burglary and robbery policy, both also for low limits. Much to the chagrin of the resort, the insurers of the latter two policies also denied any coverage.
The resort, after paying its agreed upon settlement of $300,000, started sweating since it did not know where to go to recoup its loss. In desperation, the resort, at the advice of counsel, decided it would be in the resort's best interest to file suit against the insurance agent for having sold the resort some worthless insurance policies.
At this point, the attorney had only one interest and that was to concentrate on the agent, since the agent's E&O policy should be more than enough to recoup the resort's losses and cover the attorney's fee.
What the resort's attorney had to do, however, was to find someone willing to assist him in explaining to the court that the conduct of the insurance agent fell below the standard for this particular situation. Parenthetically speaking, agents should not get involved in testifying against other agents. What can happen when agents testify against one another is to create a fictitious--and higher--standard than otherwise applies. What is even worse is that whether they testify for pay or not, agents may be creating a paper trail that one day may come back to haunt them if they are sued for an error or omission allegation.
This writer was one of those contacted to assist the agent. What he did was to give the scenario, the coverages, and then ask whether assistance could be provided. The result was not what he had expected. He was informed that with a $300,000 loss and a commercial general liability policy limit of
$1 million, the loss was payable in full without having to seek recourse against the insurance agent.
How, one might ask, can a CGL policy apply in this instance? Fortunately, in its December 1991 issue, Rough Notes had run an article (prepared by this writer) on this very subject citing court decisions to prove the point. The article not only saved an agent's day in court but also helped to convince the CGL insurer that the loss was covered.
What this article explained was that, given the right circumstances, a CGL policy could apply to make good the financial loss sustained by third parties when the employer is vicariously liable for the actions of its employees. Briefly, theft of tangible property is considered to be property damage of the second type defined in the CGL policy--that is, loss of use of tangible property that has not been physically injured. That is a well-known fact, and it can be substantiated by many court decisions.
Some people will argue that this type of loss cannot be covered because it is (1) property in the care, custody or control of the insured, and (2) theft is intentional conduct. The first argument might have some merit in certain circumstances, but when valuables are retained in vaults where only one key is available, it is difficult to maintain that the valuables are within the resort's care, custody or control.
The second argument lacks complete merit. Certainly there should have been no coverage for the thieves had they been identified. But what some people fail to realize is that a liability policy is several in nature. In other words, it applies separately against whom claim is made or suit is brought. So, if the policy does not apply to one insured, it does not mean that the policy cannot apply to others who may be confronted with claim or suit.
As a matter of fact, the policy clearly explains this concept under a condition titled "Separation of Insureds." The point is that, while no coverage applies to the suspected employees, the policy still applies to the employer for any liability imputed to it because it was careless in employing dishonest people.
As was mentioned above, the Rough Notes article has been used many times in assisting agents whose clients have been confronted with similar situations and where insurers have denied coverage. Some articles may be good for the moment they are printed, but others can offer long-lasting assistance in complex situations.
The aforementioned article has not been the only one known to assist an agent that this writer knows of. There are a number of such articles. One more such episode might be worth mentioning, since it is very timely. It is a complicated case because it involved construction work, a certificate of insurance, alleged additional insured status, failure to provide notice of cancellation, and financial disaster.
What happened here is that a general contractor sought additional insured status and proof by way of a certificate of insurance. The policy written for the subcontractor was a bit unusual because the insurer agreed to give additional insureds notice of cancellation of the subcontractor's policy provided the insurer was notified of that requirement in writing. This is unusual because insurers do not usually promise to do that. In fact, the ACORD certificate of insurance states that the insurer will "endeavor" to give notice. The policy would have to be endorsed to reflect that promise and most insurers do not do that as a matter of custom and practice.
In any event, the insurer was never notified of any such agreement requiring additional insured and notice because the subcontractor never alerted the agent to any contract. So when the policy was canceled, the general contractor did not know anything about it. In fact, the general contractor learned about the cancellation long after it happened and, of course, after there was a loss.
So the inevitable and expected happened. The insurance agent was sued for a number of reasons. However, this writer explained that the agent was not at fault for having failed to notify the insurer of a notice requirement in a contract because that obligation of notice fell on the named insured subcontractor. The question posed to this writer was whether there is anything in print to show what the insured's obligation is.
What was needed was an article pointing out what the conduct of an insured was. A Rough Notes article printed some eight years earlier explained in very clear terms that it is the obligation of the insured who signs a contract to give it to his/her insurance representative. It is not the agent's obligation to ask for it. *
©COPYRIGHT: The Rough Notes Magazine, 1999