Coverage Concerns

Making a case for excess casualty

Budget-conscious buyers may need re-education about the legal climate

By Lorraine Seib

With the economy sputtering and businesses looking for ways to trim expenses, insurance premiums may become a target for corporate budget cutters. That’s especially true for excess casualty coverage. After all, one definition of the word “excess” is “beyond what is necessary.” A customer may well reason that with primary coverage and an umbrella policy already in place, excess casualty is an option that can be tossed overboard without consequences.

Excess casualty coverage, however, is the one lifeline that may protect a business when that low-frequency, high-severity incident comes along that is difficult to foresee and even more problematic to avoid. What can an agent or broker do to help customers understand the dangers that lie ahead when they fail to adequately protect themselves against risk?

They can provide the hard facts about today’s litigious environment and the high cost of ignoring potential future liabilities. And they can illustrate how easy it is to become the target of a legal action even when a company’s involvement is peripheral and seemingly innocuous.

Facts and figures paint a starkly realistic picture for customers who pride themselves on being pragmatic. Sharing some of these statistics helps define the extent of risk:

• 40% of all companies surveyed in the latest Fulbright & Jaworski annual report on corporate litigation said they had at least one lawsuit filed against them for $20 million or more in damages. The report indicates even the smallest companies do not escape the potential for legal action. While nearly all large companies had a least one lawsuit filed against them in the past year, a startling 58% of the smallest companies found themselves in that position.

• Having company cars and other vehicles is one of the most dangerous areas of exposure. Marsh’s Limits of Liability report for 2006 identified motor vehicle lawsuits as one of the top drivers of casualty costs, with 13% of the top 100 lawsuit awards across the country attributed to automobile cases.

Jury and settlement awards have soared far beyond the hundreds of thousands of dollars that used to be the expected outcome for vehicle injuries or deaths. In 2006, the largest motor vehicle award was $30.6 million to an 18-year-old who was severely injured and will require lifelong medical care. Settlements for single-injury cases (where there are not multiple people involved in a crash) now are routinely in the $3 million to $5 million range.

• The same Marsh report notes that the median award over 10 years (1996 through 2006) in cases that resulted in paralysis was more than $7 million; for injuries resulting in severe mental deficiency, the median award was $8 million.

• The total cost of civil liability continues to grow across the country. A 2006 Tillinghast-Towers Perrin report found that U.S. tort expenses in 2005 totaled $261 billion, an increase of 0.5% over the prior year.

These statistics are an indication of the risk that businesses face every day. Multi-million-dollar damages are becoming routine, so it does not take much for an incident to grow beyond the scope of a company’s umbrella policy, let alone its main coverage.

But what can agents and brokers do with customers who insist that their exposure is limited? Perhaps they own no company vehicles, or are confident that their product or services hold no hidden dangers. For these head-in-the-sand customers, it is important to talk about deep-pocket liability and the varying laws that states have enacted to hold companies accountable—even when their share of liability for an injury is as little as 1%.

In addition, agents can talk about cases where misuse of a company’s product or negligence on the part of the injured party was not a strong enough defense to ward off liability. For a variety of reasons, juries are often sympathetic to plaintiffs, even when the facts clearly do not warrant an award.

The following are just a few examples of cases that are moving through the court systems today:

• The Illinois Supreme Court says a Burger King can be held liable for the death of a customer who was eating there when a car crashed through a wall and plowed into his table. The liability was held to exist even though the Burger King was not in an inherently dangerous building; all building codes had been met; and there were no similar prior incidents that would have constituted a warning to the owners of the Burger King that protective measures were needed.

• A riding lawn mower manufacturer was held accountable by a Virginia jury when the operator of one of its machines put in the clutch on a slope, rolled backwards and killed a child. The jury awarded $2 million, apparently buying the plaintiff lawyer’s argument that despite meeting industry standards and providing clear warning labels and detailed safety instructions with the mower, the company should have gone a step further and designed a fail-safe mechanism that would have stopped the blades when the mower moved backwards.

• Two young men in Pennsylvania won a $24 million award when they trespassed on to railroad property, climbed to the top of a rail car to see the view, and suffered injuries from touching a 12,500-volt wire. The jury apparently agreed with the men’s lawyers that the railroad should have posted signs that would warn trespassers about the dangers.

• In a New Jersey case, a college student sued the maker of his loft bed when he awoke from a nap, rolled over and fell to the floor, injuring himself. A jury agreed with him that the bed should have carried a warning label about the possibility of falling. While an appellate court later reversed the award, saying the danger was “open and obvious,” the manufacturer still suffered costs from the lengthy litigation.

When someone who is clumsy with a cup sues a fast food restaurant for serving coffee that is too hot, the national conversation momentarily focuses on how often lawsuits are filed in this country in an attempt to blame someone and collect damages. When the spotlight moves on to the next story-of-the-day, it is easy to think such suits are aberrations. But they are not; businesses are all-too-frequent targets, whether problems arise from their own actions, the actions of their customers or even their tangential or inadvertent involvement.

The agent or broker who can help customers understand the need for prudent decisions about coverage will earn their gratitude in the event that the unexpected becomes a painful reality.

Making the case for the value of excess casualty insurance may rely on agents delivering hard facts and vivid examples to customers who would prefer to ignore reality. It also may help to dig deeper into the dictionary when explaining to customers why excess casualty is necessary. As Merriam-Webster’s Dictionary of Law recognizes, “excess” isn’t just a word that denotes too much. It can also simply mean more than a usual or specified amount—a necessity in today’s litigious society. *

The author
Lorraine Seib is president of Travelers Excess Casualty Division. She has more than 25 years of experience with primary and excess casualty insurance, as well as with the reinsurance industry.