Goshawk shares halve on reserves warning
GOSHAWK, the insurer swamped by claims from the Columbia space shuttle disaster and The Accident Group (TAG), yesterday admitted that its troubles were worse than first anticipated, warning that it needs a “material increase” in its reserves that may cause it to breach its banking covenants.
Shares in the Lloyd’s of London insurer collapsed, falling more than 50 per cent to close at 36p. This is the second profits warning from the company in three months. It is one of the main insurers of the Columbia, which crashed earlier this year. Goshawk also provided insurance to cover TAG customers’ legal expenses, but has hit problems following TAG’s move into administration earlier this year.
These factors led Goshawk in effect to put itself up for sale in July, when it issued a profits warning and said it was exploring all options. It also employed KPMG to conduct a thorough review of the reserves in its Syndicate 102. With this actuarial review now all but complete, a statement from the company yesterday said that a “material increase in reserves is required”. This means that its results for the first half of the year will be “materially below market expectations”.
Goshawk said it was in talks with its banks to secure their continued support. Numis Securities lowered its expectations for Goshawk by pounds 20m, believing the insurer will make a pounds 21.5m loss in the first half of the year.
The insurer also said it was failing to recover the cost of claims from reinsurers, which was also putting pressure on reserves. The company’s chairman, David Hooker, last month agreed to resign.
Analysts yesterday said, however, that the business was unlikely to go bust as it has a successful reinsurance division based in Bermuda. The company said this unit was performing well.
The news of Goshawk’s troubles came as Nick Prettejohn, chief executive of Lloyd’s of London, urged reform in the 315-year-old market. Speaking at the Chartered Insurance Institute’s annual conference in London, Mr Prettejohn said companies in Lloyd’s had been operating in an “unchanging, forgotten and inefficient backwater”. Insurer have been struggling to overcome huge claims from hurricanes, floods and the September 11 attacks, but Mr Prettejohn said the Lloyd’s market was now financially strong.
Goshawk’s fortunes contrast sharply with that of other insurers. Following the World Trade Centre attacks, most general insurers have been enjoying record results this year as premium rates have soared. Cox Insurance, the UK’s largest motorcycle insurer, yesterday reported that profits for the first half of the year had more than doubled and it would return to paying dividends this year. Kiln, another Lloyd’s insurer, also said its first-half profits had more than trebled as it reaped higher premium rates. It said the market continued to be robust.
Mr Prettejohn warned, however, that insurers could become “slaves to history” if they were not strict with the risks they take on board.
AireSurf Announces Representation Agreement
AireSurf Networks Holdings Inc. (the “Company”) is pleased to announce that it has entered into an agreement with Invotex Group (”Invotex”) for the sale, licensing and commercialization of its wireless booster products. In consideration for acting as the Company’s exclusive representative, Invotex will be paid 12% of the gross revenues received from the first contract and will be reimbursed for all of its expenses relating to the agreement. The term of the agreement is for one year.
Invotex provides accounting and financial consulting services to the business and legal communities, financial institutions, insurance companies and governmental entities in matters involving disputes, investigations, reorganizations, insurance and valuations. Invotex also offers advisory services for intellectual property owners, including licensing, technology evaluation and license compliance, asset management and enforcement of intellectual property rights. The firm, headquartered in Baltimore, Maryland, also has offices in Philadelphia, Pennsylvania and Washington, D.C. For more information about Invotex, please visit its website at www.invotex.com .
The Company also wishes to announce that the FCC has provided verbal approval for its wireless booster products for North America and Europe. The Company expects to receive written confirmation within the next two to three weeks.
Robert Dickie has been appointed to the Company’s board of directors. Mr. Dickie is the President and founder of Spark Innovations Inc., created in 1989, following 20 years of new product innovation and business management. Mr. Dickie began his career in Montreal as a computer peripheral technician for General Electric, rising to Service Manager for Quebec and the Maritimes. In 1992, Mr. Dickie won the prestigious Manning Award for Innovation, and in 1995, he won the Canadian Entrepreneur of the Year Award.
The Company has granted 550,000 options to purchase common shares of the Company exercisable at a price of $0.10 per share for a period of five years to a director and consultant of the Company. The common shares issuable upon exercise of the options are subject to a four month hold period from the original date of grant.
Travelers introduces identity fraud coverage
Travelers Property Casualty Corporation is now offering consumers insurance for the cost of clearing their name and correcting their financial records if they are the victim of identity fraud. Called Identity Fraud Expense Coverage, it can be added to a Travelers homeowners or tenants policy in selected states for an additional premium of $25 Der year.
Policyholders can be reimbursed for up to $15,000 in expenses incurred as the result of being subjected to identity fraud. Covered expenses are legal costs, loan reapplication fees, telephone and certified mailing charges, notary expenses, and lost wages for time taken from work to deal with the fraud.
To help consumers combat identity fraud, Travelers offers a free brochure that explains the severity of the crime, presents useful tips on how to avoid being a victim, and provides advice on what to do if victimized.
Personal Finance: Loose Change
THE FINANCIAL Services Authority (FSA), the financial regulator, has published two free information booklets for consumers who are considering opting out or transferring out of their employers’ pension schemes. The first publication is the FSA Guide to Risks of Pension Transfers. The second is the FSA Guide to the Risks of Opting Out of Your Employer’s Pension Scheme.
HOLMAN RISK & Insurance Management, the insurance intermediary, is launching an executive home insurance plan with a benefits that include up to pounds 50,000 legal expenses, pounds 25,000 personal accident cover for accidental death, free fifth year’s insurance if there are no claims in the first four years, free pet insurance, no interest for monthly premium payments and UK and European vehicle breakdown cover. Prices vary.
Protect your property
IMAGINE losing everything in your home. Gone are your furniture, clothes, computer and appliances. Would you have the money to replace it all?
Property owners usually have insurance to cover the structures they live in. But as a renter, it’s your responsibility to insure personal belongings within the building. Renters insurance can help you cover the cost of starting over should the personal items in your home be damaged or lost.
Most rental-insurance policies cover the replacement value of personal property. Some may also cover additional living expenses incurred as a result of the loss, liability coverage should someone get hurt in your residence and legal defense costs.
If renter’s insurance is right for you, shop around for the best deals and policies. You can determine the amount of insurance you need by taking inventory of your property and estimating its value. Be sure the company you choose will reimburse you for the replacement value of your property rather than the property’s current value, which is usually lower. Discounts may be available if you have more than one policy with the same company.
Law Report: Legal expenses insurer need not pay costs
An order for costs against a non-party, such as the legal expenses insurers of an unsuccessful plaintiff, should only be ordered where exceptional circumstances made it reasonable and just to do so. The mere fact that the insurers had funded the litigation under a commercial agreement was not enough to justify such an order.
The Court of Appeal dismissed an appeal by the first defendant, Young & Co’s Brewery plc, against the refusal of Mr Griffiths- Williams QC, sitting as a deputy High Court judge on 9 May 1995, to order the second defendant, Sun Alliance & London Insurance plc, to pay the first defendant’s costs of an action brought against it by the plaintiffs, Daniel Joseph Murphy and Christine Anne Murphy. The Murphys were employed by Youngs to manage a public house. Youngs dismissed them for breach of duty. The Murphys brought an action for wrongful dismissal. Their claim was dismissed and Youngs were awarded pounds 16,000 on their counterclaim together with almost all the costs, taxed at pounds 42,806. The Murphys were insured by Sun Alliance under the American Express Legal Expenses plan. Their limit of cover in respect of any one claim was pounds 25,000. They exhausted their right to indemnity in respect of this action, their own expenses having exceeded that limit. In these circumstances Sun Alliance denied any liability to meet Young’s costs in the event of the Murphys being unable to do so. Andrew Hillier (Druces & Attlee) for Youngs; Stuart Isaacs QC and Neil Calver (Osborne Clarke) for Sun Alliance. Lord Justice Phillips said that the jurisdiction provided by section 51(1) of the Supreme Court Act 1981, under which costs “shall be in the discretion of the court, and the court shall have full power to determine by whom and to what extent the costs are to be paid”, was not subject (as had been believed) to an implied limitation that costs could only be awarded against those who were parties to the litigation: see Aiden Shipping Co Ltd v Interbulk Ltd {1986} AC 965. However, an order for the payment of costs by a non-party would always be exceptional. The ultimate question was what was reasonable and just on the facts of the individual case. In Chapman Ltd v Christopher (unreported; 23 May 1996) the plaintiffs recovered damages in excess of pounds 1m from an impecunious defendant who was covered against liability for damages and costs up to pounds 1m under his mother’s household policy with Sun Alliance. Judge Zucker QC ordered Sun Alliance to pay the plaintiffs’ costs. But it would not always be appropriate to order liability insurers to pay the plaintiff’s costs where they had unsuccessfully defended a claim against their insured if the result would be to render them liable beyond their contractual limit of cover. In this case, Sun Alliance had funded the Murphys’ litigation under a commercial agreement, but that seemed the only ground that could validly be advanced for ordering Sun Alliance to pay Youngs’ costs. In particular: 1) Sun Alliance had no interest in the result, save insofar as this affected their liability to pay costs. 2) Sun Alliance did not initiate the litigation. They were contractually bound to fund it up to the limit of pounds 25,000 and would have been better off if the litigation had never commenced. 3) Sun Alliance exercised no control over the conduct of the litigation. 4) Sun Alliance could not be accused of “wanton and officious intermeddling” in the dispute. Legal expenses insurance was in the public interest, particularly if it was on the terms of the cover in this case. An order under section 51 that a non-party pay costs would only be justified when exceptional circumstances made such an order reasonable and just. This case did not fall within any of the categories of exceptional circumstances that might justify such an order. The existence of legal expense insurance with a limit of cover that had been exhausted did not make it reasonable or just to order the insurer to pay the costs of the adverse successful party. Paul Magrath, Barrister.
Anticipating and controlling rising malpractice insurance costs
Escalating malpractice insurance costs can take a huge bite out of providers’ budgets, but measures are available to ease the pain.
The unprecedented proliferation of large jury awards and settlements in medical malpractice cases over the past few years is expected to continue in 2002 and beyond. As a result, most major malpractice insurance carriers have experienced a deterioration of their loss ratios. Malpractice insurance premiums have skyrocketed, and in some cases, carriers have withdrawn from markets. Healthcare providers are challenged by malpractice-insurance-related expenses. Although providers may find it difficult to negotiate malpractice premium price breaks over the next few years as carriers attempt to restore their profitability, there are some measures their they can take to control their malpractice expenses, including selecting a knowledgeable agent of broker self-insuring, preparing a high-quality renewal submission, reinforcing their commitment to patient safety, and paying attention to carrier financial ratings.
Healthcare financial managers involved in the purchase of medical malpractice insurance in the past two years have witnessed startling changes in that market. Premiums are soaring, terms and conditions have become restrictive, deductibles are increasing, insurance policies are not being renewed, and insurers have failed in or withdrawn from certain market segments or territories. Healthcare providers from large health systems to individual physician practices will see their budgets greatly affected by medical malpractice insurance costs over the next few years.
Medical professional liability is a long-tail line of insurance, meaning that claim development and resolution take longer than for other types of insurance. Thus, the profitability of policies typically cannot be evaluated for three to five years. In the early 1990s, medical professional liability was one of the most profitable lines of insurance due to premium increases and malpractice reforms undertaken in the 1980s. Investment returns also were much higher in the 1990s. With the potential for large profits, many insurance companies focused on obtaining market share. Beginning in the mid-to-late 1990s, the flood of new companies entering the $6 billion malpractice insurance market, which is relatively small in terms of total premiums, caused the product to become underpriced. Investment returns have declined in recent years. Carriers have eroded much of the redundancy in their claims reserves, eating away the funds used to offset underwriting loss in the late 1990s. As a result, malpractice insurance has b ecome one of the most troubled lines of business in the property and casualty insurance industry.
(a) Concurrent social and legal factors also have contributed to the deterioration of medical professional liability insurance industry results, which are evaluated in terms of claim frequency and claim severity. Frequency defines how often claims are asserted. Severity defines the total cost of resolving malpractice claims. According to most industry experts, frequency has remained flat or increased modestly this year. The real problem facing the healthcare industry and its liability insurers in 2002 is severity, given the increasing numbers of large jury awards and settlements. Indeed, some experts have characterized the current problem as one of frequency of severity.
Social factors. Over the past few decades, public trust in the healthcare delivery system has eroded. Factors that influenced this erosion of trust include managed care, media attention to malpractice lawsuits, and negative publicity about medical errors since the release of the Institute of Medicine report To Err Is Human: Building a Safer Health System. (b)A recent study of the medical professional liability insurance industry cited the impact of managed care on healthcare providers, noting that as employers reconfigure health plans, patients change physicians more often, leading to a breakdown in the physician-patient relationship.
(c) Moreover, as managed care and government payers have slashed payment, hospitals and nursing homes have had to reduce staffing and, in some instances, physician practices have increased patient volume to maintain financial equilibrium.
(d)Certain social factors have contributed to making malpractice cases more expensive to resolve than ever before. Jury members tend to adopt a cynical view of awards due to the prevalence of “social inflation” factors, such as sports salaries, lotteries, and television game-show winnings.
(e) The escalating cost of medical care also has had a significant impact on the expense of resolving malpractice claims. Large awards are sought for the cost of providing future care for severely injured patients or providing for dependents.
Publicity about medical errors has increased public sensitivity to the potential for this problem and likely has influenced the increase in jury awards and, therefore, malpractice insurance expenses. Although most malpractice lawsuits are dismissed with no money changing hands, the worst cases often cannot be defended on a theory of liability, thus leaving the amount of damages virtually the only issue in dispute.
Legal factors. Many legal factors also have contributed to the current malpractice insurance problem. Juries are far more liberal in major metropolitan areas, and plaintiffs’ attorneys are more sophisticated. Plaintiffs’ attorneys are well financed, and the best attorneys can afford to accept only cases with high damage value. Many good defense attorneys have switched sides because the plaintiff’s side can be much more lucrative. Defense attorneys have a difficult time litigating against the well-financed plaintiff’s bar. Courts have expanded theories of liability, especially against healthcare provider defendants. Juries perceive healthcare organization defendants as having “deep pockets,” and thus ultimate liability for adverse patient outcomes, whether through negligence or not. Also, tort reform has been overturned by court decisions in many states, thereby removing a major factor in actuarial forecasts of ultimate loss.
Insurance a hot topic for property managers - finding best deals and more complete coverage
Insurance is suddenly a hot topic. It’s no secret that dramatic rate increases for both commercial and habitational real estate insurance have owners of office buildings and apartments, management companies and other clients out hunting for the best deals and more complete coverage. My company, Kaye Insurance Associates, is one of the biggest players in the area, handling the insurance for over 5,000 apartment buildings in the New York metro area. We’re intimately involved in the real estate business, creating customized real estate programs and helping clients with hard-to-find coverages. And given the sliding stock market of the past two years and the events of Sept. 11, real estate insurance is a whole new ballgame.
Now more than ever, clients need to find a trusted broker tuned in to the latest products and programs and tied into a large number of markets to find the proper coverage. With common rate increases of anywhere from 50 to 200% for both property and liability insurance, clients would do well to start actively assessing their insurance needs. There are some specific steps real estate pros should take to take to better manage their insurance needs.
* Start early. A week before renewal is not the time to get the news that your rates are doubling. Policy parameters are changing, some coverages previously included will now be excluded, and there is a tremendous underwriting crunch. Call your broker early and start asking questions.
* Call on someone truly versed in the market. Find a broker who specializes in programs designed for firms just like yours. Not only will that broker have insight into the full range of coverages you’ll need, but he’ll also have access to more market options that are constantly changing.
* Do your homework. Work with your broker to develop a complete picture. Your broker should act as a consultant, helping you to put together a comprehensive book to give the underwriter an accurate overview for a faster, more appropriate quote. Without clear, concise and complete information — including your values, building history and information, loss runs for the past five years - underwriters won’t quote you at all.
* Make sure you have speciality coverages for all types of potential exposures. Environmental, terrorism, cyber exposures - all represent potential losses that your broker needs to address. The mold issue has become a growing liability problem for building owners, and has typically been excluded from policies. Ask your broker about environmental insurance that will cover not only losses from mold claims, but also pays for claims for bodily injury and property damage caused by pollution. It also pays for cleanup costs of your property and the property of others for which you are responsible, from a leaking tank for example. Most importantly, this coverage pays for the legal expenses involved with defending an environmental lawsuit. Terrorism insurance, as well, is a current hot button. Again, a knowledgeable broker should be able to provide the latest word and deliver a fitting solution. Kaye, for instance, has a program that includes terrorism insurance for values less than $9 million. And we’re constantly t alking with all the limited carriers currently offering the coverage.
* Get creative. Ask your broker about creative options. Can you structure the coverage in different ways? Tap into a number of different carriers? Adjust deductibles? A new ballgame means new rules. It’s time to rethink and get creative.
Remember: The goal is not to get the cheapest rate. You need the best rate, the right coverage and solid advice on risk management for your properties. Tapping into years of expertise through the right broker is a first step in the right direction.
DESIGNING INSURANCE
Top carriers and underwriting savvy make PDI a go-to market for design professionals E&O
The professionals who design and build structures, from a local convenience store to a towering skyscraper, face a host of exposures to loss as a project moves from blueprints to grand opening. Chief among these exposures are liability for design errors, erroneous cost estimates, structural failure, asbestos, and pollution.
Clearly, the business of arranging professional liability insurance for design professionals is not for amateurs. It’s a highly specialized field that demands a blend of underwriting skill, market knowledge, and familiarity with the operations and risks associated with design and construction.
A leader in this challenging specialty market, Professional Design Insurance (PDI) is the nation’s largest brokerage and underwriting manager specializing exclusively in arranging professional liability insurance for architects and engineers, design/build contractors, and environmental consultants. Based in Indianapolis, PDI was established in 1980 and is owned by shareholders Tom and Norma McComb, their son Ken, and Terry Lee. Lee, who joined the firm in 1985 after a career with Foremost Insurance, is president of PDI; McComb, who founded the agency, is making a gradual transition toward retirement. Ken shares marketing and underwriting responsibilities with Lee.
How and why did PDI come into existence? Lee explains: “My associate, Tom, was executive director of the Consulting Engineers of Indiana. He had a strong background in insurance, and the board gave him a mandate to find affordable professional liability coverage for members. He visited various insurance companies and ultimately worked with them to develop a facility that would first underwrite professional liability for the Indiana engineers group and then approach the executive directors of engineers societies throughout the country. That business was funneled through PDI, which acted as a broker on behalf of the engineering societies.”
Over the next few years, PDI evolved into a wholesale brokerage operation but continued to operate as a retailer in Indiana. Of PDI’s total volume, Lee says, some 35% is architects, 35% is engineers, 20% is design/build contractors, and the remaining 10% is environmental consultants. PDI operates with a staff of seven.
PDI uses domestic and London carriers to place coverage. PDI’s markets literally run the gamut from A to Z: ACE, AEIC, Gulf, Houston Casualty, Lexington, Lloyd’s, National Casualty, and Zurich. As an MGA for Arch Specialty Insurance, PDI has authority to write accounts with billings of up to $10 million. In addition to its markets for design professionals, PDI uses a number of other carriers for environmental consultants.
Support for retailers
Over the years, Lee says, PDI has transacted business through about 5,000 retail agents and, Lee continues, “we have fine tuned the services we render, so when a retail agent calls and says he has a risk but doesn’t know much about the class of business, I give him a quick course in Design Professionals 101. I explain the coverage, list the available markets, and tell the agent what premium range to expect for this type of client. I also tell the agent what he can expect his competition to bring to the table.” In essence, Lee says, “We bring the agent up to speed on this line of coverage, so he sounds knowledgeable when he talks to his client. Often we stay in the background; the architect or engineer might not even know that we exist.
“In all cases, we offer the agent and the insured some of the extra services we provide, such as contract review,” Lee continues. “When an architect is presented with a contract from his client and he has questions about the ramifications or implications of the contract for his professional liability coverage, he sends it to us and we review it. Our goal is to respond to that agent or client within two hours of receipt of the contract.”
Once PDI has provided this service, Lee comments, “typically the insured knows of our existence, and in many cases I’ll talk to the principal of the firm about other questions he has: ‘If I go into this area of architecture, will it negatively affect my premium?’ ‘What are the exposures I should consider if I accept this project?’ We quickly give the insured direct answers to these and other questions.”
Another service PDI provides for insureds is an on-site loss prevention seminar, which involves a two-and-ahalf-hour presentation that addresses a wide range of loss prevention issues. The insured has the opportunity to ask questions and discuss specific situations that are important to him. “We find the seminar is beneficial not only for the insured, who gets some highly specialized information he can’t get anywhere else, but also for the carrier, because it makes the client a better insured,” Lee remarks. “After the seminar, the insured is aware of potential traps and pitfalls, so he knows how to stay out of trouble and when to ask questions and express concerns.”
PDI also has developed a loss prevention manual. Every insured receives a copy, and Lee also leaves manuals with attendees at his loss prevention seminars.
At the retail agent’s request, Lee says, he’ll be happy to make a joint call on a larger client or prospect. “I frequently travel across the country and make a presentation with an agent to his client when he needs that added expertise at the table to win the business,” he says. “If all we did was give an agent an insurance policy and take his money and put it in the bank, we wouldn’t be doing justice to our mission, which is to do as much as we can for the insured and the agent,” Lee says.
Architects and engineers, design/build contractors, and environmental consultants are highly specialized risks that don’t find a home with just any carrier. Each of these classes is vulnerable to changes in the economy and the legal environment, among other influences. How would Lee characterize the market for these classes of business with respect to capacity, competition, and pricing?
“As most people are painfully aware, since 9/11 prices have increased extraordinarily,” Lee responds. “Some 10 to 12 years ago, PDI developed a three-year policy for the architects and engineers market, and we placed a significant part of our book in those policies. Insureds loved the fact that they didn’t have to complete an application every year, and they knew what their insurance costs would be over three years so it was easy for them to project their expenses,” he explains. “Agents liked it because they had that client for three years and didn’t have to worry about competition. It was great for everybody. Unfortunately, when 9/11 hit, the reinsurance market decided it was not going to be on any three-year policies, and they went away overnight.”
A client who had a three-year policy that was up for renewal in the wake of 9/11, Lee says, experienced what could conservatively be described as extreme sticker shock. “In many cases, an insured wound up paying about the same amount for an annual policy as he paid for a three-year policy,” Lee notes. “Since 9/11, this market has continued to be hard, even though a lot of other lines have softened a bit.”
The hard market trend for design professionals E&O continues, Lee says, “but is being modified somewhat by carriers that are pricing business way below market value. In some cases, we find their pricing to be anywhere between 30% and 40% below the lowest quote on the table. Essentially, they are buying business-certainly nothing new in the insurance industry,” Lee remarks. “The biggest concern for the marketplace is that these insurers are seldom in the market for the duration, and when claims begin coming in, the carriers are gone.”
In this kind of market, Lee says, “there’s even more need for us to do everything right: to keep insureds happy by providing value-added services, and to deliver as comprehensive a policy as we can for the best possible price.”
Mimi’s Cafe sets precedent with Calif. wage-hour insurance win
A landmark decision by the California Court of Appeals here may clear the way for restaurant operators to obtain compensation from employment practices liability policies when the employers make costly legal payouts amid the current wave of wage-and-hour litigation.
The appellate court ruled in favor of SWH Corp., former parent of the Tustin, Calif.-based Mimi’s Cafe chain, which had appealed its loss in a lawsuit against Select Insurance Co. The insurer had refused to contribute to a $1.9 million settlement in 2004 of a lawsuit against Mimi’s Cafe by assistant managers who claimed they were denied overtime pay.
California has witnessed an explosion of wage-and-hour class actions in recent years, and several restaurant companies have shelled out multimillion-dollar settlements to employees. Often, operators will not press an insurer if it denies a claim, but the issue is worth pursuing said Wallan, who also represented Lake Forest, Calif.-based Del Taco in a similar lawsuit.
“A lot of folks have simply made the assumption there is no coverage and given up,” Wallan said. “Mimi’s and Del Taco did not give up.”
The case against Del Taco was decided in the company’s favor in an unpublished arbitration ruling, so it had not yielded a precedent that other defendants could easily cite in court, the Pillsbury Winthrop firm indicated.
Typical employee practices liability policies do not cover labor violations by employers but do shield them against misdeeds of employees, such as sexual harassment or racial discrimination. However, if the policy language is ambiguous, restaurant companies may be able to argue for coverage when alleged labor violations result in legal expenses.
In the Del Taco case, the arbitration panel ordered the quick-service chain’s insurer, National Union, to pay $1 million to help defray the company’s legal costs. Del Taco in 2005 had agreed to pay $5 million to resolve three lawsuits filed by employees who claimed they were not paid overtime.
In both cases, the insurance companies argued that their employment practices liability policies exempted coverage for violations of the federal Fair Labor Standards Act and similar state laws. The insurers argued that California’s Labor Code is similar to the FLSA. However, the arbitration panel, and now the state’s appeals court, ruled that “similarity” was too vague a concept and that the ambiguous language of the policies should be interpreted in favor of the insured restaurant companies.
“There are now two tribunals that have reached the same conclusion, [that these policies] do not exclude California state wage-and-hour claims,” Wallan said.
In the case involving Mimi’s Cafe, which now is owned by Columbus, Ohio-based Bob Evans Farms Inc., Select Insurance also had argued that settlements for back-pay claims and wages were not insurable under the policy, he said. The appeals court rejected those arguments.