General liability insurance Archives

The Takeaways:

The most fundamental commercial insurance is general liability insurance. No business should be doing any business without commercial liability coverage. In my opinion, commercial liability insurance should become mandatory by law, just like nobody should be allowed to drive without auto liability insurance for personal injures and property damages.
Insurance coverage needs to meet the specific nature of business. BSA works exclusively with youth and therefore is exposed to sexual abuse with minors. It is far better to work on risk management to prevent risks from getting escalated and to avoid huge insurance payment.
There will be lawyers trying to leverage the existing lawsuits to make money for themselves by filing unfounded claims. There will also be collusion between organizations and claimants to get insurers to pay. Once again, the best preventative step is to avoid lawsuits preemptively through means of risk management, especially in commercial insurance.
Insurance and lawsuits are closely related. Insurers must pay close attention to legal battles that sometimes can make or break themselves.

The Stories in 2020 & 2023

This insurance journal article did a good job in offering a brief overview of the history of the Boy Scouts of America BSA bankruptcy case and quickly shows where the problem is:

“When it sought bankruptcy protection in February 2020, the BSA had been named in about 275 lawsuits and told insurers it was aware of another 1,400 claims. The huge number of claims filed in the bankruptcy was the result of a nationwide marketing effort by personal injury lawyers working with for-profit claims aggregators to drum up clients, according to plan opponents.”

Guess what the number of claims is today? “More than 80,000 men have filed claims saying they were abused as children by troop leaders around the country… the staggering number of claims, when combined with other factors, suggests that the bankruptcy process was manipulated.”

Even “a plaintiffs’ attorney acknowledged that some 58,000 claims probably could not be pursued in civil lawsuits because of the passage of time.” That is, many or most men in the lawsuits will have little chance of winning any compensation.

Shortly after the bankruptcy in 2020, BSA had announced several plans (like this and this) to settle down its sexual abuse lawsuits with minors.

Why Insurers Want to Reverse the BSA Bankruptcy Reorganization Plan

Under the bankruptcy reorganization plan, which In September was approved by the U.S. Bankruptcy Judge Laurie Selber Silverstein for $2.46 billion, and described by the BSA as a “carefully calibrated compromise,” the BSA itself “would contribute less than 10% of the proposed settlement fund… The bulk of the compensation fund would come from the BSA’s two largest insurers, Century Indemnity and The Hartford, which reached settlements calling for them to contribute $800 million and $787 million, respectively. Other insurers agreed to contribute about $69 million.”

On the other hand, “Insurers opposing the plan argue that the BSA is contractually obligated to assist them in investigating, defending and settling claims, as it did before the bankruptcy. They say that the BSA, desperate to escape bankruptcy, colluded with claimants’ lawyers to inflate both the volume and value of claims in order to pressure insurers for large settlements, then transferred its insurance rights to the settlement trust. The insurers argue that if the BSA transfers its rights under insurance policies to the settlement trustee, it must also transfer its obligations under those policies.”

In other words, the insurance companies are accusing BSA for working under the table with claimants to inflate the value of claims and to shift the financial responsibility of compensating sexual abuse victims to insurers without working with insurers to verify the claims.

Lessons Learned

The bankruptcy of the Boy Scouts of America (BSA) serves as a case study in the importance of adequate insurance coverage.

Lesson 1: The importance of liability insurance. The organization was facing a large number of lawsuits related to the sexual abuse of minors. In the absence of adequate liability insurance, the BSA would have been forced to pay out millions of dollars in damages, potentially putting the organization’s very existence in jeopardy. However, the BSA had liability insurance in place, which allowed it to weather the legal storm and continue its operations.

Lesson 2: The need for insurance coverage to match the nature of the organization. BSA is a youth organization that works with minors, making it particularly vulnerable to sexual abuse lawsuits. Therefore, it was essential that the organization have liability insurance coverage that was adequate for this type of exposure. Organizations that work with minors should take this lesson to heart and ensure that their insurance coverage is sufficient to protect them in the event of similar lawsuits.

Lesson 3: The need for ongoing review of insurance coverage. BSA should have ongoing review of insurance coverage to ensure that insurance coverage remains adequate, as the insurance needs of an organization can change over time. For example, had BSA reviewed its insurance coverage in recent years and discovered that it was insufficient, it could have taken steps to increase its coverage and avoid the financial strain of the lawsuits it faced.

Lesson 4: The best strategy for all insurers is to manage risks and reduce them before they turn into large scale social scandals for policyholders, which will invite opportunists to seek financial gain from the “no risk, pure gain” legal class actions.

The Takeaways:

For train derailments the first thing coming to many minds is “inland marine” insurance, which however may not be true.
Commercial general liability insurance usually covers the most ground.
The cause of the derailment, the ownership of the train and cargo, and the location of the incident, these may all enter the equation.
If the train was carrying hazardous materials, there may also be environmental liability insurance in place to cover any cleanup and remediation costs, although this may not be relevant for trains carrying cars.

The Bad News

According to the AP news on February 4, 2023, “A freight train derailment in Ohio near the Pennsylvania state line left a mangled and charred mass of boxcars and flames Saturday as authorities launched a federal investigation and monitored air quality from the various hazardous chemicals in the train.”

“About 50 cars derailed in East Palestine at about 9 p.m. EST Friday as a train was carrying a variety of products from Madison, Illinois, to Conway, Pennsylvania, rail operator Norfolk Southern said Saturday. There was no immediate information about what caused the derailment. No injuries or damage to structures were reported.”

“20 of the more than 100 cars were classified as carrying hazardous materials — defined as cargo that could pose any kind of danger ‘including flammables, combustibles, or environmental risks.’”

50 Car Train Derailment in Ohio. Source: AP News Drone Image

Now, who is covering the big mess?

A 50-car train derailment can result in significant property damage, environmental harm, and liability for personal injury. The type of insurance that would cover this loss would depend on several factors, including the cause of the derailment, the ownership of the train and cargo, and the location of the incident.

Generally, liability coverage is provided by commercial general liability insurance and railway protective liability insurance. The railway company may also have a self-insured retention or deductible to cover smaller losses. If the train was carrying hazardous materials, there may also be environmental liability insurance in place to cover any cleanup and remediation costs.

In the event of damage to the train and cargo, the railway company and/or the owners of the cargo may have marine cargo insurance or inland marine insurance. If the train was being operated under a lease agreement, the lessee may have rolling stock insurance to cover the dam age to the train.

It’s important to note that insurance coverage for a train derailment can be complex and the actual coverage will depend on the specific policy language and any exclusions that may apply.

As a final note, the news did not tell us details about what caused the accident, who own the train and cargo. Knowing those will allow us to say more about the insurance.

Would inland marine insurance policy cover train derailment?

If you know even a bit of insurance, enough to get you pass the license exam, then you most likely will remember a type of insurance called “inland marine” insurance.

Inland Marine Insurance Covers Stuff in Move

This is a funny name because the term “marine” historically referred to transportation of goods by water or even ocean, but now it also covers transportation of goods by land. The term “inland” distinguishes this type of insurance from “ocean marine” insurance which specifically covers transportation of goods by sea.

Inland marine insurance generally covers goods in transit and other movable property, such as bridges and tunnels, and provides protection against loss or damage from various causes such as theft, fire, and weather events being moved within a country.

In the case of a train derailment, an inland marine insurance policy may provide coverage for the damage to the goods or property being transported by the train. This would depend on the specific policy language, the cause of the derailment, and any exclusions or conditions that may apply.

It’s important to note that while inland marine insurance may provide coverage for goods and property being transported by train, it is not specifically designed to cover train derailments. For that, the railway company and/or the owners of the cargo may have railway protective liability insurance or commercial general liability insurance.

Additionally, if the train was carrying hazardous materials, there may also be environmental liability insurance in place to cover any cleanup and remediation costs.

What is environmental liability insurance?

Environmental liability insurance is a type of insurance coverage that protects individuals and businesses against financial loss and legal liability for damages or injury to the environment, including natural resources and wildlife, as a result of their operations or products. It covers costs associated with cleaning up contaminated sites, compensating affected parties, and defending against legal action related to environmental issues. Environmental liability insurance is often required by law for certain industries and businesses, and is also available to protect against the risks associated with environmental incidents caused by a third party.