Products

Claim Examples

Technology and Cyber Risk Claim Examples

Professional Liability.

A software developer was hired to provide special tax revenue collection software for a state agency in the southern US. The contract amount was approximately $11 million. The consultant failed to deliver the software in a timely manner, resulting in a significant loss of tax revenue to the state. The state agency sued and the trial court returned a verdict in favor of the state agency in the amount of $474 million, much of which was punitive damages. This is an example of a claim where the consequences of an error or omission greatly exceed the value of the work completed.

Extortion.

A large, publicly traded company's entire database was encrypted by a disgruntled employee. A ransom note read in effect: 'try to crack the code or pay me $1,000,000 and I'll give you the password'. The company paid the $1,000,000.

An accounting firm wanted to upgrade their office desktop technology. In the process of replacing their old computers they 'cleaned' the hard drives as the manual suggested prior to throwing them out. A hacker recovered the discarded computers and restored the data on three of the hard drives. He then threatened to disclose the financial records of the firm's private clients. The firm bought back the hard drives from the hacker for a multi-million dollar fee.

Hacking.

Repeated denial of service attacks by a computer hacker have virtually shut down a state's Public Access Network Computer. The attacks have overwhelmed the computers capacity to respond to requests for an electronic handshake by sending as many as 150 bogus requests a second.

An Internet Service Provider (ISP) was the victim of a hacker attack. The hacker planted swastikas and racist messages on web pages while masquerading as the provider's administrator, erased data on two computers and shut down the system. The ISP was unable to operate for approximately 12 hours, and files created in the several days prior to the attack were lost.

Loss of Data.

A personal laptop computer stolen from a data processing center contained the account numbers for over 300,000 credit card customers of several major issuers.

A technical instruments manufacturer had a disgruntled employee delete their entire database. It cost the company $7.8 million in lost revenues and$2.2 million to replace the lost data.

Real Estate Agent / Broker

Example: A prospective purchaser sued a real estate broker when the transaction failed due to close at the last minute due to difficulties associated with their purchase financing. The purchaser ended up losing the non-refundable deposit for failure to close. The key allegations against the broker were for misrepresentation of the availability of deposit funds prior to the money going into escrow.

Example: A real estate broker handled a commercial property transaction for a client. The commercial property was directly related to a business venture the client was entering into, and that business venture ultimately failed. The client sued the broker alleging that the transaction caused the client's business failure. The client alleged that the broker misrepresented the condition of the property, which was directly led to the business failure at the property.

Example: A real estate agent assisted in the purchase of a home. After closing, the purchasers discovered structural defects and deficiencies in the condition of the property. Unable to locate the sellers, they turned to their real estate agent. The purchasers claimed that the agent breached his/her duty to conduct a reasonably competent and diligent visual inspection, failed to disclose these deficiencies and conditions, was negligent in performing his/her duties and made misrepresentations as to the condition of the property.

Lawyers

An attorney represented a client in a divorce action, and was subsequently sued by his client. In her suit, she charged the attorney with numerous errors, including failure to appraise the husband's business and failure to discover the existence of a business-related line of credit on the marital home. The case settled for $500,000.

A homeowners association put a lien on the property of a resident because she refused to pay the association dues. When she ignored the lien, the homeowners association foreclosed on her home. An attorney, the insured in this case, provided legal advice to the homeowners association and assisted with the foreclosure action. The resident sued both the homeowners association and the attorney alleging improper notice and seeking punitive and other damages. She also alleged that the attorney conspired with the homeowners association and the other entities involved to deprive her of her property, causing emotional distress. The insured attorney is now a defendant to an action by a adversary of his client.

Miscellaneous Professional Liability

A systems procurement consultant does not adequately understand the system needs of a particular client. When the system recommended by the consultant is installed it does not work as the client expected, resulting in significant operational disruption and financial loss to the client. The client concludes that the system must be scrapped. Not only is the client out the cost of the system, but the client may also lose business due to disruptions in servicing customers. The resulting lawsuit is the result of an adversarial conclusion to the work performed, making any kind of resolution impossible. Even though the cost of the system is not large, the financial impact on the client goes far beyond the system itself. An expert has concluded that the client lost business greater than twenty times the cost of the system due to the disruptions caused by the inadequate system.

Both an expert witness and a litigation support services firm purchased miscellaneous professional liability insurance. A plaintiffs attorney retained the litigation support services firm to assist him in finding an expert on off-road motorcycles because he was representing an individual injured in an off-road motorcycling accident. The expert identified by the litigation support services firm assisted the lawyer in finding the expert, who then issued an opinion that the motorcycle's brakes were defective. Relying on the expert's opinion, the lawyer continued preparing the case for trial. The expert later realized that he had examined the wrong set of brakes and changed his opinion, thus ruining the personal injury case and causing the attorney to incur significant unnecessary time and expense in the case. The lawyer filed suit against the litigation support firm and the expert alleging that they negligently misrepresented the expert's credentials. The case was settled by payment of over $20,000 to the lawyer.

Media Claim Example

An unusual claim situation occurred involving two large ad agencies over their failure to properly perform their ad placement services. Miller Brewing filed suit against Bates Advertising USA and Zenith Media Services. The suit was filed in U.S. District Court in Milwaukee, and accused the agencies of failing to obtain all of the exposure they purchased on Miller Brewing's behalf.

According to The Milwaukee Journal Sentinel, the suit "was a 'last resort' in Miller's attempts to persuade them to fulfill their obligations." The agencies "failed to obtain $6.9 million worth of makeup credits for Miller after the broadcast ads failed to garner the demographics Miller was seeking."

The Wall Street Journal explained the situation in an article on the litigation:

Ad agencies and media-buying agencies sometimes obtain guarantees of particular ratings for a schedule of TV spots. If the ads fail to reach a large enough audience of viewers, the ad agency or media buyer often gets a network or station to provide its client with credits, known as bonus spots or "audience deficiency units."

In the lawsuit, Miller, a unit of Philip Morris Cos., New York, complains that Bates and Zenith Media took "inadequate steps" to obtain such credits for Miller, starting in early 1995.

The litigation between Miller Brewing and its agencies is an example of the unusual types of exposures which can result from significantly differing expectations between service provider and clients, particularly in the media industry.

Insurance Agent's E&O Claims Liability

First Claim Example:

An insurance broker placed professional liability for a marketing consultant. The policy excluded coverage for claims arising from any contest or sweepstakes.

The insured marketing consultant introduced a client to a promotional event company, and the client worked with the promotional event company to establish a promotional contest. As part of these services, the promotional event company was expected to purchase prize indemnification insurance. When a contestant won the $1.0 million jackpot and tried to claim the prize, the client turned to the promotional event company for payment from the prize indemnification insurance policy. Since the promotional event company never purchased the insurance, it refused to pay. The contestant brought an action against all involved, including the marketing consultant, for failure to pay the prize.

While the marketing consultant had no direct involvement in the contest, they are a party to the action and require defense and coverage from their insurance. However, their insurer has denied the claim due to the exclusion for claims arising from contests or sweepstakes. The marketing consultant has brought an action against their insurance broker for failure to place proper coverage, and the insurance broker's professional liability insurer is providing coverage and a defense.

The insured marketing consultant claims that they were never told and were not aware of the contest exclusion. Additionally, it appears that the policy was not produced in a timely manner. The claim is currently being litigated.

Second Claim Example:

A recent claim situation demonstrates how complicated our business can become. While the names have been changed, the situation is real.

An insurance agent, whom we will call ABC Insurance Agency, placed a range of coverages for one of their clients, Widget Manufacturing. The coverages included an employment practices liability policy placed with an insurer, whom we will call EPL Insurance Company, as well as a general liability policy placed with another carrier, whom we will call GL Insurer.

Widget terminated one of its employees, John Doe, and brought an action against him to collect certain payments he had received during his employment. Doe then commenced an action against Widget alleging wrongful termination, sexual harassment, malicious prosecution, abuse of process, defamation, etc., etc., etc. The claim was passed to ABC Insurance Agency who, in turn, notified EPL, Widget's employment practices insurer.

EPL Insurance Company assigned defense counsel and paid for the defense of the claim without incident or reservation. At a mediation of the claim against Widget, approximately one year later, EPL Insurer's counsel inquired of ABC if there were any other policies applicable to the claim. ABC then forwarded the general liability policy to EPL Insurer's counsel, who recommended to ABC to tender the claim to GL Insurer.

Despite late notice, GL Insurer agreed to contribute to the defense of Widget with respect to those allegations that were covered under the Personal Injury Coverage Section of the GL policy (defamation, malicious prosecution and abuse of process). Subsequently, the Court granted a motion of summary judgment filed by Widget dismissing the non-employment claims (defamation, malicious prosecution and abuse of process). Thereafter GL Insurer refused to cover any future defense costs or contribute towards any settlement. The Doe case settled a few months later for approximately $175,000.

However, the case was not over. EPL Insurer then made a claim against ABC Insurance Agency asserting that ABC was negligent in not tendering the claim to all of Widget's insurers. EPL Insurer claims that if ABC had tendered the claim to the general liability insurer EPL would not have had to pay for the defense of the claim and Widget would not have had to pay the large deductible on the employment practices policy. Widget has not brought any action against ABC Agency. The claim between EPL Insurer and ABC Agent is currently being litigated.

On the surface it seems that EPL insurer is going way overboard in bringing an action against ABC. Yet the case is open and its resolution will hinge on a number of narrow issues, including the following:

Even when things go right they can go wrong. As extraordinary as EPL Insurer's case is, this case is far from over. Fortunately, ABC Insurance Agency's E&O cover will take care of the legal issues raised and provide a strong defense.

Third Claim Example:

A simple lack of attention to detail in the normal processing of daily business can have severe consequences. An insurance agent received a notice of claim and copies of a lawsuit filed against an insured client. The agent prepared a fax to the insurer and left it for an assistant to send out. The fax was put in the fax machine but did not actually go through, and the documents were put in a claim file and filed. The fax confirmation was never checked to ensure that the fax had gone through to the correct number.

Approximately 30 days later the insured called requesting the status of the claim. The agent discovered that the claim had never been received by the insurer and faxed the original claim notice and lawsuit. However, the plaintiff had filed a motion for default in the meantime, and the default had been granted in the amount of $ 1,250,000.

The insurer immediately assigned counsel and filed a motion to overturn the default judgment. The motion was denied and the insurer and client have each brought an E&O claim against the agent.

This claim could have been prevented if the assistant had checked the fax confirmation thoroughly prior to filing the documents.

Title Agent's Claims Examples

Title industry claims are unexpected and can happen to most any organization. The three examples below are indicative of the types of claims that can occur, but are in no way all encompassing.

First Claim Example:

A title examiner did not locate 3 mortgages recorded as liens against a property. All 3 mortgages were of public record, but they were filed between the examiners title search and the loan closing. At the loan closing , the examiner did not update his search, and the seller did not disclose any existing liens against his property. Thereafter, an owners title insurance policy was issued to the buyer without exception to the existing mortgages. The lender began foreclosure proceedings against the buyer, who filed a title insurance claim under his owners policy for $320,000 in damages sought by the lender. The title insurance company pursued reimbursement from the title examiner.

Second Claim Example:

A 2nd mortgage of $174,000 was not paid off at closing. The loan closer was aware of the existing mortgage, but believed it could not attach to the property because it was recorded as a personal lien. The seller, who also was aware of his outstanding 2nd mortgage, pocketed funds at closing that should have been used to payoff his 2nd mortgage. A foreclosure action was later brought against the purchaser, who filed a title insurance claim. The title insurer in turn brought an action against the loan closer. Although the seller received funds intended to payoff his 2nd mortgage, he disappeared and could not be located by claim investigators or police. Therefore, the loan closer was held accountable for $214,000 in total damages.

Third Claim Example:

A loan closer performed a closing for a refinance. Instead of obtaining the payoff amount of the existing mortgage, he calculated it himself. It was incorrect, and the existing mortgage was not satisfied. The E&O insurer settled for a total loss of $36,500.

Medical Services Claim Example

A medical staffing company provided trained medical personnel, including physicians, to various organizations. The company provided a physician to conduct a comprehensive orthopedic exam of a patient who was seeking disability from a state department of social services. After the exam, the patient claimed a sustained injury as a result of the exam, and filed suit against the physician and the medical staffing company.

MediSpa Claim Example

A pedicure seems like a pretty harmless service, however a client of a spa located in California developed cellulitis in her leg and was hospitalized for treatment. The source of the infection was traced to a cut she received during the pedicure. The resulting lawsuit and settlement - well over $25,000 - was paid by the medical policy.

Real Estate Appraisers Claim Examples

Real estate appraiser claims are unexpected and can happen to most any organization. Most real estate appraiser's professional liability claims are triggered by a transaction that results in a valuation that is less than the appraised value. The following example is representative of a typical appraiser's claim:

An insured real estate appraiser appraised a property for a lender, and the lender provided a mortgage to the buyer. Subsequently, the buyer defaulted on the mortgage and the lender foreclosed. The lender recovered less than the original loan amount, which was also significantly less than the appraised value. The lender brought a claim against the appraiser claiming the appraisal was negligently completed.

A number of other claim examples are noted below, but are in no way all encompassing:

Example 1: The insured real estate appraiser was asked to do limited review of an appraisal previously submitted for a loan application. The insured appraiser was unable to view the condo property because it was located in a gated community. The appraiser noted this on his report. The lender sold the property at foreclosure for a loss, and claimed a scheme by the appraiser to inflate the property value.

Example 2: The insured real estate appraiser appraised a home for a lender. The lender then sold the loan to another investor (the plaintiff). The property owner defaulted on the loan and the plaintiff foreclosed. The value of property was not sufficient to cover the amount of the loan. A suit was filed against the property owner, who in turn filed a cross complaint against the insured real estate appraiser alleging the $680,000 appraisal was inaccurate and negligently performed.

Example 3: In order to close a new purchase, the insured real estate appraiser performed an appraisal for a lender. The owner defaulted, the lender foreclosed and the property value turned out to be significantly less than the loan amount and the appraised value. Upon reviewing the appraisal, the lender determined that the appraiser had appraised the wrong property, and brought a claim for negligence against the appraiser.

Example 4: This case is longer and more complex. Click here for a summary of a court decision involving a real estate appraiser claim.

Trustee Liability Claim Examples

A trust's assets declined significantly due to decisions made by the trust's investment advisor. The trustee was sued for failure to properly select and supervise the investment advisor, for failure to ensure that the assets were invested in accordance with the trust's objectives, and for negligence in tax planning. The case was finally settled after protracted litigation.

A trust reduces its annual contribution to a charitable beneficiary. The charity begins an investigation, and determines that the trust has begun making contributions to other charities. It brings an action against the trustee, claiming that its distributions have been wrongly diverted to other organizations. It also brings an action against the law firm that wrote the trust document, claiming its drafting negligence deprived the charity of millions. The litigation is on-going.

A family office provided services to a number of family trusts. One trust was offered an opportunity to sell shares it owned back to the company at market prices; the other trusts were not offered the same opportunity. On advice of counsel, the family office sold the shares back, and did not extend the offer to the other trusts (it may not have had the right to). Subsequently, the price of the stock fell dramatically, costing the other trusts substantial losses. Beneficiaries of these trusts brought an action claiming breach of fiduciary duty for not extending the buy-back offer. The action went to trial, and the defendants won. However, legal expenses exceeded $1.0 million.

A family trust has a range of assets, but the most significant asset is a private company. The company is put up for sale and sold to a group of investors. The group is not the highest bidder, but has the most solid financing plan. A small beneficiary of the trust is a non-profit organization, which will benefit from on-going distributions by the trust from the sale of the company. The State Attorney General begins an investigation of the sale, and brings an action against the trustee for failure to accept the highest bid for the company. The Attorney General has a right of action because of the non-profit beneficiary.

A trustee desires to diversify the trust's assets, and puts some of the funds into a large, well-known mutual fund. Subsequently, the mutual fund sustains significant investment losses. An action is brought by the beneficiaries against both the trustee and the advisor for failure to follow prudent investment guidelines and failure to invest in accordance with the trust's objectives. After months of discovery, the case settles to avoid continued escalation in defense costs.

Property Manager Claim Example

An off-duty police officer was hired at a retail property in the southwest to handle security at the premises. The guard was present from 11:00 a.m. to 11:00 p.m. The plaintiff was assaulted during the period prior to the guard's attendance at the property, and claimed that the defendant should be liable because the assault was or should have been reasonably foreseeable. After a long and expensive trial, the defendant won. The Court held that the decision of the defendant not to have the security guard present between 8:00-11:00 a.m. did not make the defendant liable for any harmful conduct during that time. The Court reasoned that the simple act of hiring a security guard does not make criminal activity on the premises foreseeable. If the Court were to adopt the plaintiff's view in this case, it would discourage business proprietors from hiring a security guard for fear that it could be used as proof of foreseeability for crimes on the premises.

A property management firm handles all the property management services for a development of single family homes and condominiums. One of the condominium buildings catches on fire and considerable damage results. In attempting to settle the fire claim with the building's insurer it is discovered that the insurance proceeds are inadequate to rebuild the building. A suit is brought against the property manager, and others, for failure to obtain adequate insurance on the building.

Products Liability

Hair remover carried an unpleasant extra. A company that makes a facial hair remover received a claim from a woman who purchased its product. The claimant alleges mucous formed in her eye and that her eyelid became discolored from the product. The insured company denies the mucous and discoloration were caused by application of their product, and maintains it was the result of some unrelated infection. Settlement is being explored.

Suspect labeling. An advocate for animal rights who is a strict vegetarian brought a claim against a company that manufactures nutritional supplements claiming battery and consumer fraud. The claimant alleges the packaging of the supplement fraudulently states that its nutritional supplement is vegetarian, when it actually contains animal products or by-products. The claimant threatened to file a class action suit against many companies engaged in false labeling. The claim is being settled.

No fun in the tank. A claim was filed against the manufacturer of a "dunk tank" game used at carnivals. A church group leased the game for its annual carnival. While in use, the game malfunctioned and injured the person sitting inside the tank. The claim is pending.

Low dose mistake. A woman who was given an incorrect dosage for her thyroid medicine filed a lawsuit against a pharmaceutical manufacturer and a pharmacist. The suit alleges that as a result of an incorrectly mixed dosage, she experienced mood disturbance, depression, suicidal tendencies, anxiety and general musculoskeletal pain. Although the primary fault appears to lie with the pharmacist, who mixed the prescription to one-tenth of the proper strength, the manufacturer who makes and distributes the chemical compound found in the medication also has been named in the suit. Suit is pending.

Motorcycle in a box gone wrong. A lawsuit was filed against a manufacturer of custom motorcycle kits. The kits are shipped with the customized parts fastened to the frame of the cycle, but not assembled for the road. Kits are intended to be further customized and finally assembled by a knowledgeable consumer or shop. In this case, the plaintiff purchased the cycle through one of the Insured's distributors and brought it to a friend's motorcycle shop for final assembly. After the plaintiff's cycle had been fully assembled, the plaintiff took it for a test drive, during which an accident occurred. The plaintiff alleges the brakes locked due to a negligent design and, he was thrown over the handlebars. As a result of the accident, he fractured a leg. Suit is pending.

Defective wheelchair or more weight than it could handle. A claim was filed against a company that designs and manufactures wheelchairs, then hires physical therapists to sell and fit wheelchairs to their users. An obese, 67-year-old stroke victim, bought a chair, which he used while being cared for in a nursing home. One day a section of the chair collapsed while the man was seated in it causing him to fall backwards, and strike his head. He was immediately transported to an acute care facility where he died two weeks later. While there was evidence the chair was defective, there is some question whether the deceased's weight played a part in the chair's malfunction. The claim is pending.

Dueling manufacturers. A claim was filed against the manufacturer of custommade hunting rifles and the manufacturer of the barrels used in the rifles. The claim arose when a man who was hunting injured his hand when the barrel of his rifle exploded. The incident was the fourth explosion of this type, and the manufacturer of the rifle maintains it is because the barrels are defective. In response, the barrel manufacturer alleges the rifle manufacturer re-calibrates the barrels and makes them too thin, causing them to explode. The claim is pending.

Investment Claims

A client calls an investment advisor with discretionary authority and asks him to buy a specific stock in his portfolio. Subsequently, the stock declines significantly. The client brings a claim for the loss, insisting that the amount of stock purchased was more than the guidelines allowed. The case was settled for an undisclosed amount.

A fund of funds investment manager invests two of his funds in a bond oriented mutual fund. The fund makes an interest rate bet, and loses significant capital. The investment manager's investors brought an action claiming failure to adequately review the fund manager and misrepresented the risk of the fund, and won an award in excess of $20.0 million.

A city pension plan administrator brought a claim against a fund manager and the insured consultant hired to perform investment performance review services. On behalf of the pension plan the administrator alleged breach of investment guidelines against the fund manager and failure to identify and disclose the alleged breach against the consultant. The case was settled for an undisclosed amount.

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