The typical Oklahoma business manages a considerable part of its liability risks by purchasing insurance coverage. While hardly news, businesses sometimes take their insurance coverage for granted and just assume insurance will be there if an accident happens. It is not a wise risk management practice to simply assume you will have coverage for every situation.
A recent decision by the Oklahoma Supreme Court brings the point home. In Siloam Springs Hotel, LLC v. Century Surety Company, 2017 OK 14, a hotel purchased liability coverage to protect against accidents and negligence. The policy was sold by Century Surety Company.
Guests at the hotel were injured when carbon monoxide entered the air ducts due to leakage from the heater for indoor swimming pool.The hotel believed it had insurance to cover the claims and potential lawsuits. The insurance company said there was no insurance to cover the injuries due to an exclusion in the insurance policy.
There was no suggestion in the opinion by the Supreme Court indicating the cause of the leak was an intentional action the part of the hotel management. The incident appeared to be an accident.
The hotel argued the exclusion for indoor air pollution was against public policy and should not be enforced. It asserted the leak was sudden and unexpected like an accident:
“¶27. . . according to Siloam, because the Indoor Air Exclusion as applied to a sudden carbon monoxide leak violates public policy because it potentially denies compensation to victims under circumstances in which a reasonable person would expect that liability insurance would be available to compensate for the injury. “
Siloam explained that an indoor air exclusion for long-term air quality issues like mold might not violate public policy, as a reasonable person would not expect liability coverage in that situation. In those situations the policy holder would have ample time to detect and fix the problem.
The hotel also pointed out that the average person would expect there to be coverage for a sudden, accidental discharge of carbon monoxide and the reasonable expectation for coverage. In other words, there should be coverage for acts of negligence.
The Oklahoma Supreme Court drew a clear distinction between insurance coverage and whether the hotel was responsible:
“¶31 The issue before this Court is not potential compensation to injured parties and the reasonableness of expecting it, but the enforceability of an exclusion limiting insurance coverage. Even were the exclusion to fully exclude the events of this cause from coverage under the insurance contract, that does not necessarily mean injured individuals will be unable to recover from Siloam itself. The insurance contract limits what Century must pay, and does not serve to limit Siloam’s potential liability. Just because one believes the air they breathe might become contaminated, and expects a business should carry insurance to cover that eventuality, does not mean the law requires it.”
In other words, the hotel may still be legally responsible for the damages and injuries even though it had no coverage. Risk management is assessing potential risks and attempting to control them. It is a challenging task and sometimes seemingly impossible. Oklahoma businesses need to know the coverage purchased to properly manage risks.
Long story made short, businesses should not presume to have insurance for injury claims just because the premiums were paid. Mistakenly assuming there is insurance coverage when it’s not there can bankrupt the family business.
We review insurance policies and assist in coverage questions all the time. If you have a coverage dispute or want some assistance with an insurance policy question, give us a call.