They Could Have Used a Captive Insurance Company: Raymond Corporation

The facts for this post are from the following case: Raymond Co. v. National Union Fire Insurance of Pittsburgh, 833 N.E.2d 232 (2005)

We formed and operate the first series LLC in Montana (named Aegis) for captive insurers.  Several other firms provide key services such as accounting, audit and actuarial work.  Please contact us at 832.330.4101 if you'd like to discuss forming a captive for your company

   
​Raymond Corporation made side-loader forklifts; Arbor Handling Services sold Raymond’s products.  In 1994, Arbor sold 2 new units to Ryerson.  Due to a delay in the new unit’s delivery, Ryerson asked Arbor for 2 rentals.  Arbor employees negligently installed the units, causing serious injury to a Ryerson employee, who sued for damages. 
  
     All parties settled for $6 million; Arbor’s insurer paid $3 million.  Raymond, Arbor and National Union (Raymond’s insurer) disputed payment of an additional $2.5 million.  This dispute became the subject of a lawsuit, which eventually went to the New York Court of Appeals, who ruled for National Union, the insurer.   Their decision concluded that Raymond’s vendor endorsement did not apply to the Vendor’s negligence.  From the decision:

The vendor's endorsement has its genesis in products liability law. Accordingly, "[s]uch an endorsement covers the vendors' liability arising out of their role in passing the manufacturer's product on to customers, but does not cover vendors for their own negligence. Coverage under the vendor's endorsement is limited to injuries arising out of a defect in the manufacturer's product"      
…..
In sum, the vendor's endorsement in this case covers Arbor for defective-product suits arising out of its distribution, sale, repair, servicing, demonstration or rental of Raymond's products. Nothing in the wording of the endorsement (or the exclusions, for that matter) suggests that bodily injuries "arising out of" Raymond's products encompasses the vendor's independent acts of negligence. Our interpretation of the endorsement follows its language and comports with the traditional majority view, the origins of the vendor's endorsement as an outgrowth of products liability law, and common and economic sense.

How a captive would have helped:

1. A legal liability policy, which pays legal fees associated with litigation, arbitration or mediation and which is a standard policy issued by a captive insurer, would have paid for the insured’s legal expenses.   These were probably considerable as the case went through three levels of legal proceedings.
2. Standard captive underwriting involves a thorough analysis of the insured’s then in place insurance policies.  Had that occurred in this case, the lack of coverage for the vendor’s negligence should have come out and subsequently been underwritten by the captive.

If you think a captive would benefit your company, please call us at 832.330.4101.