New York Bus Operators Compensation Trust (NYBOCT), a Bay Shore, N.Y.-based group self-insured trust created by a number of New York passenger bus companies, has filed a complaint against Arthur J. Gallagher & Co., Gallagher Bassett Services Inc. and Risk Management Planning Group Inc. (RPMG), now known as York Risk Services Group Inc., for mishandling a claim.
Through this action, plaintiff NYBOCT is seeking compensatory and consequential damages of more than $1,000,000 and equitable relief for the defendants’ conduct. It is also seeking a declaration, pursuant to contractual agreements with the defendants, obligating the defendants to indemnify NYBOCT in connection with the claim for all related losses, including attorneys’ fees.
NYBOCT represents a combination of passenger bus companies joined to handle workers’ compensation claims. Because of the complicated nature of these claims, NYBOCT was established by Arthur Gallagher and structured so that Trust Administrator Arthur Gallagher and various third-party administrators (TPAs) managed the trust, including the workers’ compensation claims, according to the complaint.
To protect it from the costs associated with these claims, Arthur Gallagher secured insurance for the trust, which provided coverage for claims in excess of a self-insured retention (SIR). Arthur Gallagher and the TPAs worked to manage claims and provide notice of claims in excess of the SIR to the relevant insurance company.
The complaint, filed by NYBOCT with the Supreme Court of the State of New York in Suffolk County, alleges declaratory judgment, negligence, breach of contract, negligent misrepresentation, breach of fiduciary duty, fraud and misrepresentation and unjust enrichment against the defendants.
This comes after NYBOCT discovered in August 2016 that a claim for a 1999 injury was in excess of the SIR and the trust was not being reimbursed because the claim wasn’t reported in a timely manner to the insurance company, American Home Assurance Company (AIG).
NYBOCT alleges in its complaint that Arthur Gallagher, RMPG and Gallagher Bassett were aware of the claim as the reserves continued to increase, were aware of their obligation to give notice of the claim to AIG, and were aware of their duty to inform NYBOCT of the status of the claim but failed to do so in a timely manner.
“Essentially every party, with the exception of NYBOCT itself, mishandled the claim in some way,” the complaint said. “This failure to inform NYBOCT prevented it from taking earlier action against these responsible parties.”
This move comes after Dolores Guerra-Henrich, a bus driver and employee of one of NYBOCT’s member companies, suffered neck and back pain after she hit a pothole while driving a bus in October 1999.
As a result of her injuries, Guerra-Henrich initially stopped working in October 1999, but returned to work in November 1999. In July 2005, Guerra-Henrich stopped working. By July 2006, Guerra-Henrich had not returned to work for more than one year. By November 2008, Guerra-Henrich was classified as having a permanent partial disability, according to the complaint. A workers’ compensation claim ultimately was filed and payments were made to Guerra-Henrich. All of the claims made were attributed to her original injury.
In August 2016, NYBOCT was first informed it was not being reimbursed by AIG at a meeting of NYBOCT’s Trustees, its TPA from 2015 to 2016 – Triad – and Arthur Gallagher. At the meeting, Triad reported in its review of all claims since being retained that it had determined the claim exceeded the SIR. Triad also explained it had contacted AIG to find it was already aware of the claim. AIG informed Triad it had sent a letter denying coverage for the claim.
The trust obtained a copy of the denial letter, finding AIG had received notice of the loss in February 2012 and denied coverage in May 2012, according to the complaint. AIG denied coverage on late notice grounds, explaining it received notice more than twelve years after the accident. AIG also explained it did not receive notice until long after the time it was known this matter involved a disability of more than one year and indemnity by AIG. The letter was addressed to Gallagher Bassett with a “cc” to NYBOCT at the wrong address.
NYBOCT is a collection of bus companies that banded together, under the workers’ compensation law of New York, to create a trust to handle workers’ compensation claims brought by the employees of the member companies, such as bus drivers, who were injured on the job.
The basic structure is that NYBOCT, through Arthur Gallagher and TPAs, such as RMPG and Gallagher Bassett, would manage workers’ compensation claims and would be liable to pay amounts within the SIR, the complaint said.
For amounts in excess of the SIR, NYBOCT would seek reimbursement from excess insurance, which Arthur Gallagher would obtain. The TPAs and Arthur Gallagher would provide notice of the claims to the insurance companies. To ensure that the trust was funded and injured workers were compensated, NYBOCT would occasionally call upon its membership to provide additional funds. To determine whether additional funds were needed, NYBOCT looked to the reporting and representations of its TPAs and trust administrator.
On December 31, 2011, NYBOCT went into run-off and now serves only to manage existing claims.
When RMPG took over as the claims administrator for the trust, it was obligated to ensure all claims were reviewed and all necessary actions were taken to ensure the trust was protected regarding any third-party reimbursements, including SIR coverage, the complaint said, alleging that RMPG failed to do this when it failed to report the claim.
This failure to report the claim happened despite notes in the claims file requesting notice of the claim be given, nearly 190 changes in the claim’s reserve value and a June 15, 2009, letter informing NYBOCT all claims had been reviewed and were in good order, the complaint said.
NYBOCT alleges in its complaint that RMPG’s mishandling of this claim and failure to provide notice to AIG or the trust directly caused the trust to lose coverage, requesting that RMPG bear financial responsibility for NYBOCT’s liability.
NYBOCT also states in its complaint that Gallagher Bassett, who became NYBOCT’s TPA on January 1, 2011, failed to immediately report the claim to AIG despite an obligation to review all claims after taking over the file, notes in the claims file requesting that notice of the claim be given and 11 changes in the reserve associated with the claim. Additionally, after notice was provided and AIG denied coverage, Gallagher Bassett failed to communicate the denial of coverage to NYBOCT, the complaint said.
“It was not until over a year after Gallagher Bassett’s retention, and 11 changes to the claim reserve, that it reported the claim to AIG,” the complaint said. “Because Gallagher Bassett, despite having the trust and confidence of NYBOCT and knowing the status of the claim, inaccurately represented the status of the claim to NYBOCT, NYBOCT now finds itself liable for the costs associated with the claim without the benefit of insurance coverage.”
The complaint adds that Arthur Gallagher prepared reports for the trust and gave presentations at meetings of the Trustees on the status of workers’ compensation claims and the financial status of the trust. It alleges Arthur Gallagher was aware that the claim was in excess of the SIR but failed to report that notice had not been given or that the claim was not being reimbursed by AIG. NYBOCT also alleges that in its reporting, Arthur Gallagher represented to NYBOCT that AIG was covering the claim in excess of the SIR when this was not the case.
“NYBOCT was kept in the dark and now, through no fault of its own, finds itself in a situation that it specifically hired these parties to avoid,” the complaint said. “Given the information provided to NYBOCT, any reasonable person would believe that claims in excess were being reimbursed by the excess carrier. That has, unfortunately, not been the case for over a decade.”
Trial by Jury
NYBOCT stated in the complaint that as a result of the defendants’ conduct, it is without insurance coverage for the claim and has to bear significant costs that otherwise would have been covered, meaning it may be required to raise funds for the claim from its constituent members. It is demanding a trial by jury on these issues.
A spokesperson from Arthur J. Gallagher & Co. said in an emailed statement to Insurance Journal that “it is inappropriate for Gallagher to comment on pending litigation or specific client matters.”
A spokesperson for York Risk Services Group, which acquired RMPG in 2014, declined to comment, stating that York does not comment on almost all litigation matters. Spokespeople for Gallagher Bassett and NYBOCT did not respond to a request for comment by press time.
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