Legal/Legislative Update – March 15, 2014

Published on: March 13, 2014

BLAME THE WEATHER.  Economists are blaming the unusually harsh winter for declines in home sales, manufacturing and consumer spending, among other key indicators. Some were beginning to worry that the weather might not be entirely responsible, but a stronger-than-expected February employment report appears to have eased those concerns, at least for now.

ANOTHER INDEX. The unemployment rate and consumer confidence index are key gauges of economic health, but they aren’t the only ones. The “divorce index” also turns out to be a fairly accurate barometer of economic trends. An improving economy allows unhappy couples who couldn’t afford to split to make that move and the latest Census data indicate that divorce rate is rising again after declining during the recession. The result, according to Bloomberg News: an increase in new household formations, increased demand for housing and related furnishings, and a generally positive impact on economic growth.

LOW WAGE HOUSEHOLDS.   It isn’t just the growing number of low-wage jobs that is problematic; it’s the growing number of U.S. households dependent on those wages, a soon-to-be-released study by University of Massachusetts-Boston economists Randy Albelda and Michael Carr concludes.

WAITING TO EXIT.  The employment rate for young adults is improving – slowly – and that bodes well (eventually) for the housing market. Every 1 percent increase in the employment rate equals 400,000 people, many of them currently living at home with their parents, who might be able and willing to establish households and purchase homes of their own. The improvement has been slow but the trend is moving in the right direction, according to Jed Kolko, chief economist for Trulia, who told Fortune, “We have an unusually high share of young adults who may be on the verge of moving out.”

GLASS HOUSES.  The Consumer Financial Protection Bureau, which has cited many financial institutions for discrimination based on the “disparate impact” of their lending policies, apparently has some disparate impact problems of its own, according to an American Banker report. 3-7-14

LOAN LIES.   As lenders scrutinize homebuyers’ more closely, a recent study found that, not surprisingly, buyers are becoming more likely to lie about it.



A CLEAR EXCLUSION. Condominium boards famously focus on two details when selecting insurance policies: The coverage provided and its cost. They do not always notice the exclusions — these are the “yes, but” clauses removing with one hand the coverage another hand seems to have provided. Sometimes the exclusion language is a bit hazy, but that wasn’t the case for the condominium association trying to collect on a directors and officers liability policy issued by Travelers (Salisbury West Condominium Trust v. Travelers Casualty & Surety Company of America, No. 13-cv-40051-TSH, U.S. Dist. Ct. (D. Mass. Oct. 15, 2013).

The claim arose from ground water flooding that damaged the unit and personal belongings of one of the condominium owners in Salisbury West. When the owner sued the association, the board asked Travelers to defend the action and pay for any damages the owners won. Travelers denied the coverage, citing the “Tangible Property Exclusion” clause in the policy, which specifically excluded coverage for claims arising from “or in any way involving bodily injury, sickness, mental anguish, emotional distress, disease or death of any person.” The language also barred claims resulting from “damage, destruction, loss of use or deterioration of tangible personal property.”

The owner sought compensation for the “destruction of personal property,” and for “lasting personal injury to safety, health, and welfare” resulting from the improper installation of a sump pump that had failed to prevent the flooding. The court’s reading of the policy language – and, it would seem any reading of the policy ─put that claim squarely within the exclusions specified. Travelers was not required to defend or indemnify the association, the court ruled.

DATA INSECURITY. Here’s a head’s up for anyone concerned about liability for data security lapses – and in the wake of the massive, and massively expensive, breaches at Target and other retailers, just about everyone should be: Your standard general liability insurance may not cover the losses you incur. In what is believed to be one of the first cases to address the issue (Zurich American Insurance Co. v. Sony Corporation), a New York trial court ruled recently that hacking a computer system does not meet the definition of “oral or written publication in any manner of material that violates a person’s right of privacy” ― the standard language in the “Personal and Advertising Liability” provision of most general liability policies. The court greed with the insurer that to qualify for coverage, a claim would have to result from “some kind of act by the policyholder,” not by a third party, as was the case with the hacking. The bottom line: Anyone relying on insurance coverage for a data breach should obtain a “cyber insurance” policy designed specifically for that purpose.



“Regulators want to get it right, they want to get good, clear customer protections in America, but they all interpret how that has to happen differently. States want to do it one way, the CFPB does it in another way, the OCC does it a different way, the GSEs do it another way, and that’s what’s causing the confusion. Out of best intentions they’re creating unintended consequences and quite frankly, it’s what we would call a contingent liability.” ―David Stevens, president and CEO of the Mortgage Bankers Association, in an interview with National Mortgage News.