Metro sues insurance adviser over post-crash coverage gap

January 19, 2011

Metro has sued one of the nation's largest insurance brokerage firms, claiming that the company failed to inform the transit agency of coverage limits that have cost it at least $9 million so far after the deadliest accident in the system's history.

In a 24-page lawsuit, the Washington Metropolitan Area Transit Authority accuses Aon Risk Services, its insurance adviser since the 1990s, of the equivalent of malpractice. Metro said Aon saddled it with added liability after the June 2009 Red Line crash near Fort Totten Station that killed nine people, including a driver, and injured dozens more.

Because of gaps in coverage, Metro payments to crash victims and survivors are coming from operating costs instead of insurance.

Aon called the complaint "meritless." But industry observers said the dispute underscores the responsibility of both insurance brokers and policyholders to understand what they are paying for, especially large government-backed entities, such as WMATA, whose managers rely on custom-tailored insurance plans to protect taxpayers.

In the lawsuit, Metro says the agency paid Aon more than $559,000 a year to provide the "best service, the best counseling and the best protection available."

However, attorneys for the $2.1 billion-a-year transit agency contend that Aon "failed in its most fundamental and important responsibility: Protecting WMATA against avoidable out-of-pocket casualty losses."

In a statement, David P. Prosperi, vice president of global public relations for Aon Corp., said, "We believe the complaint lacks merit and we look forward to defending ourselves in court."

At issue is a three-layer liability coverage program set up by Aon, under which Metro pays an escalating set of fees and deductibles for claims up to $95 million.

For each layer of coverage - $5 million, $15 million and $75 million - WMATA was responsible for paying a $5 million deductible. Metro alleges that Aon failed to notify the agency that if it faced more than one large claim a year, it should pay extra to reinstate or expand coverage after the first claim or face huge coverage gaps.

That is what happened in WMATA's 2009 fiscal year, which spanned from July 2008 through June 2009. After a September 2008 bus crash in Foggy Bottom that killed Bartlett M. Tabor, 55, of Alamo, Calif., Metro depleted its first $5 million coverage layer, with nine months of the year remaining.

The June 22, 2009, crash near Fort Totten created far greater damages, with eight passenger deaths and scores of injuries resulting after malfunctioning track sensors caused a Red Line train traveling at up to 50 mph to crash into the rear end of a stationary train.

However, Metro alleges that Aon did not notify the agency that it needed to pay added fees or exercise options to "reinstate" or "drop down coverage."

As a result, WMATA was on the hook for both its $5 million deductible for each layer as well as the coverage paid by its insurer for the first bus claim.

Metro spokeswoman Lisa Farbstein said Aon breached its contract and failed its fiduciary duty to the system.

"We believe that Aon failed to advise us to exercise an option that would have reduced our financial exposure after a claim was settled in 2008. We believe that we should have been able to avoid $9 million in expenses had Aon met its contractual obligations."

Farbstein added: "We have been and will continue to meet our responsibility and obligations to the victims and families of that terrible tragedy. However, if Aon had not failed in its duties, the funds would come from insurance proceeds rather than from Metro's operating funds."

It is not clear whether Metro expected its claim for "more than $9 million" from Aon to represent the bulk of its added uninsured liability for the Fort Totten accident or a floor. Farbstein declined to say whether Metro's exposure would increase if pending litigation by Fort Totten victims and their survivors finds the transit agency liable for far greater damages.

Michael H. Feldman, an attorney and spokesman for Fort Totten plaintiffs, said they were aware of the WMATA insurance dispute, but he added that it was not clear that it would affect their litigation.

Spencer S. Hsu is an investigative reporter, two-time Pulitzer finalist and national Emmy award nominee.
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