2015 IIAI Fall Viewpoint Magazine

FALL 2015 • VOLUME 33 • ISSUE 4 INDEPENDENT INSURANCE AGENTS OF IOWA

IIAI 110th President

Jerry Mease

2015 Convention Highlights

ARE YOU totally

WORRY FREE? Coverage for your auto, home, business and more!

®

®

WWW.IMTINS.COM

WEST DES MOINES, IOWA • 800.274.3531 • WWW.IMTINS.COM

PRESIDENT’S REPORT Perpetuation Is Important Independent Insurance Agents of Iowa 4000 Westown Parkway West Des Moines, Iowa 50266 (515) 223-6060 • FAX (515) 222-0610 800-272-9312 (In-State only)

Engaging a new generation of independent agents is something I feel we all need to think about, agents and companies alike. The successful transition of our business is dependent on attracting new and young talent.

Jerry Mease Page 5

Advertising Editors Melissa Meiners & Nicole Peffers

BOARD OF DIRECTORS President Jerry Mease - Winterset

President-Elect Eldon Hunsicker - Ottumwa

Treasurer

ADVERTISERS We would like to thank our advertisers for their support.

This magazine would not be possible without them.

Dean Brooks, CPCU, CLU, ALCM West Des Moines

Directors

Tim English, CIC - Dyersville John Dalton - Council Bluffs Steve Madsen - Marshalltown David Rowley, CPCU, CIC, AU - Spirit Lake Scott Wirtz - Emmetsburg Luke Horak - Washington Lottie Miller, CPCU, CIC, AAI, CISR, CPIW, AAM, CRIS - Cedar Rapids Chris Gentry - Ollie

Past President

Subject: “House sharing” and “car sharing” or is it “renting” – and is it covered?

By Mike Edwards, CPCU, AAI Page 6

THANK YOU!

Terry Friedman, CPCU - Dubuque

National Director

In This Issue

35 Acuity

Meet IIAI 110th President Jerry Mease

36 Amerisafe

Page 16

39 ARM Associated Risk Managers

12 Burns & Wilcox

2015 IIAI Convention Highlights Trade Show Golf Outing

15 Bitco Insurance Companies

Page 22

43 Big “I” Professional Liability

40 EMC Insurance Co. 4 Grinnell Mutual

E&O No Time For Complacency

By Jack Wharton & Scott Beatte

2 The IMT Group

Page 29

Scott Morningstar, CPCU - Lisbon

25 Integrity Insurance

IIAI OFFICE STAFF

33 Iowa Mutual Insurance Co.

Chief Executive Officer

32 Merchants Bonding Co.

Accounting Rules Agency Owners Need To Know

By Chris Burand

Bob Skow, CPCU, CAE bob@iiaiowa.org

32 M.J. Kelly Company

Page 31

37 Pekin Insurance

Carrier E&O Claims Agents Continue Trend - Make Sure Interactions With Carriers are Documented

By David Hulcher

Director of Membership Operations & Education

26 RCIS

Melissa Meiners melissa@iiaiowa.org • Ext. 15

28 SECURA Insurance Co.

Technology & Communications Coordinator

30 Western National Insurance

11 West Bend

Page 38

Nicole Peffers nicole@iiaiowa.org • Ext. 17

Life After Insurance

By Bob Skow, CPCU, CAE

Membership Services Coordinator

Page 41

Marilyn Paul, CPCU, AIT, AAM, CPIW marilyn@iiaiowa.org • Ext. 11

Membership Services Coordinator Brenda Kluger, CIC, CISR, CIIP, CRM brenda@iiaiowa.org • Ext. 14

Membership Services Coordinator Megan Kincy, AINS, AIS megan@iiaiowa.org • Ext. 16

Office & Education Assistant Cindy Grim cindy@iiaiowa.org • Ext. 12

MISSION STATEMENT: The Independent Insurance Agents of Iowa will be an ­unrelenting advocate of the business, professional and p ­ olitical interests of its members; doing so by working in the p ­ ublic’s best interest and with the highest e ­ thical standards.

Viewpoint is a publication of the Independent Insurance Agents of Iowa. Viewpoint is published quarterly: Winter, Spring, Summer and Fall. Viewpoint is mailed to Iowa insurance agents, Iowa Home Office Executives, Affiliate members, and other state associations and organizations.

Discover what Grinnell Mutual can do for your commercial customers

We specialize in small business protection at prices your customers can afford.

Visit grinnellmutual.com to discover the many tailored business insurance packages we can offer your clients.

president’s REPORT

Perpetuation is

IMPORTANT

by Jerry Mease

I

would like to start by thanking all the members of our Association for electing me as your next President. I truly appreciate and am greatly honored to represent you. Having served on IIAI Board of Directors for eleven years, I have always felt our goal is to make your job easier and to continue to make our industry stronger.

I started in the business 44 years ago while I was a student at Drake University. At that time, my father was Secretary Manager of Farmers Mutual Insurance Association in Winterset.

He wanted to start an agency and asked if I would be willing to help achieve that goal. I thought I would only stay a couple of years, but I soon found out the harder I worked the more money I made. This is not a bad “gig.” The rest is history…I worked for Farmers Mutual of Madison County and our agency grew and grew. Dad retired, I became active in the Big “I” and now a new chapter has started as I have sold my agency and work for the new owner, Eric Johnson, at Johnson Insurance in Winterset.

Engaging a new generation of independent agents is something I feel we all need to think about, agents and companies alike. The successful transition of our business is dependent on attracting new and young talent. Perpetuation is important, I must confess it is a tough decision to make and it is hard to know when

in the State of Iowa, along with having the very best agent’s Association in the United States. Our CEO and his staff are of the best characters we could ever find. The Association is financially strong and highly respected.

As always, this year will bring many changes. We all struggle to make our insureds and companies happy and continue to work on governmental issues!

Be proud you are a member and give of your time and resources whenever you can. It takes all of us working together. I hope you will contact me with any questions or concerns, and I look forward to working with you to achieve our goals. the time is right. Our business has so much to offer those who want to work with consumers placing coverages, building relationships and solving claims. Personally, the ability to raise a family and to be your own boss makes agency ownership very attractive. Yet, the demands remain a challenge. I hear from so many agents, concerns about workload and changes in profit share agreements that make it more difficult to qualify; at the same time commissions are reduced. Those of us who write crop insurance fully understand these pressures too. We all can do a better job of communicating the importance of compensation within our industry and encouraging young agent involvement.

We are so blessed to live and work

“We are so blessed to live and work in the State of Iowa, along with having the very best agent’s Association in the United States”

FALL 2015 |

|5

SUBJECT:

“House sharing” and “car sharing” or is it “renting” – and is it covered?

By Mike Edwards, CPCU, AAI, IIABA Virtual University Faculty

QUESTION: I have an insured that is planning to sign up as a host with a service called “Airbnb,” which he says arranges “house sharing” between owners and people who are traveling and need a place to stay. He stayed as a guest in several homes through Airbnb during a trip to London last Christmas, was very pleased, and found staying in a home much preferable to a hotel room.

Several of his friends are already signed up as hosts with Airbnb, and they highly recommend the arrangement. They told him that Airbnb provides $1,000,000 insurance for the host. Also, they have told him how much they like having the extra income. Well, “income” sent up a red flag to my insurance antenna! Do you know how this arrangement works, and is it “sharing” or “renting,” and what are the coverage implications?

“HOUSE SHARING”

ANSWER: Here’s the short answer: Sometimes “sharing” is sharing, and sometimes “sharing” is renting. And your insurance antenna was correct to pick up on the fact that your insured’s friends, who “share” their homes with travelers, receive money. In our insurance world, that’s called “renting.”

6|

“House sharing,” “car sharing,” and numerous other forms of “sharing” are examples of an arrangement (some would say “movement”) called the “sharing economy,” or “collaborative consumption.” My Internet search of those terms produced over 69,000,000 hits. One source often cited as a seminal work on the subject is the book: What’s Mine Is Yours: The Rise of Collaborative Consumption.

According to Airbnb’s website, they have over 600,000 listings worldwide, including 34,000 cities spread across 192 countries. The company was founded in 2008 in San Francisco, and was originally called Air Bed and Breakfast.

The name came about because at a time when they were unemployed and desperate for money, two roommates bought some air mattresses and rented out space in their apartment. They created a website with the full name, but later shortened it to simply “Airbnb.”

| FALL 2015

Assume the following: (1) Jack owns a home, which is insured with an ISO HO 00 03 05 11. (2) He signs up as a “host” through one of the “home sharing” websites that facilitate the arrangement between a “host” and a “guest” – such as Airbnb, etc. (3) Jack posts his available dates, and

his rental rate. (4) Jill signs up as a “guest” at the website.

(5) Jill searches the available rentals, and then contacts Jack through the website to make a reservation to stay in his home as a “guest.”

Jack’s Insurance – Property Coverages HO 00 03 05 11 Section I – Property C. Coverage C – Personal Property

1. Covered Property

We cover personal property owned or used by an “insured” while it is anywhere in the world. After a loss and at your request, we will cover personal property owned by:

a. Others while the property is on the part of the “residence premises” occupied by an “insured”; or

b. A guest or a “residence employee”, while the property is in any residence occupied by an “insured”.

the property is located at his house [C.1.b.].

(2) However, the ISO Homeowners Policy does not define “guest,” which can be confusing, since many of the house-sharing websites use the terms “host” and “guest.”

(3) But since these “guests” pay rent, the outside world – including insurance – would consider them “roomers, boarders or tenants” – see following.

C. Coverage C – Personal Property 4. Property Not Covered We do not cover:

f. Property of roomers, boarders and other tenants, except property of roomers and boarders related to an “insured”;

g. Property in an apartment regularly rented or held for rental to others by an “insured”, except as provided in E.10. Landlord’s Furnishings under Section I – Property Coverages;

Comments: (1) Jack’s Coverage C applies to property of “guests” while Continued

FALL 2015 |

|7

Comments: (1) Under C.4.f., none of Jill’s property could be covered

by Jack’s policy. Note the discussion above about Jack’s Coverage C broadly applying to the property of a “guest.” Item C.4.f. addresses the property of a person who is not a “guest,” but is a “roomer, boarder or tenant.” The ISO Homeowners Policy provides no definition of any of these terms, but in general usage, most experts hold that the distinction which separates a guest from roomers, boarders and tenants is that a guest pays no rent, and the others do. Recall also that much of the “house-sharing” literature and websites apply the terms “host” and “guest,” which is not really applicable to the pertinent insurance issues at hand. Specifically, the intent of C.4.f. seems clearly to exclude the personal property of anyone who is paying to stay at Jack’s house, whether in a room, or where they rent the entire house.

(2) Under C.4.g., Jack’s property which is located in the area where Jill is staying is also excluded, IF that area is “regularly rented or held for rental.” If the rental is other than on a “regular” basis (which essentially means “occasional), Jack’s policy still covers his property in the rental area. “Regular” is not defined in the policy, but if Jack is signed up as a “host” on a house-sharing service such as Airbnb, it’s quite possible Jack’s insurer will argue that this implies regularity of rental.

(3) However, if rental does occur on a “regular” basis, there is some limited coverage for certain “landlord furnishings” of Jack, as provided by the Additional Coverage E.10., which is referenced in C.4.g.

Section I – Property E. Additional Coverages

10. Landlord’s Furnishings We will pay up to $2,500 for your appliances, carpeting and other household furnishings, in each apartment on the “residence premises” regularly rented or held for rental to others by an “insured”, for loss caused by a Peril Insured Against in Coverage C, other than Theft.

This limit is the most we will pay in any one loss regardless of the number of appliances, carpeting or other household furnishings involved in the loss.

This coverage does not increase the limit of liability applying to the damaged property.

(4) This Additional Coverage provides: (a) limited coverage ($2,500) for Jack’s appliances, carpeting and other household furnishings in an area that is regularly rented or held for rental; and

8|

| FALL 2015

(b) for damage caused by Coverage C perils, excluding theft to such property.

(5) Theft coverage for occasional rentals can be provided by endorsement HO 05 41 – see discussion under Theft in the next section below.

Section I – Perils Insured Against B. Coverage C – Personal Property

We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I – Exclusions.

9. Theft

a. This peril includes attempted theft and loss of property from a known place when it is likely that the property has been stolen.

b. This peril does not include loss caused by theft:

(3) From that part of a “residence premises” rented by an “insured” to someone other than another “insured”; Comments: (1) Jack’s policy does not cover theft by Jill from the part of his house which is rented - whether on an occasional or regular basis. This theft exclusion applies to the rental of a room, or the entire house.

(2) A partial buyback for theft coverage is available by attachment of endorsement HO 05 41 10 00 Extended Theft Coverage for Residence Premises Occasionally Rented To Others. Theft coverage is provided “while the residence premises is rented in whole or in part on an occasional basis,” and applies to the part occupied by the occasional tenant, roomer, or boarder. However, three broad classes of property are not included in the coverage, including: (a) money, goldware, silverware, etc.; (b) securities, accounts, personal records, etc., and (c) jewelry, watches, furs, etc. The endorsement amends part 9.b.(3) of the theft peril (see above) as follows:

HO 05 41 10 00 Under Peril Insured Against 9. Theft, Paragraph b.

(3) is deleted and replaced by the following:

b. (3) From that part of a “residence premises” regularly rented by an “insured” to someone other than another “insured”, roomer or boarder.

(3) Note that under ISO Rule 517, endorsement HO 05 41 can only be used with coverage forms which provide named perils coverage for Coverage C. The endorsement cannot be used with those Homeowners forms which provide special coverage (all-risk) coverage for Coverage C, including HO 00 05, or HO 00 04 with HO 05 24, or HO 00 06 with HO 17 31. The reason for this is that the forms which provide all-risk coverage for

Coverage C property do not exclude theft from a part of the residence premises which is occasionally rented. In other words, with those forms, the coverage provided under HO 05 41 is already included in all-risk forms.

Jack’s Insurance – Liability Coverages The primary issue to address is whether or not “house sharing” a “business.”

Excerpts from Jack’s policy:

HO 00 03 05 11 Definitions 3. “Business” means:

a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or

b. Any other activity engaged in for money or other compensation, except the following:

(1) One or more activities, not described in (2) through (4) below, for which no “insured” receives more than $2,000 in total compensation for the 12 months before the beginning of the policy period Section II – Exclusions E. Coverage E – Personal Liability And Coverage F –

Medical Payments To Others Coverages E and F do not apply to the following: 2 “Business”

a. “Bodily injury” or “property damage” arising out of or in connection with a “business” conducted from an “insured location” or engaged in by an “insured”, whether or not the “business” is owned or operated by an “insured” or employs an “insured”.

b. This Exclusion E.2. does not apply to:

(1) The rental or holding for rental of an “insured location”;

(a) On an occasional basis if used only as a residence;

(b) In part for use only as a residence, unless a single-family unit is intended for use by the occupying family to lodge more than two roomers or boarders; or

(c) In part, as an office, school, studio or private garage; Comments: (1) In general, the business exclusion would only come into play if Jack receives more than $2,000 in the year prior to the inception of his current policy (see 3.b.(1) in the definition of “business”). Many experts have questioned the rationale for this timeframe guideline. The deciding factor in whether or not renting (“sharing”) his house (in whole or in part) is a “business” is based on how much money he made in the 12 months prior to his current policy term. Nonetheless, the amount of revenue Jack receives is one of the key factors which play a role

in determining whether or not the business exclusion applies.

(2) Assuming Jack has exceeded the income threshold, the next issue in the business exclusion is the extent and frequency of rental. There are three exceptions to the business exclusion on this point. First, if a rental is “occasional,” the exclusion does not apply (see Exclusion E.2.b.(1)(a)). Note that “occasional” is not defined, and this has resulted in confusion, uncertainty, and litigation. Second, under E.2.b.(1)(b), if Jack rents only a part of his residence, the exclusion does not apply, even if the rental is on a regular basis, which is probably common for many who participate as hosts in “house sharing” arrangements such as Airbnb. However, if Jill brings more than two people with her (as “roomers or boarders”), this would probably trigger the exclusion.

Third, under E.2.b.(1)(c), Jack could rent a part of his house as an office, school, studio or private garage on an occasional or regular basis without triggering the exclusion.

Interestingly, on May 21, 2014, the Wall Street Journal reported that Airbnb had reached a settlement with New York Attorney General Eric Schneiderman, to turn over information about its approximately 15,000 hosts in New York City. The dispute between the two parties has been ongoing for months, with AG Schneiderman alleging that the city and state have lost millions of dollars in uncollected hotel-related taxes. Schneiderman has said that “We are going to pursue anyone who’s running illegal hotels.”

Insurance provided to hosts by the facilitator.

Using Airbnb as just one example of a “house sharing” facilitator, their website indicates that they provide a “$1,000,000 Host Guaranty.” This coverage applies to “damages to covered property in the rare event of guest damages.” However, among the exposures not covered are “personal liability, cash and securities, collectibles, rare artwork, jewelry, and pets.”

Other types of “house sharing.”

As noted earlier, the participants in the “sharing economy” use the word “sharing” in much broader terms than much of the business world would, including insurance. An Internet search will produce many other types of living arrangements that are consider as “house sharing.” Here are just a few examples.

Example #1. National Shared Housing Resource Center. http://nationalsharedhousing.org/ Description from their website:

Home Sharing is a simple idea: a homeowner offers accommodation to a homesharer in exchange for an agreed level of support in the form of financial exchange, assistance with household tasks, or both.

FALL 2015 |

|9

The community is also a beneficiary of Home Sharing.

Shared living makes efficient use of existing housing stock, helps preserve the fabric of the neighborhood and, in certain cases, helps to lessen the need for costly chore/care services and long term institutional care.

A home sharer might be a senior citizen, a person with disabilities, a working professional, someone at-risk of homelessness, a single parent, or simply a person wishing to share his or her life and home with others.

For these people, shared housing offers companionship, affordable housing, security, mutual support and much more.

Home Sharing programs can offer a more secure alternative to other roommate options. Many programs have staff who are trained to carefully screen each program applicant through interviewing, background checking, and personal references.

Comments: (1) Assume that Jack was a senior citizen homeowner, for example, and Jill agreed to live in his house as a “homesharer,” in exchange for “an agreed level of support in the form of financial exchange, assistance with household tasks, or both,” as outlined in the NSHRC description. Note that the definition of “business” in Jack’s Homeowners Policy includes “Any other activity engaged in for money or other compensation.”

Therefore, if Jack’s total compensation exceeds $2,000 annually, the threshold might be met. However, since Jill most likely has a designated room to live in, this would be within the exception to the business exclusion, since Jack rents his house “in part.” And, of course, Jill needs an HO-4 Tenant’s Policy, since she is not an “insured” in Jack’s HO. Example #2. CoAbode – Single Mothers House Sharing. http://www.co-abode.com/ Description from their website:

CoAbode’s mission is to provide support and services that connect women raising children alone. Thru this connection, single parent women families pool their finances and resources to improve their living conditions for themselves and their children by sharing a home.

CoAbode was founded on the principle that two single moms raising children together can achieve more than one struggling alone. Through a variety of community based programs CoAbode provides single mothers with affordable housing opportunities, specialized support groups, educational scholarships, community outreach and involvement as well as referrals to vital resources designed to make parenting a child alone easier, healthier and more secure.

10 |

| FALL 2015

Comments: (1) CoAbode’s website describes their service as “mom-matching,” which facilitates connecting single moms who own a home with single moms who are looking for a place to rent. In cases where neither owns a home, CoAbode seeks to connect single moms who wish to pool their financial resources in order to afford a home or apartment to rent.

(2) Where one of the moms owns the home and the other will live there as a tenant, the insurance exposures are the same as the arrangement discussed for the National Shared Housing Resource Center.

Example #3. “House Sharing for Boomer Women Who Would Rather Not Live Alone.” This is the title of an article on the AARP website, and includes examples of various forms of “house sharing.” In some of the examples, the “home sharers” actually jointly purchase a home. Bottom line for the insurance professional: Be aware that the term “house sharing” can mean many different things.

“CAR SHARING” “Car sharing” operates in several forms. And much like “house sharing,” few of the “car sharing” arrangements are actually “sharing,” in the everyday use of the term. Other terms associated with “car sharing” are “personal vehicle sharing” and “ride sharing.”

“Car sharing” and “personal vehicle sharing” often indicates forms of micro-rentals, and the terms are frequently used interchangeably. However, one important difference is that a “personal vehicle sharing program” involves renting one’s own auto to others for a short period of time, under a specific program. The insurance industry, as well as some state legislatures and regulators, have begun to focus on “Personal Vehicle Sharing Programs.” See further discussion in the “Actions by Regulators, Legislatures, & Insurers” section below.

The other common form of “car sharing” (not involving a Personal Vehicle Sharing Program) typically means renting an auto from a micro-rental company for a short time. “Ride sharing” is using one’s own auto to transport people or property for a fee.

In the discussion below, assume the following: (1) Jill owns an auto; (2) her auto is insured under an ISO PAP PP 00 01 01 05; (3) she is the named insured. Here are three of the most common types of “car sharing.”

Example #1: Jill uses her auto to transport people (or run errands for people), for a fee.

Example #2: Jill rents her car to Jack for a few hours.

Example #3: Jill rents a car for 3 hours for her own personal use, from a car sharing company.

Continued

People who run a business know. The most valuable things

are also the hardest to get.

Your customer’s business didn’t grow overnight. It came from years of hard work, confidence in what they could do, and making smart decisions.

That’s why an insurance policy from West Bend makes sense. It protects these valuable and hard-earned businesses so your customers can focus on doing what they do best: taking care of children.

And as an Official Supplier of The Silver Lining, it’s backed by your knowledge and experience.

West Bend. Insurance your customers buy when they can’t afford anything less.

Take your professional liability business to new heights.

PROFESSIONAL LIABILITY

At Burns & Wilcox, our expertise becomes your expertise.

Whether it is cyber liability or medical malpractice, EPLI or fiduciary liability, we will ensure your clients avoid any gaps in coverage. Raise the level of your professional liability expertise with Burns & Wilcox.

Minneapolis, Minnesota | 612.564.1880 toll free 800.328.1693 | fax 612.564.1881 minneapolis.burnsandwilcox.com Milwaukee, Wisconsin | 262.347.0266 toll free 800.544.5700 | fax 262.347.0440 milwaukee.burnsandwilcox.com Commercial | Professional | Personal | Brokerage | Binding | Risk FALL 2015 | Management Services | 11

Following is a comparison of these three forms of car sharing.

Example #1: Jill uses her auto to transport people (or run errands for people), for a fee.

This is an example of “ride sharing.” Two of the best-known programs are Uber (uber.com) and Lyft (lyft.com). These and similar businesses provide what is essentially a taxi service. They serve as the facilitator between vehicle owners and passengers who need a ride. Both have sophisticated websites and mobile apps.

However, their growing popularity has caught the attention (and ire) of the taxi industry and regulators.

Another form of this type of arrangement is for vehicle owners to connect with people who need errands run, such as picking up groceries, dry cleaning, and so forth. One of the most successful of this type of business is probably TaskRabbit (taskrabbit.com).

According to their website, the firm was started in 2008 when a woman realized late one night that she was out of dog food. She had the idea that if there was a way to connect with friends who might already be at, or near, the store, it would save her a trip, and also provide a little extra income for people who were willing to run errands for others.

Assuming Jill decides to use her car by signing up with Uber, Lyft, or TaskRabbit, here are some coverage issues she should consider.

Jill’s PAP PP 00 01 01 05 Part A – Liability Coverage Exclusions

A. We do not provide Liability Coverage for any “insured”:

5. For that “insured’s” liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This Exclusion (A.5.) does not apply to a share-the-expense car pool.

Comments: (1) In the opinion of most experts, using one’s auto as a public taxi or delivery service is clearly within exclusion A.5. At the same time, picking up and delivering someone’s groceries, dry cleaning, etc. for a fee is generally considered different from delivering items for

one’s employer, such as pizza, or taking the money bag to the bank for deposit, etc. Here is a detailed article on the scope of exclusion A.5. “The Public or Livery Conveyance Exclusion” Example #2: Jill rents her car to Jack for a few hours.

A very different form of “car sharing” is when individuals rent their autos to others for a short time, and has become known as a “personal vehicle sharing program.” There are numerous platforms for this activity, and two of the most widely known are RelayRides (relayrides.com) and GetAround (getaround. com). This type of arrangement is also referred to as “Peer-to-Peer sharing” or “P2P sharing.” Despite the moniker, this is clearly an auto rental endeavor, and the websites and blogs emphasize both the lucrative income opportunities for vehicle owners, and the convenience for renters.

As to coverage in Jill’s PAP, many experts hold the view that the exclusion for a vehicle “while being used as a public or livery conveyance” (see A.5. above), would apply to Jill’s auto while Jack is driving it. Since she advertises the auto for rent on a public forum, this seems a reasonable view of the exclusion. However, while there is not unanimity on the issue, and sparse case law, the safe assumption for Jill is that her PAP in all likelihood would not apply during the time Jack was driving her car. At the same time, most facilitators such as RelayRides and Get Around do provide insurance during the rental period, although the coverage details have not been reviewed for this article.

Within the last few years, a number of states have enacted laws regarding these “Personal Vehicle Sharing Programs.”

In addition, the Insurance Services Office (ISO) introduced an endorsement in 2013 relating to these programs. See further discussion below.

Many experienced insurance practitioners have considerable reservations about the wisdom of renting one’s auto to virtual strangers. And as one example validating this reluctance to embrace such new ideas, “Exhibit One” would be the “car sharing” firm HiGear. They were a facilitator between owners and short-term renters of luxury, high-end cars such as Lamborghini, Aston Martin, Mercedes, BMW and others. HiGear began in 2011, but after only a few months, they ceased operation. A criminal ring stole 4 autos totaling over $400,000 by using fake identifications and stolen credit cards. In a letter to HiGear members, the company

FALL 2015 |

| 13

acknowledged the difficulty of eliminating fraud in this type of endeavor, and felt it best not to risk any future losses to members’ high-value autos.

Example #3: Jill rents a car for 3 hours for her own personal use.

Micro-rentals have proven to be enormously popular, primarily in urban areas, and near college campuses. Easily the best-known among the many micro-rental firms is Zipcar (http://www.zipcar.com/). And owing to the success of firms like Zipcar, the big national car-rental firms have also added micro-rental operations to their brand. Two of the biggest players are Enterprise Car Share http://www.enterprisecarshare.com/ and Hertz24/7 http://www.hertz247.com/Lowes/ en-US/Home. In addition, local brands proliferate in many regions across the country, one example being CityCarShare https://www.citycarshare.org/, a non-profit organization in the San Francisco Bay area.

same manner that a standard taxi does. (See discussion in “Example #1” above.)

As to “personal vehicle sharing programs” (see discussion in “Example #2” above), one main focus has been to examine where the legal liability might lie between the “personal vehicle sharing program,” the vehicle owner, and the driver.

In some cases, states have passed detailed laws outlining the legal liability, regulatory, and insurance issues.

Here are links to bulletins issued by two state departments of insurance on Personal Vehicle Sharing Programs, and one from an industry source: “Personal Vehicle Sharing Program - How It Works” “Personal Vehicle Sharing - Insurance Tips” “Ride Sharing and Personal Auto Insurance”

In all these micro-rental firms, the autos are owned by the business, and differ from traditional car rentals mostly in that the term of rental can be hourly, vs. the standard daily basis.

So their inclusion in the “car sharing” spectrum is perhaps in no small part an effort to capture some of the cache’ of the “sharing economy” movement. It is also important to note that while these businesses are associated with “car sharing,” they are different from “personal vehicle sharing programs,” in which the autos are owned by individuals.

As to the insurance issues, the exposure for renting a car from a micro-rental company such as Zipcar should not be any different than the traditional car rental. While the micro-rental firms include insurance for the renter, there is one potential gap that renters need to be aware of. Due to the concentration of micro-rental firms in areas where some people do not own autos, there is a need for these drivers to have some form of auto insurance in situations where they are involved in auto accidents as pedestrians, or while driving a friend’s car, etc. One common source of coverage, especially for college students, is to be covered as family members under the parents’ PAP. Otherwise, a Named NonOwner PAP would be needed.

ACTIONS BY REGULATORS, LEGISLATURES & INSURERS Some state departments of insurance, as well as legislatures, have initiated measures on “car sharing,” “ride sharing,” and “personal vehicle sharing programs.” As illustrated in the three examples above, the exposures between these programs are quite different. One is essentially a taxi exposure, and another is a micro-rental exposure – one of which involves a personally-owned auto.

Some of the focus is on “ride sharing,” and whether or not the regulatory and mandatory insurance requirements which govern the taxi industry would apply to individuals who use their personally-owned autos to transport people in the

14 |

| FALL 2015

The insurance industry has been reviewing the growth of the various forms of “car sharing.” In 2013, ISO introduced a PAP endorsement PP 23 16 10 13.

Here are pertinent excerpts related to the changes to Part A – Liability, and Part D – Damage to Your Covered Auto, with a brief commentary.

PP 23 16 10 13 Personal Vehicle Sharing Program Exclusion Endorsement I. Part A - Liability Coverage Part A is amended as follows: The following exclusion is added: We do not provide Liability Coverage for the ownership, maintenance or use of: “Your covered auto” while:

a. Enrolled in a personal vehicle sharing program under the terms of a written agreement; and

b. Being used in connection with such personal vehicle sharing program by anyone other than you or any “family member”.

Comments: (1) If this endorsement is attached to Jill’s PAP, her Part A – Liability Coverage does not apply while Jack has rented and is using her auto.

(2) However, if this endorsement is attached to Jack’s PAP, it would have no applicability while he is driving Jill’s auto, since her auto is not his “your covered auto.”

(3) The endorsement makes similar changes to Medical Payments and UM. IV. Part D - Coverage For Damage To Your Auto Part D is amended as follows: The following exclusions are added: We will not pay for: Continued

Loss to “your covered auto” which occurs while: a. Enrolled in a personal vehicle sharing program under the terms of a written agreement; and

b. Being used in connection with such personal vehicle sharing program by anyone other than you or any “family member”.

Loss to, or loss of use of, a “non-owned auto” used by: a. You; or b. Any “family member” in connection with a personal vehicle sharing program if the provisions of such a personal vehicle sharing program preclude the recovery of such loss or loss of use, from you or that “family member”, or if otherwise precluded by any state law.

Comments (1) The PP 23 16 contains a two-part exclusion for physical damage. The first part excludes any physical damage coverage to Jill’s “your covered auto” being used by anyone other than Jill, if the auto is enrolled in a “personal vehicle sharing program.”

(2) The second part of the exclusion would apply to Jack’s PAP, where he has caused damage to Jill’s auto during the term of his rental. Some vehicle sharing programs, and/or state laws, can affect the insurance recovery.

ADDITIONAL REFERENCE/ RESOURCE INFORMATION AT BIG “I” VIRTUAL UNIVERSITY “Rent Your Home for the Super Bowl” “Homeowners Coverage and Roomers & Boarders” “The Insurance Implications of Car Sharing” “Zipcars” “The Public or Livery Conveyance Exclusion” “Who’s Liable in the Share-Economy?”

“House Sharing for Boomer Women Who Would Rather Not Live Alone” These materials are intended for educational purposes only and should not be relied upon as legal advice. Please consult a qualified attorney for legal advice.

What YOU do is what WE protect.

Want the opportunity to grow your business in niche industries?

BITCO is your perfect partner. We’ll help you get new clients and protect them with the best insurance for their industry.

We offer you the industry experience and in-depth knowledge that attracts new customers. You can count on us for 100% support including local underwriting delivery, proactive risk control services, premium audit functions and efficient claims handling – all on a personal level.

Des Moines Branch Office 1200 Valley West Drive, Suite 600 West Des Moines, Iowa 50266 515-223-1122 or 800-383-1122 Fax 515-223-4315

Programs for:

General Contractors Transportation Construction Contractors Utility Construction Contractors Land Improvement Contractors

Construction Materials Suppliers On Shore Oil & Gas Extraction Forest Products Manufacturers and Wholesalers & Distributors All programs may not be available in all states.

www.BITCO.com

FALL 2015 |

| 15

IIAI 110th President

JERRY MEASE

VIEWPOINT: What is your fondest memory as a child growing up on a farm?

JERRY: I loved every aspect of farming.

At 10 years old I could drive dad’s pickup, drive a tractor, milk cows and take care of livestock. I was very active in helping dad on the farm and I enjoyed it very much.

VIEWPOINT: Tell us about your Dad’s decision to move to town.

1978 – Left to right Jerry, Bev Reinet, Elelyn Satterlee and Jack Mease celebrating Mutual 100 years.

VIEWPOINT: We are in Winterset, Iowa with the 110th President of the Independent Insurance Agents of Iowa, Jerry Mease. We understand you grew up in Madison County. Tell us about growing up here.

JERRY: I was born in Winterset, Iowa and I grew up on a farm until the age of 10. I was active in farming with my father up until that point. He decided to either farm bigger or to get out and he decided to sell the farm and move to Winterset. That’s when he got involved in the insurance business.

16 |

| FALL 2015

JERRY: It was difficult for me because I did not want to leave the farm. We did move to town and that is when I started working a paper route when I was 10 years old. I have held a job every day since that day.

VIEWPOINT: What things did you learn from working a paper route?

JERRY: I had a very good paper route in the west end of Winterset which was the part of town that was growing at the time. I was able to take on many new customers; I learned the art of selling papers and good relationships with clients/people. I delivered papers to which taught me a lot about what I wanted to do in the future, sell.

VIEWPOINT: Growing up what was your favorite sport?

JERRY: My favorite sport was baseball, but I excelled and lettered several times in football in high school. I played all sports and enjoyed all activities. I was able to play a little junior college football at Iowa Central Community College in Fort Dodge. I was a kicker specialist and I learned a lot from some very good coaches like John Greggory (you may know from the Iowa Barnstormers) who recruited me. He was the assistant coach at the time. Paul Shupe was the head coach and, in my opinion, he was one of the smartest coaches I have ever been around.

I ended up at Drake University where I thought I was going to play football, but I didn’t. I finished my last two years of school and earned my degree in Business. At the time I wanted that golden piece of paper that I could hold in front of someone to say I went to college. I thought it would help with job opportunities someday.

JERRY: We have two children. Our son, Kevin, was born in 1972. He attended Winterset High School, graduated from the University of Northern Iowa and now works for the Millhiser Smith Insurance Agency in Cedar Rapids. He has become part owner in the agency and has been very successful.

Our daughter, Jennifer, was born in 1975 and was also active in activities at Winterset High School. She graduated from the University of Northern Iowa and is now the Human Resources Director at Madison County Memorial Hospital.

We have 3 grandchildren – the best parts of life right now.

Brooke is 15, Jack is 12 and Jessica is 9.

VIEWPOINT: Tell us how your father transitioned from farming to insurance and how you got started in the agency.

JERRY: My Dad had an opportunity to go into the County

and married early. I was 19 and a sophomore in college and she was 18 when we got married. When I went to Drake University she worked on campus and was able to get my tuition paid for me.

Mutual here in Madison County which was Farmers Mutual Insurance Association as the Assistant Secretary, second in charge. He did the adjusting, inspecting and writing for the mutual. He later became the Secretary of the Mutual and his assistant at the time died suddenly. At that time, in 1970, I was finishing college and the job market wasn’t very good.

The opportunity to join dad in the agency was good, so I started in 1971 thinking I would only stay a couple of years, hoping to move to Colorado, but here I am 44 years later.

VIEWPOINT: And your family?

VIEWPOINT: How was it working with your Dad?

VIEWPOINT: How did you meet your wife?

JERRY: My wife Vicki and I attended high school together

FALL 2015 |

| 17

Jerry and the agency staff L-R Ami Christensen, Jodi Lake, Eric Johnson, Jerry Mease and Sandra Patterson.

Jerry standing in front of the John Wayne birthplace museum.

Office photo from 1971 when Jerry started.

JERRY: My father and I had a great relationship and he

VIEWPOINT: During that

was a great man. As I said, when I was young I worked by his side on the farm, so it was a natural fit to work together in the agency. It was a time when a lot of father/son agencies didn’t work out well often because the fathers wouldn’t relinquish duties to their sons. But my father was just the opposite; he treated me as a partner. I made my own decisions and learned from my own mistakes. We worked well together for 20 years in the agency.

Dad was a member of IMT Board of Directors for several years. We were both active in the Mutual side in my early days since that was primarily what we were doing, just starting the agency. Dad was on the Board of Directors for the Mutual Insurance Association and later served as President for one year. I also served on the Mutual Board of Directors. At a later time we eventually merged the Mutual.

same period of time, you partnered with other agents in a cluster?

VIEWPOINT: Your dad retired when?

JERRY: My dad retired in 1991 and I became the Mutual Manager and Agency Owner at the time by purchasing his half. I had a decision to make if I wanted to hire someone to work with me or just proceed on my own. I decided to run the agency by myself and, at that time, I could see that the Mutual probably wasn’t going to grow much more. It was one of the smaller sized Mutuals in the state; therefore, the Board and I started planning to someday merge with another Mutual. In 2004, we merged with Central Iowa Mutual of Story City. They took over our Mutual business and I became the agent for that business.

18 |

| FALL 2015

Jerry visiting the Cutle

JERRY: Later in agency work, I had the opportunity to buy into a cluster group with 4 other agents – Forrest Schnobrich in Casey, Jim Unger in Jefferson, Jerry Lewis in Panora and Tim Bryte of Adel. We partnered to own an agency in Adel and one in Guthrie Center while all of us kept our own individual agencies with the goal of trying to put it all together into one gigantic agency. As it turned out, we dissolved the cluster. It was a great investment for me and a great opportunity to network with some really good agents. The agency in Adel grew and we had a good manager there, Tim, who was one of the partners and it worked out very well.

VIEWPOINT: Obviously your agency was organically grown; did you buy any books of business?

JERRY: In the late 90’s we had an opportunity to buy an agency from a gentleman here in town that wanted to retire.

He had a couple of companies that I really wanted to have in house, so we bought the Ed Jensen Agency. He was a great friend and person to work with who worked with us for a couple years until his death. Most of our agency was homegrown from scratch; dad and I worked hard to build our agency. Our business was primarily farm from running the County Mutual. When dad started the agency in 1960, about

er-Dohahoe covered bridge in Winterset, Iowa.

Jerry pictured with long time employee Sandra Patterson.

The famous Madison County court house in the back ground.

all he could write was a little auto coverage, some homeowners and then it evolved over the years with some other lines of business becoming more important. When I first started you couldn’t sell farm liability, but today it is the most important part of their package. We started from scratch selling auto insurance, homeowners and expanded into some of the larger accounts writing the city, county, school and hospital in a town this size it has been a feather in our cap.

VIEWPOINT: Tell us about Winterset.

JERRY: Winterset is in Madison County about 30 miles southwest of Des Moines known for John Wayne’s birthplace and the annual Covered Bridge Festival activities. At about 5,000 residents, it is continually growing being close to Des Moines and is a very competitive place with as many as ten other full-time agencies in our town at different times.

VIEWPOINT: What is your philosophy with customer relationships and what do you believe has made you successful?

JERRY: I strongly believe in building relationships. It has always been my goal to do whatever I can to give the best service I can possibly provide which a lot of times meant doing things that weren’t always the best like agency bill or helping with premiums when they needed it. A lot of face-

to-face contact is important. I always felt like if I could get them in the door and see them, I had the opportunity to sell them something. Loyalty between a client and myself gives clients a chance to see that I am definitely ready to serve them.

VIEWPOINT: Have you been involved in the community over the years?

JERRY: I served on the Covered Bridge Festival Committee for several years and was chair for one year. I was active in all of my kids’ activities – president of the Winterset Little League Association and coached for seven years. I was active in the county club and served on their Board. I started in 1973 as a volunteer fireman and served for 13 years which included being elected fire chief for four years. I have been very active in my church serving on the Church Life Team, the governing body of the church, for many years.

VIEWPOINT: Being a volunteer firefighter did you have calls to any of your client’s homes?

JERRY: Yes, that was always a joke on the fire truck. Guys on the truck would ask me on the way to the fire if it was one of mine because I made them work harder when it was. It was quite comical. I am very proud of that because I never knew when the fire call was going to come; I might be right in the middle of a sale and have to say I’m sorry, I have to leave or sometimes I came back dirty. It was a fun and fulfilling job.

FALL 2015 |

| 19

2005 World Series Game Jerry and Kevin in Chicago.

Family get togethers are always big events.

Jerry & Vicki hiking in Colorado. They love to spend time in the mountains.

VIEWPOINT: I understand that recently the Winterset Chamber of Commerce recognized you for your service?

JERRY: Yes, last January I was honored with a Lifetime Achievement Award that is given to someone each year for outstanding service to their community. I think it was just the fact that I was active in the community and had run a business in the community for many years. They probably ran out of anybody else to give it to so they gave it to me.

VIEWPOINT: You are being very modest. Like so many Big “I” members who are active in their communities you have given a lot back so we commend you for that. You became very active with the Big “I”, tell us how that evolved.

JERRY: In the beginning Dad and I were actually part of the PIA and attended some of those meetings, but didn’t feel like we were getting as much out of it as we wanted to. We later decided to try the Big “I” so we joined and attended meetings deciding to get more involved. I started volunteering for some committees and worked on the Rural Agents Committee for several years. I became chair of it, and was

20 |

| FALL 2015

honored back in 2004 to be elected to the Board of Directors which I have served on for 11 years.

VIEWPOINT: As a rank and file independent agent in the state of Iowa, a committee volunteer and board member what keeps you involved in the Big “I” and what does it do for you as an agent?

JERRY: The Big “I” is an asset for any agency. The opportunity to connect/network with other agents and to talk to them to learn what is working and not working for their agencies. It has been a big asset for us in order to meet people, to experience closer contact with the companies and representatives. The Association’s advocacy work is just tremendous and provides many advantages for an agent today that would not exist if we didn’t have the Association fighting for us.

VIEWPOINT: You are in a perpetuation stage. About a year ago you began the process of transitioning and the agency is now part of Johnson Insurance.

JERRY: I was doing all of this by myself and I could see that I was missing out on business with the younger gener-

Fun with family.

Back left to right – Jack, Jennifer, Jerry and Wendy.

Front left to right – Jessica, Vicki, Brooke and Kevin.

Kevin and Jerry on a Canadian fishing trip in 2007, in the middle is their guide.

ation that might not want to deal with an old guy like me. Quite honestly, I could see a lot of my clients were dying off. I saw a need to grow or to consider selling the agency. I had an opportunity to sell to another agent here in town who had already started his own agency from scratch.

I liked his ethics and the way he treated people, so we made an agreement I would sell to him which I did a year ago. I’m slowing down and beginning the transition towards retirement. The mountains are calling – and I must go!

Eric Johnson is in his early 40’s and has partnered with two other guys in the office. One does the investment work and one does the accounting/tax work which is a good fit as far as the building and such. Also a good mix of clients back and forth; therefore, Eric has done real well with the agency business.

VIEWPOINT: As you look back on your career, what

me since I am very independent, I wanted to be my own boss, I wanted to go to my kids’ events and I set my own goals and limits. If I want more income, I worked harder.

It gives you the opportunity to work harder and to succeed. Being an agent has been a real blessing to me and I am very thankful for the opportunity.

VIEWPOINT: It’s got to be rewarding to you to see a third generation in the insurance business – your dad, you and now your son Kevin. Additionally, it must be refreshing to see your agency being transitioned to a young man who is enthusiastic about being in the business. You are to be commended, we thank you for the opportunity to visit with you today and we look forward to your year as President.

Thank you.

JERRY: Thank you.

advice would you give readers about being in the insurance business?

JERRY: Being an insurance agent is a great opportunity and I am shocked we don’t have more people wanting to get into the business to be honest. It has been tremendous for

FALL 2015 |

| 21

L-R – Jerry Mease IIAI’s 110th President, Jacque Morningstar and IIAI’s 109th President Scott Morningstar, CPCU.

Jerry Mease of Winterset elected IIAI President at Convention.

New IIAI Board member Chris Gentry of Ollie being sworn in by Bob Fulwider.

Scott Morningstar presented to A.J. Krist and Lisa Krist the H.H. “Red” Nelson IIAI Agent of the Year Award to Jamie Krist posthumously.

Dave Tralka of InsurBanc discusses agency buy/sell.

Agency Automation Expert Angela Adams makes a point.

Al Diamond of the Pipeline Agency Management newsletter covered some great information.

Stewart Powell from North Carolina was our guest CEC speaker.

Chris Bailey of NCCI discusses workers’ compensation.

2015 IIAI Conve

The C. Daniel Fulwider IIAI Young Agent of the Year was awarded to Dave Walters of Audubon on the left.

A Presidential Citations was presented to Terry McDonald, CIC, for his work as Chair of the Big “I” Trusted Choice® Junior Golf Tournament.

Attendees had a lot of choices for multiple breakout sessions.

Kelly Donahue-Piro received rave reviews.

ention Highlights

CEC speaker Angie Heavener.

Steve Anderson, always a popular speaker, rocked the audience.

2015 IIAI Trade Show

No one sells like you.

No one services like Integrity.

Integrity puts a comprehensive range of services and products behind each independent agent. With quality imbedded in our DNA, we help you make a lasting impression with every customer, at every touch point. It’s partnership that runs deep.

The way it should be.ÂŽ For more information, connect with Dan Reichardt at 920.968.8330 or dreichardt@imico.com integrityinsurance.com

Strong.

Resourceful.

Committed.

That’s RCIS Grow your crop insurance business with a proven leader As a leader in crop insurance for decades, RCIS offers a comprehensive and evolving line of insurance products to meet the requirements of producers in all 50 states. From in-person field service to multi-channel agent training, we invest our time and resources to help our agents — and their policyholders — succeed.

RCIS continually invests in technology, such as our RCIS Mobile™ application. And our first-rate policyprocessing system, CIMax®, is integrated with our mapping system to better help you meet the RMA’s 2016 Common Land Unit reporting requirements.

Our highly trained adjusters are familiar with local crops and conditions, armed with leading technology, and able to deploy Crisis Response Teams to affected areas so that farmers receive fast, fair, and accurate claim resolution.

Contact an RCIS field representative today or visit RCIS.com.

We grow stronger every day — together

SM

Rural Community Insurance Agency, Inc., D/B/A RCIS. RCIS is an equal opportunity provider. © 2015 Rural Community Insurance Agency, Inc. All rights reserved. WCS-1268812

Convention Golf Outing

© SECURA Insurance

We’re here to make sure they’re safe at home.

Covering all the bases since 1900 Business • Home • Auto • Farm-Ag • Nonprofit

When you partner with SECURA, you’re family.

Watch: secura.net/partners

E&O No Time For

COMPLACENCY

by Jack Wharton, JD and Scott Beatte, JD of Petticord, Wharton Law Firm

Y

our Association has scored two major legislative victories in the last three sessions.

The first of these, in 2011, brought about an amendment to Iowa Code §522B.11 which restored Iowa law to what it had been before the Iowa Supreme Court decided the Langwith case on December 30, 2010. This amendment abrogated the Langwith case and codified the duty of an Iowa insurance producer to use reasonable and ordinary care to get the coverage requested by the insured.

The more recent legislative victory resulted in another amendment to Iowa Code §522B.11 which became effective July 1, 2014. This amendment rectified the July 6, 2012 holding of the Iowa Supreme Court in Pitts v. Farm Bureau Life Ins. Co. which broadened and extended the doctrine of negligent misrepresentation as a basis for claims against Iowa insurance producers.

As a result, Iowa insurance producers remain liable for their negligence or breach of oral contract arising from their failure to use reasonable care, diligence and judgement in procuring the insurance requested by an insured.

By statute, they are not in the business of providing

information for the benefit of others unless they step into that role in their dealings with their customers. That brings us to a discussion of a subject that still looms as a potential source of claims against and liability for insurance producers.

Not being in the business of supplying information to others usually insulates one from liability for negligent misrepresentation claims. Iowa law has historically recognized the distinction between business relationships which are arm’s length and adversarial and those which are advisory. Thus, accountants, attorneys, appraisers, school guidance counselors and investment brokers have been held to be in an advisory relationship with those they deal with in the course of their business activities.

Retailers and those selling or servicing merchandise, on the other hand, are not. Now, by statute, insurance producers acting within the scope and course of their insurance licenses, start out in the latter category. I say “start out” because much depends on the nature and scope of the relationship between a producer and customer.

FALL 2015 |

| 29

JerseyAdFinal-(IIAI).pdf 1 1/26/2015 9:48:36 AM

C

M

Y

CM

MY

CY

CMY

K

We can help with both.

With friendly underwriters who listen, and a full complement of products to serve your small-to-mid-size commercial insurance needs (including enhanced BOP, surety, and packaged coverages), Western National is your one-stop shop for getting business done. The proof is in the partnership.

Accounting Rules Agency Owners

NEED TO KNOW F

irst, I’m not a CPA or an attorney, so do not take any of the following as tax or legal advice. Second, I regularly find myself in the awkward position of advising agency owners about these rules because neither their CPAs nor attorneys have advised them. The rules are known as the 409A Rules and Reasonable Compensation Rules. Both are part of the tax code. To be fair, most agencies’ CPAs have not been told by their clients about agency plans covered by the 409A rules but most CPAs have not asked either. Lack of addressing Reasonable Compensation Rules by CPAs is more perplexing. Additional areas of concern include new regulations regarding overtime wages, exempt status, and independent contractors.

409A Rules These rules cover almost all deferred compensation plans. Deferred compensation is defined broadly under these rules to include vesting plans, phantom stock plans, true deferred compensation plans, some stock options, and several more compensation plans in which employees earn consideration that is not paid immediately. The law is approximately ten years old. It was passed when Enron collapsed to prevent key corpo-

by Chris Burand, President, Burand & Associates, LLC

If the plan hasn’t been written correctly, the government considers the vesting or deferred compensation to have been disbursed and therefore taxes are owed by employer and employee.

rate officers from robbing their own companies to the detriment of regular employees and shareholders. Like many laws, this one was written poorly as proven by the Treasury needing years to interpret the law and write the appurtenant rules. Furthermore, the rules seem to apply to all businesses, without exception, even though they do not fit small businesses or the way these agreements have been used in agencies for decades.

The penalties for violating 409A rules are significant. The government considers a non-qualifying plan to be cash paid. In other words, if the plan hasn’t been written correctly, the government considers the vesting or deferred compensation to have been disbursed and therefore taxes are owed by employer and employee. Say $100,000 of deferred compensation has been earned. The employee may owe

income taxes and the employer may owe employment taxes, plus penalties, plus a special 20% penalty!

Few exceptions exist and based on my experience, many common agency plans do not meet the regulations. It is one thing to take your chances with any audit but these are big penalties.

Furthermore, in an agency sale, especially a stock sale, a noncomplying plan is a severe off balance sheet liability.

The real problem is that agencies are trying to help its best producers while inadvertently creating a significant liability for themselves and those key employees. The good news is that with very high quality advice, qualifying plans can be built that avoid these conditions. For those that already have plans that may be considered deferred compensation, you may want to obtain excellent legal advice regarding how to best address the situation before the IRS addresses it for you.

FALL 2015 |

| 31

Reasonable Compensation Rules Reasonable Compensation Rules are based on the idea that business owners should pay themselves reasonable compensation. That makes sense at first but what happened is that some accountant only paid himself a pittance so that he would not have to pay full employment taxes. The IRS/ DOL did not appreciate this tax savings so they instituted the Reasonable Compensation Rules. The basic concept is this accountant should have paid himself a wage equal to what an employee doing the same job would be paid and the applicable employment taxes should also be paid.

Conversely, business owners are not supposed to pay themselves more than normal either, especially if the agency is a C corporation, because that means receiving compensation that would otherwise be taxed twice (unless a proper bonus plan has been created).

Reasonable Compensation, then, is neither high nor low but “reasonable”

GROW

for the job. It also does not necessarily matter if your company is a C-Corp, S-Corp or LLC. The requirement is the owner(s) be paid a reasonable wage.

Agency owners then may want to rethink how they pay themselves to comply with these rules.

The funny thing about complying with Reasonable Compensation Rules is that agencies tend to be run better. Compliance creates much better discipline resulting in healthier agencies. Owners have a better sense of reality, they begin running the agency as a business rather than a personal bank account. When agencies are run more professionally, agency owners ultimately can make more money, the value of their agencies increase, and the risk of onerous tax audits or at least losing an audit improves.

Overtime Wages and Exempt Status New labor regulations are likely to be implemented in 2015 regarding

Compliance creates much better discipline resulting in healthier agencies. Owners have a better sense of reality, they begin running the agency as a business rather than a personal bank account. overtime wages and exempt status.

According to the Wall Street Journal (May 2, 2015), several important lawsuits are winding their way through the courts specific to this subject too.

The rule changes and potential additional changes created if those suits are won by the plaintiffs require adapting quickly to the new labor landscape.

The regulations and suits revolve around the definition of “exempt.” The simple aspect is addressing whether your staff will be affected and if so, Continued

with

Common Sense Surety

Trust M. J. Kelly Company.

Common Sense Surety Since 1933 Merchants Bonding Company™ (Mutual), Merchants National Bonding, Inc.and affiliated companies.

2100 Fleur Drive, Des Moines, IA 50321 1-800-678-8171 | www.merchantsbonding.com

32 |

| FALL 2015

updating your procedures to minimize your exposure.

A more concerning exposure for many agencies, and specifically in certain of these rules/suits, is how exempt applies to sales people. Other courts have already determined that just because someone is in sales they are not automatically exempt. In my simple layman’s terms, the key differentiating factor in those cases is whether the sales person is inside or outside. These cases and laws focus on salespeople that are, what I call, inside sales people. They did not go find customers. Their customers came to the store or called in or maybe they called out per some list. Yet, in neither case did the salespeople meet the definition of a true salesperson.

clients’ calls at night and on weekends, and if they fail to meet the other requirements, an employer may need to pay them overtime.

The same goes for the examples used in the new regulations. If ever there was a reason to classify producers correctly and then to pay correctly, maybe this is it. For example, sound business reasons have always existed for paying producers on an earned basis rather than a written basis. The agency is paid on an earned basis so producers should be paid on an earned basis too. Producers should not be paid based on whether they make a sale unless they also collect all the money required and only if the client pays their bill. However, many agency owners will not make this change

That definition varies by court but in extremely general terms, it means actually working more than 50% of the time outside the physical premises of the employer (and not in their home and not drinking coffee all day but spending 50%+ of their time making outside sales). It means they make good money on a commission, not salary, basis.

If they do not meet the criteria, they may not be considered exempt. If they are not exempt, they may be owed overtime. For example, if they are not exempt because they are effectively inside salespeople, but they answer

because they’re afraid of upsetting the producer or starving them to death because they make sales but their customers do not pay. Similarly, pay producers only a commission and never a salary (excluding brand new producers during their initial two or three years). Producers should not feel safe in their income unless they know they are making sales. That is why they get paid the big bucks.

Additionally, not calling inside producers and producers who wait for a phone to ring “producers” is another key step to take for good business purposes. To have the title, “Producer”

34 |

| FALL 2015

implies the producer produces. This means to take action. To sit around and wait for the phone to ring has absolutely nothing to do with producing. Absolutely no need exists to treat these people and pay these people as if they were out truly selling. They do not deserve the full pay of a producer if they are not doing the full job of a true producer.

These are just two of the really good reasons for paying inside producers differently than true producers. So many agency owners can’t or won’t make this improvement for good business reasons. However, rather than taking these steps for sound business reasons, maybe these new regulations and potentially new case law will be the catalysts to improve agencies’ practices. If a producer is acting as an inside producer, regardless of their title, they may not automatically be considered exempt unless they meet the standards.

On the other hand, if CSRs or inside producers are required to perform certain duties and otherwise are not considered exempt, you may want to change their job descriptions or be sure they meet the new specifications.

One example is not allowing customers to call them after hours.

Additionally, you might avoid an EPLI or other labor type suit because, in many agencies, the producer who sits waiting for the phone to ring is really just being paid more for the same job that quality CSRs do on a regular basis when that inside producer is out doing whatever they are doing – which usually is not sales.

But the CSR is not paid extra for the sale like a producer is paid. It does not matter if the CSR is paid a wage and the producer is paid a commission (even though many of these producers are also paid some form of salary). It is the type of job, not the type of compensation, that likely makes the difference in this specific example.

For CSRs and staff, the new proposed regulations have a different effect. First, the dollar floor is likely to rise from around $29,000 to approxContinued

ARE YOU READY

FOR SOMETHING DIFFERENT? CUITY CE CREDIT COURS A W E E! AN CE CREDIT COU W ACUITY RSE! A NE

WALLY’S

WALLY’S WORD

WORD COMING SOONER THAN YOU THINK!

ACUITY For All That Matters

WWW.ACUITYU.COM

CE VIDEO

imately $55,000. In agencies, this greatly increases the pool, specific to this point, of potentially nonexempt employees. Second, if the CSR is working emails and texts, working from home at night/weekends, and so forth, those may be considered extra hours requiring overtime pay. Additionally, just because they volunteer to work, even without asking, does not let the employer off the hook. It is not whether you ask them to work extra hours. The issue is whether they work extra hours. Does the employer knowingly permit them to work extra hours, even to the point of creating an environment where they can work extra?

Independent Contractors Another new set of rules affects independent contractors. The way I read these rules, and again I am not an attorney so don’t consider the following to be a legal opine, a high percentage of independent contractor producers will not meet the new rules.

ing, now may just be the time to make them employees.

Going forward, owners are likely best served by understanding these new regulations once finalized and complying with them ASAP. Again, as I understand these regulations, they may be a pain but they also may be the medicine required to manage your organizations much more efficiently and profitably!

Chris Burand is President of Burand & Associates, LLC, an insurance agency consulting firm.

Agencies exhibit too much control and these producers have too little freedom to work elsewhere. From a business perspective, I am not sold a good business reason exists in most cases to leave them classified as independent contractors. Furthermore, my experience has been that independent contractors are less likely to follow procedures thereby increasing E&O exposures so with regulations chang-

NOTE: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.

ONE DECISION MADE EASY IN A COMPLEX BUSINESS WORLD

Your business clients make hard decisions every day, but now you can make selecting the right insurance coverage easy with a Pekin Insurance® Commercial policy that is specifically designed for preferred property risks.

CHECK OUT SOME OF THE PREFERRED PROPERTY RISKS THAT WE HAVE INSURED: • $12,204,200 total property value for a Machine Shop • $10,050,000 total property value for a Metal Goods Manufacturer • $6,000,000 total property value for a Lessor’s Risk Shopping Center • $9,900,000 total property value for a Warehouse and Distribution Center We go Beyond the expected® with valuable services like Loss Control, a Return to Work program, a Special Investigations Claim Unit, and much more.

Partner with a company that offers some of the most innovative products available in the industry today and is continually searching for ways to become the easiest company for you to do business with.

CONTACT US: 800-322-0160, Extension 2394 • gfeller@pekininsurance.com

AUTO • HOME • BUSINESS • LIFE • HEALTH

FALL 2015 |

| 37

Carrier E&O Claims Agents Continue

TREND

Make Sure Interactions with Carriers are Documented

by David Hulcher

Ten to fifteen years ago, E&O claims involving the carriers were rare. However, E&O claims data from Swiss Re indicates a clear increased trend in the number of claims involving carriers making claim against the agent. Below are some of the types of claims involving carriers along with scenarios: • Exceeding their binding authority: An agency may be granted binding authority by the carrier to bind policies up to specified limits, e.g., $250,000, without first submitting the application to the carrier for approval. When the agent binds a policy containing limits in excess of $250,000 and a large loss occurs, the carrier is likely to deny on the basis that the agent exceeded his authority – or will cross-claim against the agent, seeking indemnity.

• Not adequately explaining policy provisions: The agent obtains a policy for her customer’s newly acquired property that contains a ‘60 day vacancy’ clause. When the new owner fails to occupy the new property for over 60 days a water leak occurs and substantial damage occurs to the building while it is unoccupied. Both the customer and the carrier that denies coverage based on the vacancy clause will argue that the agency failed to properly explain the policy provisions.

38 |

| FALL 2015

• Failing to comply with underwriting guidelines: An agent has binding authority with a carrier that insures boats, subject to the carrier’s underwriting guidelines, which restrict coverage to pleasure crafts under a specified horsepower and length. After a serious loss occurs, the carrier investigates and determines that the boat in question slightly exceeds both limitations and denies coverage. If forced to pay the loss, the carrier will file suit against the agency for failing to comply with its guidelines.

• Providing inaccurate or incomplete information to carrier: An agent re-markets an account to a new carrier, but fails to include information regarding prior losses. When a new loss occurs the carrier takes the position that a material misrepresentation occurred and, had the information about the prior losses been known, then it would not have insured the customer. The carrier pays the loss and files suit against

the agency to recoup its claim payment. The importance of the need for information to come from the customer and applications to be signed by the customer cannot be understated. Even if the carrier doesn’t require an application, that doesn’t mean the agency shouldn’t keep one in their files.

• Failing to provide timely notice of a claim to the carrier: If an agent fails to provide the carrier with notice of a claim, timely notice to the agent could be deemed timely notice to the carrier. In that case, the carrier could pay the claim and then file suite against the agency, arguing its investigation of the loss was prejudiced by the delay in receiving notice of the loss. One such example would be an auto loss wherein the car was repaired before the carrier had a chance to inspect it.

David Hulcher is AVP of Agency E&O Risk Management for the Big “I” Professional Liability Program.

Call your Big “I” Errors and Omissions Team!

Three Reasons your Errors and Omission Coverage should be with your Association

W

hen it comes to your agency professional liability insurance who can you trust more than the Big “I”?

First we have membership discounts with the three main markets for agents errors and omissions insurance, secondly we have a team of errors and omissions professionals to assist you and help answer your questions, and third we are the only market with actively puts your association clout to work passing liability laws which help make Iowa a great place to operate your agency! So if your coverage is not with us…call and get a quote! Marilyn Paul, CPCU, AIT, AAM, CPIW Brenda Kluger, CRM, CIC, CISR, CIIP and Megan Kincy, AIS, AINS along with CEO Bob Skow, CPCU, CAE are here to help you! 800-272-9312

Looking for E&O answers, agency resources or tips?

Check out the E&O Happens website – www.independentagent.com/eohappens Sign in with your Big “I” username and password to access the information

Why ARM? Is an ARM membership right for your agency? Here are some of the benefits our members enjoy: • Complete independence: Retain your name, your contracts and control of your business.

• Exclusive programs and products: Tap into hundreds of storefronts, thousands of salespeople and a network of expertise from pre-screened members with solid reputations.

• Strong partnerships: Take advantage of ARM Partners, the unique business relationship between ARM and Arthur J. Gallagher & Co. that provides ARM agencies with preferred, streamlined access to the resources and business divisions of one of the world’s largest insurance brokers.

• Robust communications platform: Access products, resources and expertise across the entire ARM network.

• Local and regional support: Join forces with agencies in your state to develop and foster programs that fit your needs through low-cost regional membership.

• Increased return of value: Improve your access to markets, industry knowledge and business strategies that can deliver a significant return. Access select programs, such as premium financing, flood and RPS specialty markets that offer enhanced revenue opportunities only to members.

• Your voice in the association: Help shape the organization by attending meetings, serving on committees and participating in network events.

ARM is targeting successful independent retail agencies in your area, with $1,000,000 or more in agency revenue, whose books are driven primarily by commercial P&C business. If this describes your agency, and you’d like to find out more, visit www.ARMIweb.com or contact Scott Spangler, ARM Executive Director, at scott.spangler@armiweb.com or 630.285.4324.

15ARM28271B

Independent agents throughout your area Count on EMC ® for a number of reasons.

• 100-plus years of commercial lines experience.

• Expert loss control services.

• Responsive service delivered by a fully-staffed branch office right in your own back yard.

Let us show you how EMC Insurance Companies can work for you.

JUSTIN SCHARF, AU, AINS Commercial Lines Underwriter II EMC Des Moines Branch

WE’RE READY TO HELP YOU

WIN MORE BUSINESS. DES MOINES BRANCH OFFICE Phone: 800-362-2227 | Home Office: Des Moines, IA

www.emcins.com © Copyright Employers Mutual Casualty Company 2015. All rights reserved.

Life After

INSURANCE P

erpetuation of an insurance agency isn’t just on the minds of owners; it seems to be on the top of the list for many company partners and often staff of an independent agent. The owner of an agency doesn’t work their entire career to build a successful book of business just so the executor can get the best offer upon the owner’s death. Yet, in the absence of a game plan this often happens…I receive a couple of calls a week from agency owners who are trying to decide when, and if they should retire.

First is the psychological issue – Are you really ready to retire or do you just want to slow down? Let’s be candid, most agents are hardworking people who often find a significant amount of self-worth by being successful in their communities. They like being the trusted advisor to their clients. Most love their work and work for many of us defines in a large part who we are!

One of the key questions retirement counselors ask is - “If you retire have you thought about what your new identity will be?” While some agents are fine with saying they are “retired” others will be happier if they have a more defined transition. Typically, I have found the second group (those who transition) are those agents who want to slow down, but not completely retire until a later date. Yet, the transition of being the boss to simply working in the agency can be a tough one. I think you have to really think long and hard before handing the leadership role over if you aren’t ready for that sort of change too.

by Bob Skow, CPCU, CAE

For some of us, life after insurance is a nice retirement home in a warm climate or that dream home in the mountains. While others of us would like to return back to the farmland we were raised on as a child.

Regardless of which group you fall into, having a plan can make a huge difference in a successful transition.

IIAI’s 110th President, Jerry Mease, mentions in his article his transition.

Jerry had a clear plan of handing off the agency to a young agent, slowing down and riding off into the sunset.

This is something many agents dream of doing, but don’t always carry it out until it’s too late. Realistically, a well thought plan is the key element to make your transition. I know Jerry and he thought his plan out carefully.

Some owners hand their agencies off to family members. Others perpetuate by selling to current employees, a competitor and/or another agency in the area. All three are viable options.

There is a fourth option which seems to be growing; it is those agents who are not choosing to retire at the so called retirement age. Many selfemployed business owners in all sectors find they enjoy working and

have no desire to retire. After all, they have the perfect boss! No question about it we are seeing more and more owners of agencies work past the age of 65. Often citing they enjoy working and have a purpose to get up each morning, but the fact remains, even with the “I will continue to work plan until I am 70 or 80” – it too comes to an end. So you still need a plan!

Bottom line it is better to have a plan. IIAI offers resources for planning, including buy/sell information and suggested road maps for you to consider. I am always willing to discuss buying and selling with members confidentially. We have some good buy/sell materials on our website or contact us and we can email the information.

For some of us, life after insurance is a nice retirement home in a warm climate or that dream home in the mountains. While others of us would like to return back to the farmland we were raised on as a child. Still others find being an agent past 65 suits them just fine. No right or wrong – but thinking about it and putting together a plan is key to making it work.

FALL 2015 |

| 41

A BIG THANK YOU TO THE 2015 IIAI SPONSORS

INDEPENDENT INSURANCE AGENTS OF IOWA 4000 Westown Parkway, Suite 200 West Des Moines, Iowa 50266

PRSRT STD U.S. Postage Paid Des Moines, IA Permit No. 2538

2015

INDEPENDENT INSURANCE AGENTS OF IOWA PROGRAMS SPONSORS A Special Thank You To The Following Sponsors For Supporting IIAI’S Conferences and Programs in 2015.

PLATINUM

GOLD

Allied Insurance EMC Insurance Companies The IMT Group Independent Agents Service Corporation Iowa Mutual Insurance Company Pekin Insurance Progressive United Fire Group

Grinnell Mutual

BRONZE Accident Fund/United Heartland ASI Underwriters Corp Auto-Owners Insurance Columbia Insurance Group Diversified Crop Insurance Services Hastings Mutual Insurance Integrity Insurance International Ag Insurance Solutions Liberty Mutual Insurance

S I LV E R AAA Insurance ADM Crop Risk Services Continental Western Group Farmers Mutual Hail Insurance Company Great American Crop Insurance GuideOne Insurance LeMars Insurance Company Merchants Bonding Company QBE - NAU

M.J. Kelly Company of Iowa North Star Mutual Insurance Company Partners Mutual Insurance Company SECURA Insurance Selective Insurance Company of America State Auto Insurance Company Travelers Insurance West Bend Mutual Insurance Western National Insurance Westfield Insurance