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Marriages Alter “Singles” Scene as Agencies Hook Up Vol. 128 No. 3 | February 13, 2017
[ FOREWORD ]
STEVE ACUNTO
Increased Fines Against Insurance Producers – Another Bad Idea for New York’s Main Street Businesses uGov. Andrew Cuomo’s proposed New York State budget includes a plainly misguided addition that must be expunged, if small businesses – thousands of them across the State – are to sustain their viability and continue to serve other local businesses, homeowners, and drivers. We refer to a newly minted set of penalty levels that independent insurance agents and brokers would face for violating some of the thousands of regulatory restraints and codicils in New York Insurance Law. The State’s notoriously high fining and penalizing DFS – whose hundreds of million dollar fines against banks and insurance organizations are said by some to have balanced State budgets single-handedly – does not need the extra levels to enforce regs effectively, especially against small agencies and brokers whose practices range from storefronts in the five boroughs to remote hamlets near the Canadian border. No sense in this except possibly some artificial fundraising for State coffers at the expense of the economics of local businesses. The proposal would also give DFS the ability to sue violators directly, whereas now only the attorney general may take such action. Insurance laws enacted in 2011 permit the DFS to fine violators up to $1,000 per offense. Prior to that, the maximum fine was $500. The governor’s budget would allow DFS to assess fines up to the greater of: • $10,000 per offense • Double the aggregate damages attributable to the violation • Double the aggregate economic gain the individual made from the violation That’s a lot of money for an agency that employs, typically, three-to-seven (3-7) people and that insures local businesses and residents at competitive rates, working in a tight, low margin business themselves. Makes no sense at all and should be undone. The Chairman of one trade group, IIABNY’s John H. (Jack) Smith, Jr. puts it this way: “An agency that forgets to renew one of its four licenses may face a $10,000 fine for each policy it sells while the license is lapsed. A typical IIABNY member agency has seven employees and less than $1 million in annual revenues. Fines of this size could put a small agency out of business because of an oversight, negating the governor’s stated goal of making New York State pro-job creation. Acts like this tend to reduce jobs, not increase them, and that is not good for any New Yorker.” That makes sense. Will legislators, especially any of them who have local storefront agents in his district, i.e. every legislator in the State, force a rethinking of this…and its elimination? That’s a fine idea.—SA
info@insurance-advocate.com www.insurance-advocate.com 4 February 13, 2017 / INSURANCE ADVOCATE
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VOLUME 128 NUMBER 3 FEBRUARY 13, 2017
EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Director of Operations and Creative Services Gina Marie Balog 914-966-3180, x113 g@cinn.com EDITORIAL ASSISTANT COPYEDITOR & PROOFREADER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x111 circulation@cinn.com PUBLISHED BY CINN Media, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 613-1595 www.cinn.com | info@cinn.com President and CEO Steve Acunto
CINN MEDIA, INC.
INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 22 Bedford Road, Greenwich, CT 06831. Periodical postage paid at Greenwich, CT and additional mailing offices. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $135.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2016. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.
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Contents
February 13, 2017 | Volume 128 Number 3
26
Looking Back: August, 1991
28
Courtside: Appellate Division Rejects Argument That Driver Was Too Drunk to “Knowingly” Refuse Breathalyzer Lawrence Rogak
29
Classifieds
30
Guest Opinion: Why Republicans Should Let ObamaCare Self-Destruct Jane M. Orient, M.D.
[A D F E ATUR E S ] 17
MSO: Gas Explosion Hazards
12 Marriages Alter “Singles” Scene as Agencies Hook Up
[FEATURES] 4
Foreword: Increased Fines Against Insurance Producers – Another Bad Idea for New York’s Main Street Businesses Steve Acunto, Publisher
8
On the Level: The Time is NOW Jamie Deapo
10
Guest Article: When Bad Hacks Happen to Good Insurance People Chris Moshovitis
24
On My Radar: Clear & Unambiguous Policy Language Must Be Enforced Barry Zalma
6 February 13, 2017 / INSURANCE ADVOCATE
New York and New Jersey’s Leading Insurance Magazine Since 1889.
FOR ADVERTISING OR SUBSCRIPTION INFORMATION Call 914-966-3180 or email g@cinn.com info@insurance-advocate.com www.insurance-advocate.com
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9061 Clubs 9071 Full Service Restaurants 9072 Fast Food Restaurants– Including Drivers 9074 Bars & Taverns Social and Health Services 8854 Home Health Care – Prof. Employees 9051 Home Health Care – Non Prof. Employees 8857 Counseling – Social Work – Traveling Oil and Gas Dealer 5193 Oil Burner Installation 8350 Fuel Oil & Gas Dealer 8353 Gas Dealers, LPG & Drivers
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[ ON T H E LEV E L ]
JAMIE DEAPO
The Time is NOW uThe independent agency system is under attack. New competitors fueled by technology and oblivious to the protection needs of the consumer are trying to take over the personal and small-to-medium business market. We see it happening, we’re concerned, but we just aren’t moving quick enough to deal with the threat. Both independent agents and the carriers we represent need to immediately make the changes necessary to allow us to compete effectively with the competition. As agents, we can no longer operate a traditional 9-to-5 brick and mortar office environment. We must be available when consumers want and we need to maximize technology to offer them immediate access to accurately priced protection. The need for change lies not only with agents but also with the carriers we represent. Because our business model offers choice and customization, we need our companies to provide an accurate and bindable quote using agency management system information flowing through a comparative rater. Having access to this will put us on equal footing with the digital marketing and direct access companies. For whatever reason, carriers have been hesitant to abandon their legacy systems and insist on forcing agents to quote coverage and bind coverage in their company-specific system. This creates additional work and slows the process, frustrating the agent and customer, as well as causing increased acquisition costs on agencies. The belief is that independent agency companies do not want their agents to easily spreadsheet their rates against the other carriers. If that is the case, carriers should rethink that reasoning because it is putting them at a competitive disadvantage in the marketplace. Carriers earn business because of competitive pricing, quality coverage offerings and excellent service and claims handling. Commission income is also important. Making the quoting and binding process slow and inefficient reduces the net compensation an agent receives and affects the decision on where to place business. 8 February 13, 2017 / INSURANCE ADVOCATE
The independent agency system is under attack. New competitors fueled by technology and oblivious to the protection needs of the consumer are trying to take over the personal and small-to-medium business market. Independent agents need to change the way they operate. Being available longer and allowing access to pricing and questions in the evening and on weekends is critical. It will mean staggering work hours and/or contracting with outside firms that can provide those services. Today’s consumer wants access to information and pricing when it is convenient for them. They also want the ability to access you via a mobile device no matter where they are. Being able to price coverage, answer questions and immediately put protection in effect is what they are looking for. Because independent agents offer choice and customization, access to a licensed person along with a website that provides excellent coverage explanations and advice is a must. Agency staff handling these calls need to be trained to assist consumers in selecting protection that meets their needs and putting it into effect when they want. Allowing consumers to choose coverage on price without a clear understanding of what they are buying and how it will protect them is the opposite of how we operate. As I said at the beginning of this article, we are under attack. Our way of doing business and the pro-consumer nature of how we offer protection is in jeopardy. Independent agents and the companies they represent need to retool operations to meet this competition head on. We need to educate the consumer about the importance of selecting coverage that adequately protects them at a competitive premium.
Jamie Deapo is AVP of Membership & Member Programs for IIABNY and is an approved CE instructor in New York. Prior to being with IIABNY, he was an independent agent in the Syracuse area for 15 years. Jamie started his career in 1972 working for insurance carriers, and he has held various underwriting and marketing positions with several national as well as regional companies. He is a past president of the Independent Insurance Agents of Central New York and served on the board of directors of IIABNY.
Our way of doing business and the pro-consumer nature of how we offer protection is in jeopardy.
We also need them to understand and value the advice and support independent agents offer when they have a claim. To achieve this will take change. Change by agents and their companies. The time for that change is now. If we wait any longer, we allow these new competitors to gain a foothold in the market and very likely hurt consumers in the process. We need to immediately start looking at changing our operations by retraining our staff and retooling our operations to be more effective. We also need to pressure our carriers to provide systems that allow for the fastest and most cost-effective workflow. Anything less will leave us at a serious disadvantage, working twice as hard to write business and doing it at a greatly increased cost.[IA]
WHY Y IIA ABNY? Only IIABNY gives you access to the Trusted ChoiceÂŽ brand: logo, shareable content, personalized vid deos, New mem mbers receive up to $1250 thro r ugh the Marketing Reimbursement
YOU BEL LONG WITH IIABN NY. IIABNY is THE trade association for independent insurance agents and brokers in New York.
Contac ct Jamie Deapo jdeapo@iiabny.org 800-962-7950 ext. 232 iiabny.org/join
[ G UE ST ART I C L E ]
CHRIS MOSCHOVITIS
When Bad Hacks Happen to Good Insurance People uIt started with a friend’s request for help: “Advice please: One of my email accounts has been hacked five times in the last week. I keep changing the password using the complicated passwords that are computer generated and now it seems like I'm getting hacked even more. What can I do to make this stop?” I’ve often wondered how a doctor feels when delivering a bad diagnosis to a friend or family member. Yours, of course, is not a life-and-death case, nor am I a doctor; however, when your professional life depends on information technology, getting a bad diagnosis can be injurious to your financial well-being. My friend is a successful insurance broker, whose business requires a great many email transmissions. I replied online that his computer is most likely compromised by a type of malware (nasty little critters of software) that can record what one types, what’s on one’s computer screen, even what is transmitted. As a result, remedial options were limited: Assuming that the broker had a good, uninfected backup he would have to “burn” his computer by wiping it completely and re-installing the operating system and application from original media. While he did all this, he would need to monitor all of his accounts (email accounts, social media accounts, financial institutions, online services, etc.) for any unauthorized activity. Then, he would need to find a “clean” computer, ideally outside his compromised network environment to change all his passwords again, and institute immediately two-factor authentication across the board. The comments from both my friend and his colleagues and associates started streaming in: “So does that mean my phone and ipad are compromised? And does that mean I can't just wipe the hard drive clean and reinstall a backup from time machine because that likely means I'll reinstall the malware, right? What's the best way to "burn" my computer?” 10 February 13, 2017 / INSURANCE ADVOCATE
I replied online that his computer is most likely compromised by a type of malware (nasty little critters of software) that can record what one types, what’s on one’s computer screen, even what is transmitted. “This is horrifying. Just the idea...” typed another. “Isn't there a way to remove that type of malware from the computer?” Yes, there is, but it will not be worth your fees. Trying to remove this type of malware is hours of uninterrupted and expensive fun. Moreover, never underestimate hackers. Your “going in” assumption should be that they are brilliant, persistent, and cunning. They only need to succeed once. You need to defend thousands of times and multiple entry points. Bottom line: surgical removal of malware should be considered very carefully, done by experienced cybersecurity people, and can never be 100% guaranteed. One typically faces this type of solution when backup is inadequate. What is an adequate backup? Like most solutions, there is no such thing as a “one size fits all” answer. It depends on the data, the sensitivity of the information, its life expectancy (yes, data has a life), usage, etc. Is it encrypted to begin with? Should it be? And so on. You hear people talking about “diskto-disk-to-cloud” solutions, “time machine” and half-a-dozen different vendors and products. They all have pluses and minuses. You should have a conversation with both your IT and cybersecurity professionals (they are not, and should not, be the same person), and arrive at a strategy and a solution that lets you sleep at night. Always remember: You’re the only one who can accept risk! No product or consultant can do this for you.
Chris Moschovitis is co-author of the critically acclaimed “History of the Internet: 1843 to the Present” as well as a contributor to the “Encyclopedia of Computers and Computer History” and the “Encyclopedia of New Media.” He is cybersecurity and governance certified (CSX, CISM, and CGEIT), and an active member of ISACA, ISSA, and IEEE. Chris, in addition to his duties as CEO of tmg-emedia, personally leads the cybersecurity and consulting teams and delivers cybersecurity awareness training and consulting. He is an active speaker and writer, and delivers workshops on a variety of topics, including Cybersecurity, Information Technology Strategy, Governance, and Execution. Chris is working on his latest book “How I Stopped Worrying and Learned to Love the Hackers.” He can be reached at Chris. Moschovitis@tmg-emedia.com
You hear people talking about “disk-to-disk-to-cloud” solutions, “time machine” and half-a-dozen different vendors and products. They all have pluses and minuses. The comments kept streaming in… “I've got a malware program that sweeps my computer numerous times a day for malware…” “I just installed a second one, for good measure!” The majority of antivirus and antimalware programs available are what is called “signature based.” What this means is that they work about as good as your flu shot. Flu shot effectiveness varies year-by-
[ G UEST A R T I C L E ] year, strain-by-strain. Why? Because a flu vaccine is made by taking last year’s virus(es) and, after making them inert, creating a vaccine whose job is to tell your body to attack any virus that looks like the vaccine. If you’re lucky, this year’s vaccine “looks like” last year’s and the inoculation works! If not, then you spend a few weeks sneezing and wheezing in misery. Same story with the antivirus programs for computers. There are, of course, more sophisticated answers, programs that look for behaviors, for example, or those that use artificial intelligence algorithms to guess if a piece of software is good or bad. Are they right for your environment? Perhaps. It all depends on your risk appetite, type of data, and budget. What’s the bottom line here? Be vigilant. Have reliable backups. Use strong passwords. Encrypt your stuff and your internet sessions (use HTTPS whenever possible). Use two-factor authentication. Keep your computers, phones, tablets, etc., up-to-date. And use common sense! The Nigerian prince retired right after he sent me my $2,000,000, so if you get an email like that, it’s fake![IA]
“And use common sense! The Nigerian prince retired right after he sent me my $2,000,000, so if you get an email like that, it’s fake!”
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Insurance Agency Mergers and Acquisitions in 2016 SecondHighest Recorded Strong sellers’ market continues in United States and Canada uMergers and acquisitions of insurance agencies last year were the secondhighest ever in 2016, according to OPTIS Partners’ annual report. The OPTIS database recorded 449 deals in the United States and Canada in 2016, a slight dip from the all-time record of 456 in 2015. “It was a sellers’ market last year, and it will probably remain one in 2017. But the ‘perfect storm’ benefiting sellers won’t last forever,” said Timothy J. Cunningham, managing director of OPTIS, an investment banking and financial consulting firm specializing in the insurance industry. The report covers reported transactions of agencies selling primarily property-and-casualty (P&C) insurance, agencies selling both P&C and employee benefits, and employee benefits agencies. Private equity-backed agencies were 2016’s biggest buyers, making 237 purchases, 53 percent of the total. The top two were Acrisure (63 deals) and Hub International (45). Privately owned insurance agencies came in second, buying 124 agencies. They were followed by public brokers (41), banks (25), and carriers/other (22). Looking at sellers, sales of P&Cfocused agencies continue to dominate the list, with 54 percent of all sales. Sales of employee benefits agencies rose to become 12 February 13, 2017 / INSURANCE ADVOCATE
Valuation pricing is driven by the underlying value of the business and by market competitive forces, both of which have many contributing factors. the second-most popular category, accounting for 20 percent of sales, up from 17 percent in 2015. Deals for agencies selling both P&C and employee benefits held steady at 17 percent of transactions. The “other” category was nine percent. The statistics pointed to these key lessons, according to Daniel P. Menzer, partner. Valuation pricing is driven by the underlying value of the business and by market competitive forces, both of which have many contributing factors. Buyers, in particular smaller and less capitalized firms, need to be careful not to get carried away in the pricing competition for a seller’s business, only to find out later they can’t afford to pay for it. Firms wrestling with trying to perpetuate need to be steadfast in setting realistic valuations for internal transactions without getting overly swayed by actual and
anecdotal pricing stories of other agency transactions. For agency owners waiting for the “right time to sell” before jumping on the bandwagon, now is the right time. The actual number of sales was greater than the 449 reported, as many buyers and sellers do not report transactions, and some acquirers do not report small transactions, Cunningham said. “The OPTIS database tracks a consistent pool of the most active acquirers, including other announced deals, and is, therefore, a reasonably accurate indication of deal activity in the sector,” he said. The full report, 2016 Agent-Broker Mergers & Acquisitions, can be found on the following pages.[IA] OPTIS Partners (www.optisins.com) was ranked as the fifth most active agentbroker M&A advisory firm in 2014, 2015 and 2016 by SNL Financial. Focused exclusively on the insurance distribution marketplace, Chicago-based OPTIS offers merger & acquisition representation for buyers and sellers, including due-diligence reviews. It provides appraisals of fair market value; financial performance review, including trend analysis and internal controls; and ownership transition and perpetuation planning.
Agent / Broker Merger & Acquisition Summary M&A Activity during 2016 fell just short of the 2015 count, with reported transactions in the US and Canada down slightly from 456 in 2015 to 449 in 2016, but still the second-highest level of M&A activity on record.
Breaking the data down into quarterly activity levels, we’ve now had nine quarters in a row with greater than 100 transactions.
Private-equity backed firms (“PE-backed”) continue to dominate the buyer landscape, holding steady at 53% of the total transactions in 2016, up from only 21% in 2008 while most of the other buyer categories have shown declines over the same period:
INSURANCE ADVOCATE / February 13, 2017 13
Another way to look at the activity by type of buyer is the actual number of transactions, with virtually all of the growth in the total count coming from increased activities by the PE-backed buyers and the privately owned buyers:
The table below illustrates the activity levels of the different buyer groups over time, comparing the average number of transactions per year over the period 2008 through 2016:
Although the number of buyers in each category has moved around, the two most active groups in terms of average deals per buyer have had a relatively stable number of participants over the past 8 years. However, the number of deals and the average number per buyer has changed dramatically for these two groups. The PE-backed buyer group has increased from less than four transactions each to an average of about 12.5 deals, while the publicly traded brokers has dropped from an average of 9.7 deals each to less than seven. For the others, although the number of transactions has increased for the privately owned and decreased for the others, this is such a disparate group with few firms completing more than one or two deals each year. Included in the results shown above were several transactions in 2016 with some of the largest agencies, including the following: 1. Feb. 2016, BB&T (bank) purchased Swett & Crawford, the North American operations of CGSC North America 2. April 2016, Broadstreet Partners (backed by the Ontario Teachers’ Pension Fund and Century Capital) purchased Sterling & Sterling, #61 on the Business Insurance Top 100 in 2016 3. June 2016, Prime Risk Partners (backed by Thomas H. Lee Partners) purchased Old National Insurance, #101 on the Business Insurance Top 100 in 2016 4. Juy 2016, Alliant (backed by Stone Point Capital) purchased Mesirow Insurance Services, #41 on the Business Insurance Top 100 in 2016 Not included in the numbers above are three transactions during 2016 where the private-equity firm sold their interest in an existing agency or new private-equity money entered the marketplace: 1. June 2016, Connor Strong & Buckelew sold a minority interest in their firm to Century Equity Partners 2. Oct. 2016, New Mountain Capital sold their position with AmWINS Group to Dragoneer Investment Group 3. Oct. 2016, Genstar Capital sold the majority of their interest in Acrisure to a management-led buyout of the firm CONTINUED ON PAGE 16
14 February 13, 2017 / INSURANCE ADVOCATE
Looking at the individual buyer activity, we know not all transactions from all buyers are reported, with some of the larger buyer firms only reporting transactions of a certain size, whereas other buyers include all acquisitions regardless of size. Based on the reported transactions, the most active buyers in 2016 are shown in the table below, with comparison totals for the last couple years:
Over the past two years, Acrisure has completed over 13% of all announced transactions, closing more than one deal each week and nearly 50% ahead of their next most active buyer. Although Acrisure recently completed a management buy-out of a significant portion of their private-equity backer, we believe they will continue to behave much like other PE-backed firms with their thirdparty debt-capital partners.
The distribution of transactions between the different types of sellers are illustrated in the following two tables, the first showing the actual number of transactions and the second showing the percentage allocation between the four categories:
The growth in P&C firm sales jumped dramatically in 2015, but dropped off slightly in 2016 while the other seller groups remained relatively stable, albeit a slight increase in the number of Benefits agency sales.
CONTINUED ON PAGE 17
16 February 13, 2017 / INSURANCE ADVOCATE
ADVERTORIAL
Gas Explosion Hazards NATURAL GAS AND PROPANE are highly flammable: if gas leaks out of the appliance or tank, it can easily ignite. Ignition sources include electrical switches, telephones and appliances. Each year, over 3000 fire department calls are related to residential gas issues, including natural gas and propane (http://lpguerra.com). Helping clients understand the dangers of gas explosions, and how to prevent them, is another value-added service of the professional insurance agent. Common causes of gas explosions include improper installation of appliances, leaking hoses, or defective valves. Aging pipelines are another area of concern, as some transmission lines, especially in the northeast United States, are over 100 years old. New Jersey is home to the most miles of cast iron pipes. New York has the most service line cast iron pipes. Outdoor gas leaks may be due to corrosion of pipes, or damage done by digging in the area—before digging, have power and gas lines marked to avoid tragedy. Gas is odorless and colorless, making it extremely difficult to detect. For this reason, chemical odorants are added to natural gas to make gas leaks easier to detect. The practice started in 1947 after a very deadly school explosion in Texas where 297 people died. When the odor, similar to that of rotten eggs, is detected, it is essential to get everyone out of the area immediately. Ignition sources should be avoided, including using the phone, turning on a light switch or using a garage door opener. Explosion and fire are not the only hazards of gas leaks, as carbon monoxide is a dangerous and deadly byproduct of gas leaks and faulty equipment. Carbon monoxide is colorless and odorless. Residential units are usually required to have carbon monoxide detectors. Appliances, especially gas appliances, should be installed and serviced by qualified professionals. Regular inspections are recommended, preferably on an annual basis. Underground gas leaks pose additional problems, and may be more difficult to detect. Contact with certain soil types can remove the telltale odor (http://carselaw.com/natural-gas-dangers). Outdoors, gas leaks may also be detected
by the presence of dead areas of vegetation in otherwise healthy vegetation, commonly a circular “burn” pattern on a lawn. Gas leaks in the open pose little hazard, as explosions occur only when the gas concentration reaches 5-15%. Gas detectors and monitoring systems can help avoid a tragedy. Gas detectors sound an alarm if there is a leak. Sophisticated gas monitoring systems can alert people to the presence of a gas leak as well as take steps, such as automatically shutting off valves, turning on a ventilation fan and providing visual and audio alarms. Gas is a popular source of energy and electricity due to its combustibility. It is estimated that over half of American households use natural gas as their primary heat source. According to the United States Energy Information Agency (EIA), approximately 33% of electricity generated in the United States in 2015 was provided by natural gas (https://www.eia.gov). Propane is heavier than air, and tends to settle. It is important to keep grills and tanks away from buildings where the gas can settle into the basement. The National Fire Protection Agency (NFPA) requires minimum distance of three feet from buildings. If a grill needs to be relit, it is essential to allow adequate time for the gas to dissipate, generally five minutes. Explosions commonly happen when someone tries to relight the grill shortly after it goes out. In 2012 Hannah Storm, a sports anchor for ESPN, was severely injured in a gas grill
explosion. The grill flame had been blown out by the wind. She relit the grill, but even though the lid had been open, the gas pooled in the bottom of the grill, causing an explosion. The explosion left Hannah with first- and second-degree burns on her face, hands and chest, and the loss of a good deal of hair and her eyebrows (http://www.usatoday.com). Propane tanks should be checked for leaks prior to their first use at the beginning of the season, and also when replacing an empty tank with a full one. Rub a simple solution of water and dish detergent on the hose. Escaping bubbles will reveal the presence of a leak. If this occurs, shut off the valve, and call the fire department immediately. Gas explosions occur all too frequently, and can often be prevented. Helping clients, both businesses and individuals, understand the hazards and methods to enhance the safety of their employees and families, is another sign of the true insurance professional.
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The combination of the slight pull-back in P&C transactions and the increase in Benefit agency sales in 2016 caused some minor changes in the distribution of transactions.
Summary: The agency M&A world remains very active, with aggressive buyers and plenty of sellers. Interest rates remain low, but are starting to slowly move upward, and money is readily available for investing in the insurance broker community. Our closing comments remain similar to what we have said in the past: • Valuation pricing is driven by the underlying value of the business and by market competitive forces, both of which have many contributing factors. In many ways, what we have been experiencing over the past couple years is a “perfect storm” for the benefit of sellers. Like all storms, they eventually pass and calm returns. • Buyers, in particular the smaller and less capitalized firms, need to be careful not to get carried away in the pricing competition for a seller’s business, only to find out later they can’t afford to pay for it. • Firms wrestling with trying to perpetuate need to be steadfast in their realistic valuations for internal transactions without getting overly swayed by actual and anecdotal pricing stories of other agency transactions. Remember, in a perpetuation process, there are no buyer synergies or strategic value that the buyer can utilize to enhance the value of the transaction. • For agency owners waiting for the “right time to sell” before jumping on the bandwagon, be careful not to let the last one pass you by. This remains a sellers’ market likely for the near-term future, but it won’t last forever. • Finally, if you’re neither buyer nor seller, ignore all the hype and stories about how much others have sold for and focus instead on finding the right people to help you grow your agency and improve your metrics every day. Keep your longterm plans in sight and take the necessary steps to position yourself to achieve your goals.
18 February 13, 2017 / INSURANCE ADVOCATE
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Explanation and sources of data: Data is for U.S. and Canadian transactions in the insurance distribution sector for both retail and wholesale producers, including managing general agencies/managing general underwriters (MGA/MGU). These agencies and brokers provide property/casualty insurance, employee beneďŹ ts, or any combination thereof. Firms with private equity backing are identiďŹ ed in the chart on p. and Appendix A on p.18 Data for reported and announced transactions have been obtained from various sources, including press releases, trade press articles, company websites and direct communications with buyers.
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[ ON M Y RADA R ]
BA R RY Z A L M A
Clear & Unambiguous Policy Language Must Be Enforced Insurer May Decide What It Wants to Insure uThis case involves an insurance coverage dispute arising from a wrongful death and products liability claim. Lindsey King (“King”), individually and on behalf of her deceased minor child Peyton Wilt (“Wilt”), appealed the June 26, 2015 judgment of the district court granting summary judgment in favor of Old Republic Insurance Company (“Old Republic”), and dismissing all claims against Old Republic with prejudice. In King v. Old Republic Ins. Co., Court of Appeal of Louisiana, — So.3d —- 2016 WL 4698248 (Sept. 7, 2016) the court was asked to ignore the language of an aircraft liability insurance policy and provide coverage for the death of a passenger in an experimental aircraft.
FACTS On September 21, 2014, Wilt was killed in an aircraft crash, along with Darren Mahler (“Mahler”). Mahler was the pilot of a gyrocopter, an experimental amateur-built aircraft, in which Wilt was Mahler’s passenger at the time of the crash. Prior to the crash, Mahler purchased the gyrocopter from Christopher Brupbacher (“Brupbacher”), who also built the gyrocopter. The gyrocopter was registered with the Federal Aviation Association (“FAA”) with an experimental category airworthiness certificate. King alleged that Old Republic issued to Mahler an aviation insurance policy (the “policy”), which King alleged provided coverage for bodily injury and property damage resulting from the crash. Old Republic filed a motion for summary judgment on May 8, 2015, contending that the policy it issued to Mahler provided no coverage for the flight or crash of the gyrocopter or for the death of Mahler’s passenger, Wilt. Old Republic argued that its policy covered only a 1973 Piper PA–28–140 fixed wing aircraft (the 24 February 13, 2017 / INSURANCE ADVOCATE
King argued that Mahler believed there was coverage for the gyrocopter, and Mahler’s wife attested to her understanding of this belief in an affidavit, which was introduced by King in opposition to summary judgment. “Piper”), which was listed in the declarations section of the policy and was not involved in the crash. Mahler did not seek to add the gyrocopter as a covered aircraft under the policy. King opposed summary judgment, arguing that the policy provided coverage for “any aircraft” that is “used by the named insured [Mahler]” which “is not an aircraft described in Item 5 of the Declarations.” King argued that Mahler believed there was coverage for the gyrocopter, and Mahler’s wife attested to her understanding of this belief in an affidavit, which was introduced by King in opposition to summary judgment. In its reply to King’s opposition, Old Republic argued that King’s interpretation of the endorsement would lead to absurd results, in that such an interpretation would render the policy as providing coverage for any aircraft that Mahler chose to use while the policy was specific to the use of a particular aircraft, of an aircraft meeting specific detailed requirements. The district court rendered judgment, finding that Old Republic was entitled to judgment as a matter of law and dismissing all claims brought by King against Old Republic with prejudice.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http:// shop.americanbar.org/eBus/Store/Pro ductDetails.aspx?productId=214624, or 800-285-2221 which is presently available. Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.
[ ON MY R A DAR ] ANALYSIS A dispute as to whether, as a matter of law, an insurance policy provides or precludes coverage to a party usually involves a legal question which can be resolved in the framework of a motion for summary judgment. When determining whether or not a policy affords coverage for an incident, it is the burden of the insured to prove the incident falls within the policy’s terms. Summary judgment declaring a lack of coverage under an insurance policy may not be rendered unless there is no reasonable interpretation of the policy, when applied to the undisputed material facts shown by the evidence supporting the motion, under which coverage could be afforded. An insurance policy is a contract between the parties and should be construed using the general rules of interpretation of contracts set forth in the Civil Code. The judicial responsibility in interpreting insurance contracts is to determine the parties’ common intent. Words and phrases used in an insurance policy are to be construed using their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning. An insurance policy should not be interpreted in an unreasonable or a strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion. Unless a policy conflicts with statutory provisions or public policy, it may limit an insurer’s liability and impose and enforce reasonable conditions upon the policy obligations the insurer contractually assumes. If after applying the other general rules of construction an ambiguity remains, the ambiguous contractual provision is to be construed against the insurer and in favor of coverage. An insurer, like other individuals, is entitled to limit its liability and to impose and enforce reasonable conditions upon the policy obligations it contractually assumes; it may change or amend the coverage provided by the policy by an endorsement attached to the policy as long as the provisions and/or endorsements do not conflict with statutory law or public policy. If a conflict between the endorsement and the policy exists, the endorsement prevails. If coverage is provided in the policy, but then excluded in the endorsement to the policy, coverage will be excluded.
The Old Republic policy at issue, which listed Mahler as its insured, was in effect from September 18, 2014 to September 18, 2015. The gyrocopter accident occurred on September 21, 2014. The parties cite to no Louisiana case, and the court could find none, interpreting either the endorsement or the grammatical construction advanced by King on appeal. The court of appeal was unable to find ambiguity in the endorsement. The endorsement sets forth five clauses, (a) through (e), each separated by a semicolon. Each clause states a qualification that must be satisfied in order for the endorsement to provide coverage for a particular aircraft. The court of appeal refused to acknowledge the affidavit of Mahler’s wife, attesting to Mahler’s purported understanding of the terms and conditions of the policy, creates ambiguity in the endorsement or raises any genuine issue of material fact. The record on appeal does not reflect that Old Republic moved to strike the affidavit of Mahler’s wife or that the district court explicitly ruled upon the admissibility or competency of this evidence. Regardless, courts are prohibited from taking parol evidence to explain or contradict the insurance contract’s clear meaning. Here, it is undisputed that the gyrocopter satisfies clause (b), because the
gyrocopter is not listed in the policy declarations. However, the undisputed facts also show that the gyrocopter does not meet the requirements of either clause (a) or (c), in that Mahler owned the gyrocopter and the gyrocopter lacked a standard airworthiness certificate, instead having only an experimental airworthiness certificate. Because the gyrocopter does not satisfy all five clauses set forth in the endorsement, was not listed in the policy declarations, and because Mahler did not obtain additional coverage for the gyrocopter, there is no genuine issue of material fact that the policy did not provide coverage to Mahler for damages arising from the gyrocopter accident on September 21, 2014. Therefore, Old Republic was entitled to summary judgment and dismissal of all claims against it in this matter.
ZALMA OPINION It is amazing to me that litigants still refuse to accept the fact that an insurance policy is a contract whose clear and unambiguous terms must be enforced. Here, Mahler purchased the gyrocopter, did nothing to add it to his Old Republic policy (probably because, as an experimental aircraft it would not be eligible) and only after the accident tried to change the wording of the policy by parsing language.[IA]
WINTER SCENE: JACK USRY 1996 – 2016 REMEMBERING A FINE YOUNG MAN FROM RYE, NEW YORK WHO DIED UNTIMELY AND SADLY IN AN ACCIDENT WHILE PURSUING HIS PASSION FOR PHOTOGRAPHY. INSURANCE ADVOCATE / February 13, 2017 25
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[ COURTSIDE ]
L AW R E N C E R O G A K
Appellate Division Rejects Argument That Driver Was Too Drunk to “Knowingly” Refuse Breathalyzer
Lawrence N. ("Larry") Rogak has been practicing insurance law since 1981. He has defended over 23,000 lawsuits and arbitrations and has represented over 75 different insurance companies and self-insured corporations. Lawrence N. Rogak LLC is listed in Best's Recommended Insurance Attorneys, a distinction that requires written recommendations from at least 12 insurance carriers. A 1981 graduate of Brooklyn Law School, Mr. Rogak has published more books and articles on insurance law than any other New York attorney in the field.
Matter of Hickey v New York State Dept. of Motor Vehs. Edited by Lawrence N. Rogak Appealing the revocation of her driver’s license, plaintiff argued that although she refused a Breathalyzer test when police offered it at the hospital, she was in too much of an “altered state” to knowingly refuse. In addition, she argued that chemical tests taken at the hospital should be admitted to “undo” her refusal to take the Breathalyzer. The Appellate Division rejected the argument that intoxication can form an excuse for refusal to take a chemical breath test, and also held that tests performed by a hospital cannot “undo” a driver’s refusal to take the test when demanded by police.—LNR
J U S T
uProceeding pursuant to CPLR article 78 to review a determination of the New York State Department of Motor Vehicles Administrative Appeals Board dated December 30, 2014, affirming a determination of an administrative law judge dated January 22, 2014, which, after a hearing, found that the petitioner had refused to submit to a chemical test in violation of Vehicle and Traffic Law § 1194, and revoked her driver license. ADJUDGED that the determination is confirmed, the petition is denied, and the proceeding is dismissed on the merits, with costs.
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[ COURTSIDE ] Contrary to the petitioner’s contention, the fact that a chemical test was eventually performed at the hospital does not “suffice to undo” her prior chemical test refusal… Contrary to the petitioner’s contention, the New York State Department of Motor Vehicles Administrative Appeals Board properly refused to consider the petitioner’s hospital records since they were not submitted to or considered by the administrative law judge at the hearing (see 15 NYCRR 155.4; Matter of Tornheim v Appeals Bd. of N.Y. State Dept. of Motor Vehs., 82 AD3d 1253). Moreover, the petitioner failed to show that the records were newly discovered evidence unavailable at the time of the hearing, and could not have been obtained in the exercise of due diligence (see Matter of Morrissey v Sobol, 176 AD2d 1147). Despite her awareness of these records prior to the hearing, the petitioner neither sought an adjournment of the hearing for the purpose of obtaining them (see 15 NYCRR 127.7), nor attempted to subpoena those records (see 15 NYCRR 127.11[b]; CPLR 2302). The findings of the administrative law judge are supported by substantial evidence in the record (see Matter of Kelly v Safir, 96 NY2d 32, 38; Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222, 231; Matter of Mannino v Department of Motor Vehs. of State of N.Y.-Traffic Violations Div., 101 AD3d 880; Matter of Hildreth v New York State Dept. of Motor Vehs. Appeals Bd., 83 AD3d 838, 839). The evidence adduced at the hearing, including the testimony of two police officers and their written report, demonstrated that the police had reasonable grounds to believe that the petitioner had been driving in violation of Vehicle and Traffic Law § 1192, that the police lawfully arrested the petitioner, that after the petitioner’s arrest and at the hospital the police gave the petitioner sufficient warning of the consequences of refusing to submit to a chemical test, and that the petitioner refused the officer’s request to submit to the chemical test three times (see Vehicle and Traffic Law § 1194[2][c]; Matter of Robinson
[ CLASSIFIEDS ] www.insurance-advocate.com THINKING ABOUT RETIREMENT, SLOWING DOWN, OR SELLING YOUR AGENCY? Established family owned NYC brokerage looking to acquire retail agencies up to $500k in commission. Call 347-514-6936 or email: Rino@sumcov.com
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v Swarts, 82 AD3d 986; Matter of Sharf v New York State Dept. of Motor Vehicles, 74 AD3d 978). Moreover, the Appeals Board properly relied upon an adverse inference from the petitioner’s failure to testify at the hearing (see 15 NYCRR 127.5[b]; Matter of Peeso v Fiala, 130 AD3d 1442, 1443; Matter of Mannino v Department of Motor Vehs. of State of N.Y.-Traffic Violations Div., 101 AD3d at 881). Contrary to the petitioner’s contention, the fact that a chemical test was eventually performed at the hospital does not “suffice to undo” her prior chemical test refusal (see Matter of Nicol v Grant, 117 AD2d 940; Matter of O’Brien v Melton, 61 AD2d 1091). We also reject the petitioner’s contention that her “altered state” rendered her incapable of a chemical test refusal. Vehicle and Traffic Law § 1194(2) does not require a knowing refusal by the petitioner. The petitioner’s interpretation of the statute “would lead to the absurd result that the greater the degree of intoxication of an automobile driver, the less the degree of his [or her] accountability” (Matter of Carey v Melton, 64 AD2d 983, 983; see People v Kates, 53 NY2d 591, 596).[IA] 2016 NY Slip Op 05862 Decided on August 24, 2016 Appellate Division, Second Department
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[ G UE ST O P I N I O N ]
J A N E M . O R I E N T, M . D .
Why Republicans Should Let ObamaCare Self-Destruct uSuppose you are a surgeon who is called to see a patient who is bleeding from something in his abdomen. You are to consider an exploratory operation to try to find the bleeding point and stop the hemorrhage. The problem is that the patient has widely-metastatic cancer. He has already mostly depleted the blood bank’s supply of his blood type. His clotting factors have gotten so diluted that it will be hard to control bleeding from surgery. He is already on the brink of multi-organ failure. His cancer is untreatable. Should you tell the operating room to get ready? You might have a successful operation and keep the patient going a few months longer. Maybe the Obama Cancer Moonshot will have discovered a cure by then. But almost certainly the patient will either die on the operating table, or a few days or weeks later, during which time some alleged error or complication will have occurred. And the surgeon, without doubt, will be blamed. The surgeon will most likely decide that the patient is not an operative candidate. If unwilling to say so, he might just send the patient for more tests until the inevitable makes the question of surgery moot. Now the Trump Administration and the Republican Congress is faced with a crisis in the Affordable Care Act. Most of the coops are gone. A large portion of the exchanges have only one plan to “choose” from. The money appropriated for shoring up insurance companies that experience losses is used up, and the Administration’s illegal attempt to take money from other sources such as the Judgment Fund has run into a court challenge. The patient named ACA has been in trouble since the beginning, but Dr. Obama has intervened unilaterally to save it with exemptions for powerful players (such as some big companies and a “small business” comprised of congressional staffers) and other types of executive finesse. But now the Republicans are about to take charge. They have been promising, and 30 February 13, 2017 / INSURANCE ADVOCATE
dithering, and delaying, and gesticulating about using the power of the purse to stop this Democrat-created disaster since 2010. But now the whole health system is in trouble as ACA tentacles are deeply entwined in it, and millions of patients are counting on ACA health plans. Whatever Congress does will have complications, and if the bipartisan fix or replacement has Republican fingerprints, the Republicans will be blamed. A number of Republican ideas have been floated, and the differences between them are not trivial. Repeal the new taxes, or keep them but redistribute the takings in a different way? Restore hundreds of billions in Medicare cuts, or keep them in order to stay “revenue neutral”? Get rid of the individual mandate, or admit that without increasingly heavy coercion, young and healthy people will not pay the enormous premiums needed to subsidize the chronically ill? The very popular protection for people with pre-existing conditions will inevitably destroy insurance. At this point, the Republican Congress might be best advised to continue doing what it does best: keep talking. Send the patient for more tests. But the nation’s economy, the medical system, and our patients must be freed from the grip of the [Un]affordable Care Act. That monster must die—of its inherent disease, which was created solely by Democrats. Congress, if it can’t do something right, needs to do nothing. It’s up to the executive branch to embrace its constitutional duty: • Stop illegal actions that have been resuscitating ACA and permitting its cancer to spread; • Stop enforcing unconstitutional law; and • Reverse the regulations that are blocking the development of better alternatives. Trump could take these actions immediately: • Withdraw the Administration’s appeal of the lawsuit that prevents funding
Jane M. Orient, M.D. obtained her undergraduate degrees in chemistry and mathematics from the University of Arizona in Tucson, and her M.D. from Columbia University College of Physicians and Surgeons in 1974. She completed an internal medicine residency at Parkland Memorial Hospital and University of Arizona Affiliated Hospitals and then became an Instructor at the University of Arizona College of Medicine and a staff physician at the Tucson Veterans Administration Hospital. She has been in solo private practice since 1981 and has served as Executive Director of the Association of American Physicians and Surgeons (AAPS) since 1989. She is currently president of Doctors for Disaster Preparedness. Since 1988, she has been chairman of the Public Health Committee of the Pima County (Arizona) Medical Society. She is the author of YOUR Doctor Is Not In: Healthy Skepticism about National Healthcare, and the second through fourth editions of Sapira’s Art and Science of Bedside Diagnosis, published by Lippincott, Williams & Wilkins. She is the editor of AAPS News, the Doctors for Disaster Preparedness Newsletter, and Civil Defense Perspectives, and is the managing editor of the Journal of American Physicians and Surgeons.
insurers without congressional appropriations (U.S. House of Representatives v. Burwell); • Order the IRS not to enforce the individual mandate; • Repeal regulations that require a comprehensive benefits package, and allow insurers to offer low-cost plans; • Greatly liberalize requirements for Health Savings Accounts. Those who like their ObamaCare plan could keep it—they just couldn’t force younger, healthier subscribers, or current and yet-unborn taxpayers to pay for it. But once allowed to escape from bureaucratic restraints, most Americans will choose something better.[IA]
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