February 29, 2016 Insurance Advocate by C Acunto

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Serving New York, New Jersey, Connec cut, Eastern Pennsylvania and Washington, DC

Science or Discrimina on? Vol. 127 No. 4 | February 29, 2016

Industry Defends Prac ces, Confron ng CFA Claims

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Contents

February 29, 2016 | Volume 127 Number 4

[COVER STORY]

Science or Discrimination? Industry Defends Practices, Confronting CFA Claims

[FEATURES] 6

Foreword: Making the Case for the Industry Steve Acunto, Publisher

Exposures and Coverages: Insuring Electronic Data Losses Jerome Trupin, CPCU

On the Level: Transparency or Tyranny? N. Stephen Ruchman

The Social Notebook: The Power of Response in the Social World Chris Paradiso

In the Associations: LICONY Celebrates its 48th Year

Tech Notebook: Missouri General Selects Applied Epic for Business Growth ACT and AUGIE Launch Insurance Digital Revolution Campaign

Guest Article: Veterans and the Insurance Industry: a Mission to Make a Difference Merry Korn

On My Radar: It’s the Insured’s Fault Barry Zalma

Looking Back: January, 1991

Courtside: Assault and Battery Exclusion Applies Where all Allegations Arise Out of an Assault Lawrence N. Rogak, Esq.

Classiﬁeds

[AD FEATURES] 13

LICONY: Leaders Throughout Life Insurance Industry

info@insurance-advocate.com www.insurance-advocate.com INSURANCE ADVOCATE / February 29, 2016 3

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[ FOREWORD ]

STEVE ACUNTO

Making the Case for the Industry uIn 1984, a small band of insurance communications professionals gathered in Phoenix for what we called the Insurance Communications Summit. I was a panelist, along with the likes of Sam Friedman, George Nordhaus, Ron Vinson and many others who, for the first time, were coming to the understanding that we actually had a shared mission and a shared set of challenges “representing a much maligned, misunderstood, monster sized, adverse-to-paying claims, consumer unfriendly, Byzantine-regulated, state-by-state variable, required by law or contract product-based, monolithic industry, fraught with unreadable documents and weighty sets of adverse provisions; 32,000 agencies and brokers with different names, 2,000 different carriers, and a ratings system that required consumers to hold a Ph.D. in analytics to comprehend. And that’s not so bad next to the tasks faced by the communicators for the funeral home operators association of Florida, the beachfront modesty advocates of Rio de Janeiro, or the Sicilian actuarial society,” I mused. These many years I must say I have grown to see the smart, acceptable arguments the industry can and does make for itself to an unwilling, uninterested world and do appreciate the men and women who carry the “gospel” of insurance’s desirability, its relation to social behavior and its enabling powers to our citizenry. The principal institution responsible for this mission is the I.I.I. It is not always successful, but it has been a bulwark against ignorance for many years, like an ongoing communications sumBOB HARTWIG mit all its own. For the last decade or so, Bob Hartwig has been the advocate in chief at I.I.I. and has been an industry fixture mirroring the results of the P/C business to itself again and again, and bringing to clinical light the industry’s trends and to the implications of its data. And he has done so most articulately and convincingly. Now he is leaving to join the faculty of the University of South 6 February 29, 2016 / INSURANCE ADVOCATE

Carolina’s Darla Moore School of Business after serving as the president of the I.I.I. since 2007. Bob was the I.I.I.'s chief economist before becoming its president. Prior to joining the Institute, he held a number of key roles at Swiss Re, the National Council on Compensation Insurance (NCCI) and the United States’ Consumer Product Safety Commission (CPSC). Bob received his Ph.D. and Master of Science in economics from the University of Illinois at Urbana-Champaign. “Bob Hartwig has done an extraordinary job as president of the I.I.I., and finding a successor to fill his shoes will be a daunting task,” said Bruce Kelley, President and CEO of EMC Insurance Companies in Des Moines, Iowa, and chairman of the I.I.I.’s board of directors. “Under Dr. Hartwig’s leadership, the I.I.I. bolstered its position as a thought leader in the industry and expanded dramatically the audiences who have access to the I.I.I.’s award-winning editorial content, data and subject matter expertise. More than ever before, the I.I.I. is excelling in its mission to improve the understanding of insurance—what it does and how it works.” Members of the I.I.I.’s board will serve as part of a search committee to find the its next president, Kelley added. “My decision to leave the Institute was an extremely difficult one. I love this job, this industry and the daily thrill and privilege of working with amazing people both at the organization itself and throughout the I.I.I.’s membership,” Hartwig stated. “At the same time, I have throughout my 23-year career in the insurance world always maintained strong ties to the academic community. After 18 years at the Institute, now is the right time for me— both personally and professionally—to make a change. I am truly looking forward to my next important role—attracting and educating young talent to this vitally important industry. I have been very fortunate to lead an organization with many talented individuals, allowing the Insurance Information Institute to develop a stellar reputation worldwide in the industry. I am also very proud to say I will leave the Institute with its largest membership ever, and positioned for future success.” All the best, Bob, and thanks for getting a tough job done so well.[IA]

VOLUME 127, NUMBER 4 FEBRUARY 29, 2016

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 Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com 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) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto

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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., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY 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 $110.00. 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 2015. 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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[ EXPOSURES & COVERAGES ]

JEROM E TRUPIN, CPCU

Insuring Electronic Data Losses

Time Limit to Start Suit uGoogling for a discussion of dependence on electronic data, I found this in, of all places, Popular Mechanics. “Vehicles are increasingly behaving like computers with wheels...In the past we would have called it the electrical system, but its mission has evolved way beyond simply moving dumb electrons. Collectively, these electronics are known as the Controller Area Network...(CAN),…the system of wires and software protocols acting as the connective tissue between a vehicle’s computers and sensors.... CAN allows cars to be smarter, cheaper, and capable of doing some slick stuff that wouldn’t otherwise be possible. “...The design of CAN is similar to that of a freeway system. Data move like vehicles from high-traffic highways to local roads via on and off ramps. Thousands of data points traverse this freeway at any time along any given stretch and can get off at any exit. Throughout the car are various computers called electronic control units, or ECUs.... Each ECU has several jobs: controlling the engine or transmission, rolling up windows, unlocking doors, and the like. These computers have sensors and switches wired in to detect variables such as temperature, pressure, voltage, acceleration at different angles, braking, yaw and roll of the vehicle, steering angle, and many other signals. When an ECU needs a signal from a sensor connected to an ECU elsewhere in the car, that’s where CAN comes in. “Take, for instance, power sliding doors, a common feature on modern minivans (and on many NYC taxis). These doors are operated by an ECU… Sensors constantly report whether the door is open or closed, and when the driver pushes a button to close the door, the signal from that switch is broadcast across the network. When the ECU gets that signal, however, it doesn’t simply close the door. First, it checks the data stream to make sure the car is in park and not moving. If all is well, it then gives a command to a power circuit that energizes the motors used to close the

door. It goes even further, though—the ECU then monitors the voltage consumed by the motors. If it detects a voltage spike, which happens when a door is hindered by an errant handbag or a wayward body part, the ECU immediately reverses the direction of the door to prevent potential

Many insurers offer electronic data coverage as part of their Electronic Data Processing forms, but it’s limited by exclusions and the need to demonstrate physical damage.

injury. If the door closes properly, the latch electrically locks the door shut. In the old days, this would have been an engineering feat. Just electrically powering the doors would have required dedicated wires running between the shifter, the door switch, and the motor.”1 What’s this got to do with insurance? Every one of our clients are just as integrally a part of the World Wide Web. Disruption of electronic service is now a serious exposure. Unfortunately, there’s no simple insurance solution. Coverage for loss of electronic data is particularly problematic. Many insurers offer electronic data coverage as part of their Electronic Data Processing forms, but it’s limited by exclusions and the need to demonstrate physical damage. The response of standard market insurers using ISO and similar basic, broad, and special forms to claims based on loss of electronic data was that there’s no coverage because the loss definition required “physical damage” and there was no physical damage. In 2000, court decisions began to shake the foundation of that position.

Jerome “Jerry” Trupin, CPCU, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, nonprofit and governmental entities. He is, in effect, an outsourced risk manager. Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IIA courses. Jerry has spoken across the country on insurance topics and is the co-author of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Society publication, the Insurance Advocate®, and others. He can be reached at jtrupin@aol.com. Thanks to Jerry Trupin for this article and to the CPCU Society for letting us reprint it.

A leading case involved Ingram Micro, a distributor of computer and technology products. Ingram had had computer problems due to a power outage. Although power was restored within half an hour, and Ingram’s computers were up and running in another hour and a half, its networking system lost its custom configurations, which took eight more hours to reprogram. Ingram filed a claim under its business interruption coverage due to its inability to conduct business during this period. Its insurer, American Guaranty & Liability (a Zurich company), denied coverage citing lack of physical damage. Ingram sued for coverage. CONTINUED ON PAGE 10

1 Ben Wojdyla “How it Works: The Computer Inside Your Car” Popular Mechanics February 21, 2012 http://www.popularmechanics.com/cars/ how-to/a7386/how-it-works-the-computerinside-your-car/

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[ EXPOSURES & COVERAGES ] CONTINUED FROM PAGE 8

ficult for most insurers handling such losses, ISO added electronic data to the list of “property not covered.” Electronic data is broadly defined as follows: “Electronic data means information, facts or computer programs stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software), on hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other repositories of computer software which are used with electronically controlled equipment. The

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The court held that the circumstances constituted “physical damage,” ruling that “physical damage is not restricted to the physical destruction or harm of computer circuitry, but includes loss of access, loss of use, and loss of functionality (emphasis added).” term computer programs, referred to in the foregoing description of electronic data, means a set of related electronic instructions which direct the operations and functions of a computer or device connected to it, which enable the computer or device to receive, process, store, retrieve or send data.” The exclusion is reinforced by an “additional coverage” that provides $2,500 coverage. (The insurer can increase that limit, but few insurance companies are going that route.) So if the insured makes it past the exclusion, coverage is limited to $2,500. Obviously, that provides insufficient coverage for electronic data losses. Specialized coverage is available from numerous markets, but none of them are all-encompassing. Until now, all required the insured to show physical damage. Hartford Steam Boiler (HSB) has jumped into this market with a new form, HSB TechAdvantage.3 As its name implies, Tech Advantage is pointed at cyber exposures; it’s coverage for the bits and bytes that surround us in our everyday work lives. TechAdvantage is regular equipment breakdown coverage with a new covered cause of loss added: Electronic Circuitry Impairment. Most interestingly, it eliminates a feature that has been a bedrock of coverage definitions of all-risk coverage. Much has changed in the nomenclature of all-risk insurance. In 1986 the word “all” was dropped and the name of the form was CONTINUED ON PAGE 12

2 American Guarantee & Liability Insurance Co. v. Ingram Micro, Inc., No. 99-185 (D. Ariz. April, 18, 2000) WL 726789. 3 I want to thank Mark MacGougan and Dennis Milewski of Hartford Steam Boiler for providing information about TechAdvantage and for their willingness to answer my questions. However, the opinions I express in this article are mine and do not necessarily represent those of Mark and Dennis.

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[ EXPOSURES & COVERAGES ] CONTINUED FROM PAGE 10

changed to Special Form. Then the word “risk” was clipped out. The term “openperils” was floated as a substitute, but never really caught on. But through it all, the requirement that there be physical loss has remained constant. For example, the current Special Form insuring agreement starts out: When Special is shown in the Declarations, Covered Causes of Loss means direct physical (emphasis added) loss unless the loss is excluded or limited in this policy. But in a major break with the past, HSB’s4 TechAdvantage coverage form eliminates the requirement to show physical damage before coverage is triggered for certain types of loss. It means there’s potential coverage for losses (most likely business interruption and extra expense) when systems crash or otherwise malfunction, resulting in the loss of needed data with no sign of physical damage. The new covered cause of loss, entitled “Electronic Circuitry Impairment” reads as follows: Electronic circuitry impairment means a fortuitous event involving electronic circuitry within covered equipment that causes the covered equipment to suddenly lose its ability to function as it had been functioning immediately before such event. This definition is subject to the conditions specified...below.... (“Electronic circuitry” means microelectronic components, including but not limited to circuit boards, integrated circuits, computer chips and disk drives.) The coverage might apply to a variety of situations, such as: • A building’s heating or cooling system fails and must be repaired. • A law firm’s computer server fails and must be replaced. • A manufacturer’s production line fails – causing a loss of business as well as repair costs. These are occurrences that might trigger standard equipment breakdown coverage. What’s new is that if the failure is connected to electronic component failure, the event may be covered without the need to show that there has been physical damage to the replaced component. 12 February 29, 2016 / INSURANCE ADVOCATE

That’s good, as far as it goes, but it’s made clear in the wording that follows that it doesn’t go that far.5 Some of the restrictions include: • The insurance company will determine that the reasonable and appropriate remedy to restore such covered equipment’s ability to function is the replacement of one or more electronic circuitry components of the covered equipment (but it does not require an evidence of physical damage). • The following are not covered causes of loss: – Conditions that can be remedied by normal maintenance; rebooting, reloading or updating software or firmware or by providing necessary power supply – Conditions caused by - Incompatibility of the “covered equipment” with any software or equipment installed, introduced or networked within the prior 30 days; or - Insufficient size, capability or capacity of the covered equipment. - Exposure to adverse environmental conditions, including but not limited to change in temperature or humidity, unless such conditions result in an observable loss of functionality. Loss of warranty shall not be considered an observable loss of functionality. A loss like the one that plagued Ingram Micro, discussed above, apparently wouldn’t be covered. All that was needed to restore functioning was reprogramming. So while this is a worthwhile improvement, it’s not the complete solution. Nevertheless, it closes a current gap in protection. PRACTICE POINTER: HSB is a major writer of equipment breakdown insurance (still frequently referred to as “boiler & machinery”). For insureds currently insured with HSB, give them quotes to convert to the broader form now. For other insureds, provide an HSB quote now or at renewal, depending on how you evaluate the exposures. A Time Limit is a Time Limit In New York, if you’re late for dinner, you don’t get fed—at least when it comes to insurance claims. Anthony D’Angelo and his son, also with the first name of Anthony, sued Allstate to collect their auto physical damage claim. They started suit 13 months

LIC

When Special is shown in the Declarations, Covered Causes of Loss means direct physical (emphasis added) loss unless the loss is excluded or limited in this policy. after the date of loss. Allstate countered that they had missed the deadline to start suit by one month. The lower court granted Allstate summary judgment and the appellate court agreed.6 Wait a moment, doesn’t NY insurance law require a time limit to start suit of not less than two years? Yes it does, but that applies only to what were once referred to as fire and allied lines (now called property insurance), not to auto physical damage claims. (In the sometimes weird world of insurance nomenclature, autos, although clearly property, are not included in the term property insurance.) And even though they missed the deadline by one month, which doesn’t seem like too much, New York courts strictly enforce time limits. Some states are more lenient, but it’s not a good idea to throw yourself on the mercy of the court in any event. PRACTICE POINT: There are two things to take away from this case: First, the time limit to start suit is strictly enforced. Review open claims to spot those that are nearing the time limit and notify the insureds. Producers don’t have a legal duty to do that, but it is a great way to demonstrate value-added to your clients. Second, the time limit to start suit can be less than two years for many types of claims. Watch out for them.[IA] 4 Hartford Steam Boiler really should do something about its name. Steam boilers, the high-tech marvel of the mid-1800s, are not the first thing that jumps into your mind when you’re thinking about coverage for bits, bytes and binary code. 5 That triggers the age-old insured’s lament: “Insurance policies giveth in the large print and taketh away in the small print.” (That has to be updated to “giveth in the first paragraph and taketh away in the following paragraphs,” since the use of different size type-fonts is banned in most states. 6 D’Angelo v Allstate Ins. Co. 2015 NY Slip Op 02445 [126 AD3d 931] 03/25/15 One Year Suit Limitation Clause Enforced.

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LICONY

ADVERTOR IAL

LICONY

Leaders Throughout Life Insurance Industry Advocates for Families Across New York State By Thomas E. Workman, President & CEO, Life Insurance Council of New York, Inc.

he life insurance industry can be a complicated business to those who don’t follow it regularly, but its focus is simple. This is an industry that provides financial protection to people and their families through life’s events. And there are thousands working toward this end in New York State. Here at the Life Insurance Council of New York, Inc. (LICONY) I have benefitted from working with some of the best minds in our industry—both on the LICONY staff and those senior leaders among LICONY’s membership. This year we will share some of their stories with you, so that you may have a better sense of the personal and professional commitments within the life insurance industry. We all believe we must do everything we can to make sure more and more families are protected through life insurance.

We are Advocates for Families For these industry leaders, they know what is possible when life insurance products are in place—and they know the financial hardship families can endure when the protection provided by life insurance is absent. A major challenge for the life insurance industry is to reach the uninsured. According to LIMRA (Life Insurance Marketing Research Association) estimates for New York State, there is $2.1 trillion of life insurance in force, plus an unmet need of $950 billion more. Said another way, for every $2 of existing life insurance coverage in New York, there is approximately $1 of unmet need to protect families and businesses through life insurance products.

Furthermore, according to LICONYsponsored research, the number of individual life insurance policies in force on New Yorkers declined from nearly nine million in 2003 to eight million in 2013. The existing coverage gap, coupled with the reduction in the number of policies in force, demonstrate a growing challenge. This is of great concern to all of us in the industry, and the reason we are so relentless in our advocacy to make sure more households are covered. We are Educators The life insurance industry is technical in some respects and heavily regulated by each state. The continuously evolving regulatory environment can make doing business a challenging undertaking. As a trade association, LICONY strives to educate policymakers on the effects, and in some instances, the unintended consequences of proposed legislative and regulatory actions. The potential consequences of such actions is one reason why we believe that any proposed legislative or regulatory initiative should consider the cost/benefit impact on consumers and the industry. LICONY constantly works to educate policymakers on these matters so that the widest selection of affordable insurance solutions is available to consumers in New York. LICONY The LICONY Board of Directors is comprised of fifteen senior leaders from throughout the life industry with hands-on experience in navigating the legislative and regulatory landscape in New York. They

dedicate their time as officers and directors of LICONY to developing, reviewing, and implementing LICONY policy positions to advance the industry and provide the best possible life insurance products to New York consumers. Throughout the coming year you will read some of their stories in this space. LICONY has 53 New York-based member companies and 21 member companies based outside New York that together provide the vast majority of life, disability, and long term care insurance and annuity benefits to New Yorkers. In addition, LICONY has 22 allied professional firm members that provide professional or business services to life insurance companies and fraternal benefit societies. We advocate policy positions that we believe are in the long-term best interests of both the life insurance industry and the people the industry serves. [IA] Thomas E. Workman is the President and Chief Executive Officer of the Life Insurance Council of New York, Inc. LICONY is the voice of the life insurance industry in New York. LICONY works to create and maintain a legislative, regulatory, and judicial environment that encourages its members to conduct and grow their life insurance businesses here in New York State. For stories about New Yorkers who have benefitted greatly from purchasing the products of life insurers, go to www.licony.org, click on “Published Articles” in the NEWSROOM box on the homepage.

O: (212) 986-6181 F: (212) 986-6549 551 Fifth Ave., 29th Floor, New York, NY 10176 website: www.licony.org

INSURANCE ADVOCATE / February 29, 2016 13

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[ ON THE LEVEL ]

N. STEPHEN RUCHMAN, CPIA

Transparency or Tyranny? uSometimes rules that are created to address a real problem have unintended consequences. Such is the case with New York’s Joint Commission on Public Ethics, widely known as “JCOPE.” Late in January, JCOPE voted for an advisory opinion to expand the definition of lobbying to include communications between public relations firms and journalists. So, if a communications person contacts an editor or writer in an attempt to persuade them to cover news on a political issue, they might have to disclose the communication as a lobbying endeavor. On the surface, this may not seem like such a big deal to some people. After all, lobbyists and nonprofit organizations already are required to disclose direct lobbying and grassroots lobbying, urging people to contact their lawmakers about matters of importance to them. After all, the reported goal of this new proposal is transparency. JCOPE’s chair, Daniel Horwitz, said the opinion is a “reasonable regulation of speech.” But, I see a huge problem with this proposition, and I’m not alone. Several groups concerned about freedom of speech and freedom of the press, including the New York Press Association and editors across the state, agree with me. In fact, New York Law School professor Nadine Strossen told The Observer on Jan. 26, that the rule is an “assault” on the First Amendment: “This proposed regulation is a double-barreled assault on core First Amendment freedoms. Lobbying constitutes the expressly protected, hard-won right ‘to petition the government.’ And the preeminent historic purpose of the free press guarantee was to bar the government from exercising any licensing power over publications.” Needless to say, I am against this. Registering with the government to speak our mind? It’s one thing to disclose money or other valuables exchanged with lawmakers that might sway their votes; it’s another thing entirely to call urging the 14 February 29, 2016 / INSURANCE ADVOCATE

press to report a story and inform the public something that needs to be disclosed to the government. In fact, I find this all somewhat ironic, because the press—the Fourth Estate—has itself been considered the watchdog of government long before JCOPE ever existed.

…Michael Paluba, LUTC, a fixture of PIANY board meetings, passed on Feb. 6. Mike went through many of the chairs on the board and was a perennial secretary serving in that position for 12 years. I will never forget when Mike came to the board a few years ago and said “I am not running for re-election. It’s time for the younger kids to work their way through the various officer chairs.” He was a standup guy.

I am not against JCOPE, per se. Anyone would agree there’s real corruption in our state. But, organizations making a case for their issues to be heard and the media seeing fit to report on these issues are not the problem. Frankly, I’m surprised we have not heard more from the media or the public about this issue. Where is the outrage? Perhaps the timing of the vote, or a disbelief that our rights could be in jeopardy is holding back the outcry. I hope it is not a fear of our government’s response that is silencing dissent. The hush in the wake of JCOPE’s vote reminds me of Martin Niemöller’s famous poem about the cowardice of the German public as the Nazis rose to power. The poem starts out: “First they came for the Socialists, and I

N. Stephen Ruchman, CPIA, is a retired independent agent and founder of Ruchman Associates, Inc., the agency he started in 1961. A past president of the Professional Insurance Agents of New York State, Inc., he is an active supporter of PIANY, and he has sat on or chaired nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. He can be reached via email at: nsruchman@gmail.com.

did not speak out....” I remind readers that the poem ends: “Then they came for me— and there was no one left to speak for me.” What if this measure prevents good organizations from working with the press to let them know about important issues to any one of us? Who will speak for us then? **** Speaking of speaking one’s mind… Readers may have heard that Michael Paluba, LUTC, a fixture of PIANY board meetings, passed on Feb. 6. Mike went through many of the chairs on the board and was a perennial secretary serving in that position for 12 years. I will never forget when Mike came to the board a few years ago and said “I am not running for re-election. It’s time for the younger kids to work their way through the various officer chairs.” He was a standup guy. When I think of Mike, I think of a party: He was always jovial and he had only nice things to say about people. He owned a family-run professional independent agency: Hermitage Insurance Brokerage on Middle Island, N.Y., with his wife, Georgette. Mike’s greatest legacy was his family with eight grandchildren and great grandchildren. I know Mike is up there smiling at all of us in a cloud of smoke, holding a glass of scotch, and he’s saying “Hello Bubula” to everyone there. I wish there were more people in the world like him…this industry needs more Mike Palubas.[IA]

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[ THE SOCIAL NOTEBOOK ]

C H R I S PA R A D I S O

The Power of Response in the Social World uI can’t stress enough how important social media engagement is for your insurance agency’s digital marketing strategy. There are many social media platforms you can use to broadcast messages. Facebook, Twitter, and Pinterest are among the most valuable. But if you want to attract and build a following that will help you and your insurance agency grow, then you can’t just post and walk away. When you join a social network, you need to engage in conversation online, and you need to continue engaging. People appreciate consistency and they’ll reward you for it with interaction. The Purpose behind Responding There are multiple reasons you’ll want to check in with your audience on a regular basis. Connections are two-way propositions. You need to give and take, post and respond. Consider the alternative: if you open a Twitter account, for instance, and only post a couple of times, how does that make your agency look online? It’s like pulling up to a business that hasn’t had their “open” sign on the door in months. You don’t want to look abandoned, so it’s important to be consistent and post regularly. It’s also important to realize that people are more prone to buy into your brand if a personal connection is established. Statistics show that: • Customers will spend 21% more if they receive good customer service via social media (provided by Sentiment Metrics) • One in three users prefer to contact brands using social media rather than the telephone (provided by Nielson) • 71% of 16- to 64-year-olds turn to the internet when they have a problem with a product (provided by Sitel) • 71% of consumers who experience a quick and effective brand response on social media are likely to recommend that brand to others (provided by Social Media Today) People want to establish a personal connection with brands when it comes to shopping online or getting customer serv16 February 29, 2016 / INSURANCE ADVOCATE

ice. Shockingly, according to NM Incite, only 36% of consumers who make customer service inquiries via social media report having their issue solved quickly

When people comment or share your posts, let them know you appreciate it. If they ask a question in the comments section of your blog or show some form of concern or worry, address it immediately. and effectively. You need to do better than that if you want the engagement that will drive positive results. The Art of Social Response Checking into the social world can be done many different ways and some are more effective than others. When people comment or share your posts, let them know you appreciate it. If they ask a question in the comments section of your blog or show some form of concern or worry, address it immediately. If they provide input on a discussion you started, thank them for their opinion and see if you can add some insight yourself in return. You need to show people that when they knock, you’ll answer. Also, when your audience gives you a follow on your network, you can give them a follow back, as long as they are posting appropriate content. Check before you follow them. When you do follow others, be sure to engage with their content as well. The key to a powerful social media following is to engage, engage, and then engage some more. Here are some examples of how we engage within our networks in-house. These fundamentals can be applied to all social media platforms: • Video Postings: We take time to post videos to our followers, specifically around special events, such as birth-

Christopher Paradiso, CPIA , is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community. Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center. In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world. Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.

days or holidays. We post to our customer’s or prospect’s timeline a moving GIF image to catch their attention, and we include a link to our video that wishes them, for instance, a happy birthday. We also tag Paradiso Insurance to draw attention back to our page as well. • Commenting/Liking/Sharing Posts: When you see people in your network post about things that excite them, such as promotions, new business opportunities, charity/volunteer work, or any other milestones, give them a like or a simple congratulatory message to show you care. Also, and this is equally as important, if someone comments on any of your posts, the least you can do is like their comment. If you have some engaging feedback of your own, don’t be afraid to comment back. It’s also a good idea to share posts, but just make sure they are appropriate for your brand. • Pay to Play: If you’re not a payer, you’re not a player; you’re going to want to do a few sponsored posts. CONTINUED ON PAGE 25

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[ IN THE ASSOCIATIONS ]

LICONY Celebrates its 48th Year uThe LICONY 48th Anniversary Celebration Reception was held on Thursday, February 4, 2016 at the Mutual of America Headquarters on Park Avenue in New York City. The 160 in attendance represented LICONY membership; the New York Senate and Assembly; the NYS Department of Finanicial Services; other trade organizations; and industry friends.

SENATOR JOHN J. FLANAGAN, SENATE MAJORITY LEADER.

L TO R: THOMAS E. WORKMAN, PRESIDENT & CEO, LICONY; JAMES L. SEWARD, SENATE INSURANCE COMMITTEE CHAIRMAN; WILLIAM J. MULROW, SECRETARY TO THE GOVERNOR; KEVIN A. CAHILL, ASSEMBLY INSURANCE COMMITTEE CHAIRMAN; TIMOTHY A. WALSH, 2016 LICONY BOARD CHAIRMAN, AND PRESIDENT & CEO OF FARM FAMILY.

LICONY BOARD CHAIRMAN, TIMOTHY A. WALSH, PRESENTING A PORTRAIT TO 2015 LICONY BOARD CHAIRMAN, DAVID J. WALSH, PRESIDENT & CEO OF AMALGAMATED LIFE FOR HIS OUTSTANDING SERVICE.

L TO R: JOHN R. GREED, PRESIDENT OF MUTUAL OF AMERICA; WILLIAM J. MULROW, SECRETARY TO THE GOVERNOR; THOMAS E. WORKMAN, PRESIDENT & CEO, LICONY.

L TO R: JAMES V. REGALBUTO, DEPUTY SUPERINTENDENT, LIFE BUREAU, NYS DEPARTMENT OF FINANCIAL SERVICES; MARK A. MCLEOD, ASSISTANT CHIEF, LIFE BUREAU, NYS DEPARTMENT OF FINANCIAL SERVICES; JEFF ANGELO, EVP AT MUTUAL OF AMERICA, AND FORMER NYSDFS STAFF. INSURANCE ADVOCATE / February 29, 2016 17

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Science or Discrimination Industry Defends Actuarial Standards Against CFA Claims

A recent study by the Consumer Federation of America (CFA) in auto insurance rating showed that good drivers pay more for basic auto insurance if they rent rather than own their home. The implication is raising questions of discrimination. The Property Casualty Insurers Association of America (PCI) responded to the study â&#x20AC;&#x201D; attributed to David Snyder, PCIâ&#x20AC;&#x2122;s vice president of policy development and research.

18 February 29, 2016 / INSURANCE ADVOCATE

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FA Study: Good Drivers Pay More for Basic Auto Insurance if they Rent Rather Than Own Their Home Around the Nation, Most Major Auto Insurers “Penalize” Renters Despite Perfect Driving Records; Consumer Group Calls for Changes uWashington, D.C. – Major auto insurance companies charge good drivers as much as 47 percent more for basic liability auto insurance if they don’t own their home, according to a new analysis of premiums by the nonprofit Consumer Federation of America (CFA). Based on a sampling of insurance quotes across the country for a 30-year-old safe driver, CFA found that premiums averaged seven percent higher – about $112 per year – for drivers who rent instead of own homes. Liberty Mutual “penalized” renters the most with premium hikes averaging $307 per year, or 19 percent more, for state mandated auto insurance coverage, according to the study. Auto insurance companies’ use of homeownership status in pricing disadvantages low- and moderate-income Americans, according to CFA. Federal Reserve Board data show that the median income of renters in the U.S. was $27,800 in 2013 compared with $63,400 for homeowners. “To raise people’s auto insurance premium because they can’t afford to buy their homes unfairly discriminates against lower-income drivers,” said J. Robert Hunter, CFA’s Insurance Director and the former Insurance Commissioner of Texas. “A good driver is a good driver whether she rents or owns her home. Insurance companies should not be allowed to target people based on homeownership status.” For the analysis, CFA tested rates for minimum limits liability coverage in 10 cities from the nation’s largest insurers – State Farm, Geico, Allstate, Progressive, Farmers, Liberty Mutual, and Nationwide. CFA used company websites to solicit two premiums in each city for a 30-year-old female motorist who has a 2005 Honda Civic and a perfect driving record. The only characteristic that was altered during the testing was whether she owned or rented her home. (A complete list of driver characteristics is included in Appendix One.) While the average increase for renters was six percent, there were several double-digit percentage increases around the country. For example, Allstate charged renters in Tampa 19 percent more than it charged homeowners; Liberty Mutual charged Baltimore renters 23 percent more and 26 percent more in Newark; and Farmers Insurance charged renters in Louisville 47 percent more (or $768) than homeowners for a basic auto insurance policy. Geico was the only company tested that did not consider homeownership status in any of the 10 cities. The only premium decrease for renters was found in Chicago, where Allstate lowered rates by 11 percent compared with premiums for homeowners. On the following page are tables showing the annual premium changes in total dollars and percentage by company in each of the 10 cities. The complete set of premium quotes is included in Appendix Two.

No change in premiums for drivers in California In addition to the 10 cities included in the survey, CFA tested rates in Oakland, California and found that all companies charged the same premium to a good driver whether she owned or rented her home. Consumer protection laws in California prohibit auto insurance companies from considering customers’ homeownership status or other socio-economic factors such as level of education or

INDUSTRY REPLIES “It’s important for consumers to realize that insurance pricing, including discounts, is subject to rigorous actuarial standards and state regulation which ensure that all rating factors comply with the law. CFA’s own research demonstrates that we have a highly competitive market where there is a wide range of types of discounts that are offered and for how much. PCI agrees with CFA’s recommendation that consumers should shop around to compare ultimate rates for car insurance including discounts that are available. “Many insurers do provide renters and car insurance discounts as well as homeowners and car insurance discounts all the time. The ability to save by purchasing multiple products or services from the same carrier has long been accepted throughout our economy, in areas far beyond insurance. The reason is simple, it costs less to provide multiple things at the same time and customer loyalty is important to any business. That’s also true of insurance. And ultimate rates should be compared with and without the property insurance discounts. “In response to a comment from CFA about use of prior driving history, it’s important to note that driving records are increasingly incomplete as sources of information on actual driving experience. Municipalities and states are increasing the amount of damage that has to be involved before a police report is taken and many states allow drivers to ‘mask’ traffic violations via supervision or traffic school programs as often as once per year, limiting the information actually available, so other factors are used that accurately predict risk. And the discounts available from insurers help lower otherwise higher prices.” PCI is composed of nearly 1,000 member companies, representing the broadest crosssection of insurers of any national trade association. PCI members write more than $183 billion in annual premium, 35 percent of the nation’s property casualty insurance. Member companies write 42 percent of the U.S. automobile insurance market, 27 percent of the homeowners market, 32 percent of the commercial property and liability market and 34 percent of the private workers compensation market.

CONTINUED ON PAGE 20

INSURANCE ADVOCATE / February 29, 2016 19

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CONTINUED FROM PAGE 19

credit score when setting premiums. Instead, companies must prioritize driving safety record, annual mileage, and years driving experience when setting customers’ premiums.

Use of homeownership status one of several ways auto insurance companies burden low- and moderate-income good drivers Over the past three years, CFA has tested numerous factors unrelated to driving that impact auto insurance premiums. The studies have found that, as with homeownership, auto insurance companies use other surrogates for income to raise rates on low- and moderate-income Americans. CFA studies have shown that good drivers with lower credit scores pay higher premiums, as do blue collar workers, drivers without college

20 February 29, 2016 / INSURANCE ADVOCATE

degrees, and unmarried drivers. CFA also found that drivers living in predominantly African American communities pay substantially higher premiums than those living in largely white communities. CFA’s prior research can be reviewed and downloaded at: http://bit.ly/AutoInsuranceResearch . “Using customers’ homeownership status to determine premiums is another way in which insurance companies are piling on lower-income Americans,” said Douglas Heller, a consumer advocate who worked with CFA’s Michelle Styczynski to analyze the data in the study released today. “With all these different rating factors that have nothing to do with driving, auto insurers are charging good drivers hundreds and sometimes even thousands of dollars extra just for being poor.”

CONTINUED ON PAGE 22

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Defensive Driving Class Opportuni es! We are looking for Delivery Agents, Instructors, and Facili es in ALL Areas of New York to Par cipate! The Benefits of choosing Empire Safety Council: · LOW START UP COST All required materials compare favorably in price. · EASY TO TEACH FORMAT Instructor’s manual is logically organized and cross referenced to the student workbook and the NYS Vehicle & Traffic Laws. · PIRP IS GROWING Every year, on average, 150,000 of New York’s drivers choose Empire for their Point / Insurance Reduc on needs. · BACKED BY SCIENTIFIC RESEARCH Empire’s Accident Preven on Workshops, in fact, save lives by reducing both the number of vehicle accidents and repeat traffic offenses for the highest overall effec ve rate in driver safety educa on. · MAINTAIN THE HIGHEST INTEGRITY Empire maintains the highest integrity among all sponsors by referring all students to Empire’s officially approved Delivery agencies.

EMPIRE SAFETY COUNCIL

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By law, NYS drivers who complete Empire’s 6-hour accident preven on workshop save 10% on all their vehicle liability, personal injury protec on, and collision insurance premiums for three years. Addi onally, students can reduce up to four traffic violator points on their driving record every 18 months. Upon comple on of the course, students will receive an official course comple on cer ficate. ESC helps organize classes, appoint delivery agents, train instructors, fill out applica on to obtain approval (usually within two weeks), refer students, and further assist you with adver sing support programs.

Call DANIELLE PHILP at

631-360-2160

www.empiresafetycouncil.com

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CONTINUED FROM PAGE 20

CFA calls for regulators and policymakers to end the use of homeownership and other nondriving factors in premium setting In conjunction with the release of this new analysis, CFA is calling on Insurance Commissioners and lawmakers around the country to prohibit insurance companies from penalizing good drivers based on their status as renters. According to CFA, homeownership status is a method by which insurance companies assess customers’ income rather than driving risk and should not be used as a factor in determining premiums. “Virtually every state requires drivers to buy insurance, but we shouldn’t force them to buy a home in order to get the best price. State Insurance Commissioners and elected representatives should step in and stop this practice,” said Hunter. Appendix One – Driver Characteristics Appendix Two – Premium Data

22 February 29, 2016 / INSURANCE ADVOCATE

“Virtually every state requires drivers to buy insurance, but we shouldn’t force them to buy a home in order to get the best price. State Insurance Commissioners and elected representatives should step in and stop this practice”

CFA is a nonproﬁt association of more than 250 consumer groups that was established in 1968 to advance the consumer interest through research, advocacy, and education.

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Appendix Two – Premium Data

INSURANCE ADVOCATE / February 29, 2016 23

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[ TECH NOTEBOOK ]

Missouri General Selects Applied Epic for Business Growth uMissouri General Insurance Agency has selected Applied Epic to serve as their digital foundation to manage business growth for their property and casualty and benefits books of business. Applied Epic will also enable Missouri General Insurance Agency to manage their sales pipeline, forecast sales growth, and quickly identify cross and upsell opportunities via a single integrated application. Lori Merriman, director of Operations for Missouri General Insurance Agency commented, "Our progressive growth model requires a single platform upon which to quickly build our business and manage our entire organization with a single view into operations. Applied Epic’s integrated architecture provides the robust capabilities our agency needs to seamlessly manage our sales opportunities and unify operations across our multiple locations via standardized workflows, customized to our agency business processes." We Insure Deploys Applied Rater – We Insure has launched Applied Rater to quickly and accurately manage personal home and auto insurance quoting for its growing agency operations. Applied Rater enables We Insure to improve quoting accuracy and increase client policy choice by providing their 70-agency offices a single point of data entry for quoting across multiple carrier systems. “As a growthfocused company, we needed a single quoting solution to centralize our data, improve quoting accuracy, and ensure our clients have access to the best coverage,” said Philip Visali, CEO, We Insure. "Applied Rater provides our business the most robust carrier choice for both home and auto insurance in Florida from a single solution, reducing time and money spent managing separate solutions, while increasing our ability to provide our clients with the most extensive coverage." Consumer Insurance USA Selects IVANS for Commercial Lines Download – Consumers Insurance USA, an affiliate of The Motorists Insurance Group, has migrated its download services to IVANS from their legacy delivery system to 24 February 29, 2016 / INSURANCE ADVOCATE

improve reliability, security and data of information exchanged to their agency partners. By expanding their larger company-wide download initiative via IVANS, Consumers Insurance USA remains committed to driving efficiency and greater ease of doing business through a more connected distribution channel.[IA]

and ambassador. “The Insurance Digital Revolution is picking up where the Real Time/Download Campaign left off. It is a broad initiative encompassing all types of technology, with its main focus being the insured’s experience as the key driver for technology adoption.” Targeting agents and brokers, carriers, third parties, technology providers, user groups, and agent and industry associations, IDR will spotlight technologies including real time and download interface applications, e-docs, single sign on, and other capabilities. Berg, added, “Adoption of the latest technology is a business imperative.

ACT and AUGIE Launch Insurance Digital Revolution Campaign uThe Agents’ Council for Technology (ACT) and the ACORD-User Groups Information Exchange (AUGIE) have announced a joint initiative, the Insurance Digital Revolution (IDR). The objective of the IDR is to drive adoption of digital tools that help agents, carriers and MGAs better serve their clients. This new industry advocacy program will build awareness of digital capabilities, educate about solutions and provide a platform for sharing success stories. “Thanks to smartphones and other personal technology, almost everyone can get anything anytime, anywhere. Insurance is no exception,” said Ron Berg, ACT executive director. “The Insurance Digital Revolution campaign is designed to make sure the insurance industry is ready to meet that expectation.” The Insurance Digital Revolution follows ACT and AUGIE’s Real Time/Download campaign, a highly successful initiative that promoted the use of real time and download to allow a single workflow for insurance servicing and quoting. The Insurance Digital Revolution expands the focus to encompass a range of digital solutions and targets a broader audience with the end goal of improving the client’s insurance experience. “All around us, technology capabilities and solutions are increasing, but our industry isn’t moving fast enough in adopting them,” said Cal Durland, AUGIE leader

Customers expect the most advanced digital capabilities when dealing with their insurance, whether it is buying a policy, making changes to it, or submitting a claim. The Insurance Digital Revolution will turbocharge the industry to adopt these capabilities more quickly and easily.” The initiative will be comprised of a variety of awareness and communications programs including: • Creating a website and other resources that are a one-stop shop for actionable information and advice • Grass roots programs to educate and build awareness of what’s available, how to use and implement, and whom to turn to for more help • Collaboration opportunities with leading industry organizations • New participant engagement, including excess and surplus lines, surety benefits, MGAs and program managers The campaign is currently seeking sponsors and participants in the advisory panel. For more information on the Insurance Digital Revolution and additional information about how to get involved, please visit insurancedigitalrevolution.org. • More information on ACT is available at www.independentagent.com /ACT. • More information about AUGIE is available at www.acord.org/AUGIE.[IA]

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THE SOCIAL NOTEBOOK CONTINUED FROM PAGE 16

Once a post reaches 10-15 likes, by paying to promote it you’ll reach many more people. Social networks like Facebook and Twitter are in control and they want your money. Just be careful in selecting what you pay to promote, and remember that it’s better to pay for posts that already have a fair amount of engagement in the form of likes or comments. • A Few Other Takeaways: Social media marketing is about building the widest audience you can so that your insurance agency’s message is seen by as many eyes as possible. You can reach more prospects by building trust and being real. When it comes to engaging your following, be personable and aim to be the type of person you’d like to follow or connect with. Also, when people express problems or concerns on social media, promptly respond to them. Consistency is Key This is something I mention a lot: consistency is the key ingredient that will pull this formula together. There should be consistency in your postings as well, including what time you post, where you post, and what you post. The same is true for responses. You or your marketing team should be checking up on your social networks multiple times a day – at least once in the morning, afternoon, and evening. If you leave your audience waiting around for a response, they will think that you either forgot about them, or they simply aren’t a priority to you. Be consistent in engaging your following and they will likely return the favor. Here’s where the magic happens: for every person whom you engage within your network, their entire network sees it. For instance, if you get your customer, “Jack Smith,” to start commenting on your posts on Facebook, a lot of Jack’s Facebook friends will see an update that says, “Jack Smith commented on ABC Insurance’s post.” This works for other social media platforms, too, and it’s a very powerful way to expand your network. That’s free marketing. By building a strong and engaged following, you’ll be able to reach a wider audience. If that doesn’t scream “ROI,” I’m not sure what will.[IA]

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[ GUEST ARTICLE ]

M E R RY KO R N

Veterans and the Insurance Industry: a Mission to Make a Difference uAt Pearl Interactive Network, we are proud that our company’s growth benefits a mission beyond our own. While our achievements are undoubtedly positive from a business standpoint, they also mean that more and more unemployed veterans are finding work. The staffing solutions world is uniquely satisfying because, unlike other lines of business, we have the opportunity to provide services for two parties at once. We can focus on providing solutions to employers who greatly need reliable employees and also to a niche talent pool comprised of veterans, disabled veterans, military spouses, and geographically challenged people who can benefit from working at home. Since Pearl’s inception in 2005, it has been important to find the perfect match between a qualified candidate and a job opportunity. While many industries and companies take great pride in hiring veterans, the insurance industry has begun to embrace veteran hiring like never before. Veterans and insurance are a perfect fit for many reasons. First of all, the industry is facing a jobs gap crisis. “This gap developed because the insurance industry is top-heavy with baby boomers who will be retiring in the near future,” said Carol Blaine, director of the Insurance and Risk Management Program at Ohio Dominican University. “Unfortunately, however, companies have historically not had a pipeline in place to recruit new talent.” A 2014 study by The Institutes forecasts one million employees will exit the insurance industry in the next decade, creating a critical talent gap. In Ohio, companies and universities are making a commitment to hire new talent to move up and backfill the positions left by the departing baby boomers by adding insurance programs. In partnership with national education partners, Pearl has developed an Apprenticeship Program that delivers insurance talent with actual job experience and insurance certifications. Employees earn a six-month insurance cer26 February 29, 2016 / INSURANCE ADVOCATE

“Two hundred to 250 thousand service members are leaving the Department of Defense each year and coming out of literally every nook and cranny in the country.”

tification while receiving on-the-job training (OJT) in entry-level contact center positions. The apprenticeship model, a scalable solution, can be delivered with home-based or client-site agents. We believe with the constant support of experienced coaches and mentors, apprentice opportunities such as this will be optimized for success. Since 2012, over a half-dozen programs have been created like Pearl’s Apprenticeship Program, but even with these additions, there are not enough new graduates in the field to completely fill the gap. In fact, according to Blaine, it won’t even touch the gap. This is where veterans come into play. By focusing on the veteran job market, the industry can take important steps to fill the breach. “Two hundred to 250 thousand service members are leaving the Department of Defense each year and coming out of literally every nook and cranny in the country,” said Curtis L. Coy, Deputy Under Secretary for Economic Opportunity for the Department of Veterans Affairs. If only a small portion of our service men and women finds positions within the insurance industry, this jobs gap will be significantly smaller. Another factor supporting the union between insurance and veterans is that many wounded warriors, although they are not limited to these positions can benefit from working at home, which serves as an alternative to brick-and-mortar call centers. Both OJT and apprenticeships are

Merry Korn, Founder and CEO of Pearl Interactive Network, an experienced businesswoman with a master’s degree in social work, honed her business skills as senior vice president of marketing for American Health Holding, Inc. – a national medical management firm based in Worthington, Ohio. As part of a team of four founders, Merry grew American Health’s business from a startup company in 1993 to a firm that today has over 300 employees and 20 offices nationwide. In 2004, she founded Pearl Interactive Network, a social enterprise that blends a for-profit business with a social mission that provides work opportunities to the most challenged populations. Through Merry’s leadership, the company has grown to more than 500 employees in 26 states. Pearl gained traction among the world’s largest federal government contractors, and positioned the company as a niche staffing and project management firm that provides federal prime contractors with mandated certifications and a GSA schedule. Merry is actively working with her team to develop a presence in the insurance and IT verticals. During her spare time, she enjoys reading, gardening, yoga, spinning; and volunteers at the Center for New Directions – a non-profit that assists displaced homemakers with job readiness.

available to Veterans via their VA education benefits, including the post-9/11 GI Bill. These programs allow Veterans to learn a trade or skill with an employer or union, rather than attending formal classroom instruction. At the end of the training period, which varies by industry, the Veteran typically earns a job certification or reaches journeyman status. During the approved OJT or apprenticeship program, the employer or union generally pays a reduced wage, and the Veteran can use his

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[ GUEST ARTICLE ] or her GI Bill benefits to receive a tax-free stipend. “The program is an incredibly valuable and underutilized resource, but it has been trending upward and created partnerships in a slew of industries,” said Coy. According to Coy, the Department of Veterans Affairs would welcome the opportunity to work collaboratively with the insurance industry and develop an apprenticeship program for veterans to find meaningful work in this field. “The long-term goal is to ensure that a veteran has the opportunity to grow and utilize all of the wonderful characteristics that our service men and women possess,” Coy noted. Similar efforts linking veterans with the insurance industry are underway in Ohio. “A recent US Government study indicates that approximately 250 thousand members of the US military will transition out of the service in 2016, and somewhere between 12 and 15 thousand of them will settle here in Ohio,” said Brent Maurer of the Insuring Ohio Futures program. With that in mind, the Insuring Ohio Futures program has actively engaged veterans to show them how the leadership, goal-oriented focus and team-building skills that were sharpened by their military service can translate to a successful career in insurance. Giving priority to this niche workforce isn’t just about good PR. Hiring veterans makes tremendous business sense. They possess traits acquired from their military experience that every employer looks for in a new hire, whether it’s discipline, resilience, integrity or the ability to work with a team. It is tragic that many of the men and women who fight for our freedom face difficulty assimilating back to civilian life. What’s even more heartbreaking is their inability to find long-term, meaningful employment. According to the Bureau of Labor Statistics, the U.S. veteran population is now over 21 million. The newest group of vets, who served after 9/11, has reached over three million. According to a study done last year by Monster.com and Military.com, the unemployment rate is eight percent among veterans 18 to 24, compared with 5.4 percent for the nation as a whole. The study also estimated that an additional 250,000 veterans will be looking for jobs each year for the next five years. In light of these alarming statistics, Pearl has worked diligently to form vital

MATTHEW DEMPSEY

partnerships with various military groups and utilizes strategic ad placement. As a result, we have gained access to more than 28,000 candidate referral sources, and a data warehouse containing more than 450,000 resumes. While veterans make tremendous employees based on their skills and traits, there are also additional benefits. Pearl’s average retention rate is about three years, approximately six times longer than the five-month average in the staffing solution industry. This extended retention contributes to significant savings in screening and training costs. A major reason why our retention rate is so much higher than the industry average is that the ability to work from home is simply the best available option for veterans with both mental and physical challenges. Matthew Dempsey was medically discharged from the Marine Corps in 1989. After suffering additional injuries from labor-intensive jobs he held following his discharge, he was unable to work. “When you’re a workaholic and all of a sudden you can’t work, it’s major depression time,” he said. “I decided one day, enough is enough. I can roll over and die or get up on my feet. So in 2013, veteran rehabilitation services paid for a computer and desk, and I returned to school, where I maintained a 4.0 average.” In late 2013, Matthew started working for Pearl Interactive. He is currently a team

leader in our TAS department, which makes services accessible for the hearing and visually impaired. The TAS team works to turn video into written text, create captions, and convert documents so they are accessible to assisted technology devices. Matthew and his team all work from home in different parts of the country. While they may be in different time zones, they communicate daily through video conferences, phone calls, and email. “I can wake up in the morning, pour myself a cup of coffee and walk into my office,” Dempsey said. “It’s so convenient, but takes a lot of integrity. I prefer to work in the morning, but others may work in the evenings. It’s up to their lifestyles as long as they’re meeting team goals.” At Pearl, we are eager to bring this model into the insurance industry and to further our mission of providing veterans with meaningful employment opportunities. For additional information on how you can be a part of this worthwhile program, or to learn more about the services Pearl offers, please visit our website at www.pinsourcing.com or email mkorn@pinsourcing.com.[IA]

INSURANCE ADVOCATE / February 29, 2016 27

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[ ON MY RADAR ]

BA R RY Z A L M A

It’s the Insured’s Fault The Duty of an Insurance Producer is Limited in Illinois uIn the news today it appears clear that no one is willing to take responsibility for his or her own acts. If something goes wrong, if someone loses money, if a building is damaged, if insurance does not cover a loss, it’s someone else’s fault. No one seems willing to take responsibility for their own acts or errors. In Office Furnishings, Ltd. v. A.F. Crissie & Co., Ltd., — N.E.3d —-, 2015 IL App (1st) 141724, 2015 WL 6939958 (Ill.App. 1 Dist., 11/9/2015), the plaintiff suffered serious damage to its inventory when the roof leaked and water rained into the building like its interior was a rain forest. It made a claim to its insurer only to have the claim denied because the loss was not fortuitous and because they misrepresented material facts in the application for insurance. Rather than accepting they did wrong the insureds sued their insurance producer for failing to obtain appropriate coverage. At trial the plaintiff won, only to have the court enter judgment for the defendant notwithstanding the jury’s verdict (“NOV”).

BACKGROUND In 1993, plaintiff leased warehouse and office space in a building located at 725 South 25th Avenue in Bellwood, Illinois. Brathan Property LLC (Brathan) purchased the property in 2000, and plaintiff continued to lease space from the building. Ray Meyers holds controlling ownership in both Brathan and plaintiff Office Furnishings Ltd. The building had two types of roofing. One section of roof was made of PVC membrane and the other was made of tar and gravel. When Brathan purchased the property, the building’s roofing was inspected by a roofing contractor. The report stated that the PVC membrane had shrunk and that “a substantial amount of water is trapped between the two layers of roofing.” It recommended that the roof be replaced within one or two years. Jim Werner was the insurance producer for plaintiff doing business through his agency, A.F. Crissie & Company (Crissie). 28 February 29, 2016 / INSURANCE ADVOCATE

Up to December 2002, plaintiff and Brathan were insured by a policy from Meridian Insurance Company. In August 2002, Meridian informed Werner that it would not be renewing coverage for plaintiff. Meridian did not renew plaintiff ’s pol-

If something goes wrong, if someone loses money, if a building is damaged, if insurance does not cover a loss, it’s someone else’s fault. No one seems willing to take responsibility for their own acts or errors.

icy because it had paid out more in claims than it received in premiums. Werner testified that he did not know the age of the building’s roof. As plaintiff ’s insurance producer, Werner sought replacement coverage from other insurance companies through the ACORD application. Werner sent the ACORD application to eight insurance companies in October 2002. After reviewing the application, the eight companies declined to offer insurance to plaintiff due to past loss experience. Acting as a broker Werner went to another broker who was able to place insurance with American Family. American Family’s agent, had “his own application that needed to be—that he would ask questions and that had to be signed.” Werner was present at that meeting because they did not know Joe Kobel. At the meeting, Kobel used the ACORD application to obtain some information he needed, and he asked more questions of Meyers and Johnson to com-

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.

plete the application. The American Family insurance application stated that the building’s roof was five years old. This information was not listed on the ACORD application. The application listed no problems with the roof.

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The American Family policy provided insurance coverage to plaintiff from December 1, 2002, to December 1, 2003. On January 31, 2003, when Meyers went to the warehouse he saw that “[i]t was raining like a rain forest” inside. He and his employees protected as much of the merchandise as they could, but the company sustained more than $1 million in damages. Plaintiff submitted a claim to American Family. In investigating the claim, American Family discovered that plaintiff misrepresented the age and condition of the roof on their application. American Family denied the claim because “the alleged occurrence was not a fortuitous event.” It also pointed out other misrepresentations, including that plaintiff never made a claim for damages caused by wind to the roof, and that no contractors had ever examined the roof ’s condition. Plaintiff and Brathan filed this professional negligence claim against defendants, alleging damages of $1,349,872 for damage to the building, $759,259 for damage to business personal property, and $88,074 for expenses related to installing a temporary roof. Three issues of negligence were presented to the jury: (1) Werner failed to ensure that plaintiff understood the questions on the American Family application; (2) Werner failed to ensure that plaintiff understood that coverage could be denied if the answers on the application are not correct; and (3) Werner failed to ensure that the information on the application accurately reflected the information provided. The jury found in favor of Office Furnishings for $467,721.50, but found against Brathan. Defendants filed a motion for a judgment n.o.v. arguing that the verdict reflected an improper imposition of a duty upon Werner, and the manifest weight of the evidence warranted a new trial. The trial court granted the judgment n.o.v., finding that Werner had no duty “to verify the information on the application” or to review the application with Meyers. Werner’s duty was only to procure the insurance request of plaintiff, and since “[h]e did provide the coverage and everything that he was looking for,” Werner fulfilled his duty.

ANALYSIS Generally, to state a cause of action for

negligence, plaintiff must show that defendant owed plaintiff a duty, defendant breached that duty, and defendant’s breach was the proximate cause of plaintiff ’s injury. In the context of an insurance bro-

tion on the American Family insurance application, or to review the application with plaintiff, and granting the motion for judgment n.o.v., the trial court confused duty with evidence of conduct proving breach of a duty. In order to find a duty to provide specific coverage, the insured must make a request for that specific coverage; a general request to make sure the insured is covered is insufficient to create such a duty. The evidence shows that Meyers did not make a specific request for coverage, only that it was assumed Werner would find replacement insurance for plaintiff. Werner, as the insurance producer, found an insurer, American Family, to provide a replacement policy as requested. Through Kobel, American Family’s agent, plaintiff was issued a replacement policy. This evidence is undisputed. Imposing a duty on Werner makes no sense here, where the evidence showed that Werner did not know the age of the roof and could not have known whether Meyers or Johnson answered that question accurately. Where no duty is owed, there is no negligence, and the plaintiff is precluded from recovery as a matter of law.

ZALMA OPINION ker procuring insurance on behalf of the plaintiff, the primary function of an insurance broker as it relates to an insured is to faithfully negotiate and procure an insurance policy according to the wishes and requirements of his client. This common law duty of a broker is codified in section 2–2201(a) of the Code of Civil Procedure (Code) (735 ILCS 5/2– 2201(a)), which requires an insurance producer to “exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.” Under this section, the duty to exercise ordinary care arises only after coverage is requested by the insured or proposed insured. Once such coverage is requested, insurance producers exercise ordinary care and skill in responding to the request, either by providing the desirable coverage or by notifying the applicant of the rejection of the risk. The Illinois Supreme court in the past has determined that such a duty may not be imposed based on a vague request to make sure the insured is covered. Here, plaintiff contends that in finding that Werner had no duty to verify the informa-

When a business owner ignores the advice of professional roofers to replace a worn out and defective roof, when the business has its policy cancelled because of multiple claims resulting from leaks in the defective roof, and then allows a false application to be submitted to a new insurer, that business has no one to blame but itself for the loss of coverage. The agent and broker were not negligent, the insured was, and the court refused to allow the plaintiff to recover from the broker for the insured’s negligence and what was apparently intentional misrepresentations to get the insurance.[IA]

Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com INSURANCE ADVOCATE / February 29, 2016 29

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[ LOOKING BACK ]

I N S U R A N C E A D V O C AT E - 2 5 Y E A R S A G O

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I N S U R A N C E A D V O C AT E - 2 5 Y E A R S A G O

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[ COURTSIDE ]

L AW R E N C E N . R O G A K

Assault and Battery Exclusion Applies Where all Allegations Arise Out of an Assault Amato v National Specialty Ins. Co. In this declaratory judgment action, a plaintiff who was allegedly injured in an assault by an intoxicated restaurant patron sought an order declaring that the restaurant’s insurers had a duty to defend and indemnify the restaurant. Supreme Court ruled in favor of the insurers, and the Appellate Division affirmed, holding that when all the plaintiff ’s allegations arise out of an assault and battery, the “assault and battery” exclusion applies regardless of what other theories of liability (such as Dram Shop, negligent hiring, etc) are alleged. — LNR

uIn an action for a judgment declaring that the defendants National Specialty Insurance Company and Risk Control Associates Insurance Group are obligated to defend and indemnify the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant, in a personal injury action entitled Amato v Hylan Bistro, Inc., doing business as Bistro Restaurant, pending in the Supreme Court, Richmond County, under Index No. 104948/08, the plaintiff appeals from an order of the Supreme Court, Richmond County (Maltese, J.), dated September 9, 2013, which granted the motion of the defendants National Specialty Insurance Company and Risk Control Associates Insurance Group for

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.

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[ COURTSIDE ] summary judgment declaring that they were not obligated to defend and indemnify the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant, in the underlying action, and denied the plaintiff ’s cross motion for summary judgment seeking a declaration in their favor. ORDERED that the order is affirmed, with costs, and the matter is remitted to the Supreme Court, Richmond County, for the entry of a judgment declaring that the defendants National Specialty Insurance Company and Risk Control Associates Insurance Group are not obligated to defend and indemnity the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant, in a personal injury action entitled Amato v Hylan Bistro, Inc., doing business as Bistro Restaurant, pending in the Supreme Court, Richmond County, under Index No. 104948/2008. The plaintiff alleges that on December 21, 2007, she sustained injuries as a result of an altercation with an intoxicated patron at an establishment owned by the defendant Hylan Bistro, Inc., doing business as Bistro Restaurant (hereinafter Hylan Bistro) in Richmond County. As relevant to this appeal, the plaintiff commenced a personal injury action against the patron and Hylan Bistro alleging, inter alia, that Hylan Bistro was liable for her injuries for having unlawfully and knowingly sold or provided alcohol to a visibly intoxicated patron, who was known by Hylan Bistro

to become intoxicated and violent, and that such intoxication contributed to the patron suddenly assaulting, battering, striking, and/or otherwise injuring the plaintiff. The

…Hylan Bistro was liable for her injuries for having unlawfully and knowingly sold or provided alcohol to a visibly intoxicated patron, who was known by Hylan Bistro to become intoxicated and violent, and that such intoxication contributed to the patron suddenly assaulting, battering, striking, and/or otherwise injuring the plaintiff. complaint also alleged that Hylan Bistro, knowing the patron’s propensity for violence, violated the Dram Shop Act by allowing the patron to become and remain intoxicated on the premises, had negligently supervised, trained, and instructed its staff and employees, and had failed to safeCONTINUED ON PAGE 34

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[ COURTSIDE ] CONTINUED FROM PAGE 33

ly maintain the premises for its patrons, including the plaintiff. The defendant National Specialty Insurance Company, through its claims administrator, the defendant Risk Control Associates Insurance Group (hereinafter together the insurance defendants), provided certain insurance coverage to Hylan Bistro. On January 21, 2009, Hylan Bistro informed the insurance defendants about the subject incident. On January 26, 2009, after acknowledging receipt of a notice of claim, the insurance defendants disclaimed coverage based on the existence of an assault and battery exclusion endorsement in the insurance policy issued to Hylan Bistro. Thereafter, the plaintiff commenced this action seeking a declaration, inter alia, that the policy issued by the insurance defendants to Hylan Bistro provided coverage for her claims against Hylan Bistro in the personal injury action and that the insurance defendants were obligated to defend and indemnify Hylan Bistro in that action. The insurance defendants moved for summary judgment declaring that they were not obligated to defend and indemnify Hylan Bistro in the underlying action, and the plaintiff cross-moved for summary judgment. The Supreme Court granted the insurance defendants’ motion on the ground that coverage and a defense of Hylan Bistro was precluded under the terms of the policy, specifically the assault and battery exclusion endorsement, because each of the claims raised by the plaintiff against Hylan Bistro in the personal injury action arose out of the assault and/or battery by the intoxicated patron. The court also denied the plaintiff ’s cross motion. The plaintiff appeals. “The duty to defend is triggered whenever the allegations of a complaint, liberally construed, suggest a reasonable possibility of coverage, or the insurer has actual knowledge of facts establishing a reasonable possibility of coverage” (Bruckner Realty, LLC v County Oil Co., Inc., 40 AD3d 898, 900; see Parler v North Sea Ins. Co., 129 AD3d 926, 927; Burgund v ESP Café, Inc., 84 AD3d 849, 850-851). “An insurance carrier can be relieved of its duty to defend if it establishes, as a matter of law, that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any 34 February 29, 2016 / INSURANCE ADVOCATE

policy provision” (Matter of Transtate Ins. Co., 303 AD2d 516, 516). “An insurer may also disclaim coverage on the basis of a

The Supreme Court granted the insurance defendants’ motion on the ground that coverage and a defense of Hylan Bistro was precluded under the terms of the policy, specifically the assault and battery exclusion endorsement, because each of the claims raised by the plaintiff against Hylan Bistro in the personal injury action arose out of the assault and/or battery by the intoxicated patron.

policy exclusion by demonstrating that the allegations of the complaint cast that pleading solely and entirely within the exclusion” (Bruckner Realty, LLC v County Oil Co., Inc., 40 AD3d at 900). “An exclusion for assault and/or battery applies if no cause of action would exist but for the assault and/or battery” (Anastasis v American Safety Indem. Co., 12 AD3d 628, 629, quoting Mount Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347, 353; see Parler v North Sea Ins. Co., 129 AD3d at 927; WSTC Corp. v National Specialty Ins. Co., 67 AD3d 781, 783). In support of their motion, the insurance defendants demonstrated their prima facie entitlement to judgment as a matter of law by establishing that the claims asserted by the plaintiff against Hylan Bistro in the personal injury action fall within the terms of the assault and battery exclusion endorsement (see Parler v North Sea Ins. Co., 129 AD3d at 928; Burgund v ESP Café, Inc., 84 AD3d at 851; Mark McNichol Enters. v First Fin. Ins. Co., 284 AD2d 964, 965; Dudley’s Rest. v United Natl. Ins. Co., 247 AD2d 425, 425-426; Sphere Drake Ins. Co. v 72 Ctr. Ave. Corp., 238 AD2d 574, 576). Each of the claims asserted by the plaintiff in the personal injury action arises

out of the assault and/or battery, and thus, fall within the subject policy’s exclusion endorsement (see Parler v North Sea Ins. Co., 129 AD3d at 928; WSTC Corp. v National Specialty Ins. Co., 67 AD3d at 783; Mark McNichol Enters. v First Fin. Ins. Co., 284 AD2d at 965). In opposition, the plaintiff failed to raise a triable issue of fact as to the applicability of the exclusion endorsement (see Parler v North Sea Ins. Co., 129 AD3d at 928; Burgund v ESP Café, Inc., 84 AD3d at 851; Marina Grand, Inc. v Tower Ins. Co. of N.Y., 63 AD3d 1012, 1014). The plaintiff ’s remaining contention is without merit. Accordingly, the Supreme Court properly granted the insurance defendants’ motion and denied the plaintiff ’s cross motion. Since this is a declaratory judgment action, we remit the matter to the Supreme Court, Richmond County, for the entry of a judgment declaring that the insurance defendants are not obligated to defend and indemnity Hylan Bistro in the underlying personal injury action entitled Amato v Hylan Bistro, Inc., doing business as Bistro Restaurant (see Lanza v Wagner, 11 NY2d 317, 334).[IA] 2015 NY Slip Op 09392 Decided on December 23, 2015 Appellate Division, Second Department

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