March 16, 2015 by C Acunto

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VOLUME 126, NUMBER 5 / March 16, 2015

A CINN Group, Inc. Publication

Serving: New York, New Jersey, Connecticut, Pennsylvania and Washington D.C.

CRACKDOWN

Scheiderman Cited for Fighting Fraud

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Contents [COVER STORY ] 16

March 16, 2015 | volume 126 number 5 34

CRACKDOWN Schneiderman Cited for Fighting Fraud

In the Associations: Study Reveals Stability and Growth in P-C Insurance Market

[ AD FEATURES] [FEATURES] 4

Foreword: Generous and again generous… Steve Acunto, Publisher

Insight: News Flash: Tail Wags Dog! Peter H. Bickford

Exposures and Coverages: A Tale of Two Exclusions: Fungi and Bacteria & Cosmetic Damage Jerome Trupin, CPCU

The Social Notebook: Success in Social Media Starts with… Chris Paradiso

Face to Face: Some Policies Have Tails, but This One Has Legs. Michael Loguercio

On My Radar: Misrepresent Material Fact - Lose Coverage Barry Zalma

Looking Back: February, 1990

Courtside: Medical Provider Must Submit to EUO Whether it Gets an Assignment of Just Authorization to Receive Payment Lawrence N. Rogak

MSO: Winter Water Damage Woes

Classiﬁeds Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / March 16, 2015 3

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[ FORE WORD ]

Steve Acunto

Generous and again generous….

nsurance leaders are among the most giving of executives. It’s kind of a culture in the field, from local agents who engine local teams, runs, charities and give support to fire fighters and police, up to the C Suite professionals who send dollars and staff to the good causes that change the world for so many. The New York Times of Sunday March 22 carried a photo on the Society page of American Transit’s Ed McGettigan and a group of volunteers attending and contributing to the Kelly Cares Foundation. Among the individuals the Foundation honored was Steven Mc Donald, the policeman left quadriplegic after a shooting in the 1980s. Thanks for being part of BOB BENMOSCHE this worthy endeavor, Ed. . . . Bob Benmosche will be remembered as a Titan in the insurance field and on the field of responsible action. He has been widely eulogized and hailed as a patriot and benefactor of the economy. He gave the world a management lesson and restored confidence in the system with his rescue – a rather daring one – of a runaway company that threatened to crash and take people and dollars with it. May he rest in peace. . . . The crackdown on fraud is steady across New York. Workers’ Compensation Fraud Inspector General Catherine Leahy Scott and Rockland County District Attorney Thomas P. Zugibe obtained a guilty plea from a Spring Valley contractor on one felony count of Insurance Fraud in the Third Degree and one felony count of Fraudulent Practices for work he provided on a New York City luxury condominium project. “Unscrupulous contractors who avoid payments into New York’s Workers’ Compensation system undermine the entire system, and place their workers, honest employers and New York State taxpayers at great risk,” said Inspector General Scott. “Contractors who commit this kind of fraud gain an unfair competitive advantage over honest businesses by deflating their overhead in an illegal fashion. My office will continue to find and hold accountable employers who cheat New York State’s Workers’ Compensation system.” She and Zugibe mean business and set a tone for peers. “Employers who scam the system by not providing workers’ compensation not only risk employee safety, but also contribute to higher premium costs, which makes our county and state a less attractive place to conduct, start, or open a business,” said District Attorney Zugibe. “Working on behalf of employers, employees and all New Yorkers, we take fraud seriously and will continue to prosecute it vigorously.” Inspector General Scott said Kujtim “Tim” Kukaj, 45, of Spring Valley, N.Y., and his company, RAR Renovations, Inc. pled guilty to the two felony counts. Sentencing is scheduled for June 23, 2015. Kukaj deployed as many as 25 workers for an American Development Group (ADG) luxury condominium project in New York City between 2009 and 2013, without providing required workers’ compensation coverage for the employees. Furthermore, on three separate occasions Kukaj provided false documentation to ADG, purportedly to certify he had the required coverage. Additionally, Kukaj lied to the Workers’ Compensation Board about the number of employees he had on payroll. ADG was unaware of the lack of workers’ compensation coverage by Kukaj and RAR Renovations, Inc. In fact, the Inspector General’s investigation commenced after ADG received a premium assessment of $47,000 to allow for coverage of the employees – coverage which should have been obtained by Kukaj and RAR Renovations, Inc. As a result of the fraud, two insurance companies, Travelers and The Hartford, experienced losses in the sum of $10,000 and $2,800 respectively. . . . A word of thanks to the many leaders who have been sending their ads to us for the 125th Anniversary issue of the IA. 4 March 16, 2015 / INSURANCE ADVOCATE

VOLUME 126, NUMBER 5 MARCH 16, 2015

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Sari Gabay-Raﬁ 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 PROOF READER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x117 circulation@cinn.com PUBLISHED BY CINN Group 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

CINN G R O U P, I N C .

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.

For high-quality article reprints (minimum of 100), including e-prints, contact Gina Balog at g@cinn.com or call 914-966-3180, x113

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[ INSIGHT ]

By Peter H. Bickford

News Flash: Tail Wags Dog!

he insurance media sometimes does not know quite how to report on pronouncements by our fearless regulatory leader in New York. This is probably because so many of his statements are about “financial services” without distinction between industries, and insurance industry reporters are not always sure if

ation and support for development of cyber security insurance products. But cyber security was not the major point of the speech. Titled “Financial Federalism: The Catalytic Role of State Regulators in a Post-Financial Crisis World,” Superintendent Lawsky revisited one of his long-standing themes and justifications for

The subject and content of every speech of Superintendent Lawsky over the past two years, available on the DFS website, is about banking or Wall Street, and any reference to insurance is merely incidental to his main topic.

Peter H. Bickford

he is including, excluding or consciously ignoring insurance. That uncertainty may explain why the insurance media’s reporting on the recent speech by New York’s superintendent of financial services, Benjamin Lawsky, seems to pass over the main substance of the speech. Speaking at the hallowed venue of Columbia Law School, Superintendent Lawsky talked about a number of financially related topics, aimed particularly at Wall Street and the banking industry. He urged that regulators do more to hold individuals as well as corporations accountable for Wall Street’s misdeeds, and proposed enhanced monitoring and filtering systems to prevent widespread money laundering benefiting criminal activity and terrorism. His last topic was cyber security in the financial area, which he called “the most important issue we will face in 2015 – and perhaps for many years to come after that.” Following so closely after the February report by the DFS on cyber security in the insurance sector, it is understandable that the insurance media focused on this part of Lawsky’s speech. Cyber security is a major issue as Superintendent Lawsky correctly points out, although his emphasis is almost exclusively on the security of data held by insurers rather than on the cre-

his regulatory approach. Lawsky first introduced us to his concept of “financial federalism” back in May 2013 in a speech before a conference on the U.S. and world economies. In that speech, accessible on the DFS website, he outlined his view of the relationship between state and federal regulators ranging from “cooperative federalism” where state regulators work closely together with federal regulators on an issue; to “persuasive federalism” where states have to lead federal regulators by example; and finally to “coercive federalism” where states must act alone because of federal inaction. In his latest speech, Superintendent Lawsky revisits his federalism theme, emphasizing cooperation but not backing down from confrontation where necessary. For instance he states that: “We should strive, of course, for a collaborative and cooperative relationship with our federal partners. That is certainly our goal at DFS. But states also should not be afraid to speak up and act if we spot new risks emerging in the market.” Superintendent Lawsky’s brand of federalism, however, is aimed almost exclusively at Wall Street – bankers and capital providers – rather than the insurance industry. When the insurance industry is included, it is more often than not as an

end-user, such as with the current cyber security issue; or as an adjunct to a banking issue, such as the old force-placed insurance issue. It seldom includes a discussion of the actual business of insurance. The subject and content of every speech of Superintendent Lawsky over the past two years, available on the DFS website, is about banking or Wall Street, and any reference to insurance is merely incidental to his main topic. Which raises the question of how and why the insurance business has become the stepchild of banking under the DFS. This evolution makes no sense from a state economic perspective. According to its 2013 annual report, the DFS collected almost $1.3 billion in revenues. About $368 million of the total were one-off fines and penalties against both banks and insurers, but the number is not broken down between the two. Over 90% of the remaining $900+ million in revenues were derived from the insurance industry and its customers. For instance, insurance industry assessments totaled $394 million (compared to $76 million for banking industry assessments). Also, surplus lines taxes collected exceeded $75 million; motor vehicle law enforcement fees exceeded $120 million; and foreign fire taxes and security fund receipts exceeded $205 million for the year. There were few comparable categories of receipts for the banking business in New York. This disparity is not unexpected, given that the DFS has primary regulatory authority over the insurance business in the state while its authority over the banking industry is limited to state chartered banks and is secondary to the federal regulators. But you would never know it by following DFS activities or reading the Superintendent’s speeches. New York is not the first state to have combined insurance within a broader regulatory framework. New Jersey, for instance, combined banking and insurance under one regulatory roof long before New York. Other states have also seen the value in a broader perspective, including effi-

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6 March 16, 2015 / INSURANCE ADVOCATE

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[ INSIGHT ] continued from page 6

ciencies in management and resources. In Alaska insurance is a division of the department of commerce, community and economic development; in Michigan it is the department of insurance and financial services; and in Vermont it is the department of financial regulation, to name just a few. But in all these states, insurance understandably continues to be the main focus of the regulators. Superintendent Lawsky would argue, of course, that New

York has a far greater concentration of banks and other financial service businesses than other states, and expanding the State’s regulatory reach over these entities is important to protect the State’s status as the principal financial center in the US. Even if one accepts that position – and I suspect that many financial industry leaders and federal regulators do not – expanding the reach of state regulators over banking and other financial entities should not eclipse a state’s historic relationship with the insurance industry.

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It is hard to imagine that New York’s lawmakers envisioned a combined banking and insurance department like the bankcentric agency that the Department of Financial Services has become. It is equally hard to understand the ultimate goal in this approach. It is hard to imagine that New York’s lawmakers envisioned a combined banking and insurance department like the bankcentric agency that the Department of Financial Services has become. It is equally hard to understand the ultimate goal in this approach. In a highly regulated business like insurance, a healthy relationship between regulator and regulated is essential to maintain a robust industry. Ignoring the insurance industry and its historically stable revenue stream to focus on a base – state licensed banks – that cannot be significantly expanded or that is penalty revenue dependent, is not a sound business model. Try as it might, the tail cannot wag the dog! [IA] UPDATE: The “technical adjustment” legislation referred to in my last column, “The Sausage Factory,” was overwhelmingly passed by both houses of the NY Legislature and signed into law by Governor Cuomo on March 13, 2015, a little over a month after the bill was introduced in the Legislature. Decades to solve a problem undone in 30+ days? Peter Bickford has over four decades of experience in the insurance and reinsurance business, with particular focus on regulatory, solvency, agency, alternative market and dispute resolution issues. In addition to his experience as a practicing attorney, he has been an executive officer of both a life insurance company and of a property/casualty insurance and reinsurance facility. A complete biography for Mr. Bickford may be accessed at www.pbnylaw.com.

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[ EXPOSURES AND COVERAGES ]

By Jerome Trupin, CPCU

A Tale of Two Exclusions: Fungi and Bacteria & Cosmetic Damage Reader Asks About: Fungi and Bacteria Exclusion A Westchester producer writes: We have a client that plans to produce and sell maxipads in foreign countries. We’ve received two quotes. The first totally excluded losses in any way involving fungi or bacteria. The second has a more limited exclusion: “Bodily injury” or “property damage” which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any “fungi” or bacteria on or within a building or structure, including its contents Do you think the second is acceptable for our client inasmuch as our client’s exposure would not be fungi or bacteria on or within a building or structure, but rather fungi or bacteria on the maxi-pad? We’ve asked the carrier for an opinion, but they replied that they don’t respond to hypotheticals. My thoughts: You’re right to be concerned about a fungi/bacteria exclusion for maxi-pads. In 1980, epidemiologists in Wisconsin and Minnesota reported an outbreak of toxic shock syndrome (TSS) apparently linked to use of tampons. TSS is a rare, life-threatening complication of certain types of bacterial infections. While the risk is much lower for maxi-pads, it’s still a risk.1 Obviously a claim involving TSS could be a serious one. If your client had coverage under a policy with this fungi/bacteria exclusion, the insurer might very well deny coverage for a TSS claim based on the exclusion. The insured’s response might be that the exclusion is ambiguous and therefore it’s entitled to coverage based on the principle that ambiguities in insurance policies written by the insurer are resolved in favor of the insured.

There’s another facet to your client’s insurance problems. Because the client will be selling products in foreign countries, the occurrence triggering coverage may occur outside the US or Canada.

I wouldn’t be happy blandly recommending a policy that may force the insured to sue for coverage when a serious claim pops up. You should let the insured know your concerns. If the insured is interested, he or she could get an opinion about the effect of the exclusion from an insurance coverage attorney. There are many experienced coverage attorneys in our area. Insurance companies use them all the time. There’s another facet to your client’s insurance problems. Because the client will be selling products in foreign countries, the occurrence triggering coverage may occur outside the US or Canada. You’ll want to check the definition of coverage territory. Some policies provide worldwide coverage and some restrict coverage to claims that occur only in the US or Canada. The ISO CGL falls in between. Here’s the pertinent part of the coverage territory definition from the ISO form: “Coverage territory” means: a. The United States of America (including its territories and possessions), Puerto Rico and Canada…or c. All other parts of the world if the injury or damage arises out of: (1) Goods or products made or sold by you in the territory continued on page 12

1 “Understanding Toxic Shock Syndrome” Web MD http://www.webmd.com/women/understandingtoxic-shock-syndrome-treatment (accessed 2/14/15)

10 March 16, 2015 / INSURANCE ADVOCATE

Jerome Trupin

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.

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[ EXPOSURES AND COVERAGES ] continued from page 10

described in Paragraph a. above…provided the insured’s responsibility to pay damages is determined in a “suit” on the merits, in the territory described in Paragraph a. above or in a settlement we agree to… There are two points that should concern your client if the policy has such a provision. First: Were the goods or products made or sold by the insured in the covered territory? Second: What’s the implication of the “suit on the merits” requirement? It’s very possible that the maxi-pads will be manufactured in a foreign country and shipped directly to foreign customers. It’s also possible that the sale will be made in a foreign country and not in the US or Canada. If that’s the case, the ISO CGL policy will not provide coverage. Such an insured needs a foreign package policy— good foreign forms are available from a number of US insurers. Even if coverage under the ISO CGL applied because the goods were manufactured or sold in the US or Canada, coverage may be lost if the original suit is adjudicated outside the policy territory. Many firms feel that they don’t have to worry about being sued in a foreign country because they have little or no property there that the plaintiff could attach to satisfy a judgment. This is not a good solution. US courts permit suits to enforce a foreign judgment. A suit in a US court to collect damages awarded in a foreign country is not covered by an ISO-type CGL—it’s not a suit on the merits in a court of original jurisdiction.

Cosmetic Damage Exclusion Victor Borge, the late, great standup comedian/pianist, said that his father invented a cure for which there was no disease. We may face a similar situation with new cosmetic damage exclusions. AAIS and ISO have cosmetic damage exclusions in the works. AAIS has promulgated homeowners endorsements and is considering commercial property ones. ISO has filed a commercial property

There are two points that should concern your client if the policy has such a provision. First: Were the goods or products made or sold by the insured in the covered territory? Second: What’s the implication of the “suit on the merits” requirement?

endorsement and expects to file its homeowners versions shortly. In explaining the cosmetic damage problem, the American Association of Insurance Services (AAIS) noted that its member-insurers report receiving claims for as much as $100,000 each based on cosmetic damage to windows following wind and hail storms. The insurers report that damage consisted mostly of some small, barely perceptible shallow dents that do not alter the functionality of the window. In the insurer’s opinion, from just a few feet away the windows appear undamaged and would be described to be in excellent or like-new condition. Furthermore, any damage that was visible appeared to have occurred over a period of years.2 These can be problematic claims for an insurer. Property forms cover direct physical loss. There’s no discussion of whether the physical damage must affect the function of insured property or if damage that affects only the property’s appearance is sufficient to trigger coverage. The cosmetic damage argument is really over the extent of cosmetic damage that’s required to trigger coverage. For example, a car struck by an unknown vehicle while parked on the street might require repairs costing more than $2,500 to restore its appearance. Despite the fact that the car remains fully functional, no auto insurer would deny a collision claim on the theory that the damage was only cosmetic. Similarly graffiti may not impair the function of a structure, but insurers regularly pay such losses.

Cosmetic damage claim dispute problems really turn on how much of the damage was pre-existing and how visible it must be to trigger a loss. Pre-existing damage arguments arise in many contexts; they’re not exclusive to cosmetic damage. How visible the damage must be to constitute an insured loss is a loss adjustment issue. Damage that’s “barely perceptible to the human eye” shouldn’t be sufficient to trigger coverage. I think these endorsements are overkill. My problem with the new exclusions is that they may be interpreted to exclude losses that should be covered by insurance. That’s what happened with the pollution exclusion. The pollution exclusion was designed to eliminate coverage for the catastrophic exposure posed by Superfund sites. However it has also eliminated claims that have no catastrophic element. In one case, overspray from a building that was being painted was blown onto a car dealer’s new cars stored in an adjacent field. The painter didn’t have insurance and the car dealer’s insurer denied coverage citing the pollution exclusion. That wasn’t the type of loss that insurers were thinking of when the pollution endorsement was introduced. In fact, the original pollution exclusion stated that it did not apply to “sudden and accidental” occurrences. Unfortunately, the “sudden and accidental” exception was broadly interpreted by some courts rendering the exclusion ineffective. The exclusion was revised to overcome adverse court decisions; the “sudden and accidental” exception that would have clearly covered the dealer’s loss was dropped. I’m concerned that the same sort of “exclusion-creep” will occur with the cosmetic damage exclusion. At this time, the cosmetic damage exclusions are limited to certain specific types of property. AAIS’s homeowners exclusions eliminate coverage for cosmetic damage to exterior wall surfacing, roof surfacing, exterior door surfacing, and exterior window surfacing (HO 2002 07 13 Cosmetic Damage Exclusion). The ISO commercial property endorsement applies only to roof surfacing. (CP 10 36 10 12 continued on page 14

2 “Cosmetic Damage Exclusions—AAIS Files New Homeowners Options To Address A Growing Exposure” Viewpoint Winter 2013 AAIS Lisle, IL http://www.aaisonline.com/AAISFrame/ConnectFrame/ViewpointFrame/tabid/108/ArticleID/583/Cosmetic-Damage-Exclusions.aspx (accessed 1/20/15)

12 March 16, 2015 / INSURANCE ADVOCATE

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[ EXPOSURES AND COVERAGES ] continued from page 12

Limitations on Coverage for Roof Surfacing.) The homeowners endorsements that ISO has in the works will come in two versions: one for roofs only and the other for roofs, siding, doors, and windows. The AAIS form defines cosmetic damage to mean: “Physical damage such as marring, scratching, denting, pitting, discoloration, or other condition that affects the appearance of property, but that does not impair the property’s ability to keep weather-related or other elements from entering to the same extent that it did before the marring, scratching, denting, pitting, discoloration, or other condition occurred.” An insurer might argue that such wording excludes graffiti, Halloweenpranks, etc. The insured might counter that the legal doctrine of ejusdem generis (Latin for “of the same kind”) bars such a broad approach. Ejusdem generis is used to interpret contracts or laws containing lists of persons or things. For example, if an exclusion refers to automobiles, trucks, tractors, motorcycles, and other motorpowered vehicles, a court might rule, based on ejusdem generis, that such an exclusion

…if an exclusion refers to automobiles, trucks, tractors, motorcycles, and other motor-powered vehicles, a court might rule, based on ejusdem generis, that such an exclusion would not apply to airplanes and boats, because the list named only land-based transportation.

would not apply to airplanes and boats, because the list named only land-based transportation.3 In regard to the cosmetic damage exclusion, an insured could argue that graffiti or Halloween-prank damage are of a different nature than the specifically listed types of damage and are therefore not excluded by the “other condition” wording at the end of the list. But, once again, I don’t like insurance coverage that may require a lawsuit to collect the loss. The ISO commercial property endorsement applies only to roof surfacing. It excludes cosmetic damage to a roof caused by wind or hail. Cosmetic damage is defined

as marring, pitting, or other superficial damage that does not reduce the roof ’s function as a barrier to the elements. ISO appears to have avoided the ejusdem generis fight, but there could be arguments over what constitutes “superficial damage.” There are two parts to the endorsement. One eliminates coverage for cosmetic damage. The other changes the coverage for roof surfacing from replacement cost to actual cash value (ACV). Either or both can apply to the insured property. The change from replacement cost to ACV pertains to losses due to any peril, not just wind and hail. The change to ACV for roofs is particularly troubling. ACV is usually calculated based on life expectancy of the damaged property. The life expectancy for some types of roofing is as little as 15 years. That means the insured could collect only one-third of the cost to replace such a 10-year-old one damaged by any covered cause of loss. That can make for a very unhappy insured, particularly one who had collected full replacement cost for previous claims. Not every state has approved the endorsements and not every insurer is using them. The problem is centered in Tornado Alley.4 It may be that its use will be confined to companies doing business in those states. That would be good news for us in the Northeast. Might even give Victor Borge’s ghost a laugh. [IA]

3 “Ejusdem Generis” Definition from Nolo’s Plain-English Law Dictionary, Law Information Institute, Cornell University Law School https://www.law.cornell.edu/wex/ejusdem_generis (accessed 2/24/15) 4“Tornado Alley starts in central Texas and goes north through Oklahoma, central Kansas and Nebraska and eastern South Dakota, sometimes dog-legging east through Iowa, Missouri, Illinois and Indiana to western Ohio.” Kim Ann Zimmermann Tornado Alley: Where Twisters Form http://www.livescience.com/25675tornado-alley.html (accessed 2/28/15)\\

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[ COVER ]

Attorney General in New York named “Prosecutor of the Year” Award bestowed by the New York Alliance Against Insurance Fraud

EW YORK, N.Y. — Cited for an huge problem in the state, Orlando added. aggressive campaign to counter New Jersey Special Insurance Fraud auto and healthcare insurance Prosecutor Ron Chilemmi briefed NYAAIF fraud scams, the Office of Attorney General members on his agency’s public-outreach in New York was honored with the efforts, and suggested that there could be “Prosecutor of the Year” award by the New joint advertising between the two states since York Alliance Against Insurance Fraud. they contain overlapping media markets. The award was presented during Vickie Kilgore, research director of the NYAAIF’s annual meeting held here today. Insurance Research Council briefed the NYAAIF Chair Jim Berrigan credited the attendees on IRC’s latest closed claim study leadership of Attorney General Eric of 37,000 auto insurance claims. New York Schneiderman in compiling an impressive has some of the nation’s highest percentage record of prosecuting a variety of insuranceof fraud involving auto bodily injury claims, fraud cases, including: Kilgore said. • A ring operating in Nassau and Suffolk NYAAIF also previewed its upcoming counties that used rented U-Haul television and radio advertising campaign, trucks to purposely crash into cars NYAAIF CHAIR JIM BERRIGAN PRESENTS which will focus on workers compensation owned by ring members. The ring had “PROSECUTOR OF THE YEAR” AWARD TO and disability fraud. The campaign begins submitted more than $100,000 in STEPHANIE SWENTON, DEPUTY AG in May with the tagline: “Workers comp: Not claims to insurers. If convicted, the ring injured. Not eligible.” leader faces 21 years in prison. NYAAIF also elected five members to • An NYPD officer who had a high-level taste for luxury cars, three-year terms on the NYAAIF board. They are: Jim Berrigan but not the cash to keep up the payments. He purposely (Crum & Foster), Tom Kelleher (Nationwide), Carmen Russo crashed one Mercedes Benz for an insurance payout, and (John Hancock), Ed Kurathowski (Mapfre Insurance) and Bruce faked the theft of another one. Oliver (Merchants). Officers elected for 2015-16 included Chair • A Long Island man who falsely claimed he was an insurance Jim Berrigan, Vice Chair Jim Potts (New York Central Mutual), broker and stole from customers and insurers by submitting Treasurer Kevin O’Connor (Interboro) and Secretary John McHale hundreds of fraudulent policies. He received up to four years (Erie Insurance).[IA] in state prison. • A roofer in the Albany area who was notorious for ripping NYAAIF is an alliance of 104 insurance companies in New York. off consumers and insurers on damage claims. Prosecutors NYAAIF was created in 1999 to educate consumers about the cost gained a stiff sentence — up to nine years in state prison. of insurance fraud and help consumers avoid becoming victims. For The award was accepted by deputy AG Stephanie Swenton, more information, visit www.fraudny.org. chief of the auto insurance fraud unit. Swenton profiled several prominent cases. One emerging trend is enhanced damage by auto body shops. Several investigations are underway and indictments will be announced in the next few months, Swenton said. Attendees of the NYAAIF meeting also heard from Frank Orlando, head of the fraud unit of the state Department of Financial Services. The 23,000 to 24,000 fraud referrals his agency receives annually are holding steady from year to year, Orlando said. A total of 62 percent involve suspected fraud from the state’s no-fault auto system. In one new trend, undercover officers being treated by clinics for back pain are told they require knee surgery even though there is no evidence of joint injury. Drug diversion involving prescription painkillers remains a

One emerging trend is enhanced damage by auto body shops. Several investigations are underway and indictments will be announced in the next few months, Swenton said.

16 March 16, 2015 / INSURANCE ADVOCATE

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[ THE SOCI AL NOTEBOOK ]

By Chris Paradiso

Success in Social Media Starts with…

hen you think of social media and the success that can be gained from it, one thing that we always need to keep in mind is to continuously keep learning. Social media is

are so many different moving parts to social media that it really is a 40-hour per week job. Once you have your social media person in place, then you need to focus on

Your brand has two vital components, A & B. Component A is something we all have in common — we sell insurance. Component B is your identity. The identity is so very important because it is what separates each and every one of us from our competition. Chris Paradiso

constantly changing because of Google’s fluidity, and that’s why we can never stop learning. Remember, Google is the boss of the Internet because they are the ones making the rules. They are constantly changing search algorithms, so much so that one occurs about every 18 hours. That’s why it is so difficult for business owners to keep up with the changing winds of the search engine world. Now while this proves challenging for small business owners, Google has made significant strides to help small businesses achieve an equal footing in the internet world to avoid a complete saturation of only major players. The reason I’m bringing this up is because it’s important for insurance agents to invest in an outside company who can keep us up-to-date and informed with what’s going on in the world of Google. Moreover, I’m stressing to you all the importance of algorithm changes because they directly dictate how you should formulate and implement your social media strategy. The key to a social media strategy is simply have one first. But before you even begin to hatch a social media marketing strategy, I would highly recommend you take the time to hire a social media point person to work inside your agency to handle your social media marketing. Furthermore, I would highly recommend you hire someone full-time because there 20 March 16, 2015 / INSURANCE ADVOCATE

how you’re going to measure the success of your strategy. What we do here at Paradiso Insurance is inquire, with every single quote, where that lead came from. But don’t stop if they say “from Google” — ask them what they physically typed into the search bar that eventually brought them to your agency. This is an important part of understanding where your clients and/or prospects are coming from that can drive future business into your agency. Your marketing strategy may change based on what the prospects are using for keywords within Google to find your agency. So measurement plays an enormous role in figuring out your social media success. Let’s not forget that there are two separate ways to measure success within your agency though. The first is your return on investment (ROI) and the other is the importance of your agency’s brand. All agency owners want to have a positive ROI but aren’t sure how to achieve it. I personally look at the ROI of our social media marketing every quarter by looking at how much dollars and cents are going out the door for social media, and then I look at the amount of commissions that have been generated from our social media marketing team. The social media marketing team is responsible for creating opportunities and establishing/enhancing the agency brand. Then it’s my job as agency owner to look at the closing ratio of my

salespeople and make sure that that process is being handled the right way. That data together allows me to gauge how well the social media strategy is working. Business owners and consultants talk very highly about how many ‘likes,’ comments, or shares they generate on Facebook. I will tell you that yes, this is a part of measuring your agency’s social media success, but remember the real success is about having the right audience who is liking, sharing, or commenting on your posts. It is not about the quantity of how many you have — the most important aspect of the quantity is having the right audience. For example, I was recently working with an agency out of New York who has in excess of 500 Facebook likes. Now instead of congratulating them, I asked them to review who those people were who liked their page. After the review was completed, we found that over 300 of the 500 likes came from people in states where they did not even sell. Success in social media marketing comes from understanding who your agency’s audience truly is and mastering your brand. Your agency’s brand is one of the most critical aspects of marketing success. Your brand has two vital components, A & B. Component A is something we all have in common — we sell insurance. Component B is your identity. The identity is so very important because it is what separates each and every one of us from our competition. An insurance company that does a great job with component B is the Gecko. What they do extremely well is create the brand and they utilize their brand in every single advertisement. You know that their brand is simple and straightforward — cheap and fast. In every ad, the Gecko talks about saving 15% in 15 minutes or less. Most independent insurance agents understand that it takes longer than 15 minutes to get a quote because we have many insurance options for our prospects. We as independent agents need to fight back in the social media world and talk about the difference between an independent agency versus these other companies. We also need to continued on page 22

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ADVERTORIAL

Winter Water Damage Woes WINTER’S UNUSUALLY COLD TEMPERATURES, compounded by substantial snowfall, can lead to numerous frozen pipes and ice dams, causing potentially catastrophic water damage. Helping clients understand the potential damage, and how to prevent or reduce it, is another value-added service of the professional insurance agent. The winter of 2014-15, with recordsetting cold temperatures and snowfall shows that even the best preventive measures may not be enough to avoid freezing and subsequent water damage claims. In Syracuse, NY, for example, the temperature never rose above freezing in February, and it snowed for 23 straight days. (www.syracuse.com) While a pipe burst in the bathroom may be quickly obvious, some of this damage may only be apparent once the temperatures rise and the snow and ice melts. Property damage from water damage is one of the leading causes of loss to homeowners. An average burst pipe costs $5,000 to repair. (www.houselogic.com ) This does not count the time and aggravation involved in cleaning and drying waterlogged belongings – some of which may be irreplaceable. While some interior bursts are easily noticed – such as a waterfall coming through the ceiling – exterior damage may not be so readily discovered. As temperatures rise and the snow and ice melts, additional damage may be found. When ice and snow thaws and refreezes ice dams can develop on the roof. Be sure to check that sump pumps are operational. High winds paired with low temperatures are a common cause of frozen pipes. A change in landscaping – removing plants that previously provided some protection – could compound the problem. The sound of water running through the pipes can be a sign that a faucet is open or broken. Pay particular attention to outside faucets that may not have been adequately protected. Check around the perimeter of the

home or business to look for areas of ice or standing water. This may indicate a broken downspout or a gutter that was clogged by ice and snow, or broken by weight of ice and snow, leading to an overflow, or an underground pipe or irrigation system that has been damaged. Check the roof to see if clogged gutters might impede water flow as ice and snow melts. Other areas of concern are outdoor hot tubs and swimming pools that may not have been properly winterized. The underground pipes may be damaged by freezing and thawing. If pipes are frozen, it is essential to thaw them out – hair dryers or heaters often work – before they burst, or contact a plumber. Avoid using blow torches as there are many instances of buildings burning down due to improper use of such equipment. Recently, a Pennsylvania man trying to thaw pipes under his mobile home set it on fire and it burned to the ground. (www.cumberlink.com) A fire in an apartment building in Ithaca, New York was caused by a blow torch being used to solder frozen pipes. (www.cnycentral.com ) When an actual pipe burst or leak is discovered, the water supply should be turned off immediately. If possible, turn off the local source first, such as a sink, as well as the main building supply. This will reduce the potential for further

damage until the source of the leak can be determined. It may take several minutes for the water to drain out. Dry up any standing water. It may be necessary to turn off power if electrical outlets or wiring are impacted. Potential mold and water damage can be avoided by using fans to dry out interior walls and ceilings, and raising the thermostat. Turn off humidifiers to help dry out the air in the building. Do whatever is necessary to mitigate damage, including removing carpeting and furniture that has been impacted. Contact your insurance company for the name of a reputable water restoration company, as coverage may be available under homeowners or business policy. Water damage can happen any time of year, but can be an especially problematic and unpleasant consequence of winter’s cold and snow. Helping clients prevent or reduce water damage is another sign of the true insurance professional.

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continued from page 20

talk about how customers are far more valuable to us than simply 15 minutes. Imagine if your doctor only spent 15 min-

Social media success may be a little different for each and every one of our agencies, but we have to believe in social media marketing and take the time, the money, and the effort to measure all aspects of our marketing efforts. utes on you during your checkup — chances are you wouldn’t feel confident in the examination! Let’s not forget that creating a brand may not generate an ROI in the shortterm, but my challenge to you is to stick with it. I understand that branding is difficult to do and even harder to measure its success, but overall, branding is having the ability to create common interests between our agency’s identity and those with our prospects. Social media success may be a little different for each and every one of our agencies, but we have to believe in social media marketing and take the time, the money, and the effort to measure all aspects of our marketing efforts.

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[ THE SOCIAL NOTEBOOK]

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.

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[ FACE TO FACE ]

By Michael Loguercio

Some Policies Have Tails, But This One Has Legs!

o think about this for a second: what was the most bizarre risk that you have ever insured? Where did the risk originate from? How did it end up in your office? Were you well versed in the type of coverage that was applicable to the risk? Where did you place it…direct with

million. Unfortunately, her cat Meredith decided to jump up on her lap and inflicted a fairly deep scratch across her thigh that probably caused some insurer to wince and wish that they had declined the risk! …how come I never get to go on

Bond, James Bond, actor Daniel Craig insured his body for $7.7 million when filming “Casino Royale,” and upped the ante to $9.5 million for the sequel. I guess he was afraid of being shaken AND stirred!

Michael Loguercio

an admitted carrier, or an Excess Surplus lines carrier, or perhaps through another broker or MGA? Was there a claim on the policy, and was the coverage procured adequate for the claim that occurred? I ask this question because so many times I chat with agents, who tell me that they ran into a risk that they really don’t know much about, and they ask me if I am familiar with an agency or carrier that might be able to assist them with this particular prospect. Although many times I am able to refer them to someone who can help, sometimes I come across risks that are extremely different, very interesting, and many times extraordinarily unusual! With this thought in mind, I decided to do some insurance searching to see what were some of the strangest policies ever written, and figured if I wanted “strange” I would start with celebrities! Well according to Property Casualty 360, the following are what ten different celebrities have insured…on their bodies (the list is from Property Casualty 360… the silly jokes are mine)! 1) For number 1, there is certainly no better place to start than with Taylor Swift’s legs! Ms. Swift, who stands tall at 5’10” (anything over 5’7” is standing tall for me!), recently insured those things for a mere $40 24 March 16, 2015 / INSURANCE ADVOCATE

EMS calls like THAT?! 2) Next up is Bette Davis, who in the 1940s insured herself for $28,000 in the event her corset size grew larger than 25”…I think that was my waist in 6th grade! 3) Our next celebrity is Bruce Springsteen. This Jersey boy insured his vocal chords for $6 million…I can hear Stevie Van Zandt saying “Fuggedaboudit” when he heard that! 4) Bond, James Bond, actor Daniel Craig insured his body for $7.7 million when filming “Casino Royale,” and upped the ante to $9.5 million for the sequel. I guess he was afraid of being shaken AND stirred! 5) So what would you pay for Dolly Parton’s breasts? Some insurer decided that $600 “big ones” would just about “cover them”! (Sometimes I just crack myself up!) 6) Keith Richards, of Rolling Stones fame, insured his hands for $1.6 million…I wonder if he would be covered if he burnt them while lighting up? 7) So one time I was on an airplane enroute to L.A., and J Lo was sitting in front of me…and of course I easily recognized her recently insured

“piece of equipment” that was priced at $27 million! That is some “booty” to collect in the event of a claim! 8) European soccer club Real Madrid insured the legs of its star player, Cristiano Ronaldo, for $144 million (David Beckham’s legs were only $70 million). Now collecting on that would be a “SCOOOOOOOORRRRRRRRRRRE!” 9) One of America’s favorite actresses, Julia Roberts, who is known for her famous smile, had her teeth insured for $30 million…now that’s one “Pretty Payout”! 10) Of course, this one deserves to be the last in our list, and it involves David Lee Roth. The Van Halen star had a fear of impregnating a groupie, so he insured his sperm for $1 million…just to protect against a paternity suit. Now I have a great joke here, but I’m not going to “blow it” on this one! As you can see this thing of ours is certainly a very interesting business, as you never know what you might be faced with when it comes to people and what they value to be irreplaceable. If you have insured an unusual risk and would like to share it with us, please send it over and I am sure that I’ll have some wise crack remark as a tag line! So before I close today’s column, I would be remiss if I did not add one more thought of a very personal nature to this particular article: today (exactly to the day!) marks the 7th anniversary that I have been writing this column in the Insurance Advocate magazine! Much has changed since I penned my first piece (sitting by the pool at 0600 at the Marriott Hotel in Orlando, wondering what I was going to talk about…I remember it as though it was yesterday) both in this thing of ours and in my personal life, but to that point so much has remained the same. My dedication, appreciation, and admiration of you, our loyal readers, has grown stronger with every article that I continued on page 26

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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.

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[ FACE TO FACE ] have written, and for that I cannot be more thankful. It has been unbelievably exciting to bring you this column for the past seven years, and it is truly my pleasure to continue this tradition for many years to come. For that, all I can say is “Thank you” from the bottom of my heart, for allowing me to come into your world and to share my thoughts, words, and feelings with you. I ask that you please continue to share yours with me, as so many of you have done over all these years. I look forward to continuing to meet you at trade shows, conferences, networking events, and in your offices, and please continue to keep those cards and letters coming as I always look forward to hearing from you! ..and with that said, I say “Happy Anniversary”, and ciao for now![IA] Michael Loguercio is the Regional Sales Manager for EZLynx; and has been active in the insurance industry since 1978 as a licensed insurance broker and an insurance technology professional. He is an active Past President and Lifetime Member award honoree of the Young Insurance Professionals of New York State, current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State,

Much has changed since I penned my first piece (sitting by the pool at 0600 at the Marriott Hotel in Orlando, wondering what I was going to talk about…I remember it as though it was yesterday) both in this thing of ours and in my personal life, but to that point so much has remained the same.

and Council of Insurance Brokers of Greater New York committee member. NY-YIP/PIA has honored Michael with a “Distinguished Service” award in 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and “Special Service” awards in 2013 and 2014. In his community, Michael is the Immediate Past President and current member of the Longwood Central School District Board of Education on Long Island, NY since 2004; is a Direc-

4441 Sepulveda Blvd., Culver City, CA 90230-4847 www.zalma.com | zalma@zalma.com 310-390-4455 | fax: 310-391-5614 http://zalma.com/blog Zalma Insurance Consultants provides expert advice to counsel for insurers and counsel for policyholders. Advice from Zalma Insurance Consultants is indispensable to the resolution of insurance disputes. Consultation from Zalma Insurance Consultants can save you, your counsel or client hundreds of hours of investigative and legal work. 26 March 16, 2015 / INSURANCE ADVOCATE

tor on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club; Central Brookhaven Lion’s Club; and Ridge, NY, Volunteer Fire/EMS Department. He also served two terms on his Church’s vestry, and in 2013 he was awarded the SCOPE “Community Service” award for his dedication to the public. Michael is a regular Contributor to the Insurance Advocate since 2008, and may be contacted at 631-345-9359 or michael.loguercio@ezlynx.com.You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr.

Thank you for your Columns! Sempre avanti

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HOOP IT UP FOR A GREAT CAUSE! Dear friends and colleagues, As many of you are aware, nine years ago my son Justin really learned what it meant to give back. He was intent on making a difference in the lives of children with Autism and their families so he developed Alley Oop For Autism, a 3-on-3 Basketball Tournament to raise money for a very special school on Long Island. When Justin left for college, my daughter Marissa took over and chaired the tournament. Since Justin has graduated, he, along with a committee of over 50 students from Long Island, has picked up where he left off. We are now getting ready for the 9th Annual Alley Oop for Autism to be held on April 18, 2015. Given the current economic climate, the Ascent School is always at risk of not being able to deliver the same level of services. Should this occur, it would greatly inhibit the chances of all the children of Ascent to one day live an independent life, as we all take for granted with typical children. We are asking for your support with this event in the form of sponsorships, donations or players. All will be greatly appreciated. Over the last eight years we have raised over $700,000! Every year we have 300+ players from 8-year old children to 60-year old adults, and over 1,000 attendees. Any level of competition is welcomed and we do our best putting the teams in the correct brackets. This year, we have redesigned our website that will make it even easier to sponsor or donate and will allow you to pay by credit card.

Please visit www.alleyoopforautism.org for more information. Last year, the insurance community and my friends and family were a big portion of the donations received and I applaud you for that. I ask that you please consider helping again. If you can’t, maybe your company can. If you would actually visit the school, or if you simply know someone who’s life is touched by someone with autism, you wouldn’t just sit back and do nothing. Our website features pictures from past events as well as links to find out more information. Over the last few years we have had ESPN's Adam Schefter (NFL Insider), Boomer Esiason & Craig Carton from the Boomer & Carton show and former NBA star Wally Sczerbiak participate.

If those who can, don’t, then who will? My Sincerest Appreciation, Peter N. Resnick Executive Vice President 516 248-1100 x. 315 www.iaoins.com

www.alleyoopforautism.org

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[ ON M Y RADAR ]

By Barry Zalma

Misrepresent Material Fact – Lose Coverage Uberrimae Fidei Allows Voidance of Marine Insurance Policy Insurance has, from its inception, been an agreement requiring utmost good faith by both parties to the contract of insurance. As used in maritime insurance failure

valued the floating drydock at $1,750,000. By 2009, and as late as 2011, due to declining business and increasing financial distress, SJT was actively trying to sell the Perseverance. After failing to sell the dry dock by reducing prices in September 4, 2011, SJT agreed to sell the Perseverance to

Insurance has, from its inception, been an agreement requiring utmost good faith by both parties to the contract of insurance.

of an insured to deal in the utmost good faith with its insurer allows the insurer to void the insurance. A marine insurer sued its insured seeking a declaration that a maritime insurance policy for the insured’s floating drydock was void. The trial involved a maritime insurance policy issued by Appellee Catlin (Syndicate 2003) at Lloyd’s (“Catlin”), to cover the floating drydock Perseverance owned by San Juan Towing and Marine Services (“SJT”), a ship repair company based in San Juan, Puerto Rico. At trial, the district court concluded that the insurance policy was void ab initio by reason of SJT’s violation of the doctrine of uberrimae fidei in its application for the policy. SJT appealed in Catlin (Syndicate 2003) at Lloyd’s v. San Juan Towing and Marine Services, Inc., — F.3d —-, 2015 WL 500744 (C.A.1 (Puerto Rico) 2/6/2015) requiring the First Circuit to determine whether the doctrine of Uberrimae Fidei, utmost good faith, applied to the sinking of the floating dry dock.

Barry Zalma

BACKGROUND In 2006 SJT purchased the Perseverance for $1,050,000. Subsequently, SJT made improvements to the floating drydock, modifying it so that it could be towed from Louisiana to Puerto Rico. Marine Consultants then issued a valuation report on November 21, 2006, in which it 28 March 16, 2015 / INSURANCE ADVOCATE

Leevac Shipyards (“Leevac”), a Louisianabased company, for $700,000. However, the deal later fell through. Between August 2006 and February 2011, SJT insured the Perseverance with the RLI Insurance Company (“RLI”), with a declared hull value of the Perseverance under this policy of $1,750,000, presumably based on the Marine Consultants condition and valuation report dated on November 21, 2006. In February 2011, RLI cancelled the drydock’s insurance policy, cryptically stating “Loss History” as the reason. Thereafter, at SJT’s request, SJT’s insurance broker, John Toscani (“Toscani”), who was located in New York, approached Catlin seeking, through Lloyd’s, a marine insurance policy “consisting of hull, [protection and indemnity], ship repairs, general liability and contractor’s equipment” (emphasis added). SJT’s broker represented that the Perseverance’s prior insurance coverage was for $1,750,000, but did not provide Catlin with a copy of RLI’s notice of cancellation. Most importantly, SJT also did not disclose information regarding substantial, preexisting damage to the Perseverance’s hull, which had been evident since at least April 2010. SJT tug Captain Padilla (“Padilla”) returning from a towing assignment called SJT manage to inform him of the total sinking of the Perseverance. They observed that a fire hose connected to a water main

on the dock was still pumping water into the sunken drydock, with the valve on shore still in an open position. Payne proceeded to shut the valve, which was easily seen and accessible to anyone who wished to turn off the flow of water. SJT proceeded to file a claim with Catlin, alleging the total loss of the Perseverance, in the amount of $1,750,000. Catlin denied this claim, relying on the discrepancy between the amount the Perseverance was insured for according to the Endorsement ($1,750,000) and its actual market value (approximately $700,000 to $800,000), as evidenced by the sale price advertised to potential buyers around the time when SJT sought the quote for the Policy. On October 8, 2013, after a bench trial, the district court resolved the merits of this controversy. See Catlin (Syndicate 2003) at Lloyd’s v. San Juan Towing & Marine Servs., Inc., 979 F.Supp.2d 181, 191 (D.P.R.2013) ( “Catlin IV ”).

DISCUSSION The application of the doctrine of uberrimae ﬁdei to this controversy, which the First Circuit concluded only existed in modern American jurisprudence in the context of maritime insurance, depends on the outcome of the central issue raised by SJT both here and below: whether Puerto Rico’s Insurance Code, P.R. Laws Ann. tit. 26, §§ 1101 et seq. (“the Code”), is the controlling substantive law in this controversy rather than general federal maritime law. As a general rule, in the absence of established and governing federal admiralty law, the states have largely unfettered power to regulate matters related to marine insurance. The rules of admiralty and maritime law of the United States are presently in force in the navigable waters of the United States in and around the island of Puerto Rico to the extent that they are not locally inapplicable either because they were not designed to apply to Puerto Rican waters or because they have been rendered inapplicable to these waters by inconsistent Puerto Rican legislation. There can be no doubt that the Policy is an ocean marine insurance policy. The

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[ ON M Y RADAR ] Policy was procured for SJT by Toscani, who “placed a package policy consisting of hull, P & I, ship repairs, legal, general liability and contractors equipment” (emphasis added), with Catlin. Indeed, Toscani admitted that he considered the Policy to be a marine insurance policy. Based on the evidence presented, the district court found as follows: “The Perseverance was designed, constructed, and used to provide marine maintenance and repair services to vessels,” and “[i]ts intended use [was] to lift floating equipment for inspection and repair.” Marine insurance is vital to the adequate flow of commerce. The nature of the risks that are covered by maritime insurance is such that, given the urgent necessity for the placement of this type of insurance coverage that is often present in the business of maritime commerce, as well as the extreme distances that often separate the insurance seeker and the insurer, it is imperative that the insurer be provided with truthful and valid information about the risk the insurer is asked to undertake by the party most able to provide such data: the insured. Uberrimae ﬁdei is an established rule of maritime law. This ruling should hardly be surprising. As early as 1828, the Supreme Court characterized an insurance contract as “a contract uberrimae ﬁdei.” McLanahan v. Universal Ins. Co., 26 U.S. 170, 185, 1 Pet. 170, 7 L.Ed. 98 (1828). At the bench trial, Richard Thompson (“Thompson”), a hull inspector who surveyed the Perseverance, testified that he found “heavy wastage” in the drydock’s hull during an April 2010 inspection. After Thompson notified SJT of the rust and deterioration problems, SJT admitted that “those damages were pre-existing.” Because the Perseverance was not in prime condition and business was slow, SJT offered to sell the floating drydock to potential buyers at a price between $700,000 to $800,000, which presumably approximated its actual value at the time. Indeed, in April 2011—the same month that the Catlin Policy took effect—SJT advertised the Perseverance for sale at a price of $800,000. Yet, SJT, in its request for marine insurance coverage from Catlin, represented to Catlin that the Perseverance had been previously insured by RLI for $1,750,000—$700,000 more than what SJT paid for the drydock originally. Catlin could have reasonably

In cases of marine insurance, rather than allow rescission, the First Circuit concludes that the insurer can declare the policy void in the event of a material misrepresentation.

assumed the value presented to it in the previous insurance policy from RLI as the actual value and evaluated its risks based on the conditions it would have reasonably expected from a drydock of that value. SJT’s failure to disclose the true value of the Perseverance, what SJT paid for the Perseverence, and the Perseverance’s level of deterioration, therefore, are all material facts, the nondisclosure of which violates uberrimae fidei. Under uberrimae fidei, when the marine insured fails to disclose to the marine insurer all circumstances known to it and unknown to the insurer which “materially affect the insurer’s risk,” the insurer may void the marine insurance policy at its option. In other words, the policy becomes voidable. As discussed above, the evidence conclusively shows that SJT failed to disclose material information about the Perseverence’s actual value and preexisting deteriorated condition prior to Catlin determining whether it would accept the risk. Catlin was free, therefore, to void the policy. SJT violated the doctrine of uberrimae fidei in its procurement of the Policy. Thus, Catlin was entitled to void the Policy. The decision of the district court is affirmed, however, its holding is modified to reflect that the contract was voidable, not void ab initio.

ZALMA OPINION Uberrimae ﬁdei Latin, for utmost good faith. It, contrary to the First Circuit’s comments, applies in every jurisdiction as a concept of how the business of insurance should be conducted. For example, in New York or California, even an innocent misrepresentation of the value of a property over half its true value, would allow the insurer to rescind the policy from its inception (ab ini-

tio). In cases of marine insurance, rather than allow rescission, the First Circuit concludes that the insurer can declare the policy void in the event of a material misrepresentation. A difference without meaning since, in either case, the insured is without coverage and the policy void.[IA] 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 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 /ProductDetails.aspx?productId=21462 4, or 800-285-2221 which is presently available. Mr. Zalma’s e-book, “Zalma on California Claims Regulations – 2013 explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Diminution in Value Damages – 2013,”“Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at www.zalma.com/ zalmabooks.htm. Mr. Zalma reports on World Risk and Insurance News’ web-based television programing, http://wrin.tv or at the bottom of the home page of his website at http://www.zalma.com. INSURANCE ADVOCATE / March 16, 2015 29

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[ COURTSI DE ]

By Lawrence N. Rogak

Medical Provider Must Submit to EUO Whether it Gets an Assignment or Just Authorization to Receive Payment Stracar Med. Servs., P.C. v State Farm Mut. Auto. Ins. Co.

ppeal from an order of the Civil Court of the City of New York, Kings County (Devin P. Cohen, J.), entered January 29, 2013. The order granted defendant’s motion for summary judgment dismissing the complaint and denied plaintiff ’s cross motion for summary judgment. ORDERED that the order is affirmed, with $25 costs. In this action by a provider to recover assigned first-party no-fault benefits, the Civil Court granted defendant’s motion for summary judgment dismissing the complaint and denied plaintiff ’s cross motion for summary judgment, finding that defendant demonstrated that plaintiff had failed

the assignor herein, initially granted plaintiff the right to bill defendant and receive direct no-fault payments from defendant by executing an “authorization to pay” on a prescribed NF-3 form, and that he executed a prescribed assignment of benefits in favor of plaintiff at a later date. Plaintiff ’s main argument on appeal is that, because plaintiff was not the eligible injured person’s (EIP’s) assignee at the time plaintiff submitted the NF-3 forms to defendant, the language in the mandatory personal injury protection (PIP) endorsement (11 NYCRR 65-1.1), which requires “the eligible injured person or that person’s assignee or representative” to “submit to

It is undisputed that plaintiff’s patient…initially granted plaintiff the right to bill defendant and receive direct no-fault payments from defendant by executing an “authorization to pay” on a prescribed NF-3 form… to appear for duly scheduled examinations under oath (EUOs). It is undisputed that plaintiff ’s patient,

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[ COURTS I D E ] examinations under oath,” did not require plaintiff to submit to an EUO, and, thus, defendant’s proffered defense, that plaintiff failed to appear for duly scheduled EUOs, lacks merit. In our view, the Civil Court properly rejected this argument, as we ﬁnd that, pursuant to the regulations, both the recipient of an assignment of beneﬁts and the recipient of an authorization to pay are required to submit to a duly scheduled EUO. 11 NYCRR 65-3.11 (a) states that an insurer shall pay benefits to an EIP “or, upon assignment by the applicant [or the applicant’s parent or legal guardian or any person legally responsible for necessities], shall pay benefits directly to the providers of health care services.” 11 NYCRR 65-3.11 (b) provides two ways in which a health care provider can receive direct payment from the insurer—by submitting an “Authorization to Pay Benefits as contained on NYS Forms NF-3, NF-4 or NF-5” (hereinafter “prescribed authorization”), or by submitting an assignment of benefits on an NF-3, NF-4, NF-5 or Form NF-AOB (hereinafter “prescribed assignment”). The prescribed authorization specifically states that the EIP retains “all rights, privileges and remedies” under the No-Fault Law; in contrast, the prescribed assignment states that such “rights, privileges and remedies” are assigned to the health care provider (which allows the provider to commence an action against the insurer to recover nofault benefits). While the regulations clearly specify that a prescribed authorization and a prescribed assignment are different with respect to whether there is a transfer of rights, there is nothing in the prescribed assignment or prescribed authorization, both of which require the signatures of the EIP and the provider in order to be properly executed, differentiating between the two with respect to the EIP’s obligations (such as the requirement to submit to an EUO). Furthermore, in the provision dealing with direct payments to a health care provider, the regulations seem to conflate the prescribed assignment and the prescribed authorization. While an insurer is required to pay benefits directly to a provider “upon assignment by the applicant” pursuant to 11 NYCRR 65-3.11 (a), the word “assignment” in this context is not limited to a

…there is nothing in the prescribed assignment or prescribed authorization, both of which require the signatures of the EIP and the provider in order to be properly executed, differentiating between the two with respect to the EIP’s obligations…. prescribed assignment, and indeed includes a prescribed authorization, since, pursuant to 11 NYCRR 65-3.11 (b), a provider demonstrates such “assignment” by submitting either a properly executed prescribed authorization or a properly executed prescribed assignment. Inasmuch as an “assignee” clearly must submit to an EUO, the regulations should be read to impose this obligation upon the recipient of both a properly executed prescribed authorization and a properly executed prescribed assignment. Even if we did not find that a prescribed authorization falls within the umbrella of the word “assignment” as used in 11 NYCRR 65-3.11 (a), we would still hold that the recipient of an authorization to pay is obligated to submit to an EUO. This is because, in addition to requiring the EIP or that person’s assignee to submit to an EUO, the PIP endorsement also obligates the EIP’s representative to submit to an EUO. Written proof of claim may be submitted to an insurer by the EIP’s representative (see 11 NYCRR 65-1.1), and the recipient of a properly executed prescribed authorization who submits proof of claim is clearly acting as the EIP’s representative under those circumstances since the EIP retains “all rights, privileges and remedies.” Accordingly, plaintiff, as the entity which submitted the claim forms to defendant, was obligated to submit to an EUO whether such entity be viewed as its patient’s assignee or as his representative. Accordingly, the order is affirmed.[IA] 2015 NY Slip Op 25079 Decided on March 2, 2015 Appellate Term, Second Department

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[ IN THE ASSOCIATIONS ]

Study Reveals Stability and Growth in P-C Insurance Market Independent insurance agents continue to outperform captives in several areas.

he Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) has released the results of the 2015 Market Share Study (based on 2013 data) which reveal that independent insurance agents and brokers (collectively “IAs”) continue to dominate commercial lines while rivaling direct response writers and captive carriers in personal lines business. This is the 19th year the Big “I” has contracted with A.M. Best Company to receive year-end industry market share and company expense data. The Big “I” analyzes this data annually to assess the state of the independent agency system. “The Big ‘I’ is pleased to announce that the independent insurance agency system continues to be stable, strong and growing,” says Bob Rusbuldt, Big “I” president & CEO. “Among the many pieces of good news the study revealed are that all property‐casualty (p-c) insurance premium lines grew for the third year in a row, bouncing back from their recession‐driven low points in 2010. After three years of strong growth, both personal and commercial lines have exceeded prerecession volumes, and combined are now generating $532 billion in annual premiums. Combined, the market grew by $25 billion in 2013 over 2012 levels.” The Market Share Study revealed that at both the state and carrier level, independent agents and brokers were well poised to capture their share of the market or more. Also, IAs grew faster than the overall market and thus increased market share in about half of the states and the District of Columbia. Furthermore, several IA carriers increased their market shares by substantial amounts. However, there was a significant divergence between the national and regional carriers in terms of growth. “This annual study provides the most 34 March 16, 2015 / INSURANCE ADVOCATE

“…After three years of strong growth, both personal and commercial lines have exceeded prerecession volumes, and combined are now generating $532 billion in annual premiums. Combined, the market grew by $25 billion in 2013 over 2012 levels.” - Bob Rusbuldt, Big “I” president & CEO.

accurate picture of the state of p-c insurance distribution for several reasons,” says Madelyn Flannagan, Big ‘I” vice president of agent development, education and research. “We separate the direct response companies from the captive agency companies which offers the most accurate picture of changes in p-c insurance distribution year after year. As well, we look at each line on a state-by-state basis, and also segment the IA system by national vs. regional carriers. This thorough analysis of the data continues to offer a very detailed view of the overall p-c marketplace and provides insight into areas of opportunity for the IA channel.” Other findings from the Market Share Study include: • IAs still control a majority of the entire p-c market, writing nearly 57% of all premiums. • IAs write nearly 35% of all personal lines premiums. • IAs still dominate commercial insur-

ance sales, writing nearly 80% of a market that has grown by more than $35 billion over the last three years. • IAs grew market share in 23 states and the District of Columbia. In many states, they dominate both personal and commercial lines. That suggests IAs in other states have an opportunity to add share in more lines if they put a renewed focus on it. • IAs can be as efficient as other models. In the lucrative personal auto market, both regional and independent insurance agency writers average better expense ratios than the captive agency model. Furthermore, nearly a dozen IA companies rival or beat direct response writers on this key expense efficiency metric. • Personal auto premiums written by IAs grew nine times more in both 2013 and 2012 than they did in 2011. IAs increased premiums by $1.8 billion in both 2012 and in 2013—versus the mere $200 million growth figure reported in 2011. • Many Big “I” Best Practices agencies continued to grow in the face of the weak economy and are doing well now that the p-c market appears to have turned around. Agencies that are easy to do business with, leverage technology, focus on market segments and emphasize the Trusted Choice® brand, have the potential to enjoy robust growth in every state and every product line. All of the data in the Big “I” report come from A.M. Best and is printed with its permission. More information on the study is available by request or online at: www.independentagent.com/Resources/Re search/MarketShareReport.[IA]

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