March 17, 2014 by C Acunto

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VOLUME 125, NUMBER 5 / March 17, 2014

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

A CINN Group, Inc. Publication

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New York Insurance Association

The premier New York property and casualty insurance industry event of the year!

MAY 28–30, 2014 THE SAGAMORE RESORT | BOLTON LANDING, NEW YORK

Annual Conference

On the agenda t

Benjamin Lawsky, Superintendent, New York State Department of Financial Services

Wharton Professor Howard Kunreuther: Why Insurance is the Most Misunderstood Industry

No Need to Go Undercover: Identifying New York Coverage Trends

Insurance Snapshot—Perspectives from Reinsurers

Town Hall Meeting with Key Public Policymakers

Ethics in Claim Handling and Underwriting

Small Company Roundtable

Exhibit Show

Members’ Meeting

Banquet with Entertainment

Golf Tournament, Group Walk & More

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Contents

March 17, 2014 | volume 125 number 5

[COVER STORY ]

[ AD FEATURES]

The Ever Looming Nature of Cyber Liability Paul Dzielinski, U.S. RE Corporation

[FEATURES] 4

Foreword: To what uses… Steve Acunto, Publisher

Insight: State of Inﬂexibility Peter H. Bickford

Exposures and Coverages: Workers’ Compensation Opt-Out; Court of Appeals Reverses Ruling on Failure to Defend; Two-Year Time Limit to Start Suit Tested; Carbon Monoxide is a Killer—Literally and Financially; Update on Improvements & Betterments Jerome Trupin, CPCU

Face to Face: Welcome to McDonalds, May I Take Your Data? Michael Loguercio

Workers’ Comp: Workplace Bullying New Age Workers’ Comp Beneﬁts Donald T. DeCarlo, Esq.

On the Level: Why Should I Do Business With You? Jamie Deapo

PIA: Flooding is not going away

Correction: We incorrectly identified COURTSIDE in our last issue, February 24, 2104 Vol 125, No. 4, as written by Barry Zalma. The writers of this article are Casey O’Brien and Betty Flood of Cuyler New Services in Albany. We apologize to Cuyler News for this error.

16 125th Year 2014

In the Associations: Four-State PIA Survey Shows Hard Market Isn’t Escalating as Expected

Courtside: On Dissent Casey O’Brien and Betty Flood

Classiﬁeds

Looking Back: February 1989

Watch for News and

Other Events! www.insurance-advocate.com

Like us on Facebook… The Insurance Advocate Magazine

www.insurance-advocate.com INSURANCE ADVOCATE / March 17, 2014 3

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[ FORE WORD ]

Steve Acunto

To what uses…..

t always fascinates me that the human mind can be put to such brilliant uses on the one hand and such diabolical uses on the other. Paul Dzelienski’s searching article in this issue presents an overview of the matter of cyber risk, a growing concern for insurers and a growing enterprise among criminals. These are not your run-of-the-mill crooks. In another article in this issue Michael Loguercio expresses his concern over data harvesting in the pejorative sense of the word. We live in a complicated world and the new frontier of cyber fraud and cyber security breaches is one we are just starting to see. Paul's article is a great reference for sensitizing your staff to what your clients will be facing in the future. Pass it along… Donald T. DeCarlo, Esq., one of the most respected opinion leaders and advocates for best practices in the Workers’ Compensation field, contributes his thoughts in this issue on bullying. We had the privilege of working with him back when AmComp was founded and have since followed his work in this increasingly important sphere. Insurance Advocate welcomes Don back to these pages… Our recent editorial setting out pros and cons of two versus one insurance producer associations has drawn quite a bit of comment, some favorable some not. All agree that the matter is unsettled. We

“There is little doubt that the CRO role will also grow in importance, likely becoming more of a strategic advisor to the C-suite, as well as to stakeholders and decision-makers.” will continue to report on this in future issues… A report just released by Ernst & Young L.L.P. holds that the responses of chief risk officers at more than 20 North American insurers reveals increasing authority and higher organizational profile for the role of CRO, Chief Risk Officer.“There is broad consensus among respondents that the trend toward greater responsibility, authority and presence — especially among the executive management committees and the board — will only continue,” said the survey. If the economy weakens or there is considerable turbulence, that trend will both speed up and intensify, said the consultant in the report, which continues: “There is little doubt that the CRO role will also grow in importance, likely becoming more of a strategic advisor to the C-suite, as well as to stakeholders and decision-makers.” There is surely an opening here for the agent as a collaborator, outside counsel, de facto CRO or enabler. The decision making process will change, no doubt, as more of an auction feel enters the insuring process, in our view. But that spells even more opportunity, as agents turn client side advisor more fully.[IA] 4 March 17, 2014 / INSURANCE ADVOCATE

VOLUME 125, NUMBER 5 MARCH 17, 2014

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Sari Gabay-Raﬁ Michael Loguercio 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 SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x126 circulation@cinn.com PUBLISHED BY CINN Group, 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

CINN G R O U P, I N C .

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 21 times a year, and once a month in July, August and December by CINN Worldwide, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing ofﬁces. POSTMASTER Send address changes to Insurance Advocate®, PO 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 Worldwide, Inc. and is copyrighted 2013. 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

State of Inflexibility

t is right there in the New York insurance law: if an insurer “ceases to do any insurance business for more than one year continuously,” it is subject to, among other things, forfeiting its charter and being liquidated. There is no counterpart to this provision in the NAIC receivership model act’s long list of reasons for liquidation, and it appears to be singular to New York’s statute (another 49 and 1 example?). In the not so distant past, the NY regulators strictly interpreted this provision to mean that if an

Peter H. Bickford

The NY regulators, however, aggressively cling to their premise that they and they alone are the exclusive statutory voice for policyholders, claimants and creditors, even if such voice proves hugely detrimental (See Executive Life Insurance Company of New York).

insurer stopped issuing new policies, went into run-off or sought to commute its business, it was “self-liquidating” and no longer engaged in the business of insurance. No matter that the company may continue to process and pay claims, issue endorsements, or otherwise maintain books of business – actions that are generally considered to be part of the business of insurance. And no matter that the company’s attempts, whether commuting or running off its business, were in the best interest of the financial condition of the company and the security of its policyholders. Over time, of course, the NY department had to retreat from its strict interpretation, particularly with solvent companies running off or commuting discontinued books of business. From its infancy in the late 1980s-early 1990s, the run-off business has grown into a substantial and recognized business with its own trade groups and recognized expertise, and is now a mature, universally recognized stratagem even by New York’s regulators. It has been more difficult, however, for New York’s regulators to accept the use of these tools to restore or maintain financial solvency. For example, the NY insurance law provision allowing the use of commutations as part of a company’s attempt to “prevent impairment or insolvency,” was actually a reaction to courts approving the implementation of company-initiated plans over the objection of the regulators rather than a regulatory recognition of a useful tool to help protect companies and their policyholders. These courts recognized that in some instances it was more beneficial to policyholders and creditors for financially troubled insurers to find economic solutions short of formal receivership – like debtor in possession plans in bankruptcy law. The NY regulators, however, aggressively cling to their premise that they and

they alone are the exclusive statutory voice for policyholders, claimants and creditors, even if such voice proves hugely detrimental (See Executive Life Insurance Company of New York). Part of the NY regulators’ argument is that the law provides very narrow parameters for dealing with financially stressed insurers. The only options are formal rehabilitation or liquidation. New York law does not provide for conservation as an option to rehabilitation or liquidation, as is provided in the NAIC receivership model act, and certainly does not provide for a less formal regulatory supervision outside of court ordered receivership. New York’s argument that the existing statute lacks flexibility ignores the scope of the rehabilitation option, which directs the rehabilitator to “take possession of the property of such insurer and to conduct the business thereof ” with broad authority to carry out this charge. Also, the lack of a statutory conservation option is largely a distinction without a difference. The stated objectives and purposes of conservation versus rehabilitation in the NAIC receivership model act and other state statutes are basically the same – run the business, eliminate the problems and restore the company to the marketplace. It is unfortunate that over the decades the existing broad statutory authority stagnated into a rigid, inflexible view where rehabilitation predominantly is purgatory before liquidation. From time to time over the last few decades New York insurance regulators (distinguished from its receivers) have argued that the real problem is the lack of statutory authority for regulatory supervision or control over the operations of a financially troubled company without having to place it in formal court ordered rehabilitation or liquidation. Other states have this statutory authority, which allows them to act on a company well before the need for formal receivership is required. Texas, for instance (yes, Texas!) provides its insurance regulators with such authority, correctly recognizing that “[p]lacing an insurer in receivership often destroys or diminishes, or is likely to destroy or diminish, the value of the insurer’s assets . . .” There are many insurance executives and professionals, however, who have consistently opposed providing the New York regulators with even more authority over them, pointing out that the regulators already have far too many existing tools at their disposal to identify and act upon troubled companies. The problem, they point out, is not the lack of statutory authority but a lack of business acumen on the part of regulators resulting in formulaic and inflexible decisions rather than adapting to or solving specific problems and needs. Ironically, perhaps the best argument in favor of pre-receivership supervision in New York is its stubborn, inflexible, unaccountable receivership process. Compare New York’s receivership process, with its rigid interpretation of the statute and lack of accountability, to Texas’s system of using fully accountable outside independent insurance professionals. Some examples are shown in the chart on the next page. continued on page 8

6 March 17, 2014 / INSURANCE ADVOCATE

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[ INSIGHT ] continued from page 6

TEXAS • Outside professionals • Bonded • Accountable to insurance regulators and the courts • Required to prepare, file and follow business plan • Required to file monthly or quarterly reports with regulators and the court on status and progress of plan • Most proceedings before judge/court appointed master familiar with insurance receiverships

Given the grim reality of the receivership process in New York, it is no wonder that companies facing financial difficulty may seek any kind of deal with the regulators to avoid boarding Charon’s boat to cross the river Styx to the receivership afterlife. Harsh as this analogy seems, so long as the State executive or legislative leaders continue to be unwilling to make

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The problem, they point out, is not the lack of statutory authority but a lack of business acumen on the part of regulators resulting in formulaic and inflexible decisions rather than adapting to or solving specific problems and needs. the receivership process more flexible and accountable the likelihood of a company’s recovery once its keys are turned over to the receiver remain quite slim. The alternative of providing regulators with expanded supervisory authority, or “debtor in possession” type of receivership, bears its own substantial risks and concerns. Unfortunately, the industry’s wellfounded fear of expanding regulatory authority coupled with the state’s failure to make the receivership process more flexible and accountable will result in the worst possible option: perpetuating the status quo. Hobson had it easy![IA]

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[ EXPOSURES AND COVERAGES ] Workers’ Compensation Opt-Out; Court of Appeals Reverses Ruling on Failure to Defend; Two-Year Time Limit to Start Suit Tested; Carbon Monoxide is a Killer— Literally and Financially; Update on Improvements & Betterments Workers Compensation Opt-Out Prior to 1954, Maine elected its governor in September. From 1896 through 1932 whichever party won the gubernatorial race invariably captured the presidency the following November—the only exceptions were 1912 and 1916.1 Republican domination of both the Maine State House and the White House in the 1920s gave birth to the slogan “As Maine goes, so goes the nation.” In response to FDR’s landslides in the 1930s, that changed to: “As Maine goes so goes Vermont.” Something similar may be said for Workers Compensation opt-out. At the height of the workers compensation insurance hard-market in the 1980s, Texas enacted laws permitting employers to opt-out of the WC system. Enthusiasts predicted that other states would quickly follow. Until now, that hasn’t happened. But last year, the Oklahoma legislature passed a WC opt-out law. So perhaps the slogan should now be: “As Texas goes, so goes Oklahoma.” Whether or not it’s the beginning of a trend, Texas is seeing a continuing growth in the number of employers opting out, most recently adding Walmart to the list.

Texas employers have three WC options: • Provide standard WC coverage and be protected from suits by employees alleging that the employer’s negligence was the cause the injury—the so-called “sole-remedy” statutes. • Opt-out and provide a form of accident insurance for employees. • Opt-out and provide no coverage at all for their employees injured on the job. 2 The plans are subject to ERISA, but if they opt-out of the WC system, whether they provide accident insurance or not, employers lose their sole-remedy protection. The advantages claimed for the optout system, from an employer’s point of view, include: • Control medical provider selection. Opt-out plans can limit coverage to employer-selected doctors and providers • Use evidence-based medical practices. Opt-out plans can avoid questionable medical treatments and procontinued on page 12

1 In 1912, Teddy Roosevelt’s Bull Moose third-party split the Republican vote. That enabled Wilson to gain the presidency, which he held onto in 1916. 2 “The Texas Model: https://www.sedgwick.com/NewsRelease/WCOpt-OutStudy.pdf (accessed 1/26/14)

10 March 17, 2014 / INSURANCE ADVOCATE

By Jerome Trupin, CPCU

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 Interest Group Newsletters, the Insurance Advocate, and other publications. He can be reached at cpcuwest@aol.com. Thanks to Jerry Trupin for this article and to the CPCU Society’s Risk Management Interest Group newsletter for letting us reprint it.

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[ EXPOSURES AND COVERAGES ] continued from page 10

cedures. • Control use of medicines, particularly excessive opioid use. Opioid problems are claimed to be virtually nonexistent among opt-out claimants in Texas. It’s a serious problem in many other workers compensation jurisdictions. • More easily terminate temporary disability benefits when recovery is satisfactory or the injured worker has not complied with benefit guidelines. • Eliminate permanent partial disability coverage. Opt-out plans typically don’t offer these controversial and expensive benefits. • Avoid prolonged and expensive dispute resolution processes. ERISA appeal protocols are much more limited than those prescribed by state workers compensation laws and regulations. • Mandatory arbitration can reduce exposure to claims for damages alleging employer negligence.3 The Texas Department of Insurance estimates that 113,000 companies—about a third of the state’s private sector employers—have opted out of the system.4 Oklahoma’s new opt-out plan, which was just upheld by the Oklahoma Supreme

“…The Texas courts expect an employee—especially one who is seasoned in his job—to avoid risks that might cause injuries; for example, using a cutting knife carelessly or walking on a wet floor.”

Court,5 differs in many respects from the Texas model. Most important, it requires an opt-out accident coverage plan that’s subject to ERISA. Unlike Texas, an Oklahoma plan must include permanent total disability protection and death benefits equal to the current law. Temporary total disability coverage also continues, but is capped at 70 percent of state average weekly wage instead of 100 percent. Like Texas, it permits the use of arbitration agreements. The National Council on Compensation Insurance (NCCI) estimates that these and other changes in the law will reduce Oklahoma employers’ costs by $263 million. I doubt that an opt-out system is coming to the New York metropolitan area any time soon. Greg Krohm, a research con-

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sultant and former executive director of the International Association of Industrial Boards and Commissions, points out that “The Texas courts have tended to take a narrow view of the employer’s duties to provide a safe workplace, The Texas courts expect an employee—especially one who is seasoned in his job—to avoid risks that might cause injuries; for example, using a cutting knife carelessly or walking on a wet floor.”6 That makes the risk of successful lawsuits by employees much lower in Texas than in the Northeast. However, if the Oklahoma system achieves its cost reduction predictions, we’re sure to see it in other states and there will be pressure to change the laws in our area.

Court of Appeals Reverses Ruling on Failure to Defend The Court of Appeals decision in K2Investment Group v. American Guarantee and Liability last June threw insurance companies and the insurance defense bar into a dither. The court had ruled that an insurance company that wrongfully failed to defend its insured could not thereafter argue that the policy exclusions eliminated coverage. Insurers know that in New York as in most states, the duty-to-defend is broader than the duty-to-indemnify. Nevertheless, when they feel that a claim is clearly excluded, insurers prefer to deny coverage at the outset rather than provide a defense under a reservation of rights— defense is expensive. What followed the insurer’s refusal of a defense in the K-2 case is a common ploy: the insured settled with the plaintiff for the policy limit and assigned its right to sue the insurance company to the plaintiff. In exchange, the plaintiff agreed to look only continued on page 14 3 Based on “The Texas Model” op. cit. 4 Nancy Grover “The Future of Workers Compensation: Is Opt-Out the Answer?” Workers Compensation Report http://www.ncci.com/Documents/IssuesRpt2013-Grover.pdf (accessed 2/27/14) 5 Randy Ellis “Oklahoma Supreme Court upholds new workers’ compensation law” The dissents written by three judges portend future challenges when the administrative rules are adopted.http://newsok.com/oklahomasupreme-court-upholds-new-workerscompensation-law/article/3915151 (accessed 2/27/14) 6 Nancy Grover, op cit

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[ EXPOSURES AND COVERAGES ] continued from page 12

to the insurance company for payment. Because of the K-2 decision, insurers might defend cases they would otherwise have denied outright to avoid the risk of losing their chance to argue that the claim was excluded by the policy provisions. If insurance companies lose on the issue of coverage when the claimant brings suit on the policy, the settlement can be very expensive. Insureds usually lack the skill to negotiate settlement and in a case like this, have little incentive to do so in any event—they have no skin-in-the-game.

Two-Year Time Limit to Start Suit Tested Good News/Bad News: You’ve suffered a devastating fire; fortunately you have replacement cost coverage. Unfortunately, it will take more than two years to repair the damage no matter how fast you work and the policy says the time-limit to start suit is two years from the date of loss. That’s exactly the catch-22 that Executive Plaza, LLC faced when its Island Park, NY building suffered more than $1 million in fire damage. On February 7, 2014—almost seven years to the day after the fire and more that three years after the repairs were completed, the New York Court of Appeals (New York’s highest court) held that “such a contractual limitation period, applied to a case in which the property cannot reasonably be replaced in two years, is unreasonable and unenforceable.”7 That’s good news/bad news in several ways. From Executive Plaza’s point of view, it was good that the case finally settled in its favor, but legal expenses probably devoured much of the $242,000 difference between ACV and replacement cost that it was entitled to. For all insureds, it’s good that the court made a reasonable exception to an onerous rule, but it left the basic problem posed by the two-year time limit unchanged—the decision discussed several of its other deci-

sions that enforced the limitation. And for the industry as a whole, it reinforced the public’s poor opinion of us. There may be issues with the claim that the court record doesn’t reveal; unless there were I think the insurance company should have paid the claim without forcing the insured to go to court. My advice remains: as the two-year limit approaches, get a written extension from the insurance company. If you can’t get an extension, advise the insured to talk to a lawyer about filing suit. Remember that Sandy claims turn two years old this October. An interesting sidelight: The case report notes that amici curiae (literally “friends of the court”) briefs were filed by the New York Public Adjusters Association and United Policyholders (a non-profit organization that works on behalf of insureds). Perhaps that lightened the insured’s legal-expense burden. I certainly hope so.

Carbon Monoxide is a Killer, Both Literally and Financially On April 4, 2011, 24-year old Rosario Ferreras was found dead on her first night in her newly rented apartment. Investigations by the police and fire departments determined that the cause was a clogged vent pipe connected to the hot water heater. Sad to say, three weeks earlier the previous tenant was also asphyxiated in the apartment. The estates of both victims sued the building owner. The cases settled for $l million each. 8 According to newspaper reports, the building owner will personally pay each estate $1 million, $500,000 each up front and the remainder in six months. He had no insurance.9 Learning Points: • Check heating appliances in your home, vehicles, boats, etc. and install CO detectors. • Encourage your clients to do the same. Safety first, then insurance. • Be sure that your clients have the lat-

est version of the ISO CGL or equivalent. It includes coverage for fumes emitted by water heaters used to heat water for domestic purposes. Earlier versions of the ISO CGL, which are still used by some insurers, did not include this coverage nor do some non-ISO forms. Some insurance people and attorneys think that the “water heater” exception to the exclusion provides cover for fumes from all water heaters. For example, here’s an excerpt from a client advisory sent out by a construction management firm: “…[B]odily injury that results from smoke, fumes. vapor or soot from a buildings heating equipment or water heater are not excluded. Coverage is provided for carbon monoxide leaks from such equipment.”10 That’s not correct. The coverage only applies to fumes from an appliance used to heat domestic hot water. Firms that heat water for industrial use do not get this coverage. Nor do firms that use heaters for other purposes, e.g. drying or processing machines. The answer for them is a separate pollution policy.

Update on Improvements & Betterments The building owner paid $700,000 for the build-out of our client’s new office. We recommended that our client cover the exposure of rebuilding I&B should they be damaged by an insured peril because the lease did not indicate that the building owner had that responsibility. We told the client’s broker that we felt that this coverage could be written as I&B, but requested that he give all the facts to the underwriter. If the underwriter felt that I&B is not appropriate, the coverage could certainly be provided as building coverage. (I wrote about this issue in the Insurance Advocate on November 11, 2013.) The underwriter didn’t want to write the coverage as I&B, but did provide it as building coverage. Case closed.[IA]

7 Executive Plaza, LLC v Peerless Ins. Co. 2014 NY Slip Op 008 98Decided on February 13, 2014 Court of Appeals (accessed 2/26/14) 8 Press release from Barry Epstein of the Epstein Law Firm of Rochelle Park, NJ, who represented one of the plaintiffs. 9 Michaelangelo Conte “Families Of Pair Who Died Of Carbon Monoxide Poisoning Receive $2 Million Lawsuit Settlement” The Jersey Journal January 10, 2014 http://www.nj.com/jjournal-news/index.ssf/2014/01/families_of_pair_who_died_of_c.html (accessed 2/26/14) 10 “Commercial General Liability Pollution Exclusion” Client Advisory, Construction Risk Management Specialists, July 2010 http://www.kpcom.com/newsletters/documents/NEW_CRMS_GL_Pollution_Exclusion_7_2010.pdf (accessed 2/28/14)

14 March 17, 2014 / INSURANCE ADVOCATE

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[ COVER ]

This article original appeared in the New York Insurance Associationâ&#x20AC;&#x2122;s Your NY Connection magazine.

16 March 10, 2014 / INSURANCE ADVOCATE

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[ COVER ]

Imagine turning on your work computer tomorrow and all you see is the blue screen of death. Or maybe your boss calls an emergency meeting because overnight hackers got into your database and stole confidential customer data. The growth of cyber crime has been increasing exponentially over the past ten years. No longer is cyber crime the concern of only major international businesses. These days even local, main street companies can be susceptible to an attack by hackers. Although cyber attacks and cyber crime may seem like recent developments, it’s been a major concern of governments around the world since the early 1970s. What started as those annoying chain emails that promised get rich quick schemes and better sex have evolved into international breaches of security and impressive feats of cyber stealing. Smaller companies are now being targeted because they usually have less sophisticated security and sometimes they can be used as a gateway to access larger companies. Public awareness about cyber crime threat continues to grow. Google receives more than 25,000 search requests each month for various terms related to cyber liability: cyber crime, hacking, and identity theft. No one knows the true cost of cyber crime. In the United States, estimates range

from a low of $50 billion per year, to more than $400 billion per year as was quoted in a bill introduced by the United States House of Representatives Intelligence Committee. Worldwide, that number jumps to well over $500 billion. Keith Alexander, director general of the National Security Administration has been quoted as saying that cyber crime is the “greatest transfer of wealth in human history.” According to a recent survey sponsored by Hartford Steam Boiler, more than 50 percent of the companies operating in the United States think cyber risk poses a grave threat. As many as one-third of all small businesses surveyed earlier this year reported some kind of cyber attack. Of those companies attacked, almost three-quarters were unable to restore their computer data. These smaller firms are often easier targets for hackers because they do not have the financial resources to invest in sophisticated security systems. What exactly is cyber crime? The FBI and CIA classify cyber crime into six general categories:

Paul Dzielinski

Paul Dzielinski is senior vice president with U.S. RE Corporation. U.S. RE is an international financial services firm with operations in reinsurance brokerage, consulting, investment banking, underwriting, claims, risk, and captive management. You can reach Paul at 845.920.7155 or pdzielinski@usre.com.

Fraud Most cyber frauds are financial in nature and are designed to access funds, either of the enterprise they are attacking, or access to that enterprise’s customers.

Computer Trespassing Using Trojans and other malware, intruders can gain access to sensitive company files, website browsing history, steal passwords or even save malicious files to your computer’s hard drive.

Hardware Hijacking Many modern printers update their software periodically through Internet connections to the manufacturer’s website. There is the possibility that hackers could exploit this periodic data transfer to download malware to the printers, the printer network or possibly even the computers connected to the printer network.

Bullying, Harassment, Stalking Most of these cases involve teenagers bullying other teenagers through the Internet. Many instances involve posting continued on page 18

Public awareness about cyber crime threat continues to grow. Google receives more than 25,000 search requests each month for various terms related to cyber liability: cyber crime, hacking, and identity theft. INSURANCE ADVOCATE / March 17, 2014 17

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[ COVER ] continued from page 17

obscene or cruel messages about the target on social media sites like Facebook, Twitter and YouTube. Sometimes these harassers will steal their victim’s passwords to access their social media accounts and impersonate their victim by posting messages in their victim’s name. Stalkers benefit greatly through the

to access the site, creating what is known as “denial of service” attack. It’s plain to see why the threat of hacking and information security risks are becoming more prominent as a risk management focus at a greater number of companies; and many companies are using insurance as their primary risk management tool. The major industries affected by cyber exposure are:

Vulnerability also includes the housing of sensitive data, such as website hosting, credit card transactions and other technology systems with third-party vendors whose own security systems may not be adequate for the type of data they are storing.

internet by using various search engines and procedures to track their victim’s whereabouts. Sometimes the open nature of social media sites enables these criminals to obtain sensitive personal information, such as address, place of work, etc.

Spam Unsolicited bulk emails have been around for a long time. Known by everyone as “spam,” these messages try to trick the recipients into revealing personal or sensitive information, such as Social Security numbers, bank account numbers, passwords, etc. Sometimes spammers will gain access to their victim’s email account and use that access to send out more spam under that person’s email address.

Information Warfare This type of cyber attack involves large scale attacks on computers, websites and networks. Hijacked computers can then be converted into “zombies” that spread and distribute malicious code, or crash a website by constantly bombarding it with requests 18 March 17, 2014 / INSURANCE ADVOCATE

1. Healthcare 2. Government and non-profits 3. Industrials 4. Professional services Cloud computing has gained in popularity as a secure data storage tool because the security gained by moving data off network computers and servers overcomes the security concerns of the data being lost if the cloud provider is ever hacked or goes down. Hackers are constantly adjusting and honing attacks to exploit the most vulnerable features of a company’s infrastructure. Right now, hackers are focusing on mobile devices because the software of most mobile devices does not incorporate sufficient security protocols, and many of these protocols vary from platform to platform. Despite the knowledge of these vulnerabilities, many organizations continue to allow the use of mobile devices to access corporate networks. There was a recent study performed on Android apps which found that almost 300,000 apps were unquestionably malicious, and another 150,000 were considered suspect. Since corporate security no longer revolves around

a Windows-based platform, company security personnel must follow security protocols for iOS, Windows Mobile, Blackberry, Android and others. Incorporating the variety of protocols necessary can make the task of keeping a company secure even harder. Vulnerability also includes the housing of sensitive data, such as website hosting, credit card transactions and other technology systems with third-party vendors whose own security systems may not be adequate for the type of data they are storing. This is a supply chain risk that is very real, but frequently overlooked by most organizations. It is key that an organization not only know, monitor and address its own risks, but also those associated with the vendors the company uses. Because of the interconnectedness of online systems every American who uses digital technologies at home or in the office can and must play a part in cyber security. All citizens need to be educated on this issue that has permeated nearly all aspects of our tech rich society. This article is the first in a three part series. The property and casualty insurance industry has a unique role in the business community when it comes to cyber liability. The issue impacts us as companies in that we need to ensure the proper protections are in place. We also have an opportunity to develop products that can address this ever-evolving, evermore complex issue. How should the insurance industry respond to the threat of cyber crime and hacking? The amount of personal customer data stored on insurance industry computers and networks make our industry a “target rich” environment for cyber thieves and hackers. In my next article I’ll write about the steps prudent management should take to protect their data. In my final article I will take a look at cyber liability as a product and delve into the potential for the insurance industry to have an expanded role in helping companies and individuals both protect themselves and recover from cyber attacks.[IA]

www.insurance-advocate.com

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[ FACE TO FACE ]

By Michael Loguercio

Welcome To McDonalds, May I Take Your Data?

am certain that we have all heard those words, at least almost those words, which are usually muffled with a sound quality so poor that it basically sounds like the person on the other end of the headset and behind window number one, is eating a Big Mac and stuffing a “make it a meal” sized fries in their mouth all the while

postal address, phone number, and information about promotional preferences may also have been exposed, the company said in an FAQ on its Web site. Social Security numbers were not included in the database, the company said. However, a short time later it was revealed that in addition to e-mail address-

Lately, it seems like all we hear about are cyber-attacks and data breaches, including one right around the same time as the McDonalds breach, involving 1.3 million user accounts at a blog empire and a very popular pharmaceutical chain: Walgreens. Michael Loguercio

making change for the person who is already at their window, and then directing them to the next window to pick up their order, while still taking your order, while they are also talking to the other food handler who is handing them a chocolate shake topped with whip cream and a cherry, along with a crispy snack wrap and Caesar Salad, so that they may pass it to a pretty young lady who is sitting in her car anxiously awaiting to have lunch with her boyfriend on a sunny Saturday afternoon down by the water! Whew! Good thing that they are as attentive to you as they always get your order right and give you the correct change, too! They don’t…really? You’ve received correct change, though, right? No? Well if you are concerned about correct change, then just give them your debit or credit card instead…that should ease your mind a little! NOT! Back in December of 2010, McDonalds had a “family-sized” cyber-data breach (like so many other reputable companies lately) and sent out a warning to their customers who signed up for promotions, or registered at any of its online sites, that their e-mail addresses had been compromised by an unauthorized third party. McDonalds stated that the customer name, 20 March 17, 2014 / INSURANCE ADVOCATE

es, other information may have also been exposed such as birth date, and gender, which could pose a serious security threat to those affected. When the breach first occurred, it was announced that the data was managed by an “unnamed company” hired by its marketing partner, Arc Worldwide. However, a short time later the company was revealed to be Silverpop according to a ChicagoBusiness.com report, which quotes an FBI spokesman as saying that “Silverpop has more than 100 customers and that the attack appears to have come from overseas.” Furthermore, an artist community web site called DeviantArt sent an e-mail to its users saying that user names and birth dates, along with e-mail addresses, may also have been involved in a spam-related breach and its marketing e-mail provider was also Silverpop. “Because we value the information that members give us, we have decided not to rely on the services of Silverpop in the future and their servers will no longer hold any data from us,” the e-mail said. When asked for a comment, a Silverpop spokeswoman declined to identify any of its clients by name or say how many customers were affected by the compromise other than to say it was a “small

percentage.” “It appears Silverpop was among several technology providers targeted as part of a broader cyberattack,” Silverpop said in a statement. The spokeswoman would not elaborate, but a blog post by Silverpop Chief Executive Bill Nussey eventually suggested that the company wants to make it clear that “…they are not the only company that has suffered a breach.” It goes on to say, “The media has recently been covering the security disclosures of several large brands,” Nussey wrote. “It is important to clarify that several of these large brands have never been Silverpop customers. I’m hopeful it is clear that the disclosed attacks cover multiple companies in our space and we, as an industry, need to work together to protect the security of all of our customers.” Gee… that statement makes me feel SO much better! Lately, it seems like all we hear about are cyber-attacks and data breaches, including one right around the same time as the McDonalds breach, involving 1.3 million user accounts at a blog empire and a very popular pharmaceutical chain: Walgreens. Their data breach exposed customer e-mail addresses, but a spokesman said that “he was confident that the incident was not related to any other public breaches, despite the fact that the company had a contract for promotional services with Arc Worldwide as of last year.” It was also indicated in the statement that the Walgreens attack was unrelated to Arc Worldwide or Silverpop, according to a Walgreens spokesman, Michael Polzin. Although Mr. Polzin declined to say how many customers were affected, or how the e-mail addresses were compromised in the first place, he did state that only e-mail addresses were exposed. Walgreens then warned their customers in an e-mail on Friday that they might be targeted by phishing e-mails disguised to appear as though they originated from the Walgreens. The scam then requests additional information, such as credit card numbers, etc. Polzin did say that the comcontinued on page 22

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[ FACE TO FACE ] continued from page 20

pany was working with the FBI on the investigation. Also around that time there was a data breach of the Gawker blogging sites, in which the bad guys identified themselves as “Gnosis”, and obtained access to the company’s web site and back-end database. They then went on and posted user names, passwords, e-mail addresses, and other sensitive Gawker communications to The Pirate Bay Bit Torrent site. What makes these types of cyberbreaches even more complicated, is that because there are so many unsuspecting potential victims out there simply because they use the same password on multiple accounts, the breach puts those users’ accounts on other sites at risk of an additional hijack, and then those sites share the breach with other sites, and so on and so forth. After the Gawker breach, Twitter accounts were found to be used to send spam. To prevent any similar problems from happening, some sites such as LinkedIn, disabled passwords of users whose e-mail addresses were also used on Gawker, and Yahoo reportedly asked users to reset passwords, but did not say it was related to Gawker. So how does the average, internet surfing, debit card swiping, EBay purchasing, average person like us, or a business that collects this type of sensitive information, help to prevent cyber bullying thieves from stealing the Private Identifiable Information, also known as: PII? (Per Wikipedia: “Personally identiﬁable information” (PII), as used in US privacy law and information security, is information that can be used on its own or with other information to identify, contact, or locate a single person, or to identify an individual in context. The abbreviation PII is widely accepted in the US context, but the phrase it abbreviates has four common variants based on personal /personally, and identiﬁable / identifying. Not all are equivalent, and for legal purposes the effective definitions vary depending on the jurisdiction and the purposes for which the term is being used. In other countries with privacy protection laws derived from the OECD privacy principles, the term used is more often “personal information”, which may be somewhat broader). 22 March 17, 2014 / INSURANCE ADVOCATE

When you’re checking your email or chatting over instant messenger (IM), be careful not to click on any links in messages from people you don’t know. The link could take you to a fake website that asks for your private information, such as user names and passwords, or it could download malware onto your computer. Even if the message is from someone you know, be cautious.

According to McAfee, the following are some steps that you can take in order to prevent cyber theft. Although these points may sound obvious, or even elementary, it really boils down to the fact that sometimes we forget, and/or take for granted technology, and forget to do the basics in order to protect ourselves.

Top 10 Steps To Help Stop Cybercrime You’ve probably heard the adage “information is power,” and that is certainly true when it comes to cybercrime. Access to your personal information is what gives hackers the power to tap into your accounts and steal your money or your identity. But the right information can also empower you to protect yourself from being caught up in the thriving industry that is cybercrime. With that in mind, here is our Top 10 list of steps you can take to avoid becoming a victim of cybercrime. 1) Education - Hackers aren’t the only ones who can gain power from information. By educating yourself about the types of scams that exist on the Internet and how to avert them, you are putting yourself one step ahead of the cybercriminals. Since phishing is prevalent, read up on the latest phishing scams and learn how to recognize a phishing

attempt. Remember, phishing is when hackers attempt to lure you into revealing personal information by pretending to be a legitimate organization or person. These scams often play off major new stories, so keep informed on the latest news-related scams. 2) Use a ﬁrewall - Firewalls monitor traffic between your computer or network and the Internet and serve as a great first line of defense when it comes to keeping intruders out. Make sure to use the firewall that comes with your security software. And if you have a home wireless network, enable the firewall that comes with your router. 3) Click with caution - When you’re checking your email or chatting over instant messenger (IM), be careful not to click on any links in messages from people you don’t know. The link could take you to a fake website that asks for your private information, such as user names and passwords, or it could download malware onto your computer. Even if the message is from someone you know, be cautious. Some viruses replicate and spread through email, so look for information that indicates that the message is legitimate. 4) Practice safe surﬁng - When navigating the web, you need to take precautions to avoid phony websites that ask for your personal information and pages that contain malware. Use a search engine to help you navigate to the correct web address since it will correct misspellings. That way, you won’t wind up on a fake page at a commonly misspelled address. (Creating a phony site at an address similar to the real site is called “typosquatting,” and it is a fairly common scam.) You may also want to use a product like McAfee® SiteAdvisor® software to help you navigate. SiteAdvisor software is a free browser tool that tells you if a site is safe or not right in your search results, so you are warned before you click. 5) Practice safe shopping - In addition to practicing safe surfing, you also need to be careful where you shop online. Be cautious when shopping at a site that you’ve never visited before and do a litcontinued on page 24

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[ FACE TO FACE ] continued from page 22

tle investigation before you enter your payment information. Look for a trustmark, such as McAfee SECURE™, to tell you if a site is safe. And when you’re on a payment page, look for the lock symbol in your browser, indicating that the site uses encryption, or scrambling, to keep your information safe. Click on the icon to make sure that the security certificate pertains to the site you are on. You also want to look at the address bar to see if the site starts with “https://” instead of http:// because this is another way to see if the site uses encryption. When it comes time to pay, use a credit card instead of a debit card. If the site turns out to be fraudulent your credit card issuer may reimburse you for the charges, but with a debit card your money is gone. Finally, evaluate the site’s security and privacy policies in regards to your personal data. 6) Use comprehensive security software and keep your system updated - Because hackers have a wide variety of ways to access your system and information, you need comprehensive security software that can protect you from all angles. Software like McAfee® SecurityCenter, available preloaded on Dell™ PCs, can help protect you from malware, phishing, spyware, and other common and emerging threats. Just make sure that you keep your security software up to date by selecting the automatic update function on your security control panel. And don’t forget to perform regular scans. You also want to update your operating system (OS) and browser with the latest security patches. If you are a Microsoft Windows user, you can enable automatic updates to keep your OS safe. 7) Secure your wireless network Hackers can access data while it’s in transit on an unsecured wireless network. You can keep the hackers out by enabling the firewall on your router and changing the router’s administrator password. Cybercriminals often know the default passwords and they can use them to hack into your network. You may also want to set up your router so it only allows access to people 24 March 17, 2014 / INSURANCE ADVOCATE

Strong passwords can go a long way in helping secure your information, so choose a password that is at least 10 characters long and consists of a combination of letters, numbers and special characters. Also consider changing your password periodically to reduce the likelihood of it being compromised.

with passwords that are encrypted. Check your owner’s manual for instructions on setting up encryption. 8) Use strong passwords - Although it may be easier for you to remember short passwords that reference your birthday, middle name, or pet’s name, these kinds of passwords also make it easy for hackers. Strong passwords can go a long way in helping secure your information, so choose a password that is at least 10 characters long and consists of a combination of letters, numbers and special characters. Also consider changing your password periodically to reduce the likelihood of it being compromised. 9) Use common sense - Despite the warnings, cybercrime is increasing, fueled by common mistakes people make such as responding to spam and downloading attachments from people they don’t know. So, use common sense whenever you’re on the Internet. Never post personal information online or share sensitive information such as your social security number and credit card number. Exercise caution when clicking on any links or downloading any programs. 10) Be suspicious - Even if you consider yourself cyber savvy, you still need to keep your guard up for any new tricks and be proactive about your safety. Backup your data regularly in case anything goes wrong, and monitor your accounts and credit reports to

make sure that a hacker has not stolen your information or identity. Although protecting yourself does take some effort, remember that there are a lot of resources and tools to help you. And by adopting a few precautions and best practices, you can help keep cybercrime from growing. In addition, please visit the Federal Trade Commission website: http://business.ftc.gov/privacy-and-security where you will find a number of ways to prevent cyber theft and to protect your own PII, including the online brochure, “Protecting PERSONAL INFORMATION: A Guide for Business”. So, next time you drive up to a fast food window, or swipe your card at a department store, just remember one thing: Be aware! Well, April marks my sixth year anniversary as a columnist for The Insurance Advocate. I still remember the first time Steve Acunto asked me to submit an article; and I thought he was nuts! Steve and I were having breakfast in a little café in Grand Central Station in New York on St. Patrick’s Day in 2008. I was marching in the parade that day with my kids’ high school marching band, as I was representing the Longwood Central School District Board of Education in support of the band. I remember walking up 5th Avenue that afternoon, waving to all the people who were watching the parade, kissing babies and their mommies, while I wondered what in the world I would ever write about! A week later I wrote my first piece, while sitting by the pool at the Marriott in Orlando, FL, about six o’clock in the morning. Well, six years later and probably about 150 articles into it, I am enjoying this gig more now than I ever did…and I STILL wonder what in the world am I ever going to write about every time I reach a deadline and get that exciting call from Gina at the magazine, asking me “Loguercio, where is my article?!?!” To all our readers and especially those who enjoy reading my column, thank you for bringing me into your home or business twice a month and I hope that you enjoy reading my column as much as I enjoy bringing it to you! Until next time, Ciao for now![IA] continued on page 26

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IN THE MATTER OF THE LIQUIDATION OF GRAND CENTRAL ASSURANCE CORPORATION Supreme Court County of New York Index No.: 451373/13 NOTICE Pursuant to an order of the Supreme Court of the State of New York, County of New York (the “Court”), entered October 8, 2013 (“Liquidation Order”), the Superintendent of Financial Services of the State of New York and his successors in office were appointed liquidator (“Liquidator”) of Grand Central Assurance Corporation (“GCAC”) and, as such, has been directed to take possession of GCAC’s property and liquidate its business and affairs pursuant to Article 74 of the New York Insurance Law (“Insurance Law”). The Liquidator has, pursuant to Insurance Law Article 74, appointed Michael J. Casey, Acting Special Deputy Superintendent (“Acting Special Deputy”), as his agent to carry out the responsibilities of the Liquidator through the New York Liquidation Bureau, 110 William Street, New York, New York 10038. The Liquidator has submitted to the Court a verified petition (“Verified Petition”) seeking an order: (i) approving the Liquidator’s report (“Report”) on the status of GCAC’s liquidation proceeding (“Liquidation Proceeding”); (ii) terminating and closing the Liquidation Proceeding; (iii) releasing and discharging the Liquidator, his predecessors and successors in office, and their agents, attorneys and employees, from any and all liability arising from their acts and omissions in connection with the Liquidation Proceeding; (iv) authorizing and directing the Liquidator, in his discretion, to destroy or otherwise dispose of any and all of the books, files, records and other property of GCAC without further order of the Court; and (v) providing for such other and further relief as the Court deems appropriate and just. A hearing is scheduled on the Verified Petition on the 1st day of April, 2014, at 2:30 p.m., before the Court at the Courthouse, IAS Part 36, 60 Centre Street, Room 428, in the County, City and State of New York. If you wish to object to the Verified Petition, you must serve a written statement setting forth your objections and all supporting documentation upon the Liquidator and Clerk of the Court, at least seven days prior to the hearing. Service on the Liquidator shall be made by first class mail at the following address: Superintendent of Financial Services of the State of New York as Liquidator of Grand Central Assurance Corporation 110 William Street, New York, New York 10038 Attention: General Counsel. The Verified Petition and Report are available for inspection at www.nylb.org and at the above address. In the event of any discrepancy between this notice and the documents submitted to Court, the documents control. Requests for further information should be directed to the New York Liquidation Bureau, Creditor Claims Department at (212) 341-6809. Dated: February 27, 2014 Superintendent of Financial Services of the State of New York as Liquidator of Grand Central Assurance Corporation 26 March 17, 2014 / INSURANCE ADVOCATE

[ FAC E TO FACE ] continued from page 24

Michael Loguercio is the Regional Sales Manager for EZLynx; and has been active in the insurance industry since 1978 as an insurance technology professional and a licensed insurance broker. He is an active Past President 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, and Council of Insurance Brokers of Greater New York committee member. NY-YIP/PIA has honored Michael with a “Distinguished Service” award in September of 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and a “Special Service” award in 2013. In his community, Michael is the Immediate Past President and current member since 2004 of the Longwood Central School District Board of Education on Long Island, NY; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. 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.

Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com

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[ WORKERS’ COMP ]

By Donald T. DeCarlo, Esq.

Workplace Bullying - New Age Workers’ Comp Benefits

t is not just your child being bullied at school that’s creating concern as described in the national press, concern also extends from the fact workers compensation benefits are now being awarded for mental stress in the workplace as a result of bullying. In New York alone, there were two recent cases; a mental health therapist aide was ruled by the full New York Workers’ Compensation Board (WCB) as having sustained an accidental injury arising out of workplace harassment of coworkers Donald T. DeCarlo, Esq. and supervisors. The WCB stated, verbal abuse and threats of harassment by coworkers, coupled with the supervisors refusal to stop such behavior created a compensable stress claim, as it was greater than other similar situations found in the normal workplace. (Rockland Psychiatric Center 113 NYWCLR 256 2014). In another case, the full WCB in 2013, awarded compensation benefits for a correction officer who allegedly suffered from panic disorder and stress disorder due to workplace harassment. Coworkers constantly teased and harassed him about preferential treatment he allegedly received from a sergeant at the facility. The harassment claimed were missing time cards, profane language written on his time card, being left a threatening message and being belittled by a supervisor for taking antidepressant medication. Once again the WCB took the position that the facts supported a workers compensation claim because a mental stress claim can be sustained where stress is greater than what occurs in the normal workplace. The claimant in both cases above could have pursued Human Resources for help if he was not comfortable with the work environment, or find another job as so many people have done over the years. However, finding another job these days might be part of the problem. Now filing a mental 28 March 17, 2014 / INSURANCE ADVOCATE

One report claims that one out of four workers in this country say they’ve been bullied on the job, according to the Workplace Bullying Institute (“WBI”). stress claim for workers compensation is the new twist on dealing with the pressures of work life. Some facts generally, on bullying: One report claims that one out of four workers in this country say they’ve been bullied on the job, according to the Workplace Bullying Institute (“WBI”). Yes, there is a Workplace Bullying Institute. While 60% of on-the-job bullies are men, according to the WBI, nurses are especially prone to the practice, and it affects those who watched others being bullied. Bullying is not limited to the hospital setting, most notably the recent bullying case involving two Miami Dolphin football players and a coach. The bullying according to the NFL consisted of a pattern of racial and homophobic language and other abuse. It caused a player to leave the team, give up his NFL career. Bullying targets not only the rugged football players but also the weak ie. disabled, and elderly, or bullying can take a turn to ethnicity, sex, religion which also exposes an employer to claims of discrimination, and now workers’ compensation claims. Are bullying claims contemplated by the state workers compensation systems?? (I doubt it) Where do we go from here in terms of cost and prevention? It appears from this writer’s perspective there is at least a need for new age prevention programs in the workplace related to bullying, which will serve the dual purpose of raising the awareness of the problem by employers. The prevention program might be merely the use of an employee assistance programs (EAP). EAP services, which are generally reasonably priced, can provide counseling or referral to professionals to help stressed employees. In addition, HR personal should be provided education or guidance on how to

deal with employee bullying incidents. It is a “slippery slope” when workers compensation administrators begin to recognize bullying claims as compensable. We are quickly arriving at the point where anyone will be able to qualify for compensation benefits simply by making the right allegations. (She doesn’t like me and I can’t work anymore). Employment law and not workers compensation should be the remedy for bullying.[IA] Donald T. DeCarlo, Esq. is the principal of an independent law firm in Lake Success, NY, which focuses on mediation/arbitration and regulatory and insurance counseling. Before establishing the firm in 2005, Mr. DeCarlo was a Partner at Lord Bissell & Brook LLP and headed its New York office. Formerly, he was Senior Vice President and General Counsel of The Travelers Insurance Companies, Deputy General Counsel for its parent corporation Travelers Group, Inc. and Executive Vice President and General Counsel for Gulf Insurance Group. Mr. DeCarlo is a Certified ARIAS•U.S. Arbitrator and Umpire, a Master Arbitrator for the NYS Insurance Department, and an Arbitrator for the American Arbitration Association and Center for Dispute Resolution. Mr. DeCarlo is also the Founder, Chairman and President of The American Society of Workers’ Comp Professionals, Inc. (AMCOMP). He Chairs an Advisory Committee of the World Trade Center Captive Insurance Company, and formerly served as Chair, Vice Chairman and Commissioner of the New York State Insurance Fund (NYSIF) for 10 years. He also served as an Inspector for the NYS Athletic Commission. Mr. DeCarlo has authored numerous scholarly articles in legal and trade journals and is a co-author of two books on workers compensation insurance, Workers’ Compensation Insurance & Law Practice – The Next Generation and Stress in the American Workplace – Alternatives for the Working Wounded.

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[ ON TH E LEVEL ]

By Jamie Deapo

Why Should I Do Business With You?

fair question and your response is critical to the future success of your agency. I just finished recording an upcoming two part webinar on value added selling. I’m pretty sure there will be some members and their staff who will laugh at the idea.

Buying protection this way is like playing Russian roulette with your family’s future. That’s where the value of independent agents and brokers comes in. We are all about providing knowledge and insight to the process of buying and benefitting from insurance. It’s what makes us different and

Value added selling and providing proper protection takes hard work, courage and commitment. It’s all about helping consumers make an informed decision on what to buy and where to buy it. It’s also about providing the follow through and follow-up service you promise as well. Jamie Deapo

They prefer price selling. I wonder if that’s because it takes very little skill to sell on price. It just requires the ability to quickly develop a quote and take an order when your premium is lower than the competition. Not a lot of skill required there. So why do consumers fall for this dangerous and irresponsible method of providing insurance? The truth is many consumers don’t understand enough about insurance coverage to make good buying decisions based on protection so they rely on price. They also fail to acknowledge the possibility of a serious loss. It’s easy to buy on price when you anticipate never having an accident or at best a minor fender bender. That belief is reinforced by over a billion dollars in advertising designed to reinforce the idea that insurance protection is a commodity to be bought solely on the basis of price. The truth is other than compliance buyers (people who buy to comply with state law) or the occasional irresponsible consumer most people want to be properly protected. They simply don’t understand the various nuances of coverage and how it may affect them and their family. They choose to believe that all insurance is essentially the same and buying the lowest priced policy is the smart thing to do. 30 March 17, 2014 / INSURANCE ADVOCATE

the reason consumers should do business with us. It’s usually at this point where the title of this article comes in and consumers put you on the spot. My question is: are you prepared to tell them why they should do business with you and do you have the commitment, skill and follow-up necessary to make your answer a reality. Value added selling and providing proper protection takes hard work, courage and commitment. It’s all about helping consumers make an informed decision on what to buy and where to buy it. It’s also about providing the follow through and follow-up service you promise as well. Why do so many agents and brokers avoid this method of providing coverage and service? Is it a lack of belief in the product? Do they fear the buyer rejecting the work and value they are offering? Have they never been trained in selling value and peace of mind coverage at a competitive price? Maybe it’s just easier to play the price game. If that’s the case why do we as independent agents and brokers spend so much time and money investing in education and knowledge? There are two issues with selling based on price. The first is that you’ll never be successful selling price against the real

price sellers. The have the resources and systems to ultimately win that battle and current market share confirms this. Even if you are lucky enough to win business on price, how long do you think you’ll keep that customer? If they have a serious loss and the coverage is not there don’t you think they might come after you under your E&O coverage? The second and more important problem with price selling is you have failed the consumer. Yes, you can justify your actions by saying that it’s the consumer’s own fault they aren’t properly protected and you would be technically correct. But if you’re not going to try and educate consumers and assist them to buy and maintain proper protection why continue as an independent agent or broker? You should believe enough in the value of what you do to make the effort to provide consumers with proper protection at a competitive price? If you don’t believe in yourself how in the world do you expect consumers to believe in you? The choice is yours. You can exercise the professionalism and conviction necessary to properly write protection or you can go the easy route selling price and expect to be put out of business by the direct response carriers. Sounds harsh and it is, however that’s the reality of where we are today.[IA]

CELEBRATING 125 YEARS! Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com

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[ IN THE ASSOCIATIONS ]

Four-State PIA Survey Shows Hard Market isn’t Escalating as Expected

LENMONT, N.Y.—In the first month of 2014, the PIA affiliates in Connecticut, New Hampshire, New Jersey and New York conducted their second-annual Market Trends Survey, finding the heralded hard market may not be launching as expected. In fact, when compared to responses from last year, agents report to PIA that movement has slowed. More than 200 respondents participated in the survey, which asked producers in the four states if their clients are experiencing increases or decreases on various lines of business (personal auto; homeowners; commercial property; and commercial liability) and if their carriers’ underwriting guidelines are tightening or relaxing over the past year. Overwhelmingly, respondents told PIA that prices are rising, but PIA found, the rate at which this is happening has slowed down since last year. Agents told PIA that business premiums are increasing in each of the four categories, with the majority of respondents noting an increase of 6-10 percent (53 percent for personal auto; 46 percent for homeowners; 47 percent for commercial property and 54 percent for commercial liability). However, a number of respondents also said rates have decreased or

Homeowners underwriting changes, and the degree of change clients are experiencing.

increased by less than 5 percent (11 percent for personal auto; 12 percent for homeowners; 4 percent for commercial property; and 7 percent for commercial liability). Likewise, renewal premiums for commercial lines mirrored these rate changes. Agents also reported that their remarketing efforts have increased since last year. However, when PIA asked respondents to indicate what percentage of their business

Breakdown of percent of commercial-lines business being remarketed. X axis = percent of respondents, Y axis = category answers. 32 March 17, 2014 / INSURANCE ADVOCATE

they had to remarket (less than 5%; 6-10%; 11-15% 16-25%; or 26% or more), the numbers show a slowdown in the rate at which remarketing is taking place. In 2013, an overall measure of agents’ responses said they had remarketed 11-15 percent of their business; this year, that number dropped to the 6-10 percent category. Respondents reported that homeowners has seen the greatest change with regard to underwriting guidelines; and while carriers continue to enact restrictions, they are doing so with less vigor as well. When asked if underwriting guideline changes are the “same, minor, moderate, significant or extreme,” agents told PIA that changes remained the same as last year, with 36 percent of respondents calling the underwriting changes “significant.” “Rates always seem to increase,” said PIA Director of Business Issues Jim Pittz, CIC, CPIA. “But, the increase is less dramatic than last year and as many had hoped. While a single year-over-year report gives us less certainty, this lack of substantial overall change in underwriting and price increase is something that has our attention. When we are still hearing from up to 20 percent of our members that changes are minimal, I’m not sure we can say the market is truly hardening.”[IA]

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[ COURTSI DE ]

By Casey O’Brien, Cuyler News

On Dissent

LBANY, N.Y.—Insurance cases are being brought to the forefront at the New York Court of Appeals, ranging from a three million dollar malpractice case to personal injury cases, with three out of five including a dissent. It happens coincidental that there are five insurances cases at once, one of which was for a broker rather than an insurance company. In the insurance realm, contracts, definitions, and explanations are important. There are more dissents today than there were ten years ago, but sources say the reason is Chief Judge Lipman feels that dissent is good because it opens the issues and the determinations of the court. The opinion of K2 Investment Group, LLC v. American Guarantee & Liability Insurance Co., written by Judge Robert Smith, is a nearly three million dollar case which was just granted reargument by the Court in September. K2 Investment Group

There are more dissents today than there were ten years ago, but sources say the reason is Chief Judge Lipman feels that dissent is good because it opens the issues and the determinations of the court.

and ATAS Management Group loaned the large sum to real estate company Goldan, LLC, owned by New York attorney Jeffrey Daniels, who failed to repay the loans and declared bankruptcy in 2009. K2 and ATAS subsequently sued Goldan on claims of legal malpractice, as well as alleging Goldan

breached personal guarantees of the loans. The malpractice insurance company for Goldan, American Guarantee & Liability Company, disclaimed coverage over Daniels as he had declared bankruptcy. American Guarantee once again disclaimed coverage when Daniels forwarded a settlement offer of $450,000; when Daniels neglected to appear in the malpractice action, the Court awarded K2 $2,404,378, and ATAS $688,716 and discontinued their personal guarantee claims against Daniels. In turn, Daniels turned his claims (including a claim of bad faith) against American Guarantee. As assignees of Daniels’ rights under the malpractice policy, K2 and ATAS brought forth the action to recover the amount of the default judgment and the alleged bad faith of American Guarantee, who refused to defend or indemnify Daniels The Supreme Court dismissed the

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[ COURTS I D E ] claims of bad faith, but granted summary judgment to the plaintiffs to enforce default judgment. In a 3-2 decision the Appellate Division, First Department affirmed the action, stating policy exclusions “are patently inapplicable” to the claim of legal malpractice. The dissent written by Judge Victoria Graffeo called into question whether the exclusions applied or not. “It is apparent that American Guarantee must satisfy the judgment that was entered against its policyholder.” Graffeo said assuming Daniels was insured against the malpractice claim made against him, “American Guarantee should not now be allowed to avoid satisfying the judgment on the ground that the claim in the underlying lawsuit actually fell under a policy exclusion.” The Court affirmed, saying American Guarantee breached its duty to defend Daniels and therefore lost their right to rely on the policy exclusions. Upon reargument, the Court denied the plaintiff ’s motion for summary judgment. In the case of Deborah Voss, et al., v. The Netherlands Insurance Company et al., v. CH Insurance Brokerage Services, Co., Inc., Judge Victoria Graffeo wrote that after acquiring insurance coverage through CH Insurance for a commercial building Voss purchased, the insurance company was not responsible for any promises made by the broker. The policy included a $75,000 business interruption policy from Peerless Insurance Company, which would cover lost business income caused by damage to the property. CH Insurance reviewed Voss’ property to come up with the $75,000 figure, and stated they would annually review the coverage as her businesses grew. In March 2007, the roof of Voss’ building breached, causing substantial water damage; after repairs were made by a contractor, the roof partially collapsed again the next month causing more water damage to the building. Voss testified that Peerless paid her $3,197 for the first incident and $30,000 after the second; CH Insurance recommended reducing her business interruption coverage to $30,000, to which Voss agreed. In February 2008, the roof again partially collapsed, and Voss testified she received no payment from Peerless. Voss brought the action against CH Insurance claiming negligence and breach of contract, and alleging the broker improp-

The dissent,…argued though the broker promised Voss CH Insurance would annually give advice as her business grew, “it is not and could not be claimed [the broker’s] promise was legally binding.”

erly advised them the $75,000 in business coverage would be adequate, and claimed their losses exceeded two million dollars. The Supreme Court granted the broker’s motion to dismiss the suit. In an affirming 3-1 vote, the Appellate Division, Fourth Department stated CH Insurance did not establish that a special relationship had not existed between themselves and the plaintiffs, and Voss relied on the broker’s “expertise and assurance regarding the appropriate level of insurance.” They did, however, rule the case was properly dismissed as the plaintiffs knew the terms and limits of the policy, and even if CH Insurance was negligent in obtaining sufficient coverage, they were not the direct cause of the damages. The dissent, written by Judge Robert Smith, argued though the broker promised Voss CH Insurance would annually give advice as her business grew, “it is not and could not be claimed [the broker’s] promise was legally binding.” Furthermore, though she asked for advice from CH Insurance, as it was never followed through the “plaintiffs clearly were not relying on advice from CH Insurance at the time the insurance coverage that plaintiffs now complain of was acquired.” The order was reversed and CH Insurance’s motion from summary judgment was denied. An opinion written by Judge Robert Smith in the case of Executive Plaza, LLC v. Peerless Insurance Company, dealing with a one million dollar fire insurance policy was issued by Peerless, and covered a twostory office building in Island Park which continued on page 38

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

“The issue is whether an insurer can rescind a policy when it is discovered within the two year contestability period that the insured lied on an application in order to pay a lower premium. If the courts force insurers to pay a lower death benefit to compensate for the discount rather than allowing the insurer to rescind the coverage, then a message will be sent to every smoker that they can lie on thier application and, if they are successful, their beneficiaries will receive the death benefit.”

36 March 10, 2014 / INSURANCE ADVOCATE

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

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[ COURTSIDE ] continued from page 35

was owned by Executive Plaza. One provision of the insurance required Executive to repair its damaged property as soon as possible before seeking payment for such costs; another provision requires Executive to bring a lawsuit against Peerless within two years of the damage occurring. In February 2007, Executive’s building was destroyed by fire; they quickly hired an architect and construction company to begin replacing the building. After zoning and a variety of issues facing the construction, the building was finally completed in October 2010. In February 2009, Executive sued Peerless for the replacement costs, up to the $242,000 under the policy limit, after Peerless previously paid $758,000 to cover the cash value of the property. The U.S. District Court dismissed the case because at the time, the building’s construction had not been completed. After the construction was completed, Executive demanded $242,000 of Peerless, but was rejected, therefore bringing this action against them. When the District Court dismissed the case as time-barred, Executive appealed. The U.S. Court of Appeals for the Second Circuit poses the question to the New York Court of Appeals whether under the terms of the policy Executive would be “covered for replacement costs if the insured property cannot reasonably be replaced within two years,” or if the two-year limitation can be enforced regardless of construction time. As the insured had begun the action on the last day of the limitation period and the insurer argued it was too soon, Judge Smith said it is unreasonable for them to now say a day later would be too late. The question has been answered in the affirmative. Justice Eugene Pigott wrote an opinion on the case of Country-Wide Insurance Company v. Preferred Trucking Services Corp. In September 2006, Filippo Gallina was injured in a construction accident caused by a truck owned by Preferred and operated by Carlos Arias, a Preferred employee. Both Preferred and Arias were insured by Country-Wide, with a policy requiring them to cooperate while investigating and defending claims. When Country-Wide began investigat38 March 17, 2014 / INSURANCE ADVOCATE

The Appellate Division, First Department affirmed, stating Country-Wide should not have disclaimed coverage until they were sure Arias would not cooperate; their diligent work to attain cooperation shows Country-Wide believed Arias and Markos had information relating to the investigation.

ing Gallina’s claim in February 2007, their repeated efforts to obtain cooperation from Arias and the president of Preferred, Andrew Markos, went ignored, causing the insurer to close their case in May. The followed up with a disclaimer of indemnity in October, and again resumed attempting to contact both Arias and the Markos. Both Markos and Arias expressed interest in cooperation, but ultimately did not return phone calls or attend depositions. In November 2008, Country-Wide issued a compete disclaimer of coverage based on the lack of cooperation, and stated they would no longer provide a defense. Gallina won a $2.55 million dollar judgment against Arias and Preferred. CountryWide pursued a judgment which would agree they are not obligated to defend and indemnify Preferred. The Supreme Court stated that they should have realized when Markos failed to respond to any contact that he would not cooperate, yet they still waited four months before issuing a second disclaimer. The Appellate Division, First Department affirmed, stating CountryWide should not have disclaimed coverage until they were sure Arias would not cooperate; their diligent work to attain cooperation shows Country-Wide believed Arias and Markos had information relating to the investigation. Country-Wide argued they were still seeking information in good faith. The order was reversed, and Country-Wide was not obligated to defend and indemnify Preferred Trucking.

In a memorandum from the Court of Appeals, the court states the order of the Appellate Division should be affirmed and answered in the affirmative in regards to the case of QBE Insurance Corporation v. Jinx-Proof Inc., Doing Business as Beauty Bar. A 2007 altercation between customer Vera Hendrix and a security guard employed by Beauty Bar, owned by JinxProof, caused Hendrix to file a personal injury suit against Jinx-Proof and the guard. Hendrix alleges claims for assault and violation of the Dram Shop Act, as well as negligent hiring and supervision. JinxProof ’s liability policy from QBE Insurance contained assault and battery exclusion; QBE sent the insured a “reservation of rights” letter in January 2008 notifying JinxProof that they would not be defending nor indemnifying them for the allegations of assault and battery. Sending another letter to Jinx-Proof in February, QBE informed them they would be defending the matter under the Liquor Liability portion of the policy, and they again did not have coverage for assault and battery claims. The Supreme Court dismissed the claims of negligence and Dram Shop in April 2010, which left the assault and battery claims still pending. Judge Eugene Piggot wrote a dissent, stating the letters from QBE “do not communicate the requisite unequivocal written notice of the disclaimer, and therefore do not constitute disclaimers of coverage.” The Court ruled that QBE was not responsible for defending Jinx-Proof, and their letters to the company were sufficient and “effective written notices of the disclaimer.” The Appellate Division, First Department affirmed with a 4-1 vote.[IA]

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Are your Workers’ Compensation clients getting the service they deserve?

w w w . h a m o n d g r o u p . c o m

The Hamond Service Check List: Knowledge of Underwriting Issues. Knowledge of Payroll Audits. Knowledge of OSHA Issues. Guided through the Claims Process from first report to finalization. Prehearing Interview of employer witnesses. Accompany client to hearing where their testimony is required. Works for your client, not the carrier. A partner, that knows your client’s business and exposure!

Group Members are not just another policyholder!

At Hamond our staff averages 30 years of Workers’ Compensation experience!

Group 534: Almost all construction classes eligible Group 533: Woodworkers, Lumberyards, and Building Material Dealers MAXIMUM UP FRONT DISCOUNT FOR QUALIFIED MEMBERS

50% of the Service Fee paid to Brokers for the first three policy terms! Unbroken string of dividends since groups inception!

HAMOND SAFETY MANAGEMENT Direct quote requests to:

800-285-2258 • Fax: 516-488-2167

ryu@hamondgroup.com Service Fee on subsequent renewals and on returning members at our usual 20% Underwritten by the New York State Insurance Fund

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Expect big things in workers’ compensation. E xpect to save a third of your clients 3 0% or more. Most classes approved, nationwide. For information call (877) 23 4 - 4 4 5 0 or visit auw.com/us. © 2 014 A p p l i e d Underwriters, U n d e r w r i te r s , Inc. I n c . A Berkshire B e r k s h i re Hathaway H a t h aw ay company. c o m p a ny. Rated ©2014 Applied R a te d A+ A + (Superior) ( S u p e r i o r ) by b y A.M. A . M . Best. Best. IInsurance nsur an c e p lans p rote c te d u n d e r U.S. U. S . Patent P a te nt No. N o . 7,908,157. 7, 9 0 8 ,15 7. plans protected under