March 31, 2014 by C Acunto

VOLUME 125, NUMBER 6 / March 31, 2014

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

A CINN Group, Inc. Publication

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

Contents

March 31, 2014 | volume 125 number 6

[COVER STO RY ]

[ AD FEATURES]

MSO: Alternate Valuation Considerations

PIA: 2014 Annual Conference Atlantic City, NJ

Insurers’ Focus on Market Conduct, Privacy and Filing Rules

[FEATURES] 4

Foreword: Insurance Reasoning / Spill-over Steve Acunto, Publisher

Insight: Tea Leaves and Press Releases Peter H. Bickford

On the Level: Twelve Commandments of Selling N. Stephen Ruchman, CPA

In the News: PRI Names North Shore-LIJ Winner of Risk Management and Patient Safety “Best Practices”

In the Associations: Medical Costs for Auto Injury Claims Outpace Inﬂation, Even as Reported Injuries Become Less Severe

Face to Face: NOW What? Michael Loguercio

Looking Back: February 1989

On My Radar: Health Insurance Fraud Barry Zalma

In the Associations: IIABSC Installs Ofﬁcers & Directors for New Term

Courtside: REVERSED: Executive Plaza v. Peerless Insurance Company

Classiﬁeds

Guest Opinion: Hats Off to the Younger Generation G. Keith Smith, MD

34 Like us on Facebook… The Insurance Advocate Magazine

www.insurance-advocate.com INSURANCE ADVOCATE / March 31, 2014 3

[ FORE WORD ]

Steve Acunto

Insurance Reasoning / Spill-over

VOLUME 125, NUMBER 6 MARCH 31, 2014

here is a new subject in Economics that is taking the country by storm. It's called ObamaMath. It starts with the addition of 7 million people together with the subtraction of 5 million people to determine the success of an ill conceived equation. Right. 7 million sign ups, but 5 million dropped. Unsure number who have paid premiums. Unsure number of young buyers, i.e. paying clients. Readers of the Insurance Advocate understand insurance math and errors in risk financing that are cornerstone concepts in the business of insuring, from adverse selection to the law of big numbers and cash flow underwriting. I cannot imagine that there is an insurance professional in the solar system who would not be worried about ObamaMath and its relationship to other aspects of insuring. Our cover story from the March 17th issue was devoted to the spill-over effect of healthcare on the property and casualty business and other aspects of ensuring. Our viewpoint here, despite obvious appearances, is not a partisan one. We believe it is a common sense viewpoint that invokes insuring logic tin he face of political and ideological partisanship. We will continue to run articles on ObamaCare and ObamaMath, its effects on insuring and on medical professionals. Many of you have enjoyed the guest articles we have run from medical doctors who are deeply concerned over the integrity of their profession and who focus more upon the provision of care than the distribution of cost, but most of whom find the shockwaves of ObamaCare to have undone the delicate balance in the medical delivery system… In this issue, we continue our series of searching articles on megatrends that affect insurers, in this case regulatory, filing and other compliance aspects. The insurance industry has no shortage of survey results and enterprises interested in influencing the practice of insurance for the better, even if the near-term goal is the generation of business for a law firm or a consultant firm. The materials produced and presented here do not lack objectivity. We welcome your comments on these trends and perhaps some suggestions as to the means of addressing them… Frank Rich is an excellent writer and thinker on subjects that affect the conduct the business. In one of his recent articles, from a series called ROI, he observes that there is a great difference between being interested in some and being committed to it. He uses that to distinguish better and worse entrepreneurs’ approaches to operating businesses and, more pointedly, to the conduct of staff members who come to work, in some cases, with no more than their lunch bag. Frank's advice to business owners is clear: imply commitment, not merely interest at all times. If there is a subject that is of no more than passing interest, distinguish it as a hobby or a back burner item and do not let it get confused with the business to which successful entrepreneurs are almost blindly committed.… Speaking of commitment, this issue includes several articles and photos of individuals who “step up” and make themselves heard as leaders of the independent agents and local associations, in JEFF YATES this case the Suffolk County IIAB. See page 32.… In addition, we are proud to feature a great program run by PRI to enhance risk management education and the use of latest techniques for controlling exposure. Story and photos on page 12.… The volunteer sector has always had individuals who have distinguished themselves by setting high standards for the associations and companies with which they are connected. It is interesting to read this issue’s installment of “Looking Back” which revisits a policy statement of the continued on page 8

4 March 31, 2014 / INSURANCE ADVOCATE

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.

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[ INSIGHT ]

By Peter H. Bickford

Tea Leaves and Press Releases

y very first Insight column (IA, May 21, 2012) took a look at the press releases issued by the new Department of Financial Services for the first four months of 2012. I pointed out that not one of the 27 DFS press releases issued in that period related to support for or growth of the insurance industry in

thing, they tell us that the Governor believes it is important to be the face of the DFS! During the full calendar year 2013 the DFS issued 93 press releases. Of those 93, close to 60% were issued in the name of Governor Cuomo or his office rather than the DFS or Superintendent Lawsky. Take away the 37 releases

Therefore, even if the intended audiences of DFS releases are other than the insurance industry, and even if they are not intended to satisfy or inform regulated entities, they can provide critical predictors – or tells - of current and future attitudes. Peter H. Bickford

the State, although I acknowledged that four months may be too short a time frame to be significant, and recognized it might take some time for the new agency to get comfortable in its new clothes. Press releases, whether corporate, political or governmental, provide a window to what is important to the issuer, or how it wants to be seen by others. Equally important is the intended audience. While a statement about a particular event or happening may be considered important to one set of eyes, others may not be that interested or impressed with the released information, and the issuer may not care what certain readers may think or understand. But whether or not the issuer cares about how one audience reacts, press releases can provide significant insight into its intent and focus, and perhaps a precursor to future courses of action. Therefore, even if the intended audiences of DFS releases are other than the insurance industry, and even if they are not intended to satisfy or inform regulated entities, they can provide critical predictors – or tells - of current and future attitudes. What, then, do DFS press release tea leaves tell the industry about the DFS since that original 3-month period? For one 6 March 31, 2014 / INSURANCE ADVOCATE

announcing the deployment of the DFS mobile command center to various sites throughout the State in response to Sandy or other emergencies, only 15 of the remaining 56 releases were issued in the name of the DFS or Superintendent Lawsky, and of those 15, three were pure banking issues and three were regarding the recovery of lost art. There were a number of releases announcing investigations, fines, punitive actions or increased oversight of regulated entities, most issued in the Governor’s name, but once again there was not a single release relating to support for or growth of the insurance industry in New York during the entire year 2013. Providing support and comfort to the industry is obviously not an intended function of DFS press releases, and the industry should have no expectation for public expressions of such solace. However, the statutory charge to the DFS specifically includes supporting the growth and health of the insurance and banking industries and once in a while it would be hoped that the DFS would acknowledge and act upon that statutory function. Judging from the subject matter and tenor of DFS releases, the main function of DFS public pronouncements may be

perceived as showing the public that the Governor and the DFS are protecting them by diligently pursuing all avenues to ensure compliance with the law and regulations and punishing any miscreants. But is the protection of the public truly at the heart of DFS releases? Another sign – or tell – may also lead to the conclusion that a main purpose of many of these releases is to provide a pat-on-the-back to the administration and the DFS rather than in support of a meaningful regulatory effort. Before totally scoffing at such a suggestion - that the administration and the DFS are more interested in bolstering their own stature than the needs of the consumer they profess to protect - consider a recent release announcing a $20 million fine against giant insurer AXA. A press release posted on the DFS web site in March 2014 trumpeted: “Cuomo Administration announces AXA to Pay DFS $20 Million Fine Over Insurance Violations for Retirement Product.” According to the release, a DFS investigation “uncovered that AXA made changes to certain variable annuity products that limited the potential returns for existing customers without adequate notice to DFS.” The release went on to explain that the failure of adequate notice “limited DFS’ ability to put in place important consumer protections” such as an “opt in” provision for existing customers. It also scolded AXA and lectured the industry on the importance of “being clear and upfront” with the DFS regarding any changes in such filings that affect “the retirement savings of tens of thousands of New Yorkers.” OK. Sounds appropriate. However, other than a $20 million payment into the DFS coffers, the release mentioned no form of relief or options being enforced or imposed on AXA for the benefit of the affected annuitants. Perhaps this was skipped over in the release and that the actual consent order includes such options or protections. Not the case: the consent order is also devoid of any remedial action for the benefit of the “tens of thousands of New Yorkers” affected by AXA’s actions. continued on page 8

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[ INSIGHT ] tax on AXA. Could it be that the displeasure of the DFS - or perhaps the Governor’s office was not that AXA somehow jeopardized the value of its customers’ investments but that AXA failed to give full deference to their authority? Were the release and the consent order more about AXA ignoring the DFS’ authority than about providing a remedy for affected annuitants? We cling to a hope that this is not the case, but the tea leaves continue to point

continued from page 6

Nowhere in either the release or the consent order, for instance, is there any requirement that AXA retroactively provide affected annuitants with an “opt in” choice that seemed so relevant as a basis for the fine. In fact there are no required communications with “affected” annuitants at all. What then was the purpose of all the noise other than to impose a de facto

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Could it be that the displeasure of the DFS - or perhaps the Governor’s office - was not that AXA somehow jeopardized the value of its customers’ investments but that AXA failed to give full deference to their authority?

toward a growing disregard by the administration for the insurance industry. Add this to the growing list of tells that includes, among others, the incredible shrinking annual report, discontinuance of opinion letters, a disregard for timely and open reporting, attacks on equity capital, and an inordinate focus on punishment over support and leadership. It may not be necessary for the administration and the DFS to show love for the insurance industry, but at least show it some respect.[IA]

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IIAB that came out 25 years ago. With some amendments and updating, it is still relevant to today's need for confidence in the property-casualty insurance business. It is worth a read. Interestingly, an individual who was among the architects of this document is Mr. Jeff Yates, former IIAA chief executive, who has just retired from service. Jeff, like so many of his peers in the IIAA and in other trade associations, has served the industry faithfully, well beyond the simple carrying out of their duties. The scope of the task is often as large as the scope of this policy statement may 25 years ago. Leaders of the independent insurance agents and professional insurance agents associations are left to deal, when the volunteers go back to work in their offices, with the broad issues of sustaining credibility for the system they represent. We admired them. Jeff Yates deserves our applause and thanks.[IA]

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[ ON THE LEVEL ]

By N. Stephen Ruchman, CPA

Twelve Commandments of Selling

s professional independent agents, we each have our own unique selling style. What works for me may not work for the agent down the street, and neither approach may work for the next person. In fact, a singular sales approach often is what sets us apart from our competition. But, over the years I have found certain tried-andtrue sales techniques, which are common to all successful salespeople. As for me, I started out selling life and health. Disability coverage was a new concept at the time, and people couldn’t visualize the loss of their paycheck. One of my most successful promotions N. Stephen Ruchman was a letter accompanied by a pay envelope. The letter simply asked, “What would happen if this pay envelope stopped coming in?” It worked pretty well because we sell an intangible product. The pay envelope was tangible and important to my customers: It got their attention, and it helped to make the benefit they needed more real and understandable. As my business grew, I found more ways to ensure I gave my clients and prospects something tangible. I’ll never forget the first time I got a call from someone in my hometown who read one of my agency newsletters at one of my client’s offices. I used PIA’s newsletter service to print and mail my quarterly newsletter. This third-party reader liked it enough that they asked me to write their office building policy! Never underestimate the power of a leave-behind newsletter. They keep you in front of your clients whether you can get to them in person or not. Contacting clients more than once a year during an annual policy review, is another sales approach that can work for all of us. (Always try to communicate with your client on a regular basis—even if its via newsletter. ) Now, I’m not as old as Moses, but I’ve been around for a while, and I know some things to be true. Here are 12 additional tenants I’ve learned over more than four decades in the sales business: 10 March 31, 2014 / INSURANCE ADVOCATE

1. Always speak to the client, not above them. Show your knowledge, but don’t make them feel less than you. 2. Stay upbeat. Whenever I was asked, “How’s business?” I always said, “Great!” even if I hadn’t sold anything in a month. You can’t make every sale you go for, but you still always have to have an upbeat attitude. 3. Talk about your successes. Remember, you are your best PR person. 4. Respect the confidentiality of your clients. For example, partnerships dissolve. Even when my client was experiencing a partnership split, I often kept both partners and never again mentioned one to the other. Once privacy has been violated, you lose your relationship. 5. Don’t try to “finesse” your way through an answer you don’t know. It’s best to get back to the client with a correct answer and demonstrate you are going to work on their behalf to get it right. 6. Don’t be too technical. Avoid jargon. The KISS method (Keep It Simple, Stupid) is the best method in the world. 7. Know when to stop. Once you’ve made the sale; don’t keep selling, just take out your pen and get the signature, or you’ll jeopardize the sale you’ve made. As a young salesperson, a rich and respected client once told me: “Steve, don’t say anymore. Give me an application and the pen.” 8. Don’t disparage the competition. Stay focused on the benefits you provide. Even if he’s been negative about you, don’t prove him right by lowering yourself to his level. 9. Learn from your competitors. Borrowing an idea from one person is one thing; borrowing from many is research. If you have the opportunity to see a competitor’s proposal, use it: If you lose business to them, make it a learning opportunity. 10. Know your products. And, more importantly, know how your customers need them. Knowledge is

knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad. 11. Most importantly, treat each client as if they were the most important client you have. I find today, many agents don’t treat their smaller accounts with the respect they deserve. Everyone is watching the minimum premium, and I understand the economics of it. However, you should still treat that person as if they are important to you. Your smallest policy could become a very large account as they grow. 12. Always be out sowing seeds. You never know which will take hold. My father always said: “From small seeds, tall apple trees grow. I have said again and again in this column that while things always continue to change in our industry, certain things will always stay the same. This is particularly true about the most fundamental part of our job—Selling. [IA] N. Stephen Ruchman, CPIA, is a retired partner of B&B Coverage LLC. A past president of the Professional Insurance Agents of New York State Inc., he is an active supporter of PIANY, and has sat on, or chaired, nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. A graduate of Michigan State University, with a major in insurance, Ruchman is past president of the Peninsula Counseling Center and a member and past president of the Rockville Centre Chamber of Commerce board of directors. He is division chair for the Insurance Division of the United Jewish Appeal and has served on the business advisory board of The First National Bank of Long Island. He can be reached via email at nsruchman @gmail.com.

ADVERTORIAL

Alternate Valuation Considerations PROPER BUILDING VALUATION is a common concern for agents and their insureds. Proper valuation is important both when issuing the policy to determine the correct premium for the exposure, and at the time of the loss so there is enough coverage to restore the property to its pre-loss condition. Helping clients understand the benefits and drawbacks of alternate valuation methods is another value-added service of the professional insurance agent. Replacement cost is popular, as it provides coverage to replace or repair the insuredâ&#x20AC;&#x2122;s damaged property with like kind and quality, or new for old. Actual Cash Value is used to provide replacement with deductions for such factors as depreciation, wear and tear and obsolescence. Functional Replacement Cost provides coverage to replace the property with something that is functionally equivalent. Replacement with the same materials may be impossible or unnecessary. For example, a manufacturer or warehouse may be located in an old brick mill style building, or an office may be located in a Victorian style house with ornate woodwork and fixtures. By opting for functional replacement cost, the insured can replace the property using modern, less expensive construction methods and materials. The coverage limit can then be decreased, often as much as 50%. In the case of a partial loss, the repairs can be made in the same style architecturally, but with less expensive methods. For example, walls that were previously made of plaster could be made of drywall. Agreed Value means the insured and the insurance company agree on the value of the building or contents at the time the policy is written. This is com-

Functional Replacement Cost provides coverage to replace the property with something that is functionally equivalent.

mon with fine arts, or jewelry, where valuation after the loss may be subjective. However, some insureds also opt for this valuation if they do not plan to rebuild if there is a loss. With agreed value the coinsurance clause is suspended until a specified

date, usually the policy expiration date. A statement of values is often required to be completed and signed by the insured. If a new statement of values is not completed prior to expiration, the coinsurance clause is reinstated. Although most losses are partial losses and not total losses, if the property is not adequately insured, the coinsurance clause will affect the recovery amount for the damage. Another factor to consider is whether there is a mortgage on the property. The mortgage may include a clause requiring that the property be insured to replacement cost. The key to remember is that, no matter what form of valuation clause is used, if the coverage limit is not adequate at the time of loss, the insured will not be happy. After the loss is not the time for your client to find out they did not purchase adequate coverage. Helping clients choose the proper valuation options is another sign of the true insurance professional.

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[ IN THE NEWS ]

PRI Names North Shore-LIJ Health System Winner of Risk Management and Patient Safety “Best Practices” Parker Jewish Institute for Healthcare & Rehabilitation, New Hyde Park, New York, Earns Honorable Mention

oslyn, N.Y. — Physicians’ Reciprocal Insurers (PRI) presented North Shore-LIJ Health System, Lake Success, L.I. its Risk Management and Patient Safety Best Practices Award for 2014. Parker Jewish Institute for Healthcare & Rehabilitation, New Hyde Park, L.I. won Honorable Mention. PRI, New York’s second largest medical professional liability insurer, established the awards in 2011 to promote the knowledge and adoption of best practices to benefit the healthcare industry as a whole. The awards were made during a ceremony held at the company’s Roslyn, New York headquarters attended by medical professionals from many segments of the field. According to Mr. Anthony J. Bonomo, CEO of the Company, PRI seeks to encourage the health care community to adapt a proactive stance when it comes to quality care. “We are proponents of creative, aggressive approaches to achieving excellence in patient care. The Patient Safety Award gives us the opportunity to publicly acknowledge some of the best practices taking place in the field and give others an opportunity to learn more by facilitating the exchange of information. We are proud to be associated with these well run institutions.” First place honors went to North ShoreLIJ Health System, Lake Success, New York for its innovative program “Getting to Zero: Best Practices to Reduce Hospital-Acquired Central Line Associated Bloodstream Infections ” The award, presented by Jeanne Braun, Executive Vice President, Hospitals and Special Programs for PRI was accepted by Mark Jarrett, MD, MBA, Senior Vice President, Chief Quality Officer, Associate Chief Medical Officer, Donna Armellino, RN, DNP, CIC, Vice President, Infection Prevention, Marianna Vazquez, RN, MS, NE-BC, Associate Executive Director Patient Care Service, Plainview and Syosset Hospitals and Kerri Anne Scanlon RN, MSN, Chief Nursing Officer, North Shore University Hospital, Deputy Chief Nurse Executive, North Shore-LIJ Health System. 12 March 31, 2014 / INSURANCE ADVOCATE

FIRST PLACE WINNERS NORTH SHORE-LIJ HEALTH SYSTEM: DAWN LEWIS, DIRECTOR OF HOSPITALS RISK PROGRAMS, PRI, JEANNE BRAUN, E.V.P., HOSPITALS AND SPECIAL PROGRAMS, PRI, DONNA ARMELLINO, RN, DNP, CIC, V.P. INFECTION PREVENTION, NORTH SHORE-LIJ HEALTH SYSTEM, MARK JARRETT, MD, MBA, S.V.P., CHIEF QUALITY OFFICER & ASSOCIATE CHIEF MEDICAL OFFICER NORTH SHORE-LIJ HEALTH SYSTEM, MARIANNA VAZQUEZ, RN, MS, NE-BC, ASSOCIATE EXECUTIVE DIRECTOR PATIENT CARE SERVICE, PLAINVIEW AND SYOSSET HOSPITALS AND KERRI ANNE SCANLON RN, MSN, CHIEF NURSING OFFICER, NORTH SHORE UNIVERSITY HOSPITAL, DEPUTY CHIEF NURSE EXECUTIVE, NORTH SHORE-LIJ HEALTH SYSTEM.

Honorable Mention went to Parker Jewish Institute for Healthcare & Rehabilitation, New Hyde Park, New York for its program “Case Study: Reducing Inappropriate Nursing Home Resident Hospital Admission”. The award was accepted by Cornelius Foley, MD, FACP, Chairman, Department of Medicine. PRI, through its hospital risk management program, led by Ms. Dawn Lewis, has received numerous plaudits for innovation and for the expansion and adoption of its risk management education programs.[IA] About Physicians’ Reciprocal Insurers Physicians’ Reciprocal Insurers (PRI), headquartered in Long Island, New York, is a leading provider of professional liability insurance to physicians and medical facilities. As the second largest medical malpractice insurer in New York State and one of the Top Ten in the country, PRI is recognized as one of the most respected names in medical malpractice insurance. Founded in 1982 by doctors to serve the healthcare industry and its

HONORABLE MENTION – PARKER JEWISH INSTITUTE FOR HEALTHCARE & REHABILITATION: DAWN LEWIS, JEANNE BRAUN AND CORNELIUS FOLEY, MD, FACP, CHAIRMAN, DEPARTMENT OF MEDICINE, PARKER JEWISH INSTITUTE FOR HEALTHCARE & REHABILITATION.

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[ IN THE ASSOCIATIONS ]

Medical Costs for Auto Injury Claims Outpace Inflation, Even as Reported Injuries Become Less Severe

ALVERN, Pa.—Medical expenses reported by auto injury claimants continue to increase faster than the rate of inflation, in spite of the fact that the severity of the injuries themselves remain on a downward trend. A new study by the Insurance Research Council (IRC) found that from 2007 to 2012, average claimed economic losses (which include expenses for medical care, lost wages and other out-of-pocket expenditures) grew 8 percent annualized among personal injury protection (PIP) claimants, reaching $14,207 per claimant in 2012. Among bodily injury (BI) claimants, average claimed losses grew 4 percent, reaching $10,541 in 2012. Over the same period, measures such as the percentage of claimants who had no visible injuries at the accident scene or who had fewer than 10 days in which they were unable to perform their usual daily activities provided evidence of a continuing decline in the severity of injuries. The study examines several factors in the growth in medical care costs, including the shift toward more expensive treatment and diagnostic alternatives as well as dra-

matic increases in billed charges for visits to many types of medical providers. The use of pain clinics, attorney involvement, and claim abuse were found to exacerbate the increases in medical care expenses. “Medical care costs continue to escalate, especially among first-party claimants,” said Elizabeth Sprinkel, senior vice president of the IRC. “Looking forward, the industry will need to continue its vigilance in contending with these expanding costs, particularly as it monitors the possible spillover effects from general healthcare reform.” The study, Auto Injury Insurance Claims: Countrywide Patterns in Treatment, Cost and Compensation, 2014 Edition, is the seventh of its kind conducted by the IRC collected data on more than 35,000 auto injury claims closed with payment under the five principal private passenger coverages. Twelve insurers, representing 52 per-

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. 14 March 31, 2014 / INSURANCE ADVOCATE

cent of the private passenger auto insurance market in the Unites States, participated in the study. The report shows results on injury, medical treatment, claimed losses and total payments, attorney involvement, and the appearance of fraud and buildup. For more detailed information on the study’s methodology and findings, contact David Corum at 484-831-9046 or by email at irc@TheInstitutes.org. Copies of the study are available for $300 for an electronic version, or $400 for a printed copy. Visit IRC’s website at www.insurance-research.org for more information. [IA] The Insurance Research Council is a division of the American Institute For Chartered Property Casualty Underwriters (The Institutes). The Institutes are the leader in delivering proven knowledge solutions that drive powerful business results for the risk management and property-casualty insurance industry. Institute knowledge solutions include the CPCU designation program; associate designation programs in areas such as claims, risk management, underwriting, and reinsurance; introductory and foundation programs; online courses; research; custom solutions; assessment tools; and continuing education (CE) courses for licensed insurance professionals and adjusters through its CEU.com business unit. The IRC provides timely and reliable research to all parties involved in public policy issues affecting insurance companies and their customers. The IRC does not lobby or advocate legislative positions. It is supported by leading property-casualty insurance organizations.

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[ COVER ]

Insurers’ Focus on Market Con

16 March 31, 2014 / INSURANCE ADVOCATE

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nduct, Privacy and Filing Rules M

arket conduct exams topped the list of concerns among all respondents to Wolters Kluwer Financial Services’ new U.S. Insurance Regulatory and Risk Management Indicator. In the report (follows on page 18) just released, seventyfive percent of those surveyed indicated a significant level of concern with exams, while concern with privacy and data protection, electronic business transactions, changes to state rate and form filing requirements, and consumer complaint compliance increased as well.

The cyclical nature of state by state variations in enforcement action timing was a notable contributing factor driving the small decline, along with an uptick in confidence in the surveyed carriers’ ability to manage risk broadly across the organization.

The ability to maintain compliance with changing regulations was the number one overall concern U.S. insurers are losing sleep over at night, with sixty-two percent of respondents rating their level of concern as a 7 or higher. The ability to keep track of changing regulations and the ability to demonstrate to regulators that they were in compliance were also top worries for nearly sixty percent of respondents. The Main Indicator score fell to 96 from its baseline of 100 established in Q4 2013. Concern overall remained steady, however each of the industry metrics used to calculate the Indicator declined, resulting in an

overall slightly lower rating. The cyclical nature of state by state variations in enforcement action timing was a notable contributing factor driving the small decline, along with an uptick in confidence in the surveyed carriers’ ability to manage risk broadly across the organization. Twenty eight percent of respondents indicated they have an adequate strategic enterprise risk management program in place at their organization. At the same time there was significant rise in respondents citing “regulatory pressures” and “too many technological systems that are not integrated” as top obstacles to managing risk at the organizational level. As the effective date for Own Risk Solvency Assessment requirements draws closer, the strategic enterprise risk management programs at these carriers are going to be tested. This survey data points to potential vulnerabilities in the risk management framework at these organizations. The company’s insurance Indicator measures 10 critical factors to provide a regulatory and risk management “pain indicator.” Seven of these revolve around direct input from life, health and property and casualty insurers on their top compliance and risk management concerns and three of which are based on regulatory data the company compiles. “The steady levels of concern illustrated by the Indicator data provides us with a look into the challenges to U.S. insurance carriers heading into to most active time of year for regulatory enforcement actions,” said Pam Ewing, general manager of Wolters Kluwer Financial Services’ Insurance Compliance Solutions. “Moreover, the indicator suggests that organizations face a very real challenge not only to stay abreast of rapid regulatory changes but in establishing processes and, importantly, in developing an understanding of the true risk picture.” continued on page 18

INSURANCE ADVOCATE / March 31, 2014 17

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Regulatory & Risk Management Indicator | Wolters Kluwer AN OVERVIEW

amount of federal regulatory fines levied.

Wolters Kluwer Financial Services’ Insurance Regulatory and Risk Management Indicator measures 10 critical factors that help illustrate the overall level of regulatory and risk management pressures the U.S. insurance industry faces.

What follows in this report are the results of the Indicator itself. Some sections of the survey are highlighted, including:

These factors include concern over their ability to track regulatory changes, comply with new and existing requirements, and prove compliance to federal regulators. The time and resources organizations have invested in compliance efforts was also measured. Risk management factors measured include insurance carriers’ sense of how effectively they are managing overall institutional risks, the involvement, buy-in and ability of the executive team at managing risk, and the time and resources they have invested in these risk management efforts. For the final three factors of the Indicator formula, Wolters Kluwer Financial Services measured and compared the number of affected citations, the number of new enforcement actions and penalties and the total dollar

• Growing Compliance and Risk Management Concerns • Top Concerns Related to New / Changing Regulatory Requirements • Top Risks Organizations Face • Managing Risk Effectively To obtain the full data set used to compile the indicator, please contact us at WKFSCorporateCommu@wolterskluwer.com

Indicator Methodology Wolters Kluwer Financial Services surveyed nearly 300 insurance organizations on their most pressing regulatory and risk management concerns in October 2013 and then surveyed approximately the same number again in January 2014. We used the resulting measurements along with the changes we monitored in the actual regulatory environment to develop the latest Indicator.

continued on page 20

18 March 31, 2014 / INSURANCE ADVOCATE

AGOSTINO& ASSOCIATES 106 Swiss banks are disclosing American taxpayer information to the IRS.

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continued on page 22

About Wolters Kluwer Financial Services Wolters Kluwer Financial Services provides more than 15,000 customers worldwide with risk management, compliance, ﬁnance and audit solutions that help them successfully navigate regulatory complexity, optimize risk and ﬁnancial performance, and manage data to support critical decisions. With more than 30 offices in 20 countries, prominent brands include: AppOne®, ARC Logics®, AuthenticWeb™, Bankers Systems, Capital Changes, CASH Suite™, FinArch, FRSGlobal, GainsKeeper®, NILS®, TeamMate®, Uniform Forms™, VMP® Mortgage Solutions and Wiz®. Wolters Kluwer Financial Services is part of Wolters Kluwer, a leading global information services and solutions provider with annual revenues of (2013) €3.6 billion ($4.7 billion) and approximately 19,000 employees worldwide. 20 March 31, 2014 / INSURANCE ADVOCATE

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continued on page 24

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[ COVER ]

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[ FACE TO FAC E ]

By Michael Loguercio

NOW What?

ow many times, since you first became “intimately involved” within the insurance industry, have you been asked that most obvious question, “When should I file a claim?” I can tell you this: that from being in this thing of ours for many, many years, I would venture to guess that it is something that occurs within your office, or almost anytime that you discuss your livelihood with a non-insurance professional, that this question arises and is posed to you. Well, the interesting “thing” about this question, is that if you ask fifteen different insurance agents the exact same question, there is an excellent opportunity that you may come away with sixteen different answers, as the “four out of five doctors recommend” scenario certainly does not apply here! Now considering the fact that most insurance carrier contracts are closely related in language and coverage, albeit they all have their own little nuances, most policies adhere to the premise that “everything is covered unless excluded”. Michael Loguercio So therefore you would assume that the answer from most agents would be virtually the same… well not in our business! A little perplexed by this, I decided to do a little fact finding and half-baked research on my own, and being that I closely associate myself with so many folks within this industry, I called upon some friends of mine and conducted a very simple, one question survey, “When do you recommend that someone file a claim?” Understandably so, the most common answer that I immediately received was, “What kind of claim are we talking about?” After I then provided the same response to that question to every agent who asked me, I discovered that (and surprisingly so) although the answers from most insurance professionals were closely related, there were many difference of opinions on this question, as they ranged from, “Every time” to “Almost never”. However, there was one common denominator that I quickly determined had a huge impact on which answer I would receive. This item, which is typically related to the real estate market, certainly reared its head and in this instance pertained to our insurance industry vs. the real estate market: “location, location, location!” For instance, if we are talking about a homeowners claim in a coastal region of the country, agents writing business in those areas highly recommended that you do not file a claim unless absolutely you would most likely receive necessary…or run the risk on being non-renewed. Ask this question in Bismarck ND, and you are likely going to get a more lenient response from the agent. Same holds true of a minor repair that you may be in need of after your vehicle was hit while parked at a shopping mall in a densely populated area such as New York City or certain cities in New Jersey, and chances are the agent would suggest that you “eat it” versus running the risk of a surcharge increase on top of an already extremely high premium because of the territory. So to try and find some common ground, I asked a friend of 26 March 31, 2014 / INSURANCE ADVOCATE

mine, Charlie Schein of Star Schein Insurance Agency in Glastonbury, CT, to please jot down his answers to this quest, along with some other “tips” that he offers his clients. The following is what Charlie suggests: Do #1 Document the damage If a tree falls through your roof, your bathtub crashes through the ceiling and into your living room, or the evil telephone pole on the street mysteriously crashes into your car—take your smartphone out and start taking pictures. Even though the insurance adjuster will have their own camera, it never hurts to have your record of what happened. Additionally, your pictures will be the first ones from the scene. This is especially important for an auto accident. Take pictures of both cars, and the weather and road conditions. If anyone has been injured, first call 911. Then start taking pictures. Do #2 Know when to call your car insurance agent Are people hurt? Are other people or cars involved? If the answer to either of these questions is ‘Yes’—call your insurance company claims office only after you call 911. And never, never, ever admit fault at an accident scene. When you purchase an auto policy, you are agreeing that the insurance company may settle claims as they see fit on your behalf. Admitting fault at an auto accident scene might invalidate your policy (depending on the company or how the policy is written—each company is different). On the other hand, if you hit a metal pole in a parking lot and dented your car (doing no damage to the pole) and it will cost $1000 to fix the dent and you have a $500 collision deductible, you may want to have a chat with your independent agent (not the company) before filing a claim. Do #3 Raise your deductibles—all of them If you haven’t heard it before, let me tell you now: your insurance policy (auto or home) is not a “repair” policy. It is designed to be used in the event of a catastrophic event. Raise your homeowner’s deductible to $1000 or $2500. Increase your comprehensive and collision deductibles to at least $500. This has the added benefit of lowering your premiums (in most cases). Do #4 Shop around Let’s say you do have a claim or two, and you are getting surcharged. Insurance rates vary from carrier to carrier, and it can’t hurt for you to either ask your independent agent to shop around on your behalf. Do #5 Make sure your claim gets paid If the adjuster comes back with a claim settlement offer and you disagree, ask your agent for assistance. They may be able to offer some advice for a better settlement. In extreme cases (either a large or a total home loss) you might have to contact a public adjuster. They deal directly with the insurance company to obtain the best settlement possible

[ FAC E TO FACE ] for you. They usually get paid a percentage of the settlement.

DON’TS Don’t #1 Forget to mitigate the loss If a tree has fallen through the roof, cover the furniture you can’t move, put a tarp over the hole, and/or call a disaster recovery service. These folks can make sure a bad event doesn’t get worse. In some cases they can even provide with an estimate of what it will take to get you back to where you were before the loss. Don’t #2 Have low deductibles The higher the deductible the less likely you are to file a small claim. Also, your premiums will (typically) be lower. Talk to your insurance agent about which deductibles they recommend. Don’t #3 File small claims Insurance companies are obligated to pay claims, but they are not obligated to keep you as an insured. When a policy renewal comes up, an underwriter looks at the frequency of claims over the past 3-5 years. The more claims within that time frame, the less attractive the policy. Your insurance policy is there for catastrophic loss—not small home repair. Don’t #4 Inflate your loss When your car or home gets robbed, do not “lose” your brand new 85-inch LED TV. In addition to claim frequency, companies also look at the amounts paid out. Insurance is there to bring you back to where you were before the loss. It is not supposed to be a money-making proposition. Don’t #5 Neglect getting an alarm system This preventative measure is worth money to you in the form of discounts. A central station alarm in your home can be a 20% credit. The same goes with a passive alarm/disabling system in your car. Each company varies by the amount of credit, so check with your agent to see what your company offers.

run with higher insurance premiums. Other times, it will save you money and get you back to where you were before the damage happened. Talk to your (independent) agent for advice on how to treat the problem you’re in before you call the company that insures you. In the meantime, keep your deductibles high in case of damage to your property, and be prepared to document auto accidents and valuable articles in your home to make sure you get the correct settlement in the event of loss. Check with your agent about available

credits your company offers for alarm credits on both cars and homes, and start saving money now in case you find yourself in a position where filing a claim is worth it—even if your premiums go up because of that insurance claim. Thank you, Charlie, for sharing your suggestions with us. I would like very much to hear from some of our other readers of this column, to see what your suggestions continued on page 28

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Summary Not every loss should result in a claim because it could easily cost you more in the long INSURANCE ADVOCATE / March 31, 2014 27

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 28 March 31, 2014 / INSURANCE ADVOCATE

[ FAC E TO FAC E ] continued from page 27

may be as well, and I will write a follow up column to this one. Well, according to our calendar spring has sprung…although as I look out my office window, I can still see traces of snow in my backyard, while a cold rain falls through the forty degree chilled air. I have never professed within this column or on the streets of Long Island to be anything close to a meteorologist, but I have this strange suspicion that it should be much warmer here in the Northeast! However, I can easily predict with a great deal of certainty, that spring brings with it convention season within the insurance industry, and next time we meet we will be chatting about Buffalo I Day, along with a few other events that come along with what is supposed to be “the warm weather”! So until then, continue to keep the fireplace burning 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 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, PIANY, IIABNY, and CIBGNY 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 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.

[ LOOKING BACK… Insurance Advocate, 25 years ago]

INSURANCE ADVOCATE / March 31, 2014 29

[ LOOKING BACK… Insurance Advocate, 25 years ago]

30 March 10, 2014 / INSURANCE ADVOCATE

[ LOOKING BACK… Insurance Advocate, 25 years ago]

The Institutes’ AAI-M Designation Now Available

ALVERN, Pa. — In response to evolving industry trends, The Institutes have released a new course, Advanced Agency Leadership and Strategic Alignment (AAI 87). With the introduction of AAI 87, insurance professionals who have completed The Institutes’ Accredited Adviser in Insurance (AAI®) designation program can now also earn the new Accredited Adviser in Insurance–Management (AAIM™) designation. The Institutes offer management tracks within select designation programs designed specifically for professionals interested in developing or enhancing their management skills. The AAI-M designation focuses on how to align agency operations with organizational goals by: • Effectively applying strategic decision making, marketing and communications to gain a competitive advantage • Discovering new techniques for developing and maintaining strong relationships with clients, insurers and other partners • Improving organizational financial results through strategic risk analysis and effective portfolio management Study materials for the AAI 87 course

are available for purchase now, with exams beginning in the July to September 2014 testing window. To learn more about The Institutes’ AAI-M designation, visit www.theinstitutes.org/AAI.[IA] About The Institutes The Institutes are the leader in delivering proven knowledge solutions that drive powerful business results for the risk management and property-casualty insurance industry. The Institutes’ knowledge solutions include the CPCU® designation program; associate designation programs in areas such as claims, risk management, underwriting and reinsurance; introductory and foundation programs; online courses; research; custom solutions; assessment tools; and continuing education (CE) courses for licensed insurance professionals and adjusters through their CEU.com business unit. The Institutes are affiliated with the CPCU Society, a community of credentialed insurance professionals who promote excellence through their technical expertise and ethical behavior, and The Griffith Insurance Education Foundation, a not-for-proﬁt educational organization that promotes the study and teaching of risk management and insurance.

INSURANCE ADVOCATE / March 31, 2014 31

[ ON M Y RADA R ]

By Barry Zalma

Health Insurance Fraud

ealth Insurance Fraud is rampant. Most people convicted of health insurance fraud are doctors and other health care providers. Where most of the money goes, however, is to people taking advantage of free or subsidized

Barry Zalma

insurance carriers. Through the DirigoChoice Program (“Dirigo Choice”), the agency also subsidizes insurance premiums for Maine citizens whose income level falls below 300% of the federal poverty level. The subsidy must be renewed

Because [a state agency] funded by the U.S. Government, relies totally on the representations of the applicant for health insurance subsidy, the temptation to commit fraud is great and the chances of getting caught are slim since they admittedly do no investigation and rely on the honesty and good faith of the applicant.

health care benefits when they are not entitled to receive the benefits because there is no investigation into the veracity of the application for benefits. In United States v. Russell, 12-1315 (1st Cir. 08/26/2013) Rodney L. Russell applied for and received government subsidized health care coverage for several years. Although Russell was working under the table during those years, he claimed on his renewal applications that he had no income to report. After a government investigation, indictment, and multi-day trial, a jury convicted Russell of making false statements in connection with the payment of health care benefits. On appeal, Russell attacks his conviction on multiple grounds.

Background Shortly after losing his job and accompanying health insurance in 2006, Russell applied for subsidized health insurance coverage through the Dirigo Health Agency’s DirigoChoice Health Program (“Dirigo”). In 2003, the Maine legislature created Dirigo Health Agency to expand access to health insurance coverage for Maine citizens who cannot otherwise afford it. Dirigo negotiates competitive rates and benefit packages with private 32 March 31, 2014 / INSURANCE ADVOCATE

every twelve months. To qualify for the subsidy, applicants must fill out two applications: an insurance application to the insurance carrier and a subsidy application to Dirigo. The applicant certifies the subsidy application and submits supporting documentation, such as income tax returns and proof of income. The primary determinants of subsidy eligibility are income and household size. In 2006, after losing his job as a stockbroker and financial advisor at the retirement investment firm Commonwealth Financial Network d/b/a Brown Company, and his accompanying health insurance, Russell applied for and received subsidized health insurance coverage through Dirigo Choice. Russell, applying for the benefit, reported a lack of income and signed a verification clause on the application which read in pertinent part: “I understand the questions on this form. All statements and answers I have given are true and complete. The Dirigo Health Agency . . . may check information submitted on this form . . . . I understand it’s a crime to knowingly provide false, incomplete, or misleading information on this form and that I could be charged with perjury.” Relying on the information in Russell’s application, in November 2007, Dirigo

awarded him an 80% subsidy three years running. Russell received a subsidy based on his representations on each application that he had no income to report and that he was unemployed, but neither turned out to be true. He had in fact been working for his high school friend, Malcolm French, all along.

The Trial At trial, the government presented evidence that Russell, after losing his job at the Brown Company in 2006, started working in some capacity for French. French owns several businesses including: Cold Stream Contracting, a gravel and construction business; Malcolm French Professional Forestry, which cuts trees, hauls wood, and performs other forestry services; Malcolm French Logging; and a garage in Enfield (now in LaGrange), Maine. The jury heard testimony from French employees that they had seen Russell working in French’s office. In addition to the testimony of French’s employees, Russell’s ex-wife, Julie Plummer, testified that Russell wore work boots, worked late, and complained about working hard and doing backbreaking work. Jerald Davis, an employee of Griffin Greenhouse Supplies in Maine, which sells greenhouse and nursery supplies, recalled speaking to Russell around a dozen times both in person and by telephone about purchasing supplies for Cold Stream Contracting. Davis remembered Russell in particular because he always paid for his purchases, such as $9,000-$11,000 worth of soil and multiple bags of fertilizer, using cash placed in Ziploc bags. The government introduced evidence that French had been paying Russell in cash and Russell, in turn, paid his bills in cash. Between 2007 and 2009, Russell paid $500 in monthly household bills and several thousand dollars for his daughter’s college tuition in cash. As for Russell’s rent, with the exception of a February 2007 payment, evidence at trial also showed his rent got paid with cash or money orders. The defense’s theory, as indicated by closing arguments, was that there was no

proof Russell ever received cash from French, or that Russell was even employed by French. Russell, according to the defense, got by every day by living on cash gifts and loans from family and friends and reducing his daily expenses. After a four-day trial, the jury found Russell guilty.

Discussion In charging the jury, the district court described the elements of making a false statement in connection with a health care benefit program. The district court instructed that the government had to prove beyond a reasonable doubt six elements. On materiality, the court instructed the jury that “[a] material fact or matter is one that has a natural tendency to influence or be capable of influencing the decision of the decisionmaker to whom it was addressed.” The Ninth Circuit recently tackled this issue head-on in United States v. Ajoku, 718 F.3d 882 (9th Cir. 2013), and rejected the argument that Russell makes before us – that the willfulness element of the statute requires knowledge of unlawfulness. In Ajoku, the court explained that willfulness, in the context of false statement crimes is defined as “deliberately and with knowledge”; proving the defendant knew making the false statement was illegal is not required. Such an interpretation of the definition of willfulness, the court observed, is consistent with the traditional rule that “ignorance of the law is no defense.” Because the district court here properly instructed the jury that the government need only prove that the defendant’s statements were false and that the defendant knew they were false, the First Circuit Court of Appeal found no error.

Materiality Russell’s next challenge concerns the materiality of his alleged misrepresentations to Dirigo on his 2008 and 2009 subsidy applications and certifications. A false statement is material if it has a natural tendency to influence, or is capable of influencing, the decision of the decision making body to which it was addressed. The jury here could have reasonably concluded that Russell’s statements had a natural tendency to influence Dirigo’s decision to award him subsidized health care, and thus were material, even if Dirigo did not actually rely on those statements. The jury

learned that Dirigo does not employ investigators to verify statements made by applicants on subsidy applications and that the agency therefore has to rely on applicants’ statements in determining eligibility. The agency requires the applicant to sign a certification to help it ensure that all the representations made by the applicant are true. Russell was awarded a $7,500 subsidy in 2008, and a $4,100 subsidy in October 2009, based on his representation in his application that he was neither employed nor receiving income. He signed the accompanying certifications attesting to the truthfulness of his statements in those applications.

The No Harm No Foul Defense During closing arguments, defense counsel argued that Russell’s statements could not have been material to Dirigo’s decision because he would have qualified for a subsidy even if he had accurately reported his income. The government, on the other hand, urged that materiality turns on whether the false statements have a natural tendency to influence or are capable of influencing the decisionmaker. Whether Russell’s statements were material was ultimately a question for the jury. But the record clearly supports a finding that Russell received income in the amount he reported, plus some additional sums that he did not disclose. Had he forthrightly stated on his application that he had unspecified amounts of undocumented cash income above the precise amounts he reported, it is reasonable to believe that Dirigo might well have determined that he failed to meet his burden of proving eligibility. The evidence of Russell’s guilt was strong, including the renewal subsidy applications indicating Russell was not employed or receiving any income and the witnesses who testified that Russell was seen working in some capacity for French during that time.

ZALMA OPINION Because Dirigo, an agency of the state of Maine funded by the U.S. Government, relies totally on the representations of the applicant for health insurance subsidy, the temptation to commit fraud is great and the chances of getting caught are slim since they admittedly do no investigation and rely on the honesty and good faith of the

applicant. Russell took advantage of the system and profited from it. He was fairly convicted and had the unmitigated gall to appeal on what the First Circuit found to be specious grounds. His prosecution was a rare event caused by his greed and use of bags full of cash.[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. Mr. Zalma recently published the ebooks, “MOM and the Taipei Fraud;” “Zalma on Insurance Fraud – 2013 , “Zalma on California Claims Regulations – 2013 ; “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. Specialty Technical Publishers recently published Mr. Zalma’s new E-Book, “Getting the Whole Truth” which is available at http://www.stpub.com/ Getting-the-Whole-Truth_p_254.html. Specialty Technical Publishers publishes Mr. Zalma’s book, “Insurance Claims: A Comprehensive Guide” where you can get additional details on this subject by purchasing the book in print or digital format at http://www.stpub.com/insuranceclaims-a-comprehensive-guide-online. Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv or at the bottom of the home page of his web-

INSURANCE ADVOCATE / March 31, 2014 33

[ IN THE ASSOCIATIONS ]

IIABSC Installs Officers & Directors for New Term

lbertson, N.Y.—The Independent Insurance Agents & Brokers of Suffolk County, Inc. installed new officers and directors for the 2013 through 2014 term. More than 110 IIABSC members and guests attended the May 22 event which took place at the East Wind Conference center, Wading River. NY. Thomas J. Crowley, CPCU, retiring Chair of the statewide Independent Insurance Agents & Brokers of New York, Inc. performed the installation ceremony along with John K. Mulvey, IIABSC past president who installed the new president. Joanne Bentivegna, CIC, CRM, of People’s United Insurance Agency in Hauppauge became the organization’s president. Aaron Stein, CPCU, CFP, Norton & Siegel, Inc. Babylon. will serve as vice president. Paulette Katz, CIC, Maurice B. Cunningham, Inc. in Southampton will remain as the association’s treasurer and Richard de la Sota, CPCU of MRW Group, Inc., Huntington will assume the position of secretary. IIABSC also installed the following directors: • David H. Borg, CISR, Borg & Borg, Inc. Huntington; • John J. Glennon of John J. Glennon, Inc., Hauppauge; • Joseph Gundermann, AAI, Gundermann & Gundermann, Inc., Huntington; • Eric Keiffert, CPCU, Hometown Insurance Agency, Bohemia; • Michael J. Romeo ll, CIC, Industrial Coverage Corp., Patchogue; • Laura Senn, CIC, People’s United Insurance Agency, Hauppauge; • Stephen H. Testa, CPCU, ARM, Testa Brothers, Ltd, Northport. Since 2005, the Vincent A. Alba Lifetime Achievement Award recognizes those individuals who for many years have demonstrated their commitment through exceptional service to the Big “I” associations and the American Agency System as a whole. This year, the award was presented to John D. Reiersen, CPCU, CFE, CIE for his outstanding leadership in the industry for many years. Patricia Calvert received the distin34 March 31, 2014 / INSURANCE ADVOCATE

guished Ferdinand coste Award in recognition of her unselfish dedication to the Big “I” associations and for furthering the ideals of fellow independent insurance agents. Three award winners, from the Independent Insurance Agents & Brokers Association Annual Business Meeting held on May 9, 2013 at the Ostego Resort Hotel in Cooperstown, NY, were recognized this evening. David H. Borg of Borg & Borg, Inc in Huntington was congratulated for receiving the Outstanding Committee Chair award; Patricia Calvert, executive director of the Independent Insurance Agents & Brokers of Suffolk County and TriCounty Independent Insurance Agents Association had received a Distinguished Service Award in Cooperstown and both Long Island associations shared the award for 2013 Local Association of the Year for their exemplary work during the year and for helping their communities survive Superstorm Sandy.

Highlights of the talk… The program centered on the importance of social media marketing. One of the first key factors Chris talked about was digital marketing and its role inside your agency. He said the following: One key factor to digital marketing is to make sure that you have your personal agency’s brand attached to it. Another key factor is being able to have your phone number prominently displayed in large letters to make it easy for folks to contact you. Digital marketing can play a key role in new business and also the retention of your existing business. It’s important to understand that in today’s world we all get so many emails we want to make sure we’re not spamming our prospects or our clients. We need to digitally email when everyone else is not, such as Flag Day or Veterans Day. These are great times to reach out and touch the community. Another part of social media is a mobile marketing app. ( I say it’s another part of social media because social media is all about communication and a mobile marketing app is another way that we agents can keep in contact and communicate with clients.) The importance of a

mobile marketing app is growing on a daily basis because the younger generation wants to have the ability to have that app on their phone with such things as an insurance card, their agent’s contact information, the ability to report a claim off of the app and capability to pay their insurance bill. I personally feel an app is not just good enough - it needs to be a ‘mobile marketing app’ which means it has to have the ability to have a dashboard and give you, the agent, the ability to communicate with each and every person who has downloaded your agency. That communication is key because it gives us the ability to reach out and touch each and every one of our clients on a very personal level. Another topic I discussed this evening was the importance of having a social media strategy that has a balanced attack. What I mean by ‘balance’ is the ability to be very good in many different social media avenues rather than being great in a couple of them. We need to be utilizing Facebook, agency Facebook and page, Google +,Vine, twitter, Instagram, Pinterest, linkedIn them and spotify. If we choose not to utilize all of the social avenues we will be ignoring many prospects and/or clients that may be in one of those social avenues. The key factor is balance, balance and more balance! With all this being said, my last point was that it is a necessity that your agency hire a social media engineer and or marketing person that is dedicated to marketing your agency to the public. It is virtually impossible to be able to handle all of the social avenues, mobile marketing app and of course the traditional avenues of marketing without a dedicated individual from within your agency. Chris Paradiso, President Paradiso Presents Stafford, CT The Independent Insurance Agents & Brokers of Suffolk County, Inc. is comprised of more than 200 independent agencies and brokerages in Suffolk County, New York, dedicated to providing fair and proper insurance coverage and ﬁnancial services products to families and businesses.

[ IN THE ASSOCIATIONS ]

GUEST SPEAKER, CHRIS PARADISO, IN ACTION.

THE AUDIENCE WAS ENGROSSED WITH THE PRESENTATION.

AARON STEIN, IIAB SUFFOLK VICE PRESIDENT (L) AND BOB MACKOUL, PRESIDENT OF TRICOUNTY IIAA FLANK CHRIS.

(L-R) GEORGE BROOKS, DON HESTER, DENNIS LOMBARDI, MICHAEL GEOGHAN, JEFF BROWNE AND JIM SUTTON.

(L-R) ROY VOLLMER JAMES BASTIAN AND RUSS VOLLMER

CHRIS PARADISO AND BOB MACKOUL

INSURANCE ADVOCATE / March 31, 2014 35

[ COURTSI DE ]

REVERSED: Executive Plaza v. Peerless Insurance Company

n a far-reaching and historic decision, the highest court in New York State, answering a certified question posed by the United States Court of Appeals, has ruled that insurance companies cannot hide behind their policies’ two year contractual limitations period to deny policyholders the right to collect their recoverable depreciation, as long as repairs are effectuated within a reasonable time. The New York Court of Appeals held, unanimously, in Executive Plaza v. Peerless Insurance Company, that policyholders should be permitted as long as reasonably needed to complete repairs, even if that time period extends past the two year policy limitation period. The Peerless policy is typical of many in that it provides for payment to an insured of the actual cash value of a loss (a sum that has been reduced by depreci-

The policy contained two conflicting provisions, one which required those repairs be made as soon as reasonably possible and another which required suit to be instituted within two years of the date of loss.

ation) whenever a carrier decides to release the funds, but allows that insured to recover full replacement costs only if and when repairs are completed. The policy contained two conflicting provisions, one which required those repairs be made as

soon as reasonably possible and another which required suit to be instituted within two years of the date of loss. In an amicus brief authored by Mark L. Friedman of Wilkofsky, Friedman, Karel & Cummins, attorneys on behalf of the New York Public Adjusters Association, the Group argued that the replacement cost coverage Peerless provided its insureds is completely illusory when an insurance company can elect to make its actual cash value payment so close to the end of the two year policy suit limitation period as to render it impossible for repairs to be completed before its expiration, even if they are made as soon as reasonably possible. The Court of Appeals agreed holding that: “A limitations period that expires before suit can be brought is not really a limitations period at all, but

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[ COURTS I D E ] simply a nullification of the claim.” A portion of NYPAA’s brief was quoted by the New York Law Journal: “By offering replacement cost coverage and then reneging, Peerless acts like a confidence man, patting you on the back with one hand and picking your pocket with the other,” Mark Friedman of Wilkofsky, Friedman, Karel & Cummins wrote on behalf of the adjusters’ group. “The insuring public of this State deserve more.” As has been made crystal clear by catastrophic events such as Superstorm Sandy, even under the best of circumstances it is often impossible to accomplish rebuilding within two years of a loss even if the insurance company pays the actual cash value promptly after the loss. Bureaucratic delays regarding inspections, permits and filings can often stretch months, sometimes years, after a loss before repairs can even begin. Add to this weather, logistics, labor unrest, unavailability of contractors or materials, and many other common impediments to a prompt completion of work, and the two year period provided in the policy to start suit often renders replacement cost claims objectively impossible. This decision

restores fundamental fairness to the process whereby now, each case will be determined by a “reasonableness” standard, not by an arbitrary cut-off date. This is the latest in a series of landmark decisions which NYPAA has influenced through its Amicus program. Other successful projects have included the recognition of a consumer’s claim for consequential damages due to an insurer’s bad faith (Bi-Economy Market v. Harleysville Ins. Co. of New York, 10 N.Y.3d 187, 886 N.E.2d 127, 856 N.Y.S.2d 505 (2008)); recognition of the rights of an innocent spouse when an estranged spouse intentionally damages the insured property (Lane v. Security Mutual Ins. Co., 96 N.Y.2d 1 (2001)); the consumer’s right to recover contractor’s overhead and profit as part of the actual cash value insurance payment (Mazzocki v. State Farm Fire and Casualty, 1 A.D.3d 9, 766 N.Y.S.2d 719, 2003 NY Slip Op. 17945 (2003) ); and the consumer’s right to recover when a vandal commits an act of arson in a vacant house (MDW Enterprises v. CNA, 4A.D.3d 338 (2nd Dept. 2004). These claims were previously denied as an excluded act of vandalism and are now considered a covered fire.[IA] Wilkofsky, Friedman, Karel & Cummins has represented consumers against the insurance industry for 25 years.

Court of Appeals Reverses K2 Decision

LBANY, NY—The New York Court of Appeals reversed its decision in the case of K2 Investment Group v. American Guarantee & Liability Insurance Company. This new decision upholds the important principle that an insurance policyholder is entitled to all coverage purchased as part of a policy but no additional coverage, according to NYIA, which was delighted with the decision. NYIA filed an amicus brief in support of this case being reargued. The brief made the point that an insurance company needs to have the ability to uphold a contract as written. The court decided after the reargument that an insurance company’s failure to defend does not prevent the company from raising legitimate exclusions to cov-

erage. An example of an exclusion is a homeowner running a business out of their house who did purchase insurance beyond their standard homeowners policy that excludes business activities. “If the Court of Appeals had not reversed course and instead stood by its original decision made last year, there would have been great uncertainty in the New York property and casualty insurance market,” Ellen Melchionni, president of NYIA said. “The reversal keeps New York in line with the predominant rule nationally regarding coverage exclusions. The original decision would have greatly increased litigation costs for the entire New York court system and led to inevitable delays for injured parties.”[IA]

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914.966.3180 g@cinn.com www.insurance-advocate.com INSURANCE ADVOCATE / March 31, 2014 37

[ GUEST OPINION ]

By G. Kieth Smith, M.D.

Hats Off to the Younger Generation

he Unaffordable Care Act (UCA) is about to become even more unaffordable, thanks to the unpredicted wisdom of the younger generation. Recognizing yet another Ponzi scheme in UCA, the vast majority of young people (a group the central planners had counted on to keep UCA premiums low by buying expensive “insurance” and filing few or no claims) have thumbed their nose at this “insurance.” The premiums for older and sicker patients would have been moderated by the participation of the younger and healthier patients, as they would G. Kieth Smith, M.D. have paid significantly more in premium dollars than they would have extracted in health benefits. Incredibly, the government has actually used this as a marketing ploy to the young, exhorting them to pay their fair share to help the others out. I suppose it never occurred to the Obamacrats that young people have grown weary of the Medicare and Social Security taxes taken from their paychecks, together representing amounts that frequently dwarf the federal withholding amount. Young people are already subsidizing the health care of the Medicare beneficiaries as well as their retirement, knowing that there is little likelihood of receiving their money back from these bankrupt Ponzi schemes. I guess no one figured the young didn’t want to participate in yet another wealth-transfer scheme. I don’t believe the Obamacrats care though, as the lack of participation of the

young only serves to drive the premiums for others through the roof, the original intent of UCA. The unaffordability of “insurance” will therefore, bring “single payer” as a system even closer to reality. In short, the central planners rigged the game so they would “win” either way. Fortunately for all of us, the central planners have miscalculated, once again. Let me explain. Most of the young will be paying their own medical bills without insurance and this will serve to lower the price of the care they are purchasing, as people who are spending their own money tend to comparison shop and demand upfront pricing. I have no doubt that the care they will be purchasing will cost them significantly less than the “insurance” they have foregone. There will certainly be the rare injuries or illnesses that will bankrupt the uninsured young, but keep in mind that over three quarters of all medical bankruptcies afflict those who have insurance. The healthcare consumer market that is emerging to satisfy these patients as “customers” will lower prices much more powerfully than the gang in D.C. can inflate healthcare prices. The pushback against the government takeover of health care has occurred on many fronts. Some physicians are pushing back by adopting third-party-free practices. More and more medical facilities are adopting our model of price transparency. Some governors have rejected the Medicaid expansion of UCA, a move that Justice Robert’s ruling made possible and one that makes the workability of the government takeover more unlikely. These efforts are laudable, for sure, but the lack of participation of the young in this latest Ponzi scheme represents the “withdrawal of consent” that has characterized many

successful yet peaceful revolutions. I predict that future tyrants will have even more difficulty with this young, liberty-minded generation. That so many young people view the regime as illegitimate fills me with hope for the future.[IA]

Dr. G. Keith Smith is a board certified anesthesiologist in private practice since 1990. In 1997, he co-founded The Surgery Center of Oklahoma, an outpatient surgery center in Oklahoma City, Oklahoma, owned by 40 of the top physicians and surgeons in central Oklahoma. Dr. Smith serves as the medical director, CEO and managing partner while maintaining an active anesthesia practice. In 2009, Dr. Smith launched a website displaying all-inclusive pricing for various surgical procedures, a move that has gained him and the facility, national and even international attention. Many Canadians and uninsured Americans have been treated at his facility, taking advantage of the low and transparent pricing available. Operation of this free market medical practice, arguably the only one of its kind in the U.S., has gained the endorsement of policymakers and legislators nationally. More and more selffunded insurance plans are taking advantage of Dr. Smith’s pricing model, resulting in significant savings to their employee health plans. His hope is for as many facilities as possible to adopt a transparent pricing model, a move he believes will lower costs for all and improve quality of care. Dr. Smith resides in Oklahoma City, Oklahoma.

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