April 24, 2017 Insurance Advocate by C Acunto

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

Kingstone’s Chairman & CEO

Barry Goldstein Vol. 128 No. 8 | April 24, 2017

PIANY’s 2017 Insurance Executive of the Year

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Contents

16 Barry Goldstein — PIANY’s Insurance Executive of the Year

April 24, 2017 | Volume 128 Number 8

In Focus: Are You Wasting Time Quoting Insurance? Kelly Donahue-Piro

Guest Article: Afraid of a Hefty Long-Term Care Bill? Chris Orestis

Courtside: Construction Crane Loss Is Not Covered Under Builder’s Risk Policy Due To “Contractor’s Tools” Exclusion Lawrence Rogak

On My Radar: Court Can’t Rewrite Insurance Policy Barry Zalma

Looking Back: April, 1992

Classiﬁeds

Guest Article: Is Your Health Insurance Good For You? Alieta Eck, M.D.

[FEATURES] 6

Foreword: Explosions…do explode. Steve Acunto, Publisher

Exposures and Coverages: Is a Signature Needed to Make a Purchase Order a Written Contract? When Do You Report D&O Claims? Does Extended Reporting Period Affect Duty to Report D&O Claims? You Test-Drive a Car, Somebody’s Insurance Must Cover You, Right? Jerry Trupin, CPCU

Guest Article: Make Insurance Affordable Again Kris S. Held, M.D.

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[A D F E ATUR E S ] 13

NAIFA-NYS: The Importance of Regulatory Advocacy

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[ FOREWORD ]

STEVE ACUNTO

Explosions.... do explode. uCongrats are in order to our longtime friend, Barry Goldstein, who sits comfortably on our cover. Barry is a serial entrepreneur who has picked a winning horse and seen it keep pace with agents’ and brokers’ needs….. … Insurance agency mergers and acquisitions “exploded” during the first quarter of the year, with 178 reported transactions in the first three months of 2017, according to OPTIS Partners’ M&A database. There were 115 deals reported in the first quarter of 2016, by contrast. The data covers U.S. and Canadian agencies selling primarily property-and-casualty insurance, agencies selling both P&C and employee benefits, and those selling only employee benefits. The OPTIS Partners report breaks down buyers into five groups: PE-backed (private-equity) brokers, privately-held brokers, publicly-held brokers, banks, and all others. PE-backed buyers continued to lead the charge with 93 transactions compared to 56 in the same period last year. Top buyers were Acrisure (29 transactions) and Alera Group, a new entrant that closed 24 deals. Privately-held brokers were the second largest group, completing 49 deals, up from 35 in Q1 2015. Publicly-traded brokers completed 17 deals, up from 10. Bank acquisitions remained unchanged at seven. Insurance companies bought 11 agencies versus four a year ago. Sellers by type were P&C agencies (79 announced transactions) and P&C/benefits brokers (28 deals). Sales of employee benefits agencies surged to 58 deals versus 13 a year earlier. “The actual number of sales was undoubtedly greater than the 178 reported during the quarter, since many buyers and sellers do not announce transactions,” said Daniel P. Menzer, CPA, partner with OPTIS Partners. “However, because our database tracks a consistent pool of the most active acquirers, it’s a fairly accurate barometer of activity.” YourPeople Inc., doing business as Zenefits FTW Insurance Services, will pay a $1.2 million ﬁne following an investigation by the Department of Financial Services (DFS) for repeated violations of Insurance Law, including allowing unlicensed employees to solicit, negotiate and sell insurance policies. As part of a consent order entered into with DFS, Zenefits will take all necessary actions to ensure that all of its employees and contractors acting

As part of a consent order entered into with DFS, Zenefits will take all necessary actions to ensure that all of its employees and contractors acting as insurance producers in New York are properly licensed and have completed all required training and education. as insurance producers in New York are properly licensed and have completed all required training and education. The DFS investigation found that in 2014 and 2015, Zenefits permitted employees to solicit, negotiate or sell insurance policies without required licenses, did not maintain records necessary to verify compliance with New York Insurance Law, and failed to implement adequate compliance controls and employee training programs. In addition, the company’s former CEO, Parker Conrad, wrote a software macro in 2013 that allowed employees to evade broker licensing education requirements. As part of its agreement with DFS, Zenefits will train all current and future employee brokers with a minimum of 52 hours of insurance broker education, and document the retraining to DFS. Zenefits, an online human resources tool that offers insurance brokerage services for the purchase of group property, casualty, health and life insurance policies for employees, self-reported the violations. After conducting an internal investigation, Zenefits reported to DFS in November 2015 that it learned its employees had engaged in insurance business in New York without licenses. Some employees were licensed to sell insurance in other states; others were not CONTINUED ON PAGE 12

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VOLUME 128 NUMBER 8 APRIL 24, 2017

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Director of Operations and Creative Services Gina Marie Balog 914-966-3180, x113 g@cinn.com EDITORIAL ASSISTANT COPYEDITOR & PROOFREADER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x111 circulation@cinn.com PUBLISHED BY CINN Media, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 613-1595 www.cinn.com | info@cinn.com President and CEO Steve Acunto

CINN MEDIA, INC.

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 22 Bedford Road, Greenwich, CT 06831. Periodical postage paid at Greenwich, CT and additional mailing ofﬁces. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $135.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2017. 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 digital rights, contact Gina Marie Balog at g@cinn.com or call 914-966-3180, x113

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[ EXPOSURES & COVERAGES ]

JEROM E TRUPIN, CPCU

Is a Signature Needed to Make a Purchase Order a Written Contract? When Do You Report D&O Claims? Does Extended Reporting Period Affect Duty to Report D&O Claims? You Test-Drive a Car, Somebody’s Insurance Must Cover You, Right? Is a Signature Needed to Make a Purchase Order a Written Contract? The blanket or automatic additional insured endorsement may save work for insurance companies, but it’s become an attorney’s full-employment bonanza. To avoid possible collusion between owners and contractors, the endorsement includes a requirement that there be a written contract between the parties calling for additional insured status to trigger coverage. The result has been a torrent of lawsuits over the meaning of the requirement. The latest deals with whether a purchase order must be signed to constitute a written contract as called for by the endorsement. On October 11, 2012, Newmark Associates (a large NYC real estate management firm) sent a purchase order to Kras Interior Contracting Corp. to do some work at a building Newmark managed for 41 West 34th Street, LLC. The purchase order read, “This Purchase Order And Agreement Is A Legal Agreement Between Contractor (i.e., Kras) And Newmark...As Agent For Owner...By Accepting the Order, Vendor Hereby Agrees to Become Bound by the Terms of this Agreement.” On November 12, 2012, a Kras employee was injured on the job and eventually sued the owner. Zurich (Newmark’s insurer) sought additional insured coverage for Newmark and the building owner from

“Assumed in a contract or agreement that is an insured contract, provided the bodily injury or property damage occurs subsequent to the execution [] of the contract or agreement.” Endurance (Kras’s insurer). When Endurance refused, Zurich sued Endurance. Endurance argued that the purchase order was not a written contract because it was not signed. The court sided with Zurich.i It pointed out that in another case that had ruled that an unsigned contract was unenforceable, the policy required that the contract be “executed.” Executed was held to mean that it had to be signed.ii The CGL policy coverage grant for contractual liability does require the contract be executed: 1. “Assumed in a contract or agreement that is an insured contract, provided the bodily injury or property damage occurs subsequent to the execution (emphasis added) of the contract or agreement.” ISO form CG 00 01 04 13 2. But that requirement doesn’t appear in the automatic additional insured endorsement. In the case of additional insured coverage, ISO appar-

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

ently just wanted to rule out oral contracts. Perhaps ISO agrees with what the late movie mogul Sam Goldwyn is reputed to have said: “Oral contracts aren’t worth the paper they’re written on.”

When Do You Report D&O Claims? When should notice of a claim be given to the insurance company on a claimsmade policy? The self-evident answer would seem to be: when the claim is first made, but that begs the question. The real question is, what is a claim? Edward M. Weaver was President and Chief Executive Officer of Multivend, LLC, a now-defunct vending machine CONTINUED ON PAGE 10

i Zurich Am. Ins. Co. v Endurance Am. Speciality Ins. Co., 2016 NY Slip Op 08313 [145 AD3d 502] Appellate Division, First Department, December 8, 2016 ii Cusumano v Extell Rock, LLC (86 AD3d 448 [1st Dept 2011])

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[ EXPOSURES & COVERAGES ] CONTINUED FROM PAGE 8

sales company in Deer Park, NY, from 2004 until 2010. During that time, D&O coverage was provided to Weaver and Multivend by Axis Insurance. On September 27, 2012, Weaver’s attorney advised Axis that Weaver had received a letter from the US Department of Justice identifying him as a target of a federal grand jury investigation in the Southern District of Florida with respect to possible criminal violations including mail fraud, wire fraud, and conspiracy in connection with his activities at Multivend. On October 2, 2012 a criminal indictment was filed in the US District Court for the Southern District of Florida, charging Weaver, Multivend, and others with conspiracy, mail fraud and wire fraud. The Indictment alleged that Weaver, Multivend and others made numerous false statements to prospective customers including: • “Customers who purchased the business opportunity would earn substantial profits.” • “Customers would earn back their investment in one year or less.” • “Customers could earn $800 per day.” The Indictment also alleged that Weaver, et al.: • Concealed the fact that Vendstar had received numerous complaints from previous customers about the lack of profitability of the business, • Sales representatives, with management’s knowledge and approval, routinely removed the disclosure page that advised the prospect to speak to an attorney and get other professional advice before purchasing the business opportunity. On December 11, 2012, Axis denied coverage stating that the indictment was not a claim first made during the policy period. That’s a basic requirement for coverage under a claims-made policy. Axis argued that the 2012 claim arose from the same wrongful acts as a 2007 claim. Axis noted that in November 2007, Multivend had received a letter from the

Tell your clients that a government agency letter requesting information and advising of consequences for not complying may constitute “a demand” for purposes of a claims-made D&O policy, thus triggering a duty to notify the insurer.

Maryland Attorney General demanding non-monetary relief and advising of an administrative proceeding against Multivend. The 2007 letter was sent to Multivend by the Securities Division contending that Multivend may be selling business opportunities in violation of the disclosure and antifraud provisions of the Maryland Business Opportunities Sales Act, not providing the disclosure statement as required by the Act, and making unlawful earnings representations about the business opportunity. The Division requested certain “information and materials” so that it “may determine the extent of [Multivend’s] compliance with the Maryland Business Opportunity Act.” The Maryland AG Letter notified Multivend that “failure to respond may result in more formal legal action by the Division.” Axis asserted that the 2007 Maryland AG letter demanding non-monetary relief and advising of an administrative proceeding against Multivend constituted a demand or other proceeding against Multivend, and was therefore a claim that should have been reported to Axis. Failure to give notice of claim in 2007 barred coverage for that claim.iii Axis further contended that the 2012 Indictment was based on the same wrongful acts as the 2007 Maryland AG letter and was also not covered for that reason. The court agreed with AXIS and granted it summary judgment, in effect saying that Multivend had no case. iv

It’s clear that Mutivend violated the first three rules of insurance claims handling: Report, report, report. The problem I see is that most insureds, upon receiving a letter from a government agency indicating that they may be targets of an investigation, would reach out to their attorney and not their insurance broker.v PRACTICE POINT: The definition of a claim in claims-made policies differs greatly from occurrence-based policies. What’s worse, there’s no standard wording. Review the wording in your clients’ D&O policies. Tell your clients that a government agency letter requesting information and advising of consequences for not complying may constitute “a demand” for purposes of a claims-made D&O policy, thus triggering a duty to notify the insurer. Let them know that you’d like to be brought into the discussion whenever government agencies notify them of an investigation or possible indictment.

How Does Extended Reporting Period Affect Duty to Report D&O Claim? Another claims-made quandary: New York DFS rules require that claims-made policies include a 60-day extended reporting period (also known as tail coverage) when the policy is not renewed.vi How does that affect the duty to report a claim? An employee of New York Institute of Technology (“NYIT”) sued NYIT for defamation on February 26, 2009, and NYIT received notice of the action on August 6, 2009. NYIT’s claims‐made policy expired on September 1, 2009. NYIT notified its insurer, National Union, on September 15, 2009. The policy included the following provisions: The insured shall, as a condition precedent to the obligations of the insurer under this policy, give written notice to the (insurer) of any Claim made against the insured as soon as practicable and either: CONTINUED ON PAGE 12

iii New York’s law that required an insurer to show that it was prejudiced by late notice had not yet been enacted. iv EDWARD M. WEAVER, Plaintiff, v. AXIS SURPLUS INSURANCE COMPANY, US District Court, E.D.NY No. 13-CV-7374 (SJF)(ARL). 10/30/14 v The court noted that neither party raised a choice of law issue and both relied upon New York law to support their respective positions. Therefore, the Court stated that it relied upon New York law. My non-lawyer opinion is that insurers generally prefer New York law. Despite New York’s liberal reputation, its courts are quite strict in enforcing insurance contract terms. It took an act of the legislature to get New York courts in line with the great majority of states on the issue of requiring the insurer to show it was prejudiced, to deny liability coverage based on late notice. Arguments could be made to apply Maryland or Florida law. I don’t know if Multivend’s attorneys explored that question. vi Most insurers offer an optional longer period for an additional premium.

10 April 24, 2017 / INSURANCE ADVOCATE

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[ EXPOSURES & COVERAGES ] CONTINUED FROM PAGE 10

(1) Any time during the Policy Year or during the (extended reporting period, if applicable); or (2) within 30 days after the end of the Policy Year or the extended reporting period, if applicable, as long as such claim is reported no later than 30 days after the date such claim is first made against the insured. NYIT argued that it had 60 days following the end of the policy to report a claim first made during the policy period. This extended reporting period was mandated by NY Insurance Department regulation #121 that stated: “Upon termination of coverage (of a claims-made policy) a 60day automatic extended reporting period...must be provided by the insurer.”vii National Union contended that the automatic ERP only applied to claims that were both first made in the 60 days following expiration and reported during that period. The judge ruled that a 60-day ERP Endorsement requiring that both the claim made against the insured and the insured’s report to the insurer take place within the 60-day extended reporting period was unenforceable. She held that National Union wanted to impose a requirement for ERP not specified by the applicable NY insurance regulations.viii National Union has filed a notice of appeal. Stay tuned. PRACTICE POINTER: This case once again shows the value of having declinations of coverage reviewed by experienced counsel. Don’t just accept the insurer’s declination.

When You Test-Drive a Car, Someone’s Insurance Must Cover, Right? On his insurancecommentary.com blog this week, former Big I Virtual University “dean” Bill Wilson bemoans the fate of insureds with non-standard personal auto coverage.ix Tim Dodge, the IIANY coverage guru, picked up on it in his post-

This extended reporting period was mandated by NY Insurance Department regulation #121 that stated: “Upon termination of coverage (of a claims-made policy) a 60-day automatic extended reporting period...must be provided by the insurer.” ing.x When two such insurance mavens smell smoke, you can bet there’s fire. The cause of their consternation was non-standard drive-other-car coverage that some insurers provide. Here’s the language: (This policy) does not cover a non-owned car while being used or maintained in any auto business by anyone. At first glance, it doesn’t seem serious. After all, ISO PAPs excludes coverage for insureds: [w]hile employed or otherwise engaged in the business of…selling…repairing…servicing… storing…or parking vehicles designed for use mainly on public highways. Sounds similar, but let’s look at what happens when Sally GoodClient totals a new BMW she’s test-driving. An ISO PAP covers the claim. Sally is not engaged in the auto business; the exclusion applies only to someone employed or engaged in auto-related business. It precludes coverage for the dealer, but not for Sally. However, if Sally has a policy with the non-standard wording shown above, she loses coverage. The non-standard exclusion is triggered by the use of the car in any auto business by anyone. Clearly the car is being used in the auto business. Result: Sally has no coverage and you have a headache. Think any of your insureds ever test drive cars? Take two aspirin and call your E&O insurer in the morning.[IA]

FOREWORD CONTINUED FROM PAGE 6

licensed at all, and some Zenefits supervisors were aware of the compliance failure. Further, Zenefits also failed in some cases to maintain complete records identifying which employee sold, negotiated or solicited a particular insurance policy. In November 2016, Zenefits reported to DFS that as of that time, all employees soliciting, negotiating or selling insurance in New York had valid insurance broker licenses and that the company had instituted controls that would prevent employees from selling insurance without a license in the future. The remedies outlined in the consent order ensure the company’s compliance with New York Insurance Law. Zenefits has represented to DFS that it has taken several actions to remedy the violations, including replacing the company’s CEO and several other executives. Additionally, Zenefits has reported to DFS that it has appointed a chief compliance officer and built a compliance program and team; restructured its board from one controlled by its former CEO so that two-thirds of the seats are not held or controlled by management; developed licensing controls that have been provided industry-wide via a free open-source app; and used a national accounting firm to produce reports on past licensing compliance history and to evaluate the design and functioning of the company’s new licensing controls. Pretty unambiguous “heads up” for agents and brokers.[IA]

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

vii http://www.elany.org/contentHTML/1181.htm viii New York Inst. of Tech. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2017 N.Y. Slip Op. 30345(U) (Sup. Ct. N.Y. Cty.) Feb. 23, 2017 ix Bill Wilson, Is There Auto Coverage for Dealer Loaner Autos, Rental Cars, and Test Driving Vehicles? Property & Casualty Insurance Commentary. https://insurancecommentary.com/is-there-auto-coverage-for-dealer-loaner-autos-rental-cars-and-test-driving-vehicles/ x Tim Dodge, Think All Policies Are the Same? http://www.iiabny.org/AskTim/default.aspx

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By Peter J. Molinaro, NAIFA-NYS General Counsel

The Importance of Regulatory Advocacy WHEN MOST PEOPLE THINK ABOUT GOVERNThe reality of the matter is that generally regulations affect MENT RELATIONS WORK, their first thought is of legislative the day-to-day operation of our members’ businesses in a much advocacy. I believe that this is because issues surrounding the leg- greater manner than most of the legislative enactments. Thus, islative process, more often than not, occupy the front page of regulatory advocacy is a vitally important aspect of the work we newspapers or online news services, and the lead reports of tele- do here at NAIFA-NYS. vision news. Much attention has been NAIFA-NYS has made significant paid to how legislators develop and pass progress recently with our members’ prilegislation, and whether such legislation mary regulator, the New York State Deis truly in the public interest. NAIFApartment of Financial Services. We NYS staff and leadership spend a great successfully urged the Department to Quite often regulations deal of time on our legislative advocacy raise the training allowance amounts in program. are much more technical Regulation 50. In the past year, the DeEqually important, and frequently partment has honored NAIFA-NYS by and detailed than overlooked, is the interaction we have asking us to interact with the life insurdeveloped with the State’s administrative ance bureau staff during the development legislation and, agencies that develop and adopt thouof several new regulatory amendments, sands of pages of rules each year, every as a result, our advocacy long before those regulations are pubsyllable of which has the full effect and lished in the State Register. We are curmust address the issues rently in discussions with the Department force of law. Therefore, I would like to let our membership know about the on proposed changes to Regulation 74 (Ilpresented on a much ever-expanding NAIFA-NYS regulatory lustrations) and Regulation 210 (Cost of more technical and advocacy program, or, as I like to refer to Insurance increases). The Department it, legislative advocacy’s nerdy cousin. was receptive to the comments we prodetailed level. Regulatory advocacy is much differvided, along with numerous other associent than legislative advocacy. New York’s ations and businesses, to the newly administrative agencies are granted sigeffective Cybersecurity Regulations (12 nificant authority by the legislature to NYCRR Part 500). After reviewing all of enact rules and regulations implementthe comments from the industry, the Deing the purpose and intent of the state’s statutes. While legisla- partment made many important changes to the proposed regutive enactments need at least a majority of votes in both houses lations that are designed to enable our members to be better able of the legislature, as well as the approval of the Governor, regu- to comply. latory enactments require the approval of only one person, the We appreciate our working relationship with the Departagency’s commissioner or superintendent. Regulations are gen- ment, and we are always presenting the questions and concerns erally much more technical and lengthy than legislation; and of our membership during the regulatory process. We encourage sometimes take months, even years, to develop. In order to be- our members to reach out to NAIFA-NYS staff with any quescome effective, proposed regulations appear in the State Regis- tions about the Department’s regulations or to contact the ter, which is published by New York’s Secretary of State. The members of our Legislative/Regulatory Committee with any publication is followed by a two-month public comment such input. The more feedback we are able to hear about the process. After receiving public comment, the agency may either impact of these important regulations on our members’ busiamend the regulations or publish the final version, making the nesses, the better our program can be. regulation effective. The process can be lengthy or short because As always, I would like to hear from our members, who may once published in the state register, a regulation could become contact me at pmolinaro@naifanys.org. law within less than six months. Quite often regulations are much more technical and deThe National Association of Insurance & Financial Advisors-NYS tailed than legislation and, as a result, our advocacy must address (NAIFA-NYS) represents the interests of life insurance agents and fithe issues presented on a much more technical and detailed nancial advisors throughout New York. Since 1919, the association has level. Also, regulatory advocacy must work within the confines advocated for a positive legislative and regulatory environment, enof the regulation as proposed. One generally does not have the hanced business and professional skills, and the ethical conduct of its option to offer completely different approaches than the one members in order to protect consumers and to encourage a healthy marthe agency has put forth. ketplace. Further details are available at www.naifanys.org. INSURANCE ADVOCATE / April 24, 2017 13

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[ G UEST A R T I C L E ]

K R I S S . H E L D, M . D.

Make Insurance Affordable Again uRepublicans may take another stab at getting rid of ObamaCare, better called the Unaffordable Care Act. But most Americans will hold their applause until they find out whether this next attempt will improve their situation, or make insurance even more unaffordable and further restrict their ability to even have a say in their choice of doctors and treatment options. RyanCare, better called ObamaCare 2.0, would have led to another 15-20% increase in premiums, according to the Congressional Budget Office (CBO). Based on CBO’s history, that’s probably an underestimate. A weatherman with such unreliable forecasting would undoubtedly get fired. How on earth could the GOP bill be more expensive? And why in the world would the Republicans try to ram it through anyway? The Ryan bill would have repealed the individual mandate—the tax penalty for being uninsured (being fined for not buying a government product). But, if people didn’t want to buy Obamacare, then why would they want to buy it now, when it’s even more expensive and there’s no penalty for refusing to buy it? What do people normally do when they experience sticker shock? They snicker, “No, thank you!” and jolt past the overpriced car loaded down with expensive options that they don’t want. In a normal free market, people can look for a less expensive car or a different dealer. But ObamaCare outlawed the insurance products that millions of people had and were satisfied with. No more “bare bones” policies for instance. The leather seats and built-in entertainment “option” are no longer optional. And no heading to the dealer across the street—or the state line—who’ll make you a better deal. The government has fixed the prices, the products, and the dealers. You may be shocked to hear that “free market” Republicans didn’t fix that. They’ll let you do without the car, but you can’t get a cheaper one. After all, the Obama car features are immensely popular. 14 April 24, 2017 / INSURANCE ADVOCATE

How on earth could the GOP bill be more expensive? And why in the world would the Republicans try to ram it through anyway?

They are certainly popular with certain groups: • People who don’t have to pay the full price for the car because of the taxpayer subsidies, called tax “credits,” that are given even to people who don’t owe taxes, paid for by taxes of people who don’t get the credits; • People who get the equivalent of a Lexus for the price of a Honda because of some pricing rules that work like community rating for insurance; • People who “need” the entertainment option that those who abstain from illegal drugs, excessive alcohol, or promiscuity manage to live without; • The manufacturer of the expensive car; • The suppliers of the options; • Twenty-six-year-olds who are still dependent on their parents. The Republican leadership is so far adamant about retaining the “guaranteed issue/community rating” features that always and everywhere send premiums into the stratosphere. This means insurers can’t price their product by risk level. They can’t “discriminate” against bad risks. So the good risks say, “No, thank you,” and premiums go higher still. Ann Coulter suggested a simple option: Let insurance be sold on a free market. She just wants coverage for things like broken bones, cancer, and heart attacks. She does not want to pay for sexchange surgery, infertility treatment, or drug rehab. There are probably many millions of Americans who would snap up such policies. Insurers could develop a whole range of innovative products—such

Kris Story Held, M.D. is a board certified ophthalmologist and ophthalmic surgeon. She is a Phi Beta Kappa Graduate from the University of Texas at Austin and received her medical degree from the University of Texas Medical School at San Antonio where she was elected to AOA. Following her internship in internal medicine and residency in ophthalmology, Dr. Held joined the faculty at the Univ. of TX Health Science Center at San Antonio where she taught residents and medical students and served as Director of the County Ophthalmology Clinic. For the past 20 years she has been in private practice in San Antonio. Dr. Held served on the healthcare policy advisory team for Dr. Ben Carson during his presidential campaign. She is on the Board of Directors of the Association of American Physicians and Surgeons ( AAPS), is co-founder of AmericanDoctors4Truth.org and serves on the National Physicians Council for Healthcare Policy. She served as a member of the Physicians’ Healthcare Workgroup. She received The Shining Scalpel Award. She was a co-founder of rebel.md, a site featuring articles written by physicians related to the practice of medicine from the trenches of real life experiences. Dr. Held has had numerous articles published, including in the Washington Times, The Hill, Journal of American Physicians and Surgeons and Dr. Carson’s AmericanCurrentsee. Dr. Held will be a five-year survivor of breast cancer in 2017. Please follow @kksheld on Twitter and follow her blog at KrisHeldMD.wordpress.com.

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as health status insurance or premier cancer coverage for low-risk people who unexpectedly get cancer. The result would probably be an explosion in the availability of insurance products, and a dramatic decrease in the price of medical goods and services—once they are not bundled into enormous insurance premiums but have to show their worth to consumers who have choices. Disruptive innovation and creative destruction would abound. There would no doubt be some people with pre-existings through no fault of their own because of decades of misguided government policy. But when problems come up, we should find targeted solutions, instead of wrecking the insurance market, grossly inflating the cost of all medical care, and driving out doctors and facilities that can’t cope with the tsunami of regulations that attempt to substitute for the natural adjustments of a free market. The greatest distress would be felt not by patients and taxpayers but by third party parasites—the swamp dwellers siphoning off a huge cut of some $3 trillion passing through the third-party payment system each and every year. We hear a compromise between conservatives and “moderates” has been suggested: allow states to apply for a waiver of the guaranteed issue/community rating rules. In other words, permit islands of freedom. We might see what such a controlled experiment would show. Republicans must honor their word to repeal Obamacare. Retaining its inherent flaws while upping premiums and creating a new subsidy will prove as effective as painting it red, upping the sticker price, and adding spinners and neon. We must address the entrenched flaws that keep the costs up. We must continuously remind ourselves that the goal is survival of our patients, not the survival of big insurance corporations, political careers, and specialinterest parasites. We need an ambulance, not a Monster truck, and most importantly we must drain the swamp.[IA]

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Kingstone’s Chairman & CEO

Barry Goldstein

“This award honors Barry for his professionalism and demonstrated commitment to the insurance industry.”

PIANY’s 2017 Insurance Executive of the Year

16 April 24, 2017 / INSURANCE ADVOCATE

uGLENMONT, N.Y.—The Professional Insurance Agents of New York State Inc. will present Barry B. Goldstein, chairman

and CEO of Kingstone Insurance, with its Executive of the Year award at the annual Long Island Regional Awareness Program, April 26, at the Crest Hollow Country Club in Woodbury, N.Y. The award recognizes an individual from an insurance company, a general agency or a managing general agency who has demonstrated qualities that best foster a strong working relationship with agents and brokers, and who has exemplified a commitment to professionalism and service. Active in industry affairs, Goldstein has been Chairman of Kingstone for the past 11 years, and took over in 2012 as Chief Executive Officer following John Reiersen’s decision to reduce his day-today responsibilities. In addition, he has been the Chairman and CEO of Kingstone Companies Inc. for the past sixteen years. KINS is the NASDAQ listed, publicly-traded owner of Kingstone Insurance. Goldstein began his insurance industry tenure as an agency owner and operator in Pennsylvania. “This award honors Barry for his professionalism and demonstrated commitment to the insurance industry,” said PIANY president John C. Parsons II, CIC, CPIA, AAI. “It is my privilege to recognize an individual with such a high-level of dedication to our industry.” The day’s events also will include an expansive trade show, and education sessions including Drones and Uber— Handling Emerging Risks presented by Cathy Trischan, CPCU, CIC, CRM, AU, ARM, AAI, CRIS, MLIS, in the morning. Errors & Omissions in the Cyber Age, also presented by Trischan, will be held in the afternoon.[IA] PIANY is a trade association representing professional, independent insurance agencies, brokerages and their employees throughout the state.

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[ IN FOCUS ]

K E L LY D O N A H U E - P I R O

Are You Wasting Time Quoting Insurance? uIf I had a nickel for every time someone at an agency talked about time, let’s just say I’d be writing this article from my very own private island. Time in agencies seems to be at such a premium, there is never enough of it, but we far too often are our own biggest time vampires. In agencies, we see a great deal of inefficiency and waste. One of my favorite Agency Performance Assessment questions is “How could you be more efficient at your job?” It’s amazing the lack of response I often receive. I hear everything from “Nothing. I’m very efficient” to “I don’t even have time to think about this!” I rarely hear anyone truly thinking about ways to become more efficient. We can’t create more time in the day, but we can become more efficient and effective. As we review an agency’s performance, we often see a great deal of time wasted on quoting. You may be thinking “How is that possible? We need to quote to grow.” The answer is yes you do, but many people are wasting their time quoting insurance because they have a poor sales process or they don’t understand main agency objectives. Here are the common themes we see in efficient agency quoting: We treat all leads the same: Quoting a lead when it doesn’t have a high likelihood to close is inefficient. Yet too often we see agencies treating all leads the same. With a referral, you have more time to quote the opportunity as they are coming to you from a peer recommendation; however an internet lead needs to be quoted ASAP. The longer you wait, the less your chances are of converting it. We often teach agents how to quote over the phone on small commercial and many personal lines accounts. It takes practice but the closing ratio skyrockets. When we quote someone who is shopping two or three days after we speak with them, they are gone. They have called the competition and gotten immediate gratification (which can be more important than the cheapest price). 18 April 24, 2017 / INSURANCE ADVOCATE

In agencies, we see a great deal of inefficiency and waste. We email quotes: Email quotes also decrease effectiveness. When we email a quote and tell people to let us know, we should expect a poor response. Emailing quotes means you have no control over your sale. You can’t ask for the business, answer questions, and worse, the only reason you will win is because you are the cheapest. That’s horrible. Emailing quotes is efficient for you to get it off your desk, but quoting business that won’t sell won’t help improve your time management. We reshop out of fear: Too often we reshop accounts too quickly. When someone is upset, we reshop them. I was once at an agency in New York and an account manager was reshopping a $437 annual auto policy because it went up $7. That’s insane. We need to train account managers on how to sell rate. What this means is how to modify accounts and defend the rates where appropriate. Your agency needs a remarketing guideline. They can’t remarket everything while new business quotes take two or three days to complete. We let reshops sit: If I have taken the time to contact your agency to review my rates, I’m most likely upset. This can trigger me to call you AND shop my insurance. We need to handle rewrites quickly—again we recommend wherever possible handling rewrites on the phone with the client. We can’t let rewrites sit for three days. You will kill 45 minutes of your time and lose a customer. Instead, we need to respond quickly and efficiently. We quote insurance we shouldn’t: Every agency needs to work on defining what business they do not want. Yes, you should and can turn business away. If your team is spending hours on a monoline home that no one else wants, do you really want it? We can try to be insurance superheroes to get it done, when in reality we need to just walk away.

Kelly Donahue-Piro, founder and president of Agency Performance Partners, is a no-nonsense effectiveness expert who has helped hundreds of insurance agencies identify and capitalize on sustainable improvement opportunities. Her specialties include agency culture assessment and change; management and supervisory coaching and benchmarking; customer retention strategy development; digital marketing strategy, planning and implementation; and sales planning, management and skillbuilding. In 2014, she created Agency Performance Partners with a mission to “partner with insurance entrepreneurs who dream to take their business to the next level and beyond, by relentlessly pursuing excellence in worldclass service and sales strategies.” The centerpiece of the organization’s transformational work is its Agency Performance AssessmentTM, a comprehensive survey tool Kelly created to zero in on organization-wide improvement opportunities and provide the foundation for a customized agency action plan. Mrs. Donahue-Piro is an engaging speaker who is available to conduct in-person and online agency success presentations that complement her firm’s one-on-one on-site and virtual consulting practice. Connect with her on social platforms, via email at kelly@agencyperformancepartners, or by phone at 401-415-6205.

Quoting insurance is a necessity but too many agencies don’t have a firm strategy on how to quote it effectively. I’d rather not quote insurance if we can’t do it well. If we close 25% of new leads, there is a lot of time wasted. You have to get good at tracking and knowing where your time is being wasted and then build better processes for efficiency.[IA]

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[ G UEST A R T I C L E ]

CHRIS ORESTIS

Afraid of a Hefty Long-Term Care Bill? Life Insurance Holds The Answer uEven as aging Americans revel in the splendor of their well-earned retirements, they still harbor plenty of worries, such as outliving their savings. Near the top of the worry list is the fear their health will deteriorate so much they’ll be forced to seek long-term care, a situation that could leave them and their families slammed with expenses far beyond what they can afford. Surprisingly enough, the solution to this particular problem may be right in their home, tucked away in a drawer. “Many people don’t realize that a life insurance policy can be converted to pay for assisted living, home care and all other forms of long-term care,” says Chris Orestis, a senior-care advocate and author of the books “Help on the Way” and “A Survival Guide to Aging.” “What’s really sad is that, when they’re suddenly confronted with the reality of long-term care expenses, some older people may let the policy lapse, figuring they can no longer afford it. And it’s the very thing that holds the answer to their financial worries.” Part of the problem is that while millions of people own life insurance policies, few of them understand their rights as owner, says Orestis, CEO of Life Care Funding (www.lifecarefunding.com). “Life insurance policies are assets,” he says. “Think of them just like a house. The owner of a house wouldn’t just move out without selling their property. Why should the owner of a policy ‘move out’ without first finding out what the real value of the policy is?” Here are a few key facts about how that life insurance policy can be converted to a long-term care benefit plan and potentially rescue the senior and their family from the back-breaking financial strain of long-term care: • The benefit plan is not long-term care insurance. A long-term care benefit plan allows policyholders to use any form of life insurance policy 20 April 24, 2017 / INSURANCE ADVOCATE

“What’s really sad is that, when they’re suddenly confronted with the reality of long-term care expenses, some older people may let the policy lapse, figuring they can no longer afford it. And it’s the very thing that holds the answer to their financial worries.” to pay for long-term care. In essence, what was a death benefit that would have been paid to the person’s survivors becomes a “living benefit” that covers the expenses of the policyholder now. • You can convert when you need it. You can’t wait until you’re about to move into a nursing home or assisted-living facility to buy long-term care insurance. At that point, it’s too late. But you can convert a life insurance policy to a long-term benefit plan at any time. There are no waiting periods, no care limitations and there are no costs or obligations to apply, Orestis says. • The full death benefit comes into play. The value of the conversion is not limited to the cash value, but is based on the death benefit. “That means the senior will receive a maximum amount of value toward their long-term care benefit plan,” Orestis says. If the insured person dies before the benefit amount is exhausted, any remaining balance is paid to the family or the named beneficiary as a final lump-sum payment. “Families can go broke trying to provide for a loved one,” Orestis says. “In many cases, they could have avoided it had they only known about this solution.”[IA]

Chris Orestis is CEO of Life Care Funding (www.lifecarefunding.com) and a 20-year veteran of both the insurance and long-term care industries. A former Washington, D.C., lobbyist, he is a nationally known senior-care advocate and author of the Amazon bestselling books “Help on the Way” and “A Survival Guide to Aging.” Orestis also is a legislative expert, featured speaker, columnist and contributor to a number of insurance and long-term care industry publications. He is a frequent guest on national radio programs, and has been featured in the Wall Street Journal, the New York Times, USA Today, Fox Business News, and PBS.

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[ COURTSIDE ]

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

Construction Crane Loss Is Not Covered Under Builder’s Risk Policy Due To “Contractor’s Tools” Exclusion Lend Lease (US) Constr. LMB Inc. v Zurich Am. Ins. Co.

Edited by Lawrence N. Rogak During Hurricane Sandy, a construction crane on a high-rise building partially collapsed due to high winds, and was covered by TV news crews. Zurich insured the building owner and general contractor. Zurich disclaimed coverage for claims related to the crane, and the insureds commenced this DJ action. The Court of Appeals held that damage to the crane was excluded by the policy’s exclusion for “contractor’s tools” because that exclusion also applies to “machinery” which is not intended to become a permanent part of the structure.—LNR uIn this action, plaintiffs seek a declaration of coverage under a program of builder’s risk insurance furnished by defendants for loss — specifically, damage to a tower crane — caused by Superstorm Sandy. At issue here is the question whether the crane is covered in the first instance under the insurance provided for temporary works and, if so, whether the contractor’s tools exclusion defeats that initial grant of coverage. Also at issue — and critical to our analysis — is the question whether the contractor’s tools exclusion is ineffective because it would render the coverage granted in the first instance for temporary works illusory. Assuming that the policy contains coverage for the crane in the first instance, we conclude that the contractor’s tools exclusion would defeat that coverage, and that such exclusion does not render the coverage afforded under the temporary works provision of the policy illusory. We therefore affirm the Appellate Division order granting summary judgment declaring that defendants have no obligation to provide coverage for the subject loss under the policy. 22 April 24, 2017 / INSURANCE ADVOCATE

In October 2012, plaintiff Extell was constructing a 74story skyscraper — commonly known as the One57 Building — at 157 West 57th Street in Manhattan. Extell had retained plaintiff Lend Lease (US) Construction LMB Inc. to act as the construction manager for that project… I. In October 2012, plaintiff Extell was constructing a 74-story skyscraper — commonly known as the One57 Building — at 157 West 57th Street in Manhattan. Extell had retained plaintiff Lend Lease (US) Construction LMB Inc. to act as the construction manager for that project and, in that capacity, Lend Lease had contracted with nonparty Pinnacle Industries II, LLC for certain structural concrete work with respect to that endeavor. Pursuant to its contract with Lend Lease, Pinnacle was to furnish and install, among other things, two diesel fuel tower cranes. Only one of those cranes is at issue here. That crane was installed on a reinforced slab on the 20th floor of the building and, once all other trade work was completed at the project, it was to be dismantled and removed from the site. Several components of the crane, including beams cast into the slab and materials reinforcing the locations at which the crane was “tied” to the build-

Lawrence N. ("Larry") Rogak has been practicing insurance law since 1981. He has defended over 23,000 lawsuits and arbitrations and has represented over 75 different insurance companies and self-insured corporations. Lawrence N. Rogak LLC is listed in Best's Recommended Insurance Attorneys, a distinction that requires written recommendations from at least 12 insurance carriers. A 1981 graduate of Brooklyn Law School, Mr. Rogak has published more books and articles on insurance law than any other New York attorney in the field.

ing as it arose next to that edifice, were designed to permanently remain part of the building upon the completion of construction. By October 29, 2012, the crane had risen approximately 750 feet from its base. On that day, Superstorm Sandy made landfall in the New York City area. One of the most dramatic images of that landfall depicts the damage caused to the crane when the boom of the crane collapsed in high winds and teetered precariously from a height equal to the top of the building. Afterwards, “the . . . blocks [surrounding the building] were evacuated for six days and the crisis became a riveting symbol of the city’s wounded infrastructure” (Charles V. Bagli, As Crane Hung in the Sky, a Drama Unfolded to Prevent a Catastrophe Below, New York Times,

Nov. 6, 2012 [available at: http://www. nytimes.com/2012/11/07/nyregion/dra ma-behind-securing-crippled-crane-inmanhattan.html]). At the time of that incident, Extell was the named insured on a program of builder’s risk insurance containing coverage in the amount of $700 million, that is, the total estimated cost of the project. The program is referred to as the “policy,” but it actually is an amalgamation of five separate insurance contracts, each of

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[ COURTSIDE ] which was issued by a different defendant-insurer and each of which covers a different percentage of the aggregate risk. Defendant Zurich American Insurance Company assumed half of the aggregate risk and furnished the “lead” policy with respect to that exposure. At issue in this action is whether the policy covers damages sustained by Extell (the named insured) and Lend Lease (an additional insured) resulting from the weather-related harm to the crane.[FN1] That determination turns on whether the crane is covered under the policy in the first instance and, if so, whether the policy’s contractor’s tools, machinery, plant and equipment exclusion (generally, contractor’s tools exclusion) defeats that coverage.[FN2] Following defendants’ denial and disclaimer of coverage with respect to this matter,[FN3] plaintiffs commenced this action seeking, among other things, a declaration that the crane is covered property under the policy, and that coverage for the crane is not subject to any policy exclusion. Supreme Court entered an order denying the competing motions and cross motions for summary judgment that eventually were filed with respect to that coverage question, ruling that there is an issue of fact whether the contractor’s tools exclusion defeats coverage for the subject loss. On appeal, however, the Appellate Division—with two Justices dissenting, modified that order by granting defendants’ cross motions for summary judgment and declaring “that defendants have no obligation to provide coverage under the . . . policy.” The court held that “the . . . crane was inte-

“As with the construction of contracts generally, unambiguous provisions of an insurance contract must be given their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court.”

gral, not ‘incidental to the project,’ and therefore does not fall within the [policy’s] definition of Temporary Works.” “Even if the . . . crane fell within the definition of Temporary Works,” the court added, “the contractor’s tools. . . exclusion would be applicable and . . . enforceable.” By contrast, the dissenters would have affirmed Supreme Court’s order, reasoning that there is an issue of fact whether the policy contains coverage for the crane in the first instance, and that, although the contractor’s tools exclusion pertains to the crane, such exclusion is unenforceable because to apply that exclusion here “would be to render coverage for temporary works illusory.” In essence, the dissenters concluded that the application of the contractor’s tools exclusion effectively would defeat all of the coverage granted in the first instance by the policy’s temporary works provision, and that such exclusion therefore is unenforceable as a matter of public policy. Plaintiffs appeal to this Court as of

right (see CPLR 5601 [a]), and we now affirm the Appellate Division order.

II. “In determining a dispute over insurance coverage, we first look to the language of the policy” (Consolidated Edison Co. of N.Y., Inc. v Allstate Ins. Co., 98 NY2d 208 [2002]; see Matter of Viking Pump, Inc., 27 NY3d 244 [2016]). “As with the construction of contracts generally, unambiguous provisions of an insurance contract must be given their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court” (Vigilant Ins. Co. v Bear Stearns Cos., Inc., 10 NY3d 170, 177 [2008]; see Viking Pump, 27 NY3d at 257; Selective Ins. Co. of Am. v County of Rensselaer, 26 NY3d 649, 655 [2016]). Of course, where “the policy may be reasonably interpreted in two conflicting manners, its terms are ambiguous” (Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321 [1996]), and “any ambiguity must be construed in favor of the insured and against the insurer” (White v Continental Cas. Co., 9 NY3d 264, 267 [2007]; see Federal Ins. Co. v International Bus. Machs. Corp., 18 NY3d 642, 646 [2012]).

The question whether the policy covers the crane in the first instance turns on our interpretation of language germane to the policy’s insuring agreement.[FN4] On this point the parties dispute whether the crane is a “temporary . . . structure” within the meaning of the policy, and whether the crane was “incidental to the project.”[FN5] We conclude that the crane was a “structure” (see Lewis-Moors v Contel CONTINUED ON PAGE 28

FN1: Specifically, plaintiffs sought coverage for “costs relating directly to stabilizing, removing, and replacing the damaged crane.” FN2: Detailed analyses of the relevant parts of the policy’s insuring clause and contractor’s tools exclusion appear in sections II and III of this opinion. Here, it bears noting only that the question whether the policy contains coverage in the first instance for the crane turns in part on whether the crane is a “temporary work,” as that phrase is incorporated in the insuring clause. FN3: After plaintiffs provided timely notice of their purported losses, defendants denied and disclaimed coverage for those claims through a joint letter. There, defendants maintained that the policy does not cover the subject loss in the first instance and that, even if such coverage exists, it is defeated by the contractor’s tools exclusion. FN4: The insuring clause provides that, “subject to the terms, exclusions, limitations and conditions contained [therein, the policy] insures against all risks of direct physical loss of or damage to Covered Property while at the location of the INSURED PROJECT* . . . .” The policy defines “covered property” as “the insured’s interest in,” among other things, “temporary works.” The phrase “temporary works,” in turn, means “all scaffolding (including scaffolding erection costs), formwork, falsework, shoring, fences, and temporary buildings or structures, including office and job site trailers, all incidental to the project, the value of which has been included in the estimated TOTAL PROJECT VALUE* of the INSURED PROJECT* declared by the Named Insured.” For its part, the phrase “total project value” is defined as “[t]he total value of PROPERTY UNDER CONSTRUCTION*, TEMPORARY WORKS*, existing structures (when endorsed to the Policy) and LANDSCAPING MATERIALS*, plus labor costs that will be expended in the INSURED PROJECT*, plus site general conditions, construction management fees, and contractor’s profit and overhead, all as stated in the Declarations.” FN5: To the extent the crane is not a “temporary . . . structure” and was not “incidental to the project,” it would not constitute a “temporary work” within the policy and therefore would not be covered thereunder.

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[ O N M Y R A DA R ]

BA R RY Z A L M A

Court Can’t Rewrite Insurance Policy A Rockfall is Earth Movement uBad facts create litigation. When a 2,700 ton mass of rock and earth fell 1,000 feet onto a house killing the occupants and totally destroying the house, garage and a car, insurance coverage was required to ease the pain of the survivors and the bank that issued the mortgage on the house. However, the homeowners policy contained an earth movement exclusion that included landslide. In Western United Insurance Company, dba AAA Insurance Company v. Janelle Heighton; PHH Mortgage Corporation, and cross claims, United States District Court, D. Utah., 2016 WL 4916785, Case No. 2:14CV435DAK (Filed 09/14/2016), the insurer denied the claim for the replacement of the house and garage.

BACKGROUND AAA brought this declaratory judgment action regarding insurance coverage for a property destroyed by a rockfall/landslide. In November 2006, AAA had issued a homeowners insurance policy to the property owner, Maureen Morris (Morris). The mortgage Morris secured from Defendant PHH required that she buy and maintain first party property insurance coverage and that the policy name PHH as “loss payee” so that PHH would be paid alongside the named insured in the event of damage to the property. Morris’ property was located in Rockville, Utah, near Zion National Park. The property sits at the base of a steep slope known as the Rockville Bench, which rises approximately 1,000 feet above the house. On December 12, 2013, a large rock mass detached from the Shinarump Conglomerate cliff capping the Rockville Bench and fell onto the steep slope below the cliff, where it shattered into massive fragments and then rolled and bounced downslope until the rockfall debris reached Morris’ home, totally destroying the home, detached garage, and a car parked in the driveway. Tragically, Morris and her husband were in the home at the time and were killed. 24 April 24, 2017 / INSURANCE ADVOCATE

AAA investigated the loss and concluded that, with the exception of some limited personal property coverage, the policy excluded coverage for the remainder of the damage due to an exclusion for earth movement.

Following the loss, Morris’ daughter and heir, Janelle Leighton, submitted an insurance claim to AAA under the homeowners’ policy. AAA investigated the loss and concluded that, with the exception of some limited personal property coverage, the policy excluded coverage for the remainder of the damage due to an exclusion for earth movement. The policy’s “earth movement” exclusion is defined in relevant part to include a “landslide, mudslide, or mudflow.” The policy also provides that “earth movement” can include “any other earth movement including earth sinking, rising or shifting, including any natural or artificially created loss of any kind attributable in whole or in part to any movement of the earth or soil, whether on or off of the ‘residence premise,’ that is caused by, resulting from, contributed to or aggravated by rain or snow, including run-off from same.” There are also policy provisions regarding coverage in the event of collapse. The parties agree that the house and garage collapsed when they were hit by the rockfall/landslide. However, AAA declined coverage under the collapse provisions because that type of coverage does not apply when the collapse results from earth movement. After AAA denied the claim, PHH challenged the decision. AAA then filed the present declaratory relief action.

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http:// shop.americanbar.org/eBus/Store/Pro ductDetails.aspx?productId=214624, or 800-285-2221 which is presently available. Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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[ ON MY RADAR ] DISCUSSION It is undisputed that a rockfall destroyed the property. However, the parties dispute whether the rockfall in this case is a landslide. Landslide damage is specifically excluded from coverage under the “earth movement” exclusion in the policy. The parties agree that the terms of an insurance policy are construed according to their “plain and ordinary meaning.” The individual provisions of the insurance policy are construed in light of the policy as a whole. Insurers may only exclude from coverage certain losses by using language which clearly and unmistakably communicates to the insured the specific circumstances under which the expected coverage will not be provided. Utah courts have consistently enforced earth movement exclusions in homeowners’ insurance policies. No Utah appellate court has specifically addressed whether naturally occurring rockfall damage is excluded earth movement under an earth movement exclusion in an insurance policy. However, in Dupps v. Travelers Ins. Co., 80 F.3d 312 (8th Cir. 1996), the Eighth Circuit held that the ordinary meaning of the term “landslide” includes rocks falling down a bluff. Relying on the Random House Dictionary, the court stated that “‘landslide’ is defined as the downward falling or sliding of a massive soil, detritus, or rock on or from a steep slope.” The Dupps court held that the policy was not ambiguous as a matter of law because “the only reasonable interpretation of the policy prohibits recovery for rocks which have fallen on the Duppses’ property.” To assert that a rockfall cannot be considered a landslide, PHH relies on Morris’ application for insurance which asked whether there were “any hazards present [on the property] including flooding, brush, forest fire hazard, landslide, etc.,” or whether there had “been any slipping, sinking or shifting of land, or other earth movement in the area.” Morris answered “no.” PHH surmises that this answer means that Morris did not understand rockfalls to be a type of landslide or that the provision was not clear. However, why Morris answered the question the way she did is unknowable. PHH’s position is pure speculation since she probably would not have stayed in the house had she thought tons of rock would fall on her house from the cliff 1,000 feet above the house. PHH further asserts that the fact that

The common understanding of the term landslide includes rocks and soil falling down a slope. The court found nothing ambiguous about the policy’s use of the term “landslide” as an example of earth movement. AAA inspected the property as part of the underwriting process and was aware that the property was located in a high rockfall zone demonstrates that AAA did not believe that the terms rockfall and landslide were synonymous. However, this argument assumes that AAA would not have issued the policy in a high rockfall zone, which is not the case. Insurers frequently issue policies for homeowners insurance in areas where multiple exclusions could apply. The common understanding of the term landslide includes rocks and soil falling down a slope. The court found nothing ambiguous about the policy’s use of the term “landslide” as an example of earth movement. The court also found nothing ambiguous about whether the term “landslide” would apply to the situation before the court. This is not a case where a single 2,700 ton rock broke off of an overhang and fell directly onto a house below without coming into contact with any other soil or organic materials. The 2,700 ton piece of the bluff broke off, hit a steep slope, and triggered a downward shifting of a mass of rocks and soil toward Morris’ house. This case involves a plain and ordinary example of a landslide. Ambiguity can only be found in Utah if the plain wording of the policy does not resolve the coverage questions. While this court agrees that insureds should receive as much coverage as possible under an insurance policy, the court cannot, should not, and did not rewrite the policy. The policy excludes coverage for a landslide and the loss of Morris’ house was caused by a landslide. AAA’s Motion for Summary Judgment was granted.

someone, whether heirs or mortgage, would think they have a right to indemnity from the homeowners policy. An insurance policy is a contract where the insurer promises to indemnify its insureds for losses caused by certain enumerated fortuitous risks of loss not excluded. Courts must apply the contract language and should never be tempted, regardless of the needs of the insureds, to rewrite the policy to create coverage that was not purchased.[IA]

While this court agrees that insureds should receive as much coverage as possible under an insurance policy, the court cannot, should not, and did not rewrite the policy. The policy excludes coverage for a landslide and the loss of Morris’ house was caused by a landslide. AAA’s Motion for Summary Judgment was granted.

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ZALMA OPINION It is understandable with such serious damage and death of the insureds that

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[ COURTSIDE ] CONTINUED FROM PAGE 23

of N.Y., 78 NY2d 942, 943 [1991]

[defining “structure” as including “any production or piece of work artificially built up or composed of parts joined together in some definite manner”]; see Joblon v Solow, 91 NY2d 457 [1998]; see also Merriam-Webster’s Collegiate Dictionary 1238 [11th ed 2003] [defining “structure” as “something (as a building) that is constructed”]). We further conclude that the crane was “temporary” in that it was anchored and tied to the building only “during construction” and was to be “removed when. . . no longer needed.” Similarly, we conclude that the parties’ additional dispute as to whether the crane was “incidental to the project” is of no moment. The principal purpose of the project was the construction of the building, not the crane, and the installation and disassembly of the crane were merely incidental steps toward the completion of that edifice.

“‘Before an insurance company is permitted to avoid policy coverage, it must satisfy the burden which it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation’” The parties also dispute whether the value of the crane was disclosed as part of the “total project value,” another requirement for coverage.[FN6] On this record, we cannot make that determination as a matter of law. The evidence submitted with respect to the “total project value” question includes an affidavit of a Lend Lease executive, who averred that the actual market value of the crane was

impliedly, but not expressly, disclosed to defendants as required for the crane to constitute a “temporary work” — and, therefore, “covered property” — within the meaning of the policy. Consequently, we agree with the dissenters at the Appellate Division to the extent they concluded that there is a triable issue of fact whether there is coverage for the subject loss in the first instance; see also Platek v Town of Hamburg, 24 NY3d 688, 694 [2015] [“it is the insured’s burden to establish the existence of coverage”]; see generally Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

III. Although we depart from the Appellate Division order by concluding that there is an issue of fact whether the policy contains coverage for the subject loss in the first instance, we nevertheless reach the same result as that court. Namely, we conclude that there is no coverage for that loss under the policy because any

FN6: To the extent the value of the crane was not disclosed as part of the “total project value,” the crane would not constitute a “temporary work” within the policy and therefore would not be covered thereunder.

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[ COURTSIDE ] coverage afforded by that contract in the first instance is defeated by the contractor’s tools exclusion. That exclusion provides that “the Policy does not insure against loss or damage to . . . Contractor’s tools, machinery, plant and equipment including spare parts and accessories, whether owned, loaned, borrowed, hired or leased, and property of a similar nature not destined to become a permanent part of the INSURED PROJECT*, unless specifically endorsed to the Policy.” “‘Before an insurance company is permitted to avoid policy coverage, it must satisfy the burden which it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation’” (Dean v Tower Ins. Co. of N.Y., 19 NY3d 704, [2012], quoting Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, [1984]. Extell, in particular, contends that defendants cannot have met that burden here because the crane is not a “tool” or “equipment” within the meaning of the contractor’s tools exclusion. The subject exclusion, however, also defeats coverage for “machinery,” and the crane falls squarely within this definition of that term. “Machinery” means, among other things, “machines in general or as a functioning unit,” and “machine” is defined as “a mechanically, electrically, or electronically operated device for performing a task” (MerriamWebster’s Collegiate Dictionary 744 [11th ed 2003]). Although Extell submitted evidence that “components of [the crane were] to remain permanently part of the building following the completion of construction,” those “components” consisted primarily of reinforcements and ties, and the record conclusively reflects that the principal parts of the crane were “not destined to become a part of the [building]” upon the completion of construction. To that end, we conclude the contractor’s tools exclusion applies to the crane. We further conclude that there is no force to plaintiffs’ effort to avoid application of that exclusion on the ground that it is so broad as to render coverage afforded under the temporary works provision of the policy illusory. To be sure, “an insurance agreement is subject to principles of contract interpretation” (Universal Am. Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d 675,

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680 [2015]), and an illusory contract — that is, “an agreement in which one party gives as consideration a promise that is so insubstantial as to impose no obligation” — is “unenforceable” (Black’s Law Dictionary 370 [9th ed 2009]; see generally Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356, 361 [1974]; Madawick Contr. Co. v Travelers Ins. Co., 307 NY 111, 118 [1954]). We

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Dept 2014]. Indeed, the contractor’s tools exclusion does not defeat all of the coverage afforded under the policy’s temporary works provision. That exclusion would not defeat coverage initially granted for such things as the cost of erecting scaffolding, for “temporary buildings,” and for such other things as “formwork, falsework, shoring, and fences,” which are not “tools” within the meaning of the exclusion. The enforcement of the exclusion does not create a result that “‘would have the exclusion swallow the policy’” (Reliance Ins. Co. v National Union Fire Ins. Co. of Pittsburgh, Pa., 262 AD2d 64, 65 [1st Dept 1999], quoting Camp Dresser & McKee Home Ins. Co., 30 Mass App Ct 318, 323, 568 NE2d 631, [1991]). For the same reason the exclusion does not render the coverage granted under the temporary works provision illusory. Accordingly, the order of the Appellate Division should be affirmed, with costs. [IA] 2017 NY Slip Op 01141 Decided on February 14, 2017 Court of Appeals Fahey, J.

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[ G UEST O PI N I ON ]

A L I E TA E C K , M D

Is Your Health Insurance Good For You? uImagine that you don’t feel well. You have had nausea and vague abdominal pain for a week, and you notice that your belt is getting tighter. You have not seen a doctor in a while and sense something could be seriously wrong. So what do you do? Here are two possibilities: 1. You pull out the insurance card that you got through the ObamaCare exchange—a card that made you feel secure as you got it at a great discount because of government subsidies. You read the fine print that sends you to the insurance company website. You find the list of “preferred providers” and begin making phone calls. After going through 15 numbers and being told that the doctor is not taking new patients, you finally find an office that gives you an appointment a month away. Frustrated and increasingly alarmed, you go to the emergency room, thinking that your insurance will cover it. They do a host of tests and finally determine that you have some sort of virus and that you have put on weight due to recent overeating. You are reassured and relieved. A few weeks later you get a bill for $8,000. Your ObamaCare insurance negotiated that down from $12,000, and you are grateful for that. But since your deductible is $8,000, you will begin to pay $100 per month for many years to come. 2. You call the doctor you have seen through the years. He was there when you developed diabetes and was able to get it under control quickly. Same with your blood pressure. He is the one who convinced you to stop smoking. You pick up the phone to make an appointment, and the friendly receptionist, who knows your name, says you can come in the next day. You get to the office where the staff greets you, asks about your family, and does not 30 April 24, 2017 / INSURANCE ADVOCATE

What if this had been cancer or your nausea and abdominal pain were actually a heart attack? The best insurance would be affordable and would only kick in when you need it for a major medical event, perhaps at $5,000.

make you fill out the same long form with all your insurance information—a gain. This doctor does not belong to any network and does not take any insurance. He can focus on what you need, being mindful that you will be paying for tests and medicines out of pocket. Since you have an $8,000 deductible, chances are your insurance won’t help. Once in the exam room, the doctor takes time to listen to you and examine you, and thoughtfully considers what your signs and symptoms might mean. He does an EKG, draws some blood, and assures you that the lab bill you will get will be less than $100. He might order an ultrasound or a CT scan and tell you where these can be obtained at a very reasonable cash price. You pull out your credit card, checkbook, or health savings account debit card and pay a very reasonable fee for his services—much less than your most recent car repair bill. You are thankful and reassured that you are in good hands. You get the test and a few days later, he lets you know that your hemoglobin A1C is a bit high and that you need to lose some weight and restrict your sugar and carb intake

Dr. Alieta Eck graduated from the Rutgers College of Pharmacy and the St . Louis University School of Medicine in St. Louis, MO. She studied Internal Medicine at Robert Wood Johnson University Hospital in New Brunswick, NJ and has been in private practice with her husband, Dr. John Eck, MD in Piscataway, NJ since 1988, affordablehealthinc.org. She has been involved in health care reform since residency and is convinced that the government is a poor provider of medical care.

to better control your diabetes. He also reassures you that the CT scan did not show any abnormality. A few days out, you are feeling much better without any new medication. These are two choices that are very real, and any thoughtful person would choose the second. In a perfect world, you would have an insurance card that you could tuck away, reserved for BIG medical events. What if this had been cancer or your nausea and abdominal pain were actually a heart attack? The best insurance would be affordable and would only kick in when you need it for a major medical event, perhaps at $5,000. Meanwhile, the best medical care is obtained from an independent personal doctor that you can actually keep, no matter what the legislators in Washington, D.C., decide is best for you.[IA]

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