May 26, 2014 by C Acunto

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VOLUME 125, NUMBER 10 / May 26, 2014

A CINN Group, Inc. Publication

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

Sutton to Chair I ABNY 2014-2015 STORY PAGE 28

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Contents [COVER STORY ] 16

On My Radar: When an Insurer Must Interplead Funds Barry Zalma

Looking Back: May 1989

Courtside: The Fairbanks Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa.

Classiﬁeds

Guest Opinion: “Accountable Care, Patient Protection” Act Harms Young Millennials Elizabeth Lee Vliet, M.D.

AGENCY M&A A’ Go•Go

[FEATURES] 4

Foreword: PIANY - NJ 75th Just Ahead Steve Acunto, Publisher

Insight: EXTRA! EXTRA! Read it Here First! Peter H. Bickford

Guest Opinion: Outrage: DMV’s Internet I-PIRP Program Fails William Bonds

On the Level: Agents and CSRs Must Remind People of the Value We Offer Them N. Stephen Ruchman, CPA

In the Associations: IIABNY Taps Suffolk County Insurance Agent to be Chair of the Board

In the News: Extending TRIA Ensures Workers’ Comp Availability

In the Associations: Independent Insurance Agents & Brokers of New York Honor Leaders

In the Associations: IIABNY Top Honors to WAHVE

People: Ernesta Procope, NYC Insurance Broker, Receives Black Enterprise’s Lifetime Achievement Award Crystal Appoints Lou Roca Executive Managing Director

May 26, 2014 | volume 125 number 10

In the News: CyberRiskPartners, LLC Selects Advisor

[ AD FEATURES] 25

MSO: Something Fishy: Food Fraud

16 Like us on Facebook… The Insurance Advocate Magazine

www.insurance-advocate.com INSURANCE ADVOCATE / May 26, 2014 3

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[ FORE WORD ]

Steve Acunto

PIANY – NJ 75th Just Ahead

VOLUME 125, NUMBER 10 MAY 26, 2014

ad news. Ken Pollack wrote to advise of the passing of Joseph Costa, a lifelong insurance professional who became a leading volunteer in the IIABNY and its several affiliated chapters. Joe was President of Queens and Kings County Association in 1979 - 1980, a member and President of the Downstate Council and its Golf Outing Chairman. He served on the Board of IIABNY as a Director and Committee member and was a frequent participant in the Association’s legislative events in Albany and Washington. He is being reJOSEPH COSTA membered by many who have communicated with us as a great friend to his fellow independent agents and to the business itself. He leaves a loving family and many longtime friends in the business, including this writer.…CORREX: In a Courtside feature in our March 17th issue, our reporter’s story requires some clarification and correction. We regret any factual and interpretive mistakes. We have invited those involved in the case to respond to the piece in a full length article and pledge to run it with equal emphasis, as is our policy. Mr. Jeff Daniels, who is mentioned in the article, wrote to us to clarify several points. We summarize the observations made in his letter to us as follows: First, in the article, we report that Mr. Daniels owned Goldan; in fact, he notes that it was an LLC and the members were Mark Goldman and Mr. Daniels. Mr. Daniels advises that, in 2008, he discovered that Mark Goldman had used Goldan to commit certain crimes and reported his conduct to the affected parties and the authorities. Mark Goldman was subsequently charged with certain federal crimes and was sentenced to a term of imprisonment of approximately 13 years. Second, it was not clear from the language in the article whether we are saying that it was Goldan or Daniels who failed to repay the loans and filed bankruptcy. Mr. Daniels advises that Mr. Goldan was placed into an involuntary bankruptcy and that it was he who failed to repay the loans. Third, K2 and Atas did not sue Goldan for legal malpractice. Goldan is not a lawyer. K2 and Atas sued Mr. Daniels for malpractice. Fourth, the malpractice company did not deny coverage because Daniels had filed for bankruptcy. In fact, Daniels never filed for bankruptcy. The carrier denied coverage due to exceptions in the policy, Daniels advises. Fifth, there is a sentence that says: “In turn, Daniels turned his claims (including a claim of bad faith) against American Guaranty.” Daniels indicated that he assigned all of the claims against American Guaranty to K2, including a claim for bad faith based on American’s refusal to provide a defense in the initial malpractice action which the Court of Appeals found as continued on page 6

4 May 26, 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 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 ESR, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing ofﬁces. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $110.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2014. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Ofﬁce.

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

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[ FORE WORD ] continued from page 4

improper. Now that the Court of Appeals has reversed itself, the case will proceed and all the issues in the K2 Investments case will be litigated. Again, we invite any of the parties to recount their view and to relate any and all relevant facts in this case and do regret the mistakes in our article.… Benjamin M. Lawsky, Superintendent of the Department of Financial Services (DFS), announced that the DFS is proposing new regulations enshrining (sic) enhanced policyholder protection standards for private equity and other acquisitions of insurance companies. Those reforms – which include heightened transparency, disclosure, and financial standards – are modeled on the conditions that DFS required for several individual transactions last year in which private equity and other investment firms purchased annuity companies, according to the Department’s missive. Superintendent Lawsky stated: “Insurance is vital to the economic and retirement security of millions of families, and regulators have a critical responsibility to make sure policyholders are protected. We’re seeking to strike an appropriate balance that keeps markets open to new entrants, while at the same time putting in place necessary safeguards.” DFS highlighted a spike in private equity firms and other investment companies moving into the insurance business – particularly through the purchase of annuity companies. This trend raised concerns since such firms typically have a more shortterm oriented business model than traditional insurers, and the insurance business is focused on ensuring long-term security for policyholders. Moreover, consumer protections are especially important for annuity

companies since they help support secure retirements for seniors, the DFS correctly reminds us. In 2013, DFS reached agreements on enhanced policyholder protections with three investment firms – Guggenheim, Apollo, and Harbinger – related to purchases of annuity companies. The proposed regulation DFS is putting forward, which is modeled on those agreements, includes several important reforms… ….. The Professional Insurance Agents of New Jersey and New York State will celebrate 75 years representing professional, independent agents at their 2014 Joint Annual Conference at the Trump Taj Mahal in Atlantic City, June 8-10. The event is expected to exceed last year’s attendance, according to PIA, which included some 2,000 insurance-industry representatives—making it also the largest gathering of insurance industry professionals in the Northeast. The 75th anniversary will include a gala banquet, featuring a red carpet entry, on Monday, June 9th. The three-day conference will also allow individuals to earn continuing-education credits, attend networking opportunities and participate in an expansive trade show. The New Jersey Young Insurance Professionals, an affiliate of PIANJ, will host its 30th annual Fun Run to benefit Special Olympics New Jersey (SONJ). To date, these organizations have raised more than $3 million for SONJ. See you there!…ISO has announced the expansion of its ISO Risk Analyzer® Personal Auto predictive modeling tools to include a new module to help with determining vehicle liability risk. The new module, together with its counterpart for physical damage, provides insurers with a powerful pairing of pricing refinement tools for vehicle rating pro-

grams. The characteristics of a vehicle are a major factor in determining the liability risk associated with insuring it, hence the vehicle module for liability analyzes loss experience along with data on individual vehicle attributes, such as body style and dimensions, vehicle performance and safety features (including ratings from the Insurance Institute for Highway Safety), and information related to the manufacturer's suggested retail price (MSRP). In doing so, the module can produce Symbols in detail down to the vehicle level - not just the vehicle series level - for model years 1981 to the present. The new vehicle module for liability provides Symbols and analytical output - in the form of components - that insurers can use as a basis for enhancing their own vehicle-level modeling and analysis for five coverages: bodily injury, property damage, personal injury protection, medical payments, and single limit liability. ISO has filed ISO Risk Analyzer Personal Auto Vehicle Liability Symbols with insurance regulators in 36 states. The filings introduce an alternative rating rule that insurers can adopt after they license the module. "Delivery of the vehicle module for liability through VINMASTER makes it easy for our current Symbols customers to implement the new tool with minimal IT involvement and begin using it right away," said Neil Spector, president, Verisk Insurance Solutions - Underwriting. "The ease of locating a correct Symbol by either VIN or the vehicle description makes VINMASTER a powerful tool, whether quoting a rate or renewing a policy." The spate of new analytical tools available for auto has grown dramatically as science enters the insurance field with positive force.[IA]

6 May 26, 2014 / INSURANCE ADVOCATE

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[ INSIGHT ]

By Peter H. Bickford

EXTRA! EXTRA! Read it Here First!

ertain information about the insurance business in New York is being exclusively presented here for the very first time! This information is not otherwise publicly available and was mined from the Department of Financial Services

ulatory purpose that seems to be filed away somewhere and not used for any purpose at all. A brief refresher: the Free Zone allows domestic NY insurers, through an annual special risk license, to insure certain

It is not that this information is so sensitive or mysterious that it has to be withheld for some greater political, business or regulatory purpose. It is simply another example of data collected at the industry’s expense for a specific regulatory purpose that seems to be filed away somewhere and not used for any purpose at all. Peter H. Bickford

through the magic of the Freedom of Information Law (FOIL), with the help of an app that converts pdf documents into Excel spreadsheets (yes, there is an app for that – several, actually!). Although DFS has had this information all along, it was not included in either of the first two DFS annual reports nor was it the subject of any release, bulletin or other publication issued by the DFS. The subject information presented publicly for the first time relates to business written as special risk insurance under Article 63 of the New York Insurance Law, also referred to as the Free Trade Zone, by class for the years 2009, 2010 and 2011 (see the chart below). It is not that this information is so sensitive or mysterious that it has to be withheld for some greater political, business or regulatory purpose. It is simply another example of data collected at the industry’s expense for a specific reg-

hard to place or other risks free of rate and form filing requirements. There are three classes of risks that can be written in the Free Zone: Class 1 risks with an annual premium in excess of $100,000; Class 2 “special” or hard to place risks listed by regulation; and Class 3, added in 2011 as a result of the Nonadmitted and Reinsurance Reform Act (part of the Federal Dodd-Frank legislation), for policies issued to “large commercial insureds” employing or retaining a professional risk manager and with a $25,000 premium threshold. The Free Zone business has grown into a market comparable in size to the surplus lines market in the state – not an inconsequential business. The difference is that because of the excellent reporting on the surplus lines business by the Excess Line Association of New York (ELANY), we know a lot more about the non-admitted

NY Free Trade Zone – Direct Premium Written by Class 2009-2011 (Dollar amount in millions) Year Class 1 Class 2 Class 3 Premium Premium Premium Total 2009

$828.0

$1,517.8

N/A

$2,345.8

2010

$857.0

$1,647.2

N/A

$2,504.2

2011

$796.3

$1,700.9

$0.05

$2,497.3

8 May 26, 2014 / INSURANCE ADVOCATE

surplus lines business than we do about the domestic Free Zone business. My Quixotic quest for more information on this corner of the market began through a 2012 FOIL request for summary information about Free Zone writings. That request was denied on the basis that DFS did not have that information in summary form and “an agency is not required to create records in order to comply with a FOIL request.” But DFS had the records! Each year companies holding special risk licenses are required to complete an availability study of Free Zone business, giving details of writings not just by class but also by line of business within each class. This survey is an electronic filing that appears to be constructed so that filings of all responding companies could be readily combined into a composite form. Or so it seems. A more targeted FOIL request was made in November 2013 and again in January 2014, resulting eventually in receipt of three pdf schedules of direct premium written by class – but not by line of business and without totals – for each Free Zone licensee for the calendar years 2009, 2010 and 2011. With some work, however, the schedules were converted into Excel spreadsheets, which enabled the creation of the summary table accompanying this column. Rather than being a significant success for openness, the principal takeaway from this quest for information is how sparse and stale the data released by DFS is compared to the information required to be filed by Free Zone licensees. For example, the latest of the three documents represents the writings for calendar year 2011 reported in the 2012 survey and filed with DFS in 2013. The 2012 writings, included in the 2013 survey, were filed earlier this year, but the DFS Report will not be ready for several more months. Likewise, the 2013 writings will be included in the 2014 survey, which will be filed in 2015. Also, the information released by DFS is by class only and not by line of business, although as indicated Free Zone licensees are required to file their writings by both Class continued on page 10

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[ INSIGHT ] regulations adopted by DFS incorporating new Class 3 into the Free Zone scheme included some very restrictive requirements that called into question whether the new class would in fact allow for expanded use of the Free Zone as a boon to domestic insurance companies and their customers. One of those inexplicable restrictions – requiring the filing of a certificate of coverage within 24 hours of binding – was removed from the regulation last year without explanation. Was this because of

continued from page 8

and line of business. An example of the consequences of the failure to make information timely and fully available to all affected constituencies – legislators, insurance consumers and industry participants – is the Class 3 addition to the Free Zone, which was added late in 2011 and is scheduled to sunset on June 30, 2015. The amendments to the Free Zone

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Rather than being a significant success for openness, the principal takeaway from this quest for information is how sparse and stale the data released by DFS is compared to the information required to be filed by Free Zone licensees.

concern that the restriction was hindering the use of the new class or for some other reason? The information provided by DFS in response to my FOIL request cannot possibly answer this question. Because Class 3 was incorporated into the Free Zone regulation late in 2011, the nominal Class 3 premium shown on the accompanying chart cannot be considered indicative of much of anything. The first full year of Class 3 availability was 2012, but as DFS advised in its April 2014 cover e-mail providing the pdf schedules: “the 2013 report [on the 2012 writings] is not complete yet, and you may wish to make another request for that record in a few months’ time.” Further, “the 2014 report [on the 2013 writings] will not be filed with the Department until 2015.” In other words, at the time the legislature will be considering an extension, it will have only one full year of data on which to make a determination, but only if the DFS provides the information. To date it has been reluctant to do so fully, openly and timely. ***** Note: If any reader would like Excel copies of the full reports, showing the writings of each Special Risk licensee by class for calendar years 2009, 2010 and 2011, send an e-mail request to me at pbickford@pbny law.com.

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[ GUEST OPINION ]

By William Bonds, President, Empire Safety Council

Outrage: DMV’s Internet I-PIRP Program Fails

t is outrageous that the Department of Motor Vehicles is considering renewing the Internet-Point/Insurance Reduction Program (I-PIRP) based on fraudulent and flawed studies coupled with failed User/Identity Validation measures. The impact of these fraudulent research studies diminish the credibility of the Department of Motor Vehicles, as they are the ones who conducted these studies and diminish the negative impact of a program. This is bad public policy to knowingly use invalid methods that do not meet ethical standards. The Commissioner’s Recommendation is based on the New York State Effectiveness Study of the I-PIRP Pilot, December 2013 and is severely in violation of the Department’s Rules & Regulations, Insurance Law and standard codes of scholarly conduct & ethical behavior. There also appears to be intentional distortion of the research process by fabrication, text omission and manipulation of another’s manuscript. I recently spoke with the Vice President of Research, Misconduct and Ethics from the Institute of Traffic Safety Management and Research at the University of Albany who informed me that the institute’s name, which appears on the cover page of the document alleging that the study was “conducted by” the institute, in fact did not conduct the effectiveness research of the IPIRP Pilot, December 2013. The Vice President insisted that the University’s name should not appear on the document since they did not conduct the research and indicated that they were contracted by the department to only provide analysis and evaluation. I asked the Vice President about what appeared to be obvious omissions in the analysis and evaluation report and was told that since the institute denies that the research is their work product, the department may change the document and omit any analysis and evaluation made by the institute since it is exclusively the department’s own research however misleading the cover page may be. The Vehicle and Traffic Law, Article 12 May 26, 2014 / INSURANCE ADVOCATE

…since the institute denies that the research is their work product, the department may change the document and omit any analysis and evaluation made by the institute since it is exclusively the department’s own research…

12B, Commissioner of Motor Vehicles, Part 138, states that the purposes of this article are to further highway safety by preserving the quality and efficacy of the accident prevention program and has established strict criteria for initial approval and continual course sponsorship approval. Standards for course approval require each applicant to provide proof of effectiveness that shall be verifiable research documentation showing evidence of effectiveness in terms of reduced accidents, convictions or both and shall employ accepted research principles. Furthermore, submission of any fraudulent or intentionally misleading data will disqualify an organization’s application for course approval. In December 2007, the Department of Motor Vehicles produced the New York State PIRP Pilot Effectiveness Study (classroom) that also purports to be conducted by the Institute for Traffic Safety and Research, University at Albany, summarizes therein and states: “In sum, the findings from this pilot study indicate that the prescribed design may not be viable for use in assessing PIRP effectiveness.”

The overall findings from the analysis conducted by the institute showed that the research was inadequate for use in measuring effectiveness of the classroom courses in terms of reduced vehicle crashes and violations. The department thereafter eliminated the requirement for I-PIRP applicants seeking course sponsorship approval to submit verifiable research documentation of proof of effectiveness. All currently approved internet course providers have not submitted any verifiable research documentation prior to their approval. Unbelievably, the department justifies doing so on the basis that the December 2007 study was not viable in assessing PIRP effectiveness. Page 17 of the 2013 I-PIRP Research Results of Comparison, states in part: “In sum, the comparison of the 18-month post-periods for the internet PIRP and classroom PIRP completers shows that for nine of the eleven sponsors and for the aggregate group there is effectively no difference between the two delivery methods with regard to crashes after course completion.” This appears to be nonsense, when you consider the 2007 PIRP research analysis. How then are we able to compare the 2013 I-PIRP research with the 2007 PIRP research and conclude that both delivery methods are effective, and recommend that internet courses be made permanent law? It appears from these findings that the commissioner may not ascribe any meaningful conclusions from the 2007 study and since the 2013 study is the same prescribed design, you may not ascribe any meaningful conclusion to it and that any comparison would also be meaningless. Furthermore, on information and belief, there appears to be some analysis and conclusions that the institute has made in the continued on page 14

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[ GUEST OPINION ] continued from page 12

2013 I-PIRP research that are omitted intentionally. Since the institute has said it is not their work product there would appear to be no plagiarism on the part of the “ghost writer” for the department’s but certainly raises a few flags about intentional misconduct in reporting. To view the departments 2007 PIRP and 2013 I-PIRP research studies go to, safetycourses.com/research. It would appear that the Department of Motor Vehicles’ goal is to replace classroom courses with internet courses that will produce four times the amount of revenue to its coffers and will justify any means to an end. Classroom courses have shown proven effectiveness based on verifiable research documentation to the satisfaction of the Department of Motor Vehicles which has shown overall effectiveness of 18.2% reduction in vehicle crashes and 57.3% in reduction of repeat traffic offenses for participants who take and complete the classroom accident prevention course. On the other hand, internet courses have not shown any proof of effectiveness whatsoever. In fact, the U.S. Department of Transportation, National Highway Traffic Safety Administration (NTHSA), Examination of Supplementary Driver Training and Online Basic Driver Education, Final Report (October 2010) research concludes that alone online courses are not effective in reducing vehicle crashes and have the potential for low student engagement. Students will not read the material provided because the Department has eliminated the requirement that students must take and pass an exam at the end of the I-PIRP course and, therefore, will do nothing to motivate internet students to do anything else but to simply click through to the next section. NTHSA researchers have identified and gathered information on 45 online courses offered by 40 providers and found that the content was often dictated by state mandated curricula and amounted to little more than electronic textbooks. Internet I-PIRP is bad public policy because User/Student Identity Validation technologies do not eliminate fraud since 14 May 26, 2014 / INSURANCE ADVOCATE

These two fraudulent and flawed research studies coupled with failed User/Identity Validation measures should give Insurance Advocate® readers severe doubts about the integrity of this program and the department’s Research and Recommendations.

anyone can take the course for any other person. We are acutely aware that many individuals take courses for other individuals who defeat User/Identity Validation measures and sadly have been aided in doing so by some internet course sponsors themselves. All Biometric User/Identity Validation measures that would at least to some degree guarantee that the person who starts the course is the same person who finishes the course are in fact not being used by any of the I-PIRP providers. Biometric measures are replaced entirely by a telephone that the student occasionally uses to call a phone number for User/Identity Validation and then hangs up. Therefore, anyone may say they are the student and start the course and anyone else may finish the course for anyone else with a telephone. This is a system that invites fraud. The Point/Insurance Reduction Program needs to get back to proven effective classroom courses only with an instructor to eliminate fraud, encourage high standards, fair business practices and public responsibility. The whole point is safe drivers. It should also be noted, that since internet course completers are not safer drivers and will

receive the insurance discount anyway, then all other insurance policy holders will pay for their discounts. On May 18, 2014, it will be five years into the I-PIRP, which enables drivers to reduce points on their license and to receive discounts on their insurance premiums and have shown that the potential for fraud is real and are not effective in reducing vehicle crashes. The whole point of the courses, driver safety, is being compromised. Automobile insurance rate costs are not lessened since there is no improvement in safety for internet course completers. Ease of completion of internet courses does not equal a safer system nor better educated and practiced drivers. Parenthetically, the Hon. Senator Rev. Ruben Diaz, Chair, Transportation Committee along with co-sponsor Hon. Senator John L. Sampson, Senator Marcos A. Crespo, Assembly Member, have sponsored Senate Bill S3A2A-2014 and Assembly Bill A8663-2014 (identical bills) that support the discontinuance of the internet courses I-PIRP that would guarantee the proper identification of people signing up for such courses and require the physical presence of a certified instructor. In fact, our own state senate has ruled that its members and staff are forbidden to take the internet course and are required to take a classroom course instead. These two fraudulent and flawed research studies coupled with failed User/Identity Validation measures should give Insurance Advocate® readers severe doubts about the integrity of this program and the department’s Research and Recommendations. I have asked Deputy Commissioner Terri Egan to look into this matter and requested that the Commissioner reverse her recommendations to continue I-PIRP based on this and other information. May I suggest you do so as well. William Bonds President, Empire Safety Council

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[ COVER ]

By Optis Partners LLC

16 May 26, 2014 / INSURANCE ADVOCATE

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[ COVER ]

here were 110 announced mergers and acquisitions of insurance agencies in the U.S. and Canada in the first four months of 2014, the strongest showing of any comparable period for at least seven years, OPTIS Partners’ new survey reveals. “While it’s still early, 2014 could surpass the record set in 2012 if the rest of the year continues to perform as it has through April,” said Timothy J. Cunningham, managing director of OPTIS, an investment banking and financial consulting firm specializing in the insurance industry. “Buyers continue to be hungry and aggressive for deals, and there’s a robust inventory of sellers.” The report covers property/casualty agencies, agencies selling both P/C and employee benefits, and employee benefits agencies. On the buy side, the privately held buyers and private-equity-backed firms accounted for nearly 80 percent of all announced M&A activity during the first four months of 2014. Nevertheless, all major categories of buyers increased their transaction counts except for the All Other group (banks, insurance companies, others), which declined again in 2014, he said. The leaders, Hub International and Assured Partners, have each purchased 12 agencies so far in 2014. Here’s the analysis:

Insurance Agency M&A Update April 30, 2014 OPTIS Partners, LLC There were 110 announced Merger & Acquisitions (“M&A”) transactions in the US and Canada in the first four months of 2014, the strongest showing of any comparable period since before 2008. The nearest challenger was 2011 when there were 101 announced transactions during the January-April period. Coming off the record year in 2012 and the re-grouping that took place during the first half of 2013, M&A activity currently appears to be continuing its vibrant activity level of the latter part of 2013.

continued on page 18

INSURANCE ADVOCATE / May 26, 2014 17

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[ COVER ] On the buy side, the privately held buyers and Private Equity (“PE”) backed firms accounted for nearly 80% of all announced M&A activity during the first four months of 2014. Nevertheless, all the major categories of buyers increased their transaction counts except for the All Other group (banks, insurance companies, others) which declined again in 2014.

Looking at the most active buyers to date in 2014, there are a couple new or reinvigorated buyers along with the longstanding active buyers:

There have been a total of 57 different buyers thus far during 2014, very consistent with each of the prior three years. Of the top 20 firms listed above, only one firm, Digital Insurance, had fewer transactions in 2014 than the corresponding period in 2013 while 17 completed more transactions than in 2013. While it’s still early and certainly 2012 experienced a significant number of transactions late in the year as everyone tried to beat the tax-change deadline, 2014 could equal the 2012 record-setting year if the marketplace continues to perform for the balance of the year as it has through April. Buyers continue to be hungry and aggressive for deals and the robust inventory of sellers will likely equal another active M&A year. [IA] Copyright 2014 OPTIS Partners, LLC 18 May 26, 2014 / INSURANCE ADVOCATE

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[ M&A A’ GO•GO ]

M&A Scoreboard, Q1’14 By Adam Cancryn and Jan Haider Kiani

he underwriter space logged a total of $4.4 billion in M&A transactions in the first three months of 2014, by far the highest first-quarter total in four years. The deals ranged across all sectors and specialties; private equity firms swooped in for a pair of billion-dollar-plus takeouts, while companies within the industry targeted rivals or distressed properties.

The answer for many will likely be in the M&A market, where a handful of companies have already jumped on opportunities to expand their reach or capabilities. Others have entered the market as sellers, in hopes of cashing out at peak prices. More are likely to follow suit, driving what some see as a resurgence of strategic tieups that could alter the industry’s compet-

“There’s a continuing need for growth in enhancing ROE that’s not coming sufficiently from organic means. These circumstances, I think, are pointing toward M&A as a solution to some of these core issues.” - Boris Lukan, Deloitte Principal and U.S. Insurance M&A leader

Yet the diverse deal-making was in large part motivated by a shared need to find new ways to fuel growth. The broader industry and economic trends that lifted the entire sector in 2013 are fragile or faltering, M&A specialists told SNL, leaving little guarantee that widespread improvements in stock prices and valuations will continue through this year. Indeed, the SNL U.S. Insurance Underwriter Index had underperformed the S&P 500’s 1.60% yearly gain as of May 16, as companies dealt with concerns around pricing, catastrophes and low interest rates. That leaves insurers increasingly under pressure to figure out how and whether they can remain top performers amid more settled conditions.

20 May 26, 2014 / INSURANCE ADVOCATE

itive dynamics and usher in a new class of ambitious, high-growth players. “There’s a continuing need for growth in enhancing ROE that’s not coming sufficiently from organic means,” Deloitte principal and U.S. Insurance M&A leader Boris Lukan told SNL. “These circumstances, I think, are pointing toward M&A as a solution to some of these core issues.” Much of the deal activity so far has come from regional and midsize carriers, for which a well-executed deal can help it boost growth and stay ahead of its competition. Those insurers benefited in 2013 from an ideal combination of industry ingredients, especially in the property & casualty space. Pricing in most sectors con-

tinued to climb, disaster losses remained low and the broader economy strengthened. Life insurers got a boost from higher interest rates as well as gains in the stock market. The resulting jump in revenue and earnings pushed valuations in some cases to post-financial crisis highs. To keep that momentum going now, companies have had to reinforce their existing business or move into brand new ones. American Financial Group, Inc., in the first quarter, struck two deals, the largest being a $250 million acquisition of Summit Holding Southeast, Inc. Adding Summit makes American Financial the top workers’ compensation writer in Florida, according to SNL data, moving it up from 39th place in 2012. The company’s Southeast-focused book also provides the California-centric American Financial with some needed balance in a business line that can be particularly volatile. Another Florida company, meanwhile, used M&A to exploit a new profit source. Brown & Brown, Inc. in January said it would acquire Wright Insurance Group LLC, giving it the ability to service policies written through the National Flood Insurance Program. The insurance broker will be the largest NFIP servicer in five states, including Louisiana and Texas, when the deal closes. “It is what is likely a targeting of organizations that bring core competency and underwriting for particular classes of risk,” Lukan said of acquirers’ current approach

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[ FEATURE ]

to M&A. “That’s what I see happening with American Financial, for example.” Another, more counterintuitive approach to growing scale is through a sale. Burgeoning companies like Wilton Re Holdings Ltd. have shopped themselves to private equity and asset management firms, negotiating arrangements that infuse the insurer’s operations with cash while maintaining most of its independence. Wilton Re’s partner is Canada Pension Plan Investment Board, which plans to use the company as a platform for insurance and reinsurance expansion in the U.S. Its financial backing gives Wilton Re the resources to pursue more large deals of its own, Chairman and CEO Chris Stroup said soon after the deal. Wilton Re announced two deals in the first quarter prior to its agreement with Canada Pension Plan. CNA Financial Corp.’s Continental Assurance Co. and CNO Financial Group Inc.’s Conseco Life Insurance Co. are both set to become part of Wilton Re following agreements in February and March, respectively. M&A experts said that market dynamics will force more sellers into the open. Some might decide that the tougher competitive landscape is not worth it and sell when demand is high. Other companies will likely be pushed into a sale, as the slowdown in industry and economic drivers exposes deep operational issues. “M&A is a creature of the soft market,” Conning Research & Consulting Vice President Jerry Theodorou told SNL. “When rates are soft, companies are not growing organically.” SPARTA Insurance Holdings Inc. was one of the year’s first distressed sellers, reaching a deal with runoff specialist Catalina Holdings (Bermuda) Ltd. following reserve charges and a damaging ratings downgrade. SPARTA took its sixth straight and largest underwriting loss in 2013, which included significant unfavorable development. Catalina plans to buy SPARTA and transfer the renewal rights to its

Another, more counterintuitive approach to growing scale is through a sale. Burgeoning companies like Wilton Re Holdings Ltd. have shopped themselves to private equity and asset management firms, negotiating arrangements that infuse the insurer’s operations with cash while maintaining most of its independence. alternative market business to Arch Capital Group Ltd.’s Arch Insurance Co. The highest-profile deal of the first quarter also came as a consequence of reserve charges. ACP Re Ltd. in January agreed to take over Tower Group International Ltd., which was derailed by a host of internal issues that cropped up in 2013. The specialty insurer’s downfall

was as spectacular as it was unexpected, Sandler O’Neill analyst Paul Newsome told SNL, coming after years of seemingly excellent results. “The absolute worst reserve scenario is the one that looks exactly like the best company until it blows up,” he said. “They seemed to be fundamentally more profitable than every other company, and of course, they weren’t.” Though reserve problems at individual companies are nearly impossible to predict, he added, there will likely be more deals involving both distressed and well-functioning insurers in the specialty P&C sectors. Companies that fill a small niche in the market have been particularly attractive in recent months due to better-thanaverage pricing and are valuable to bigger insurers as competition ramps up. “Specialty lines tend to be what people are looking at because it’s a better business as far as commoditized pricing,” Mayer Brown LLP Partner Edward Best told SNL. That strategic mindset is expected to permeate the industry over the rest of the year. After a 2013 largely dependent on improving conditions overall, insurers are looking to M&A to help them break away from the pack. “I think we’re in a sort of separation,” Newsome said. “We’re in this period when we’re going to see people who really execute well separated from those that don’t.” [IA]

INSURANCE ADVOCATE / May 26, 2014 21

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[ ON TH E LEVEL ]

By N. Stephen Ruchman, CPA

Agents and CSRs Must Remind People of the Value We Offer Them

he relationship between the independent agent and the insured is one of, if not the most, important things we offer our clients. We work or live right down the road; we have a familiar face; and we work with our clients always on a first-

cashier will add something to the effect of “You saved 30 cents off gas,” depending on the store’s incentive program. It occurred to me: Agencies can learn from retailers that do this. Clients call us all the time. We and our employees con-

Of course, savings isn’t the only benefit we offer our clients. We also could tell them: “I’m sure you will have peace of mind knowing your new policy now protects you in the case of a flood.” And, with the little amount of $20 more a month, you now have replacement value for your home.” N. Stephen Ruchman

name basis. You can’t get that kind of personal service from an 800-number. I was at the grocery store earlier this week and when I paid for my purchase, the cashier presented my receipt and said to me: “You saved $15 on your purchase today.” I know you’ve heard this too—sometimes, depending on the store where you shop, the

stantly find savings on their behalf. It’s what we do and we are good at it. So, why shouldn’t we remind our insureds of one of the benefits we give them? Our CSRs are good at saying, “Let me see what I can do to save you some money.” And when we do, we should tell clients what they saved. We can train our CSRs to go further

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and remind insureds at the end of their conversation: “Mrs. Jones, you paid a premium of $1,000 for your home and auto coverage and we just saved you $200.” Of course, savings isn’t the only benefit we offer our clients. We also could tell them: “I’m sure you will have peace of mind knowing your new policy now protects you in the case of a flood.” And, with the little amount of $20 more a month, you now have replacement value for your home.” We could even take a lesson from the fast food establishments: You know the ones that ask, “Do you want fries with that?” Agents package deals all the time. I’ve just saved you $300 on your homeowners policy—do you want to see if we can save you more with our auto?” Or, how about “Do you want an umbrella policy with that?” And, “If you purchase a guaranteed replacement-cost endorsement, you would receive the full amount you need to rebuild, regardless of inflation.” Even to our commercial-lines clients: “How about business interruption with that?” We know we should ask these questions, but sometimes we need the reminder. Even though our CSRs know they’ve done something positive for the insured, somehow they often neglect to remind them. I would walk through my office and hear my best CSRs say with the most pleasant voices and best of intentions: “OK—Don’t worry, I took care of everything.” Our CSRs are efficient and friendly and they don’t get enough credit for all the work they do, but we need to train them to change how they communicate with the insured. Rather than saying, “You’re all set,” imagine: “Thank you for letting us work with you—I just saved you $200 because of today’s phone call.” Same friendly tone, same efficiency and service; but an added reminder of the value they’ve brought to the transaction. CSRs take what they do for granted— It’s just their job. Many CSRs don’t look at themselves as sales people, yet they are the most important sales tool in the office. continued on page 24

22 May 26, 2014 / INSURANCE ADVOCATE

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IN THE MATTER OF THE LIQUIDATION OF REALM NATIONAL INSURANCE COMPANY Supreme Court County of New York Index No.: 401876/05 NOTICE Pursuant to an order of the Supreme Court of the State of New York, County of New York, entered on March 15, 2005 (“Liquidation Order”), the Superintendent of Insurance of the State of New York and his successors in office were appointed as liquidator (“Liquidator”) of Realm National Insurance Company (“Realm”) and, as such, has been directed to take possession of Realm’s property, liquidate its business and affairs, and dissolve its corporate charter pursuant to Article 74 of the New York Insurance Law (“Insurance Law”). The Superintendent of Financial Services of the State of New York has now succeeded the Superintendent of Insurance as Liquidator of Realm. The Liquidator has, pursuant to Insurance Law Article 74, appointed Scott D. Fischer, Acting Special Deputy Superintendent (“Acting Special Deputy”), as his agent to liquidate the business of Realm. The Acting Special Deputy carries out his duties through the New York Liquidation Bureau, 110 William Street, New York, New York 10038. PLEASE TAKE NOTICE that the Supreme Court of the State of New York, County of New York, has issued an order, ordered April 1, 2014, (1) establishing July 31, 2014, as the cut-off date, the final date by which the Liquidator must actually receive in respect of any claim presented prior to January 31, 2014 (the “Bar Date” established in the proceeding by order of the Court entered on November 15, 2013) any and all evidence demonstrating (a) that such claim has been liquidated and (b) that there has been actual loss and/or payment in respect of such claim; and (2) barring and discharging all claims, other than claims for administrative expenses reported after the Bar Date. Requests for further information should be directed to the New York Liquidation Bureau, Creditor and Ancillary Operations Division, at (212) 341-6588.

[ ON T H E LEVEL ] continued from page 22

They just need to be trained to “toot their horn” and to share the value that a client gets with their personal phone call to a local, professional independent agent. We are constantly seeing ads about how seven or 15 minutes can save you money, but we need to show that we can save more and we bring a personal touch. We have to constantly remind our clients of the value of their relationship with their local, professional independent agency. The CSR is the front-line sales person for our agencies, and he or she usually has more contact with insureds than the average agent. They naturally are relationship-oriented and our clients love them. There’s no underestimating their importance and agency owners need to make sure they know their value to the success of the agency.[IA] N. Stephen Ruchman, CPIA, is a retired partner of B&B Coverage LLC, and founder of Ruchman Associates Inc., the agency he started in 1961. A past president of the Professional Insurance Agents of New York State Inc., he is an active supporter of PIANY, and 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.

Dated: May 9, 2014 Benjamin M. Lawsky Superintendent of Financial Services of the State of New York as Liquidator of Realm National Insurance Company 24 May 26, 2014 / INSURANCE ADVOCATE

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

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ADVERTORIAL

Something Fishy: Food Fraud FOOD FRAUD, including adulteration, dilution or mislabeling of food products, is a $15 billion problem that affects all of us, from restaurants and retail food stores to the ultimate consumer. (www.cnbc.com) Increasing food prices means increasing food fraud. Dealing with a product recall or scandal can be devastating to a business’s reputation and bottom line. Educating clients on the potential exposure and costs of food fraud is a sign of the professional insurance agent. Each year, the United States imports approximately 15% of its food supply. This means it may be difficult to trace the true origin. The largest case of food fraud, valued at over $80 million, involved Chinese honey. (www.businessweek.com) Honey from China is subject to high tariffs and regulations because it is too inexpensive. To get around this, honey was rerouted through other countries. According to Prevention magazine (www.prevention.com), olive oil is the most adulterated food product. It is usually diluted with hazelnut oil. Other common fraud targets include milk, honey, saffron, orange juice, coffee, apple juice, tea, black pepper and other spices. In some cases, clouding agents are added to juice to make it appear to be fresh squeezed. Ireland recalled 10 million hamburgers in 2013 after finding that they contained horse meat – some of them up to 100%. Even well-respected companies are not immune from scandal, as IKEA similarly recalled its meatballs after traces of horse meat were found in them. (www.rmmagazine.com) "Organic" food is another area of concern. Food that is "certified organic" need only be 95% organic. It may include antibiotics and other foreign materials. Fish is especially susceptible to fraud, since there are so many types that may look similar, and fish is very often sold in pieces rather than whole. Fish can also be marketed as wild caught when it is actually farmed. According to the Na-

Food fraud is expensive, and it can happen to anyone. Helping your clients understand the risk and ways to reduce or prevent it are another value-added service of the true insurance professional. tional Oceanographic and Atmospheric Administration (NOAA), more than 91% of the fish consumed in the United States comes from foreign suppliers (www.foodsafetynews.com), which may make it impossible to trace the origins. In a 2012 survey by Oceana, a group that works to protect oceans, 39% of fish purchased in New York City was mislabeled. Out of 16 sushi restaurants sampled, all 16 were mislabeling their fish. 94% of the “white tuna” was actually escolar, which is banned in some

countries due to the fact that eating it may cause serious digestive problems. Similar mislabeling results were found in other cities across the country including Boston, Los Angeles and Miami. (www.oceana.org). Companies can decrease their exposure to food fraud by knowing and certifying the source of their food products as well. Resources include NSF International (www.nsf.org), whose goal is to protect and improve global human health. They certify the safety of millions of products. Michigan State has a Food Fraud Initiative (www.foodfraud.msu.edu). The U.S. Pharmacopeial Convention Food Fraud Database can be viewed at www.usp.org. Food fraud is expensive, and it can happen to anyone. Helping your clients understand the risk and ways to reduce or prevent it are another value-added service of the true insurance professional.

139 Harristown Road Glen Rock, NJ 07452, Suite 100 (800) 935-6900 www.msonet.com INSURANCE ADVOCATE / May 26, 2014 25

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[ IN THE ASSOCIATIONS ]

IIABNY Taps Suffolk County Insurance Agent to be Chair of the Board

iverhead, N.Y.—Insurance agent James D. Sutton, CPCU, AAI, CIC led the list of officers elected by members of the Independent Insurance Agents & Brokers of New York, Inc. New York’s oldest insurance producer trade association installed Sutton as chair of the board at its 132nd Annual Business Meeting, held at the Hyatt Place in Riverhead. Members also elected and installed new regional and at-large directors for the 2014-2015 term. Sutton, CEO and president of James F. Sutton Agency Ltd. in East Islip, has served IIABNY as its chair-elect, secretary-treasurer, and as a regional director representing the not-for-profit trade association’s members in the New York City metro and suburban parts of the state. He has also served on the association’s Independent Agent Branding Committee; Audit Committee; a committee to further the independent agent Trusted Choice® brand; and a committee to raise funds for the national political action committee. He is a past president of the Independent Insurance Agents & Brokers of Suffolk County and the Downstate Insurance Associations Council, as well as a past chair of the New York/New Jersey NorthStar Agents Council for Encompass Insurance. He has also been an active volunteer in his community, with leadership roles in the Rotary Club of Islip, the Islip Arts Council, the East Islip Chamber of Commerce, the Community Association Institute of Long Island, and local parochial schools. In his acceptance speech, Sutton warned of growing threats against agents and brokers, including: • An onslaught of advertising by insurance companies that sell without the involvement of agents • Increasing merger activity • The popularity of purchasing of insurance via the Internet • Insurance companies selling through multiple distribution channels “The local agent and the independent agent channel are undergoing dramatic change and not all agents will survive the transition,” he said. To counter these threats, 26 May 26, 2014 / INSURANCE ADVOCATE

JAMES D. SUTTON, CPCU, AAI, CIC

“It is critical to our livelihood that [IIABNY] is there in Albany and Washington to represent us.” he encouraged independent agents and brokers to support the Trusted Choice® brand. He also urged them to participate in Project CAP, an effort to help agents market through the Internet. Sutton also discussed political and regulatory issues on the horizon, such as the looming expiration of the federal Terrorism Risk Insurance Program, the precarious market for homeowners insurance in coastal areas, and ongoing problems with certificates of insurance. “IIABNY’s advocacy efforts are another prime example of why we can’t go it alone,” he said. “It is critical to our livelihood that the association is there in Albany and Washington to represent us.” Other officers elected and re-elected to IIABNY’s executive committee for one-year terms included: • R. Todd Rockefeller, vice-president of DeRosa, Rockefeller, Sohigian, Werdal, Inc. in Harrison, New York, elected chair-elect. • Jack Smith, CPCU, ARM, CIC, executive vice president for the William A. Smith & Son agency in Newburgh, elected secretary-treasurer

IIABNY members also elected and reelected the following regional directors to two-year terms: • Michael Vanderwerker, president of Assured SKCG, Inc. in Peekskill, New York to represent the New York City metro and suburban areas; • Kevin R. Crossley, vice president of AAA New York Insurance Services, Inc. in Garden City, New York, also to represent New York City metro and suburban areas; • Karen Peters, CPCU, vice-president of Rose & Kiernan, Inc. in Albany, New York to represent the state’s Capitol District and areas north; and • Jessica Belleville, president of Belleville Associates in Tupper Lake, New York, also to represent the state’s Capitol District and areas north. • Richard MacDonald, CPCU, ARM, AIM, agency sales manager for Haylor, Freyer & Coon, Inc. in Syracuse, New York to represent the central and western areas of the state; • John Costello, CIC, regional executive vice-president of commercial lines for First Niagara Risk Management, Inc. in Rochester, was elected to a second three-year term as national director, representing IIABNY on the board of the Independent Insurance Agents & Brokers of America. • Christopher Brassard, CIC, executive vice-president of Ten Eyck Group in Albany, New York, won a two-year term as an at-large member representative on the Nominating Committee, which evaluates candidates for leadership positions and makes recommendations to the membership. Earlier in the day, the IIABNY board of directors elected Jana Critchﬁeld of Wright Insurance Group (owned by Brown & Brown, Inc.), St. Petersburg, Florida; Lawrence Pistell, ARM of St. Johns University in New York City; and Jeanne Salvatore of the Insurance Information Institute, also in New York City, to oneyear terms as directors-at-large. [IA]

INA 5-29-14_INA 5-26-14 6/2/14 12:47 PM Page 27

[ IN THE NEWS ]

Extending TRIA Ensures Workers’ Comp Availability WASHINGTON, DC – The Coalition to Insure Against Terrorism (CIAT), which represents business consumers of terrorism risk insurance across a broad range of industries welcomed the findings of a new RAND Corporation study that confirmed the Terrorism Risk Insurance Act (TRIA) is critical to ensuring the availability of workers’ compensation insurance essential to protecting the economy in the event of a major terrorist attack. The study – conducted by RAND’s Center for Catastrophic Risk Management and Compensation – determined that TRIA provides a financially sound vehicle for ensuring a stable market for workers’ compensation coverage provided by insurers and reinsurers, many of whom otherwise would likely limit the availability of the coverage, especially as it relates to nuclear, biological, chemical or radiological attacks. Congress has twice reauthorized TRIA – in 2005 and 2007. The program is scheduled to sunset at the end of the year unless extended. “TRIA ensures that workers’ compensation insurance – which is so critical to the American worker – remains available for the business insurance consumers who depend upon it,” said Martin DePoy, spokesperson for CIAT. “This coverage is critically important, especially when tragedy strikes.” TRIA has provided critical stability to the workers’ compensation insurance marketplace since it was enacted in the wake of 9/11. After the attacks, reinsurers and primary insurers – after paying out more than $30 billion in claims – withdrew from the terrorism risk insurance marketplace. According to RAND, the absence of coverage contributed to massive job losses and billions of dollars in damage to industries dependent upon the availability of terrorism risk coverage. TRIA allowed businesses to once again purchase insurance, while protecting the economy against highly unpredictable, catastrophic terrorist attacks. [IA]

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Combined PL/GL Form to Cover Professional & BI/PD - Duty to Defend Form; - Bilateral Tail Options; - Incident Sensitive Trigger; - Coverage for Acts While Involved in a Joint Venture; - Disciplinary Proceeding Supplementary Payments ($500 day/up to $10,000); - Subpoena Expense Supplementary Payments ($500 day/up to $10,000); - Project Specific Coverage Available.

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QSR

QSR has a profound understand of this niche industry segment and has partnered with CMAA to provide Quaker Special Risk a differentiating solution for Contact Frank Walsh at: Construction 800-447-4180 • email: fwalsh@qsr-insurance.com Managers. P.O. Box 1350 • Eatontown, NJ 07724 Fax 732-223-9072 • www.QSR-insurance.com INSURANCE ADVOCATE / May 26, 2014 27

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[ IN THE ASSOCIATIONS ]

Independent Insurance Agents & Brokers of New York Present Awards

iverhead, N.Y.— The Independent Insurance Agents & Brokers of New York recognized excellent performance by insurers, a local trade group, volunteers and associates during its May convention. Acting for the final time in his capacity as IIABNY chair of the board, Andrew Kaufman presented the awards at the association’s 2014 Leadership Dinner, held following its 132nd Annual Business Meeting at the Hyatt Place in Riverhead, New York. The Outstanding Company Partner Awards went to those insurers that scored the highest in the 2014 IIABNY Industry Index. The index is calculated based on survey responses by New York agents and brokers, judging insurers on criteria such as empowerment and consistency of underwriters and field personnel; technology and documentation; the agency-carrier relationship; and compensation. Kaufman gave awards to: • Outstanding Regional Personal Lines Company Partner: Dryden Mutual Insurance Company • Outstanding Regional Commercial Lines Company Partner: Dryden Mutual Insurance Company • Outstanding Super Regional Personal Lines Company Partner: Andover Companies • Outstanding Super Regional Commercial Lines Company Partner: Merchants Insurance Group • Outstanding National Personal Lines Company Partner: Safeco Insurance • Outstanding National Commercial Lines Company Partner: CNA Stephen Zogby, executive vice-president of Scalzo, Zogby & Wittig in New Hartford, took home the Vincent Alba Award. This award recognizes an individual who makes an outstanding contribution to IIABNY’s political effectiveness. A past chair of the board of IIABNY, Zogby has chaired the association’s PAC Committee since 2010. The committee is responsible for raising funds for the independent agents’ two political action committees. The Independent Insurance Agents of Monroe County was honored as the 2014 Local Association of the Year. The award 28 May 26, 2014 / INSURANCE ADVOCATE

Acting for the final time in his capacity as IIABNY chair of the board, Andrew Kaufman presented the awards at the association’s 2014 Leadership Dinner…

goes to the local association that has done the most outstanding job at building relationships between agents, carriers and vendors; advocating on the critical issues to the industry; encouraging professional development among members; and developing consumer knowledge and trust in the independent insurance agency system. The IIAMC was honored for its work fundraising for Rochester-area charity Cameron Community Ministries, an organization that works to break the cycle of poverty. The association also held a weeklong series of visits with New York legislators in November and sent more participants to IIABNY’s legislative day in Albany than any other local association. The group also enhanced its web site and hosted a special program on agency mergers and acquisitions. Michael Barrett of Barrett Associates in Albany received the Distinguished Service Award for outstanding contributions to IIABNY. Barrett has been the association’s legislative representative for 35 years. During that time, he has built a solid reputation both for his firm and IIABNY with lawmakers and regulators. He has negotiated landmark legislation in the areas of no-fault insurance, health care, Workers’ Compensation reform, and the handling of policy cancellations and non-renewals. Tim Dodge, assistant vice president of research for the Independent Insurance Agents & Brokers of New York in Dewitt, also received the Distinguished Service Award for outstanding contributions to IIABNY. Dodge, who joined IIABNY in 2002, is responsible for meeting the insurance technical, legal, regulatory and legislative information needs of IIABNY mem-

bers, and for all communications with the news media. He answers members’ questions, writes white papers and newsletter articles, maintains the association’s research library and insurance legislation pages on the IIABNY website, teaches continuing education classes, hosts the award-winning insurance technical video podcast “Ask Tim” and writes a blog that accompanies the podcast. The Thom McDaniel Exemplar Award went to Dan Robinson, president of New York Central Mutual Insurance Company. The McDaniel Award recognizes an insurance company executive, manager or employee that demonstrates unwavering support of the independent agency system. Under Robinson’s leadership, NYCM has thrived as a locally-owned, locally-focused company that markets its products exclusively through independent agents. Sharon Emek received the 1882 Fellow Award, IIABNY’s highest honor, which recognizes the individual member who has most significantly contributed to IIABNY, the industry and her community. Emek was the second female chair of the board in the association’s history and also served on a variety of committees at the state and national level. She was the first woman to receive the Sidney O. Smith Government Affairs Award from the Independent Insurance Agents & Brokers of America. She is the founder of Work At Home Vintage Employees, LLC (WAHVE), a service that makes the talents of retired insurance professionals available to insurance firms with staffing needs. The Independent Insurance Agents & Brokers of New York, Inc. has represented the common business interests of independent insurance professionals since 1882. More than 1,900 agencies and their 18,000 employees currently rely on the DeWitt, New York-based not-for-profit trade association for legislative advocacy, continuing education and other means of industry support. In addition, many IIABNY members represent Trusted Choice®, a national consumer brand uniting more than 7,000 independent agencies across the United States. For more information, go to www.trustedchoice.com or www.iiabny.org.[IA]

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[ IN THE ASSOCIATIONS ]

IIABNY Top Honor to WAHVE Founder Sharon Emek

he Independent Insurance Agents & Brokers of New York (IIABNY) presented WAHVE founder Sharon Emek, Ph.D., CIC with its highest honor: The 1882 Fellow Award during the organization’s leadership dinner on May 14, 2014 in Riverhead, N.Y. following the IIABNY’s 132nd annual business meeting. The 1882 Fellow Award recognizes the individual member who has most significantly contributed to IIABNY, the industry and her community. Emek was the second female chair of the board in the association’s history and also served on a variety of committees at the state and national level. She was the first woman to receive the Sidney O. Smith Government Affairs Award from the Independent Insurance Agents & Brokers of America. Emek also earned the Distinguished Service Award from IIABNY in 2006, recognizing individuals who have made a lasting and outstanding contribution to IIABNY. IIABNY has presented the

1882 Fellow Award (named for remote staff offering the year of the founding of quality work at a signifiIIABNY) each year since 2009. cant cost savings to hunThe Independent Insurance dreds of independent Agents & Brokers of New York, insurance agencies and Inc. was founded in 1882. More other insurance firms. than 1,900 agencies and their Agent associations in 18,000 employees currently rely California, Connecticut, on the DeWitt, New York-based Delaware, Louisiana, not-for-profit trade association Maine, Maryland, for legislative advocacy, continMassachusetts, Nebraska, New Jersey, New York, uing education and other Pennsylvania, Rhode means of industry support, Island, South Florida, according to IIABNY. SHARON EMEK Texas, Utah and Work At Home Vintage Wyoming endorse Employees offers a unique, cost-saving, remote contract staffing solu- WAHVE. WAHVE is a participating tion for insurance agents and brokers. employer in AARP’s Life Reimagined for WAHVE engages vintage professionals Work initiative, is listed as a work-at-home “pretiring” or phasing into retirement who option by Clark Howard, and is certified work from home on a dedicated basis full- as a woman business enterprise by the time or part-time, long-term or short- National Women Owned Business term. Since 2010, WAHVE has provided Corporation (NWBOC). [IA]

PIA’s Launches Company Performance Surveys

LENMONT, N.Y.—The Professional Insurance Agents of Connecticut, New Hampshire, New Jersey and New York State launched their Company Performance Surveys on Monday, May 5, 2014. Each survey, available through June 30, 2014, gauges insurance producers’ views of the companies they represent in their respective states. Independent agents will rate the companies with which they do business on 20 performance items, including: claims handling, products and pricing, underwriting, technology and marketing support to gauge their relationship with the carriers. The survey, which has been conducted for more than a decade in each of the states, is a popular tool for both companies and agents to gauge their relationship and the companies’ performance, according to PIA. “This survey is open to all professional, independent insurance agents—whether they are PIA members or not,” said Peter Frascarelli, CPIA, president of PIACT. “I encourage all agents to be candid with

their responses and provide helpful feedback to their companies through this anonymous survey.” Launched in 2002 by PIACT, the biennial Company Performance Surveys build on years of historical data collected by each respective association. PIA members can view this data on the PIA website at pia.org/GIA/cps/cpsjump.php. “Since its inception, PIA has been trending the data compiled by the Company Performance Survey,” said Scott Johnston, president of PIANH. “Agents and companies have been able to track performance and PIA continues to build upon the information it can share regarding the results of the survey.” Upon request, companies may receive information comparing their results to survey averages as well as including specific, anonymous comments from agents on their services, among other information. Also upon request, agents will be given reports about their companies. The focal point of the Company

Performance Survey continues to be to foster relationships between professional, independent insurance agents and their companies. “The focus of this survey is to build relationships between agents and their companies,” said Stephen P. Tague, CPIA, president of PIANJ. “That being said, when the relationships between agents and their companies are strong, everyone benefits, including their clients.” “Agents have until the end of June to let their voices be heard about their relationships with their companies,” said Alan Plafker, CPIA, president of PIANY. “This survey provides a rare chance for agents to share their experiences and comment on companies’ strengths and areas for improvement.” [IA]

INSURANCE ADVOCATE / May 26, 2014 29

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[ PEOPLE ]

Ernesta Procope, NYC Insurance Broker, Receives Black Enterprise’s Lifetime Achievement Award

OLUMBUS, OHIO—Ernesta G. Procope, chairman of E.G. Bowman Company, a Manhattan insurance brokerage, has received the 2014 A.G. Gaston Lifetime Achievement Award from Black Enterprise magazine at its annual conference mid-May in Columbus, Ohio. The award “recognizes the entrepreneurial spirit and the guiding light of an individual who has established an extended and consistently distinguished record of success.” A resident of Queens, Procope founded E.G. Bowman as a storefront insurance agency in Brooklyn in 1953. Her firm has become a top minority-owned insurance brokerage, and she has been widely recognized as a trailblazing black businesswoman. “History makers seldom have an example to follow; they make a path for others to follow them,” Black Enterprise said. “Procope blazed a new trail not only for African Americans, but for women.” Procope was influential in the creation of the New York FAIR Plan. She persuaded New York Governor Nelson A. Rockefeller

ERNESTA G. PROCOPE

to support legislation to make homeowners insurance available to all in the state. She made history in 1979 when she relocated her business to Wall Street, making E.G. Bowman Co. the first African American-owned business to be located there. It moved to Hanover Square in 2012. She has received numerous awards, including propertycasualty360.com’s Top

25 Living Legends of Insurance, Ernst & Young’s 1993 Entrepreneur of the Year, the African American Hall of Fame, the Minority Business Hall of Fame and Museum, Black Enterprise Women Of Power Legacy Award, Essence magazine’s 2004 Power Award, Turner Broadcasting System’s 2002 Trumpet Award, Business Insurance’s Leading 100 Women in the Insurance Industry, and the U.S. Small Business Administration’s Small Business Person of the Year. Arthur George Gaston (1892 –1996) was a businessman in Birmingham, Ala., who played a significant role in the struggle to integrate Birmingham in 1963. E.G. Bowman offers all types of commercial and personal insurance and surety bonds. Its clients include Fortune 500 companies, midsized and small businesses, government, nonprofits and individuals. It taps domestic and international insurance markets for both standard and specialized coverages. A leading provider of group travel accident insurance, the firm also offers health and disability insurance.

Crystal Appoints Lou Roca Executive Managing Director

EW YORK N.Y.—Crystal & Company, a leading strategic risk and insurance advisor, has named Lou Roca as Executive Managing Director and head of Commercial Insurance Services. In this role he will be responsible for the growth and the development of the business unit, defining and executing the unit’s expansion strategy, leading its execution, and managing all property & casualty operations. Mr. Roca brings more than 29 years of brokerage experience to his new role. He most recently served as Managing Director and Area President of Arthur J. Gallagher, formerly The Treiber Group for the past 13 years. In that capacity, he led the company’s Long Island operations, directing the development and execution of growth 30 May 26, 2014 / INSURANCE ADVOCATE

and retention strategies, employee performance and development, recruitment and staffing, and overall sales management. Previously, Mr. Roca has served as Senior Vice President at Aon, leading the middle market practice for Long Island and Assistant Vice President at Marsh & McLennan. He earned his Bachelor’s degree in Business from SUNY Oswego. Jamie Crystal, Executive Vice President stated, “Crystal & Company are thrilled to have Lou on board. I am confident he will be an exceptional leader for our commercial teams. His business acumen, experience and passion for client service will enable us to continue to expand our strategic risk advisory, risk management and insurance brokerage services.”[IA]

Crystal & Company are thrilled to have Lou on board. I am confident he will be an exceptional leader for our commercial teams. His business acumen, experience and passion for client service will enable us to continue to expand our strategic risk advisory, risk management and insurance brokerage services.”

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[ IN T H E NEWS ]

CyberRiskPartners, LLC Selects Advisor

YE, N.Y.— CyberRiskPartners, LLC has announced that Farmington Capital Partners (“FCP”) has been appointed financial advisor to assist the Company with a review of potential capital and strategic alternatives. FCP will examine and consider opportunities available to the Company with the objective of further enhancing shareholder value. This will include exploring capital funding and strategic transactions. In addition, FCP is the Program Advisor for CloudInsure, the world’s first cloud insurance platform designed to specifically address emerging privacy and security risks within the cloud environment and a wholly-owned subsidiary of the Company. FCP is also an investor in CRP.

“We are excited to partner with Farmington Capital Partners. Their industry expertise and position as a leading advisory firm in the insurance sector provide us with strategic, financial and operational expertise to help CRP optimize shareholder value.” David Kimmel, CEO of CRP commented: “We are excited to partner with Farmington Capital Partners. Their industry expertise and position as a leading advisory firm in the insurance sector provide us with strategic, financial and operational expertise to help CRP optimize shareholder value.” Scott Cantini, a Partner at Farmington Capital Partners and advisor in the management of CloudInsure said, “Cyber risk management is evolving and growing rapidly. CyberRiskPartners fits our strategy of working with specialty companies that offer unique value-added services to the insurance industry.” CyberRiskPartners, LLC (“CRP”) provides decision-support of cyber risk data analytics and risk transfer solutions to the insurance, risk management, and cloud computing industries. CRP consists of two

operating subsidiaries: CyberFactors, a proprietary cyber risk analytics database that models adverse technology related events and their consequences; and CloudInsure, an insurance program administrator designed to help cloud service providers (“CSPs”) transfer operational risk by means of white label insurance

products specifically tailored to cover data liability in the cloud environment. CyberFactors and CloudInsure enable risk and cloud professionals to better quantify and insure the data liabilities likely to have a material impact on the financial earnings and reputations of those companies dependent on technology and data.[IA]

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[ ON M Y RADAR ]

By Barry Zalma

When an Insurer Must Interplead Funds

hen an insurance company is faced with competing claims for the proceeds of a life insurance policy and cannot determine which claim is proper, it may deposit the benefits of the policy into court and ask that the

Barry Zalma

from Farmers New World Life Insurance Company (Farmers) a life insurance policy with benefits of $150,000. Rosamaria’s policy insured her life, and Frank’s policy insured his life. They named the other as the sole primary beneficiary and listed no

…Farmers filed a complaint in interpleader identifying Frank’s claim for the policy benefits and alleging that, based on LAPD’s investigation of Frank as a suspect in the homicide of Rosamaria. Farmers alleged that, because LAPD has not ruled out Frank as a suspect, Farmers has been unable to determine the appropriate payee for the death benefit proceeds.

competing interests litigate the right to the proceeds. Since it has no interest in the funds, once deposited, the insurer asks the court to release it from any obligation to the competing interests and is entitled to its fees and costs for bringing the action from the deposited funds. In Farmers New World Life Insurance Co. v. Rees, B241099 (Cal.App. Dist.2 08/30/2013), the wife was found dead in the street outside the home she shared with her husband. Her death was investigated as a homicide. Husband, who was the sole beneficiary on the wife’s life insurance policy, was a suspect. The life insurance company filed an interpleader action and deposited the policy benefits plus interest with the trial court. The wife’s mother, who would be entitled to the policy benefits if husband were found to have feloniously and intentionally killed wife, defaults in the action. The court awards husband the interpleaded funds less attorney fees and costs requested by the life insurance company. Husband contended that the attorney fees and costs award was erroneous because his right to the policy benefits never was in dispute.

FACTUAL BACKGROUND Frank and Rosamaria Rees married in 1997. In May 1998 they each obtained 32 May 26, 2014 / INSURANCE ADVOCATE

contingent beneficiaries. According to the terms of Rosamaria’s policy, if Frank predeceased Rosamaria, the benefits were to be paid to Rosamaria or to her estate. On September 18, 2009, Rosamaria, on her way to pick up Frank from a Gamblers Anonymous meeting, was shot and killed in the street outside the home she shared with Frank. She died intestate. Farmers’ insurance agent informed the company of Rosamaria’s death on September 23, 2009. A claims officer contacted Frank, who indicated that the Los Angeles Police Department (LAPD) was investigating Rosamaria’s death as a homicide. Farmers sent Frank a claim form for the policy benefits. On October 1, 2009, a Special Investigation Unit Manager (manager) for Farmers spoke with an LAPD detective regarding Rosamaria’s death. According to the manager’s notes, the detective reported that “no one has been ruled out in this death. He said that [Frank] is a big gambler and has a couple million dollars in life insurance on his wife.” About two weeks later, on October 14, 2009, Frank submitted a claim to Farmers for the $150,000 in life insurance benefits. For six months Farmers sent letters to Frank informing him that, according to the LAPD, the investigation of Rosamaria’s death

still is ongoing and no one has been ruled out as a suspect in her homicide and that it would await the results of the investigation before discharging its obligation. Frank retained counsel and asked for confirmation that Frank’s “claim was complete and that [it] [had] received all the supporting documents needed to process his claim….” Based on the receipt of this letter, and the fact that Frank was still considered a “prime suspect” in the murder of Rosamaria, the manager referred this matter to Farmers’ legal department and, subsequently, a decision was made to interplead the life insurance proceeds. On August 3, 2010, Farmers filed a complaint in interpleader identifying Frank’s claim for the policy benefits and alleging that, based on LAPD’s investigation of Frank as a suspect in the homicide of Rosamaria, Farmers has been unable to determine the appropriate payee for the death benefit proceeds. Frank answered the complaint and filed a first amended cross-complaint, asserting a cause of action for declaratory relief against Farmers and Rosamaria’s mother, as the person who would receive the policy benefits through Rosamaria’s estate if he were found to have feloniously and intentionally killed Rosamaria. Frank asked for a judicial determination that he was entitled to the $150,000 in benefits on Rosamaria’s policy. Frank also asserted causes of action against Farmers for breach of contract and bad faith based on its failure to pay him the policy benefits despite his filing a claim for them. Frank, opposing the motion of Farmers to be discharged from the case, submitted the declaration of an insurance industry expert, who opined that Farmers did not act reasonably and within the standards of the insurance industry in the handling of Frank’s claim in its investigation and payment of benefits. Regardless, the trial court issued an order discharging Farmers from the interpleader action. The court awarded Farmers attorney fees of $7,506.30 plus $491.19 in costs and directed the clerk to pay Farmers that amount, which was the balance of the interpleaded funds.

DISCUSSION

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[ ON MY RADAR ] In an interpleader action, the court initially determines the right of the plaintiff to interplead the funds; if that right is sustained, an interlocutory decree is entered which requires the defendants to interplead and litigate their claims to the funds. Interpleader proceeding is traditionally viewed as two lawsuits in one. The first dispute is between the stakeholder and the claimants to determine the right to interplead the funds. The second dispute to be resolved is who is to receive the interpleaded funds. Frank contends that the attorney fees and costs award was improper because the funds Farmers deposited with the court were never “in dispute” as required by statute. The first amended complaint in interpleader defined the dispute over the policy benefits. On the one hand, Frank filed a claim to obtain the benefits as the sole beneficiary on the policy. On the other hand, Frank was a suspect, at one point “a ‘prime’ suspect in the death of his wife,” and LAPD had an ongoing investigation into Rosamaria’s death. If Frank were found to have feloniously and intentionally killed Rosamaria, he would not have been entitled to the policy benefits, and they would have been payable to Rosamaria’s mother through her estate. A defendant in interpleader has the right to put in issue the question as to whether or not the facts were such as to entitle the plaintiff to compel the defendants to interplead. If the defendants in interpleader have fully litigated their claims without objection, they will be deemed to have consented to the remedy invoked and granted, and will not later be heard to object that the plaintiff ’s complaint did not state a cause of action for interpleader. Frank did not question Farmers’ use of the remedy of interpleader, but rather litigated the matter in the trial court. Frank did not contest Farmers’ decision to interplead the funds. Rather, he answered the original complaint, without asserting any affirmative defenses, and stipulated to the filing of the first amended complaint adding Rosamaria’s mother as a defendant. The statutory scheme for interpleader contemplates an award of attorney fees in the trial court’s discretion. Nothing in that scheme suggests that life insurance companies should be exempt from such an award as a routine cost of doing business.

My concern is that the appellate decision does not reveal that Farmers did a thorough investigation of the claim presented by Frank but relied, apparently solely, on the representations of the LAPD officers investigating the death of the wife that Frank was a “prime suspect.”

Indeed, to read such an exception into the provision for attorney fees and costs would conflict with the statutory language.

ZALMA OPINION Farmers was lucky that Frank agreed to and litigated the interpleader action. By so doing he allowed the court to determine the actions of Farmers was appropriate in refusing to pay Frank and to interplead the policy proceeds because he was a prime suspect in the death of his wife. My concern is that the appellate decision does not reveal that Farmers did a thorough investigation of the claim presented by Frank but relied, apparently solely, on the representations of the LAPD officers investigating the death of the wife that Frank was a “prime suspect.” Farmers apparently did no investigation of its own. Police officers have a different function than insurance investigators. They seek evidence of a crime that can be proved beyond a reasonable doubt. They have no interest in the rights and obligations of persons insured or their insurer. The insurer must make a decision based on its own investigation and does not have the five years police officers have to complete an investigation. If the insurer did a thorough investigation, determined that there was admissible evidence that indicated a probability that Frank killed his wife and that, therefore, the wife’s mother had a viable claim, interpleader was appropriate. A police officer’s suspicions, like a fraud investigators suspicions, are just that

– suspicions. They are not evidence. The lesson from this case is that interpleader should be filed if there is evidence to support it. [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 website at http://www.zalma.com.

INSURANCE ADVOCATE / May 26, 2014 33

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

“This is the first year since I have been State National Director that that overall budget increase was kept to a figure as low as 2.4 percent.” - Thomas J. Dietz State National Director, IIAANY

34 May 26, 2014 / INSURANCE ADVOCATE

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

…PIA said it supports the reduction of waste and inefficiency, reduction of injury and prevention of losses, increase of consumer representation, and insurance affordability in urban areas.

th Year 2014 125 Watch for News and Other Events! www.insurance-advocate.com INSURANCE ADVOCATE / May 26, 2014 35

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[ COURTSI DE ]

The Fairbanks Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa. (U.S. Dist. Ct., No. Dist. of Ga., Nov. 2013)

s a result of the liquidation of Lumbermen’s Insurance Company, it could no longer cover its share of defense and indemnity costs concerning the asbestos claims filed against plaintiff. National Union and Liberty Mutual informed both plaintiff and the other insurer defendants that had been contributing to such costs under their policies that the two insurers had no obligation to pay the share of asbestos suit costs previously paid by Lumbermen’s. Plaintiff thereupon sued all of its insurers and the Georgia Insolvency Pool in Georgia state court for a declaratory judgment, and included breach of contract counts against National Union and Liberty Mutual. Mound Cotton represented Liberty, which removed the action to the federal Northern District of Georgia on the basis of diversity of citizenship. Plaintiff and the Georgia pool moved to

remand inasmuch as Liberty had not obtained the pool’s consent to removal, which had been freely given by the other insurers. Liberty countered that the pool’s consent was unnecessary, albeit it is considered a Georgia citizen, because the pool was fraudulently joined in the action by plaintiff to defeat removal. According to federal District Judge Steve C. Jones, in essence plaintiff ’s claim requested a declaratory judgment that plaintiff must seek payment of the Lumbermen’s orphan share from the insurer defendants before requesting any such payment from the Georgia pool. Further, plaintiff sought a declaration that, by refusing to pay the orphan share, National Union, Liberty and the other insurer defendants were in violation of Georgia statute. “Therefore, the essence of Plaintiff ’s claim for declaratory judgment does not concern the pool.”

Moreover, notwithstanding plaintiff ’s assertion that it also sought a declaration that it was allowed to seek payment of the orphan share from the Georgia pool if the insurer defendants were not obligated to pay it, “there is no ‘actual controversy’ regarding this point” because “the Pool concedes that, if in fact the Insurer Defendants are not obligated to pay the orphan share, it is obligated to pay the Lumbermen claims” pursuant to Georgia statute. Noting that “the Pool does not actually take the position that Plaintiff ’s Lumbermen’s claims are not covered claims,” the court held that “[w]ithout a dispute between Plaintiff and the Pool regarding the application of” the Georgia statute, “there is no actual controversy necessitating a declaratory judgment.” Because “Plaintiff ’s complaint does not present a valid basis for a declaratory judgment claim against the Pool,” Judge Jones

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[ COURTS I D E ] “determine[d] that the Pool is improperly joined to this action,” terminated it from the case, and denied the remand motion.

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All-American Restoration Servs. v. Didehban (Suff. Cty. Ct., N.Y., Aug. 2013)

ound Cotton represented the third-party defendant, Tower Group, Inc., on this motion for summary judgment before Judge Andrew Tarrantino of the Suffolk County Court. The dispute centered over who was Didehban’s homeowners’ insurer. CastlePoint Insurance Co., a subsidiary of Tower Group, Inc., is a separate corporate entity. Didehban had general liability and property coverage under a policy issued by CastlePoint, which paid her almost $72,000 in four checks, “satisfying [her] claim under the insurance policy.” Sued for work, labor, and services by a contractor that she alleged she had not hired, Didehban impleaded Tower Group, Inc. on the theory that CastlePoint’s parent had an obligation to reimburse her for her alleged contractual liabilities for the services rendered to her. Judge Tarantino granted summary

judgment to Tower Group, Inc. First, he noted that under New York law a corporate parent was not usually liable for the acts of its subsidiary, and that here it was CastlePoint, not Tower Group, Inc., that issued the insurance policy. Further, when Didehban contended on the basis of documents received during the claim adjustment process that she was doing business with “Tower Group Companies,” the court held that she failed to raise a triable issue of fact as to whether Tower Group Companies and Tower Group, Inc. are the same entity or whether CastlePoint and Tower Group, Inc. are the same entity, holding that any such claim rested on “hope or speculation” rather than “any evidentiary basis.” Courtesy of Kevin F. Buckley, Partner, Mound Cotton Wollan & Greengrass and Associates Marc E. Haas and Carrie C. Turner.

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Zaretsky v. Maxi-Aids, Inc. (U.S. 2d Cir. Ct. of App., July 2013)

ound Cotton represented four of the numerous defendants in this federal civil RICO case. Magistrate Judge Boyle of the Eastern District of New York issued a report recommending that plaintiffs’ RICO claims be dismissed with prejudice as a sanction for their failure to comply with court orders requiring that they file a RICO case statement, and that their state-based claims be dismissed without prejudice. He concluded that the dismissal was appropriate because plaintiffs had caused significant delay, they had sufficient warning of the potential for dismissal, the prejudice to the defendants was presumed, plaintiffs’ due process rights would not be denied by dismissal, a less drastic sanction was not appropriate, and the circumstances showed willfulness and fault on plaintiffs’ part. In his report, the magistrate judge expressly set forth that any objections to the report must be filed within 14 days of service, and

that failure to file objections would preclude appellate review. Although plaintiffs failed to file timely objections to Magistrate Judge Boyle’s report, and the district court adopted the report, plaintiffs appealed. The Second Circuit might simply have dismissed their appeal on the ground of waiver; but, because the applicable waiver rule was not jurisdictional, the court further commented that, even if it were to excuse the failure to object in the interests of justice, it would conclude that the district court acted within its discretion in adopting the recommendation of dismissal. The appeals court therefore affirmed, “substantially” adopting “the reasons articulated by the magistrate and district court judges” in dismissing plaintiffs’ case. Courtesy of Partners C. Silverberg, Partner Sanjit S. Shah, Partner Mound Cotton Wollan & Greengrass

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[ GUEST OPINION ]

By Elizabeth Lee Vliet, M.D.

“Accountable Care, Patient Protection” Act Harms Young Millennials

“M

illennials,” the group of young people born after 1980, overwhelmingly voted in 2008 for politicians who promised “healthcare for all” and sponsored the “Affordable Care Act” (aka Obamacare). Sadly, young people took on faith the promises of an orator and did not read the text of the law before it was passed on a 100% Democrat parElizabeth Lee Vliet, M.D. tisan vote by politicians who didn’t read it either. These Millennials are finding out they’ve been “had” in promises not kept. Their health insurance premiums are skyrocketing. Their mandated coverage is far broader (ergo, more expensive) than many healthy young people need. Their choices of doctors and hospitals are now limited. Because young people voted in droves for Obama in 2008 and 2012, architects of the healthcare law assumed they would “vote” for the ACA by enrolling in ObamaCare. Young people, however, are pretty savvy. They have learned a lesson: READ what you sign up for before you buy. They are not signing up as anticipated. Here are the Top Eight ACA Harms to Young Millennials: Health insurance premiums are much higher. Before ACA, a young person typically paid $100-150 per month for a basic policy. Now, for Aetna’s ACA-compliant Classic Silver Plan, a young person making $25,000 per year would now pay $2,424/year (10% of income) in Arizona, or $3,576/year in Illinois. Deductibles have doubled, tripled, or quadrupled. For the plans above, before the ACA, a young person paid $1,000-$2,000 out of pocket to meet the deductible before insurance coverage started. After the ACA, average deductibles range from $4,000 to $6,000 before insurance starts to pay! Today’s Millennials are less able to afford insurance than Baby Boomers were 38 May 26, 2014 / INSURANCE ADVOCATE

at their age. Millennials may be more highly educated, but they have also accumulated greater debt, and face a stagnant employment and income situation—partly created or worsened by ACA. In 2014, nearly half of the unemployed in the US are under 34. That is a catastrophic change from the year 2000. Then, the US had the lowest unemployment rate for those 18-34, compared to other wealthy economies. ACA insurance is not sustainable. Millennials have done the math. They have seen it costs less to pay the mandated penalties (taxes), pay for basic medical care out of pocket, and only sign up for an insurance plan if something serious happens. Thus, sign-ups are far lower than needed for the economics of ACA to work, so future premiums will be even higher. ACA means less employer-sponsored insurance. Higher costs and mandates, coupled with slow growth and uncertainty, have meant that employers are not hiring as many full-time employees to avoid paying for high cost health insurance. Millennials are overcharged for insurance to subsidize the costs of aging Baby Boomers. They must also pay for mandated benefits they will never use. For one example: Why does a single male need to pay for pregnancy and maternity care insurance benefits? The quality and availability of care will worsen for everyone as services are cut to rein in spending: fewer doctors and specialists, more use of physician assistants and nurse practitioners, fewer specialty cancer centers and other hospitals in allowed networks. The enormous costs of implementing ACA will add to the crushing debt burden that Millennials, and the generations following them, will be expected to pay despite their drastically reduced income opportunities. Millennials are coming to see that they were pawns used to meet goals of a government-run, top-down health care ideology that has never worked in any economy. Concept has trumped concern for young people’s real medical care needs as well as their economic future. Millennials are see-

ing that the elites and political cronies get exemptions, but the “average Joe” does not. Millennials create infinitely varied custom set-ups for their smart phones and computers. They are not a group who takes kindly to “one-size-fits-all” medical insurance policies! They need to look at the expanded opportunity and freedom that comes with individual control and free markets. Betrayed by politicians, Millennials need to get engaged and fight for true, patient-centered reform. Their health—and their lives—depend on it.[IA] Elizabeth Lee Vliet, M.D. is a 2014 Ellis Island Medal of Honor recipient, and the 2007 recipient of the Voice of Women award from the Arizona Foundation for Women for her pioneering advocacy for the overlooked hormone connections in women’s health. Dr. Vliet is a preventive and climacteric medicine specialist with medical practices in Tucson, AZ and Dallas, TX that take an integrated approach to evaluation and treatment of women and men with complex medical and hormonal problems. Dr. Vliet is also CEO of International Health Strategies, SpA, a global medical consulting company based in Santiago, Chile whose mission is medical freedom and privacy while preserving the Oath of Hippocrates focus on individual patients. Dr. Vliet is a past Director of the Association of American Physicians and Surgeons (AAPS). She received her M.D. degree and internship in Internal Medicine at Eastern Virginia Medical School, and completed specialty training at Johns Hopkins Hospital. She earned her B.S. and Master’s degrees from the College of William and Mary in Virginia. Dr. Vliet’s medical and educational websites are www.HerPlace.com, and w w w. I n t e r n a t i o n a l H e a l t h S t r a t e giesLtd.com. For more on healthcare, go to www.aapsonline.org DISCLAIMER: Dr. Vliet speaks as an independent physician, not as an official spokesperson for any organization or political party. Dr. Vliet has no financial ties to any health care system or health insurance plan. Her allegiance and advocacy is to and for patients.

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