June 15, 2015 by C Acunto

6-15-15_INA 6-15-15 6/24/15 11:19 AM Page 1

VOLUME 126, NUMBER 11 / June 15, 2015

A CINN Group, Inc. Publication

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

NYIA LOOKSAHEADâ&#x20AC;Ś AND BACK Pictured L-R: DFS Acting Executive Deputy Superintendent Troy Oechsner with NYIA President Ellen Melchionni, DFS Superintendent Benjamin Lawsky and NYIA Chair Bernard Turi

6-15-15_INA 6-15-15 6/24/15 11:19 AM Page 2

www. s h e l t e r p o i n t . c om

sheltering you you

800.365.4999 sales@shelterpoint.com | 800 .365.4999 (516.829.8100) (516.829.8100) facebook.com/shelterpointgroup fa cebook.com/shelterpointgroup

fee, Life, erPoint Lif ShelterPoint Shelt

fe Life ehab Lif Rehab ormerly First R o fformerly

6-15-15_INA 6-15-15 6/24/15 11:19 AM Page 3

Contents

June 15, 2015 | volume 126 number 11

[COVER STORY ]

[ AD FEATURES]

PIA: PIA Webinars

MSO: Teen Driving Hazards

NYIA Looks Ahead…and Back

[FEATURES] 6

Foreword: Amendments to the Stringer Bill Steve Acunto, Publisher

Insight: Go Figure Peter H. Bickford

Exposures and Coverages: Designated Premises Exclusion New York Times on Homeowners Deductibles & Damage to a Tenant’s Apartment Updates on C of I and TNCs Jerome Trupin, CPCU

On the Level: Experience OJT? Jamie Deapo

Executive Summary Frederick Wertz

On My Radar: When a Customer is Not a Customer Barry Zalma

Looking Back: 1990

Classiﬁeds

Courtside: District Court Finds Lack of Standing for Cyber Data Breach Victims James Westerlind and Andrew Dykens

Guest Opinion: Feds Want to Spend $20B on AIDS Drugs, Based on 45 Cases Jane M. Orient, MD

Like us on Facebook… The Insurance Advocate Magazine INSURANCE ADVOCATE / June 15, 2015 3

6-15-15_INA 6-15-15 6/24/15 11:20 AM Page 4

6-15-15_INA 6-15-15 6/24/15 11:20 AM Page 5

6-15-15_INA 6-15-15 6/24/15 11:20 AM Page 6

[ FORE WORD ]

Steve Acunto

Amendments to the Stringer Bill

ollowing our cover story in early May in which we presented – on the cover – the language proposed in a bill that would require agents and brokers to recite a rather ridiculous “disclosure,” we have had a waterfall of response. Here is the language we quoted that agents and brokers would be required to disclose to clients: I am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you. Of the responses received, one stands out for its bite. The writer has asked for anonymity and we will oblige, but I must report that he is a company and an industry leader who would never need to recite the absurd “disclosure” but who takes umbrage with it on behalf of the entire brokerage community with which the company he heads works. He suggests that the following disclosures be adopted. To be read by all senior officials at DFS when dealing with a member of the public or the industry: I am called a regulator, but I am a prosecutor and am rewarded based upon the amount of money I collect in fines. Therefore, I’m not required to act in the best interest of a balanced, vibrant, or sustainable market, and am allowed to issue press releases and order fines even if those actions lead to the unwarranted deterioration of your industry and livelihood. To be read by anyone holding or seeking elected office when dealing with anyone: I am not a public servant. I’m a politician. Therefore, I am not required to act in your best interest and am allowed to issue press releases, make speeches, and solicit your contributions, even if what I say will bear no relation whatsoever to what I actually do when elected, and even if what I do may not result in the best combination of public policy and fiscal responsibility that will yield the best results for you as a taxpayer or citizen. We welcome your suggested disclosures for elected, appointed and licensed individuals…and editors. SA 6 June 15, 2015 / INSURANCE ADVOCATE

VOLUME 126, NUMBER 11 JUNE 15, 2015

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com

PROOF READER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x117 circulation@cinn.com PUBLISHED BY CINN Group P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto

CINN G R O U P, I N C .

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing ofﬁces. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $110.00. TO ORDER Call 914-966-3180, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2015. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Ofﬁce.

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

Robert

6-15-15_INA 6-15-15 6/24/15 11:20 AM Page 7

Real Dividends! $165 Million Paid

“The team from Friedlander group consistently goes above and beyond the call of duty for HUB’s clients. In my personal experience working with them, they have done an outstanding job in working with many of my restaurant customers and are a valued partner of mine. They are extremely attentive and well-staffed, and we look forward to continuing our long-standing relationship with their team!” Robert Fiorito Vice President Hub International Northeast

Up to 20% Advance Discount Retailers

Wholesalers

Restaurants

Hotels/Motels

Oil Dealers

Social & Health Services

Residential Care

Retail Group of NY, Workers’ Comp. Safety Group #544*

Wholesale of NY, Workers’ Comp. Safety Group #551*

United Restaurants of NY, Workers’ Comp. Safety Group #556*

Hotel/Motel Group of NY, Workers’ Comp. Safety Group #578*

Oil Dealer Group of NY, Workers’ Comp. Safety Group #582*

Social and Health Services Group of NY, Workers’ Comp. Safety Group #585*

Residential Care Facilities Group of NY Workers’ Comp. Safety Group #586*

20%

2010-11

20%

2012-13

2.5%

2012-13

2013-14

25%

2013-14

2012-13

25%

2012-13

2009-10

35%

2011-12

10%

2011-12

25%

2011-12

20%

2008-09

40%

2010-11

15%

35% average dividend since inception in 1992

31% average dividend since inception in 1993

36% average dividend since inception in 1993

18% average dividend since inception in 2006

2012-13

2011-12

2010-11

10%

5% average dividend since inception in 2010

5% average dividend since inception in 2011

2012-13

Group formed on 2/1/2012

Fees paid to 560 Brokers Learn more at: www.friedlandergroup.com/demo/

Retail 2003 Bakeries 7998 Hardware Store 8001 Florist Store 8006 Food/Fruit/Deli/Grocery 8008 Clothing/Shoe/Dry Goods 8013 Jewelry Store 8016 Quick Printing 8017 Retail (Not Classified) 8031 Meat/Fish/Poultry Store 8033 Supermarkets 8039 Department Store 8043 Retail (including Food) 8044 Furniture Store 8046 Auto Accessories 8072 Book/Music Store 8105 Leather Store 8382 Self serve gas w/conv. store Residential Care Facilities 8864 Developmental Organizations 8865 Residential Care Facility Hotel/Motel 9052 Hotels NOC 9058 Restaurants in Hotels

Wholesale 4310 Greeting Card Dealer 7390 Beer/Ale Dealer 7999 Hardware Store 8018 Wholesale Store/NOC 8021 Meat, Fish Dealer-Wholesale 8032 Dry Goods, Clothing, Shoe 8047 Drug Store 8048 Fruit & Vegetables 8111 Plumbers Supplies Dealer-Wholesale Restaurant 9061 Clubs 9071 Full Service Restaurants 9072 Fast Food Restaurants– Including Drivers 9074 Bars & Taverns Social and Health Services 8854 Home Health Care – Prof. Employees 9051 Home Health Care – Non Prof. Employees 8857 Counseling – Social Work – Traveling Oil and Gas Dealer 5193 Oil Burner Installation 8350 Fuel Oil & Gas Dealer 8353 Gas Dealers, LPG & Drivers

*Underwritten by the State Insurance Fund

The Workers’ Compensation Leader in NY Call Cosmo Preiato at 800-394-7004 ext. 203 Fax: 914-694-6004 e-mail: cosmop@friedlandergroup.com 2500 Westchester Avenue, Suite 400A Purchase, New York 10577

www.friedlandergroup.com How to Save Big on Workers’ Compensation: With Insights From Leading Industry Experts by Adam Friedlander, now on Amazon www.howtosavebigonworkerscomp.com

Ask about low DBL rates exclusive to safety group members, underwritten by First Rehabilitation Life Insurance Company of America

Robert_Fiorito_INS_ADV_v1.indd 1

4/14/15 3:59 PM

6-15-15_INA 6-15-15 6/24/15 11:20 AM Page 8

[ INSIGHT ]

By Peter H. Bickford

Go Figure “Facts are stubborn things, but statistics are pliable.” Mark Twain

ver wonder how many state insurance regulators there are nationwide? Or how the state departments compare in size, number of staff, or budgets? Or how the states compare in collection of taxes, fees and assessments, fines and penalties or total revenue?

regulation, with plenty of room for finding one’s own interpretation and conclusions. The report includes an inordinate amount of data about departmental staff positions and salaries, which probably means that department staff members are among the most engrossed readers, but not for any

While this description may be a bit hyperbolic, the report provides some interesting information about the size and scope of the state insurance regulatory world not available from any other source.

Peter H. Bickford

The answers to these and many more questions can be found in Volume 1 of the National Association of Insurance Commissioners’ 2014 Insurance Department Resources Report that was released in early June. In the words of the NAIC release announcing the report, “The IDRR details how state insurance departments manage available resources to effectively regulate an increasingly complex and competitive industry.” While this description may be a bit hyperbolic, the report provides some interesting information about the size and scope of the state insurance regulatory world not available from any other source. Much of the data presented in the report was obtained through an NAIC survey completed by each state insurance department, and includes the number of departmental staff, annual budgets, revenues collected, number of insurers and producers, and number of consumer complaints filed. Premium volume by type and state will be the primary focus of Volume 2 to be released in August. There are enough charts, tables, graphs and schedules to pique the interest of just about anyone interested in state insurance 8 June 15, 2015 / INSURANCE ADVOCATE

purpose relating to their official duties. What staff person can resist comparing his or her salary to the salary range for similar positions among the various states? Aside from inquisitive staff, however, anyone interested in the effectiveness of state regulation of insurance should study the report. With, among other things, the ongoing national dialogue about Federal incursions into regulation of insurance, the report provides an excellent opportunity to take a look at the size and function of the state-based regulatory machine. Here are some interesting facts gleaned from the report for 2014: • Cumulatively, in 2014 state insurance departments collected almost $22 billion in revenues, of which about 80% came from taxes and 14% came from fees and assessments. • Only a little over 1% of revenues nationwide came from fines and penalties. New York, of course, led the way by a big margin, but even in New York fines and penalties accounted for less than 3% of revenues in 2014. • State insurance departments employed 11,531 staff in 2014, with

a cumulative budget in excess of $1.3 billion. (Compare this – fairly or not - to the 2014 budget of the Securities and Exchange Commission of approximately $1.7 billion and 5,200 staff.) • In descending order the five states with the largest 2014 budgets were California, New York, Texas, Florida and Illinois. • The five states with the largest 2014 revenues were California, New York, Texas, North Carolina and Illinois. • The five states with the most departmental staff in 2014 were Texas, California, Florida, New York and North Carolina. The chart on page 12 shows the details behind these bullets. I have also added a couple of calculations to add some flavor to the statistics, which could lead to conclusions that may or not be offset or contradicted by other factors. For instance, comparing the largest budgets and/or staff to revenue, New York would appear to have the most favorable ratios and Florida the least favorable – which could lead some to conclude that of the largest insurance jurisdictions New York is the most efficient and Florida the least efficient. I suspect other data could be used to reach different conclusions. But that is the fun with numbers (I know, I know. Get a life!). Of course, people often see what they want to see. If you want to see a bloated bureaucracy or an efficient, effective bureaucracy, you are likely to find data to support the desired result. If you want to find growth, whether in staff positions, budgets or revenues, you can find growth in certain aspects. If you seek support for contraction, you can also find supporting data for staff, budget or revenue reductions as well. In other words, the data provided by the NAIC report is a cornucopia of diverse data about the insurance departments and, to a lesser degree, the companies they regulate that allows diverse interests to reach different conclusions about continued on page 10

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 9

Q. “Wheels?” A. PARK Your Top Resource for… • Auto Liability • Physical Damage • General Liability • Split Limits on 100/300 and Single Limits up to $1M Park Insurance's Transportation Insurance Program provides trucking companies with comprehensive, high-quality coverage at affordable rates. From Competitive Rates to Comparable Commissions. Large Enough to Service You... Small Enough To Care. For more Information or an Immediate Price Quote Call

1-888-PARKPRICE w w w. p a r k i n s u r a n c e c o . c o m

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 10

[ INSIGHT ] continued from page 8

the scope, efficiency or effectiveness of the state insurance regulatory system. That is to be expected. Notwithstanding the potential for misuse to support an agenda, the NAIC report serves a very important and useful function, a utility that will be significantly enhanced with the release of Volume 2 covering premium volume. Future iterations of the report, however, could be even more valuable for legitimate analysis and understanding. For example, the report shows that close to 280,000 complaints and just short of two million inquiries were received by insurance departments nationwide. Without context, however, these numbers mean very little. There is no data on the nature of complaints (i.e., companies v. brokers, coverage v. claims, etc.) or how they were resolved. And there is no information about the nature of the inquiries. Given the responsibility of insurance regulators to address consumer issues, there ought to be far more data collected on this aspect of the report. Also, if the NAIC is going to claim that the purpose of the report is to show “how state insurance departments manage available resources to effectively regulate an increasingly complex and competitive industry,” then it needs to add commentary on and analysis of the data lending support for this statement. Among the NAIC, the state insurance departments and the industry associations and companies supporting state regulation of insurance, the resources

Notwithstanding the potential for misuse to support an agenda, the NAIC report serves a very important and useful function, a utility that will be significantly enhanced with the release of Volume 2 covering premium volume. Future iterations of the report, however, could be even more valuable for legitimate analysis and understanding.

are there to make the best argument from the accumulated data. If they do not take advantage of the opportunity, you can be sure that those opposed to or in favor of weakening state regulation will be able to mold the data to their cause as well. To repeat Mark Twain’s truism: “statistics are pliable.” [IA] Peter Bickford has over four decades of experience in the insurance and reinsurance business, with particular focus on regulatory, solvency, agency, alternative market and dispute resolution issues. In addition to his experi-

ence as a practicing attorney, he has been an executive officer of both a life insurance company and of a property/casualty insurance and reinsurance facility. A complete biography for Mr. Bickford may be accessed at www.pbnylaw.com.

Cumulatively, in 2014 states collected $2.2 billion in revenues. Almost 14% from fees and assessments.

Based on Statistics (in $millions) from the NAIC’s 2014 Insurance Department Resources Report – Volume 1

10 June 15, 2015 / INSURANCE ADVOCATE

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 11

Our Role in Your Office We’re specialists.

Small- to mid-sized “Main Street” accounts Workers’ compensation “lead line” Complementary coverages in select states (including Disability in New York!)

We’re secure.

Part of Warren Buffett’s Berkshire Hathaway A+ (”Superior”) A.M. Best Company rating

We’re growing.

Direct written premium of $500 million Doubled in size in recent years Active in 46 states (many with our BizGUARD Plus BOP product)

We’re competitive.

Accurate pricing (that can be sold!) Tiered workers’ comp rate structure Other standard and unique special discounts

We’re fast and easy.

Same day (often samehour) turnaround on workers’ comp quotes On-line rating application Extensive Service Centers

Remember: We’re the quote you could come up against . . . so why not join us?

Berkshire Hathaway GUARD Insurance Companies can be a key carrier resource in your office. We have a well-defined focus that has enhanced the income stream of countless agencies across the country. Plus . . . our longer-range vision is to bring one-stop insurance shopping to smaller business owners nationwide. We’re growing and hope you are interested in joining us! We currently have agency appointments available.

To learn more, visit: www.guard.com/apply

Berkshire Hathaway

GUARD

Insurance Companies

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 12

[ EXPOSURES AND COVERAGES ]

By Jerome Trupin, CPCU

Designated Premises Exclusion NY Times On Homeowners Deductibles & Damage to a Tenant’s Apartment Updates on C of I and TNCs Designated Premises Exclusion—Score One for the Home Team. I hate the designated premises exclusion endorsement. It links coverage to a specific location rather than providing broad coverage throughout the coverage territory. While it’s probably needed in certain situations (e.g. the insured operates multiple locations and the policy is intended to cover just one), it is being added indiscriminately to all policies by too many insurers. At first glance it might seem that if the insured lists all its locations, there won’t be a problem. And if the insured didn’t list a location, it should be responsible for its failure. But it’s not that simple. Look at what the exclusion says: This insurance applies only to “bodily injury,” “property damage,” “personal injury,” “advertising injury” and medical expenses arising out of: 1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises (emphasis added)… A simple situation that’s trapped several clients over the years involves an insured being sued for an occurrence at a location to which it never had any connection. It occurs because the client’s name is similar to the actual owner or because the plaintiff ’s attorney just plain made a mistake. It would seem that such an error could be quickly resolved, but frequently the plaintiff ’s attorney wants to wait until the matter comes before a judge before he or she lets anyone out of the suit. The client’s insurer declines to defend, stating 12 June 15, 2015 / INSURANCE ADVOCATE

I hate the designated premises exclusion endorsement. It links coverage to a specific location rather than providing broad coverage throughout the coverage territory. that the policy includes a designated premises endorsement and the occurrence on which the claim is based didn’t arise out of the designated premises or operations necessary or incidental to the premises. The client is forced to retain its own counsel to get out of the lawsuit. Even if the final expense is small, the result is an irate client. The CGL policy without the designated premises endorsement easily takes care of such a claim. Trader Ed’s, a restaurant in Hyannis, MA, found out the hard way that there can be more extensive problems when a policy contains the designated premises endorsement. John Shea, Trader Ed’s owner, organized a trip from Hyannis to a Jimmy Buffet concert. He rented a bus to transport people, including customers of Trader Ed’s. Trader Ed’s supplied a gas grill, food and drinks and three employees to operate the grill for a tailgate party before the concert. The purpose of Trader Ed’s involvement, according to Shea’s deposition testimony, was to promote its business and its employees’ morale. The trip ended badly. A Trader Ed’s employee had trouble lighting the grill and continued on page 14

Jerome Trupin

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

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 13

To all persons or entities interested in the affairs of

RED ROCK INSURANCE COMPANY Notice is Hereby Given: Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York (“Superintendent”), has been appointed by an order (the “Order”) of the Supreme Court of the State of New York, New York County (“Court”), entered on May 28, 2015, as the ancillary receiver (the “Ancillary Receiver”) of Red Rock Insurance Company (“Red Rock”) with all the rights and obligations granted to and imposed upon him pursuant to New York Insurance Law (“Insurance Law”) Article 74. The Ancillary Receiver has, pursuant to Insurance Law Article 74, appointed Scott D. Fischer, Acting Special Deputy Superintendent (the “Acting Special Deputy”), as his agent to carry out his duties as Ancillary Receiver. The Acting Special Deputy carries out his duties through the New York Liquidation Bureau, 110 William Street, New York, New York 10038. The Order provides: I. All persons are permanently enjoined and restrained from commencing or prosecuting any actions, lawsuits, or proceedings against Red Rock, the Superintendent as Ancillary Receiver, or the New York Liquidation Bureau, its employees, attorneys, or agents, with respect to this proceeding or in the discharge of their duties under Insurance Law Article 74. II. All persons are permanently enjoined and restrained from obtaining preferences, judgments, attachments, or other liens, or making any levy against Red Rock’s property located in the State of New York or any part thereof. III. All persons or entities having property, papers (including attorney work product and documents held by attorneys), and/or information located in the State of New York, including, but not limited to, insurance policies, underwriting data, claims files (electronic or paper), and/or software programs owned by, belonging to, or relating to Red Rock, shall preserve such property and/or such information and, upon the Ancillary Receiver’s request and direction, immediately assign, transfer, turn over, and deliver such property and/or information to the Ancillary Receiver. IV. This proceeding shall terminate once the workers’ compensation claim(s) of Red Rock’s one known New York claimant is/are adjudicated, without further application to the Court. V. Immunity is extended to the Superintendent in his capacity as Ancillary Receiver of Red Rock, and his successors in office, the New York Liquidation Bureau, and their agents and employees, for any cause of action of any nature against them, individually or jointly, for any act or omission when acting in good faith, in accordance with the orders of the Court, or in the performance of their duties pursuant to Insurance Law Article 74. VI. The Ancillary Receiver may at any time make further application to the Court for such further and different relief as he sees fit. VII. The court shall retain jurisdiction over this matter for all purposes. VIII. All communications relating to Red Rock and to the Ancillary Receivership Proceeding thereof should be addressed to: New York Liquidation Bureau, 110 William Street, 15th Floor, New York, New York 10038, (212) 341-6241. BENJAMIN M. LAWSKY, Superintendent of Financial Services of the State of New York as Ancillary Receiver of Red Rock Insurance Company. SCOTT D. FISCHER, Acting Special Deputy Superintendent and Agent for the Superintendent as Ancillary Receiver of Red Rock Insurance Company.

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 14

[ EXPOSURES AND COVERAGES ] continued from page 12

so resorted to pouring gasoline on the charcoal to start the fire. When he struck a match, the gas can exploded severely injuring one of Trader Ed’s customers. She sued for damages. Trader Ed’s liability insurance company, US Liability (USLIC), denied coverage. When Trader Ed’s sued for coverage, the insurer argued that the “claim arises from a purely social event, entirely unconnected to Trader Ed’s business, and that even if the event was connected to the business, it did not involve ownership, maintenance or use of the premises, or activities necessary or incidental to the premises.”1 The court ruled against USLIC on its first argument—it felt the event was connected to Trader Ed’s business. But it ruled against the insured on the second count, holding that, while the event may have been connected to Trader Ed’s business, it was not connected to the premises insured by the policy as required by the endorsement. Trader Ed’s lost coverage. This exclusion can also make coverage illusory for some insureds. For example, many of the activities of a real estate office, such as rental, showing, and selling of homes and apartments take place away from the designated premises. It’s not clear how a policy with a designated premises endorsement will respond to claims arising from away-from-the-office activities. They are clearly part of the insured’s business, but are they necessary or incidental to the insured’s premises? A recent court decision took a more pro-policyholder approach. On March 14, 2006, a large portion of the Kaloko Dam in Kīlauea, Kauai collapsed, releasing over three million gallons of water, resulting in the loss of seven lives and extensive property damage. At the time of the collapse,

If possible, have the designated premises endorsement removed from your clients’ policies. If that’s not possible, let the insureds know that policies contain a designated premises endorsement, point out its shortcomings, and remind them to notify you if they are involved with any other locations in any way. the dam was owned by James Pflueger. Pflueger had purchased the property from C. Brewer & Co, Ltd. Pflueger sued Brewer claiming that Brewer was aware of the dam’s structural instability. Brewer sought coverage from its insurance carriers. James River Insurance Company, Brewer’s insurance carrier when the loss occurred, denied liability because the policy contained a designated premises endorsement and the dam location was not listed in its policy. The circuit court ruled in favor of James River. The Intermediate Court of Appeals wanted to remand the case to the lower court to resolve ambiguities. Both parties appealed to the Hawaiian Supreme Court. The Supreme Court noted that “the injury and damage arguably relate to C. Brewer’s ‘use’ of its corporate headquarters to make negligent business decisions.”2 The court pointed out that “All major business decisions concerning the System, including...the entrance into various agreements to maintain the (Dam) System, and the

eventual sale of the land underlying the Reservoir, were apparently made at C. Brewer’s corporate headquarters. Therefore, a causal connection could possibly be found between C. Brewer and its… operation of the designated premises and the injuries….”3 The court further pointed out that “James River seeks to rewrite the term ‘arising out of ’ to limit liability to injury and damage occurring on designated premises. Such a construction of the endorsement would effectively convert the James River policy from a CGL policy to a premises liability policy that limits coverage to certain premises.” The court also agreed with Brewer’s contention that the advertising coverage included in the personal and advertising injury section of the policy would be meaningless if the insurer’s argument was accepted because, although decisions regarding advertising would be made at the designated premises, the injury would occur at other locations. The Supreme Court ruled in favor of the insured. Practice Tip: If possible, have the designated premises endorsement removed from your clients’ policies. If that’s not possible, let the insureds know that policies contain a designated premises endorsement, point out its shortcomings, and remind them to notify you if they are involved with any other locations in any way.

Homeowners Deductibles and Water Damage to Tenant’s Apartment—The NY Times Weighs In Last week in the NY Times, two columnists wrote about personal insurance issues. I’m tempted to respond with a letter to the continued on page 16

1 United States Liability Insurance Company vs. Harbor Club, Inc. & East Bay Management d/b/a Trader Ed’s, etal. Suffolk Superior Court Civil Action No. 063938-bls2 June 2, 2008. 2 C. Brewer and Co., Ltd. v. Marine Indemnity Ins. Co., No. SCWC-28958 (Hawaii Mar. 27, 2015) 3 Ibid.

Help Consumers Find You! www.TrustedChoice.com NATIONAL ADVERTISING • ONLINE QUOTING PORTAL • MARKETING MONEY • FREE PERSONALIZED MARKETING MATERIALS 14 June 15, 2015 / INSURANCE ADVOCATE

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 15

Partnering with PRI… Insuring the Medical Community for 31 years. Dedicated to playing an important role in shaping the future of malpractice insurance.

PRI serves our professional colleagues for their protection against medical professional liability damages, as created by our founders of, by and for medical doctors. PRI protects top doctors and the leading healthcare facilities in New York, using our unique, award winning risk management and loss prevention techniques. PRI successfully defends doctors and facilities with the strongest defense team anywhere and the most aggressive approach to defeating unjust claims, effectively insulating our insured against fraudulent, capricious claims.

1800 Northern Boulevard • Roslyn, N.Y. 11576 Tel: 800.632.6040 • Fax: 516.365.7522 www.pri.com

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 16

[ EXPOSURES AND COVERAGES ] continued from page 14

editor, but I’ll give you my thoughts first. In “Your Money Adviser,” Ann Carrns wrote about HO deductibles.4 Her article was based on a report by Quadrant Information Systems that, among other points, noted that “switching from a $500 deductible to a $1,000 deductible results in an average savings of 6% nationally (from a high of 25% in North Carolina to a low of 1% in Kentucky).”5 She advised considering the savings for a higher homeowners deductible. She was right, but she didn’t take it far enough. She should have discussed other coverage, particularly auto physical damage deductibles. While homeowners and auto physical damage are two different animals for insurance purposes, when considering deductibles that doesn’t matter; a retained loss is a retained loss. Just as it may make sense to save premium on a homeowners policy with an increased deductible, it may pay to increase auto physical damage deductibles. To evaluate whether a deductible makes economic sense, you have to answer two questions. First, can you afford to pay the higher deductible? If you can’t, don’t increase the deductible. (You probably need to increase your savings, but that’s another topic.) The second question is: How long will it take for the reduction in premium to reimburse you for the higher deductible if you have a loss, and what’s the likelihood that you’ll have more than one loss during that period? Most of us want that to be a relatively short period—five to ten years at the most. Projecting out further than that involves too many unknowns. To answer the second question, we need to call upon a topic you probably last heard about in Insurance 101: the law of large numbers. It applies to deductibles just as it does to all other insurance probabilities.6 Most of us can’t get the advantage of the law of large numbers in determining what deductible to purchase for homeowners

We all need insurance, but use it wisely. If my home burns down, I can’t write a check to rebuild it. But if I scrape my fender and it’ll cost $600 to repair it, I can handle it. Your insureds probably can also. It doesn’t make economic sense to insure losses you can retain. insurance—even a lifetime of homeowners insurance exposure won’t generate enough losses to get a truly reliable answer. Fortunately with personal insurance we’re dealing with low deductibles, so a conservative guesstimate will suit our needs. (Although an actuary would probably shudder, I broaden my supply of incidents by regarding the extended warranties I don’t buy as a form of insurance deductible. I may sometimes guess wrong, but over the years I’m way ahead. Making the decision not to buy extended warranties a part of my general approach to risk retention makes me more comfortable with higher deductibles when a loss does occur.) The next step is to calculate how long it would take for the savings to equal the increase in deductible and to see if that sounds reasonable. If I can save $150 a year by increasing the collision deductible on my cars from $500 to $1,000, it will take me less than four years to recoup the increased deductible. I’d take that bet. Our collision frequency is far less than one claim every four years. If you don’t have any young drivers on your policy, yours probably is too. Another advantage of increasing your deductible is that you wind up with a cleaner insurance record. A friend of mine called as I was writing this to say that her

homeowners insurance was being nonrenewed due to claims history. The nonrenewal notice listed three windstorm losses—she lives on the south shore of Long Island—but what triggered the non-renewal was a $1,000 theft claim she recently reported. A higher deductible would have discouraged her from submitting the claim and protected her insurability. We all need insurance, but use it wisely. If my home burns down, I can’t write a check to rebuild it. But if I scrape my fender and it’ll cost $600 to repair it, I can handle it. Your insureds probably can also. It doesn’t make economic sense to insure losses you can retain. In the second article in the Sunday real estate section, Rhonda Kasysen answered a question from a tenant without renter’s insurance whose apartment was damaged by water from another apartment.7 She pointed out that the landlord must fix whatever caused the leak and repair the damage to the structure. If the leak was caused by the other tenant, the other tenant would be responsible for the damage to the letter-writer’s property. If it was the building owner’s fault, the landlord would be responsible. She recommended suing both of them, if it comes to that. She then recommended that the letterwriter carry renter’s insurance for the next time. Good advice, but again she should have gone further. Even more important than protection for possible damage to the tenant’s property is the liability exposure gap that will be closed by a renter’s policy. Typical tenants may have $50,000 in property that they could lose, but we all have absolutely unlimited liability exposure. She should also have recommended a personal umbrella. A client’s son was sued by his building owner’s insurance company under its subrogation rights for $250,000 to cover the cost to repair the damages to the building where he lived that were caused by a fire originating in his defective toaster continued on page 18

4 Ann Carrns “Why Deductibles Vary For Homeowners Insurance” New York Times May 29, 2015 5 Raising Homeowner’s Insurance Deductible Can Save 41% PRNewswire, May 28, 2015 http://www.prnewswire.com/news-releases/raising-homeownersinsurance-deductible-can-save-41-300089921.html (accessed 5/31/15) 6 In brief, the law of large numbers says that the greater the number of independent incidents included in the study, the more likely the frequency will resemble the expected outcome. Flipping a coin is an easy way to illustrate the law. I would not be at all surprised if I flipped two heads in a row. Even four heads in a row isn’t a once-in-a-lifetime event. But the chance of flipping 30 heads in a row is. It’s less than one in a million. 7 Rhonda Kasysen “A Flood From a Neighbor” New York Times May 31, 2015 Real Estate Section page 9. 8 Most recently in “Certificates of Insurance in the News Again Insurance Advocate June 9, 2014 pages 10, 12, 14.

16 June 15, 2015 / INSURANCE ADVOCATE

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 17

Defensive Driving Class Opportuni es! We are looking for Delivery Agents, Instructors, and Facili es in ALL Areas of New York to Par cipate! The Benefits of choosing Empire Safety Council: · LOW START UP COST All required materials compare favorably in price. · EASY TO TEACH FORMAT Instructor’s manual is logically organized and cross referenced to the student workbook and the NYS Vehicle & Traffic Laws. · PIRP IS GROWING Every year, on average, 150,000 of New York’s drivers choose Empire for their Point / Insurance Reduc on needs. · BACKED BY SCIENTIFIC RESEARCH Empire’s Accident Preven on Workshops, in fact, save lives by reducing both the number of vehicle accidents and repeat traffic offenses for the highest overall effec ve rate in driver safety educa on. · MAINTAIN THE HIGHEST INTEGRITY Empire maintains the highest integrity among all sponsors by referring all students to Empire’s officially approved Delivery agencies.

EMPIRE SAFETY COUNCIL

· PARTNERSHIP IN EDUCATION PROGRAM As a Human Resource for business to raise funds for schools, libraries, ﬁre departments, churches, and non-proﬁts. · TURNKEY OPERATION Empire supplies you with marke ng tools at no extra cost to you. If you want to gain partners in educa on, we have unique agency proposals.

By law, NYS drivers who complete Empire’s 6-hour accident preven on workshop save 10% on all their vehicle liability, personal injury protec on, and collision insurance premiums for three years. Addi onally, students can reduce up to four traffic violator points on their driving record every 18 months. Upon comple on of the course, students will receive an official course comple on cer ficate. ESC helps organize classes, appoint delivery agents, train instructors, fill out applica on to obtain approval (usually within two weeks), refer students, and further assist you with adver sing support programs.

Call DANIELLE PHILP at

631-360-2160

www.empiresafetycouncil.com

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 18

[ EXPOSURES AND COVERAGES ] continued from page 16

oven. Like the letter-writer, the son didn’t have insurance. He was lucky, though. It could have been a $2,500,000 subro claim.

Certificate of Insurance Update The new NY certificate of insurance law takes effect on July 28, 2015. I’ve written about the new law several times,8 but here’s a brief summary written by

Cassandra A. Kazukenus, an insurance defense attorney with Hurwitz & Fine in Buffalo: “(The new law)…prohibits a governmental entity or person from requiring, in a certificate of insurance, ‘the inclusion of terms, conditions or language of any kind, including warranties or guarantees, that the insurance policy provides coverage’ that is not included or found in the policy….(It) also prohibits a certificate of insurance in New York from ‘amending, extending, or altering the coverage provid-

SYSTEM FEATURES

www.maple-tech.com www.ma ple-tech.com

Custom Configured Solutions Our award-winning Aspire InformationSystem is web- based...a real-time... web-based...a complete end-to-end scalable solution custom configured conf igured tto o address all of your business requirements for Policy, Claims and Reinsurance Transactional Administration. Adm inistration.

Software as a Service Ser vice Software Rating Engine Forms Generation Engine Forms Processing Automated Batch Processing Payment Processing Processing Bulk Payment (Premium & Loss) Accounting (Premium Analytics Financial Analytics 3r d Par ty Ser vice Integrations 3rd Party Service P or table Data Analytics Analytics Portable Agent/Broker Profiles Profiles Agent/Broker

TRADING PORTALS Companyy Compan Producer Pr oducer Consumer SUPPORTED P&C - All A&H AD&D

BUREAUS ISO AAIS & all other Stat Plans

CORE MODULES Policy P olicy Claims Reinsurance

Information Inf ormation T Technology echnolog e y Solutions THA THAT AT W WORK ORK FOR Y YOUR OUR BUSINESS

Maple p

ed by the policy to which the certificate of insurance refers,’ and prohibits a governmental entity or person in New York from making the issuance of a certificate of insurance a condition of the contract unless it is on a form promulgated by the insurer or is a standard certificate of insurance….”9 Forms that deviate from standard forms are permitted only if they are approved by the NY Department of Financial Services. The DFS is currently accepting filings of individual forms; requests for approval can be emailed to inscert@dfs.ny.gov. The department plans to post a list of approved forms on its website prior to July 28. Practice Tip: If you’re asked to complete a non-standard certificate form, check the DFS website to see if it’s approved. If the form isn’t listed, don’t use it. Starting July 28th, it’s against the law.

Uber/Lyft/TNC Update Farmers Insurance, a major independent-agency carrier, has introduced seamless coverage for Uber, Lyft and other transportation network company (TNC) drivers in California. It’s good to see independent-agency carriers entering the field. TNCs are a huge market. Uber expects to hit $10 billion in sales this year; Lyft $1.2 billion.10 Let’s hope some carriers in our area make coverage available through independent agents. There are lots of drivers who need the coverage.11[IA]

Technologies Technolog Te T h l gies A L i m i te t e d L i a b i l i t y C o m p a ny ny

...building technology solutions to grow your business... 500 Craig Road, 2nd Floor Manalapan, NJ 07726

732-863-5523

18 June 15, 2015 / INSURANCE ADVOCATE

SUPPORTED Admitted Surplus Lines Groups Risk Retention Gr oups Ca ptives Captives Self Insur eds Insureds

Forms that deviate from standard forms are permitted only if they are approved by the NY Department of Financial Services.

Call us today to discuss your technology needs in more detail. At Maple Technologies we have an Aspire solution that will respond to your business requirements and fit your budget.

9 Cassandra A. Kazukenus “Approval to Use Liability Certificate of Insurance Forms from the Superintendent” Coverage Pointers Hurwitz & Fine Buffalo, NY June 5, 2015. 10 Maya Kossoff “Shockingly, Lyft Isn’t Getting Demolished by Uber” Business Insider Mar. 16, 2015 http://www.businessinsider.com/lyftinternal-growth-numbers-revealed-20153#ixzz3c81xHKHH (accessed 6/4/15). 11 Uber has substantial operations outside the US, so not all of its drivers are potential clients for US producers.

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 19

coverage you can

TRUST

AUTOMOBILE & HOMEOWNERSâ&#x20AC;&#x2122; Interboro Insurance Group offers personal automobile and homeowners' insurance. We are dedicated to ensuring financial protection for our policyholders by providing quality products and exceptional service through strong relationships with our brokers.

Commitment is the key to your relationship with us.

155 Mineola Blvd. | Mineola, NY 11501 | w: interboroinsurance.com | t: 516.248.1100 f: 516.248.0211

The Company You Can Trust... Since 1914

6-15-15_INA 6-15-15 6/24/15 11:21 AM Page 20

DYNAMIC D DY Y C E CREDITâ&#x20AC;&#x201C; CE

ANYWHERE. A

E Earn conti c co nuin uing education educationn live at yourr d de esk e k or on on-the on-the-go the e-go e go o ... w with ith the bestt a and brightes br st insttructo orss inn the insu in rance indust stry!

2015 WEBINAR W E B I N AR 2015 PROGR AM S P O N S O RS : PROGRAM SPONSORS:

For Fo or detail detai ailss and d to t register err, visitt pia.org

777 0)! /2' Â&#x201E; Â&#x201E; %$5#!4)/. 7 77 0)! /2' Â&#x201E; Â&#x201E; %$5#!4)/. 0)! /2' 0)! /2'

6-15-15_INA 6-15-15 6/24/15 11:22 AM Page 21

CIC C INSTITUTES INSTIT S Recharge R ec h a with it h P PIA: IA Two T and-a-half a n d- a - half days d off instruction, i t tion, CE C E credit cred and networking. g. Develop ped by The N National c Education ce Certtified ce Counselor designation program m is offered exclusively by PIA IA in Ne N

Connecticut. Connec ticut. edits in all sta CE program to ind mitment to t insurance.

CISR C IS DESIGNATION NOW

5 OF 9

9 TO 5.

777 0)! /2' Â&#x201E; Â&#x201E; %$5#!4)/. 0)! /2'

6-15-15_INA 6-15-15 6/24/15 11:22 AM Page 22

[ COVER ]

NYIA Annual Conference Attendees Saddle Up for Success T

Superintendent Benjamin Lawsky Gives Farewell Address to Insurance Industry 22 June 15, 2015 / INSURANCE ADVOCATE

he New York Insurance Association (NYIA) Annual Conference attracted more than 240 insurance industry executives to Saratoga Springs, New York May 27–29. Those in attendance made it known that they were ready to fulfill the theme of this year’s event, Saddle Up for Success, in the spirit of Saratoga’s rich horse racing culture. NYIA prides itself on offering the premier property and casualty insurance event in New York, and attendees said 2015 was the best yet. The conference officially kicked off Thursday morning with a shot of energy from featured speaker and marketing guru Kordell Norton who talked about Business Charisma—How Great Organizations Engage and Win Customers Again and Again. Norton offered insight to insurance companies about how to stop being a “best kept secret” and employ strategies from magnetic organizations like Disney, Apple and Harley-Davidson based on his extensive experience and research. The keynote speech did not disappoint either. Superintendent Benjamin Lawsky currently heads the New York State Department of Financial Services (DFS) and has announced his resignation effective end of June 2015. During his final address to the insurance industry, Superintendent Lawsky’s remarks included his insights on cyber security, telematics, ride sharing and car sharing. He also reminisced about his time as superintendent, stating that he grew to love insurance and stressed how important the industry is to the state. He acknowledged that a majority of his time was spent on banking issues, but that insurance is the core of the agency with approximately 900 of the 1,400 department employees dedicated to it. He articulated the need for DFS to always have a strong leader for the Insurance Division since it encompasses a bulk of the department’s work. “NYIA believes there is great opportunity for DFS to focus on growing the business of insurance in the future and attracting high caliber employees who have a strong insurance background,” NYIA President Ellen Melchionni said. “Our membership looks forward to working with DFS and the Governor’s administration to encourage

6-15-15_INA 6-15-15 6/24/15 11:22 AM Page 23

[ COVER ]

EMERGING ISSUES IN PERSONAL LINES PANEL PARTICIPANTS: PATRICK O’MALLEY OF PROGRESSIVE, CHARLES KINGDOLLAR OF GEN RE, DIRK SMITH OF MUTUAL BOILER RE, NORMAN ORLOWSKI OF ERIE AND NIAGARA INSURANCE ASSOCIATION AND JAN SCITES OF MSO

a more innovative environment in the state that supports the property and casualty insurance industry and helps policyholders and businesses alike.” Two panel presentations rounded out Thursday’s education program: Reinsurance Forecast and Emerging Issues in Personal Lines. The association was pleased to have a distinguished group of experts talk about the state of the reinsurance market in a panel presentation moderated by NYIA Chair Bernard Turi, senior vice president, general counsel, general auditor and chief risk officer of Utica National Insurance Group. Panelists included Kristin Callahan, vice president, BMS Intermediaries; David Domino, managing director, Guy Carpenter & Company, LLC; James Kent, president, Willis Re Inc.; Craig Ospalik, senior vice president, Swiss Re; and Thomas Reis, senior vice president, JLT Re. The group discussed a variety of topics including alternative capital and changes in rating agency models. The emerging issues session brought up a host of potential concerns and opportunities for the property and casualty industry including rapid advancements in auto techcontinued on page 24

“NYIA believes there is great opportunity for DFS to focus on growing the business of insurance in the future and attract high caliber employees who have a strong insurance background.”

6-15-15_INA 6-15-15 6/24/15 11:22 AM Page 24

NYIA’S OFFICERS AND DIRECTORS (LEFT TO RIGHT): FLOYD HOLLOWAY WITH STATE FARM, JEFFREY RICE WITH WAYNE COOPERATIVE, FIRST VICE CHAIR STEVEN COFFEY WITH BROOME CO-OPERATIVE, MARTIN DOTO WITH PREFERRED MUTUAL, PATRICK O’MALLEY WITH PROGRESSIVE, CHAIR BERNARD TURI WITH UTICA NATIONAL, CHARLES MAKEY WITH MERCHANTS, CRAIG MACCORMAC WITH HARTFORD STEAM BOILER, MARK GARDNER WITH ALLSTATE, STEVEN HARRIS WITH STERLING, NORMAN ORLOWSKI WITH ERIE AND NIAGARA AND SECOND VICE CHAIR ELIZABETH HECK WITH GREATER NEW YORK

“Our membership looks forward to working with DFS and the Governor’s administration to encourage a more innovative environment in the state that supports the property and casualty insurance industry and helps policyholders and business alike.”

NYIA FIRST VICE CHAIR STEVEN COFFEY OF BROOME CO-OPERATIVE INSURANCE COMPANY AND NYIA SECOND VICE CHAIR ELIZABETH HECK OF GREATER NEW YORK MUTUAL INSURANCE COMPANY FLANK MARKETING GURU KORDELL NORTON WHO GAVE A MEMORABLE TALK ON BUSINESS CHARISMA 24 June 15, 2015 / INSURANCE ADVOCATE

continued from page 23

nology, smart homes and the Internet of Things, 3D printers and usage of drones by hobbyists. The panel was moderated by Norman Orlowski, president and CEO, Erie and Niagara Insurance Association and included panelists: Charles Kingdollar, vice president and emerging issues specialist, General Reinsurance Corporation; Patrick O’Malley, product manager, Progressive Northern Insurance Company; Jan Scites, CEO and president, MSO, Inc.; and Dirk Smith, vice president and engineering manager, Mutual Boiler Reinsurance. A special panel presentation on the Value of Internships was held during NYIA’s Members’ Meeting and Luncheon. Richard Zick, president and CEO of Utica First Insurance Company moderated the discussion and asked questions of Robert Baxter, CEO and general manager of Dryden Mutual Insurance Company and Stephanie Nesbitt, assistant professor, Risk Management and Insurance, director MBA and RMI Programs of Utica College, about how companies can create internship programs that are meaningful for both the student and the company. Baxter and Nesbitt continued on page 26

6-15-15_INA 6-15-15 6/24/15 11:22 AM Page 25

Mark embodies the fundamental purpose of insuranceâ&#x20AC;&#x201D;helping people. Thank you, Mark, for sharing your altruistic nature with not only your customers, but your colleagues in the insurance industry.

6-15-15_INA 6-15-15 6/24/15 11:22 AM Page 26

[ COVER ] continued from page 24

shared great perspective and practical advice, with Baxter detailing his success with the InVEST program that has resulted in approximately a third of his current workforce of around 60 employees being former InVEST students. Members took time at the banquet on Thursday evening to honor this year’s very deserving Chair’s Distinguished Service Award recipient. Longtime NYIA member Mark Prechtl, executive vice president and chief executive officer of Chautauqua Patrons Insurance Company was the 2015 honoree. Mark has spent his entire 30-year career in insurance and has made a tremendous impact through his exceptional work and altruistic nature. The association is fortunate to have Mark as a dedicated member and director. The education program continued on Friday morning, starting off with a dynamic Town Hall Meeting moderated by William Melchionni, deputy head, U.S. federal and state government affairs, American International Group, Inc. and panelists: Senator James Seward, Senator Neil Breslin, Assemblyman William Barclay, Assemblyman Phillip Goldfeder and Assemblyman Raymond Walter. The panel spent the entire hour fielding questions from the audience on topics ranging from cyber security to the State Insurance Fund to flood insurance to ride sharing. Dan Kohane, senior member of Hurwitz & Fine, P.C. next presented Wait Until You Hear What’s Coming Next! Tomorrow’s Coverage Issues Today. This insurance virtuoso discussed the latest and greatest (or perhaps in many cases not so greatest) legal issues that have developed in New York including the ever increasingly important topics of privilege, marijuana, body cameras and extreme sports. The conference concluded with an annual favorite for regional companies, the Small Company Roundtable. Steven Coffey, president and CEO of Broome Co-operative Insurance Company moderated this year’s discussion. NYIA is already building on the success from this year’s conference and making plans for next year! Be sure to mark your calendar so you don’t miss out on what is certain to be a dynamite event—June 1–3 at the Turning Stone Resort in Verona, New York.[IA] 26 June 15, 2015 / INSURANCE ADVOCATE

CHAIR’S DISTINGUISHED SERVICE AWARD WINNER MARK PRECHTL OF CHAUTAUQUA PATRONS INSURANCE COMPANY WITH NYIA PRESIDENT ELLEN MELCHIONNI AND NYIA CHAIR BERNARD TURI

TOWN HALL MEETING PANELISTS SENATOR JAMES SEWARD, SENATOR NEIL BRESLIN, ASSEMBLYMAN WILLIAM BARCLAY, ASSEMBLYMAN PHILLIP GOLDFEDER AND ASSEMBLYMAN RAYMOND WALTER WITH MODERATOR AND NYIA LEGISLATION & REGULATION COMMITTEE CHAIR WILLIAM MELCHIONNI OF AIG

NYIA DIRECTOR MARTIN DOTO OF PREFERRED MUTUAL INSURANCE COMPANY, WITH SPEAKER DAN KOHANE OF HURWITZ & FINE AND NYIA FIRST VICE CHAIR STEVEN COFFEY OF BROOME CO-OPERATIVE INSURANCE COMPANY

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 27

w w w. i n s u r a n c e w h o l e s a le r. ne t

Looking to manage your re ree health benefits in an era of medical cost infla on? The D.B.L. Center, a niche General Agency, can help! Har ord’s Group Re ree Health Coverage offered through The D.B.L. Center is a fully-insured indemnity plan that looks and works exactly like a Medicare Supplement plan. It guarantees issuance for any re ree, spouse or widow that is age 65+ and enrolled in Medicare Parts A & B. There are no networks. Re rees can receive treatment from any doctor or hospital in the U.S. that accepts original Medicare. These plans can be wri en 100% paid for by the employer or completely voluntary. By taking re rees out of the ac ve medical plan you are reducing healthcare costs, especially on plans that are age rated. Har ord’s GRH also integrates with Medicare truly filling the gap.

Target Groups for this coverage include • Older industries such as manufacturing, educa on (especially Colleges and Universi es), labor unions, public u li es, religious organiza ons. • Governmental en es that are currently dealing with the new GASB 43/45 accoun ng rules.

Backed by administra ve capabili es which are built around re rees, this plan allows an employer to easily cost share with the re ree through split billing capabili es. Paperless claims administra on also provides fast and accurate payment to providers without the re ree having to ﬁle with a secondary carrier.

• Employer who are in financial distress. They are mo vated to make changes in their benefits in order to improve their financial situa on.

Insurancewholesaler.net has the niche wholesale insurance products designed to meet today’s corporate insurance needs. To request a Group Re ree Health Proposal, contact a DBL Center Rep at info@dblcntr.com.

www. in su r a n cewholesaler.net

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 28

[ ON TH E LEVEL ]

By Jamie Deapo

Experience or OJT?

t should come as no surprise to anyone that finding, training and retaining quality employees is a huge issue and a top priority in many independent insurance agencies. The effect of the Baby Boomer generation retiring from active participation in agencies is creating a real problem for

In addition to retirements, many agencies are suffering from the fact that currently experienced agency staff is a limited commodity and headhunters, as well as these individuals, are realizing the income potential of looking at switching employers. The loss of these individuals is putting

…WAHVE can provide knowledgeable and experienced people to assist agencies in the short-term and through our relationship with WAHVE IIABNY members receive significant savings. By recognizing these needs we were able to have in place solutions to help our members. Jamie Deapo

agency owners and managers to solve. Most of these folks have years of experience and hold key positions in agencies. Even if they can be replaced with the advancement of other agency staff, ultimately the agency is faced with filling an open position.

a serious strain on agencies already being overwhelmed with increasing workloads and clients looking for instant, exceptional service. Some agencies have been able to temporarily fill the void by hiring a WAHVE (Work At Home Vintage Employee). WAHVES are retired insurance

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

agency and company employees, many with years of experience and expertise who are interested in working part-time from their homes. This may be a solution in the shortterm but agencies need to find new staff to correct the problem long-term. Add to this the unattractiveness of the insurance industry to young people entering the workforce, as well as the time and cost associated with training new staff, and what should be a manageable problem becomes a major headache. Agencies faced with these issues usually have to choose between hiring someone who already has the knowledge and experience to quickly move in and take over the duties, or hiring an inexperienced person and providing them with the necessary training to allow them to function well in their position. Both alternatives have positive and negatives associated with them. They also require significant agency support especially if inexperienced people are being hired. Let’s discuss briefly the potential problems of hiring an experienced person. Are they job hopping, looking to increase their salary while the market is ripe? If so, will they leave you in a short time if another even better situation presents itself? What bad habits and training do they bring with them? Are they willing and can they be retrained out of those bad habits and misinformation? Will they clash with other staff because of the perceived change in the pecking order? Will employees believe they were offered a salary not in line with existing staff because the agency needed someone fast and wanted someone with experience? Will some staff feel they were passed over for promotion to the position the new employee filled and start hunting for a job elsewhere just further increasing the agency’s problems? I’m sure you can think of some other problems but the point is do these potential problems outweigh the benefit of getting someone experienced that can fill the position with a minimum of orientation and training. On the other hand the issues with hiring an inexperienced person appear to be far outweighed by what I believe are the many positives. Yes, a new person requires time to gain knowledge and experience, however they are starting fresh with no bad habits and learning things correctly. Their 28 May 25, 2015 / INSURANCE ADVOCATE

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 29

knowledge level may be lean but their ability to use the computer, computer programs and social media are usually light years ahead of your older, more experienced staff. They relate and understand younger consumers and can help you understand what it will take to attract them as clients. Another positive is that while they are going through orientation and training for their new position, these inexperienced employees question why things are done the way they are and many times offer interesting ideas on how things might be done differently to save money and time. Their thought provoking input has a positive effect on their agency trainers and mentors, encouraging them to look at issues and problems from a different perspective. Last, but hardly least, there is an enormous pool of vibrant, educated, personable young people available to hire. They may not see the benefit of working in the insurance industry, however they are definitely looking for the opportunity for a long-term, professional career that will use their skills and personality. Which would you choose? Would it be an experienced person or a new, young inexperienced person? I’d definitely be interested in your feedback. It’s quite obvious I would vote for the new, young inexperienced person. Yes, they require significant training and mentoring and at IIABNY we recognized this several years ago. As a result we have web-based training for both new and existing employees which will allow agencies to hire inexperienced people as well as promote from within. As I mentioned before, WAHVE can provide knowledgeable and experienced people to assist agencies in the short-term and through our relationship with WAHVE IIABNY members receive significant savings. By recognizing these needs we were able to have in place solutions to help our members. We will continue our emphasis on attracting new, bright, young people into our industry through InVEST and other initiatives. We are committed to encouraging diversity at insurance carriers, independent agencies and with the customers our members serve. We will continue to communicate to consumers the benefits of working with an independent agent or broker through our Trusted Choice® brand as well as why insurance is a significant and complex purchase never to be treated like a commodity. [IA]

QSR

Quaker Special Risk

EXCLUSIVELY SERVING RETAIL AGENTS SINCE 1960

Home Improvement GC Program "Non-Admitted Program" for difficult to place Paper GCs QUALIFICATION REQUIREMENTS: Paper General Contractors performing new home construction, home improvements or commercial remodeling. Trade Contractors subbing out majority of their work. COVERAGE OUTLINE: • Per Project Aggregate • Blanket Additional Insured • Blanket Waiver of Subrogation • Primary Non-Contributory • Aggressive Rates • Excess Coverage available up to $5M NO ACTION OVER OR LABOR LAW EXCLUSION Minimum Premium $5,000 *Higher MP in certain territories SUBMISSION REQUIREMENTS: • Remodeling Contractors Application • 4 Years Currently Valued Loss Runs • Resume Showing a Minimum Five Years of Construction Experience for New Risks • Copy of the subcontractors agreement used.

QSR

Quaker Special Risk

Contact Frank Walsh at: t. 800-447-4180, x2232 | e. fwalsh@qsr-insurance.com P.O. Box 1350 • Eatontown, NJ 07724 f. 732-223-9072 • www.QSR-insurance.com INSURANCE ADVOCATE / June 15, 2015 29

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 30

ADVERTORIAL

Teen Driving Hazards AUTOMOBILE ACCIDENTS are the number one killer of young people. (www.impactteendrivers.org) The CDC (Centers For Disease Control and Prevention) reports that drivers between the ages of 16 and 19 are three times more likely than drivers 20 and older to be in a fatal crash. (www.cdc.gov) Helping clients understand how to prevent teen driving tragedies is a sign of the professional insurance agent. A number of factors contribute to the fact that teen drivers have three times as many accidents as adult drivers. (www.pemco.com) These include inexperience, distractions and impaired driving. There are no “practice roads” for new drivers. Their practice is in the real world. Driving late at night and on two-lane roads can be dangerous for a young driver. The probability of having an accident increases with distractions including having passengers in the car, listening to music and talking on the phone or texting. Statistics indicate that 11% of teen drivers involved in accidents were distracted. It is estimated that texting while driving results in the death of 11 teens per day. Engaging in manual/visual tasks such as texting, dialing the phone or tuning a radio increases the chance of accidents threefold. (www.stoptextsstopwrecks.org) While these factors alone lead to more accidents, the addition of alcohol and/or drugs while driving compounds the risk. The combination of impaired driving and failure to use seatbelts is an especially lethal mix. The National Highway Traffic Safety Administration (www.nhtsa.gov) reports that in 2012 there were 184,000 injuries and 1,875 fatalities between the ages of 15 and 20. In this age group, 28% of the victims had a blood alcohol level of .01 or higher and 24% had a blood alcohol level of .08 or higher. Seventy-one percent of the impaired drivers killed were not wearing seatbelts. There are steps that have been taken by states to help teen drivers learn safe driving. One important factor is Graduated Driver Licensing (GDL). All states and the District of Columbia have 30 May 25, 2015 / INSURANCE ADVOCATE

three-stage GDL laws. The laws include a supervised learner permit stage, intermediate license with restrictions and full licensure. The Insurance Institute for Highway Safety (www.IIHS.org) reports that these licensing systems have reduced teen crashes. States with stronger laws have a greater reduction of 30% in teen deaths. The IIHS advocates a minimum intermediate license age of 17 with strong nighttime driving restrictions and a ban on all teen passengers. Parents should be aware of the restrictions in their state and require compliance by their young driver. Additional informational materials to assist parents in educating their teens are available from varied sources. Parents must be involved in education and monitoring their young drivers to help reduce the risk of accidents and injury. A sampling of these include: a Parent/Teen Driving Agreement offered by the CDC (www.cdc.gov), which could serve as the basic template for teens’ driving privileges; The National Highway Transportation Safety Association (NHTSA) toolkit is meant to help parents teach their teens about safe driving (www.nhtsa.gov); and in addition, the American Automobile Association (AAA) has resources for parents and teens on a state-specific link, ‘Keys2Drive’, available through their website. (www.aaa.com) Practice may not always make perfect, but it can help a teen driver learn how to deal with varying traffic, road

and weather conditions. The CDC suggests at least 30 to 50 hours of supervised driving on all types of roads, traffic and weather. IIHS recommends 70 hours and AAA recommends at least 100 hours of parent supervised driving beginning in lower risk situations and gradually moving up to more complex conditions. It goes without saying that parents must be good role models for safe driving. If parents speed, text while driving, drive under the influence or don’t wear a seatbelt, they are sending the wrong message to their child. Teen driving accidents can be prevented. A new driver in the household is exciting, nerve wracking and a sign that a child is becoming an adult. With the assistance of parent and teen education resources, close parental supervision and the advice of an insurance professional, this hazardous milestone will be safely negotiated. Educating clients on ways to keep teen drivers and their passengers safe is another valueadded service of the true insurance professional.

139 Harristown Road Glen Rock, NJ 07452, Suite 100 (800) 935-6900 www.msonet.com

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 31

IT’S NOT OFTEN YOU GET TO HANG WITH THE GUYS, AND FEEL BETTER THE NEXT MORNING. INTRODUCING THE PRESTON ROBERT TISCH CENTER FOR MEN’S HEALTH. 555 MADISON AVE. BETWEEN 55 AND 56 ST. Starting in January, men will be able to see NYU Langone doctors in virtually every medical specialty at our new state-of-the-art facility. To make an appointment, call 646-754-2000. Visit nyulmc.com/menshealth.

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 32

[ ON M Y RADAR ]

By Barry Zalma

When a Customer is Not a Customer Bankers’ Bond Requires Loss to Bank’s Customer

n an unusually brief, succinct and intelligent decision the Ninth Circuit Court of Appeal interpreted an insurance contract, called a financial institution bond, as it was written in First Nat. Bank of Northern California v. St. Paul Mercury Ins. Co., —

ument when specific factors are met. The prerequisites for incorporation by reference are: (1) a clear and unequivocal reference by the parties; (2) the reference must be called to the

Banks, like everyone who buys insurance, should carefully read the insurance contract and determine if its procedures will allow it to obtain the benefits of the insurance. Fed.Appx. —, 2015 WL 2225044 (C.A.9 (Cal.) 5/11/15). Barry Zalma First National Bank of Northern California (“the Bank”) appealed from a grant of summary judgment against it and in favor of St. Paul Mercury Insurance Company (“the Insurer”). This insurance coverage dispute arises from a loss caused by the Bank’s payment of two fraudulent wire transfers from the Edwards Living Trust, which the Bank reimbursed. The Bank seeks indemnity from the Insurer under its financial institution bond. The critical question is whether the Edwardses, who created the Trust, were “customers” within the meaning of the bond. To qualify as a “customer” under the bond, among other things, an individual or entity is required to have a written agreement with the Bank to rely on wire transfer instructions communicated by phone or fax. The undisputed facts show that there was no written agreement. The Bank argues that the signature card, account agreement, and security procedures may be combined under the incorporation by reference doctrine to establish a written agreement authorizing wire transfers on the basis of voice or fax authorization. Under California law, which governs this dispute, parties to a contract may validly incorporate by reference into their agreement the terms of another doc32 June 15, 2015 / INSURANCE ADVOCATE

attention of the other party; (3) the party must consent; and (4) the terms of the incorporated document must be known or easily available to the contracting parties. The district court, according to the Ninth Circuit, properly concluded that, under California law, the signature card, account agreement, and security procedures did not qualify as a “written agreement” under the bond definition. The signature card, which is the only document that the Edwardses actually signed, does not refer to the account agreement or the security procedures. The security procedures were not provided to the Edwardses. The signature card does not contain any authorization for a wire transfer from the account by voice or fax authorization. Under these undisputed facts the combined signature card, account agreement, and security procedures did not constitute a written agreement with the Bank authorizing it to rely on wire transfer instructions communicated by phone or fax. Therefore, the district court correctly concluded that the Edwardses did not qualify as “customers” within the meaning of the bond.

ZALMA OPINION Financial Institution Bonds are insurance contracts where the insurer agrees to indemnify the bank if it is defrauded in the course of its business. In this case it only protected losses incurred by the bank’s customers, a term defined by the policy. The

Ninth Circuit concluded that there was no written contract between the bank and the people whose funds the bank improperly transferred. Banks, like everyone who buys insurance, should carefully read the insurance contract and determine if its procedures will allow it to obtain the benefits of the insurance.[IA] Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter. com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Stor e/ProductDetails.aspx?productId=214 624, or 800-285-2221 which is presently available. Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this article. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 33

At Upright Imaging of Westchester both you and your patients get a better view.

• Patients can be scanned standing, sitting, and in recumbent positions. • Patients can be scanned in weight-bearing postures and in their position symptoms. • The ultra-open patient environment and its three-dimensional patient positioning system invite a host of future clinical applications as well. • You get a more complete diagnostic picture while your patients can look out without anything blocking their view and even watch TV while the scan takes place.

1034 North Broadway, Suite 5 Yonkers, NY 10701 ph: (914) 969-1818 fx: (914) 969-0828 www.upright914.com

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 34

[ LOOKING BACK… Insurance Advocate, 25 years ago]

139 Harristown Road, Glen Rock, NJ 07452 ® 34 June 15, 2015 / INSURANCE ADVOCATE

See our

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 35

[ LOOKING BACKâ&#x20AC;Ś Insurance Advocate, 25 years ago]

452

The custom property & casualty insurance products you want ... the personalized services you need. It couldn't be simpler. Give MSO a call today. (800) 935-6900

See our informational ad on page 30 of this issue.

INSURANCE ADVOCATE / June 15, 2015 35

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 36

[ COURTSI DE ] By James Westerlind and Andrew Dykens, Arent Fox LLP

District Court Finds Lack of Standing for Cyber Data Breach Victims

he United States District Court in Nevada issued an Order on June 1, 2015 dismissing the complaint filed by alleged victims of a data security breach suffered by Amazon.com d/b/a Zappos.com (Zappos) on the ground that the victims lacked standing to sue because they could not identify any specific harm that they had sustained as a result of the data breach three-and-a-half years after the data breach had occurred. In In re Zappos.com, Inc., Customer Data Security Beach Litigation, No. 12 CV 00325, 2015 WL 3466943 (D. Nev. Jun. 1, 2015), a multidistrict litigation case, the plaintiffs, a total of twelve people, purported to represent the class of approximately 24 million victims whose personal information had been obtained by hackers who had gained access to Zappos servers. On January 15, 2012, Zappos servers located in

Kentucky and Nevada were targeted by one or more hackers. The hackers breached the servers and stole the personal identifying information of approximately 24 million Zappos customers. Zappos notified the affected customers and several lawsuits were filed by consumers against Zappos seeking damages. Following unsuccessful attempts at mediation, Zappos moved to dismiss the complaints on the grounds that the plaintiffs lacked standing to bring their suits. Zappos's motion to dismiss contended that the plaintiffs lacked standing because they had not alleged any actual damages or specific harm arising from the data breach. Plaintiffs countered that (1) they had standing because the breach had created an increased risk that they would become victims of identity theft or other fraudulent activities because their personal information had been jeopardized; and (2) the breach

had devalued their personal information. In addition, three of the twelve plaintiffs who had voluntarily purchased credit monitoring services argued that the cost thereof satisfied the injury-in-fact standard and justified their standing to sue. In re Zappos.com, 2015 WL 3466943, at *1-2. In granting Zappos’s motion to dismiss, the court examined recent US Supreme Court opinions on the subject and applied a recent slew of cases analyzing standing in identity theft cases. First, the court dismissed plaintiffs’ argument that the breach had diminished the value of their data because plaintiffs failed to explain how the breach rendered their personal information less valuable: “Even assuming that plaintiffs’ data has value on the black market, Plaintiffs do not allege any facts explaining how their personal information became less valuable as a result of the breach or that they attempted to sell their information and were rebuffed because of a lower price-point attributable to the security breach. Id. at 3 (citations omitted) Next, in addressing whether the plain-

Wilkofsky, Friedman, Karel & Cummins ATTORNEYS-AT-LAW

➤ Representing Insureds Against Insurance Companies ➤ Representing Agents, Brokers & Adjusters in Litigation and at the Department of Financial Services ➤ SANDY RELATED CLAIMS

➤ FIRE ➤ DISABILITY

➤ THIRD PARTY PROPERTY DAMAGE

➤ WATER DAMAGE ➤ PERSONAL INJURY

➤ WINDSTORM

➤ THEFT ➤ BAD FAITH INSURANCE LITIGATION ➤ EUOs ➤ BUILDING COLLAPSE

➤ INSURANCE DEPARTMENT & LICENSING ISSUES ➤ LIFE ➤ CONSTRUCTION LOSSES ➤ FIDELITY

299 Broadway, Suite 1700, New York, NY 10007 212-285-0510 (FAX) 212 285-0531 Web Site: www.wfkclaw.com • Email: info@wfkclaw.com OFFICES IN: CT ● FL ● LA ● MI ● NJ ● NY ● PA ● TX 36 June 15, 2015 / INSURANCE ADVOCATE

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 37

[ COURTS I D E ] tiffs had adequately alleged facts that supported the contention that they faced an increased threat of future harm, the court addressed a purported conflict between the Ninth Circuit and the majority of other federal circuit courts that have addressed the issue following the Supreme Court’s decision in Clapper v. Amnesty International, ___ US ___, 133 S.Ct. 1138 (2013) In Clapper, a case concerning the potential surveillance of communications between lawyers and certain clients living abroad, the US Supreme Court rejected the Second Circuit’s reasoning that standing could be based on “an objectively reasonable likelihood” that the plaintiffs’ communications with their foreign contacts would be intercepted in the future. Clapper, 133 S.Ct. at 1147. The Supreme Court found that the plaintiffs lacked standing because the alleged harm was speculative and not “certainly impending.” Id. at 1148 As the Zappos Court noted, the majority of post-Clapper cases to deal with data breach have interpreted Clapper to mean that the increased risk of identity theft following a breach is insufficient to satisfy the injury-in-fact requirement in federal court. See Zappos, 2015 WL 3466943, at *4-5 (collecting cases). In contrast, the Zappos court recognized that courts in the Ninth Circuit, following Krottner v. Starbucks Corp., 628 F.3d 1139 (9th Cir. 2010), have held the opposite. Krottner held that, “[i]f a plaintiff faces ’a credible threat of harm’ and that harm is ’both real and immediate, not conjectural or hypothetical,’ the plaintiff has met the injury-in-fact requirement for standing under Article III [of the US Constitution].” Zappos, 2015 WL 3466943, at *5 (quoting Krottner, 628 F.3d at 1143). But where other courts have viewed Clapper as directly overruling Krottner (see, e.g., In re SAIC, 45 F. Supp. 3d 14, 28 (D. DC. 2014)), the Zappos ourt joined two other recent California federal district courts in concluding that the two decisions – Clapper and Krottner – could be harmonized. See In re Sony Gaming Networks & Customer Data Sec. Breach Litig., 996 F. Supp. 2d 942, 962 (S.D. Cal. 2014); In re Adobe Sys., Inc. Privacy Litig., No. 13 CV 05226, 2014 WL 4379916, at *8 (N.D. Cal. Sep. 4, 2014). Zappos recognized that the test for standing under Krottner requires: (1) the plaintiff to face a “credible threat of harm”; and (2) the harm must be “both real and

immediate.” Zappos, 2015 WL 3466943, at *6 (quoting Krottner, 628 F.3d at 1143). Zappos interpreted these requirements to be essentially the same as those set forth by the US Supreme Court in Clapper. Zappos, 2015 WL 3466943, at *6. Thus, Zappos followed Krottner’s test for standing. Zappos held that the plaintiffs’ alleged harm was simply too speculative to support their claim of standing. The court held that the passage of three-and-a-half years since the initial data breach coupled with the absence of any documented harm to the plaintiffs flowing therefrom meant that the alleged harm did not satisfy the standing requirement: “The more time that passes without the alleged future harm actually occurring undermines any argument that the threat of harm is immediate, impending, or otherwise substantial.” Id. at *8 (citation omitted). The court also distinguished the Zappos plaintiffs from those in In re Adobe Sys., Inc. Privacy Litig., No. 13-cv-05226-LHK, 2014 WL 4379916 (N.D. Cal. Sep. 4, 2014), and In re Sony Gaming Networks & Consumer Data Sec. Breach Litig., 996 F. Supp. 2d 942 (S.D. Cal. 2014), where the courts held that the standing requirements were satisfied. In Adobe, stolen credit card information began to surface within a year of the breach, and hackers used the information to discover vulnerabilities in other Adobe products. In Sony, the plaintiffs actually experienced unauthorized charges to their credit cards. In Zappos, by contrast, plaintiffs did not experience any actual harm, and there was no documentation that their personal data had surfaced even though more than three years had passed. Finally, the court rejected plaintiffs’ argument that their purchase of credit monitoring services constituted an injury-infact. The plaintiffs could not “manufacture standing merely by inflicting harm on themselves based on their fears of a hypothetical future harm that is not certainly impending.” Zappos, 2015 WL 3466943, at *10 (quoting Clapper, 133 S.Ct. at 1151). In order for “costs incurred” in an effort to mitigate the risk of future harm to qualify as an injury-in-fact, the future harm must be imminent. Id. Thus, even though the court found the threat of harm credible, the threat’s lack of imminence because of the passage of time without any identifiable harm caused by another meant that the

[ CLASSIFIEDS ] Staten Island Insurance Agency looking to acquire Personal Lines Book of Business Contact: Tillman Brokerage, Inc. 718-981-4700

Michael Leff LICENSED BROKER

914.245.4500, X12 • FAX 914.245.0461 135 EAST MAIN ST. / PO BOX 119 JEFFERSON VALLEY, NY 10535

AGENTS–WE CAN HELP WITH YOUR FLORIDA CLIENTS. WRITING PERSONAL & COMMERCIAL LINES Commissions Paid Call or Email Lisa at (561) 395-5220 lisa@allriskinsurancegroup.com

AGENTS • PRODUCERS • BROKERS “LET OUR OFFICE BE YOUR OFFICE” SERVICE and/or PURCHASE 35 Major National & Regional Carriers Competitive Commercial & Personal Lines Private Offices & Conference Rooms Licensed in all States - Est. 1974 Plainview, N.Y.

Ask For Richard or Evan Bower. 516-576-0400 Ext. 0 E-Mail: rbower@thebggroup.com www.thebggroup.com

plaintiffs lacked standing. Zappos is another of a recent line of decisions that has required actual harm, or the immediate threat of such harm, for a victim of a data security breach to sue. Arent Fox is well positioned to assist its clients in understanding how the nuances of unique factual situations affect the issue of standing in the context of data breaches. Please contact James Westerlind or Andrew Dykens from Arent Fox LLP to discuss this decision or these issues further.[IA] INSURANCE ADVOCATE / June 15, 2015 37

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 38

[ GUEST OPINION ]

By Jane M. Orient, M.D.

Feds Want to Spend $20B on AIDS Drugs, Based on 45 Cases

bout $6 billion per year is now spent on a cocktail of drugs to treat “HIV disease”—a positive blood test for antibodies for human immunodeficiency virus, the accepted cause for AIDS. Treatment generally starts when the patient’s CD4 white blood cell count drops below 350-500. (Normal is 500 to 1,200 per cubic millimeter.) But if we didn’t wait for this, we could spend Jane M. Orient, MD $20 billion. A front-page story in the New York Times trumpets a call to start treatment immediately, based on the cleverly named START trial (Strategic Timing for Antiretroviral Treatment), which was designed to test whether patients who got immediate treatment did better than those for whom treatment was delayed. Some 4,685 HIV-positive persons in 35 countries, of median age 36, were involved. The AIDS industry and its government allies were just waiting for evidence to justify a change in policy. Dr. Anthony S. Fauci, director of the National Institute of Allergy and Infectious Diseases, which sponsored the trial, said he had had “no doubt how it was going to turn out.” The trial was stopped early, when a (statistically) significant difference of 53 percent favoring the treatment group was announced. Many patients have been reluctant to start early treatment because of drug side effects. Newer regimens are more tolerable. The 53 percent difference is likely to persuade many to opt for immediate treatment. But the “53 percent” represents just 45 individuals. At the time the study was stopped, 86 of those in the deferred-treatment group had died, developed AIDS, or suffered a serious non-AIDS event like heart, liver or kidney disease or cancer, vs. only 41 of those in the immediate treatment group. As in many other studies of this type, enthusiastic researchers cite the relative risk reduction (53 percent), which looks much 38 June 15, 2015 / INSURANCE ADVOCATE

more impressive than the absolute risk reduction from about 3.67 percent to about 1.75 percent—a difference of less than two percent. Note that many of the adverse outcomes in study patients can be caused by antiretroviral drugs, especially with prolonged use. These include heart disease, liver damage, and cancer—and also premature aging and cognitive impairment. Had the study been continued another year or so until completion—or better still for five more years, the outcome might have been different. Early treatment advocates also say it prevents disease transmission to a sexual partner. For this, the relative risk reduction, 96 percent, looks even more impressive. “Overwhelming,” said Fauci. That trial was also terminated early. It involved 1,763 couples, 90 percent of whom were heterosexual, in 13 cities on four continents. One member of each couple was HIV-positive; the other was not. In half the couples, the HIV-positive partner was put on antiretroviral drugs immediately after a positive test was obtained. In the other half, treatment was started only when the CD4 count dropped below 250. In 28 of the couples, the HIV-negative person became positive for the partner’s strain of the virus; in 27, antiretroviral treatment had not been started. This means that seroconversion did NOT occur in about 880 of 881 couples getting treatment (99.8 percent) or in 854 of 881 of untreated couples (96.9 percent), for an absolute difference of less than three percent. Based on these limited results, some advocate treating 40 million people worldwide, both to improve the health and longevity of HIV-positive people and to stop the spread of AIDS. Additionally, universal screening is called for to identify candidates for therapy—forgetting that in low-risk individuals, a positive result is most likely a false positive. This type of reasoning is not limited to AIDS. For example, an influential trial of statin drugs for preventing cardiovascular disease was stopped after about two years. That was far too soon to detect premature

aging, cognitive impairment, or many other long-term drug effects. Again, the relative risk reduction of some 36 percent is touted, and the absolute risk reduction of less than two percent is not mentioned. Only one result of policy based on such research is certain: a vast expansion of the market for expensive drugs to treat lab test results and “risk factors,” rather than apparent disease. The effect on patients is unknown, but likely not good.[IA] Jane M. Orient obtained her undergraduate degrees in chemistry and mathematics from the University of Arizona in Tucson, and her M.D. from Columbia University College of Physicians and Surgeons in 1974. She completed an internal medicine residency at Parkland Memorial Hospital and University of Arizona Affiliated Hospitals and then became an Instructor at the University of Arizona College of Medicine and a staff physician at the Tucson Veterans Administration Hospital. She has been in solo private practice since 1981 and has served as Executive Director of the Association of American Physicians and Surgeons (AAPS) since 1989. She is currently president of Doctors for Disaster Preparedness. Since 1988, she has been chairman of the Public Health Committee of the Pima County (Arizona) Medical Society. She is the author of YOUR Doctor Is Not In: Healthy Skepticism about National Healthcare, and the second through fourth editions of Sapira's Art and Science of Bedside Diagnosis, published by Lippincott, Williams & Wilkins. She authored books for schoolchildren, , Professor Klugimkopf’s Old-Fashioned English Grammar and Professor Klugimkopf’s Spelling Method, published by Robinson Books, and coauthored two novels published as Kindle books, Neomorts and Moonshine. More than 100 of her papers have been published in the scientific and popular literature on a variety of subjects including risk assessment, natural and technological hazards and nonhazards, and medical economics and ethics. She is the editor of AAPS News, the Doctors for Disaster Preparedness Newsletter, and Civil Defense Perspectives, and is the managing editor of the Journal of American Physicians and Surgeons.

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 39

An essential component to our continued success at Hamond is the experience and knowledge of our staff. Averaging over 35 years in the field of Workers’ Compensation Insurance, we are able to provide our clients with the expertise they are looking for. What are your clients getting? Providing Excellence in…

- Risk Assessment

- Claims Processing right through finalization

- Knowing Your Client’s Business and Exposure

- Prehearing Interview of Employer Witnesses

- Assistance with Underwriting Issues

- Hearing and Testimony Support

- Assistance with Payroll Audits

- Working for the Client, not the Carrier

- Assistance with OSHA Issues and Training

Group Members are not just another policyholder. Group 534: Almost all construction classes eligible Group 533: Woodworkers, Lumberyards and Building Material Dealers MAXIMUM UP-FRONT DISCOUNT FOR QUALIFIED MEMBERS

50% of the Service Fee Paid to Brokers for the first three policy terms!* Unbroken string of dividends since group inception! Direct quote requests to:

800.285.2258 | Fax 516.488.2167 ryu@hamondgroup.com

w w w.h amo n d gro up.com *Service fee on subsequent renewals and on returning members continues at our usual 20%. Underwritten by the New York State Insurance Fund

6-15-15_INA 6-15-15 6/24/15 11:23 AM Page 40

Expect big things in workers’ compensation. E xpect to save a third of your clients 3 0% or more. Most classes approved, nationwide. For information call (877) 23 4 - 4 4 5 0 or visit auw.com/us. © 2 015 A p p l i e d Underwriters, U n d e r w r i te r s , Inc., I n c ., a Berkshire B e r k s h i re Hathaway H a t h aw a y company. c o m p a ny. Rated ©2015 Applied R a te d A+ A + (Superior) ( S u p e r i o r ) by b y A.M. A . M . Best. Best. IInsurance nsur an c e p lans p rote c te d U . S . Patent P a te nt No. N o . 7,908,157. 7, 9 0 8 ,15 7. plans protected U.S.