Insurance Advocate September 10, 2012 by C Acunto

VOLUME 123, NUMBER 15 / September 10, 2012

A CINN Group, Inc. Publication

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September 10, 2012

CONTENTS

An Anniversary Noted…

n 1960, my dad, Louis Cordasco, Sr. (pictured), founded Crystal Home Cleaners. Crystal was the first restoration company located in Westchester County, NY. As the “original” Crystal and as a leader in the field of emergency fire and water damage restoration services Crystal provided property owners with unmatched service and experience. In 2008, after nearly 50 years of servicing the insurance industry, my dad retired. In the nearly 15 years that I’ve had the pleasure of working for him, never once have I heard an unkind or unpleasant remark about my father. He enjoyed helping others and he treated customers with kindness and compassion. So when I decided to start my own business, I knew that following in his footsteps would be no easy task but I figured that if I do my job half as well as he did, then I would be head and shoulders above others in this field. And as one door closes another opens. The New Crystal Restoration Enterprise, Inc.(NCRE) is embarking on its 5th year in business. What makes us new is that we are a Certified NYS and NYC Women Owned Business that features Green cleaning products. As a single mom to a son with autism, I am well aware of the dangers and havoc chemical products cause so many individuals. I decided to launch a restoration company that used powerful and safe green products. My goal is to safely restore sites while posing no risk or harm to the property owner, children and pets. As a local small business, competing with national franchises and large corporations is no easy task. The NCRE has been very fortunate that so many insurance brokers, agents and insurance companies understand that what matters when selecting a restoration company is not the physical size of the company but the size of their heart. When selecting the NCRE you will be choosing a company that couples unmatched experience with its commitment to deliver the personal service which is a part of our rich heritage. We are the Crystal clear choice! Lisa A. Cordasco President The New Crystal Restoration Enterprises

[ COVER STO RY ]

[DEPA RTMENTS] Foreword............................................................................................................ 4 Insight, By Peter H. Bickford ...............................................................................6 Guest View, By G. Keith Smith, M.D. .................................................................8 Exposure and Coverages, By Jerome Trupin, CPCU ...................................10 In the Associations............................................................18, 20, 22, 36, 50 On the Level, By Jamie Deapo .......................................................................38 Company News .............................................................................................42 Courtside, By Lawrence N. Rogak ...................................................................44 Classiﬁeds.........................................................................................................47 Looking Back...................................................................................................48

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www.insurance-advocate.com INSURANCE ADVOCATE / September 10, 2012 3

[ FORE WORD ]

Steve Acunto

One Side of a Mini Saga

he mini saga of Ed Higgins’s experience vis-à-vis what he identifies as a misleading element in a direct writer’s internet sales program, gets a full, yet clearly one-sided airing in this issue. We have fact checked and read all of the materials provided to us by Mr. Higgins with respect to his experience and found his recounting of the story to be factually accurate. We give him the space in this magazine to relate just what happened to him after setting out to educate fellow agents as to the scope and nature of the competition they face from direct writers. We have known Ed for many years as a courageous advocate for independent insurance agents and, by the same token, a true gentleman. We will spare our comments on his experience in this column, not because we are neutral but because we have not heard from the other side. We invite GEICO, Progressive, and any of the parties’ response to Mr. Higgins’s article. We will run these replies, as we have run his article, without altering the text whatsoever. After both sides of this matter are expressed to the agents, brokers, company representatives, legislators, regulators, company brass and association leaders who make up the several thousand subscribers this publication boasts, we will offer our viewpoint. This publication has no particular opposition to either Progressive, GEICO or any of the parties named in Mr. Higgins article. We have however, gained a reputation as advocates for independent insurance agents and brokers and for the independent agency system, one which we personally believe in very strongly and have defended on many occasions. Yet, we understand that the consumer may be well served in several ways, according to the consumer’s personal standards. Several companies over the years have adopted dual systems of marketing in some ways to the detriment of agents, but, on the other hand, to their advantage and, they report, to consumer’s benefit. Another issue here is the potential tilting of the playing field with info provided over the internet. Again, we invite all interested parties to submit to us as complete an article as it wishes, which we will publish completely and unaltered in these pages. We hope that the matter will gain the attention of those who will ensure that the consuming public is properly served by any online or other mechanism to which the buyer is directed and that the playing field is thus assuredly level...We note with great interest that Jonathan Bing has left the New York Liquidation Bureau. As of September 10th he joins the New York office of Wilson, Elser, Moskowitz, Edelman & Dicker LLP. We wish Jonathan the best of luck... One last comment is kudos to the Insurances Information Institute. whose media advisories and availability to consumers on several levels during the recent Hurricane Isaac that hit some southern states, was exemplary. We note the availability of the top brass at the I.I.I. all holiday weekend and Labor Day. This is the kind of activity that gives insurance a good name. Thank you I.I.I. [IA]

4 September 10, 2012 / INSURANCE ADVOCATE

VOLUME 123, NUMBER 15 SEPTEMBER 10, 2012

EDITOR & PUBLISHER Steve Acunto, 914-966-3180, x110 sa@cinn.com CONTRIBUTING EDITOR Peter Molinaro CONTRIBUTORS Peter H. Bickford Jamie Deapo Michael Loguercio Sari Gabay-Raﬁy Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog, 914-966-3180, x113 g@cinn.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x126 circulation@cinn.com PUBLISHED BY CINN Group, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 President and CEO Steve Acunto

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[ INSIGHT ]

By Peter H. Bickford

Domestic Excess Line Carrier – An Oxymoron?

uring the last legislative session, the Excess Line Association of New York proposed and the Senate passed legislation that would allow the establishment of domestic excess line carriers in New York. At first blush this sounds wrong. By their very nature excess and surplus line insurers are “non-admitted” foreign or alien companies that can only write New York risks through licensed excess line brokers, and only on risks that have either been rejected by “admitted” carriers or meet other specific requirements. But when you conPeter H. Bickford sider the subject, allowing domestic companies to write excess and surplus line business, it makes a lot of sense. What is the purpose of E&S business? Stated simply, it provides a means for domestic risks that cannot be insured in the tightly regulated admitted marketplace – particularly with regard to rate and form requirements -- to find appropriate coverage in an alternative, freer market. The justification for requiring these difficult risks to be written through “nonadmitted” carriers is that domestic licensed companies must comply with all requirements of the law, including rate and form requirements, on all its business. Allowing non-admitted carriers to write this difficult business, with appropriate warnings to the customers that there is limited regulatory oversight and protection (i.e., no guaranty fund coverage) for the risks insured, somehow preserves the “integrity” of the admitted market. One problem with this fiction is that many admitted carriers are fully equipped to write much of this business – including necessary capital, underwriting and claim infrastructure and expertise – but are restrained from doing so in an efficient and timely manner under this traditional framework, or without licensing a subsidiary in another state solely to write E&S in-state. The NY Free Zone offers admitted carriers a way to write some of these 6 September 10, 2012 / INSURANCE ADVOCATE

accounts through a Special Risk license, although without the full regulatory freedom provided to non-admitted E&S carriers. The proposed domestic excess line carrier legislation is a logical extension of the Free Zone concept that could lead to a greater expansion of available capacity for hard to place or large commercial risks while maintaining direct regulatory control over the financial stability and solvency of carriers. The NY State Assembly did not definitively act on the proposed legislation by the end of session, but I understand that the proposal will be taken up again in the next legislative session. Also, the Department of Financial Services is expected to chime in on the proposal. Obviously, DFS support would be extremely helpful for the proposal to go forward successfully, and it is hoped that such support will be forthcoming. There are a few significant issues, however, that should be addressed by the industry, DFS and legislators as they consider the proposal, including: • Defining the extent to which domestic excess line carriers should be exempt from the insurance law provisions applicable to traditional admitted carriers; • Establishing the actual status of these new carriers; e.g., should they be considered admitted carriers by other states (an essential element for 50 state access), non-admitted or some kind of hybrid; • Defining the role of the excess line broker vis-à-vis this new class of carriers; and • Assuring that this new class of insurer enhances rather than detracts from the role and integrity of traditional admitted carriers in the state. (For anyone interested in more information on the issues regarding the proposed legislation, I recommend the report issued earlier this Summer by the Insurance Committee of the New York City Bar Association, which can be accessed under Committee Reports on the City Bar’s web site, www.nycbar.com). Done appropriately, permitting the use of domestic excess line insurers can be a

boon to the insurance business in New York. Two other states, New Jersey and Illinois, have legislation on the books authorizing domestic excess line carriers. One company in New Jersey has been licensed under its statute (which has only been on the books for a year), but a baker’s dozen companies have organized as domestic excess line insurers in E&S denizen Illinois, where the statute has been on the books since 1998. But the experiences of other states are largely irrelevant to good old 49 + 1 New York (referring, of course, to the nationwide perception of New York as a regulatory island unto itself). The concept of a domestic excess line carrier can have a far greater cachet to insular New York, and help it regain its status as an industry innovator and leader for unique market options such as the Free Zone or an insurance risk exchange. Ah, yes! The mere mention of an insurance exchange evokes rolling eyes, primarily from those with real or imagined residual scars from the original 1980s exchange. However, for those insurance and financial industry leaders who actually understand the nature of the recent proposals to establish a modern, efficient syndicated capital marketplace, the concept of domestic excess line carriers makes perfect sense. Such entities would provide an additional option for specialized syndicates in a significantly controlled but flexible modern insurance risk exchange (IREX). Also, the ability to establish domestic excess line syndicates would address one of the persistent questions voiced by other state regulators about a new IREX: why should we let your syndicates write surplus lines in our state when they cannot do so in New York? (For example, consider Illinois: according to the Illinois Insurance Department’s 2010 Annual Report, its 13 domestic surplus line carriers wrote close to $1 billion in net premium nationwide, but only a tenth of which was on Illinois risks). The concept of a domestic excess line carrier is not as strange as it may seem, and it is a worthy subject for serious consideration by all groups interested in finding new market opportunities for the benefit of the insurance industry and its customers. [IA]

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[ GUEST VI E W ]

By G. Keith Smith, M.D., Association of American Physicians and Surgeons

What Does “Free Market” Mean in Orwellian Newspeak?

e are accustomed to Newspeak from the federal government, in which words have the opposite of their traditional meaning. For example, there’s what I call UCA, the (Un)affordable Care Act. But now the problem is metastasizing to supposedly conservative publications and nominally free-market think tanks. In an

physicians and nurses are reaching a critical level, with 500,000 unfilled positions in nursing. In 2010, there were only 60 applications for 120 available positions for training in heart surgery. Market “disturbances” have benefited and continue to benefit the organizations with which Mr. Lehrer is associated or those that support his work.

While most can understand that the vast majority of the politicians in Congress are bought and paid for and can be counted on to operate in a manner consistent with the best interests of their benefactors, fewer people question the influences that may be motivating commentators like Lehrer. article in The Weekly Standard, Eli Lehrer, Dr. Keith Smith president of R Street, writes that the primary reason that medical care costs so much is high wages and salaries for physicians and others in “health care.” He writes: “The American Hospital Association estimates that two thirds of all medical costs are attributable to wages and benefits.” Along with doctors—whose pay takes up only about 10 percent of the healthcare dollar—he includes nurses, dental hygienists, and even janitors in medical facilities as among the overpaid. But he doesn’t mention million-dollar hospital administrators. He writes that a one-year medical wage freeze would have the same cost-containment effect as confiscating all insurance company revenue beyond medical expenses and operating costs. The freezes and cuts in Medicare fees seem to have escaped his notice. We might ask Lehrer and his fellow “free marketeers” what the compensation of physicians in the U.S. should be. As the free market has been thwarted in many ways in U.S. medicine, it is hard to know what a market-clearing price for physician services or any other health care should be. One hint that pay may be too low rather than too high is that physicians are fleeing the field. It is said that shortages of both 8 September 10, 2012 / INSURANCE ADVOCATE

I suspect that Mr. Lehrer doesn’t really believe that U.S. physicians make too much and that this is the problem with the high cost of care. To say this is, however, in the best interest of giant companies like HCA and Unisys. Writings that indict physician compensation as the primary culprit provide a smokescreen for these true cost culprits. Our physician-owned surgery center (www.surgerycenterok.com) is profitable charging amounts one-tenth (10 percent) of those charged by our “not show a profit” hospital friends across town. Our price includes physicians’ fees and all personnel costs. Most insurance companies won’t even talk to us. Why should an intelligent person like Lehrer not be asking where the 90 percent of the healthcare dollar goes? While most can understand that the vast majority of the politicians in Congress are bought and paid for and can be counted on to operate in a manner consistent with the best interests of their benefactors, fewer people question the influences that may be motivating commentators like Lehrer. For starters, Lehrer was a speech writer for former Senator Bill Frist, who was “honored” in 2005 and 2006 as “one of the most corrupt members of Congress” by Citizens for Responsibility and Ethics in Washington. Lehrer’s old boss was the heir and major stockholder for the healthcare giant HCA, one of the largest hospital chains in the world. As such it should come

as no surprise that Frist recently stated that had he still been in office, he would have supported UCA (ObamaCare), which benefits HCA. This brazen conflict of interest when he was a senator is apparent in his voting record. After Lehrer’s stint with Frist, he landed a position as a manager at Unisys. If you guessed that Unisys was a health information technology company that profits immensely from UCA, you go to the head of the class. The giant insurance lobby was delighted about the formation of “R Street,” and promoted it in articles and blogs. “R Street” formed when the Heartland Institute split up over the global warming controversy. [IA] Dr. G. Smith is a board certified Keith anesthesiologist in private practice since 1990. In 1997, he co-founded The Surgery Center of Oklahoma, an outpatient surgery center in Oklahoma City, Oklahoma, owned by 40 of the top physicians and surgeons in central Oklahoma. Dr. Smith serves as the medical director, CEO and managing partner while maintaining an active anesthesia practice. In 2009, Dr. Smith launched a website displaying all-inclusive pricing for various surgical procedures, a move that has gained him and the facility, national and even international attention. Many Canadians and uninsured Americans have been treated at his facility, taking advantage of the low and transparent pricing available. Operation of this free market medical practice, arguably the only one of its kind in the U.S., has gained the endorsement of policymakers and legislators nationally. More and more selffunded insurance plans are taking advantage of Dr. Smith’s pricing model, resulting in significant savings to their employee health plans. His hope is for as many facilities as possible to adopt a transparent pricing model, a move he believes will lower costs for all and improve quality of care. Dr. Smith resides in Oklahoma City, Oklahoma.

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[ EXPOSURES AND COVERAGES ]

By Jerome Trupin, CPCU

Perfecting Clients’ Protection is a Moving Target - CyberTheft is in the News Again - Umbrella Liability Limits—How High is Up? - Deduct Depreciation to Calculate ACV?—Connecticut Provides an Answer - Exclusion Of Injuries To Employees Of Independent Contractors - To be Indemnified for Legal Costs, the Hold Harmless Agreement Must Spell it Out - Exclusion of Injuries To Employees Of Independent Contractors - New York Labor Law sections 200, 240, and 241 You can always learn something new, so I thought I’d share some of the items that have opened my eyes in the past month or so. CyberTheft is in the News Again No sooner did I write about hackers emptying business bank accounts1, than another story popped up in the news. On July 19th, 2012, The Wall Street Journal ran an article recounting how two firms lost almost $600,000 each to cyber thieves.2 The “good news” this time is that the businesses were able to recoup their losses from their banks. In one case, Patco Construction was able to convince the U.S. First Circuit Court of Appeals to overrule the District Court in Maine that had originally ruled in favor of the bank. The lower court had held that the People’s United Bank had met the standard of providing “commercially reasonable” protection for its commercial depositors. In the other case that was decided in favor of the depositor, hackers had helped themselves to $1.9 million from the Comerica Bank accounts of Experi-Metal,

a metal-working firm in Sterling Heights, Michigan. Experi-Metal’s loss was reduced to $560,000 when JP Morgan noticed something irregular about the transactions and called Comerica. JP Morgan’s action confirms what the NY Times article about cybertheft stated: “Larger banks…have more mature pattern-recognition and monitoring capabilities3.” So, can you tell your insureds to forget about the computer and fund-transfer fraud coverage that I recommended? Well, no. First, going to court is no way to collect your loss. Even if you win, you lose—the only winners are the attorneys. Second, these cases turn on specific facts. For example, as in the People’s United case, did the bank’s systems provide “commercially reasonable” protection even though it failed? There’s no way to be certain the insured will win. Your insured’s need this coverage. The Wall Street Journal quotes Brian Krebs, author of Krebs on Security, who puts it quite succinctly: “…The truth is there are millions of small businesses that have no continued on page 12

1 “Hackers Empty Firm’s Bank Account—Who Pays? Insurance Advocate CINN Group Inc., Mt. Vernon, July 23, 2012 pages 24, 25, 26, 28 2 Joe Palazzolo “Cyberthieves Hit Owners” Wall Street Journal July 19, 2012 p. B2 3 Pamela Rickman “Owners May Not Be Covered When Hackers Wipe Out A Business Bank Account” New York Times, Thursday, June 13, 2012

10 September 10, 2012 / INSURANCE ADVOCATE

Jerome Trupin, CPCU

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

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[ EXPOSURES AND COVERAGES ] continued from page 10

clue of the sophistication of the threat that is out to get them. You've got one lady who's in charge of payroll, she works nine to five and, God bless her, she's up against the Russian mob4.” In my last article, I suggested advising your clients to ask their banks how they protect bank accounts from cyberthieves. In his blog discussing this problem, Bill Murray, an information security consultant lists some specific protections that banks can easily implement5: • One-time-password (OTP) Tokens • Out-of-band Authentication • User selected image for recognizing the bank • Customer Device Recognition by IP address and cookie • Transaction Risk Profiling • Challenge-Response based upon shared secrets • Dollar Amount threshold for invoking Challenge-Response • Access to intelligence from the eFraud Network including IP addresses of known hostile systems • Risk Scoring Reports Your clients can ask their banks if these protections are available to commercial depositors. But remember, even the best systems don’t always succeed. Do the right thing. Tell your clients they need to protect their bank accounts and they need insurance to close the circle. Umbrella Liability Limits— How High is Up? Frank Miraglia was horribly injured when he fell from planking on a construction job. He was impaled on a reinforcing bar from his scrotum to his 2nd lumbar vertebra. The injury rendered him a paraplegic. He successfully sued the owner of the property, H & L Holding, based on New York State Labor Law §240(a). An arcane dispute ensued over appor-

“The actual cash value, immediately prior to the time of such loss or damage caused directly by fire or lightning, to a covered building, shall be the amount which it would cost to repair or replace such building with material of like kind and quality, minus reasonable depreciation. …” tionment of the available insurance proceeds. It’s not this argument that’s important to us. Rather it’s the fact that the fight involved a reduced liability award of $30,000,000.6 That’s right, I said “reduced.” It’s common for huge liability awards to be reduced on appeal and this one was reduced, if you can use that word to describe a $30,000,000 judgment. What limits do you recommend that your clients carry? Deduct Depreciation to Calculate ACV?—Connecticut Provides an Answer A line of court decisions hold that insurers can’t deduct depreciation when calculating ACV for a partial loss. (I wrote about this a year ago.7) Insurers, of course, say that you can. Connecticut has settled the dispute by enacting a law requiring that the definition of ACV include a provision for deducting depreciation. ISO has promulgated a new endorsement for use in Connecticut starting January 1, 2013. It will provide that: “The actual cash value, immediately prior to the time of such loss or damage caused directly by fire or lightning, to a covered building, shall be the amount which it would cost to repair or replace such building with material

of like kind and quality, minus reasonable depreciation. (emphasis added) Depreciation…means a decrease in value over a period of time due to wear and tear8.” It only applies to fire and lightning losses because the basis of the court decisions barring a deduction for depreciation was that insurance companies must afford at least as much coverage as the state’s Standard Fire Policy (SFP). The SFP only covered fire and lightning, so those are the only perils affected by those decisions. To be Indemnified for Legal Costs, the Hold Harmless Agreement Must Spell it Out Post & Broadway, Inc. hired TNT K Construction Corp. to do exterior stucco repairs on a building it owned. TNT K employee, Benito Reyes, fell from scaffolding while working on the repairs and was badly injured. (New York Labor Law § 240 rears its head again. More about that later.) The construction contract between Post & Broadway and the contractor, TNT\ K, said that the “contractor assumes all liabilities.” The contractor argued this meant it was required to carry insurance, but the court didn’t buy that argument. It held TNT K responsible for the damages awarded to Reyes. But, because the contract did not specifically call for the contractor to pay Post & Broadway’s legal expenses, the court ruled that TNT K was not responsible for the legal fees Post & Broadway spent to defend itself.9 In commenting on this case, Steven E. Peiper, an attorney who specializes in insurance defense work, wrote: "Remember, if you wish to recover attorneys’ fees through a contractual indemnity agreement, the agreement must specifically reference attorneys’ fees as a recoverable item.10" Here’s wording that one city11 uses: The Contractor shall indemnify, defend and save harmless The continued on page 14

4 Joe Palazzolo “Cyberthieves Hit Owners” Wall Street Journal July 19, 2012 p. B2 5 Bill Murray “Decision on Appeal of Patco v. Ocean Bank” http://whmurray.blogspot.com/2012/07/decision-on-appeal-of-patco-v-ocean.html 6 Matter of Matter of Miraglia v Essex Ins. Co. 2012 NY Slip Op 05003 Decided on June 20, 2012 Appellate Division, Second Department 7 “Don’t Deduct Depreciation When Calculating Actual Cash Value (ACV) for a Partial Loss? Insurance Advocate CINN Group Inc., Mt. Vernon, NY July 4, 2011 8 Commercial Property CP 01 80 03 12 Connecticut Changes Effective 1/1/13 © Insurance Services Office, Inc., 2012 9 Reyes v Post & Broadway, Inc. Supreme Court of the State of New York. Appellate Division: Second Judicial Department. D33658. W/prt). 10 “Coverage Pointers” Hurwitz & Fine August 3, 2012 http://www.hurwitzfine.com/shownews.php?type=coverage&id=467 11 The city’s risk manager emailed me permission to use this clause, but he asked that I not identify the city.

12 September 10, 2012 / INSURANCE ADVOCATE

LIFE

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City and all of its employees, officials, officers and authorized representatives from and against any and all suits, actions, legal or administrative proceedings, claims, demands, damages, liabilities, interest, legal fees, costs and expenses whatsoever kind or nature (emphasis added) whether

arising before or after completion of the Work and in any manner directly or indirectly caused, occasions or contributed to in whole or in part, by reason of any wrongful act, error, omission or fault whether active or passive of the Contractor, Sub-Contractor, or anyone acting under the Contractor's direction or control or on its behalf in connection

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with or incidental to the Work. It’s something you want to tell clients about, but, unless you’re an attorney, it should be reviewed by the insured’s counsel before being incorporated into any agreement. I’m not an attorney so I can’t comment on its legal effect. Exclusion of Injuries to Employees of Independent Contractors A certificate of insurance shows the property owner as an additional insured on the contractor’s policy as required by the contract between the property owner and the contractor. One of the contractor’s employees is seriously injured when he falls off the roof of a house while installing metal trim and, unsurprisingly, he sues the property owner. The suit is based on Labor Law sections 200, 240, and 241. The contractor’s insurance company says there’s no coverage because the contractor’s policy does not cover claims by employees. The policy excludes claims: "when an insured or additional insured was sued or contribution was requested for damages arising out of bodily injury to an employee sustained in the course of employment.12 " continued on page 16 12 Luis Miguel Herrnsdorf, plaintiff, v Bernard Janowitz Construction Corporation, etal. Supreme Court of New York, Appellate Division, Second Department 2012 N.Y. App. Div. LEXIS 5057; 2012 NY Slip Op 5144 June 27, 2012, There are other cases that came to the same conclusion, for example: Bassuk Bros. v Utica First Ins. Co. 2003 NY Slip Op 18423 [1 AD3d 470] November 17, 2003 Appellate Division, Second Department. An example of a case in another jurisdiction that came to the same conclusion is James River Insurance Company v. Keyes2Safety, Inc. United States District Court, N.D. Illinois, Eastern Division. July 24, 2012.

14 September 10, 2012 / INSURANCE ADVOCATE

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I see two problems with endorsement like this: (1) The property owner has no way to discover the coverage gap from the certificate of insurance, and (2) If the contract between the parties requires the contractor to indemnify the property owner for all claims made against the property owner arising out of the work, the contractor may be personally liable but have no coverage. In a perfect world, insurance departments would not permit such an exclusion. Until then producers have to alert insureds to the policy deficiency and risk managers have to struggle to find out what lies behind the certificates of insurance their clients receive. New York Labor Law sections 200, 240, and 241 New York Labor Law sections 200, 240, and 241 were involved in three of these items. Insurance practitioners need a basic understanding of these sections, so let’s briefly look at what these laws involve. Section 200 requires that all construction industry employers provide a reasonably safe environment for all of their employees as well as anyone else legally on their work site. That’s not so onerous. It’s sections 240 and 241 that really create the problems. Section 240, also known as the “scaffold law” because it covers accidents involving falls from scaffolding, ladders, elevated platforms, etc., provides: All contractors and owners and their agents…who contract for but do not direct or control the work, in the erection, demolition, repairing, altering, painting, cleaning or painting of a building or structure shall furnish or erect…for the performance of such labor, scaffolding, hoists, stays, ladders…and other devices which shall be so constructed…as to give proper protection to a person so employed.13 The duty imposed by this section is non-delegable. That doesn’t mean you can’t hire someone else to do the work. What is does mean is that delegating the duty to someone else doesn’t relieve you of liability. The job can be delegated, the duty cannot.

Section 240 imposes “absolute liability” on owners and contractors who fail to provide proper safety devices for workers. Owners face liability under the law even if they have no involvement with the work other than having hired the contractor. “Absolute liability” means that the plaintiff doesn’t have to show that the defendant was at fault. (The law does not apply to the owners of one or two-family homes who do not direct or control the work.) Section 241 deals with hazards other than elevation affecting employees engaged in construction work. Owners, contractors, and their agents must provide safety equipment, and follow certain safety practices, The section is comprised of 10 subdivisions. Subdivisions 1 through 5 and subdivision 7 deal with specific construction hazards ranging from the use of planking to asbestos removal.. The first five subdivisions of section 241, like section 240, create a nondelegable duty and impose absolute liability Subdivision 6 of section 241 requires owners and contractors to provide “reasonable and adequate” protection to construction workers and to comply with the regulations promulgated by the New York State Department of Labor. However, because it does not impose absolute liability on owners or contractors; the usual liability defenses of comparative negligence and assumption of risk are available to defendants. Because sections 200, 240, and 241 offer seriously injured workers the ability to make claims for damages, such as pain and suffering, that are not covered by workers compensation and to get access to liability insurance carried by owners and general contractors there can be huge sums involved. The result has been voluminous litigation to establish the exact import of these sections. I’ve only scratched the surface. The brief overview on which I based these notes runs 11 pages14. Hurwitz & Fine, the well-respected insurance defense attorneys in Buffalo, NY, publish a monthly newsletter setting out current decisions on 200, 240 and 241 cases15. This is a topic you need to know about. [IA]

13 “Liability Under The New York Labor Law” http://lsinjurylaw.com/library/Labor_Law1.pdf 14 “Liability Under The New York Labor Law” cited above. 15 http://www.hurwitzfine.com/listnews.php?type=labor

16 September 10, 2012 / INSURANCE ADVOCATE

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[ IN THE ASSOCIATIONS ]

Insurance Industry Charitable Foundation Expands to Greater Boston Area

EW YORK—The Insurance Industry Charitable Foundation (IICF) began its expansion into the greater Boston area by hosting an informational summit with more than 50 Boston-based insurance leaders over the summer. "Boston is a major insurance center, and the insurance community there wants to increase and coordinate its significant positive presence in the local community," commented Betsy Myatt, executive director of IICF's NY/Northeast division. "IICF aims to be a catalyst to help people and companies in the insurance industry come together to give back to the community." The IICF's New York/Northeast division also announced the founding leadership team for its forthcoming new chapter in Boston. Patrick Rastiello, senior managing director at Aon Benfield, and Jim Wallace, vice president at Aspen Specialty Insurance, hosted the Boston summit, are spearheading the formation of the IICF chapter in Boston, and will serve on the board.

Several other insurance leaders committed to serving on the chapter board are: Bonnie Bystrek, Tower Group Companies; Shaun Kelly, Ironshore; David McIntosh, Aon Benfield; Leah Rastiello, AmTrust North America, Inc.; Joe Surette, Zurich; and Ron Willett, Chartis. Emily Rastiello of Aon Affinity and Marcy Cochran of Aon Benfield will serve on board committees for the new chapter. The first IICF event in the Boston area will be IICF Week of Giving, October 1320, 2012. The weeklong event matches volunteers from the insurance industry with charities to serve in charitable and community efforts in the area. Also part of IICF Week of Giving is a new fundraising platform that invites every insurance employee to donate via text message. Throughout October 2012, employees can donate $5 by texting INSURANCE to 50555. Volunteers from many areas of the country and from a broad spectrum of industry employers -- reinsurers, carriers, agencies, brokerage firms, consulting

firms, law firms, trade associations and other industry-related companies -- are participating in IICF Week of Giving. Other upcoming events include a Boston chapter leadership meeting on September 12, and the NY/Northeast Division annual fundraising dinner held in New York on December 12. Boston-area company leaders interested in participating can contact Betsy Myatt at (917) 544-0895 or emyatt@IICF.com. The Insurance Industry Charitable Foundation was established in 1994 and is completely directed and funded by the insurance industry. The foundation helps communities and enriches lives by uniting the collective strengths of the industry to provide grants, volunteer service and leadership. Since its inception in 1994, the Industry Foundation has contributed more than $18 million and 155,000 volunteer hours to hundreds of community nonprofit organizations. IICF is a registered notfor-profit organization under section 501(c)(3) of the IRS code. [IA]

Aon Adds New Enhancements to its Property & Casualty Program for Insurance Agents

ATBORO, P.A.—Aon Affinity,* a division of Aon plc (NYSE: AON) announced the addition of several new enhancements to its Agency Advantage Professional Liability Program for Property & Casualty (P&C) agencies with revenues under $10,000,000. Featuring an abbreviated application process, a rapid online rating tool for preferred brokers, and a number of new policy enhancements, the changes are being provided at no additional charge to policyholders. “These new enhancements are an important addition to our existing professional liability program for insurance agents,” said Dan Miller, president Aon Affinity. “This is part of our ongoing commitment to provide new and innovative products to help agents stay ahead evolving risk trends in today’s complex business 18 September 10, 2012 / INSURANCE ADVOCATE

“The new policy enhancements were created through a deep understanding of our clients’ contemporary needs” landscape.” The Agency Advantage Program’s new policy enhancements include such items as a Diminishing Deductible, Wrongful Employment Practice Reimbursement, Security Incident Protection, an Expanded Coverage Definition, and New Extended Reporting Period Options due to Death or Disability or Retirement. “The new policy enhancements were created through a deep understanding of

our clients’ contemporary needs,” said Stacy Hoffman at Navigators Insurance Company, which underwrites the Program. “We believe they allow for more flexibility in addressing the complex specialty risks faced by today’s P&C agents.” The Agency Advantage Program is offered through Affinity, a subsidiary of Aon plc, the leading global provider of risk management services, insurance brokerage and human capital consulting. The program is underwritten by Navigators Insurance Company, rated ‘A’ (Excellent) by A.M. Best and ‘A’ (Strong) by Standard & Poor’s. For a full listing of new policy enhancements or information regarding the Agency Advantage Program please call 866-461-1228 or visit www.agency-advantage.com. [IA]

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[ IN THE ASSOCIATIONS ]

New Award Recognizes The Contributions of Marine Insurance Claims Professonals

EW YORK—The marine insurance industry has created a new award to recognize the importance of claims professionals in marine insurance and encourage the development

of talented individuals for a rewarding career in the field. The American Marine Claims Award will be presented annually to a marine insurance person who demonstrates a

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well-rounded set of skills, knowledge and commitment to a career in marine insurance claims through the completion of a rigorous program of comprehensive educational studies. Insurance professionals living in the U.S. and Canada are eligible for the award through their involvement in American marine claims functions, including adjusters, surveyors, attorneys, agents or brokers, risk managers and underwriters. “Claims professionals play a critically important role in the marine insurance industry, providing an unparalleled level of service to their companies and customers,” said Jim Craig, president of the American Institute of Marine Underwriters (AIMU). “The American Marine Claims Award was developed to highlight the contributions of these dedicated people and further enhance the development of their careers.” The winner will receive a cash award and a stipend towards attendance at the International Marine Claims Conference held in Dublin, Ireland. The award is supported by the following marine insurance associations: the American Institute of Marine Underwriters (AIMU), the Inland Marine Underwriters Association (IMUA), the International Marine Claims Conference (IMCC), the Marine and Insurance Claims Association (M.I.C.A.), the Association of Average Adjusters of the United States and Canada and the Marine Claims and Recovery Forum. The specific educational requirements and other details about the award program can be found on the AIMU Website www.aimu.org. The American Institute of Marine Underwriters (AIMU) has over 100 years of service as the trade association representing the U.S. ocean marine insurance industry as an advocate, educator and information center.[IA]

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[ NEWS ]

InVEST Introduces New Board Member

Andrew Sawyer Joins THC

LEXANDRIA, V.A.—InVEST, the insurance industry’s premier classroom to career education program, recently announced that Daniel J. Mastrototaro has joined its national board. Mastrototaro is vice president of business development at The Hanover Insurance Group. “InVEST is proud to announce Dan Mastrototaro has joined our distinguished group of board members,” says Heather Minkler, InVEST board chair and CEO of Clark-Mortenson Agency, an independent agency in Keene, N.H. “Dan brings 25 years of insurance and financial services experience plus countless hours of philanthropy work to the InVEST board of directors and we look forward to drawing from his expertise.” Mastrototaro is actively involved in community enhancement programs, holding board positions on the MetroWest Big Brothers Big Sisters and the Worcester State University Foundation board of directors. He has also served in various capacities with Habitat for Humanity, United Way, Junior Achievement of Central Massachusetts and the Christie McAuliffe Charter School in Framingham, Mass. During his career at The Hanover, Mastrototaro has played instrumental roles in corporate finance, product development, information technology, operations, sales and marketing. Mastrototaro holds a bachelor’s degree in mathematics from Assumption College in Worcester, Massachusetts. “InVEST is critically important not just to the future of the independent agency system, but to the insurance industry as a whole,” says Robert Rusbuldt, Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) president & CEO. “Survey results from the Agency Universe Study by Future One (a collaboration of the Big ‘I’ and leading independent agency companies) pointed to InVEST as crucial to the future of the industry, with a majority of respondents 22 September 10, 2012 / INSURANCE ADVOCATE

“Survey results…pointed to InVEST as crucial to the future of the industry, with a majority of respondents stating the insurance industry should encourage high schools and community colleges to help students plan for insurance careers.…”

stating the insurance industry should encourage high schools and community colleges to help students plan for insurance careers. Educators, volunteers, agents and industry leaders, like Dan Mastrototaro, are key to the success of this program.” As a 501(c)(3) educational trust, InVEST benefits from the support of numerous insurance organizations, hundreds of agencies, brokers and volunteers. The program provides the insurance industry with motivated, talented and intelligent professionals through a support structure of state associations, board members, national staff, teachers and the many industry professionals who work in the field as classroom liaisons. Founded in 1970 and based in Alexandria, Va., InVEST promotes insurance education in order to attract individuals to pursue a career in the insurance industry. Each year, the program prepares thousands of students for insurance-related careers with a hands-on curriculum taught in high schools, adult education centers and community colleges. The high school curriculum is a business-education program that utilizes a hands-on approach which simulates an insurance agency and company operations to prepare students for various business careers and create more knowledgeable insurance consumers. At the college level, InVEST is an informationintensive curriculum of risk management and financial services. These courses provide students with a working knowledge of the basics needed to pursue careers in the insurance industry. For more information, go to www.investprogram.org. [IA]

s. Betty Heiman, CEO of Transparent Healthcare (THC) has announced that Andrew Sawyer has joined the THC executive team as counsel to the Board of Directors. Mr. Sawyer will guide all distribution of THC products including direct group sales and broker sales. Mr. Sawyer will also be involved in all areas of company development, including strategy, messaging, and expansion Andrew Sawyer according to Ms. Heiman. “Andy Sawyer has more than 30 years of experience in the insurance industry with expertise in carrier relationships and broker and product development. Ms. Heiman noted, adding: “Andy’s addition to Transparent Healthcare demonstrates our commitment to the insurance broker and their clients”, she said. Mr. Sawyer’s professional accomplishments include: President of Empryrean Insurance Services, a leading national distributor for all types of health insurance products available to individuals and groups of all sizes. (2006-2011); CEO and Board of Director for Benefitport, a National Health insurance agency with a large broker network and wide range of product offerings , where Mr. Sawyer was instrumental in the acquisition of eight U.S. insurance agencies and two technology firms. (1999-2006); Sawyer also held the positions of: Chairman, CEO and cofounder of Weston Insurance Brokerage, a general agency for the New York and New Jersey markets. Under his tenure at Weston, Mr. Sawyer helped the company achieve double-digit growth each year and grew the company from 500 groups and 60 brokers to over 18,000 groups and 2,500 brokers in three years to being one of the largest general health insurance agencies in the country. Weston was sold to Marsh Mac Trident 1, where Mr. Sawyer later formed Benefitport. (19901999). [IA]

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[ COVER ]

By Edgar Higgins, CPCU

The views expressed in this article are not neccarily those of this publication. 24 September 10, 2012 / INSURANCE ADVOCATE

[ COVER ]

This following personal account of an independent agent’s experience spans more than a two-year period and is presented here following many months of correspondence, voice mail messages, e-mail messages, industry trade publication articles, and even a sworn affidavit. The writer’s experience bears reflection, as it leads, we believe, to a concern for consumer protection, an equal playing field and, generally, a more collegial environment, once addressed. Any opinions stated by the writer are not those of the Insurance Advocate. This publication, in our Foreword, invites replies from all parties and pledges to present them, unaltered, with the same editorial treatment and emphasis this account has received. S.A.

y story begins back in 2010 when I first learned that the Independent Agents of America (IIABA) intended to create a web presence for independent agents called the Consumer Agent Portal (CAP) to regain market share in personal lines that had eroded from 35% to 30% largely in favor of direct response carriers. At that time, my concern was that a mere electronic presence would not be an adequate means, alone, for agents to regain lost personal lines market share. My premise was that independent agents are unique in providing value added to the insurance product and transaction and that premise would need to be incorporated into any electronic environment endeavor. I wrote an article in The Anderson Agency Report (TAAR) in August of 2010 citing those concerns and encouraging agents to focus on providing added value to the consumer. A core message from that article was: Your clients are receiving a steady dose of “Flo” and the “gecko” and other advertising, to convince them that price is what personal insurance is all about. If we don’t have a

counter message, their messages will prevail. Shannon Gorman, Education Director of the Maine Independent Agents Association (MIAA), read my article with interest and invited me to be a speaker at their state agent’s convention in April 2011. The program I delivered was entitled “Agents under Siege: Take Back the Terrain.” To set the stage for the valueadded message to agents in Maine, I realized it would be important to understand the marketing techniques of direct writing carriers on the Internet. In final preparation for that presentation, I went to the Internet on March 5, 2011 and obtained sample quotations from GEICO and Progressive Insurance Company. I was interested to find that GEICO sold less coverage limits than were input as current coverage limits and did not offer an alternative of a combined single limit for liability or uninsured motorist coverage. GEICO only offered the option of input for liability limits and delivered a quotation for basic New York No-Fault coverage. Progressive did much the same, not offering the same coverages that were input for current coverage as their initial alternative quotation. My current coverage was a combined single limit of liability of $500,000, which neither carrier offered for

their first offering. During the course of this story’s unfolding, Progressive changed its model to provide an initial quotation of the same liability coverage limits that are input at the coverage inventory section. I then proceeded to explore the operation of the Name Your Price® tool advertised by Progressive. I moved the price bar to the lowest possible price and was delivered an alternative quotation for minimum required liability limits in my state, which I expected as an outcome. However, as I moved the price bar tool to successively higher premium amounts I was very surprised at the coverage combination changes. At several points along the continuum the program automatically reduced liability coverage and other coverages in exchange for a different mix of coverage. The purpose of these two rating examples was to identify those characteristics that made these two direct response carriers successful in their marketing techniques and to understand how they did that. In my presentation, delivered on April 4, 2011, I made it clear that independent agents need to recognize that we are clearly engaged in a market share “war” with direct writers and that the demise of the independent agency system is a possible outcome of the failure to win this war. In any “war,” it is important to understand who the enemy is and then to understand their tactics. This was a lesson that was carefully taught to me during my tour of duty in Vietnam as a field artillery combat soldier. It is essential to survival. I proceeded to describe and explain the two on-line quotation experiences of both GEICO and Progressive. The GEICO site made it difficult to capture individual screens for the PowerPoint presentation and the Progressive Name Your Price® tool provided surprising results. I provided additional slides to offer marketing examples for about 10 minutes of a three-hour program, primarily devoted to showing independent agents the variety of ways that we can add unique value added services to the insurance product and better serve the insurance consumer. The audience of approximately 100 agents included representatives of Progressive among other carriers’ staff continued on page 26

INSURANCE ADVOCATE / September 10, 2012 25

[ COVER ] continued from page 25

members. I was aware of their presence. During the program I invited anyone who took exception to the premium quotation examples that were represented or to any of the other points I made during the program, to raise their question or make their observation during the program. I indicated that I would remain available at the cocktail party following the program to answer any questions or objections anyone might have as to the comments made during the three-hour program. There were no takers during the program itself and no one approached me during the cocktail hour to indicate any objection to anything that was stated in the program. At the end of the program, there was strong applause indicating to me, acceptance by the audience of the premise that independent agents must develop a program and profile of value-added service to win back consumers. Feedback from Shannon Gorman, the Education Director of the Maine Independent Agents Association, included the note that Progressive’s representatives communicated that they did not believe the Name Your Price® tool operated the way I demonstrated it. They were invited to submit in follow-up any specific objections that they had to the presentation. They made no further comments to the Maine Independent Agents Association (MIAA) in the future weeks. On April 14, 2011 upon returning from a trip, I received a voicemail message from Dave Evans, a representative of the Independent Insurance Agents and Brokers of America (IIABA). Dave asked that I call him back because the “top brass” at Progressive had learned of my presentation in Maine and indicated they were upset that I had allegedly declared “war” by independent agents upon Progressive. When I returned his call I made it very clear that as a long-term volunteer of both the state and national associations, I understood the implications of any antitrust statements that might be made during a presentation and I had made no 26 September 10, 2012 / INSURANCE ADVOCATE

The program was largely and primarily a program to tout the value of independent agents and how they needed to create a value profile in their engagements with every consumer every time that they engage them, in order to win back market share that was lost over the past several years to direct writer carriers.

such statements. My focus was on all direct writers of personal lines policies, using two principal examples. The program was largely and primarily a program to tout the value of independent agents and how they needed to create a value profile in their engagements with every consumer every time that they engage them, in order to win back market share that was lost over the past several years to direct writer carriers. I followed by sending Mr. Evans a copy of the actual PowerPoint slide presentation that I delivered in Maine April 4, 2011. Mr. Evans told me that he communicated to Progressive that I was “an upright guy” and if I had said anything to offend Progressive I would certainly apologize to them for that. I indicated to him I had no intention of apologizing because I said nothing wrong except to advocate on behalf of independent insurance agents and the value-added they bring to the marketplace. I further indicated I was angry that it was apparently a response that was based upon

inaccurate information transferred to my national agents’ association. I also indicated that I was angry the national association (IIABA) had responded to what would appear to be incorrect, second hand information transmitted from the representatives who were present the program. I reiterated that I had offered anyone who had any objections at that time to step forward and that no one had done so. Progressive held that it was unfairly highlighted in the program as the sole direct writer carrier in the program and objected because they also sell through independent agents. The first objection is totally inaccurate and false. They failed to recognize my point that any carrier who sells in a direct marketing channel is a competitor against the independent agency distribution channel while engaged in activities of direct sales to the consumer. Indeed their representatives at the program in question were representatives within the independent agency distribution channel of Progressive participating as sponsors of an independent agency association convention event. One would presume that representatives of the independent agency distribution channel would be pleased to see agents receiving education on how to add value in their interaction with consumers. On April 22, 2011, I contacted Shannon Gorman of the Maine Independent Insurance Agents (MIAA) and she confirmed to me that they had been approached Progressive staff at the national legislative convention in Washington DC, who expressed objections to the program. The Maine Independent Agents Association (MIAA) stood by the program as an educational tool for advocacy of independent insurance agents to become better professional insurance agents. On April 25, 2011, I learned that Mr. Jack Cannon, Marketing Representative in New York State for Progressive Insurance company had made contact with Mr. continued on page 28

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David MacLachlan the president of the 3-S group, to which our agency belongs and Mr. Cannon indicated he wished to have a meeting with Mr. MacLachlan to discuss the program that I gave in Maine. He asked that I not be made aware of the meeting and that I not be in attendance at the meeting. An inference here could well be that Progressive had a problem with one of its agents and it needed to be addressed. During that same conversation requesting the meeting, Mr. Cannon held that I did not construct the program but it had instead been constructed by a firm named Chenango Brokers and that I was hired as a motivational speaker to deliver the program architected by someone else to the Maine Independent Insurance Agents Association. Mr. MacLachlan declined to accept the meeting on those terms and indicated that he would be willing to meet if I were present and fully aware of the meeting in advance. With that response, Mr. Cannon advised that he would instead contact me directly, but request that I not be informed of his contact to MacLachlan. Mr. MacLachlan indicated that he would not honor that request and would inform Ed Higgins of the contact. Mr. Cannon requested that, before informing Mr. Higgins of the contact, that he be given an opportunity to first check with his own boss, Jim Link. Mr. MacLachlan advised, that he could go ahead and check with him but that he would informing me of the contact. By now, the Maine Independent agents Association (MIAA), Independent Insurance Agents and Brokers of America (IIABA), and my cluster group president had all been engaged. On April 26, 2011, Mr. Jack Cannon, marketing representative handling the 3S Group, left a voicemail message on my personal voicemail saying that he and his boss, Jim Link, who was out of Buffalo, would like to talk to me about the “Big I presentation.” His message further stated, “It appears we have some differences about what Progressive is all about. You probably 28 September 10, 2012 / INSURANCE ADVOCATE

Brendan’s specific statement to Mr. Cannon was, "As an independent agent of Progressive, any of our efforts to compete against direct writers should not be suppressed, limited, or used against us in the course of our relationship with Progressive as a company we utilize when trying to compete as independent agents.”

haven’t talked to anybody in a while and we’d really like to have an opportunity to sit down and talk.” Fair enough, I thought. This contact was made to our agency as a member of the 3-S insurance agency cluster. Mr. Brendan Higgins, my son, is the formal representative to our 3-S group by our agency and, therefore, Brendan Higgins made the return contact because the contact was specifically made to our agency as a member of the cluster. We had also learned in the interim that an independent reporter of the insurance community for a publication called “The Standard,” had been in attendance at the program on April 4, 2011 and wrote a comprehensive front-page article on their issue dated April 15, 2011. That article document accurately presented the program's advocacy message for independent agents to develop value-added models for interacting with consumers, to successfully gain back market share. It also clearly identified the relative context of the success of direct writer response carriers as being only the introduction to the program. The

article also made clear identification of the references to both GEICO and Progressive: “He mentioned Flo from Progressive and the GEICO Gecko as popular direct writer marketing campaigns used to attract consumers by making insurance personable.” During the telephone conversation that took place between Mr. Jack Cannon and Mr. Brendan Higgins on April 28, 2011, it became clear that Mr. Cannon did not have firsthand knowledge of the presentation, did not have a copy of the presentation and did not have a copy the article from the publication. Brendan Higgins demanded that Progressive retrace its steps and apologize to each of the parties to whom they had communicated about the program's content and its architect. Mr. Cannon stated that, in the presentation, Progressive was the only direct carrier identified and it was unfair to Progressive to portray them as the enemy of the independent agents. Mr. Cannon apparently did not know that GEICO was mentioned to the same degree of reference as Progressive in the 10-minute introductory section of the program, although there was more Progressive on-line screen shot slides used as examples. Brendan’s specific statement to Mr. Cannon was, "As an independent agent of Progressive, any of our efforts to compete against direct writers should not be suppressed, limited, or used against us in the course of our relationship with Progressive as a company we utilize when trying to compete as independent agents.” Brendan Higgins indicated that he was disappointed that Mr. Cannon was not given better information before being asked to contact him regarding a program that was purely an advocacy educational program to which Progressive should have had no objection, if they were indeed a supporter of the independent agency distribution channel. Brendan Higgins has had 10 years of prior experience as an employee of a highly reputable national insurance carrier and, in his management experience in the past, he had never been asked to make such a contact without first having been provided

[ COVER ] clear confirmation of factually correct information. The requested meeting was now “off ” and Mr. Cannon would extend an apology on behalf of Progressive to our agency and to me personally. To this date, more than a year later, there has been no re-tracing of steps, retractions of misstatements by Progressive representatives to the various parties, nor any approach to me. There was also no further pursuit of the originally requested meeting. We realized that, in that context, we were potentially vulnerable to direct or indirect retaliatory action by Progressive. We therefore retained legal counsel and reviewed the entire course of events with him and had them write a cease-and-desist letter to Progressive Insurance company and a request to retract the erroneous statements made by their staff. That formal request was made on September 7, 2011. Although Progressive responded to that cease-and-desist letter with objections, they alleged that they have not attempted to make any retaliation directly against us as of that date. They have also not complied with the request to retract erroneous statements nor apologize to me. In good conscience, however, with concern about implications for all agents, we contacted the Independent Insurance Agents and Brokers of New York (IIABNY) specifically our State National Director (SND) John Costello and the CEO Mr. Richard Poppa. They recognized the possible implications of my experience for independent insurance agents and we made a formal presentation of the events to the IIABNY board of directors on August 17, 2011, in Syracuse, NY to provide insight into the behavior and actions we had experienced during the previous four months. The leadership indicated that they would pursue the matter from the perspective of concern for all independent agents, but only after first making a full, comprehensive confirmation of all the details that I had provided starting back in April 2011. The purpose was to be certain that they were dealing with first-hand information from various participants over the past four months. Their action was not on behalf of me as an individual but rather on behalf of all

independent agents who might be exposed to retaliation by national insurance carriers in the future for educational programs aimed at strong advocacy of independent agency distribution channel and effective contrasts with marketing techniques that could be harmful to consumers. Following their comprehensive confirmation of the trail of facts that had occurred in the past, Independent Insurance Agents and Brokers of New York (IIABNY) leadership invited Progressive

to a meeting to express their concerns about their conduct and to request that changes be made to the Name Your Price® tool to better serve the consumer. Progressive insisted they had taken no retaliation against me for the program that was provided in Maine. The Association leadership disagreed. After several exchanges and further deliberations over a two-month period Progressive, decided continued on page 30

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INSURANCE ADVOCATE / September 10, 2012 29

[ COVER ] continued from page 29

it would make no changes to the Name Your Price® tool bar. They did pledge not to take any retaliatory action against any independent agent in the future. From that point forward, we conducted our own action against Progressive Insurance Company by filing a complaint with the New York State Insurance Department (now, the Department of Financial Services) on August 24, 2011. That complaint alleged that the consumer was disserved by the Name Your Price® tool because, at various points along the price continuum, the consumer had coverage changes made that were not in their best interest and they were not prepared to understand as lay insurance purchasers. The complaint included 17 screen shots of various Progressive price continuum points indicating a variety of coverage changes with specific notation that, at several points along the continuum, liability coverage was significantly reduced. In one instance, the coverage was reduced from split limits of 250/500/100 to minimum state liability limits of 25/50/10 limits while the next added coverage was physical damage coverage for a 10-year-old car. This combination of coverage advancement at a higher price continuum is clearly contradictory to most accepted professional standards of risk management and asset protection. Progressive’s first response to the Department of Financial Services (DFS) was made on October 7, 2011. That response states, in part, “Mr. Higgins also takes issue with the operation of the Name Your Price® tool in that, when moving the slider toward the right, more expensive coverage packages can result in lower liability limits. This can occur when the consumer moves from a package without comprehensive and collision coverage to one that includes it. Mr. Higgins claims that, ‘any customer would anticipate that a higher price would result in increased coverage,‘ suggesting that lesser coverage is offered at a higher price. This is not the case. While less liability coverage is offered, the Name Your Price® tool never displays anything lower than the state min30 September 10, 2012 / INSURANCE ADVOCATE

This combination of coverage advancement at a higher price continuum is clearly contradictory to most accepted professional standards of risk management and asset protection.

imum limits and the total package of insurance coverage is increased since Comprehensive and Collision coverage is added to the vehicle. Again all changes are highlighted in blue shading on the user’s screen for ease of reference…. In summary, all coverage packages shown by the Name Your Price® tool follow our filed rates and are clearly explained and illustrated on each page of the tool. Consumers are provided a convenient means to obtain a quote that matches their existing coverage or, alternatively, they may manipulate coverage packages and see changes in real time by moving the Name Your Price® slider. Each change is highlighted in blue, and any reduction in liability limits is clearly and accurately described and never reduced below the state minimum limits. The Name Your Price® tool offers robust help text and a variety of ways to reach a licensed agent for assistance with the quote. Every coverage package displayed is clearly explained, and live help from a licensed agent is available 24 hours a day.” Upon receiving the above response that was forwarded to me by the Department of Financial Services, I went to the Internet and checked to confirm the blue highlighting of coverage changes. I found the blue highlighting lasts exactly 2 seconds and that the coverage changes were displayed over a space of two screens that had to be scrolled down by the user to see all the data. It is obvious that it

would be very difficult for a lay consumer to evaluate multiple coverage changes in a 2 second interval that occur over a two screen landscape. I wrote the Department in response advising them of the specific nature of the blue highlighting for only 2 seconds. There is no notification to the Internet site user of the meaning of bolding those coverages that change in blue. Indeed, it is easy to completely overlook the bolding process, which I personally experienced. I subsequently received a final disposition letter from the New York State Department of Financial Services dated November 1, 2011. That response indicated that, "The company disputes the fact that their Name Your Price® tool is misleading to the consumer. However we are referring the matter on to our Property Bureau for possible additional action." My above response regarding the blue bolding was also forwarded to the Property Bureau for inclusion in the complaint filed their department. I contacted the DSF by telephone upon receipt of the no action letter and stated that I was amazed that the DFS was taking no action whatsoever. I was told that this is a gray area and there is no clear violation of insurance law, but that the matter was referred to the Property Bureau in New York City. I pursued representatives at the Property Bureau in New York City to identify why they would be looking at the complaint, which was forwarded from the Consumer Affairs Bureau. They indicated that their office was more focused on the technical nature of complaints and were looking at the complaint further for possible additional action. Progressive responded to the Property Bureau on November 30, 2011. That response stated, in part, “As we explained in our initial response, while less liability coverage is occasionally presented, the Name Your Price® tool never displays anything lower than the state minimum limits and the total package of insurance coverage is increased since comprehensive and collision coverage is added to the vehicle. The Name Your Price® slider merely presents a continued on page 32

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[ COVER ] continued from page 30

continuum of the various insurance packages available at varying price levels and all changes illustrated by the name your tool for follow Progressiveâ&#x20AC;&#x2122;s filed rates consumers are free to make coverage selections on their own or, as explained previously, those who desire assistance in selecting appropriate coverage for their situation are offered a variety of ways to consult with a licensed insurance professional. To make the Name Your PriceÂŽ tool work as Mr. Higgins would personally like, we would have to forgo displaying coverage limit choices that many consumers would like to have and that are available under our filed rate plans. Moreover, given that insurance rates are actuarially determined, we do not agree with Mr. Higgins assertion that premium spent to increase liability limits

Their consistent premise is that all coverages are actuarially rated and approved by the [DFS]. Therefore, any combination of coverage that result in an aggregate total higher premium price is, in fact, higher coverage than the next prior lower price point.

always provides more value to the policyholder that an equal amount of premium spent to purchase or increase

comprehensive and collision coverage.â&#x20AC;? Their consistent premise is that all coverages are actuarially rated and approved by the Department of Financial Services. Therefore, any combination of coverage that result in an aggregate total higher premium price is, in fact, higher coverage than the next prior lower price point. (SPECIAL NOTE: If one follows that logic to its ultimate extension, one ton of coal equals a one-carat diamond). Progressive also points to the fact that all coverage changes are clearly highlighted in blue on their website when someone obtains a quotation of changing coverage. What their response fails to recognize is that all the coverage is not available on a single screen on the Internet site and requires the user to scroll through two screens of data. The highlighting of the coverages changes last for only 2 seconds. Even a well-informed consumer who clearly understood insurance coverage would not be able to identify all the blue bolding on two screens of data in two seconds and digest the implications of those changes. After several months of deliberacontinued on page 34

32 September 10, 2012 / INSURANCE ADVOCATE

ADVERTORIAL

By Michael Fliegelman, CLU, ChFC, AEP, RFC

A New Proﬁt Center for Property and Casualty Agencies: Life Insurance

eptember is Life Insurance Awareness Month and time for you to think about how life insurance can be rewarding for you and your clients. Some of you might be thinking about expanding your product offerings to include life insurance. This month is an excellent time for you to learn the details about how you might be able to provide life insurance to your clients. The current volatility in the markets has brought new attention to bear on life insurance because it is stable and secure. For example, Whole Life Insurance is a proven, stable product that offers guarantees other financial products can’t offer. A Whole Life Insurance product accumulates cash value and earns dividends, and has the flexibility to borrow against the policy’s guaranteed cash value. A chief reason why you and many of your clients would be interested in an offering of life insurance is because, by comparison, so many other investments right now are not as secure or stable. Let’s look at some ways this offering will not only benefit your clients, but you and your agency as well. 1. Helping your clients. According to LIMRA, a research association for the insurance and financial services industry, about 49% of Americans aren't contributing to any retirement plan. Among these statistics, an assertion has been made that many who are insured are actually underinsured and in the event of a tragedy, individuals, families and businesses would struggle and stand to lose their entire financial holdings. Life insurance is not a substitute for a comprehensive financial plan, but it is infinitely more secure than having little protection or none. Whether your clients are individuals or businesses, both stand to realize tremendous benefit by having the right life insurance plan in place. Life insurance is unique among other types of insurance in that it is one of the few guaranteed securities that deliver at exactly the moment when it is needed the most. Don’t you want to be in a position of helping your clients meet all of their insurance needs so that they are fully protected? 2. Insulating your clients from going elsewhere. You already have a relationship with your clients. By offering life insurance, you help ensure that this revenue stream will go to your agency and not to another competing agency. If your clients go to another agency for life insurance, they could very well

end up staying with that other agency to meet all of their other insurance and financial planning needs. Why take a chance on losing your most valuable asset—your customers? You are already aware of other types of insurance that they have in place and can respond accurately to what they need in the way of life insurance. As their insurance agent, you are in the perfect position to help them. 3. Proﬁtability for your Agency. Adding life insurance to your sales tool kit is a proven method of generating new revenue through your existing client base. By offering a fuller array of insurance products, your clients will not see you as only providing a limited offering. Because your clients already have a relationship with you, they will count on you to tell them which life insurance product is best for them. You can offer your clients a holistic approach to their insurance needs and still make extra revenue in the process. Give your agency an edge that will differentiate you from your competitors! With the addition of life insurance, you will increase profitability, enhance the image of your business, ensure client retention, and genuinely give your clients the products they need to fully protect their future. Even if you feel that you are not good at assessing different life insurance products, or you don’t have the expertise on these new products to make the conversation, always remember I am here to guide you, every step of the way, as you develop this new part of your business. Give me a call at 631-262-9254 to discuss how I can be of help to you and your agency. Your questions and feedback is very important to me. Please email me at michael@michaelfliegelman.com [IA]

Michael Fliegelman, CLU, ChFC, RFC, AEP®, Michael is a Mass Mutual brokerage director and the CEO and founder of SWAN Strategic Wealth Advisors Network www.swanwealth.com Michael is a leading authority on estate and business succession planning and has extensive experience in analyzing life, disability and long-term care insurance policies. He has a special talent for helping clients and insurance professionals to do their financial planning in a holistic and comprehensive manner. He has been a featured commentator on Fox News and in Newsday INSURANCE ADVOCATE / September 10, 2012 33

[ COVER ] continued from page 32

tion by the New York Department of Financial Services Property Bureau, I received a response, on March 27, 2012 informing me there had been several committee meetings with superiors, and the Department was notifying me that they chose to take no further action. Their reason for not taking action was, “We have reviewed your concerns and Progressive’s responses, and did not find that the company’s price quotation system on the Internet page referenced is in violation of any statute or regulation. It is noted that the department market conduct unit does monitor company websites periodically. Thank you for bringing this matter to Department’s attention. Based upon the above we are hereby closing our file on this matter.” Upon that decision I immediately contacted the Property Bureau and indicated it was incomprehensible to me that the Department would not take action at this time after an exhaustive investigative process that seemed destined for positive action based upon interim conversations with his department. The DSF indicated that they appreciated my frustration but there was nothing to be done. I advised that I had first pursued this with the Department of Financial Services as I had been counseled to do by my insurance association and, I was not willing to let this die at this point. I stated that I intended to refile the complaint with the New York State Attorney General. I pointed out that it would be very embarrassing to the Department if the Attorney General took further action on this complaint. On April 2, 2012, I re-filed the complaint in its entirety to the Hon. Eric T. Schneiderman, Office the Attorney General, The Capital, Albany, New York. I pointed out that I believed the consumer was disserved by the operation of the “Flo/ Name Your Price® tool.” Just eight days later in a letter dated April 8, 2012, I received a response from the Office of the Attorney General stating 34 September 10, 2012 / INSURANCE ADVOCATE

No agent fears competition; we live with it every day. The strength of competitors’ advertising and call centers and the rest cannot outdo us when the playing field is level – a condition for which we look to our regulators. The public may be entertained and engaged by clever ads, but buying complex coverages with multiple options, with flashes of i nformation that change value and tilt the field – should not stand.

that, “We have carefully reviewed your correspondence. You have correctly written to another agency with jurisdiction and expertise in this matter. We respectfully defer to that agency. If you have not already done so, you may wish to discuss this matter with a private attorney. In the event you need a referral, we suggest you call your County Bar Association with the New York State Bar Association's lawyer referral service at 1-800-342-3661 for assistance. Typically, initial consultations are relatively inexpensive and do not commit you to further representation. Our office cannot represent consumers in court or get individual legal advice Thank you for bringing this matter to our attention. We will keep your corre-

spondence on file for future reference.” Obviously with substantial previous investment of time and energy in pursuit of providing better business practice for the insuring public, and ending with no positive result I found myself in a very frustrating position. I returned, by e-mail contact to my first contact with the New York State Department Financial Services and informed that person that after all this frustration; my intent was to educate the public of this situation. I suggested, once more, that the department identify whether or not there was any possibility of a positive outcome by a further review. I was advised that there was previously no property and casualty insurance regulation on the books to cover the allegations against Progressive and the new regulation labeled #34B was currently promulgated and was resting at the Office of General Counsel for public comment and potential further approval. It was indicated that their regulation will be a clear and direct response to my complaint but no one knew how long will it take for that regulation to be passed and implemented. It became clear that the only hope of gaining results on behalf of the consuming public in regard to this matter was to present my story, as I am doing here and will continue to do. No agent fears competition; we live with it every day. The strength of competitors’ advertising and call centers and the rest cannot outdo us when the playing field is level – a condition for which we look to our regulators. The public may be entertained and engaged by clever ads, but buying complex coverages with multiple options, with flashes of information that change value and tilt the field – should not stand. I am disappointed that regulatory authorities were unable to take action that would seem logical based upon the circumstances and I do urge readers to be sensitive and aware of all of this. My e-mail address is ed@edhiggins.com. Edgar Higgins, CPCU. [IA]

[ IN THE ASSOCIATIONS ]

LABA Summer Networking Event

he Latin Agents and Brokers Association, (LABA), held a summer networking event recently at the Allegria Hotel's roof top bar overlooking the ocean in the town of Long Beach NY. Over 50 members & non-members alike, representing the carriers, wholesalers, and retail segments of the industry were in attendence. Vendors such as Servpro of Port Jefferson/Stonybrook/ Hicksville and representatives from the Nassau County Executive Office of Ed Mangano were also on hand. The night's networking festivities were Sponsored by Tower Insurance Group, Demetriou General Agency, and Majestic Insurance Service. All sponsors received a special citation from the Nassau County Executive Office of Ed Mangano honoring them for their committment to the community. Elmer Rivera is Chairman & President of the Latin Agents and Brokers Association, Inc. Tel. 631-531-9595, ext. 3301 erivera@latinagentsandbrokers.com [IA]

LABA EVENT COORDINATOR JENNIFER SWARTWOUT, LABA EXECUTIVE SECRETARY ELSA FERNANDEZ, JEWELRY RAFFLE GIFT DESIGNER DAWN MURILLO, AND LABA EVENT COORDINATOR ERICA ECHAVARRIA

JESSICA RODRIGUEZ OF GRAND INSURANCE AGENCY, SEAN GRANT OF JIMCOR AGENCIES, AND VINNY LAPUMA OF GRAND INSURANCE AGENCY 36 September 10, 2012 / INSURANCE ADVOCATE

LABA PRESIDENT ELMER RIVERA (R) AND LABA TREASURER HERMINIA BONILLA (L) ACCEPT COMMUNITY SERVICE CITATIONS FOR THE NIGHT’S SPONSORS FROM HERB FLORES (C) OF THE NASSAU COUNTY EXECUTIVE OFFICE OF ED MANGANO

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[ ON THE LEVEL ]

By Jamie Deapo

Impacting the Independent Agency System Model

very day it becomes more and more evident to me that the Independent Agency System is at a critical junction. What happens going forward is dependent on the speed at which agencies can adjust to the changes in our business. Consumers have had a multi-million

as willing to recognize them sometime in the future. Another trend exhibited in recent mergers and acquisitions is the increasing non-traditional buyers of agencies. The new buyers are financial institutions and venture capital firms who don’t understand

Another major concern is the impending exodus of a significant number of experienced and knowledgeable baby boomers from independent agencies. There is not much time available for agency owners to offset this brain drain by hiring and training new staff.

Jamie Deapo

dollar plus annual brainwashing to convince them that insurance is a commodity and the only differentiator is price. At the same time the way they choose to do business is being influenced by digital marketing and social media, especially with new young consumers. They want insurance providers, including independent agents, to be available when and where they choose to purchase coverage. The same thing applies to the servicing of their insurance needs. Independent agencies are being impacted by a shift in their business model. Increasing carrier volume demands and the need to grow large enough to negotiate additional commission revenue has increased mergers and acquisitions. This trend is also being fueled by an aging agency ownership weary of the daily demands of running an agency. The formation of cluster arrangements has helped agencies to meet volume demands, retain eligibility for contingency commission and offer much needed additional markets. For the time being they have been the saving grace for many small to medium sized agencies but I’m not sure how long carriers will choose to recognize them. These pseudo collective bargaining units, devoid of common ownership, may find carriers not 38 September 10, 2012 / INSURANCE ADVOCATE

how our business operates. Many of these new owners have found these purchases didn’t offer the profit potential they originally anticipated. For some the lure of new consumers they could gain as financial clients while offering their current financial clients insurance protection was very attractive and reflected in the price they paid to purchase the agency. Unfortunately, many found this cross selling not as attractive to their new client base as they had thought. As a result you know see some of these new buyers looking to divest themselves of their agency purchases. The effect of these purchases is the elimination of a number of small to medium size independent agencies. It also disrupts the client base in many cases causing them to “shop” their coverage giving independent agency competitors an opportunity to increase their market share. In addition to the changing consumer and the evolving business model independent agencies need to over haul their agency operations. Constantly evolving and improving technology has become a double edged sword. On one hand it allows agencies to serve their clients better and faster. The time savings offers more opportunity to counsel and advise clients as well as writing new business and coverage to

support much needed growth. Unfortunately the speed at which technology changes and improves coupled with the cost to purchase it and train staff to use it has a negative effect on an agency’s financial health. The direct response and captive agent companies have the financial resources necessary to better keep up with the rapidly changing technology. Another major concern is the impending exodus of a significant number of experienced and knowledgeable baby boomers from independent agencies. There is not much time available for agency owners to offset this brain drain by hiring and training new staff. This problem is magnified by the fact that our industry has a very poor track record in attracting young people into careers in our business. So are independent agencies doomed! Was the recent self-aggrandizing quote from a retired CEO predicting the demise of the independent agency system accurate? I don’t think so but in the end the decision lies with you, the independent agent. Are you willing and able to make the changes that will assure your future growth and success? First and foremost independent agents must educate consumers that proper insurance protection is not a commodity to be purchased solely based on price. Each individual, family and business needs to customize their protection to meet their specific needs and risk appetite. Agencies must be available both digitally on the internet and social media as well as in a traditional office setting. Sales and growth are the key to agency survival and success so agencies must have or develop a well performing sales unit supported by staff who are also focused on the need for sales and growth. In order to provide agency staff with the maximum time for acquiring new clients and lines of business agency workflow must be streamlined and supported by the best technology possible. Agencies must immediately look to hire and train new young talent that can be mentored by their experienced staff before they retire or leave. Programs like WAHVE (Work At Home Vintage Employees) can provide

[ ON TH E LEVEL ] agencies in need experienced and knowledgeable temporary staff to fill the gap while they make this transition. Agencies can also gain an enormous amount of information about younger consumers, their buying habits and how they use technology from their new young employees. Agency hours of operation have to be supported by staggered shifts, home based employees and outside vendors who can help provide 24/7 service capabilities. You have to be committed to using mobile technology that will provide speed in processing and handling client needs in the most efficient manner possible. Providing the necessary tools with the training necessary to properly utilize them has to be an agency commitment. Recently we have seen a trend where independent agency company partners have opted to offer coverage direct to the consumer. Itâ&#x20AC;&#x2122;s not popular and the companies involved indicate that they are only doing it to make sure they are able to capture the consumers independent agencies currently are unable to reach. If this is the case, as agencies improve their online availability and sales effectiveness there should no longer be a need for these companies to sell direct and they can instead provide more support to the independent agents that represent them. I realize all these changes are a significant money, time and management commitment and beyond the ability of most agencies to do all at once. The important thing is to prioritize the changes and implement them as soon as feasible. If as a group we could just be effective in educating consumers that insurance protection is not a commodity to be purchased based on price we will have bought ourselves enough time to work on the remaining items. We donâ&#x20AC;&#x2122;t have the financial resources of the price sellers but with the significant number of community based independent agencies we have we should be able to convince consumers that buying insurance is about getting the right protection and not about the lowest price. Letâ&#x20AC;&#x2122;s commit to making this a priority of every independent agency. Our success will be a win for consumers because they will be getting the protection they truly need and a win for us as it will demonstrate the real value of purchasing insurance protection from an independent agent. [IA]

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[ COMPANY NEWS ]

“Serving on a Board has Never Been so Risky” – Willis

EW YORK—Increased regulatory, shareholder and media scrutiny combined with volatility in the global economy means that serving on the board of a company has never been so risky, according to Willis Group Holdings (NYSE:WSH), the global insurance broker, which released its latest Boardroom Guide on Executive Risk. Against a backdrop of almost unparalleled financial instability, corporate crises, increasing regulation and public resentment over the perceived power of business executives, rarely have directors of large companies (especially in the financial services sector) been the subject of more scrutiny. With risk management now a key boardroom concern, Willis’ latest publication, Executive Risks: A Boardroom Guide, explores in-depth the whole range of risks and responsibilities that accompany the role of a director. It provides up to date information to help educate and inform directors

about the many risks they face. Written by Willis and a collection of powerhouse global law firms, the Boardroom Guide focuses on legal developments for directors in 18 key jurisdictions around the world and also has six special focus chapters addressing issues with global reach. In addition to a detailed breakdown of legal developments by country, highlights include: Ten key questions to ask before joining a board: There are some important issues to consider before joining a company’s board of directors. Particularly considering that your personal assets could ultimately be at stake. Willis’ boardroom guide explores the top ten. Directors’ and Officers’ (D&O) cover for US governmental investigations: The costs incurred by governmental investigations in the US can be immense – often running into millions of dollars. But recent

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federal cases have thrown into doubt whether some of the costs incurred in responding to such investigations are covered by D&O insurance. Why directors should be concerned by cyber risks: In 2011, companies of all sizes struggled with “cyber incidents”, ranging from malicious intrusions to employee negligence. The expanding online universe has introduced new financial risks that may not be covered under standard insurance policies. As a result, corporate directors and risk managers must ensure that they buy appropriately tailored policies that provide protection against the rapidly expanding risks to which they are vulnerable. Cross border risks: Directors and officers are looking more closely at the language and enforceability of their D&O policies and questioning whether the traditional “one global policy” approach to insuring D&O liabilities leaves them exposed. Effective board oversight of risk management: In light of new disclosure requirements, directors are increasingly asking what the proper role of boards is in corporate risk management. Willis’ report explores in detail what they need to know including concerns around incentivizing risk-taking and monitoring risk appetite. Elsewhere in the report and commenting on overall market dynamics Willis said that the global D&O insurance market has grown in capacity, while a number of new insurers have entered the market for international excess. The effect of this has been to keep pricing of D&O insurance relatively stable in most areas, despite the economic turmoil and the heightened threat of litigation. “Overall the market has so far weathered the economic storm if not intact, then without any major disruption,” said Mark Wakefield, Executive Director of FINEX Global, Willis’ Financial, Executive Risk and Professional Liability business. “Courts generally take the view that directors have a duty to gain a sufficient understanding of the nature of all the major risks facing their businesses. Against this backdrop the D&O policy has had to move with the times, as buyers and brokers seek cover for new and previously untested areas of liability.” [IA]

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[ COURTSI DE ]

By Lawrence N. Rogak

Pre-Existing Conditions - Policy Exhaustion American Arbitration Association New York No-Fault Arbitration Tribunal In the Matter of the Arbitration between Lutheran Medical Center and GEICO AAA Case No. 412012029477 AAA Assessment No. 17 991 24504 12 Brynne L. Haines, Esq., Arbitrator Summary of Issues in Dispute Does Public Health Law which requires insurers to pay for hospital treatment of pre-existing conditions when a patient is admitted take precedence over No Fault law which absolves an insurer of further payments where the policy is exhausted? The Assignor/Patient, age 66 years, was a pedestrian struck by a vehicle on April 30, 2011. He sustained a fractured left tibia and fibula. He was taken from the accident scene to Applicant hospital where he remained until May 3, 2011 and was discharged. Prior to the accident, the Assignor/Patient was being treated with kidney dialysis. The Applicant hospital continued the dialysis and billed $1,710.83 for it. Respondent paid Applicant’s bill except for the charge for kidney dialysis. Applicant submitted its total bill of $11,921.45 for the hospital stay to Respondent on June 3, 2011. On July 1, 2011, Respondent paid $10,210.62 to Applicant, but did not pay $1,710.83 for the dialysis. Respondent’s July 1, 2011 denial with the partial payment was based on a peer review by Dr. Bazos. He recognized that the accident caused injuries to the Assignor/Patient, but he noted that the patient had a complicated medical history including diabetes and renal disease. Except for the dialysis, he found the patient’s treatment was justified and related to the accident. Applicant argues that Respondent illegally held back payment for the dialysis, and that by doing so, Respondent violated Public Health Law (PHL). Applicant sub44 September 10, 2012 / INSURANCE ADVOCATE

Generally speaking, an insurer is not required to pay a claim where the policy limits have been exhausted.…Exhaustion is a question of fact, and therefore Respondent’s cases are not exactly on point where the courts determined the fact question precluded summary judgment.

mitted a brief with its arbitration request, and after the hearing submitted excerpts from Public Health Law which it cited at the hearing. An affidavit from Applicant’s employee shows that 8 days after the denial, Applicant appealed in writing to Respondent that the claim was underpaid. On Aug. 16, 2011, Respondent wrote back that it was standing by its denial. Respondent argues that the $75,000 policy is exhausted (as of Aug. 10, 2011). Applicant does not dispute it. There is no money left in the policy to pay the $1,710.83, and Respondent contends it is

not obligated to pay it now. Respondent did not respond to Applicant’s post hearing submission. Review of No Fault Law and Regulations and Public Health Law My review of No Fault law and Public Health Law follows. No Fault Law, 11 NYCRR 653.15, states “When claims aggregate to more than $50,000, payments for basic economic loss shall be made . . . in the order in which each service was rendered or each expense was incurred, provided claims therefore were made to the insurer prior to the exhaustion of the $50,000. If the insurer pays the $50,000 before receiving claims for services rendered prior in time to those which were paid, the insurer will not be liable to pay such late claims. If the insurer receives claims of a number of providers of services, at the same time, the payments shall be made in the order of rendition of services.” Generally speaking, an insurer is not required to pay a claim where the policy limits have been exhausted. [Hospital for Joint Diseases v State Farm, 8 AD3d 533 (2nd Dept. 2005); Presbyterian Hospital in the City of NY v Liberty Mut. Ins., 216 AD2d 448 (2nd Dept. 2004)]. Exhaustion is a question of fact, and therefore Respondent’s cases are not exactly on point where the courts determined the fact question precluded summary judgment. Mt. Sinai Hospital v Zurich American Ins., 15 AD 3d 55 (2nd Dept. 2005); NY & Presbyterian Hosp. v Allstate Ins., 12 AD3d 579, (2nd Dept); Nyack Hosp. v. GMAC, 8

[ COURTS I DE ] NY 3d 294 (2007) affirming 27 AD2d 96 (2nd Dept 2005); but cf: Crossbridge Diagn. Rad. v Encompass Ins., 24 M3d 134 (A), 2009 NY Slip Op 51415(U) (App Term 2nd Dept. 2009) where Defendant did not present admissible evidence to show policy was exhausted; therefore the defense of exhaustion had no probative value. In the instant case, it is undisputed that the policy is now exhausted, but it was not exhausted at the time Respondent received the completed claim for initial medical services to the Assignor/Patient. There are cases, however, where insurers have been made to pay in excess of the policy limits. An example is Nyack Hospital supra. In Nyack, the defendant was granted summary judgment dismissing the complaint on the ground that plaintiff was paid the balance of No Fault benefits remaining at the time the insurer received the verification it requested from plaintiff. The Court of Appeals noted that after receiving the requested verification, the insurer may have paid claims for services that were rendered later in time in violation 11 NYCRR 65-3.15 before paying plaintiff. The Court therefore denied the defendant’s motion for summary judgment and remitted the case to the Supreme Court for further proceedings. More recently, the Second Department upheld summary judgment in favor of a plaintiff hospital entered against a No Fault insurer for an amount ($416,039.42) far in excess of the policy limits. In Westchester Medical Center v Lincoln General Ins., 82 AD3d 1085 (2nd Dept 2011) the Appellate Division sustained the denial of the defendant’s motion to modify the judgment entered against it because the defendant moved belatedly, post judgment, to assert exhaustion. Arbitrators, also, have awarded No Fault benefits despite exhaustion of policy limits where claims were submitted and complete prior to the exhaustion of No Fault benefits. See (no name) and Utica Nat’l. Ins., AAA Case No 412005020780, aff ’d on appeal, where the Respondent denied the Applicant’s claim on round, inter alia, that benefits were exhausted. The Respondent failed to demonstrate

Arbitrators, also, have awarded No Fault benefits despite exhaustion of policy limits where claims were submitted and complete prior to the exhaustion of No Fault benefits.

that it paid claims in accordance with 11 NYCRR 65- 3.15 so the arbitrator found the Respondent liable to pay the Applicant’s claim despite the fact that the policy limits were exhausted. In Lutheran Med. Center and American Transit Ins., AAA case no 412010064637, the Applicant’s claim exceeded the policy limit and the Applicant alone was entitled to payment of its claim. The Respondent however, paid other providers and the Applicant sought an award of the monies paid to those other providers which the arbitrator denied. On appeal the master arbitrator awarded the Applicant the amount improperly paid to other providers noting that the exhaustion of benefits did not relieve the Respondent of its liability to the Applicant absent proof that Respondent made payment in compliance with 11 NYCRR 65- 3.15. Other arbitrators have ruled likewise. See Haar Orthopedics and First MutualTrans., AAA, Case No. 412007015447 (Arb. Kurz) (“insurer may not invoke the defense of policy exhaustion , as the claim was properly presented and improperly denied prior to the point of reaching the policy limits;” Long Island Spine& Ortho and Allstate, AAA Case No. 412007009249 (Arbitration request. Cutler Igoe) (award for Applicant despite fact policy limits were exhausted as limits were not exhausted when Respondent received Applicant’s proof of claim); Dr Trimba and Progressive Ins., AAA Case No.

412007001916 (Arb. Winning) (that policy limits were exhausted several months after claim at issue was denied had no relevance to Applicant’s entitlement to payment as Applicant’s claim was submitted before the policy had been exhausted); Triboro Med. and American Transit Ins., AAA Case No. 412006052199 (Arb. Weisman) (Respondent was liable to pay claims for which it issued late denials despite exhaustion of policy limits since funds were available to pay claims on date claims were received; (no name) and Geico, AAA Case No. 412006020147 (Arb. Benziger) (where verification requests were untimely, claims for lost wages were due prior to exhaustion of policy limits so Applicant was entitled to award on those claims); Perry Phys. Med. & Rehab. and Geico, AAA Case No. 412006037785 (Arb. Bianchino) (where Respondent was liable for claim as its denial was defective, it must reimburse Applicant despite exhaustion of benefits as there were more than sufficient benefits to pay claim on date claim was received); LI Med. Imaging, and Auto One Ins., AAA Case No. 412005056224 (Arb. Hirshhorn) (where two denials were late and Respondent failed to establish third denial was timely sent, provider was entitled to reimbursement for services rendered despite exhaustion of benefits, as claims were submitted and complete prior to policy exhaustion). Public Health Law 2807-c (1) (b-1) and (b-2) read in pertinent part as follows. “A payor included in the payor categories specified in paragraph (a) or (b-1) of this subdivision shall not be provided the option of payment to a general hospital for inpatient services based on the lower of hospital charges or the case based payment per discharge determined in accordance with this section for a patient or apportioning the appropriate case based payment per discharge for a patient by excluding payment for a preexisting condition or acquired condition which has to be treated along with the reason for the admission or, except as may affect qualification for payments in accordance with paragraph (b) or continued on page 46

INSURANCE ADVOCATE / September 10, 2012 45

[ COURTSIDE ] continued from page 45

I find there are two violations here – one of No Fault regulations, and the other of Public Health Law. Public Health Law in any event takes precedence. Furthermore, I believe this may be a case of first impression. I cannot find any cases or arbitration awards which deal with the interplay between Public Health Law and No Fault.

(d) of subdivision four of this section, for days within the inlier stay determined to be medically unnecessary.” The payor categories specified in paragraph (b-1) include payors making payments to general hospitals for inpatient services provided to patients eligible for payments pursuant to the comprehensive motor vehicle insurance law. Public Health Law 2807-c (1) (b-1) prohibits deductions for treatment of pre-existing conditions which have to be treated along with new condition for which the patient is admitted. It applies to the following laws and reads in pertinent part: “For patients discharged on and after . . . on and after Jan. first, two thousand, payments to general hospitals for reimbursement for inpatient hospital services provided to patients eligible for payments pursuant to the workers’ compensation law, the volunteer firefighters’ benefits law, the volunteer ambulance workers benefit

A N

law and the comprehensive vehicle insurance reparations act shall be . . .” Subsection (b-2) prohibits payors from “excluding payment for a pre-existing condition . . . which has to be treated along with the reason for admission.” On April 20, 2012, Applicant wrote to the Department of Health asking for an opinion on Public Health Law 2807-c (1) (b-1) (b-2) as to whether a No Fault insurer may exclude payment for preexisting conditions which have to be treated along with the reason for admission. (Apparently the Insurance Division of the new Department of Financial Services (into which the Insurance Department was merged) wrote to Applicant that the question of interpretation of Public Health Law should be referred to the Department of Health). In a legal opinion letter dated June 19, 2012, counsel Robert A Veino, Associate Attorney for the Bureau of Health Insurance Programs, Department of

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[ COURTS I D E ] Health, wrote to Applicant that the answer to the question “is straightforward and founded in the plain language of PHL 2807-(c) 1 and (b-2)” and “under the provisions of PHL 2804 c(1) (b-2) no-fault payors are required (to) pay the full DRG amount for the hospital stay as computed in accordance with paragraph (b-1) and explicitly prohibited from apportioning the bill so as to exclude payment for treatment of what the no-fault payor deems pre-existing conditions or conditions otherwise unrelated to the primary reason for the hospitalization.” I thank Applicant’s able attorney for providing much of the case law for this opinion. My conclusions are as follows. I find there are two violations here – one of No Fault regulations, and the other of Public Health Law. Public Health Law in any event takes precedence. Furthermore, I believe this may be a case of first impression. I cannot find any cases or arbitration awards which deal with the interplay between Public Health Law and No Fault. Applicant’s claim was first in time (apart from the ambulance which brought the Assignor/Patient to Applicant hospital). The claim was complete when Applicant mailed it to Respondent. Respondent sought no verification and acknowledged receipt on June 8, 2011 in the denial dated July 1, 2011. Therefore, when Respondent held back $1,710.83 for the dialysis treatment Respondent should have known, and actually was on notice from Applicant’s subsequent letter of July 9, 2011, that Applicant disputed the partial nonpayment. Yet Respondent did not hold the amount in a reserve fund, but paid other medical providers for their services later in time until the policy was exhausted. I find this is a violation of 11 NYCRR 65-3.15. Secondly, Public Health Law is even

more relevant to Applicant as a hospital making claims of an insurer such as Respondent. PHL 2807-c (1) and (b-2) make it clear that that every NYS general hospital is obliged to treat admitted patients for their pre-existing conditions independent of the reason for admission. Payors such as Respondent insurer are liable for making payments to said hospitals. PHL 2807 c(1) and (b-2) “prohibit deductions for treatment of pre-existing conditions” by insurers. Finally, PHL at 2807-c (b2)specifies that the law applies to the comprehensive vehicle insurance reparations act (No Fault). The Respondent was on notice with regard to the PHL law that it could not deduct for a preexisting condition which had to be treated along with the condition for which the Assignor/Patient was admitted. The explicit answer to Applicant’s inquiry by the Department of Health is contained in its opinion letter of June 19, 2012. The legal opinion of the attorney for the Department of Health makes clear the priority of PHL over No Fault law in these circumstances. “No-fault payors are required to pay the full DRG amount for the hospital stay . . . and are explicitly prohibited from apportioning the bill so as to exclude payment for treatment of what the no-fault payor deems pre-existing conditions. . .” I find it decisive that the Insurance Department within the Department of Financial Services deferred to the Department of Health for interpretation of the Public Health Law at issue in this case. Accordingly, I find that the denial and peer review are invalid because they take no notice of and violate PHL. Moreover, Respondent has not paid the claims in priority order pursuant to No Fault. I find Applicant’s claim is first in time in terms of services billed. I grant the claim with interest and attorney’s fees. [IA]

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

48 September 10, 2012 / INSURANCE ADVOCATE

[ LOOKING BACK… Insurance Advocate, 25 years ago]

New York and New Jersey’s Leading Insurance Magazine Since 1889. INSURANCE ADVOCATE / September 10, 2012 49

[ IN THE ASSOCIATIONS ]

The Griffith Foundation Announces Kevin Brown as Executive Director

ALVERN, Pa. — The Griffith Insurance Education Foundation has announced Kevin H. Brown, Esq., CAE, is its new executive director. This new role will complement Brown’s responsibilities as executive director of the CPCU Society. Both organizations have many complementary objectives and activities, and this closer coordination of The Griffith Foundation and CPCU Society activities will facilitate the best structural solution to achieving both organizations’ strategic goals, according to the Foundation.. As many as 500,000 people will retire from the insurance industry within the next 10 years, the McKinsey Reports. Kevin Brown and the team at The Griffith Foundation will be developing a long-term solution for the risk management and insurance

industry in order to address this coming human resource shortage. The Institutes’ Board of Trustees and The Griffith Foundation’s Leadership Council have identified the Next Generation initiative as a key effort to ensure the insurance industry remains a workforce leader in the future. In addition, The Institutes’ Board of Trustees have identified the Public Policymaker Education initiative as a key effort to address industry concerns about regulation and public policymakers’ need for basic insurance knowledge. To that end, the Board has asked for a recommendation that reflects a significantly expanded approach in relation to The Griffith Foundation’s current level of Public Policymaker Education programs and activities. Brown is the leader of the team that will make recommendations to achieve this objective. [IA]

Trusted Choice® Ad Debuts on Weather Channel ALEXANDRIA, Va.—A Trusted Choice® media buy on the Weather Channel is airing with a new ad highlighting a Joplin, Mo. woman who survived the 2011 tornado that devastated her town. She praises her Trusted Choice® independent insurance agent for his excellent customer service at a time when his agency was also destroyed by the tornado. “Consumers like Tracy Cope count on their Trusted Choice® agents to be there at the Visual FADE IN: Joplin downtown and beauty shots Tracy on camera Funnel cloud footage Rubble photos Tracy on camera Tracy painting house Tracy sitting on purple porch Closing narration and logo animation

50 September 10, 2012 / INSURANCE ADVOCATE

most difficult times,” says Robert Rusbuldt, Trusted Choice® president and IABA President & CEO. “The Weather Channel is the perfect outlet to demonstrate how dangerous and temperamental Mother Nature can be and the importance of making sure your family, business and home have the proper protection and plans in place.” A customizable ad is also available for Trusted Choice® agents to use for local television ad buys. [IA] Audio I never knew how great the people in Joplin were till such a tragedy happened. // Sound of funnel cloud whipping // The tornado was the most horrifying thing I have ever heard. My house breaking apart, all the windows exploding. It looked just like a warzone. My Trusted Choice insurance agent was amazing. He has been my agent for 30 years. My claim was settled within two months, I had everything that was coming to me and I was in my new home. To find a Trusted Choice independent insurance agent near you, visit TrustedChoice.com.

Matthews Selected as NYSIF 2012–13 Recipient

LBANY, N.Y—The New York Insurance Scholarship Foundation, Inc. (NYISF) awarded its 2012– 2013 scholarship to Samuel Matthews, a senior at St. John’s University studying actuarial science. “The New York Insurance Scholarship Foundation is pleased to recognize such an accomplished individual with this year’s scholarship,” Ellen Melchionni, president of NYISF said. “Sam is exactly the kind of student the foundation wants to help succeed in the insurance industry.” NYISF was founded to encourage scholastic achievement, community involvement and a commitment to further advancing the insurance industry. Matthews embodies of all these qualities. He is a strong student, active in the community, and has risk management experience both as a finance intern with Major League Baseball and an intern on the small commercial team at The Hartford. The development of future leaders is essential to ensure the viability of the insurance and risk management industry. NYISF addresses the great need to attract young professionals into the business. “The industry and insurance consumers grow increasingly more complex,” Melchionni said. “The cultivation of new talented leaders is critical to the advancement of our profession and to best serve the individuals the insurance industry serves.” The New York Insurance Scholarship Foundation, Inc. (NYISF) is a public charity initiated by the property and casualty insurance industry that supports students studying the business of insurance in New York. For more information on NYISF, visit www.nyia.org/nyisf. [IA]

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