Insurance Advocate December 17, 2012

VOLUME 123, NUMBER 21 / December 17, 2012

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December 17, 2012

[ IN THE NEWS ]

CONTENTS

IICF Northeast Largest-Ever Grant Distribution

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EW YORK, N.Y.—The Insurance Industry Charitable Foundation (IICF) Northeast division made its largest-ever distribution of charitable grants at its sixth annual benefit dinner on Wednesday December 12, 2012. The total amount of awarded grants is $960,000.

David Brinkman, chair of the IICF Northeast division board and executive managing director of Aon Benfield, reported that the division has now distributed grants totaling more than $3.7 million since the first event in 2007.

"In one of the most challenging times ever for our region and for the insurance industry, it is heartening and inspiring that the Insurance Industry Charitable Foundation has been able to make such a significant financial contribution to tri-state communities," stated Brinkman. "IICF serves as a rallying point for the generous giving of individuals and companies in our industry. The IICF's volunteer leaders applaud the commitment and community spirit of so many in our industry. We thank everyone who contributed for their outstanding support."

More than 1,000 insurance industry leaders attended the IICF charity event, held at the WaldorfAstoria in New York City. Speakers and presenters included: • Paula Zahn, award-winning journalist and host and executive producer of "On the Case with Paula Zahn" and as a co-host of WNET's "NYC-ARTS." She accepted an IICF grant to the Alzheimer's Drug Discovery Foundation, where she serves as a board member.

• Joe Torre of Major League Baseball, accepting a grant for the Joe Torre Safe at Home Foundation.

• Mark Teixeira of the New York Yankees, accepting a grant for Harlem RBI. At the benefit event, the IICF honored XL Group plc for philanthropic leadership with the 2012 'Double I' award for influence in the industry and impact in the community. Mike McGavick, CEO of XL Group, accepted the award, which was presented by Brian Duperreault, president and CEO of Marsh & McLennan Companies. Hank Watkins, president of Lloyd's America, served as dinner chair.

The IICF Northeast division makes its grants in the focus areas of education, children at risk, discontinued on page 8

[DE PA RTMENTS] In the News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 22, 34 Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Insight, By Peter H. Bickford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Exposures and Coverages, By Jerome Trupin . . . . . . . . . . . . . . . . . . 8 Fast to Face, By Michael Loguercio . . . . . . . . . . . . . . . . . . . . . . . . . . 24 From Counsel, By Sari Gabay-Rafiy, Esq. . . . . . . . . . . . . . . . . . . . . . . 32 Guest Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Classifieds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Looking Back. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 In the Associations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

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www.insurance-advocate.com INSURANCE ADVOCATE / December 17, 2012 3

[ FORE WORD ]

Steve Acunto

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The Lead Story.

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VOLUME 123, NUMBER 21 DECEMBER 17, 2012

EDITOR & PUBLISHER Steve Acunto, 914-966-3180, x110

think the best way to conclude Insurance Advocate’s 123rd consecutive year of serving the industry is to run the article that appears on page 3, describing the industry’s generosity and service. We presented a similar message last issue in the IFNY story on the new charitable initiative the Federation has undertaken. It’s a story not communicated as loudly or sensationaly as the unpleasant stories often are.

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Insurance professionals do step up, show up, and “cough up” faithfully the billions of dollars that are due to clients and they follow that with even more dollars to serve our society voluntarily. And then there is the billion dollar value in the time and volunteer service that distinguishes insurance professionals at every level.

We are proud to be a part of it, especially at Christmas when our entire society shows its best.

We wish a New Year of abundant blessings to all of our readers.

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

Thank you for your loyalty.

Steve Acunto Editor and Publisher and the entire staff of the Insurance Advocate

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[ INSIGHT ]

By Peter H. Bickford

Wrapped in Foil!

M

any, many years ago, I worked for an overly demanding boss.

One day when New York City was being pummeled by record snows – one of those memorable blizzards where people were skiing down empty Manhattan avenues – my boss emerged from his office demanding that the mail be brought to him.

When the receptionist, one of the few people who actually made it into the office that day, told him that because of the blizzard, there would be no mail delivery that day, he barked in full voice so the whole world could hear: “They have to deliver the mail! IT’S THE LAW!!”

Ah, if life were only so Peter H. Bickford simple. Take, for instance, the New York Freedom of Information Law (FOIL). On its face FOIL is a wonderful tool. It allows anyone to obtain records or documents maintained by any State agency simply by requesting them. If a State agency prepares a document or record that you want, it is required to make it available to you.

The basic premise for the law, which exists in some form or another in all states plus in Federal law, is set forth in the legislative Declaration section of Article 6 of the New York Public Officers Law, which states in part: “The people's right to know the process of governmental decision-making and to review the documents and statistics leading to determinations is basic to our society.

Access to such information should not be thwarted by shrouding it with the cloak of secrecy or confidentiality.”

The law also includes a number of exceptions, of course, mostly dealing with invasion of privacy (for others, not the agency), confidential information, trade secrets, interference with a pending proceeding, or anything that might endanger a person or persons if released. These exceptions are often used as excuses for delaying or denying legitimate requests.

The courts, however, have been helpful in supporting the purpose of FOIL. For 6 December 17, 2012 / INSURANCE ADVOCATE

instance, the courts have made it clear that the burden in denying access to any document or record is on the agency – not the requesting party -- and have also confirmed that FOIL does not require the party requesting the information to show any particular need or purpose for the request.

One of the restrictions of the statute is that an agency does not have to create a new document to comply with a record request.

However, a 2007 Court of Appeals decision (In the Matter of Data Tree, LLC v. Edward P. Romaine, & Co.) held that reformatting electronic data to meet a specific request is not necessarily the creation of a new record.

The court stated "if the records are maintained electronically by an agency and are retrievable with reasonable effort, that agency is required to disclose the information.” The principle holdings of the case were included in a 2008 amendment to the law making it clear that the burden will be on the agency to justify a denial of access to government records, and that denial of access cannot be based on the form in which the records are maintained.

Each agency is required to establish its own procedures for handling FOIL requests, and if the agency has a website it is required to include this information on the website.

The Insurance Department, has complied with this requirement for a number of years and now the DFS seems to be following suit.

Requests can be made via mail, fax or electronically through the DFS website. The online form is easy to follow, although the process seems unduly cumbersome in one respect. When making a request using the online form you receive an acknowledgement with a confirmation number.

However, in a few days you receive a second e-mail with a new tracking number that is different from the original confirmation number. This second notice advises which bureau will be responding to the request, and that you should be receiving their response within 20 business days (that’s four full work weeks!). The response will either be that the requested records will be provided and the cost, if any, of providing the records, or that the records are not available or are subject to an exemption from disclosure. If you disagree with a determination denying the records, there is an administrative appeal process and ultimately recourse to the courts.

Each agency is required to establish its own procedures for handling FOIL requests, and if the agency has a website it is required to include this information on the website.

My record with FOIL requests to the Insurance Department over the years was generally good. It helps a lot if you are precise in describing the requested records, and if you know where in the Department the specific records are kept. The Department is a big operation with many units, and it is not always obvious where certain records are maintained.

Patience is very important! I cannot recall how many times I was told such and such records did not exist until I was able to suggest where they might look, or to refer to the specific statutory requirement for maintaining the requested records. I have also had some frustrating experiences where records have been denied or redacted to such extent as to render them useless on some basis that I considered to be outside the spirit of the law.

Why the lesson on FOIL now? With the merger of banking and insurance (banking has its own FOIL process) finding where records are maintained may even be more difficult, and early indications are not encouraging that the new DFS is anxious to share its records. In a column earlier this year I described how the annual report of the Superintendent was a mere shadow of its former self in providing information about the insurance business in the State (“DFS Report: Size and Content May Send a Message,” June 18, 2012). The signs seem to point to an administration that believes that less is more when it comes to sharing information with the industry and the consumer. FOIL can help counter this course through requests for records of the Department that, for whatever reason, it has elected not to share.

At the time I submitted this column, I had two open record requests seeking records that have routinely been a part of continued on page 8

A Sanseviro Ins Agcy Inc A.C. Edwards, Inc. A.L. Maggiani A/C Associates of N.Y. Ability Service Agency Adirondack Trust Ins. Agency Advocate Brokerage Corp.

Affiliated Agency, Inc. Agency Insurance Brokers Inc Allan M. Block Agency Inc Allen C. Bentson Agency Inc. Alliance Brokerage Corp.

Alliance Group of Western Alliance Plus, Inc. Alwex, Inc. Amaden Gay Agencies Inc Amazon Ins. Brokerage, Inc. American Agents & Brokers,Inc Amherst Insurance Agency, Inc Amrock Associates LLC Amtech Insurance Brokers Andrew Torpie Andrews Agency, Inc. Anger & Litz Associates, Inc. Arcadia Group, Inc Archer A. Associates, Inc. Ari H. Friedman Assoc. Ltd Arnold K Davis & Co. Inc. Arthur J. Gallagher & Co Ashkar Corp.

Associates of Glens Falls,Inc Aurora, Inc. Austin & Co., Inc. Avner Brokerage, Inc. B & G Group, Inc. B&B Coverage LLC B&B of Westchester, LLC Badge Agency Inc. Bagatta Associates, Inc. Bailey, Haskell & Lalonde Baldon Group, Inc. Bank of Smithtown Bauer Brokerage, Inc. Beaumont & Stork, Inc. Bedrick-Katz Agency, Inc. Bender Insurance Agency, Inc. Bergan & Young, Inc. Berkely Brokerage Corp.

Birtwhistle & Livingston, Inc Blair Financial Services Grp Bolinger, Inc. Borg & Borg, Inc. Borrelli & Russo Agency, Inc. Bracco Agency, Inc. Bradley & Parker, Inc. Brady Risk Management, Inc Briarwood Brokerage, Inc. Briceland Agency, Inc. Brighton Pittsford Agency Inc Brittany Brokerage, Ltd. Brokers General Corporation Brown & Brown Bryant Asset Protection, Inc. Buchanan & Butler, Inc. Budde Agency, Inc. Bunt Insurance Agency Butwin Insurance Group BWD Group LLC C W Baker Ins. Agency, Inc. C. H. Edwards, Inc. C. H. Insurance Brokerage C. N. Maranto Agency, Inc. C. S. Burrall & Son., Inc. Cafarelli Agency, Inc. Capacity Group of New York Capalon Insurance Brkrge Co Capital Bauer Ins. Agcy, Inc Carbone & Molloy Insurance Carlstan North Hills Agency Carpezzi-Leibert Group,Inc. CBS Coverage Group, Inc.

Cee Jay L Agency, Ltd. Century Coverage Corp.

Cerow Agency, Inc. Cesar Insurance Agencies Inc. Charles A. Walker Corp.

Charles Goodman & Co. Ltd Charles P. Faso, Inc. Chernoff Diamond RM Inc Chester Agency, Inc. Chrisman Agency, Inc. Clancy & Clancy Brokerage Cohen Partners LLC Commercial Coverage Brokerage Concord Insurance Agency LLC Cook, Hall & Hyde, Inc. Cool Insuring Agency Inc. Cortland Insurance Agency Inc Cosmos Ins. Brokerage, Inc Coughlin Enterprises, Inc. Countrywide Insurance Agency Coyne Insurance Agency Crane Group, Inc. Crown Risk Management, LLC CTK Insurance Agency, Inc. Culbert & Stenson, Inc. Curran Cooney Penny Agency Cy Mark Agency, Inc. D. A. Wheeler & Co., Inc. Dave Wheelock David L. Grodner Insurance David M. Richman Dayton Ritz & Osborne DeAngelo Agency, Inc. Delmonico Associates, Inc. DeRosa, Rockeffeller,Sohigian Devine Agency, Inc. Dewitt Stern Group,Inc. Dickerson & Meany, Inc. Diem & Buerger Agency Inc. Dier Agency, Inc. Dominick Falcone Agency, Inc. Don Allen Agency Inc. Donald F. Seitz & Co.,Inc. E & J Agency, Inc. E. F. Ashley, Inc E. J. Dignum and Sons E. M. S. A. I., Inc. E. T. Dayton Eastern Shore Associates EBS-RMSCO, Inc. Eifert French & Ketchum Elite Insurance Agency Inc Ellis, Moreland & Ellis Ely & Leene Agency Emerling Agency LLC Emery & Webb, Inc. EMS Group Energy Insurance Brokers Enforce Coverage Group LLC Executive Brokerage Fabricant & Fabricant Inc. Fairmont Insur Brokers,Ltd FDS Agency, Inc. Finger Lakes Partners LLC Firm Insurance Agency LLC First Niagara Risk Management Fitzgibbons Agency Inc. Fitzharris Agency, Inc. Flood Group, LLC Floss Agency Inc FOA & Son Corp Foy Agency, Inc. Fraleigh & Rakow Inc. Frank Crystal & Co., Inc. Frank H. Reis, Inc. Franz-Manno Service Corp.

Fred C. Church, Inc. Frenkel & Co. Inc. Friedman & Friedman Agency Friedman Associates

Gak Agency, Inc. Gannon Associates Garber Atlas Fries &Assoc.Inc Genatt Associates Inc George A. Bell & Son, Inc. George T. Whalen Insurance Gersten Hillman Agency, Inc. Gil Leung & Associates, Inc. Glanzer Insurace Agency LLC Glatz Agency Global Coverage Inc. Global Planning Corporation Goldstein Insurance Agency Gordon B. Roberts Agency,Inc Gordon W. Pratt Agency Graf Agency, Inc. Grillo & Associates Grimsley Agency H. J. Edwards & Associates Hagedorn & Co. Hallahan McGuinness & Lorys Hamill/Regional Valley Assoc.

Hank Garvin Insurance Agency Hanlon Agency Harding Brooks Associates Harold L. Lee & Sons, Inc. Harry Gottlieb & Co. Haskell Brokerage Corp Haylor Freyer & Coon, Inc Hedley Brook Agency, Inc. Henco Brokerage Herack-Dannenberg Co Inc Herbert L. Jamison & Co., LLC Hickey & Hickey Insurance Hiram Cohen and Son, Inc HMS Agency, Inc. Holcam Associates, Inc. Holler-Grapes Insurance Agcy Home Town Insurance Honig Conte Porrino, Inc. Horizon Planning Services,Ltd HUB Int’l Northeast Ltd. Hughson & Benson Associates Huguenot-National, Inc. Hunter Agency, Inc. I C S Agency Inc I Dachs & Sons Inc I. Levine & Sons, Inc. IMS Group Northeast Corp Industrial Coverage Corp.

Insight Companies, Inc. Insurance Assoc Marketplace Insurance Solutions Inter Insurance Agency Interstate Brokerage Corp.

J N Grace Group, Inc. J. Zamzok & Assoc. Inc. J. A. Faccibene & Assoc,Inc J. D. Chapman Agency, Inc. J. D. W. & Assoc., Inc. J. Nicholas Krug Agency, Inc. J. S. Risk Planning Group LLC James F. Sutton Agency, Ltd. James Mao James P. Reagan Agency, Inc. James S. Sullivan Agency Inc JFA Ins. Brokerage &Assoc.Inc Jiann J. Houng John Abrams & Associates John H Wall Ins. & Bonding John Petschauer, Inc. Joseph J. Lewis & Son, Inc. Ju-Li Associates Ltd. KAH Insurance Brokerage, Inc. Kalayjian Oaks & Associates Kallman Insurance Agency Kapatoes Insurance Services Karsanidi Group, Inc. Keevily Spero Whitelaw, Inc. King Clark Co., Inc. Kleeber Agency, Inc.

Koles M & Associates LLC Kornreich NIA Organization Krugman & Krugman, Inc. Lashomb Insurance Agency Latremores Ins. Agency Lawley Genesee, LLC Lawley Richwood Insurance Lawley Services, Inc. Lawley-Andolina Verdi LLC Lebaum Company, Inc. Levitt- Fuirst Associate LTD. Lexsan Risk Management Corp.

Liscio Insurance Agency, Inc. Livingston Ins. Agency, Inc. LKF Partners, Ltd. Lloyd’s Planning Services LLC Lockwood Agency, Inc. LoPinto Insurance Agency,Ltd Louis Koch Ins. Agency Loveman, Kornreich & Steers LRMP, Inc. Luce, Smith & Scott, Inc. M J Comas Co. Inc. M&T Insurance Agency, Inc. M. L. Bruenn Co.,Inc. M. B. I. A. LLC Madison Avenue Brokers Malpigli & Salvaggio Ins. Mang Insurance Agency Maran Corporate Risk Assoc.Inc Marc Spiro & Company Marchetti & Sabatelli Assoc.

Marino Coverage Group, Inc. Market Alternatives, LLC Marshall & Sterling Masters Coverage Corp.

Matthew Wallingford Max Fitelson & Son Mayfair Organization, Inc. McLaughlin-Kehoe Assoc., Inc. Member Brokerage Services MetzWood Harder, Inc. Michael A. Lasorsa Ins. Mid Valley Insurance Agency Mike Preis, Inc. Milbrandt & Co Inc Miles B. Marshall Inc. Millennium Alliance Grp,LLC Miller & Miller Ins Agcy Inc Miller Agency of New York Inc MJM Global Services, Inc. Montana Agency, Inc. Moses Insurance Group, Inc. MRW Group Inc. Murray, Schoen & Homer, Inc. National Ins. Brokers of N.Y. National Programs Insurance National P & C Services Newbridge Coverage Corp.

NFP P & C Srvc NGL Insurance Group Niagara Montauk Insurance Niagara National, Inc. North Country Estates, Inc. North Shore Risk Mgmt, Inc. Northern Insuring Agency, Inc Northtown Insurance Agcy Northwin Agency LLC Omni Risk Management Oswego Valley Ins. Agencies Owens Group Insurance Ltd. Paris Kirwan Associates Inc Paston Group, LLC Pastorelle Agency, Inc. Patrick J Cavallo Agency Patrick Maguire Agency, Inc Perry & Carroll, Inc. Petrocelli Group, Inc. Phelps Agency, Inc Platinum Resources, Inc. Porpora Associates, Inc,.

Premier Risk LLC Prince Associates, Inc. Prodromou L.M. Advisors LLC Professional Insurance Assoc.

Progressive Risk Management Qendro Sparks Agency, Inc. R. Marcil Associates, Inc. R. G. Wright Agency, Inc. R. J. Battaglia Agency R. J. Fregenti Associates, Inc R. M. Hollander Insurance Svcs RAL Services, Inc. Ralph Parnes Associates, Inc. Rampart Brokerage Corp.

RBL Associates, Inc. Reardon, Rapley,Lindner Restaurant Support, Inc. Richard H. Leenhouts Richards Insurance Agency Richardson & Stout Insurance RISC One, Inc. Risk Stratagies Co. RMI Consulting, Inc. Robert A. Sweeney Agency, Inc Robert E. Snyder, Inc. Robert J. Los Agency, Inc. Roe Agency, Inc. Ron Reiter Rose & Kiernan, Inc. Rose Shea Associates Rosen Co Inc Roy H. Reeve Agency, Inc. RPG Insurance Agency LLC Rutecki Agency Ryan & Ryan Ins. Brokers, Inc S & M Klein Co Inc Sachs Walsh Insurance t/a Salenger & Hayward Ins. Agcy Salerno Brokerage Corporation Samuel Weisman & Sons, Inc. Sano Brokerage Co. Inc. Saperstein Agency, Inc. Savitch Agency, Inc. Scarsdale Agency, Inc. Schaefer Enterprises, Inc. Schenectady Insuring Agency Schizzano Insurance Agcy,Inc Schmutter, Strull,Fleisch Inc Scirocco Financial Group, Inc Scott Danahy Naylon Co.,Inc. Scovotti & Company, Inc. SCS Agency, Inc. Seaway Insurance Assoc.

Secur-All Agency, Inc. Seely & Durland, Inc. Selmyn Kaufman Sentz-Carlson Agency, Inc. Serres, Visone & Rice, Inc. Seth Jonas dba S. Jonas Ins. Shepard, Maxwell & Hale, Inc Shopiro Agency, Inc. Sidney Salters SKCG Group, Inc. Slapin-Lieb & Co Slocum-Lauder Agency, Inc. Sluiter Agency Inc. Smerlock & Unger, Inc. Sobel Affiliates Spataro Insurance Agency, Inc Spectrum Insurance Brokerage SRJV Risk Services Stack Insurance Agency Stanley Schusterman, Inc. Starkweather & Shepley Ins. Steinfeld Insurance Agency Sterling & Sterling, Inc. Steven G. Barretta Steven T. Dukoff Agency Stiepleman Coverage Corp.

Stratford Insurance Agency

Sullivan, Shugree & Lucie Sutton & Tarantino Sykes Milla Assoc.

T & D Aloia Inc. T. D. Insurance Inc. Takach & Associates, Inc. Tanenbaum-Harbor Co., Inc. Tate M. Heuer Insurance Broker Terranova Insurance Services The Amerisc Corp.

The Associated Agencies, Inc. The Byrne Insurance Agency,Inc The Deuink Agency The Excelsior Group, Inc. The Guion Agency, Inc. The Halland Companies The Insurance Market Agcy Inc. The Jackson Agency, Inc. The Keller Group, Inc. The Ketchum Agency, Inc. The Mogil Organization The Naccarato Ins. Agency, Inc The NIA Group LLC The Northwoods Corporation The Partners Insurance & The RIA Group, Inc. The Rollins Agency, Inc. The Rowan Group, Inc. The Savage Agency, Inc. The Signature Group, LLC The Snedeker-Jenkins Agency The Spain Agency The Stuhlweissenburg Agency The Treiber Group, LLC The Valley Group, Inc. The Vanner Group, Inc. The Vozza Agency, Inc. The Whitmore Group Ltd. The Winfield Group Thomas M. Neppell & Sons, Inc. Tompkins Insurance Agencies Total Management Corp.

Treiber-Roberts, Inc. Triple Crown Ins. Bkge. Inc Tri-Town Agency, Inc. Ulster Insurance Services Inc Unilite Insurance Agency, Inc United Brokerage Services United Insurance Agency Inc. United Insurance Consultants Upstate Agency LLC Urbanski Insurance Agency USI Insurance Services LLC USI Northeast Inc. Van Parys Assoc of Palmyra Inc Vincent Cirasole W B Payne Co., Inc. W. Joseph McPhillips, Inc. W. L. Putnam Agency, Inc. Wallace & Berry Associates Wallace Brokerage Corp.

Wallberg Program Products Walsdorf Agency, Inc. Wells Fargo Insurance Wertheim Brothers, Inc. Wharton B. Allen Agency, Inc. Wilbert Wenner Insurance Wilkins Insurance Agency William A. Smith & Son, Inc. William Coppola Agency, Inc. William F. Carroll Agency,Inc William J. Chabina Co., Inc. William M. Zagarino Williams & Williams, Inc. Willis of New York, Inc. Willis of Pennsylvania, Inc. Yale Brokerage Corp.

York International Agency Inc

Thank you for putting your clients first r edlander

Gain and Retain Clients

[ INSIGHT ] continued from page 6

the Superintendent of Insurance’s annual reports in the past but which the DFS has chosen not to share publicly. Among other things, the information I have requested includes details of the surplus lines business written in the state, details of free zone writings, and information about the staffing of the Department. These requests have been outstanding beyond the statutory requirement for response. In fairness, Superstorm Sandy intervened and as noted patience is important.

There are many other areas where details previously provided were not proved this year, or which many of you know are collected on a regular basis by the Department that are no longer made available. Do not forget about FOIL as a tool if that information is meaningful to your business or to your customers!

And be persistent. Remember, to paraphrase my former boss: “They have to give it to you. IT’S THE LAW!” [IA]

[ IN T HE NEWS ]

IICF Grant Distribution continued from page 3

aster preparedness, and the environment across the New York/New Jersey/ Connecticut tri-state area. The 16 grantees for 2012 is the highest number ever, surpassing the 2011 total of 15. Each of the grants is for $50,000 or more and were received by these organizations: Alzheimer's Drug Discovery Foundation is dedicated to rapidly accelerating drug research to get new therapies into the hands of patients and their families as quickly as possible. ADDF provides critical seed funding to scientists conducting innovative research, to date investing more than $54 million to fund nearly 400 drug research programs at academic centers and biotechnology companies in 18 countries.

American Red Cross prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors. Through its network, the Red Cross provides trained individuals ready to use their skills to save lives.

8 December 17, 2012 / INSURANCE ADVOCATE

buildOn has a goal to break the cycle of poverty, illiteracy and low expectations through service and education. It runs afterschool service programs across the United States and builds schools in developing countries.

The Central Harlem Initiative for Learning and Development, Inc. (CHILD, Inc.) is a not-for-profit organization that supports St. Aloysius School, a two-campus school in Central Harlem dedicated to educating children who are at great risk of not meeting their potential.

CityKids Foundation offers an artsbased youth empowerment model to urban young people ages 13-19, through arts and educational programs to develop the knowledge, skills, and confidence to succeed in school, workplace and life.

Community Mainstreaming Associates provides homes and life-enhancing services for men and women with developmental disabilities. Its Sweet Comfort Bakery & Café provides its employees with a developmental disability with the individualized support needed to help learn the skills and concepts necessary for sustained, rewarding employment.

Covenant House New Jersey provides services to homeless young people to help themselves to become happy, healthy and independent young adults by providing food, shelter and immediate crisis care.

The Doe Fund answers the call for a proven and effective solution to homelessness and criminal recidivism. Through its innovative paid transitional work program "Ready, Willing & Able," the organization has empowered tens of thousands of individuals to lead productive lives.

Eden Autism Services is a primary resource for autism information, education, training and support services for individuals with autism, families, educators and healthcare professionals. Programs include early intervention, education, employment training and residential services.

Family Reach Foundation provides financial relief and heartfelt support to families fighting cancer. It strives to reduce the often-overwhelming financial and emotional burdens that families experience after a child or parent is diagnosed with cancer.

Friends of Karen, Inc. ensures that families of critically ill children don't have to face the illness alone. The organization

puts its experience to work to assure the emotional and financial well-being of every family member coping with a child's illness.

Harlem RBI serves more than 1,200 boys and girls, ages 5-22, with year-round academic, sports and enrichment programs. Harlem RBI's comprehensive approach to youth development replaces the barriers inner-city youth typically face with concrete opportunities to build the skills and confidence needed to graduate high school, matriculate to college and break the cycle of poverty. Harlem RBI operates DREAM Charter School in East Harlem.

Hudson River Sloop Clearwater provides innovative environmental programs, advocacy and celebrations in order to inspire and energize the next generation of environmental leaders.

The Joe Torre Safe At Home Foundation has worked for 10 years to end the cycle of domestic violence through counseling, education and support. Its school-based "Margaret's Place" program reaches 8,000 middle and high school students in New York City and Los Angeles.

Metropolitan Hospital Center (MHC) is a community hospital for residents of East Harlem, northern Manhattan and neighboring communities. Metropolitan provides culturally-sensitive care in a welcoming and hospitable setting, emphasizing primary care medicine and utilizing the latest advances in medical science.

Mount Kisco Child Care Center is a non-profit, non-sectarian childcare facility licensed by the New York State Office of Children and Family Services that is dedicated to providing high quality child care and early education, regardless of a family's ability to meet tuition.

For more information about the grantees, visit www.IICF.org/grants/northeast-division-grants.

At the event, IICF also made an appeal for additional Superstorm Sandy relief.

Contributions can be made by clicking the "Donate" tab at www.IICF.org. [IA]

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[ EXPOSURES AND COVERAGES ]

By Jerome Trupin, CPCU

Insured’s Failure to Read Policy Does Not Automatically Bar E&O Claim Against Broker Dot The “I’s” and Cross the “T's" on NFIP Claims False Address on Auto Policy Voids Coverage If Contract Doesn’t Require Additional Insured Status, You Don’t Get It A Breech in the Dike?

Successful lawsuits against producers by New York insureds alleging errors or omissions are few and far between. The key word is “successful.” Hope springs eternal, so there are plenty of lawsuits---just not many successful ones. A recent New York Court Of Appeals decision may change that.

American Building Supply Corp (“ABS”) subleased a warehouse in the Bronx from DRK, LLC (‘DRK”). The lease required ABS to procure liability insurance with a limit of $5,000,000 covering both ABS and DRK. ABS obtained CGL coverage from excess insurance carrier, Burlington Insurance Company. It changed brokers when its CGL policy was cancelled for non-payment. Its new broker, Petrocelli Group, Inc. (“Petrocelli”), arranged to have the policy reinstated with Burlington.

Effective June 14, 2005, the Burlington policy was renewed by Petrocelli and was essentially the same as the expiring one.1 The condition that triggered the dispute, was a cross-liability exclusion; it was included in both policies. It read as follows: “This insurance does not apply to any actual or alleged “bodily injury”, “property damage,” “personal injury” or “advertising injury” to . . . a present, former, future or prospective partner, officer, director, stockholder or employee of any insured.” 2 In October 2005, one of ABS’s employees sued DRK when he was injured in the building. DRK sought coverage as an additional insured under the Burlington policy.

Lease requirements requiring that the lessor be included as an additional insured are so

Once the policy was delivered, ABS’s failure to read the policy and seek correction of the coverage barred its claim against Petrocelli. common that coverage is automatically provided in CGL policies via an exception to the contractual liability exclusion.

However, based on the cross-liability exclusion, Burlington denied coverage for DRK. DRK commenced an action against ABS for its failure to comply with the lease condition and ABS sued Petrocelli for negligence and breach of contract in placing ABS’s insurance. The Supreme Court ruled in ABS’s favor, pointing out that “ABS testified that it informed Petrocelli it required coverage if any employee injured himself and that a jury could rationally conclude that ABS made a specific request for such coverage.”

The First Department NY Appellate Court reversed the decision. In its view, whatever coverage ABS may have requested did not matter. Once the policy was delivered, ABS’s failure to read the policy and seek correction of the coverage barred its claim against Petrocelli. (The Court of Appeals decision notes that Petrocelli did not read the policy either.)

Appellate Courts are split on the issue of whether failure to read a policy provides a basis for an insured to escape a policy’s provisions. The First and Fourth Departments3 have held that once an insured has received

Jerome Trupin

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.

continued on page 12

1 American Building Supply vs. Petrocelli Group, Inc. 11/19/2012, 188 - NY Court of Appeals 2 The breadth of this exclusion is startling. Although not an issue in this case, even a claim by a prospective employee—who is someone not covered by the workers compensation law—is excluded from coverage. Once again, RTFP—read the fine print.

3 The Bronx & Manhattan comprise the First Department,. The Second Department includes the balance of New York City plus the surrounding suburban counties. The Third Department is the western part of the state including Onandaga County (Syracuse) and Erie County (Buffalo). The Fourth Department includes Albany County and Broome County (Binghamton) and their surrounding areas http://www.courts.state.ny.us/courts/appellatedivisions.shtml

10 December 17, 2012 / INSURANCE ADVOCATE

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the policy, it is bound by its terms and cannot rely on the broker’s description of coverage.

The Second Department has held that receipt of the policy does not bar an action for negligence against the broker.4 Differing decisions by the Appellate Courts often set the stage for a New York Court of Appeals decision. In this case, the Court of Appeals ruled that, although it is

better practice for the insured to read the policy, the insured should have a right to look to the expertise of its broker with respect to insurance matters.

The "insured must read the policy" rule has always troubled me. First, a substantial portion of the population isn't going to understand the policy even if they did read it. "Simple-English policies" haven't cured the problem. For example, I agree that "subrogation" is not a word that most

insureds would understand, but is "transfer of rights of recovery against others to us" better? The first sentence of that “simpleEnglish” provision runs 35 words. I prefer the word "subrogation." The average person will realize that it's a word to look up.

American Building is a perfect example of the problem. Even if they had read the exclusion, would they appreciate the problem? I suspect that, at most, they would see it as an acceptable exclusion feeling that workers compensation protects them from suits by their employees. The interaction between the lease agreement with the property owner and their insurance policy would escape them.

In a case like this, where the broker was told their situation (the warehouse was not open to the general public), I agree with the court. Even if the broker had not been told, I think the broker should know that almost every lease requires that the tenant's insurance provide protection for the landlord. The non-standard exclusion in the policy should jump out at the broker, but of course, first they would have to read the policy.

The concept that the insured should have a right to look to the expertise of its broker with respect to insurance matters is a new approach in New York. New York courts have been adamant in their position that an insurance broker is not a professional (sorry about that gang!) and therefore does not have a higher duty of care unless there is a “special relationship” between the broker and the insured. It is difficult for an insured to demonstrate special-relationship standing. Even a history of long and exclusive service as the insured’s insurance broker has been held insufficient to create a special relationship.

A First Department Appellate Division decision in an E&O case against Marsh just a week earlier than the ABS case, affirmed this approach. In the Marsh case, the Appellate Court wrote: “Absent a specific continued on page 14

4 Katherine A. Fijal ’ Agent or Brokers Errors & Omissions – An Insured’s Duty to Read” Coverage Pointers November 23, 2012 Hurwitz and Fine Electronic Newsletter. http://www.hurwitzfine.com/shownews.php?typ e=coverage&id=475

12 December 17, 2012 / INSURANCE ADVOCATE

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[ EXPOSURES AND COVERAGES ] continued from page 12

request for the insurance, defendant, as broker, had no duty to obtain coverage.”5 I’ve discussed the ABS case with a number of insurance attorneys. All agree that it is a departure from prior case law.

One emailed that it was “If not a 180, (it was at least) a 90, with respect to past precedent.”

New Jersey courts have long held that a broker does have a duty to the insured and that the insured can rely on the broker’s expertise with often disastrous results for the broker.6 Is New York headed in that direction? It will be interesting to see how this plays out in future cases—you can be sure there will be many.

Dot the “I’s” and Cross the “T’s” on NFIP Claims Many more brokers and insureds will be dealing with National Flood Insurance Plan (NFIP) claims because of Sandy, so it’s a good time to point out that NFIP plays by slightly different rules than those that apply to commercial insurers. Here’s a case that illustrates the point: In 2007, Robert Jacobson purchased a Standard NFIP policy from Metropolitan Property & Casualty covering his home in New York’s Catskill Mountains near the juncture of two creeks. Metropolitan is a Write-Your-Own (“WYO”) Program carrier. Although it services the policies it writes, the ultimate loss is covered by NFIP7.

Between 2004 and 2006, Jacobson had experienced the creeks’ flooding nine times. In June 2007, the creeks around Jacobson’s home overflowed again, rising over 46 feet and washing away 50 feet of his land.

Jacobson did not see any damage to his home and he did not report the flooding to Metropolitan. He first noticed damage to his house in December 2007 when he returned from an extended vacation.

Jacobson sent Metropolitan a notice of claim on January 22, 2008.

“Where federal funds are implicated, the person seeking those funds is obligated to familiarize himself with the legal requirements for receipt of such funds.”

Metropolitan investigated the claim; and, on February 4, 2008, notified Jacobson that the terms of the SFIP required that Jacobson provide a proof of loss. Jacobson submitted a partially completed proof of loss. It did not show a specific amount of damages, instead it listed the value of the loss as “undetermined”.

On February 13, 2009, Metropolitan sent Jacobson a letter rejecting the claim on the basis of the incomplete proof of loss.

Metropolitan’s letter noted that Jacobson could appeal the decision to FEMA, which he did. FEMA rejected the appeal. The agency based its decision, not on the incomplete proof of loss, but on three different grounds: (1) failure to promptly notify after the alleged damage occurred; (2) the actual damage resulted from nine floods that preceded the June 2007 flood; and (3) that the engineers hired by both parties concurred that “land subsidence was the proximate cause of damage to the insured building.”

Jacobson then sued Metropolitan in U.S. district court arguing that Metropolitan’s initial denial of coverage on the basis of Jacobson’s incomplete proof of loss amounted to “repudiation” under New York law, and that such repudiation relieved Jacobson of the proof of loss requirements.

This assertion might succeed against a commercial insurance company, but different rules can apply to NFIP policies. The U.S. Court stated that “Where federal funds are implicated, the person seeking

those funds is obligated to familiarize himself with the legal requirements for receipt of such funds.” To enforce a claim for federally provided insurance, the U.S. Supreme Court held that an insured must comply strictly with the terms and conditions of such policies. See, Fed. Corp. Ins. Corp. v. Merrill, 332 U.S. 380 (1947). The Court of Appeals affirmed the U.S. District Court’s grant of summary judgment to Metropolitan.

NFIP policies are federally subsidized and are governed by regulations issued by FEMA. Be sure that you advise your insureds to comply strictly with NFIP policy conditions. If you’re new to NFIP claims, and probably even if you’ve handled previous NFIP claims, recommend that your insureds look for expert assistance in processing their NFIP claims.

False Address on Auto Policy Voids Coverage Lisa Ferrato purchased an auto insurance policy from Preferred Mutual Insurance Company listing her address as one in Pearl River, NY. Lisa actually lived with her husband and child in Cliffside Park, NJ. Her father owned the house in Pearl River. In affirming the lower court’s denial of coverage, the court wrote: "The standard for determining residency for purposes of insurance coverage requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain8."

Each year, thousands of New York State residents register their vehicles in states other than New York to take advantage of significantly lower auto insurance rates.9 This impairs the auto insurance market. Insurers are paying claims that are generated by high-claim area drivers, but are receiving premium at low-claim area rates. Losses in the low-claim areas are inflated resulting in higher rates for those who do reside there. continued on page 16

5 46th St. Dev., LLC v Marsh USA, Inc. 2012 NY Slip Op 07573. Decided on November 13, 2012 6 I wrote about one startling case in the Insurance Advocate ‘“Righting” Insurance For Coops and Condos—Who Insures What?’ August 12. 2012 Benjamin Aden, etal. V Robert Fortsh, etal. NJ Supreme Court 169 N.J. 64 (2001) 7 Much of the material in this section is based on Robin K. Olson’s article “Timely Sworn Proof of Loss Essential to Flood Claim” Personal Lines Pilot (An IRMI email newsletter) April 13, 2012 | Issue 105. The opinions, however, are mine.

8 Cliffside Park Imaging v. Preferred Mut. Ins. Co., 2012 N.Y. Slip Op. 51754(U) (App. Term 1st Dep’t, Sept. 11, 2012).

9 Gwendolyn L. Bluemich “Auto Insurance Rate Evasion” http://www.nysenate.gov/files/pdfs/InsuranceRateEvasion_Report_PRESSER_0.pdf

14 December 17, 2012 / INSURANCE ADVOCATE

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[ EXPOSURES AND COVERAGES ] continued from page 14

Note that this was a no-fault claim. The rule is different for auto liability insurance.

Sadly, it is much more difficult for insurers to void the auto liability portion of the policy. Larry Rogak wrote in discussing another no-fault case: “Although Vehicle and Traffic Law § 313 does not permit an insurer to cancel an automobile insurance policy retroactively on

Clellan, 127 AD2d at 770).”10 We can hope that New York will some day amend that ruling. (Dum spiro spero.

While I breathe I hope. My translation as a Latin student was: It’s stupid to keep hoping.)

the grounds of fraud or misrepresentation (see Matter of Liberty Mut. Ins. Co. v McClellan, 127 AD2d 767, 769 [1987]), an insurer may assert misrepresentation or fraud as an affirmative defense in an action by an insured to recover benefits under the policy (see Matter of Insurance Co. of N. Am. v Kaplun, 274 AD2d 293, 298-299 [2000]; Matter of Liberty Mut. Ins. Co. v Mc-

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ISO’s and most other automatic additional insured agreements are clear, additional insured status is only provided when the contract between the parties calls for it. Even more important, New York courts enforce this requirement.

Zahid Zaidi, an employee of LTC Electric, Inc (“LTC”) was injured while working for his employer. He sued the owner of the building where he was working and the general contractor. The owner and the general contractor asserted that it was understood that they were to be added as additional insureds to LTC’s insurance.

The New York Supreme Court, Queens County, denied LTC’s motion for summary judgment on one of the counts. It ruled that there was an issue of fact as to whether LTC breached an agreement to obtain insurance naming the owner and general contractor as additional insureds.

The Appellate Court reversed this decision. It held that the written agreement between the parties was clear. It did not require LTC to procure insurance naming the owner and general contractor as additional insureds. LTC was granted summary judgment. The owner and the contractor did not receive protection as additional insureds.

Being named as additional insureds on contractors’ policies is a basic risk management technique. It places the expense of the claim on the contractor who can actually control the exposure and protects your client’s loss record. Furthermore, some insurance companies require it and every insurance company recommends it and looks askance at insureds that fail to obtain it. Alert your clients to the importance of including additional insured requirements in all contracts. [IA] 10 Lawrence N. Rogak “Using False Address on Insurance Application Voids Right to Collect NoFault Benefits” Insurance Advocate September 14, 2009

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LICONY

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Insuring an Economy: How the Life Industry Contributes to New York

By Thomas E. Workman, President & CEO, LICONY

A

great economic force exists quietly in New York state, employing many thousands of people, supporting and securing the lives of millions more, and investing hundreds of billions of dollars in public and private projects.

It is the life insurance industry, and there's a lot more to its beneficial effects than you may think.

Here are some of the highlights: • Life insurance is directly responsible for 105,000 jobs – 21 percent of all finance and insurance sector employment - in New York.

• The life insurance industry supports approximately 85,000 non-insurance jobs in the state.

• Total annual life insurance benefit payments in New York are equivalent to 461,000 jobs paying $52,000 per year.

(New York’s per capita income was about $48,000 in 2010.)

• Annuity benefits paid in New York in 2010 totaled $6 billion, while an average $18 million in death benefits is paid to New Yorkers every business day.

• Life insurance companies have about $375 billion invested in New York’s economy, including $313 billion in stocks and bonds that help finance business development, job creation and services in the state.

• Life insurers provide $21 billion in mortgage loans on farm, residential and commercial properties in New York.

The boon to New York's economy is certainly seen in New York City, where several of the country's biggest life insurers are headquartered and employ thousands

of well-paid workers. These companies lease high-profile properties and are stable corporate citizens, supporting charities and the arts and lending their executives to serve on the boards of vital non-profit organizations.

But outside the city, from Jamestown to Montauk and from Plattsburgh to Sleepy Hollow, independent life insurance agents also contribute to the local economy and their communities. They rent offices, pay the utilities, employ licensed agents and support personnel, donate to local causes, serve on the volunteer fire department.

In addition, the work they do brings economic stability to their communities. Life insurance benefits allow bereaved spouses and children to keep paying the mortgage when someone dies, provide monthly annuity checks to help retirees afford the necessities and the well-deserved rewards of their golden years, and yield cash value for big purchases and unexpected emergencies.

Some $24 billion entered the New York State economy via life insurance benefits in 2010. And those benefits, like insurance industry salaries and the bills insurers pay their vendors, contribute to the flow of money in return for goods and services, helping spur economic activity to a healthy pace for everyone's benefit.

At the macro level, life insurance companies are immense sources of investment capital. Insurers, like banks, put the money they take in to work by lending it to private industry and government entities for constructing new office buildings, factories, schools, bridges and other similar projects.

The $375 billion that life insurers have invested in New York is at work supporting

the facilities and infrastructure that allow other businesses to grow and thrive, and the state to provide vital services to its citizens.

The earnings from those investments flow back in a big economic circle, allowing the life insurance companies to pay out the annuities and other benefits that amount to far more than what those who bought the policies paid in.

The economic force that is life insurance functions independently and reliably, both for those who receive its direct benefits and for the state as a whole. It is an industry with a noble mission and a solid record of doing the right thing for its customers.

The life insurance industry is one of the things that makes New York the most incredible state in the union.

This is where the biggest city in the country and the most important financial center in the world co-exists with upstate villages surrounded by fertile, productive farmland and industrial centers that have evolved from smokestack industries to the highest technology.

Dramatic mountain ranges and beautiful beaches are each just a part-day's ride away from New York's bustling population centers.

We enjoy top-tier universities, world-class medical institutions, Lake Champlain and Niagara Falls, and unparalleled arts and entertainment opportunities from Brooklyn to Buffalo to Saratoga.

In a state with so many riches, it is important to focus on what makes our economy an enviable asset as well. The life insurance industry is a quiet – but vitally important – force for the success and wellbeing of the great Empire State. [IA]

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[ FEATURE ] By Betty Flood Morrow and Katlin Nash

DFS: “EXPEDITE INSURANCE PAYMENTS TO HOMEOWNERS” Department warns banks and mortgage entities in wake of Sandy

New York DFS Superintendent Benjamin M. Lawsky is focusing on major banks and mortgage servicers to take action to expedite insurance payments to New York homeowners. “Currently, insurance claim checks must be endorsed by the banks or mortgage servicers before homeowners can cash them, causing frustrating delays at a time when the money is needed for home repairs or for living expenses. These new actions will enable the insurance companies to get the money to homeowners faster.”

“Homeowners need help now and that’s why insurers are sending advance checks to meet their immediate needs,” said Governor

Andrew M. Cuomo. “Any delay in making these types of critical home repairs can mean the difference between a family being able to live safely in their home or remaining needlessly displaced for weeks or even months. I want to thank these banks and mortgage servicers’ for partnering with us and I call on all other banks and servicers to meet the standard set by their competitors.”

Participating banks and servicers are: -Bank of America -Citi Mortgage -JPMorgan Chase N.A. -Wells Fargo Home Mortgage -Apple Savings Bank

“Homeowners

20 December 17, 2012 / INSURANCE ADVOCATE

[ FEATURE ] -Dime Savings Bank of Williamsburg -Emigrant Savings Bank -Homeward Residential -M&T Bank, Nationstar -New York Community Bank -Ocwen Loan Servicing Lawsky has received numerous complaints from homeowners that servicers and banks have been imposing unusually stringent requirements before they will sign the checks. This has resulted in unacceptable delays in releasing the money to New Yorkers in need. However, the new measures will allow homeowners to receive their money expeditiously. This is causing serious problems for many families who des-

• The banks and servicers will now use as much discretion as they have under the rules to immediately move home repair funds to homeowners and their contractors.

• Banks and servicers will immediately release any portion of insurance or relief funds designated for living expenses or the replacement of personal property and will immediately release any funds in excess of the unpaid loan balance.

• If living expenses and personal property amounts are not itemized in the insurance or relief payment, banks and servicers will request that the

• In some cases, based on a borrower’s specific facts and circumstances, forbearance on mortgage payments where the borrower has been affected by the storm and is seeking relief.

Since details may very at different institutions and are subject to investor guidelines, homeowners should check with the holder of their mortgage. At the end of the grace period, banks and servicers will institute a payment plan to permit homeowners to repay their missed payments over an extended period of time.

Josh Zinner, Co-Director of NEDAP, an economic justice organization based in New York City, said, “NEDAP commends

s need help now...” perately need their insurance money both to live and to start making repairs. The measures will allow more homeowners to receive their advance money promptly.

The Superintendent of Financial Services said, “Insurance payments are an essential part of people rebuilding their lives. We will continue to do everything we can to see that claims are processed promptly and homeowners and businesses receive all funds due to them so they can recover.

It is good to see these banks and servicers stepping up to the plate to try and speed our State’s recovery.

Governor Andrew M. Cuomo said the grace period on mortgage payments has been expanded for another three months.

“This additional time will allow New Yorkers affected by Hurricane Sandy to catch up on their payments without having to face collection agencies or a lowered credit score.”

Banks and servicers are required to follow different rules imposed by Fannie Mae, Freddie Mac and investors who own mortgage backed securities. In general, as a result of discussions with the Cuomo administration, institutions are offering the following types of relief:

insurer provide an itemization and will promptly release applicable funds.

• Banks and servicers will not apply any portion of an insurance or relief check to mortgage payment arrears without the consent of either the homeowner or a federal government-sponsored enterprise such as Fannie Mae or Freddie Mac. “Details may vary from institution to institution and are subject to investor and regulatory requirements. Borrowers should contact their individual banks or mortgage servicers for specifics,” explained Superintendent Lawsky.

In addition, some New Yorkers are finding that the three-month grace period on mortgage payments previously offered by banks and mortgage servicers is not long enough for them to get back on their feet.

At the urging of Governor Andrew M. Cuomo, banks and servicers will extend this period for up to another three months, for a total of six months post-storm for the following types of relief: • Postponement of foreclosures and evictions.

• Waiver of late fees on mortgage payments.

Governor Cuomo for working to ensure that mortgage servicers do not interfere with the full and expeditious payout of insurance proceeds to homeowners affected by the storm. We hope that every mortgage servicer doing business in the state will take all measures possible to avoid foreclosures, and to help communities hard hit by the storm to re-build.”

Margaret Becker, Co-director, Homeowner Defense Project, Staten Island Legal Services, “the grit and stamina of homeowners along Staten Island’s stormripped shoreline is astonishing, but they are weary. The hard physical work takes a toll, but so does red tape. The Department’s advocacy and the banks’ commitment to get insurance funds released quickly and give homeowners flexibility on their mortgage payments will help remove some of the burden for these people as they slowly put their lives back together.”

Lawsky and representatives of the Department of Financial Services are at six locations in Nassau County, Suffolk County and New York City to offer help to homeowners, renters and business owners with insurance-related issues stemming from damage caused by Storm Sandy. [IA] INSURANCE ADVOCATE / December 17, 2012 21

[ IN THE NEWS ]

Actuaries Must Convince Ceos Re: Predictive Modeling

A

RLINGTON, VA—Most actuaries know that predictive modeling — the harnessing of enormous data sets to do everything from rate baseball players to price auto insurance — is the hot trend among the math-literate. Most CEOs know it, too, but many hesitate to embrace it — daunted perhaps by how long a model can take to get launched or how much it will cost, say CAS panelists.

How can actuaries convince executives to take the plunge, sooner rather than later?

The panel of high-ranking actuaries and executives offered ideas at a presentation called “What Executives Need to Know about Predictive Modeling,” part of the Casualty Actuarial Society Annual Meeting held recently in Lake Buena Vista, Florida…..after Hurricaine season.

Predictive analytics has changed the property/casualty insurance industry in the past decade and a half, though a bit slower than it could have been, according to Martin Ellingsworth, president of the ISO Innovative Analytics (IIA) unit at ISO. “Property and casualty is not the last industry to discover analytics, but it was somewhat slower than others,” he said.

During his remarks, Ellingsworth emphasized the key to accelerated adoption was coalescing analytic expertise in an industry with many resources and disparate approaches to operational efficiency. He also explained how actuarial professionals and predictive modelers are increasingly aligned with business leaders to dramatically improve many facets of insurance operations in marketing, risk assessment, rating, underwriting, claims, agent/customer service, catastrophe analytics, and capital risk management. These efforts now help to reduce the uncertainty around carrier financial performance, he said.

Stephen Mildenhall, CEO of Aon Benfield Analytics, points to August 24, 1992 — the day Hurricane Andrew ripped through South Florida. Insurance losses topped $15 billion, far more than ever thought possible.

The old analysis clearly did not work.

So, insurance executives began using complex computer models to determine their 22 December 17, 2012 / INSURANCE ADVOCATE

In addition to the overall return on investment, a pitch for a new model should show how it will affect retention ratios, as well as address issues like impact on the regulatory environment, consumers, and the company’s distribution channels. exposures.

The models, Mildenhall said, “gave us a ruler to measure risk in a consistent way.”

Alice Gannon, chief actuary of USAA P&C Insurance Group, said executives at her company were used to heavy quantitative analysis, since they had come from the military, where mathematical precision is paramount and mistakes cost lives.

“They said, ‘Why aren’t you doing more?’”

At her company, “The case was made for us by [Hurricanes] Hugo and Andrew after our existing models, like those at many other companies, did not perform adequately.” So the catastrophe models made the case for themselves.

Other situations to advocate for models prove more difficult, Gannon said. She advised: • Pitch the model at a high-level. ”Start at the 50,000-foot level and don’t plunge into the nitty-gritty too fast.”

• Estimate the return on investment.

Show how your project aligns with the executives’ other objectives.

• Emphasize data quality. “You’ve got to make sure the data’s good.”

• Be clear about the goal of the model.

“Make sure this thing is going to move the needle you specify.”

• Build on prior successes. “The executive will listen to the previously successful modeler more than the rookie.

If you’re the rookie, work with someone else to get your shot.”

• Put together a strong modeling team,

she said, adding that actuaries have a strong skill set for a modeling team.

And be sure to invest to sustain your intellectual capital.

• But at the same time be clear about the risks that exist in building the model.

David Cummings, vice president and chief actuary at IIA, said you have to make the case that the project will lower the company’s combined ratio or otherwise contribute to the bottom line.

ISO’s Ellingsworth said one should emphasize that modeling is a process, not a single project. It’s a “cultural statement that you are in it, and are in it to win it,” he said.

He added that executives are changing with the times and starting to expect deep dives into data. “Executives are becoming infoholics,” he said. If you can show them something they didn’t know and show how the company benefits from knowing it, “be ready to be challenged how fast you can do that.”

And you need to monitor the investment in the model, he said. If it’s working well, the executive team will want to increase that investment.

Alan Bauer, former president of Progressive Direct who was a pioneer in both online insurance sales and the use of credit scores in rating auto insurance, said that it’s important to have multiple criteria when advocating for a model.

In addition to the overall return on investment, a pitch for a new model should show how it will affect retention ratios, as well as address issues like impact on the regulatory environment, consumers, and the company’s distribution channels.

He also suggested telling the executives how the project will be measured and giving them an idea of what reports it will generate. “Give examples of how the model will help the company do things faster, better and cheaper,” Bauer explained.

“You have to model the model,” he said, “and show how it performs under a wide variety of conditions, including scenarios selected completely at random.” continued on page 38

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[ FACE TO FAC E ]

By Michael Loguercio

Taste the Soup!

T

he Holidays! They are here! …and before we can sprinkle that last bit of reindeer dust or shout out, "Now Dasher! Now, Dancer! Now, Prancer and Vixen! On, Comet! On, Cupid! On, on Donner and Blitzen! …they will most likely have passed so quickly once again!

This year, as in the past, so many of us will be hosting or attending holiday parties across the land. In our home, we always host Christmas dinner for our families, and while Ann Marie is serving the soup, and I’m carving the roast (or whatever Ann Marie’s specialty for that year may be be) and Frank Sinatra’s Christmas hits playing in the background are being drowned out by the joyful Michael Loguercio sounds of laughing, hugging, and gift giving, the risks that we are taking may be the last thing that’s on our minds!

According to the press release below distributed this week from Trusted Choice® and the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”), party hosts need to understand their responsibilities when inviting people into their homes and serving food and drinks.

“Before hosting a party this holiday season, homeowners may want to consult with their Trusted Choice® independent insurance agent and ask questions,” says Robert A. Rusbuldt, Big “I” president & CEO. “Hosts should be aware that if someone drives drunk or becomes sick after consuming food at a holiday party, the host could actually be liable.”

In fact, a casserole could bring just as many risks as a cocktail. A recent survey by Trusted Choice® and IIABA found that almost three-fourths of homeowners had served food in their home that was prepared by someone other than themselves. That means more than 111 million homeowners in the United States have put themselves at risk for a lawsuit by just feeding their guests.

“Whether the food served came from your kitchen, a pizza delivery truck or a five-star caterer, if you serve it, you could 24 December 17, 2012 / INSURANCE ADVOCATE

ATTENDEES AT NY YIPS CHARITY EVENT AT KODIAKS RESTAURANT

be liable if anyone gets sick,” says Madelyn Flannagan, Big “I” vice president for education and research. “Even a simple neighborhood holiday potluck could have disastrous results for the host if someone is stricken with food-poisoning.”

The Big “I” and Trusted Choice® provide the following tips for holiday hosts and guests.

Do Your Homework: When hosting a holiday party, individuals should look to the liability portion of their homeowners or renters insurance policy to protect them if they are sued and found liable for an accident involving a guest who drank or got sick after consuming food at their home.

Consumers should regularly review their liability coverage limits to ensure they are adequately covered should an accident or illness occur.

Watch What You Eat and Feed Others: Even if food was prepared outside your home by a caterer, another guest, a local deli or the neighborhood pizza joint, YOU could be held liable if someone becomes ill from consuming it on your property. Make sure that you check food and don’t put anything out that you suspect may be undercooked, spoiled or contaminated. Use only reputable food purveyors.

Follow proper food-handling, heating/cooling and storage recommendations. When in doubt, throw it out.

Know Your State Laws and Statutes: In many states, party hosts can be held liable if a guest is involved in an alcohol-related

accident. Many courts have found hosts liable for damages their party guests cause as a result of consuming alcohol and then driving motor vehicles. Many states have also enacted statutes that can be interpreted as mandating non-commercial social host liability. So, if a guest or third party is injured in an accident that is related to alcohol consumption and the drinking can be linked to you, you could be held responsible for the payment of medical bills, vehicle repair costs, lost time from work and — in the worst case — claims for wrongful death resulting in huge monetary settlements.

Mix up the Activities, not just the Cocktails: If the party centers around drinking, guests will likely drink more.

Schedule entertainment or activities that do not involve alcohol. Provide safe filling food for guests and alternative non-alcoholic beverages.

Party Elsewhere: Host your party at a restaurant or bar that has a liquor license, rather in a home or office to decrease your liability.

Call a Cab, Get a Room or Have a Slumber Party: Arrange transportation or overnight accommodations for those who cannot or should not drive home.

Just Say No: Do not serve guests who are visibly intoxicated. Stop serving alcohol at least one hour before the party is scheduled to end. Stay alert and always remember your responsibilities as a host. You might continued on page 26

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also consider hiring an off-duty police officer or professional bouncer to discreetly monitor guests’ sobriety or handle any alcohol-related problems as guests leave.

Consider an Umbrella Policy: While holiday partygoers and hosts alike should act responsibly and know their limits, consumers need to acknowledge that most risks cannot be entirely eliminated. But planning ahead and learning about what’s involved in hosting

a reception is the best defense. Purchasing a personal “umbrella” liability policy — providing $1 million or more in additional coverage over the limit of a standard homeowners or renters policy — may be a prudent move for the frequent party host.

For those of you who read this column regularly, you might remember my “Halloween Trick or Treat Disclaimer” that I gave you a few years ago…maybe I should consult with counsel and have a “Christmas Dinner Hold Harmless” agreement drawn

up so that we can distribute it to our guests and ask them to sign it before serving Christmas dinner…I can see my father in law now, telling me what I can do with that agreement! Ha! Ha! Oh, and by the way, food and alcohol aren’t the only reason for holiday lawsuits!

According to the following article recently released by Property and Casualty 360, the following are 5 Thanksgiving Day turkeyrelated incidents that ended up in court:

Hunting Season

Stuck in Traffic, Unless…

40

Neil P. Jacobs and James Kent were hunting turkeys in the woods in New York in 2003; Kent’s hunting party had established a position, which Jacobs entered with his party while looking for an area in which to hunt. After hearing gobbling noises and seeing a flash of red, Kent shot into the underbrush. Instead of bagging his family’s holiday meal, he accidentally hit Jacobs.

Jacobs brought a suit against Kent, alleging the defendant acted negligently and mistakenly shot him, moving for judgment on the issue of liability.

The plaintiff contended that the sole cause of the accidental shooting was the defendant’s failure to identify his target.

Turkey hunters must be able to see the entire bird and ascertain its gender before taking a shot. Kent moved to dismiss the complaint based on primary assumption of risk. The Court found that even though hunters assume the risks of hunting for sport, having to assume the risk of negligent behavior on the part of other hunters unreasonably increases that risk. Therefore, Kent’s cross motion was denied. The court also decided it could not determine as a matter of law whether the defendant’s actions fell under the doctrine of primary assumption of risk, so the original motion was also denied.

Roadrunner

One MetroTech Center, Brooklyn, NY 11201

While driving on a parkway in New York in 2005, a wild turkey hit Mary Reilly’s windshield. The impact shattered the windshield, so Reilly put her signal on and slowed down in preparation to pull off onto the left-hand shoulder. Alan Watson was driving behind her and noticed something moving in the median of the roadway.

When he returned his gaze to the road, he continued on page 28

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[ FAC E TO FAC E ] continued from page 26

noticed Reilly’s car was slowing down. He was unable to stop in time and rear-ended her vehicle. Reilly filed Reilly v. Watson, alleging liability on the part of Watson.

In most rear-end collisions, the motorist in the rear is found liable, except in cases of mechanical failure, sudden stopping of the vehicle ahead, skidding on wet pavement or another unavoidable, reasonable cause. The jury did not find Watson liable because he provided the court with a nonnegligent explanation of the accident.

To all of you out there, “Thank You!” for sharing another year with me and this column, and I hope that you have enjoyed reading it as much as I have enjoyed bringing it to you.

Gobble Gobble Choke Helen Silva was eating a plate of turkey, dressing and vegetables at Woolworth’s restaurant in the fall of 1938 when she choked on a small bone. She was able to eject the bone with the help of a bystander.

She sued the restaurant for injuries, including embarrassment and medical fees of $36.

Liability for choking is determined based on the nature of the object; if it is foreign to the dish served, there is liability on the part of the dish’s producer.

In this instance, the turkey bone was found to be natural to a plate of roast turkey, just as fish bones could reasonably and naturally be found in a plate of fish; the presence of the bone does not render the food inconsumable. A consumer of the turkey dish should therefore anticipate the presence of and take care to avoid swallowing bones. The original judgment of $500 to the plaintiff for general damages was reversed.

Deadly Dinner On Thanksgiving 2009 in Jupiter, Fla., Paul Merhige arrived uninvited to a family celebration. Witnesses reported that he shot and killed four of his relatives, including 6year-old Makayla Sitton. A lawsuit filed by Makayla’s parents, Jim and Muriel Sitton, charges Michael and Carol Merhige with negligence, alleging that they knew their unstable son would be attending the party but failed to keep him from doing so. The plaintiffs’ attorney even went so far as to suggest that the Merhiges had “some sense” that their son might become violent to the point of murder, but chose not to warn guests or attempt to stop Paul from killing.

Judge Meenu Sasser threw the lawsuit out, stating that the Merhiges could not be held accountable for the actions of their 28 December 17, 2012 / INSURANCE ADVOCATE

adult son. He also threw out a similar lawsuit filed by Patrick Knight, husband of a pregnant woman who was one of the four victims. Paul Merhige was sentenced to seven consecutive life sentences after entering a guilty plea in the deaths of four of his family members. The Sittons are seeking an appeal.

A Holiday for All In 2009, Promila Awasthi filed a lawsuit alleging that her bosses at Infosys's Fremont, Calif., office made fun of her and refused to pay her overtime when she worked American holidays such as Thanksgiving.

They mocked her for supposedly lacking family values and being too American despite her Indian heritage. The harassment did not end even after Awasthi has resigned.

Awasthi alleges that management called her children “ABCD,” short for “AmericanBorn Confused Desi” and “IBCD,” short for “Indian-Born Confused Desi,” which are both derogatory terms used to criticize Americanized people of Indian ancestry.

She filed several causes of action including national origin/ancestry, gender, age, and religious discrimination in violation of California’s Fair Employment and Housing Act; failure to pay overtime and intentional infliction of emotional distress.

Well, I hope that gives you something to think about as your guests are enjoying the goose that’s on the table, and the pudding made of fig. I just hope that the blue and silver candles on your table don’t set on fire the hair in Grandma's wig…or we’ll be dealing with another lawsuit!

Around town this month, congratulations to Dina Bruno of MetLife, Chair of the Programs Committee of PIA of NY’s Young Insurance Professionals in organiz-

ing our charity event for “Jocelyn’s Operation Charity” which raises funds to distribute holiday gifts to children in need.

Thanks to all those in this thing of ours who attended the event at Kodiak’s Restaurant in Farmingdale, NY, and who generously donated to the charity as we raised a ton of money for this wonderful organization! A very special and warm-hearted “Thank you!” to Joseph V. Raab, JD, CPA, Executive Vice President, COO and Johanna Keep Vice President Personal Lines at CBS Coverage Group Inc., for organizing and bringing to us this wonderful charity…great job Joe and Johanna, and thank you so very much for what you do for the kids in our communities!

To all of you out there, “Thank You!” for sharing another year with me and this column, and I hope that you have enjoyed reading it as much as I have enjoyed bringing it to you. From Ann Marie, Devin, Jessica and me to you and your families, a very happy and healthy 2013…and to infinity and beyond! Ciao for now!

Michael Loguercio is the Regional Sales Manager for EZ Lynx; and active Past President of the Young Insurance Professionals of New York State. He is a current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, and Council of Insurance Brokers of Greater New York committee member.

In 2010 Michael was honored with the NY-YIP/PIA Insurance Professional of the Year award; and in 2012 with a NY-YIP/PIA Lifetime Achievement award. Michael is also Chair of the 2013 Professional Insurance Agents Regional Awareness Program on Long Island.

In his community, Michael is President of the Longwood Central School District Board of Education on Long Island, NY; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. [IA] Michael is a regular Contributor to the Insurance Advocate since 2008, and may be contacted at 631-345-9359 or michael.loguercio@ezlynx.com.You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr.

ADVERTORIAL

Holiday Safety Tips THE HOLIDAYS ARE A TIME FOR FUN AND MERRIMENT, but they can also become dangerous if precautions are not taken. A festive celebration can quickly take a turn with injuries and property damage, or even worse, loss of life. Helping clients prevent accidents and keep their holidays happy is a sign of the true insurance professional.

According to the Centers for Disease Control (CDC), nearly 40,000 people are treated in hospitals each year for fall-related injuries during the holidays, and more than 12,000 emergency room visits are due to decorating mishaps. The National Fire Protection Association (NFPA) estimates that 5,800 people are treated for falls related to holiday decorating each year. According to the U.S. Fire Administration (USFA) and the NFPA, each year approximately 240 house fires involve Christmas trees, and an additional 150 involve holiday decorations, mostly candles. Candles should be extinguished when not attended.

Overloaded electrical circuits and overheated electric cords can also cause fires. Inflatables and elaborate displays add to the fire hazard. Holiday lights should be turned off when no one is home.

Proper care and planning is needed when decorating for the holidays. Decorations should be noncombustible and lead free.

If there are young children in the household, avoid using breakable ornaments, or place them out of reach. Drinking and decorating do not mix, so holiday cheer should be postponed until after the lights and tinsel are up. A ladder or step stool, and not a piece of furniture, should be used when hanging lights and decorations.

Ladder safety is important. The ladder must be checked to ensure it is structurally sound, with bolts tightened and hinges and rungs in good repair. Ladders are most safely used on a flat solid surface, avoiding mud and ice when working outdoors.

Placing the ladder close to the work area minimizes the risk of losing balance and falling over. The right size ladder for the job is also important. Label warnings regarding recommended weight load and highest rung to stand on should be followed.

Rearranged furniture can lead to trip and fall injuries in areas that used to be open space. Trip and fall injuries can also be reduced by keeping traffic areas clear of clutter, such as decorations, boxes and gift wrap. Decorations should not be placed where they can fall on someone, or block windows and doors. Once the gifts are opened, packaging and wrapping should be discarded.

Fire hazards are reduced by using UL approved lights. Indoor lights should not be used outdoors. Light strings should be checked for broken or nonworking bulbs, and cords that are not damaged. Cords should be kept out of reach of children and pets. Outdoor decorations and lights should be plugged into a ground fault circuit interrupter (GFCI). There are portable GFCI’s or they can be added to the home’s electrical system by a qualified electrician.

Fireplaces and wood stoves create a cheery atmosphere, but improper use can be calamitous. Fireplace screens can

prevent embers from igniting rugs, floors and other flammable materials. Wrapping paper should not be burned in a fireplace or woodstove. Burning wrapping paper may cause a chimney fire, and the flying embers can set the roof ablaze. In addition, the fumes from burning ink are toxic.

Young children should never be left unattended. They can easily knock over a ladder, tree or candle, cut themselves on breakable decorations, or choke on garland or light strings.

Small shiny ornaments and hard candy also pose a choking hazard, so these should be kept out of reach. A gate around the tree will help avoid tragic accidents.

The holidays can be a busy and stressful time. Helping clients minimize the chance of injuries and insurance claims and keep the holidays happy is another value-added service of the true insurance professional.

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[ FROM COUNSEL ]

By Sari Gabay-Rafiy

New York’s Highest Court Strengthens Policyholder’s Rights and May Place Insurance Brokers at Risk

O

n November 19, 2012, the New York Court of Appeals – the highest court of the State of New York, apparently strengthened the rights of policyholders as against their insurance brokers.

In American Building Supply Corp. v. Petrocelli Sari Gabay-Rafiy, Esq. Group, the plaintiffinsured was required by its lease to obtain general liability insurance in the minimum amount of $5,000,000 for bodily injury and property damage. The policy procured, however, contained the following exclusion: “This insurance does not apply to any

…“[s]ince no one but employees ever entered the premises, the coverage defendant obtained, which excluded coverage for injuries to employees, hardly made sense.”

actual or alleged ‘bodily injury’ property damage, ‘personal injury’ or ‘advertising injury’ to … A present, former, future or prospective partner, officer, director, stockholder or employee of any insured.”

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When an employee was injured, the insurance company disclaimed coverage based on the above quoted exclusion. As a result, the insured sued its insurance broker for negligence and breach of contract in connection with the broker’s procurement of insufficient coverage.

The Court of Appeals recognized that “insurance agents have a common law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so; however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage.”

The Court also recognized the longstanding principle that an insured is presumed to have read its policy, a presumption that has historically precluded certain actions against brokers for failure to procure requested coverage. In Petrocelli, however, the Court went a step further and held that “[w]hile it is certainly a better practice for an insured to read its policy, an insured should have a right to ‘look to the expertise of its broker with respect to insurance matters.’” (Emphasis added) In finding there were issues of fact precluding dismissal, the court noted that the insured testified he specifically requested the coverage for employees, the broker visited the premises and was aware that the only people on the premises would be the insured’s employees, and “[s]ince no one but employees ever entered the premises, the coverage defendant obtained, which excluded coverage for injuries to employees, hardly made sense.”

In disagreeing with the majority’s ruling the dissent pointed out that the decision is likely to result in “he said-she said battles of what occurred during coverage discussions between the insured and broker.”

In light of this decision, brokers should be careful to obtain the type of coverage specifically requested by a client, or advise of the inability to do so because the onus is not simply on the insured to read the policy at the time of delivery. [IA] This article is for informational purposes only and is not intended to give legal advice. For more information or assistance with insurance matters or regulatory issues please contact the author at gabay@gabaybowler.com or (212)941-5025.

Marilyn M. Singleton, M.D., J.D.

[ GUEST OPINION ]

The Patient Protection and Affordable Care Act and the Fiscal Cliff

I

t’s doubtful that the country will be popping bottles of champagne on January 1, 2013—we can’t afford it. But we will be throwing confetti printed by the Federal Reserve over a cliff.

As of November 27, 2012, the country's debt was $16.279 trillion—just $115 billion below the $16.394 trillion statutory ceiling.

The Treasury predicts that borrowing will reach the current limit near the end of December 2012. Right around the Mayan calendar “end date” of 12-21-12.

Apocalyptic prophecies aside, there are a number of things that are scheduled to expire at the end of 2012. One is the Medicare “Doc Fix,” which postponed until Dec 31 the day that the rates at which Medicare pays physicians will decrease by 27 percent. Another is the “Bush tax cuts.”

On January 1, all income tax, estate, and capital gains tax rates will go up substantially, and millions more people will be subject to the Alternative Minimum Tax. Then there are new taxes, compliments of the Patient Protection and Affordable Care Act (PPACA or ObamaCare), some of which take effect in 2013. These include the Medicare surtax on so-called millionaires and billionaires, i.e., individuals making more than $200,000 a year ($250,000 if married), and a new 3.8% tax on capital gains and dividends, interest, and other passive income. The now infamous penalty-thatis-really-a-tax kicks in for those who don’t buy government-approved health insurance in 2014. Another revenue-raising measure is a cap of $2,500 on previously unlimited Flexible Spending Accounts. This discourages Americans from taking personal responsibility for medical spending instead of relying on third-party payments.

And January 2 could ring in sequestration, that is, automatic budget cuts. The Budget Control Act of 2011 (BCA) authorized the President to increase the debt ceiling by $2.1 trillion in exchange for some $917 billion in cuts, from 2012 to 2021, in “discretionary”—that is, nonentitlement— programs such as defense, education, national parks, the FBI, the EPA, lowincome housing assistance, medical

As of November 27, 2012, the country's debt was $16.279 trillion—just $115 billion below the $16.394 trillion statutory ceiling. research, and many others. Unless Congress and the President agree to modify or repeal the BCA, spending reductions of some $109 billion per year with half coming from defense budget and half from nondefense are triggered. Sequestration for Medicare payments to health care providers and health plans is limited to 2%.

The President does not want cuts to his signature law, the inappropriately named Patient Protection and Affordable Care Act (PPACA). It is, however, a financial disaster.

The Congressional Budget Office (CBO) has projected a cost of $1.4 trillion over 10 years, but if we look at history, such projections are meaningless. In 1967, the House Ways and Means Committee said Medicare would only cost $12 billion in 1990. The actual cost was $110 billion. In 2010, total Medicare expenditures were $523 billion.

Medicare spending has been forecasted by the CBO to increase to $922 billion in 2020.

Just the IRS and HHS costs to implement the PPACA, $20 billion over 10 years, exceed the House’s initial estimate for all Medicare spending. And how can we afford a vast new entitlement when the CBO admits in an Oct 1 report, CRS Report R41390, that “even maintaining current funding levels for existing programs with an established appropriations history may prove a challenge under growing pressure to reduce federal discretionary spending.”

In the PPACA, there are about 100 new programs with noble-sounding names or goals: for example, the program to facilitate shared decision making, culture change (to patient-centered care), the Elder Justice Coordinating Council, the Offices of Minority Health, and the Offices on Women’s Health. But none have been evaluated for effectiveness before we start pouring money into them. Under the circum-

stances, I think we should add more funds to the newly minted Centers of Excellence for Depression.

Fortunately, the PPACA’s discretionary provisions are subject to the congressional appropriations process, which can potentially defund a program. Additionally, appropriations are needed for administrative costs associated with even exempt programs. Thus, Congress has the power to back off from the PPACA contribution to the cliff, if it has the will to do so.

The cliff, however, is not going away.

Cliff diving, anyone? [IA] Marilyn M. Singleton, MD, JD is a board-certified anesthesiologist and Association of American Physicians and Surgeons (AAPS) member. Despite being told, “they don’t take Negroes at Stanford”, she graduated from Stanford and earned Marilyn M. Singleton, M.D. her MD at UCSF Medical School. Dr. Singleton completed 2 years of Surgery residency at UCSF, then her Anesthesia residency at Harvard’s Beth Israel Hospital. She was an instructor, then Assistant Professor of Anesthesiology and Critical Care Medicine at Johns Hopkins Hospital in Baltimore, Maryland before returning to California for private practice. While still working in the operating room, she attended UC Berkeley Law School, focusing on constitutional law and administrative law.

She interned at the National Health Law Project and practiced insurance and health law. She teaches classes in the recognition of elder abuse and constitutional law for non-lawyers. Dr. Singleton recently returned from El Salvador where she conducted make-shift medical clinics in two rural villages. Her latest presentation to physicians was at the AAPS annual meeting about challenging the political elite.

INSURANCE ADVOCATE / December 17, 2012 33

[ IN THE NEWS ]

A.G. Sets New Disclosure Requirements for Non-Profits

N

EW YORK, N.Y.—As part of a groundbreaking effort to bring transparency to the political process and protect donors to nonprofits, Attorney General Eric T. Schneiderman has just announced new regulations requiring nonprofit groups, including 501(c)(4) “social welfare” organizations that are registered with the state, to report the percentage of their expenditures that go to federal, state and local electioneering.

Those groups that spend at least $10,000 to influence state and local elections in New York will be required to file itemized schedules of expenses and contributions.

Under the proposed new rules, those disclosures will be released to the public.

In the wake of the U.S. Supreme Court’s 2010 Citizens United decision, 501(c)(4) organizations, which are exempt from federal and state taxes because they purportedly engage in the “promotion of social welfare,” have become vehicles for

A N

Advocates of government transparency decry dark money because it allows deep pocketed interests to spend millions of dollars supporting or opposing candidates — often even more than the candidates themselves spend — without disclosing their identities. political activity, including funding sham “issue ads” that attack candidates for public office. 501(c)(4)s have become attractive conduits for this sort of activity because they can raise and spend unlimited funds, conceal their funding sources, and avoid

paying corporate taxes on donations. In the last two election cycles, election spending through 501(c)(4)s exceeded spending through traditional political action committees.

As the state law enforcement official with primary responsibility for overseeing nonprofit organizations, Attorney General Schneiderman is empowered by law to determine the form and manner in which organizations make required annual financial reports to his office, and to enact rules and regulations to administer the financial reporting system. The Attorney General makes these reports available to the public so that prospective donors can make informed decisions before contributing. In light of the recent spike in nonprofit spending designed to influence the outcome of elections, expanded reporting requirements for spending on electioneering will further empower donors to protect themselves.

Without improved disclosure, the Attorney

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[ IN T H E NEWS ] General is concerned that misleading solicitations and abuse of charitable assets for electoral purposes will undermine public confidence in the nonprofit sector.

Since the Watergate era, intervention in political campaigns has been largely confined to political action committees (PACs). PACs are governed by state and federal election laws that require them to disclose expense and contributor information to election authorities and the public.

But since the Supreme Court’s decision in Citizens United v. FEC, there has been a well-documented proliferation of secretive nonprofit groups engaging in electioneering activities with minimal disclosure to regulators and the public.

Good government advocates have coined the term “dark money” to describe anonymous election spending through 501(c)(4)s. Advocates of government transparency decry dark money because it allows deep pocketed interests to spend millions of dollars supporting or opposing candidates — often even more than the candidates themselves spend — without disclosing their identities. This opens the door to conflicts of interest and corruption.

The new regulations apply to all registered organizations exempt from taxation under section 501(c) of the Internal Revenue Code, except for 501(c)(3) organizations, which are already strictly prohibited from intervention in political campaigns.

The regulations define “electioneering activities” broadly to include express advocacy (advertisements and other communications that call specifically for the election or defeat of a particular candidate, referendum, or party) and issue advocacy (communications made within 180 days of an election that identify or depict particular candidates, referenda, or parties by name but that do not explicitly call for their election or defeat). The regulations apply to communications through television, radio, print advertisement, telephone and over the internet.

Attorney General Schneiderman’s disclosure regulations also require registered nonprofits that spend $10,000 or more in a year in connection with New York state and local elections to file an itemized schedule with its annual financial report disclosing: (1) each expenditure it made in connection with a New York state or local election, including the expenditure’s recip-

ient, date, amount and purpose; and (2) each contribution of $100 or more it received, including the contributor’s name, employer and address, and the amount and date of the contribution, subject to certain limitations and exceptions to protect donor privacy. This information will be made available to the public.

The regulations exempt any nonprofit from having to file information with the Attorney General that the organization discloses to another agency that makes it available to the public.

To protect donor privacy and the right of free association, Attorney General Schneiderman’s regulations contain two key exceptions to the disclosure requirements.

First, the regulations do not require the schedule to include information about donors whose donations are restricted so that funds cannot be used for electioneering. So long as organizations keep earmarked funds in separate bank accounts from funds that are used for electioneering, information on that donor need not be disclosed. Second, Attorney General Schneiderman’s regulations create a waiver application procedure. If public disclosure of a contribution or a donor’s identity could cause undue harm, threats, harassment or reprisals, the organization or the donor can apply to the Attorney General’s office for a waiver from disclosure of information concerning that donor. The Attorney General’s staff will review applications and grant waivers where appropriate.

The Attorney General’s office expects to adopt the regulations early next year, subject to any changes that may be warranted by public comments. Under the proposed regulations, nonprofits will be required to begin making enhanced disclosures as part of annual financial reports filed with the Attorney General’s Charities Bureau. These enhanced disclosures are expected to occur in many cases in time to effect disclosure of information concerning 2013 local elections, including New York City elections, and in all cases in time for New York State’s 2014 elections. [IA]

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

INSURANCE ADVOCATE / December 17, 2012 37

[ IN THE ASSOCIATIONS ]

Bridget M. Healy Named Chairman of the Board of the Life Insurance Council of New York, Inc. (LICONY)

T

he Life Insurance Council of New York, Inc. (LICONY) elected Bridget M. Healy to serve as Chairman of the Board of Directors for 2013, at its Annual Meeting on December 6. Ms. Healy is Executive Vice President & Chief Legal Officer of ING U.S., Inc. “It will be my personal pleasure to work with Ms. Healy in her role as LICONY Chairman,” Thomas E. Workman, President of LICONY said. “I look forward to working together with her on the issues and challenges that will face our industry in 2013.”

LICONY is the domestic trade association representing the life insurance industry in New York. Its member companies provide the vast majority of life, disability income, long-term care insurance and annuity benefits for New Yorkers. In 2013, LICONY’s membership will include 68 life insurance companies and 20 allied professional firms.

In her position as Executive Vice President & Chief Legal Officer for ING U.S., Inc., Ms. Healy oversees the law, compliance, corporate responsibility and federal and state government affairs functions for ING U.S. In this capacity, she is also a

BRIDGET M. HEALY, EXECUTIVE VICE PRESIDENT & CHIEF LEGAL OFFICER OF ING U.S., INC. HAS BEEN ELECTED TO SERVE AS THE CHAIRMAN OF THE BOARD OF DIRECTORS OF THE LIFE INSURANCE COUNCIL OF NEW YORK, INC. (LICONY). THE DOMESTIC TRADE ASSOCIATION’S 68 MEMBER COMPANIES PROVIDE THE VAST MAJORITY OF LIFE, DISABILITY INCOME, LONG-TERM CARE INSURANCE AND ANNUITY BENEFITS TO NEW YORKERS. THE MEMBERSHIP ALSO INCLUDES 20 ALLIED PROFESSIONAL FIRMS.

member of the ING U.S. Executive Committee.

Previously, Ms. Healy was Senior Vice

President & Group General Counsel at The Travelers Companies, Inc., where she was a member of the Operating Committee, the company’s top management body.

Prior to her years at Travelers, Ms. Healy served as Vice President, General Counsel & Corporate Secretary for Becton Dickinson and Company, where she was a member of the Executive Management Team. She also practiced law in the United States and Europe for nine years with Davis Polk & Wardwell and was a Partner in the firm of Stroock & Stroock & Lavan LLP. Ms. Healy’s prior legal experience included counseling boards on corporate governance issues and representing corporations, financial advisors and major shareholder groups in connection with domestic and cross-border mergers, acquisitions, divestitures and joint ventures.

Ms. Healy received her J.D. from Georgetown University Law Center, magna cum laude, and is a graduate of Brown University, with an honors degree in International Relations and French Studies.

For information about Bridget M. Healy, please call Mr. Dana Ripley at 770-980-4865 or Jo Loparco at (860) 580-2677. [IA]

[ IN T HE NEWS ] continued from page 22

A company might also consider how its models will affect competitors.

Progressive was one of the first companies to put a rating engine online. It not only showed Progressive’s rates, but those of competitors. It helped the company for several reasons.

For one, it got traffic, which built awareness of Progressive’s name. Showing competitor rates conveyed the sense that the company was an honest broker.

Sometimes, of course, it sent business to a competitor. But that was OK, too, Bauer said. Suppose the rating engine showed that a competitor prices a policy at $400, and Progressive wants $2,000 for the same risk.

“If we did our pricing right,” Bauer said, “we just sent our competitor a $1,600 loss.”

38 December 17, 2012 / INSURANCE ADVOCATE

That, of course, was more than a decade ago. Now predictive models have ‘big data’ — billions and billions of data points that can let a company pinpoint customer preferences — if it only can be tamed.

In such cases, too much information can be the problem, Gannon said. She worked on a project that tried to model off 795 variables. The first step was to narrow that down to 150.

But it’s important to take on such large projects, she said. Customers increasingly want a customized solution. If you provide that, or convince customers they want something better, your company can be successful.

Bauer predicted that ‘big data’ will allow companies to go beyond today’s pre-

dictive models to more advanced cluster pricing, which will provide for more refined expense pricing.

The panelists agreed that companies will see increasing advocates for models and strong analytics, and for good reason.

“The winners for the future are the ones who are building analytic models,” Gannon concluded.

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