Vol. 129 No. 10 | June 11, 2018
HEAD ON How Guy Carpenter and CyberCube Partnered to Tackle Cyber Insurance
PAGE 16
NYIA 2018 Annual Conference... Working Together Toward Tomorrow PAGE 8 (L-R) NYIA President Ellen Melchionni with DFS Superintendent Maria Vullo and NYIA Board First Vice Chair Mark Prechtl
[ FOREWORD ]
STEVE ACUNTO
#METOO and You
S I N C E
1 8 8 9
VOLUME 129 NUMBER 10 JUNE 11, 2018
EDITOR & PUBLISHER
uAlfred DeMaria of Clifton, Budd and DeMaria, LLP has circulated a concise and carefully written synopsis of the implications of #METOO on New York employers. We share it verbatim here as a help to you and your clients.
Steve Acunto 914-966-3180, x110 sa@cinn.com
FROM EMPLOYMENT LAW UPDATE… Both New York State and New York City recently passed a number of different laws that will expand protections for sexual harassment at work. Below are the key takeaways from the New York State and City laws that employers need to know.
CONTRIBUTORS
New York State Mandatory arbitration of sexual harassment claims is now prohibited. This means that employers cannot require employees to submit sexual harassment claims to arbitration. Non-employees are now covered. Coverage is now extended to non-employees, such as contractors, subcontractors, vendors, consultants, and other persons who provide services under a contract. Employers will be liable for sexual harassment involving these types of non-employees if the employer knew or should have known about the harassment and failed to take immediate and appropriate corrective action. Non-disclosure provisions will be prohibited. Settlement agreements for sexual harassment claims containing nondisclosure provisions, without the express consent of the complaining party, are unenforceable unless the complaining party consents. Mandatory annual sexual harassment training. Effective October 9, 2018, all employers will be required to provide annual sexual harassment training to all employees. The NYS Division of Human Rights will develop a training program and draft a model sexual harassment policy for employers to use. Alternatively, employers can create their own policy or training program, as long as they equal or exceed the standards in the State’s model.
Lawrence N. Rogak
New York City This law imposes a mandatory poster and handout requirement. Employers will be required to display the sexual harassment rights and responsibilities poster created by the New York City Human Rights Commission in a conspicuous place. It would also require employers to provide an information sheet on sexual harassment, also to be developed by the Commission, to new employees at the time of hire. All employers would be covered. The existing City law prohibiting gender-based harassment now applies to all employers, regarding of size. Like the State law, the City law contains specific types of topics that must be contained in the annual training, including: • An explanation of sexual harassment as a form of unlawful discrimination under local law; • A statement that sexual harassment is also a form of unlawful discrimination under State and Federal law; • A description of what sexual harassment is, using examples; • Any internal complaint process available to employees through their employer to address sexual harassment claims; • The complaint process available through the commission, the Division of Human Rights and the EEOC; • The prohibition of retaliation and examples of it, and information on “bystander intervention;” and, CONTINUED ON PAGE 29 4 June 11, 2018 / INSURANCE ADVOCATE
Jamie Deapo Kelly Donahue-Piro Christopher Paradiso N. Stephen Ruchman Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Gina Marie Balog-Sartario 914-966-3180, x113 g@cinn.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x111 circulation@cinn.com PUBLISHED BY CINN Media, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 613-1595 www.cinn.com | info@cinn.com President and CEO Steve Acunto
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INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in January, July, August, and December by CINN ESR, Inc., P.O. Box 9001, Mt. Vernon, NY 10552. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $135.00. TO ORDER Call 914-966-3180, fax 914-613-1595, email: circulation@cinn.com or write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2018. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.
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How Guy Carpenter and CyberCube Partnered to Tackle Cyber Insurance
Contents
4 Foreword: #METOO and You Steve Acunto, Publisher 6
On the Level: Unmask the Disruptors Jamie Deapo
8 In the Associations: NYIA 2018 Annual Conference... Working Together Toward Tomorrow 13 MSO: Green Building Basics Sue C. Quimby 24 On My Radar: Allocating Damages to Pro Rata Time-on-the-Risk Barry Zalma 26
Looking Back: July, 1968
28 Courtside: NJ Auto Policy Does Not Cover PIP for Insured as a Pedestrian Struck in New York Lawrence Rogak 29 In the Associations: Franklin Mutual Insurance Group to Receive Community Service Award from PIANJ PIANJ to Honor Catranis with Distinguished Insurance Service Award info@insurance-advocate.com www.insurance-advocate.com
30 In the Associations: ‘Big I Tri-County’ Install Officers & Directors for 2018-2019 Term
Volume 129 Number 10 | June 11, 2018
14 HEAD ON
[ ON THE LEVEL ]
JAMIE DEAPO
Unmask the Disruptors uPick up any publication, read any email advertisement or any blog and everything is about the market disruptors sucking up millions of dollars in venture capital and ready to completely change the insurance marketplace. They profess that younger consumers prefer to buy through them because they are comfortable buying online and insist on convenience and low cost. If you’re an independent agent you may be getting a little nervous about what you see, hear and read. It’s no secret to you that the technology you use to operate your business is in serious need of a major overhaul to make it effective. Some of the change must come from your carriers because the system is too cumbersome and does not efficiently allow for the most effective way to transact business. There are also changes you as the agent need to make to improve your systems and more effectively and conveniently offer your protection. In the last sentence of the previous paragraph I specifically used the word protection instead of product. That’s because we don’t sell a product but instead design and provide protection to meet an individual’s needs so they can live their life fully without the worry of an unexpected event dramatically affecting their financial security. Many consumers don’t understand the value of the insurance protection that follows them every day of their lives. Without it many homes and building might never be able to be purchased. The presence of a significant weather event on the horizon could mean financial devastation and the loss of their home and/or business. They would have to assume amazing risk in order to operate their vehicles because physical and financial ruin could be just around the corner. That’s what an independent agent sells, protection. Protection that is in effect every day of a client’s life, ready to step in and make them whole when un6 June 11, 2018 / INSURANCE ADVOCATE
That’s the message we need to be shouting from the mountaintops to consumers, especially the younger ones. It’s not about convenience and low price. It’s about having the right protection to allow them to live their lives to the fullest
Jamie Deapo is AVP of Membership & Member Programs for Big I and is an approved CE instructor in New York. Prior to being with Big I, he was an independent agent in the Syracuse area for 15 years. Jamie started his career in 1972 working for insurance carriers, and he has held various underwriting and marketing positions with several national as well as regional companies. He is a past president of the Independent Insurance Agents of Central New York and served on the board of directors of Big I.
without fear of physical and/or financial ruin. foreseen and unexpected events disrupt their lives and threaten their physical and financial future. How important is having enough of the right protection? Like the TV commercial used to say “Priceless”! That’s what distinguishes independent agents from the disruptors. We understand it is the most important thing in the insurance buying transaction. Sure we would love to have a highly automated and convenient system for helping our clients and we will get their sometime soon. But what we have right now is more important than any technology that a disruptor can provide. A total dedication to making sure that the protection we provide is the very best possible for the clients we represent. Most consumers don’t have the technical knowledge to properly put together a solid package of protection. That’s the job of an independent agent who knows and understands the nuances of insurance protection. That’s the message we need to be shouting from the mountaintops to consumers, especially the younger ones. It’s not about convenience and low price. It’s about having the right protection to allow them to live their lives to the fullest without fear of physical and/or financial ruin.
Right now the most effective way to compete against the disruptors is to highlight their shortcomings. All of their expertise is in technology, data analytics and artificial intelligence. They’re all about the process but nothing about the protection. That’s like buying a product with eye catching marketing and outstanding packaging only to get it home and find out the product is just mediocre and doesn’t really work like you want it to. We need to get consumers, especially the younger ones to understand that real value comes from proper protection and not from the buying process. It should be the focus of most, if not all, your marketing efforts. Consumers relate to storytelling so provide then with stories that highlight the importance of proper coverage. Focus their attention on the real reason for buying insurance – proper protection backed up by a dedicated agent and staff there to assist you when they need it most.[IA]
[ IN THE ASSOCIATIONS ]
NYIA 2018 Annual Conference...Working Together Toward Tomorrow u There is something special to be said about Saratoga Springs, New York. The amulet of the historical city of Saratoga Springs is deeply rooted in “health, history and horses” and has been a curious tourist’s destination for over 200 years. The pivotal travelers that stayed and shaped this city so many years ago can be credited with providing the alluring backdrop that continues to bring people together. Fittingly, the New York Insurance Association hosted their 2018 Annual Conference in Saratoga Springs this year, like it has many years in the past. The association feels that the city provides the perfect setting to work Together Toward Tomorrow. The con-
The event generated great discussion on a variety of topics and featured renowned industry experts as well as representatives from the New York State Department of Financial Services and legislators from the Capital District. ference is an ideal time for the New York property and casualty industry to gather and discuss ways we can work together for the betterment of our policyholders.
Nearly 250 industry representatives came together this year on May 30 through June 1. The event generated great discussion on a variety of topics and featured renowned industry experts as well as representatives from the New York State Department of Financial Services and legislators from the Capital District. The 2018 Annual Conference featured a myriad of topics and industry leaders. Kicking off the enlightening sessions was global industry leader at Mercer, Duane Bollert, whose discussion, To Infinity & Beyond: The Digital Future of Tomorrow, provided inspiring ideas that will help bridge the gap between talent and tech. His opening discussion was followed by an insightful conversation led by Norman Orlowski, of Erie and Niagara Insurance Association. The Tax Tango: Strategies to Avoid Potential Pitfalls panel was comprised of tax experts whose collective experience totaled nearly 100 years. Albert DiGiacomo CONTINUED ON PAGE 10
NYIA’s Board of Directors (L-R): Back Row: Charles Makey with Merchants, Mark Gardner with Allstate, Mark Prechtl with Chautauqua Patrons, Stephen Harris with Sterling, Patrick O’Malley with Progressive; Front Row: Edward Harper with Mid-Hudson Co-Operative, Norman Orlowski with Erie and Niagara, Matthew Benedict with Midstate Mutual, Elizabeth Heck with Greater New York Mutual, Kristofer Snader with Nationwide, Jaynine Warner with Farmers Group and Craig MacCormac with Hartford Steam Boiler. (Not pictured Steven Coffey with Broome Co-operative)
8 June 11, 2018 / INSURANCE ADVOCATE
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[ IN THE ASSOCIATIONS ]
NYIA Officers: (L-R) Second Vice Chair Charles Makey with Merchants, Chair Elizabeth Heck with Greater New York Mutual, Treasurer Norman Orlowski with Erie and Niagara, NYIA President Ellen Melchionni and First Vice Chair Mark Prechtl with Chautauqua Patrons.
Mark Prechtl with Chautauqua Patrons and Duane Bollert of Mercer who opened the conference with a talk about the digital future and the talent of tomorrow. CONTINUED FROM PAGE 8
The Tax Tango: Strategies to Avoid Potential Pitfalls Panel (left to right): William Scannell with Johnson, Lauder & Savidge, Richard Litchfield with Opus Investment Management, Albert DiGiacomo with Crowe Horwath and Norman Orlowski with Erie and Niagara.
2021: The Insurance Odyssey—Emerging Trends and Real Applications Panel (left to right): Eric Cernak with Hartford Steam Boiler, Stephanie Gould Rabin with Holborn, Kevin Gregson with Willis Towers Watson, Charles Makey with Merchants and Michael Cronin with Cronin Consulting.
of Crowe Horwath, LLP, Richard Litchfield of Opus Investment Management, Inc., William Scannell of Johson Lauder & Savidge, LLP and moderator Orlowski engaged in a dynamic discussion on the Tax Cut and Jobs Act of 2017. L at e r t h at m o r n i n g M a r i a Vu l l o , Superintendent of the New York State Department of Financial Services (DFS), delivered the keynote address outlining the Department’s priorities for 2018 and beyond. One of those priorities includes keeping up with the impact of technology on the financial services industry and the creation of the Office of Financial Information. The morning sessions concluded with “a journey unlike any other,” 2021: The Insurance O dy s s e y — Eme r g ing Tre nd s and R e al Applications led by moderator, Charles Makey of Merchants Insurance Group and panelists: Eric Cernak of Hartford Steam Boiler Inspection & Insurance Coompany, Michael Cronin of Cronin Consulting Services, Inc., Stephanie Gould Rabin of Holborn Corporation, and Kevin Gregson of Willis Towers Watson. Our voyaging panelists explored important trends surrounding technology and big data and how it is impacting the insurance industry. NYIA was proud to honor Steven Coffey of Broome Co-operative Insurance Company as the recipient of the Chair’s Distinguished Service Award. Steve’s unwavering patience, unprecedented insight and notable experience have made him an asset to NYIA and a cherished principal of the property and casualty insurance industry. The day concluded with an evening banquet and live entertainment. Steven Brundage—magician, entertainer and former contestant on CONTINUED ON PAGE 12
10 June 11, 2018 / INSURANCE ADVOCATE
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[ IN THE ASSOCIATIONS ] CONTINUED FROM PAGE 10
Federal Focus: Spotlight on Our Nation’s Capitol: Charles Chamness with NAMIC
Town Hall Meeting (left to right): NYS Senator Neil Breslin, NYS Assemblymember Carrie Woerner, NYS Assembymember John McDonald and William Melchionni with AIG.
America’s Got Talent, put on an enchanted show for attendees. He even shared the trick that garnered him international fame in 2014 when his YouTube video of him successfully getting out of a traffic ticket by charming law enforcement officers with only a Rubik’s Cube and a creative imagination went viral. The Town Hall Meeting was first up on the agenda for the final day of the conference. This year’s program, moderated by William Melchionni of American International Group, Inc., was joined by Capital Region legislators Senator Neil Breslin, Assemblymember John McDonald, and Assemblymember Carrie Woerner. These legislative leaders answered questions about their priority issues and provided perspective on property and casualty legislation being considered. Charles Chamness, president and CEO of the National Association of Mutual Insurance Companies switched gears from New York State to the federal landscape and provided an astute analysis of the federal legislative environment. To wrap up the program was the annual Small Company Roundtable moderated this year by Matthew Benedict, of Midstate Mutual Insurance Company. NYIA finds that our members thrive when given the chance to look to each other as peer resources and this roundtable discussion always provides the perfect platform for rewarding conversations. The NYIA Annual Conference is always a must-attend for anyone who wants to stay abreast of the issues occurring in one of our country’s largest, and often most challenging, insurance marketplaces. Save the date now for next year’s event that will begin on May 29–31 at the Sagamore in Bolton Landing, New York.[IA]
The NYIA Annual Conference is always a must-attend for anyone who wants to stay abreast of the issues occurring in one of our country’s largest, and often most challenging, insurance marketplaces. Small Company Roundtable (left to right): Matthew Benedict with Midstate Mutual and Cassandra Anderson with NYIA. 12 June 11, 2018 / INSURANCE ADVOCATE
ADVERTORIAL
Green Building Basics
By Sue C. Quimby, CPCU, AU, CIC, CPIW, DAE - Assistant Vice President/Media Editor
THE GREEN BUILDING INDUSTRY is changing the footprint of the construction trades. Green buildings are less costly to operate, saving money for individual building owners as well as taxpayers. Added advantages of green buildings are that they are designed to be safer for occupants’ health, and use recycled and sustainable materials. However, green buildings also present their own set of obstacles for building owners and risk managers. Helping your clients understand the benefits and challenges of “going green” is another sign of the true insurance professional. The U.S. Green Building Council ranks New York second in the nation (behind Massachusetts) in the total square footage devoted to green building. New York City has instituted a building energy efficiency grade. Similar to restaurant grading, large buildings will have signs at their entrances showing their rating from A-F. In addition to the letter grade, the sign will include the building’s EnergyStar score. The theory is that more efficient buildings will lead to higher rents and lower vacancies (https://urbangreencouncil.org). In New Jersey, the green building industry added $20.51 billion to the economy from 2015-18 and employs over 241,000 people (https:// usgbcnj.org/education). New York’s Battery Park is home to a number of innovative green buildings. The Solaire, which opened in 2003, was the first high rise residential building in the country. The Verdesian, the first multi-family high rise residential building to achieve platinum LEED status, opened in January 2008, followed later that same year by The Visionaire, which was billed as the greenest high rise residential condominium in the United States (www.nydailynews.com). The Leadership in Energy and Environmental Design (LEED) certification system was developed to add structure and specific guidelines to the green building process. LEED certification is available in four levels of increasingly more stringent requirements, based on an earned points system: Certified, Silver, Gold or Platinum (https://new.usgbc.org/ leed). Minimum criteria include being a permanent building on existing land, and compliance with project size and LEED boundary requirements (https://usbgc.org). Different certification programs are available for all types of buildings, from new construction to updates to existing buildings. LEED-certified buildings are designed to create a healthier environment for both the occupants of the building and the surrounding community. These buildings are known for reduced energy and water usage, and lower carbon emissions. From an insurance standpoint, valuation is key. Green construction is more costly than using traditional methods. LEED recertification costs may be necessary if there is significant damage to the building. These factors must all be included when developing the proper insurance program. Vegetative roofs are becoming more popular in connection with green buildings. The increased weight and risk of water damage of these roofs add important elements for
consideration in the insurance discussion. In addition, coverage for plants and trees is generally excluded or severely limited in standard insurance contracts, so this is another suggested area of policy modification. Business income loss must also be addressed, both for the extended period it may take to rebuild to LEED certification requirements, as well as any income lost from selling energy back to the power company. Extra expense is another key element to a green building’s insurance program. There may be added costs to ship specialized materials, or to bring in custom installation equipment. Standard insurance policies do not provide coverage for LEED recertification. Recertification costs differ depending on the level that is involved. In addition to coverage to repair a “green” building, upgrade coverage is available for those building owners who wish to convert to “green” after a loss, or want to upgrade their LEED certification level. Debris removal requirements may present added costs for green buildings. Debris must be sent to recycling centers rather than landfills. Income received from recycling may offset the increased debris removal cost. For a building to be truly “green,” the contents and equipment must also be considered. Features of “green” furnishings include reduced emission of VOC (volatile organic chemical) gases, constructed using recycled or renewable materials, durability, and compatibility with green cleaning methods and products (www.buildings.com). Sustainability and efficiency are growing trends in building. Helping clients understand the benefits as well as potential problems with, green construction, is another value-added service of the professional insurance agent.
R
139 Harristown Road, Suite 100, Glen Rock, NJ 07452 (800) 935-6900 | www.msonet.com INSURANCE ADVOCATE / June 11, 2018 13
CASE STUDY
HEAD ON
How Guy Carpenter and CyberCube Partnered to Tackle Cyber Insurance BY CYBERCUBE CEO PASCAL MILLAIRE AND CO-FOUNDER ASHWIN KASHYAP
14 June 11, 2018 / INSURANCE ADVOCATE
Pascal Millaire is the CEO of CyberCube, a Symantec Ventures company dedicated to providing data-driven cyber insurance underwriting and aggregation management analytics. Previously, Pascal was Vice President at Symantec, where he was responsible for overseeing cyber insurance product development and insurance security partnerships. Pascal was also President of an Internet of Things technology company and spent seven years at McKinsey and Company where he served companies in the insurance industry on topics of strategy, risk management, pricing, and operations. Pascal holds a Bachelor’s degree from the University of Cambridge and an MBA from the Stanford Graduate School of Business.
uThe fear surrounding cyber-attacks has never been more warranted. In 2017, there was a 46% increase in new ransomware variants, a 54% increase in mobile malware variants and a staggering 600% increase in Internet of Things (IoT) attacks, according to data from Symantec. Notably, hackers also cost the consumer $172 billion last year - and according to research supported by CyberCube, currently cost the global economy in excess of $275 billion per year. As new technology enters the market, these number will undoubtedly grow. And yes: the size of the cyber insurance industry will follow suit. While today premiums are estimated at about $3.5 billion, sales could reach $20 billion by 2025. Cyber risk has been etched into the global landscape, and shareholders and regulators are turning to the insurance industry to CYBER RISK HAS BEEN ETCHED INTO THE GLOBAL LANDSCAPE, AND SHAREHOLDERS AND REGULATORS ARE TURNING TO THE INSURANCE INDUSTRY TO CONFRONT THESE RISKS.
confront these risks. In the current scenario, it’s prudent for the cyber insurance market to be prepared with the superior insight and tools needed to help their clients succeed. ....
16 June 11, 2018 / INSURANCE ADVOCATE
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TOGETHER WE ARE BIG I NEW YORK. IA_Ad_Template.indd 1
1/24/2018 4:27:38 PM
Here’s how leading global risk and reinsurance specialist Guy Carpenter tackled cyber insurance head-on, by engaging in a two-year strategic relationship with CyberCube, formerly part of Symantec Corporation. The result of the partnership is the industry’s first cyber risk modeling platform with an inside-out view of the cyber risk exposure.
AN URGENT MARKET NEED
It is one thing to develop insurance models for physical locations. However cyber insurance is a completely different game. Aggregation can stretch across millions of connected
Ashwin Kashyap is a Co-founder and Product Executive at CyberCube, a San Francisco based cyber-security startup where he leads the creation and commercialization of a cyber
AGGREGATION CAN STRETCH ACROSS MILLIONS OF CONNECTED SYSTEMS - AND JUST BECAUSE A RISK HASN’T MATERIALIZED YET, IT DOES NOT MEAN THAT THE RISK IS NOT THERE.
risk management platform. Prior to CyberCube, Ashwin was the Director of Product Management at Symantec, the world’s largest cyber-security
systems - and just because a risk hasn’t materialized yet, it does not mean that the risk is not there. But since cyber insurance is a relatively new line of business, there is a limited amount of data available. This makes it more difficult for insurers and reinsurers to measure cyber risk and profitability effectively. Further, the cyber insurance market is in a constant state of transformation. The types of cyber-attacks that may occur - as well as the motivations behind them - are never at a standstill. Damage done by cyber-attacks is also inherently more difficult to quantify, and it might take days or years to discover that one has taken place. Additionally, the attacks often happen over an extended period of time.
All these factors make entering the cyber insurance space an enormous challenge for traditional insurance players. The partnership between Guy Carpenter and CyberCube aims to combat this. Guy Carpenter provided the invaluable insurance 18 June 11, 2018 / INSURANCE ADVOCATE
company. He has spent his decadelong career in technology focused on creating quantitative models and products for the insurance ecosystem and is a frequent speaker on risk analytics in industry events. Ashwin has a Master’s degree in Electrical
Engineering
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the
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market insight and feedback, while CyberCube brought its cybersecurity and modeling expertise to the table.
THE CYBER RISK MODELING PLATFORM HELPS INSURERS MAKE BETTER DECISIONS
tail risk, being able to quantify uncertainties through sensitivity testing is critically important. For example, what happens to modeled losses when one changes the business interruption waiting period from 8 hours to 12 hours for all policies in the portfolio? How do the metrics change when one simulates events in a future world, where cyber attacks might not be as frequent? All in all, CyberCube enables insurance players
Using technology developed by Symantec – the world’s leading cybersecurity company – the new risk modeling platform leverages exabytes of data from security products, which is then THESE METRICS ARE FUNDAMENTALLY IMPORTANT TO MAKE DECISIONS ABOUT HOW analyzed with a specific focus on cyber risk measurement. And the goal? To help MUCH REINSURANCE AN INSURER SHOULD PURCHASE GIVEN ITS RISK TOLERANCE LIMITS. insurers make more informed decisions when under writing cyber risk and managing cyber risk aggregation. to create their own view of the cyber risk by configuring freBut there is no silver bullet to addressing how the cyber quency and severity controls. risk can be measured. To develop the product, both parties analyzed the problem from various perspectives - speaking to HOW INSURANCE COMPANIES CAN BENEFIT experts in actuarial science, cybersecurity and insurance risk As a reinsurance broker, Guy Carpenter is a key influencer modeling. The result is the first multi-faceted platform to proin enabling the transfer of risk between insurers and reinsurvide an inside-out view of the cyber risk exposure. ers. These transactions are quite complex. But the good news
The risk modeling platform provides the global insurance industry a view of potential systemic risks, modeled through simulation. For example, certain years can be good for insurance, and others can be catastrophic. Companies that analyze their insurance portfolios with CyberCube’s modeling platform get a clear view of what tail risk for the portfolio looks like, in the form of losses at the 1-in-20, 1-in-50, 1-in-100 levels. These metrics are fundamentally important to make decisions about how much reinsurance an insurer should purchase given its risk tolerance limits. Further, the tool easily integrates with industry standard capital modeling platforms like MetaRisk. Even more, the risk modeling platform features a transparent way for companies to see how metrics are calculated, to then understand the key drivers of cyber risk. For example, a certain portfolio may have a higher concentration of risk in the financial services sector - even if they don’t think they do. It can also have a higher degree of exposure to a certain cloud services provider that may not have the leading market share. This capability enables insurance carriers to understand risks across multiple segments and set a streamlined underwriting strategy. Finally, the platform is a proving ground for sensitivity testing and customization. When an insurance player is assessing 20 June 11, 2018 / INSURANCE ADVOCATE
is that now in the realm of cyber, CyberCube can provide advanced analytics to inform on tail risks, and Guy Carpenter’s actuaries and brokers advise insurers on their reinsurance programs on the basis of the model. All in all, Guy Carpenter became the first reinsurance broker to enter into a formal license agreement with CyberCube to leverage the technology - and thus, deliver innovative cyber reinsurance solutions to its clients. “Guy Carpenter is excited to offer our clients and prospects this exciting new tool to help manage and assess cyber risk,” said Guy Carpenter’s Global Chief Innovation and Product Development Officer Claude Yoder. “The powerful combination of our knowledge of (re)insurance dynamics and the evolution of the product and macro-systemic industry concerns, coupled with CyberCube’s expertise in data science, cyber security, software engineering and actuarial modeling, will deepen the industry’s understanding of this rapidly evolving risk.” Cyber insurance is still full of unknowns. Even Warren Buffett was recently quoted in saying that cyber is unchartered territory, and risks will, in fact, get worse in the years to come. That said, insurers will seriously benefit from partnering with cutting edge technology companies to help get a real handle of cyber risk - and in the end, provide the right coverage their clients deserve. [IA]
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The New York Insurance Association congratulates this year’s Chair’s Distinguished Service Award recipient Steven Coffey of Broome Co-operative Insurance Company. Steve is a true example of a great leader. His unwavering patience, unprecedented insight and notable experience have made him an asset to NYIA and a cherished principal of the property and casualty insurance industry.
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BARRY Z ALMA
Allocating Damages to Pro Rata Time-on-the-Risk Is it Fair to Require an Insurer to Pay for Periods for which it Received no Premium? u Some events causing pollution damage can occur over many decades, even more than a century. Existence of coverage for risks of loss by pollution did not exist, was unavailable to certain industries or was not purchased by the defendant. When the injury happens continuously over a long period of time who pays, and in what proportion, is often the subject of many lawsuits and appeals. In March of 2018 the Court of Appeals of New York (its highest court) was asked to resolve a dispute of first impression in the state of New York as to how to apportion the risks of loss in Keyspan Gas East Corporation v. Munich Reinsurance America, Inc., Century Indemnity Company et al., 2018 NY Slip Op 02116, No. 20, Court of Appeals of New York (March 27, 2018).
ISSUE
The court was asked whether under the “pro rata time-on-the-risk” method of allocation, defendant Century Indemnity Company is liable to its insured, plaintiff KeySpan Gas East Corporation, for years outside of its policy periods when there was no applicable insurance coverage available on the market.
FACTS
The claims resulted from environmental contamination caused by manufactured gas plants (MGPs) owned and operated by KeySpan’s predecessor, Long Island Lighting Company (LILCO), in Rockaway Park and Hempstead, New York. Gas production at the sites began in the late 1880s and early 1900s. After operations ceased decades later, the New York Department of Environmental Conservation (DEC) determined that there had been long-term, gradual environmental damage at both sites due to 24 June 11, 2018 / INSURANCE ADVOCATE
The unavailability rule is inconsistent with the contract language that provides the foundation for the pro rata approach — namely, the “during the policy period” limitation — and that to allocate risk to the insurer for years outside the policy period would be to ignore the very premise underlying pro rata allocation. contaminants, such as tar, seeping into the ground and leeching into groundwater. The DEC required KeySpan to undertake costly remediation efforts, which were apparently concluded at the Hempstead and Rockaway Park sites in 2002 and 2012, respectively. Between 1953 and 1969, Century issued eight excess liability insurance policies to LILCO covering property damage. It was stipulated that the damage at the sites occurred gradually and continuously before, during, and after the Century policy periods. It is also uncontroverted that the environmental contamination that occurred in any given year is unidentifiable and indivisible from the total resulting damages.
ANALYSIS
Long-tail claims present unique difficulties. In such cases, the injury-producing harm is gradual and continuous and typically spans multiple insurance policy periods or implicates years during which insurance coverage was in place, as well as years for which no coverage was purchased. In general, two primary methods of allocation are used by the courts across the country to apportion liability across
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www. nationalunderwriter.com/ZalmaLi brary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/ Store/ProductDetails.aspx?produc tId=214624, or 800-285-2221 which is presently available. Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.
[ ON MY RADAR ] multiple policy periods: all sums and proration. • All sums allocation permits the insured to collect its total liability under any policy in effect during the periods that the damage occurred, up to the policy limits. • Pro rata allocation, assuming complete coverage, an insurer’s liability is limited to sums incurred by the insured during the policy period; in other words, each insurance policy is allocated a pro rata share of the total loss representing the portion of the loss that occurred during the policy period. Pro rata shares are often, although not exclusively, calculated based on an insurer’s “time on the risk,” a fractional amount corresponding to the duration of the coverage provided by each insurer in relation to the total. New York has not adopted a strict pro rata or all sums allocation rule. Rather, the method of allocation is governed foremost by the particular language of the relevant insurance policy. Where policy language indicates allocation by the pro rata method and gaps in coverage exist, the question arises as to which party — the insurer or the policyholder — bears the risk for periods of time in which no applicable coverage was in place. When using a pro rata time-onthe-risk allocation, a number of jurisdictions have declined to place the policyholder “on the risk” if insurance was unavailable. These jurisdictions recognize the “unavailability rule” or, stated differently, an “unavailability exception” to the general rule that a policyholder is self-insured and on the risk for periods of time when insurance coverage was not obtained. Under this approach, a policyholder bears the risk for periods of time when it elected not to purchase available insurance, but not for those years when insurance was unavailable. Application of this rule serves to reduce the number of years included in the overall proration calculation, thereby increasing the shares of liability attributable to an insurer for each year in which a policy was in effect. Other courts have rejected the unavailability rule. These courts have held that a policyholder is on the risk for periods of
No insurer should be required to indemnify an insured for damages that resulted before its policy came into effect or for a period when it did not insure the risk. non-coverage, regardless of whether the lack of insurance coverage was attributable to a voluntary decision to self-insure or to an inability to obtain. The applicability of the unavailability rule is a matter of first impression in New York. KeySpan argues, however, that it should be responsible only for those years in which insurance was available in the marketplace. Thus, KeySpan — supported by various amici — urges us to adopt the unavailability rule and hold that, in a pro rata time-on-the-risk allocation, liability should not be allocated to the policyholder for years in which insurance was unobtainable, either because it had not yet been offered by insurers or because the industry had adopted a pollution exclusion. While the insurance policies at issue do not speak directly to allocation in the context of long-tail claims, each of the policies contain language (with minor variances) limiting the insurer’s liability to losses and occurrences happening “during the policy period. The unavailability rule is inconsistent with the contract language that provides the foundation for the pro rata approach — namely, the “during the policy period” limitation — and that to allocate risk to the insurer for years outside the policy period would be to ignore the very premise underlying pro rata allocation. Such an approach could, once a policy is triggered, impose liability in perpetuity (or retroactively to periods prior to coverage) on an insurer who issued insurance coverage for only a limited number of years, thereby eviscerating much of the distinction between pro rata and all sums allocation. KeySpan’s claim would effectively provide insurance coverage to it for years in which no premiums were paid. Moreover, such a rule would contravene the reasonable expectations of the aver-
age insured, who would not expect to receive coverage without regard to the number of years for which it purchased applicable insurance. The whole idea of a time-on-the-risk calculation is that any given insurer’s share reflects the ratio of its coverage (and thus the premiums it collected) to the total risk. The spreading of industry risk through insurance is accomplished through the setting and payment of premiums for insurance, consistent with the parties’ forward-looking assessment of what that risk might entail, and that, in the absence of a contract requiring such action, spreading risk should not by itself serve as a legal basis for providing free insurance to an insured. The policyholder is the one who allegedly caused the injury and, therefore, who ultimately will be financially responsible should insurance prove insufficient. Notwithstanding competing public policy concerns, an appellate court may not make or vary the contract of insurance to accomplish its notions of abstract justice or moral obligation. Therefore, in New York, the unavailability rule cannot be reconciled with the pro rata approach. The Court of Appeal, therefore, rejected the application of the unavailability rule for time-on-the-risk pro rata allocation and required the insured to pay for those periods when it was uninsured or when insurance was unavailable.
ZALMA OPINION
Public policy – a notion of abstract justice or moral obligations – adopted by a court is fraught with danger of doing injustice while claiming to act in good faith to provide justice to all. In New York, and those states that agree with its decision, an insurer is only obligated to pay its pro rata share of a continuing loss based upon the periods of time it insured the risk of loss bears to the total time the loss occurred. No insurer should be required to indemnify an insured for damages that resulted before its policy came into effect or for a period when it did not insure the risk.[IA]
INSURANCE ADVOCATE / June 11, 2018 25
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INSURANCE ADVOCATE / June 11, 2018 27
[ COURTSIDE ]
LAWRENCE RO GAK
NJ Auto Policy Does Not Cover PIP for Insured as a Pedestrian Struck in New York In the Matter of the Arbitration between: St. Lukes Roosevelt Hospital Center and New Jersey Manufacturers Insurance Co Edited by Lawrence N. Rogak The claimant had a New Jersey auto policy in which he elected to have his own health insurance be primary for his medical expenses. The claimant was a pedestrian in New York and was struck by a taxi. The arbitrator held that the claimant was not entitled to PIP benefits from his NJ policy and that AAA had no jurisdiction over the PIP claim because none of the insured’s NJ vehicles were involved in the NY accident.—LNR u The issue in dispute is whether Respondent, a New Jersey Insurance Company, is bound by a contractual obligation to cover Assignor’s no-fault benefits as a result of injuries Assignor sustained when struck while a pedestrian by a taxi cab in the State of New York. This claim arises out of injuries Assignor sustained in a motor vehicle accident on January 4, 2016 for which Applicant provided evaluation immediately thereafter. Upon receipt of Applicant’s bill totaling $7,940.60, Respondent duly denied payment predicated upon jurisdiction conflicts and Assignor’s obligation contained within the underlying insurance policy to seek first party benefits from his private medical carrier prior to seeking direct payment from Respondent. As such, this Arbitrator, after a thorough review of the evidence adopts Respondent’s factual and legal analysis, in sum and substance, as follows: “This is a claim by Applicant against Respondent to recover New York no-fault benefits. This claim, however, arises under a New Jersey auto policy, containing a New Jersey endorsement, issued by a New Jersey insurance company, and delivered 28 June 11, 2018 / INSURANCE ADVOCATE
to a New Jersey resident. While the New Jersey insured was in New York at the time of the accident, he was a pedestrian, not a motorist, and none of the vehicles covered by the out-of-state policy were involved in the New York accident. Both the policy and the New York no-fault statute require that a vehicle covered by the out-of-state policy be used or operated in New York at the time of the accident before New York no-fault coverage may be imposed on the out-of-state carrier.” At the time the coverage was purchased, Assignor exercised his right under New Jersey law to make their health insurance primary to the PIP coverage. On January 4, 2016, Assignor notified Respondent that he was a pedestrian in New York when he was struck by a New York taxi cab. Respondent confirmed the facts surrounding the incident including verification via police information, the offending vehicle’s insurance coverage and outreach to Applicant’s facility inquiring as to why, pursuant to the aforesaid conditions of the herein insurance policy, payment was sought for Assignor’s medical treatment, but to no avail. As such, Respondent seeks a decision in its favor for the following reasons: (1) since Assignor was a pedestrian in New York when struck by a New York taxi cab, there is no contractual or statutory basis for Applicant to recover New York no-fault benefit under Respondent’s New Jersey auto policy; (2) since any claim Respondent may have for no-fault benefits under Respondent’s auto policy is governed by the law of New Jersey (not New York), the AAA New York Insurance Case Management Center lacks jurisdiction over the subject mat-
Lawrence N. (“Larry”) Rogak has been practicing insurance law since 1981. He has defended over 23,000 lawsuits and arbitrations and has represented over 75 different insurance companies and self-insured corporations. Lawrence N. Rogak LLC is listed in Best’s Recommended Insurance Attorneys, a distinction that requires written recommendations from at least 12 insurance carriers. A 1981 graduate of Brooklyn Law School, Mr. Rogak has published more books and articles on insurance law than any other New York attorney in the field.
ter of such a New Jersey no-fault dispute; and, (3) Respondent requires that New Jersey no-fault disputes be arbitrated in New Jersey and has not consented to arbitrate New Jersey no-fault dispute in New York. Applicant relied on the Court’s holding in the Matter of American Insurance Co. v Nova Acupuncture PC, 137 A.D. 1270 (2016), where, in sum, when presented with a similar but not an identical fact pattern regarding an outof-state insurance carrier doing business in New York opined, “the fact that the policies do not contain any agreement to arbitrate disputes involving the payment of first party benefits does not preclude the respondents from exercising their option to arbitrate the underlying dispute in this proceeding… here, it is undisputed that the respondents exercised their option to arbitrate the dispute over the payment of first-party benefits. It is further undisputed that Respondent is not licensed or authorize to transact business in the State. Nonetheless, Respondent policies may be deemed to satisfy New York’s financial security requirements and to provide for the payment of first-party benefits, which necessarily includes affording claimants the option to arbitrate CONTINUED ON PAGE 30
[ IN THE ASSOCIATIONS ]
PIANJ to honor Catranis with Distinguished Insurance Service Award u TRENTON, N.J.—Steve Catranis, senior vice president of Cumberland Insurance Group, will receive the PIANJ 2018 Distinguished Insurance Service award at the Professional Insurance Agents of New Jersey and New York’s Annual Conference, June 10-12 at Harrah’s Resort and Casino in Atlantic City. This award is presented to an individual with a history of service to the American agency system and PIANJ. Catranis is an industry veteran of more than three decades, having entered the industry in 1974 and joining Cumberland Insurance Group in 1981. He will retire
“Steve has been a valuable asset to the insurance industry during his tenure, and PIANJ always appreciated his willingness to meet with us to discuss the issues that were central to the industry and the insurance-buying public.” from Cumberland Insurance this July. PIANJ recognized Catranis with its Company Representative of the Year award in 1985. His participation and support of PIA continues as he has long participated in the PIANJ-YIP Fun
Franklin Mutual Insurance Group to Receive Community Service Award uTRENTON, N.J.—The Professional Insurance Agents of New Jersey will award Franklin Mutual Insurance Group, of Branchville, N.J., with the association’s Community Service award today during the association’s Annual Conference at Harrah’s Resort in Atlantic City. Lisa Glesias will accept the award on behalf of Franklin Mutual Insurance Group. Franklin Mutual Insurance Group is being awarded this honor because the company fosters a culture of volunteerism and charity by supporting staff as they participate in community activities. Among the many activities, FMI is a major supporter of Special Olympics New Jersey with its participation in the New Jersey Young Insurance Professionals Fun Run, held each year at the annual conference. To date, the NJYIP Fun Run has raised more than $3.8 million for SONJ. “PIA is pleased to recognize FMI’s wonderful and generous contributions to the community,” said Kacy Campion
Run for Special Olympics as a runner and fundraiser, and he is currently active on the association’s Carrier Advisory Council. “Steve has been a valuable asset to the insurance industry during his tenure, and PIANJ always appreciated his willingness to meet with us to discuss the issues that were central to the industry and the insurance-buying public,” said PIANJ Kacy Campion Renna, CIC.
“They are a model organization for our industry and through their actions have made our community a better place.” Renna, president of PIANJ. “They are a model organization for our industry and through their actions have made our community a better place.” “The welcoming to our company website says ‘We hope that the communities we live in and serve will be better for us having been there,’” said Brian Lytwynec, President and CEO of Franklin Mutual Insurance Group. “Being recognized by The Professional Insurance Agents of New Jersey as the winner of PIANJ’s 2018 Community Service award is an honor we are truly proud of. It is, perhaps, one indicator that we are fulfilling, in a very real way, through the efforts and works of our team members, our desire to have a positive impact on those around us.”[IA]
The three-day conference will allow individuals to choose from six different education sessions and earn continuingeducation credits, attend networking opportunities and participate in a soldout trade show.[IA]
FOREWORD CONTINUED ON PAGE 4
• The specific responsibilities of supervisory and managerial employees in the prevention of sexual harassment. Important Take Aways for Employers Affected employers should review their policies, procedures and training to ensure compliance as there are penalties for violations. Even if your company already has trainings in place, those policies should be reviewed for compliance with the minimum standards set by the new State and City laws. More comprehensive information on compliance and liability avoidance to supplement this brief summary will be periodically published by CLIFTON BUDD & DEMARIA, LLP as developments under the new laws arise: this information may be accessed by visiting WWW.CBDM.COM.[IA]
www.insurance-advocate.com INSURANCE ADVOCATE / June 11, 2018 29
[ IN THE ASSOCIATIONS ]
COURTSIDE
‘Big I Tri-County’ Installs Officers and Directors for the 2018 – 2019 Term Awards and scholarship announcements accompanied the evening’s activities
u Albertson, N.Y.—New officers and directors took the helm on May 22 during the Long Island-based Big I Tri-County association’s annual installation dinner and awards ceremony. The gathering, held at Chateau Briand in Carle Place, NY, set the leadership for the 2018 through 2019 term. More than 150 agents & brokers, company representatives, vendors and other members of the insurance community joined the festivities of this special occasion which started with a festive cocktail reception. Andrew Chong, President of ARC Underwriting Partners, Inc., in Great Neck, NY, was installed as president of Big I Tri-County by Peter Phillips, his business associate, friend, and a past president of the association. Additional officers and directors were installed by Lisa Lounsbury, CAE, AAI, AIS, President and CEO of Big I New York. Neil Levy, CPA, CFP, of Assured Partners Northeast, LLC in Melville, NY, will assume the position of Vice President and Ronald Brunell, CIC, of The Signature B&B Companies in Garden City, NY, remained as the association’s Treasurer. Chris Wukovits, of AAA Northeast Insurance Agency in Garden City, NY, will be the group’s Secretary in the new term. The following member agents will serve as Directors or Big I Tri-County: Stephannie Ciantro of Mackoul Risk Solutions in Island Park; Christopher Dritsas, of Advantage Partners, Inc., Port Washington; Frank Elorza, Club Agency Insurance Brokerage, Garden City; Steven Ferrar of Ferrar Insurance Agency, Inc., Franklin Square; Brittany Robotti of Edward B. Robotti, Inc., in Long Island City, and Randi Rosen of The Folan Agency, Ltd. In Port Washington. The prestigious Joe Bonica Award presented to a member of the board of 30 June 11, 2018 / INSURANCE ADVOCATE
More than 150 agents & brokers, company representatives, vendors and other members of the insurance community joined the festivities... directors for outstanding drive and accomplishments went to Ronald Brunell, CIC, for his many years of dedication to the Big I and the insurance industry. James Bastian, a highly admired former president of this association and someone who continues to lead the board of directors for the betterment of the membership, received the Bob Morris Award. Kathleen Weinheimer, CPCU, AAI, Big I New York’s Senior VP of Industry Relations, added to her array of accolades earned during her long career by receiving the Insurance Person of the Year Award that evening. Ms. Weinheimer, after 30 years of service and retiring soon, is known as a major cornerstone at The Big I New York’s home office in Syracuse. Over the years she has advanced the ‘Big I’ name as a strong and highly respected insurance organization throughout the country. TriCounty announced awards totaling of $9,500 in scholarships this year. $2,500 went to each of three exceptional students of St. John’s School of Risk Management; Jennie Fortune, Michael Platt, and Nekayle Whitaker. Each student surpassed specified criteria, including insurance related study requirements, a high GPA average and service to the community. The 2018 St. John’s education scholarship program was sponsored by three major insurance carriers; Narragansett Bay Insurance Company, National
CONTINUED ON PAGE 28
disputes involving first-party benefits.” Upon due consideration, a thorough review of the record and position statements presented during oral argument, I am confined to rule in Respondent’s favor. The record is devoid of any indication that Applicant, an Assignee of an injured pedestrian, proffered direct documentation which, even remotely, would trigger this Arbitrator’s jurisdiction over the claim as presented. Of significance, Assignor clearly chose to purchase an insurance policy wherein his private health insurer would be the primary source of coverage in the event of injury from a covered automobile accident yet as duly argued by Respondent such linkage was not provided by Applicant for this claim. See, Respondent’s exhibit Insurance Policy, page 38. Furthermore, in this instance, Applicant did not credibly refute Respondent’s assertion that it is not subject to the jurisdiction of the New York No-Fault forum. Accordingly, Applicant’s claim is denied.[IA] AAA Case No. 17-16-1042-5603 Ellen Cutler-Igoe, arbitrator Award date: 05/10/2018
General Insurance, and Safeco Insurance. Two winners of Big I Tri-County’s high school seniors scholarship program were announced this evening and certificates will be presented at their school’s awards ceremonies. Vinny Pagano, a senior from Long Beach High School, was the Joel S. Pollack Memorial Scholarship award winner for his essay on ‘distracted driving’. He was chosen from 78 applicants from high schools in the boroughs of Nassau, Queens, Kings and Staten Island. The Stephen T. Dooley Community Service Award Scholarship went to Colin Lama Robinson, a graduating student from Baldwin High School, for outstanding community service during his high school years. Checks for $1,000 each will be mailed to their chosen colleges to be applied towards tuition or allied expenses.[IA]
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