Insurance Advocate May 13, 2019 by C Acunto

Vol. 130 No. 9 | May 13, 2019

Numbers Donâ&#x20AC;&#x2122;t Lie:

M&A ACTIVITY AMONG AGENCIES IS ON UPSWING

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Vol. 130 No. 9 | May 13, 2019

Contents

12 M&A ACTIVITY AMONG AGENCIES IS ON UPSWING

info@insurance-advocate.com www.insurance-advocate.com

Foreword: FinTech Draws High Achievers Steve Acunto, Publisher

On the Level: Creating the Educated Consumer Jamie Deapo

Guest Feature: Higgins Initiative Takes Hold - Agents: Let’s Get it “Out There” Now Ed Higgins

In the Associations: PIANY to Present Distinguished Insurance Service Award to Miret, Posthumously Thomas Named PIANY’s Long Island RAP Industry Professional of the Year

Legal Update: Ohio National Life Insurance Company’s Termination of Trail Commissions Sari Gabay

On My Radar: No Good Deed by an Insurer Goes Unpunished Barry Zalma

Looking Back: April 9, 1994

Courtside: Doctor’s Refusal to Disclose His Interest in Other Facilities Leads to Dismissal of Lawsuit Lawrence N. Rogak

Guest Opinion: Congress Should Prioritize Healing, Not Hypocrisy Marilyn M. Singleton, M.D., J.D. INSURANCE ADVOCATE / May 13, 2019 3

[ FOREWORD ]

STEVE ACUNTO, EDITOR & PUBLISHER

FinTech Draws High Achievers

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ormer Superintendent of the New York State Department of Financial Services (DFS), Maria T Vullo, has joined the FinTech Innovation Lab New York as a Regulator-in-Residence. FinTech Innovation helps early—and growth— stage enterprise tech companies accelerate product and business development through engagement with top financial services and venture capital executives. In her three years as superintendent of DFS, Ms. Vullo was responsible for the regulation and supervision of insurance and banking in New York. She prioritized cybersecurity, requiring New York banks and insurance companies to more thoroughly protect themselves and consumers, among other accomplishments. At FinTech, during the 12-week program which launched April 3, she will provide strategic counseling and mentorship to participating enterprise tech companies as well as advise them how to consider regulators’ priorities when collaborating with leading banking and insurance institutions. “Under Maria Vullo’s leadership, New York State has been at the cutting edge of regulation, most notably with her landmark cybersecurity regulation that serves as a model for the nation,” said Maria Gotsch, co-founder of the FinTech Innovation Lab New York and President and CEO of the Partnership Fund for New York City. “Her deep understanding of the regulatory landscape and mindset will be invaluable as this year’s class works closely with senior executives from financial services to accelerate the adoption of new technologies.” David Treat, a managing director in Accenture’s Financial Services practice and co-head of the Fintech Innovation Lab New York, said, “Having a clear line of sight on the regulatory considerations for fintech and other emerging technologies is critical for startups and established financial institutions alike.” … Speaking of achievers…here are some insurance professionals

who have made it over a high bar. The CAS Institute (iCAS), a subsidiary of the Casualty Actuarial Society (CAS) offering credentials and educational opportunities for professionals working in highly specialized quantitative practice areas, today honored those who received the Certified Specialist in Predictive Analytics (CSPA) credential within the last 12 months. This recognition occurred during the 2019 CAS Ratemaking, Product and Modeling (RPM) Seminar in Boston. The CSPA credential “provides evidence of practical knowledge in applied predictive analytics and data science as used in data-intensive industry sectors”. Since its launch, more than 250 predictive analytics professionals have been awarded the CSPA credential in recognition of their competence as experienced practitioners in the field. Four of the recipients honored today were also the first to qualify for the CSPA through the examination process: “As a result of pursuing the CSPA designation, I went from being someone who knew R at a conceptual level to someone who uses R to develop solutions to challenges that are common in today’s data-rich environment,” said Dominique Yarnell, FCAS, CSPA, with Everest Re Group, Ltd. “I recommend the CSPA designation to anyone looking to stay current with data science as it relates to the insurance industry.” “Since the insurance industry is highly regulated, the way that the predictive analytics is conducted is – and must be – extra cautious and different in a sense. The CAS Institute has established the value of ethics and professionalism in its members’ daily conduct – this is crucial and what separates members from CAS and The CAS Institute from others,” stated Sang Suk Cho, FCAS, CSPA, from ISO/Verisk. More information about the CSPA education program can be found on the iCAS website: https://thecasinstitute.org .

S I N C E

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VOLUME 130 NUMBER 9 MAY 13, 2019

www.insurance-advocate.com EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Jamie Deapo Alfred T. DeMaria Sari Gabay Lawrence N. Rogak Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Gina Marie Balog-Sartario 914-966-3180, x113 gmb@cinn.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x113 circulation@cinn.com PUBLISHED BY CINN Global Initiatives P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | info@cinn.com www.cinn.com President and CEO Steve Acunto

CINN GROUP

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. Periodical postage pending at Greenwich, CT and additional mailing offices. POSTMASTER Send address changes to Insurance Advocate®, P.O. Box 9001, Mt. Vernon, NY 10552. Allow four weeks for completion of changes. SUBSCRIPTION RATES $59.00 US, Canada $65.00, International $135.00. TO ORDER Call 914-966-3180, 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 2019. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.

INSURANCE ADVOCATE / May 13, 2019 5

[ ON THE LEVEL ]

JAMIE DEAPO

Creating the Educated Consumer uWhat makes purchasing protection from an independent agent the best? Trust, choice and professional advice. Responsible insurance buyers want to work with someone they trust – who has their best interest at heart. That’s something you can’t get from a faceless, no personality online insurance provider and certainly not from artificial intelligence because trust is a human emotion. Choice is important because consumers don’t like to have only one solution to their protection needs. Choice means competition and competition keeps providers constantly looking for a better way. Choice is important because people are different and so are their needs and desires. One size fits all might be OK for some consumer goods but it can be a recipe for disaster when buying insurance protection. Last and certainly not least professional knowledge and advice. This is the most critical piece of the insurance buying equation. It’s also the piece that direct and online insurance providers look to take out of the equation. They treat consumers with a broad brush approach that to the knowledgeable insurance advisor screams “Buyer Beware”. Independent agents can gain the trust

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and loyalty of insurance buyers by educating them about the need for adequate insurance protection customized to meet their personal needs and lifestyle. Currently there is an enormous amount of attention being focused on the speed and ease available to consumers when buying protection. Speed and ease in doing business are truly important but should never overshadow the significant importance of properly assessing a client’s insurance needs. The objective is giving the client the proper protection that allows them to live the life they choose eliminating as much risk to them as possible. Insurance consumers are inundated with advertising meant to condition them to several things. The idea that all coverage is the same and the only real differentiator is cost and convenience. We need to commit to changing that focus through education about life’s risks and the serious implications of not having the right protection sufficient for their needs. There is plenty of information available to us. The internet and social media has made communication of that information so easy. The key now is to really focus on helping consumers better un-

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.

derstand how insurance works. Always trying to make it as easy to understand as possible. Speaking up when we see misleading or incorrect information that trivializes the importance of having proper protection. If we truly are the insurance professional we tell everyone we are then it is our responsibility to educate and guide consumers. The message needs to come from you and not from your carriers. In your agencies you have a wealth of information that can be the source for a posting or article. The information doesn’t have to be long or complicated. Just consistent and motivating. It needs to draw attention to real issues that put people at risk. You want to cause discussion and motivate consumers to ask questions. We’re talking about helping people to keep from making mistakes that could hurt them personally and financially. Remember you are showing your professional advice and knowledge. Take pride in being a professional and your desire to help people make informed decisions. Commit to providing information that will help people to be better insurance consumers. Because a well informed consumer will usually see the benefits of working with an independent agent – trust, choice and professional advice and knowledge.[IA]

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[ GUEST FEATURE ]

ED HIGGINS

Higgins’ Initiative Takes Hold

AGENTS: LET’S GET IT “OUT THERE” NOW

Ed Higgins of the Thousand Islands Agency has worn a lot of hats, almost all as a leader and advocate for independent agents, past President of Big I New York, an instructor and author of bright ideas for agents seeking to sustain their businesses, grow them and prosper – as independent agencies are suited to do. Ed has written to us to gain support for an idea that is coming of age again here in New York. We present his argument here and thank him for his continued service to the insurance business in New York. SA

uFor many years as an independent agent, I have focused on the unique value-added premises independent insurance agents operate upon and have taught many peers how to maximize those same market advantages in programs on how agents can create unique value. That value is there, but it is not “out there” as it should be. In fact, over the past several years I have watched insurance agency and carrier advertising degenerate into four marketing distinctions as purchasing criteria, begging the insurance consumer to make their choice of an insurance product based upon: easier, faster, cheaper and better. Insurance professionals know that none of these should be the basis of an insurance purchasing decision any more than it should be the basis of 8 May 13, 2019 / INSURANCE ADVOCATE

selecting a doctor – except for “better.” Independent agents can easily compete and win on this criterion. As we know all too well, the best example is that of many non-standard policy coverage provisions implemented by some carriers to reduce the risk transferred in a policy of insurance, whereby the price is reduced, but the consumer never knows exactly what they have purchased until it is too late. We should be able to rely upon regulators to protect insurance consumers from misleading advertising and ultra-fine print, but it is the agent who gets the consumer through the night with a sound sleep. To respond to these new criteria, I have worked to bring together some technically knowledgeable industry experts and we have created the attached position statement document to be-

Mr. Higgins has more than 40 years of experience as an insurance agent and is Vice President of Thousand Islands Agency which he purchased in 1979 and perpetuated to his son and daughter in 2012. He obtained his CPCU designation in 1981. He has served as President of the Independent Insurance Agents’ Association of New York (IIABNY) and as State National Director for New York. He is a past chairman of the Agent’s Council for Technology (A.C.T.). Thousand Islands Agency has been an IIABA Best Practices Agency for 12 years. Ed is also a Past Chair of the Applied Client Network User Group. Thousand Islands agency has had a paperless operating model since July 2001. The agency has also implemented Real-Time inquiry with ten insurance companies it represents. The agency received the inaugural National Underwriter magazine sponsored Agency Technology Achievement Awardin 2008. He has taught a variety of insurance related courses for the Independent Insurance and Brokers of New York including two classes for the AAI designation, and is a national speaker regarding insurance agency technology and efficient office workflow models as well as value added service models for insurance agents.

gin the discussion with state regulators throughout the country asking them to revisit their responsibility to protect the consumer from unfair and incomplete advertisements and inferior policy coverage provisions . We spent five months and multiple revisions developing this position statement to be sure we remained consumer focused and not distribution channel biased. Anything that CONTINUED ON PAGE 10

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benefits the insurance consumer has an ultimate beneficial consequence for our distribution channel. This document will soon be published in multiple insurance trade journals as we begin our campaign of change. I am personally prepared to travel the country at my own expense to promote this campaign and talk to the concept of value and honest advertising. (This is my last big project to end a 43 year career as an independent agent who successfully, internally perpetuated my agency to my children in 2012!). As of this date, we have formal endorsements from Chris Amrhein, former IIABA Director of Insurance Education, Bill

Wilson, former Dean of the IIABA Virtual University both of whom participated in the document content authoring, V. Dan Robinson, President of New York Central Mutual Insurance Company (a substantial regional carrier in New York State with 2017 direct written premium of $539.4 million). Others are joining as you read this, including the publisher of this 130 year old, continuously published magazine for independent agents. Once you read the position paper that follows, perhaps you’d wish to add your name to our list of thought leaders in support of our effort. We are not requesting monetary support, but rather your support as an identified thought leader of influence in your region. Please write to me at ed@ edhiggins.com .

A MANIFESTO

Saving the Insurance Consumer INSURANCE CONSUMERS DESPERATELY NEED TO BE insurance. These people have not yet figured out that they SAVED… Saved by those of us who care about their engageare being lied to, that all auto insurance is the same.” ment with our industry. • Insurer advertising often centers on catch-phrases that As the world has changed, more direct advertising to mislead consumers into believing that coverages are consumers is occurring in multiple meidentical between products when the dia forums. Self-service engagement reality is, as explained below, coverage The failure of these has been touted as having the advanvariations among policies are often sigtage of an investment of “15 minutes nificantly different. For example: self-service models and or less.” Price is often portrayed as the - “You get the SAME COVERAGE, often ONLY important criterion in the insur- misleading advertisements for less.” ance purchase decision. Many direct - “SAME COVERAGE, better value.” advertisements (on-line, television, and - “SAME COVERAGE, more savings.” is to not provide the radio) tout the four pillars of easier, Consumers do not have an opportuconsumer adequate faster, cheaper better. These are all nity to see the coverage contract form misleading to the consumer in one way of insurance until AFTER making a deor another. Examples of price driven information to technically cision. Consumers should have the oppurchasing: portunity to see the actual contract of distinguish one product • Progressive’s Flo “Name Your Price coverage for transfer of risk before the Tool” allows the consumer to pick purchase decision is made. from another. the price they want to pay first and The failure of these self-service see the coverage after the fact. models and misleading advertisements Moving along the price bar does not display changes is to not provide the consumer adequate information to in coverage until the price is selected by releasing the technically distinguish one product from another. Some mouse thereby clearly making price the primary deci- non “ISO-standard” policies result in the consumer havsion criterion. ing inferior coverage compared to this standard only to • Online quoting systems gather basic information then be discovered at the time of a claim. Examples of those simply produce a listing of insurance companies and non-standard coverage forms are numerous. The following premiums, the implication being that there is no dif- is a very short list of coverage variations among a number of ference between the policies and practices other than auto policies in the marketplace: price. One such online vendor included a statement • Undisclosed household residents are excluded. This that appears to be a violation of most Unfair Trade would include “boomerang” kids who return home but Practices laws: “All auto insurance is exactly the same. It the parents fail to notify their insurer. doesn’t matter what company you get it from. It’s just a • Mainstream personal auto policies cover most busiquestion of finding the lowest rate. But the reason these ness use, but some policies exclude business use companies spend so much on advertising is that there are of nonowned autos or even business use of ANY millions of idiots in this country who actually believe that there is not a difference between different brands of auto CONTINUED ON PAGE 30 10 May 13, 2019 / INSURANCE ADVOCATE

ADVERTORIAL

Road Rage By Sue C. Quimby, CPCU, AU, CIC, CPIW, DAE - Assistant Vice President/Media Editor u AGGRESSIVE DRIVING, also known as road rage, is becoming an increasingly more common occurrence, and too often leads to accidents, injuries and even death. Most people probably do not realize that road rage accidents are often excluded from coverage under a personal or commercial auto policy. Helping clients understand the dangers, and possible insurance implications of, road rage, and ways to help avoid these situations, is another sign of the true insurance professional. Road rage may be the culmination of a variety of aggressive and dangerous driving behaviors. Aggressive driving can lead to road rage, but does not always escalate to that level. According to the National Highway Transportation Association (NHTSA), aggressive driving is when someone commits “a combination of moving traffic offenses that endangers other persons or property” (blog. gwccnet.com). These could be following too closely, using offensive gestures and language, failure to use signals, frequent lane changes or cutting someone off. Statistics from the AAA Foundation for Traffic Safety show that the majority of aggressive drivers are “young, poorly educated men between 16 and 26”. Road rage is defined to be when the activity escalates to acts of violence against another person. Examples of road rage include bumping into or ramming another car, or attacking another driver or vehicle with a weapon. Intentional or illegal acts are often specifically excluded from a personal or commercial auto policy. In addition, road rage is a criminal offense and can lead to jail time. Road rage may be a manifestation of underlying issues, such as problems at home, or an inability to handle or deflect anger. Statistics for road rage/aggressive driving may be surprising. 1,200 incidents per year are reportedly related to road rage. Aggressive driving is estimated to be the cause of two thirds of traffic fatalities. 37% of aggressive driving incidents involve a firearm (www.safemotorist. com). 53% of drivers believe that speeding

Aggressive driving is estimated to be the cause of two thirds of traffic fatalities. 37% of aggressive driving incidents involve a firearm. 10 miles per hour over the speed limit is normal. 2% of drivers admit to trying to force another car off the road. Perhaps the most shocking fact is that 30 murders per year can be linked directly to road rage, often due to deliberate acts (www. driversedcom). In 2019, a motorist in Philadelphia attacked another vehicle with a machete. Another road-rager smashed the window of a school bus that had elementary school children on board (www.nj.com). There are preventative measures to take if you encounter a driver exhibiting signs of road rage or aggressive behavior.

First, do not retaliate. Stay as far away from angry drivers as possible. Don’t feed into their anger by driving aggressively or blowing the horn. Report drivers who exhibit dangerous behavior. For drivers who are susceptible to aggressive driving behaviors, there are methods to reduce the probability of an incident. These include getting enough sleep, limiting use of alcohol, and listening to calming music. Just knowing the potential costly implications, such as tickets, court costs, lawyer fees and increased insurance rates, can be enough to help some people learn to avoid aggressive driving behaviors (www. webmed.com). Road rage accidents are preventable. Offering advice and assistance to clients on how to do so is another value-added service of the professional insurance agent.

139 Harristown Road, Suite 100 Glen Rock, NJ 07452 (800) 935-6900 | www.msonet.com INSURANCE ADVOCATE / May 13, 2019 11

The Numbers Tell The Story

M&A is Hotter Than Ever Among Agencies

An eye-opening OPTIS Data announcement reports 151 announced insurance agency mergers and acquisitions during the first quarter of 2019, i.e. one more deal than was announced in Q1 2018. The data covers U.S. and Canadian agencies selling primarily property-and-casualty insurance, agencies selling both P&C and employee benefits, and those selling only employee benefits. The report breaks down buyers into four groups: private equity-backed/hybrid brokers, privately held brokers, publicly held brokers, and all others. According to OPTIS, Patriot Growth Insurance Services led all buyers with 18 transactions during the quarter, including 17 closed deals to kick-off their new venture. Other top buyers were Acrisure (16), Hub (12), Gallagher (10), and Broadstreet Partners (10). Timothy J. Cunningham, managing director of OPTIS Partners, an investment banking and financial

12 May 13, 2019 / INSURANCE ADVOCATE

consulting firm specializing in the insurance industry, and Daniel P. Menzer, CPA, a partner with the firm, say: • There are no signs of any changes in buyer or seller behavior, both in terms of appetite for transactions and valuations of agencies for sale. • Individual quarterly totals can fluctuate dramatically from one period to the next and are not necessarily indicative of the overall M&A activity level • There were only 57 unique buyers in 2019, the lowest number in any first quarter since 2014. • Acquisitions in Canada have increased from 1-2% of the total 10 years ago to 6-8% now. We present the data reports from OPTIS that explain plainly what is happening on Main Streets among agencies.SA

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[ IN THE ASSOCIATIONS ]

PIANY Presents Distinguished Insurance Service Award to Miret, Posthumously u G L E N M O N T, N . Y. — T h e Professional Insurance Agents of New York State, awarded Emilio Miret its Distinguished Insurance Service award, posthumously, at the association’s Long Island Regional Awareness Program, held May 1 at the Crest Hollow Country Club, Woodbury, N.Y. This award recognizes an individual who has established a history of service, dedicated leadership and attention to the concerns of independent agents and their clients. “Emilio was admired and respected by his peers and colleagues in the industry. This award recognizes his long-standing commitment to the insurance industry,” said Jamie Ferris, CIC, AAI, CPIA, president of PIANY.

Shirley Miret accepts the Distinguished Insurance Service award on behalf of her husband, Emilio, from David Lande, JD, CIC

Thomas Named PIANY’s Long Island RAP Industry Professional of the Year u G L E N M O N T, N . Y. — T h e Professional Insurance Agents of New York State presented Maria Thomas with its Industry Professional of the Year award at the annual Long Island Regional Awareness Program. Thomas is vice president of Brokerage Sales & Client Relations for Friedlander Group. Thomas has worked in the insurance industry for 35 years, including both brokerage and insurance companies. She is actively involved in a number of industry associations and also serves several Long Island charity organizations. This award recognizes an individual from an insurance company, general 20 April 29, 2019 / INSURANCE ADVOCATE

Miret had been in the insurance industry for 50 years, beginning with Empire Mutual Insurance Company. In August of 1997, Miret joined the First Rehabilitation Life Insurance Co. as a regional sales manager. He retired from this company in 2011. Miret passed away on September 25, 2018 at age 81.[IA]

agency, managing general agency or other insurance industry profession, who has demonstrated qualities that foster a strong working relationship with agents and brokers, and who has exemplified a commitment to professionalism and service. “This recognition honors Maria for her professionalism and demonstrated commitment to the insurance industry,” said Jamie Ferris, CIC, CCI, CPIA, PIANY president. “This award reflects her dedication to the business.” Long Island RAP was held at Crest Hollow Country Club on Wednesday, May 1.[IA] PIANY is a trade association representing professional, independent insurance agencies, brokerages and their employees throughout the state.

Maria Thomas receives PIANY’s Industry Professional of the Year from LI RAP chairperson, David Lande, JD, CIC

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[ LEGAL UPDATE ]

SARI GABAY, ESQ.

Ohio National Life Insurance Company’s Termination of Trail Commissions uThe issue of termination of trail commissions has been a popular topic in insurance industry news since Ohio National Life Insurance Company terminated trail commissions. More specifically, by letter dated September 21, 2018, Ohio National wrote to various agents and broker-dealers “to provide notice of termination of any and all selling agreements” [effective December 12, 2018]. Further, according to the termination notice letter, “all individual annuity trail compensation will cease at that time. All group variable annuity trail compensation and life insurance renewal commissions will continue to be paid per the terms of the selling agreement.” In the life insurance and annuity contracts arena, there is typically a larger commission in the first year, followed by trail commissions for the life of the policy or contract. Given that many life insurance agents rely on these trail commissions, Ohio National’s decision to terminate certain broker-dealer agreements has led to a flurry of class action and individual lawsuits, with at least 10 currently pending in courts across the country, including federal district court actions filed in Ohio, Texas, New Jersey, and California, among other states. There are also several arbitrations pending, and the forum of private arbitration versus court may have been governed by consent to arbitration language in a particular selling agreement. In the publicly filed complaint from UBS Financial Services Inc. (“UBS”), UBS alleges that Ohio National determined that the annuity contracts with guaranteed minimum income benefit (GMIB) riders were uneconomical in an environment of high regulation and low interest rates. According to the law22 May 13, 2019 / INSURANCE ADVOCATE

...Ohio National claims that payments were only due while the contracts were in force, and cites to language in the selling agreements, providing that it “remains in force and will be paid on a particular contract until the contract is surrendered.” suits, Ohio National breached its selling agreements which guaranteed the payment of trail commissions until the annuities were surrendered or annuitized. UBS claims that when Ohio National determined that its GMIB rider contracts were not economical, they tried to initiate an exchange offer to persuade holders of variable annuities with GMIB riders to exchange those products for other investments, which did not necessarily go according to plan as several UBS customers decided not to accept the exchange offer and, instead, chose to remain with their current variable annuity contracts. In its defense, Ohio National claims that payments were only due while the contracts were in force, and cites to language in the selling agreements, providing that it “remains in force and will be paid on a particular contract until the contract is surrendered.” According to Ohio National, “such language unequivocally establishes that the termination of the Selling Agreement also terminated any obligation [on Ohio National] to continue paying trail commissions as to individual annuity products.” Ohio National’s argument relies on the use of the conjunction “and”

Sari Gabay is a go-to insurance regulatory lawyer representing insurance agents, brokers and public adjusters in Department of Financial Services’ investigations, complaints, and hearings and in relicensing applications. She represents sellers and purchasers of insurance agencies and other businesses. Sari also reviews and interprets insurance policies and advises homeowners, venues, and other policyholders in insurance coverage disputes, in addition to her general law practice. Sari is a frequent speaker and author on issues in the insurance industry, and most recently spoke on October 3, 2018 on DFS’ Regulation 208 and the ensuing Article 78 proceeding. Sari is also among PIA’s Circle of Consultants.

which it notes is critical to its argument; trail commissions are only payable if both the selling agreement is in force and the pertinent annuity contract has not been surrendered or annuitized.” Since both of these joint conditions -that the selling agreement remains in force, and the particular annuity contract has not been surrendered or annuitized—Ohio National claims it has no obligation to the continued payment of trial commissions. It will be interesting to see the results of the various litigations in due course and whether the courts agree with Ohio National’s interpretation of the language in the selling agreements or whether the agents are still entitled to payment of trail commissions. It may ultimately come down to an interpretation of contract language. For now, it is a good reCONTINUED ON PAGE 25

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[ ON MY RADAR ]

BARRY Z ALMA

No Good Deed by an Insurer Goes Unpunished

Recommendation of Contractor by Insurer not Employment of Contractor u I’ve been involved in insurance claims for more than 51 years and it is invariable that even when an insurer does everything required of it by a policy of insurance the person insured is seldom totally pleased, the person insured wants more than the policy promises, and will often sue to profit from a property loss. In Barbara C. Lyon, Individually And As Trustee Of The Donald F. And Barbara C. Lyon Revocable Living Trust V. Service Team Of Professionals (Eastern Carolina), LLC D/B/A 24/Restore And United Services Automobile Association V. Service Team Of Professionals (Eastern Carolina), LLC D/B/A 24/Store, Third Party Plaintiff, v. Coastal Restoration Service, Inc. D/B/A Servpro Of Pitt/ Greene & Craven/Pamlico Counties, No. Coa18-627, Court of Appeals of North Carolina (April 16, 2019) Barbara C. Lyon (“plaintiff ”) was unsatisfied with a claim adjustment, sued, and then appealed from an order granting summary judgment in favor of United Services Automobile Association (“defendant USAA” or “USAA”) on all of plaintiff ’s claims against USAA.

BACKGROUND

The Trust owned a house in Arapahoe that plaintiff and her family used as a second home (“the house”). Plaintiff ’s husband and their daughter discovered a water leak that caused extensive water damage and mold growth in the house. Ms. Stone contacted USAA, the insurer of the property, to report the leak and resulting damage. Plaintiff elected to participate in USAA’s Property Direct Repair Program (“PDRP”) to restore the house. When an insured participates in PDRP, USAA recommends a contractor to assist with repairs. The insured is under no obligation to hire the recommended con24 May 13, 2019 / INSURANCE ADVOCATE

In order to recover punitive damages for the tort of an insurance company’s bad faith refusal to settle, the plaintiff must prove (1) a refusal to pay after recognition of a valid claim, (2) bad faith, and (3) aggravating or outrageous conduct. tractor, and may hire a contractor of their own choosing instead. If the insured selects the recommended contractor, USAA reviews and approves that contractor’s estimate, and then mails a check to the contractor as the claims payment. Significantly, this check requires the insured’s endorsement to release the funds to the contractor, and the insured is not required to endorse the check until the work is completed to his or her satisfaction. Ms. Stone contacted USAA in December 2013 and January 2014, expressing concerns with 24/Restore’s workmanship and the payments plaintiff made to 24/Restore. USAA agreed to assist with disputes related to the covered repairs. On 20 February 2014, USAA spoke with plaintiff and Ms. Stone, who told USAA they no longer wanted to work with 24/Restore. An independent adjuster inspected the house and determined 24/Restore should reimburse plaintiff $8,446.71 for work that was either incomplete or incorrect. Ms. Stone asked Pamlico Home Builders & Supplies, Inc. (“Pamlico Home Builders”) to prepare an estimate for the repairs and upgrades to the house that 24/Restore was unable to complete to plaintiff ’s satisfaction. She submitted the Pamlico Home Builders’

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 51 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Mr. Zalma’s books are available as Kindle books or paperbacks at Amazon. com and can be reached at http:// zalma.com/zalma-books/ Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/ bzalma on Facebook at https://www. facebook.com/barry.zalma and you can follow him on Twitter at https:// twitter.com/bzalma. His blog, Zalma on Insurance is available at http://zalma.com/blog and his videoblog, Zalma’s Insurance 101 is available at http://www.zalma.com/ videoblog/

estimate, for $13,377.81, to USAA. However USAA told Ms. Stone that it could not proceed with Pamlico Home Builders’ estimate because it was not itemized. USAA explained it needed an itemized estimate to enable it to determine whether it owed additional funds for Pamlico Home Builders’ work. Ms. Stone never submitted an itemized version of the estimate, or the final invoice from Pamlico Home Builders, to USAA, even though she knew USAA needed this information to process the claim. Plaintiff sued seeking from USAA damages for (1) breach of contract, (2)

[ ON MY RADAR ] bad faith, (3) unfair claims settlement practices and (4) negligent hiring. USAA moved for summary judgment on all four of plaintiff ’s claims. The trial court granted summary judgment in USAA’s favor on all of plaintiff ’s claims.

DISCUSSION

First, plaintiff contends USAA failed to meet its obligations under the dwelling coverage because: (1) USAA did not pay for Pamlico Home Builders’ work, (2) USAA did not compensate plaintiff for the subsequently discovered mold contamination and remediation, and (3) USAA failed to compensate for work 24/ Restore erroneously labeled as an “upgrade” instead of a “repair.” The Court of Appeals concluded that USAA did not violate the terms of the policy by failing to pay Pamlico Home Builders’ quote. Plaintiff never provided information needed. This inaction is in clear violation of the policy, which provides that USAA does not have a duty to cover a loss when a policyholder fails to comply with the material conditions to cooperate in an investigation of a claim, prepare an inventory of damaged personal property, and show the property and provide records and documents as long as USAA reasonably required it of the insured. Personal Property Coverage Plaintiff argued USAA denied plaintiff the opportunity to personally inventory, inspect, attempt to salvage, or discard the property because 24/ Restore assumed possession and control of the personal property. However the policy excludes coverage for “faulty, inadequate, or defective . . . [d]esign, specifications, workmanship, repair, construction, renovation, remodeling, grading, [or] compaction[.]” Thus, because this allegation is based on 24/ Restore’s actions, this argument is without merit as a matter of law. Alternative Living Expenses Finally Plaintiff argues that whether she is entitled to payment for alternative living expenses is a triable issue of fact because it is undisputed that USAA never tendered payment under this provision of the policy. Although USAA’s claims logs show plaintiff inquired about this provision, plaintiff never submitted a claim for, or produced documentation to support,

Because plaintiff cannot demonstrate an issue of material fact that USAA refused to pay after recognition of a valid claim, plaintiff cannot recover punitive damages for the tort of an insurance company’s bad faith refusal to settle as a matter of law. reimbursement for alternative living expenses. Because USAA is not required to make payments when a plaintiff fails to submit a claim for reimbursement, this argument is without merit. Bad Faith In order to recover punitive damages for the tort of an insurance company’s bad faith refusal to settle, the plaintiff must prove (1) a refusal to pay after recognition of a valid claim, (2) bad faith, and (3) aggravating or outrageous conduct. Because plaintiff cannot demonstrate an issue of material fact that USAA refused to pay after recognition of a valid claim, plaintiff cannot recover punitive damages for the tort of an insurance company’s bad faith refusal to settle as a matter of law. Unfair and Deceptive Trade Practices Plaintiff also argues the trial court erred by granting summary judgment on her claim for unfair and deceptive trade practices. To prevail on a claim for unfair and deceptive trade practices, a claimant must demonstrate the existence of three factors: (1) an unfair or deceptive act or practice, or unfair method of competition, (2) in or affecting commerce, and (3) which proximately caused actual injury to the plaintiff or his business. At the outset, there is no evidence that the payments made by USAA were not fair and equitable, including USAA’s failure to pay Pamlico Home Builders and costs related to the second mold remediation, as discussed supra with regard to plaintiff ’s breach of contract claim.

Negligent Hiring Plaintiff cannot proceed on this claim because USAA did not employ 24/Restore. USAA only recommended the business as a “preferred contractor.” As the work authorizations for the repairs explicitly show, the decision to hire both 24/Restore and Servpro belonged to plaintiff. Thus, USAA did not hire 24/ Restore as an independent contractor or otherwise, and summary judgment was proper on this claim. The trial court’s order granting summary judgment in USAA’s favor on all of plaintiff ’s causes of action was affirmed.

ZALMA OPINION

Plaintiff failed to recognize that when seeking the benefits of a first party property policy the insured is obligated to prove a loss to the insurer. Failure to do so excuses the insurer from further action. USAA required production of evidence with regard to many of the claims made by the Plaintiff (a condition precedent) and she refused or just failed to comply. The suit against the insurer was spurious and impossible to sustain. USAA did what was required of it only to be punished with a suit with no basis in fact or law.[IA]

LEGAL UPDATE CONTINUED FROM PAGE 22

minder that life agents should at least be familiar with the terms of their selling agreements because expecting to retire on trail commissions that could possibly be terminated unilaterally, could be a grave loss. Ideally, such contracts should contain a clause for vesting of commissions for a period of years which would guarantee the agent compensation for the period of years set forth in the agreement, assuming the agreement remains in full force and effect. In addition, a sub agent of a managing general agent, may not have the leverage to negotiate his or her contract terms, as payment to the sub-agent may be dependent on the carrier’s payment to and ongoing relationship with the managing general agent, but it is a good idea to review any applicable contracts to avoid surprises.[IA] INSURANCE ADVOCATE / May 13, 2019 25

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[ COURTSIDE ]

LAWRENCE N. RO GAK

Doctor’s Refusal to Disclose His Interest in Other Facilities Leads to Dismissal of Lawsuit Queens-Roosevelt Med. Rehabilitation, P.C. v Response Ins. Co. Edited by Lawrence N. Rogak In this no-fault lawsuit, the doctor who owned the plaintiff medical facility appeared for two EUOs, but refused to answer questions about other professional corporations he owned. The Appellate Term held that the insurer’s questions were valid, and based on the doctor’s non-cooperation, his lawsuit was dismissed.—LNR uIn this action by a provider to recover assigned first-party no-fault benefits, defendant appeals from an order of the Civil Court denying defendant’s motion to strike the complaint and dismiss the action pursuant to CPLR 3126. This action, commenced in 2010, involved numerous discovery disputes, during which, among other things, plaintiff ’s owner, Dr. John McGee, was ordered to appear for a deposition. After that deposition and further discovery, certain of plaintiff ’s claims were dismissed based on plaintiff ’s “failure to comply in good faith with defendant’s discovery demands.” In 2014, Dr. McGee was ordered to appear for a second deposition, this time on the issue of whether plaintiff was in violation of state licensing requirements prohibiting nonphysicians from owning or controlling medical service corporations, i.e. whether Dr. John McGee is plaintiff ’s bona fide owner & operator (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]; Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 42 Misc 3d 30, 38 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013], affd 150 AD3d 192 [2017], lv granted 2017 NY Slip Op 90794[U] [2017]). 28 May 13, 2019 / INSURANCE ADVOCATE

THE CIVIL COURT DENIED DEFENDANT’S MOTION, STATING, AMONG OTHER THINGS, THAT THE QUESTIONS AT ISSUE WERE “OUTSIDE THE SCOPE OF THE DEPOSITION DUE TO THE FACT THAT

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.

THEY HAD NOTHING TO DO WITH THE PLAINTIFF CORPORATION.”

At that deposition, Dr. McGee testified that he was plaintiff ’s owner and sole physician, and that he performed medical and managerial tasks for plaintiff. Over defendant’s objection, and on the advice of plaintiff ’s counsel—based upon her claim that, in essence, the questions were irrelevant— Dr. McGee refused to answer several questions, including those pertaining to other medical service corporations which Dr. McGee either admittedly or allegedly owned or operated during the time plaintiff was in operation, and Dr. McGee’s involvement with those corporations, including his hours and duties at those corporations. Defendant subsequently moved to strike the complaint and dismiss the action, based on Dr. McGee’s refusal to answer questions and on plaintiff ’s alleged spoliation of evidence. The Civil Court denied defendant’s motion, stating, among other things, that the questions at issue were “outside the scope of the deposition due to the fact that they had nothing to do with the plaintiff corporation.” Contrary to the finding of the Civil Court, the questions at issue were designed to elicit information which was

material and necessary to the appellant’s defense of this action, as Dr. McGee’s involvement in other medical service corporations, including how much time he spent at those entities, could necessarily affect his involvement in the daily activities and management of plaintiff, and were relevant to whether Dr. McGee was plaintiff ’s “bona fide owner and operator.” Moreover, counsel’s directions not to answer the questions at issue were not otherwise authorized by Uniform Rules for the Conduct of Depositions 22 NYCRR [§] 221.2. In light of plaintiff ’s failure to fully comply with discovery over many years, plaintiff ’s refusal to answer the questions at issue may be presumed to be willful and contumacious; therefore, a sanction is warranted. Given that certain of plaintiff ’s claims have already been struck based upon its noncompliance with discovery and that Dr. McGee has already been deposed twice, we find that striking plaintiff ’s complaint is the appropriate sanction. Accordingly, the order is reversed and defendant’s motion to strike the complaint and dismiss the action pursuant to CPLR 3126 is granted.[IA] 2019 NY Slip Op 50608(U) Decided on March 8, 2019 Appellate Term, Second Department

[ GUEST OPINION ]

MARILYN M. SINGLETON, M.D., J.D.

Congress Should Prioritize Healing, Not Hypocrisy uMay is Mental Health Month and it should inspire us to think about family, community relationships, and our growing disconnectedness. It is not an invitation for Congress and other troublemakers to lose their collective minds. While folks of all colors and lifestyles are quietly living and working together and building relationships, the professional malcontents are looking for offense around every corner. Take the sports teams shunning Presidential Medal of Freedom recipient Kate Smith for having performed some songs with racially offensive lyrics in the 1930s. One of the songs, thought to be satirical, was also sung by black actor and well-known civil rights activist, Paul Robeson. Apparently, no one looked into Smith’s motives or other aspects of her life before shrouding her statue in black. How ironic that the very teams that excluded black players are “virtue signaling” at someone else’s expense. Will the memorials to the progressive icons Eleanor and Franklin Roosevelt suffer the same fate? Historians note that Mrs. Roosevelt called black folks “darkies” and “pickaninnies.” Yet she was instrumental in having black opera singer Marian Anderson perform in an integrated setting and flew in an aircraft piloted by a Tuskegee Airman, among other things. The beloved President after whom many black American children were named, had a questionable racial record. He appointed Hugo Black, an ex-Klansman to the Supreme Court. He did not allow black reporters at his press conferences. And he did not support anti-lynching legislation for fear of losing Southern support. The Roosevelts’ personal lives were not exemplary: they both had continuing love affairs—not with each other.

And Harry S. Truman who as president desegregated the army, had made liberal use of the N-word. In a letterto future wife Beth, he wrote, “I think one man is just as good as another so long as he’s honest and decent and not a n***** or a Chinaman...” And as senator he called Mrs. Roosevelt’s wait-staff “an army of coons.” Should we topple his statues and remove his name from all buildings and universities? People are complicated and must be judged as products of their times. And when did using salty language while angry become a capital offense? When President John F. Kennedy discovered that the Air Force spent $5,000 for a maternity suite for his wife, he ripped the bark off the general in charge, saying, “This is obviously a f***-up”

Dr. Singleton is a board-certified anesthesiologist. She is also a Boardof-Directors member and Presidentelect of the Association of American Physicians and Surgeons (AAPS). She graduated from Stanford and earned 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. 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.

Instead of looking for reasons to tear us apart, our congresspersons should be focusing on proposals trying to move us in a positive direction.

politically. Presidential candidate John Kerry and Vice President Joe Biden famously added to the mix. Instead of looking for reasons to tear us apart, our congresspersons should be focusing on proposals trying to move us in a positive direction. Who cares what side of the aisle originated the ideas? Communities and their legisla-

tors must find solutions for hypodermic needles and human feces on the streets, the homeless, and drug addiction to name a few. There are 130 people a day dying from opiate overdoses with no easy answer as to the root cause. The Department of Health and Human Services formed a Pain Management CONTINUED ON PAGE 30 INSURANCE ADVOCATE / May 13, 2019 29

GUEST FEATURE CONTINUED FROM PAGE 10

auto. Employees at businesses often use their personal vehicles for trips to the post office or elsewhere. • Personal auto liability coverage is usually very broad, extending even to the rental of a U-Haul type truck, but some policies have weight limitations and would not cover such rentals. • Some policies exclude any type of delivery, from food to newspapers to cosmetics, whereas others only exclude such use if made available to the general public. • Most auto policies have very limited “racing” exclusions in order to protect the general public but many have absolute racing exclusions. • Some policies exclude or provide limited coverage for accidents involving criminal acts, which could include DUIs or speeding tickets, again being detrimental to the public. Some advertisements promise consumers “a full car instead of ¾ of a car” without full disclosure of the terms of coverage. Another advertisement promises not to make an additional charge after an automobile accident. Any advertisement of specific coverage should clearly identify the specific terms and at least the average cost of the specific additional coverage. State insurance department regulators need to review and revise their positions in this marketplace to protect the consumer against these disservices by taking the following constructive actions: For All direct to consumer quotations the following disclaimer should be required: 1. All insurance carrier policies and coverage configurations are not the same. Care should be taken to be sure you understand the coverage that is being offered. 2. The insurance coverage contract will be the basis of any claim payment. All carriers doing business in the state are required to make their coverage 30 May 13, 2019 / INSURANCE ADVOCATE

forms available in their entirety on-line for a consumer to read and compare. We recommend that you compare policy language to determine accurate coverage comparisons. 3. Insurance coverage is an important tool to protect your personal assets. Selection of coverage by price alone is not recommended and you should consult with a licensed insurance professional before making a final coverage purchase decision. 4. Specific coverage benefits and terms are required to be disclosed when a specific coverage benefit is cited. Be sure to read those specific coverage terms to be sure you understand what you are purchasing. Together, we need to collectively resolve to better serve the insurance consumer with accurate full-disclosure advertising minus the flashy soundbites. We need to work with regulators to create a consumer-focused protective environment with minimum standards of coverage and required detailed disclosure in ads without misleading statements or promises. Failure to act now potentially will lead to an ultimate total collapse in faith in the industry to respond to claims consistent with logical consumer expectations. Endorsed by the following thought leaders who believe it is time for change for the benefit of the insurance consumer: Chris Amhrein (Past Director of Education, IIABA), Bill Wilson (former Chair of the IIABA Virtual University); Dan Robinson, President and CE New York Central Mutual Insurance Company (Direct Written Premium 539.4 Million); Richard A. Poppa, former President and CEO of the Independent Insurance Agents and Brokers of New York; Steve Acunto, Publisher of “Insurance Advocate” magazine.[IA]

www.insurance-advocate.com

GUEST OPINION CONTINUED FROM PAGE 29

Best Practices Inter-Agency Task Force including physicians and other professionals involved in caring for patients with pain and addiction issues. The task force concluded what most physicians already know: patient care must be individualized. Our congresspersons should be having town halls seeking input from their constituents about their concerns. They may discover that many patients are reluctant to seek treatment fearing loss of privacy. For example, in some states, law enforcement can access the Prescription Drug Monitoring Program (PDMP) database for opioids without a search warrant. Moreover, these privacy intrusions may not be worth it. A 2017 study found that “PDMPs were not associated with reductions in drug overdose mortality rates and may be related to increased mortality from illicit drugs and other, unspecified drugs.” These findings were confirmed in a June 2018 review. The Centers for Disease Control and Prevention (CDC) has similarly found that the rapid rise in overdoses is due to street drugs. Preliminary research shows that patients who are weaned off longterm prescription opioids are twice as likely to seek out street drugs. Disturbingly, many physicians are frightened into declining to prescribe opiates or to care for patients with pain by well-intentioned but draconian government programs. One such program is California’s “Death Certificate Project.” Here, Medical Board investigators mine prescription data and cross-reference with death certificates to improperly initiate discipline against physicians although their prescription was not necessarily the fatal dose. Save for a few rotten apples, physicians are doing their best to care for patients with complex problems. Mental Health Month offers physicians the opportunity to reaffirm that we are not automatons and patients are individuals, not data points. Congresspersons should take this month to stop squabbling and jockeying for power and explore legislation that allows physicians and patients freedom to choose their own path to a healthy life. [IA]

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