Insurance Advocate Winter 2016 by C Acunto

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

DATA SCIENCE: Huge Advantages for Insurers, Agents Vol. 127 No. 20 | Winter 2016

Lounsbury to Lead Big “I” page 22

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[ FOREWORD ]

STEVE ACUNTO

Hall of Fame Elects von Bomhard uThe International Insurance Society (IIS) has announced Nikolaus von Bomhard, Chairman of the Board of Management of Munich Re, as the 2017 Insurance Hall of Fame Laureate. Dr. von Bomhard will be inducted at the July 3rd gala awards dinner held in conjunction with the IIS Global Insurance Forum which takes place at the Park Plaza Westminster Bridge Hotel in London, July 2nd-5th. The Insurance Hall of Fame honors insurance standouts who have made a broad, encompassing and lasting contribution to the insurance industry and who are recognized by their peers as successful leaders, innovators and visionaries. Recent Laureates include Stephen Catlin of XL Catlin, Brian Duperreault of Hamilton Insurance, Denis Kessler of SCOR, Ikuo Uno of Nippon Life and Don Kramer of ILS Capital Management. Dr. von Bomhard joined the Munich Re graduate trainee program in 1985 and followed as an underwriter in the Operational Division: Fire/Treaty. In the following years he held various leadership positions including: Deputy Head of the Operational Division, Germany beginning in 1992; building and managing the São Paulo office in 1997; was appointed to the Board of Management in 2000; and leading the Europe/Latin America Division beginning in 2001. In 2004 he was appointed Chairman of the Board of Management. Dr. von Bomhard is responsible for Group Development, Group Investments, Group Communications, Group Compliance, and Group Audit, as well as Group Human Resources. He completed his law studies at the universities of Munich and Regensburg with a doctorate. The nominees for the 2017 Insurance Hall of Fame were selected by the IIS Honors Committee, a body of senior insurance executives and academics, and voted on by IIS members by secret ballot, tabulated and conducted by the law firm of McCarthy Denning Limited…. … The Center for State and Local Government Excellence helps state and local governments become knowledgeable and competitive employers 4 Winter 2016 / INSURANCE ADVOCATE

so they can attract and retain a talented and committed workforce. Here is what they see in New York just ahead—presenting opportunities for insurance advisors.Younger Employees Will Dominate the Workforce. In just four years, people born in 1978 or later will make up 56 percent of the workforce. Baby boomers will decline from 27 percent in 2016 to 17 percent in 2020. These demographic shifts may accelerate the movement to offer flexible work practices as younger workers expect to be able to work anytime from anywhere. Read more here and in SLGE's Workforce of Tomorrow report. Recruiting and Retaining Employees Will Be a Top Concern. For the second year in a row, recruiting and retaining qualified personnel (92 percent), succession planning (80 percent) and staff development (79 percent) were ranked as the most important issues for state and local government human resources managers. While state and local governments realize they need formalized succession plans, only 11 percent of those surveyed currently have one in place. It is time for government leadership to make these plans a priority and involve the range of stakeholders across the enterprise. The percentage of governments reporting increases in hiring increased to 77 percent in 2016, the highest level reported since the financial crisis. A majority of survey respondents reported more retirements in 2015 compared to previous years. How Conﬁdent are State and Local Workers about Retirement? While 55 percent of workers surveyed are somewhat confident they are saving and investing appropriately for retirement, most don't know how much they will need to save for a comfortable retirement. About 25 Percent of State and Local Employees are Not Covered by Social Security. Planning anyone?[IA]

VOLUME 127, NUMBER 20 WINTER 2016

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Director of Operations and Creative Services Gina Marie Balog 914-966-3180, x113 g@cinn.com EDITORIAL ASSISTANT COPYEDITOR & PROOFREADER Maria Vano mariavano9@gmail.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

CINN MEDIA, INC.

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 22 Bedford Road, Greenwich, CT 06831. Periodical postage paid 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, fax 914-966-3264, write Insurance Advocate® PO Box 9001, Mt. Vernon, NY 10552 or visit www.Insurance-Advocate.com. INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2016. 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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Contents

14 DATA SCIENCE: HUGE ADVANTAGES FOR

Winter 2016 | Volume 127 Number 20

Social Notebook: Geo-Targeted Email Marketing for the Independent Agent Chris Paradiso

On My Radar: Holiday and Insurance Fraud Barry Zalma

Looking Back: September, 1991

Courtside: Adding the Word “Proven” to “Loss of Earnings” Does Not Make IME Letters Defective; Master Arbitrator within His Powers to Reverse Lower Arbitrator Lawrence Rogak

Classiﬁeds

INSURERS, AGENTS

[A D F E ATUR E S ]

[FEATURES] 4

Foreword: Hall of Fame Elects von Bomhard Steve Acunto, Publisher Exposures & Coverages: Computer Fraud Cover is Not Cyber Coverage; FEMA to Buy Reinsurance; Flood Damage Not Restricted to Special Flood Zones; Late Notice Can Still Doom Liability Claims; Embezzlements Continue to Bedazzle; What is Vacant Land? Jerome Trupin In Focus: Lisa Lounsbury to Head 134-year-old IIABNY Art Shea

6 Winter 2016 / INSURANCE ADVOCATE

UPC Insurance: Our Promise

MSO: Understanding the BOP

LICONY: Life Insurer Contributions to New York and the Nation

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FOR ADVERTISING OR SUBSCRIPTION INFORMATION Call 914-966-3180 or email g@cinn.com info@insurance-advocate.com www.insurance-advocate.com

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[ EXPOSURES & COVERAGES ]

JEROM E TRUPIN, CPCU

Computer Fraud Cover is Not Cyber Coverage; FEMA to Buy Reinsurance; Flood Damage Not Restricted to Special Flood Zones; Late Notice Can Still Doom Liability Claims; Embezzlements Continue to Bedazzle; What is Vacant Land? Computer Fraud Cover is Not Cyber Coverage Another sign of the increasing incidence of cyber fraud troubles is the frequent reports of insureds looking for coverage for cyber fraud under their crime coverage. (It also shows that many insureds lack cyber coverage.) A case in point is Apache Corporation v. Great American Ins. Co.1 Apache Corporation (Apache) is a Texas oil company. An Apache employee received a call from someone who identified herself as a representative of Petrofac, one of Apache's suppliers. The caller asked that the bank account information Apache used to transmit payment to Petrofac be changed. Apache's employee replied that a written change request was needed to make such change. In a few days, Apache received the change request letter attached to an email. The letter included a contact number. When Apache's employee called the number in the request letter, she was advised to make the change, which she did. That was a mistake. The call verifying the request to change payment information

should be made to a previously established phone number, not the one included with the request for a change. Seven million dollars later, Apache found out that the payments had gone to someone other than its supplier. It was able to stop almost two-thirds of the payments before they were completed, but still suffered a $2.4 million loss. When it investigated, Apache discovered that the email transmitting the written letter requesting the transfer came from @petrofacltd.com instead of @petrofac.com. (Would you notice such a discrepancy? Would your insureds?) Apache didn't have specific cyber fraud coverage. It did carry crime insurance that included computer fraud coverage. The computer coverage insuring agreement in its crime insurance read “We will pay for loss of...money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises...” Apache submitted a claim arguing that the loss resulted from the use of a com-

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

puter and should therefore be covered by computer fraud insurance. The insurance company declined coverage and Apache sued. The court held “The email was part of the scheme; but, the email was merely incidental to the occurrence of the authorized transfer of money. To interpret the computer-fraud provision as reaching any fraudulent scheme in which an email communication was part of the process would… convert the computer-fraud provision to one for general fraud.

1 Apache Corporation v. Great American Insurance Company U.S. Civil Court S.D. Texas 4:14-cv-00237 1/16/16

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[ EXPOSURES & COVERAGES ] vited the computer-use at issue, through which it now seeks shelter under its policy, even though the computer-use was but one step in Apache’s multi-step, but flawed, process that ended in its making required and authorized, very large invoice-payments...to a fraudulent bank account.”2 Nice try, but no cigar. It was the invoices, not the emails or computer use that caused the loss. Therefore, there was no coverage. Apache needed cyber insurance. So do your clients.

CONTINUED FROM PAGE 8

We take judicial notice that, when the policy was issued in 2012, electronic communications were, as they are now, ubiquitous, and even the line between “computer” and “telephone” was already blurred. In short, few—if any—fraudulent schemes would not involve some form of computer-facilitated communication. This is reflected in the evidence at hand. Arguably, Apache in-

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FEMA to Buy Flood Reinsurance FEMA has announced that it is buying reinsurance from Munich Re, Swiss Re, and Transatlantic Re to cushion the impact of future flood losses incurred by the National Flood Insurance Program. There will be two layers: the first is $1 million for flood claims that exceed $5 million and the second is another $1 million when flood losses from a single event exceed $5.5 billion. One or two million is, of course, almost a rounding error when talking about NFIP flood claims, but FEMA says it is starting small with this first risk transfer. My question is: Why are they doing it at all? There are many reasons insurers purchase reinsurance. Those commonly cited are: 1. Capacity Relief—Allows the reinsured to write larger amounts of insurance 2. Catastrophe Protection 3. Stabilization—Helps smooth the reinsured’s overall operating results from year to year 4. Surplus Relief—Eases the strain on the reinsured’s surplus during rapid premium growth 5. Market Withdrawal 6. Market Entrance 7. Expertise/Experience—Provides the reinsured with a source of underwriting information3 Only catastrophe protection and stabilization would seem to offer any advantages to FEMA. In fact, for the US Government, it is really only stabilization. A typical insurance company also needs reinsurance if a loss would be big enough to break the bank. In that case, the reinsured needs the reinsurance to survive. But a flood loss large enough to bankrupt the US Government would also bankrupt its reinsurers many times over. FEMA/NFIP only needs reinsurance if you view it as an entity separate from the US Government, but they're not separate CONTINUED ON PAGE 12

2 op cit. 3 “Functions of Reinsurance” A Basic Guide to Facultative and Treaty Reinsurance, Munich Re https://www.munichre.com/site/mram/get/docu ments_E96160999/mram/assetpool.mr_america/ PDFs/3_Publications/reinsurance_basic_guide.pdf

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[ EXPOSURES & COVERAGES ] CONTINUED FROM PAGE 10

any more than your right-hand pocket is separate from your left-hand pocket.

Flood Damage Isn't Restricted to Special Flood Hazard Zones A reader writes: A friend lives in Portsmouth, VA and has USAA (she's a retired vet). She got hammered by the last hurricane and is now dealing with big damage. She immediately contacted her agent who said "you have no flood insurance" (she's not in a flood zone) and suggested she contact FEMA to "take out a loan." What stands out to me is “she's not in a flood zone.” That's a common misconception. One-third of NFIP flood losses occur outside of special flood hazard zones. We've got to get across that not being in a special flood hazard zone does not mean that you don't need flood insurance.

Late Notice on Liability Claim—Who Has the Burden of Showing Prejudice? There are lots of interesting twists in this case involving New York's law that protects liability insureds from losing coverage for late notice. Prince Plaza, a condominium in Flushing, NY, was sued by Fabrico Castillo, a contractor's employee who claimed he was injured August 26, 2009 while working on construction of the Prince Plaza building. Castillo sued Prince Plaza and when it did not respond to the summons, he was awarded a judgment by default on January 9, 2012. When it received a notice of the default, Prince Plaza notified its insurer, Century Surety, which denied coverage due to late notice. It would appear that Century had an open and shut case. The accident occurred in January, 2009 and it was not notified until February, 2012. Not so fast. Prince Plaza argued that the notice was served via the NY Secretary of State—by statute the Secretary of State is an agent to receive service for corporations. The notice is then forwarded to the corporation. In this case, notice was never delivered to Prince Plaza because its address had changed. The court accepted Prince Plaza's explanation. The court reopened the case on June 11, 2012, vacat12 Winter 2016 / INSURANCE ADVOCATE

ed the decision and restored the case to the calendar. Century still denied liability, responding that under New York's late notice law the burden to show that the insurer was not prejudiced shifts to the insured when notice is more than two years late. However, the court ruled that the time limit to provide notice began not at the date of the accident, but when Prince Plaza would have received the notice if it had provided the Secretary of State with its address. That would have been in August 2011. Since Prince Plaza notified Century of the claim in March of 2012, the burden to show prejudice still fell on the insurer and the court felt that Century had not met its burden.4 Once again, we see that late notice is not a thing of the past. Prince Plaza was lucky in this one, but change the dates just a little and it may have had to pay a substantial judgment on its own. However, Prince Plaza didn't escape scot-free. There's no coverage for costs of suing for coverage whether the insured wins or loses. Given that this case was heard both in a lower Court and the Appellate Division, the expense of just winning its suit for coverage was undoubtedly substantial. It shows that the burden of proof is just that: a burden.

Recent Embezzlements: They Keep on Stealing. Good times or bad times, good weather or bad weather, they keep on stealing. Here are some recent embezzlements: Pennsylvania Man Pleads Guilty to Stealing $1.8M from QVC Shopping Network. He did it the low-tech way—submitted phony invoices from an entity that was really just him. He was authorized to approve invoices. He approved them and the invoices were paid.5 Jericho Broker Pleads Guilty to Stealing More Than $800K in Insurance Premiums and Other Funds. The broker pocketed the insurance premiums and never made payment to the insurers. The stolen premiums amounted to $648,074.13. Perhaps the broker's contract called for 100% commission.6 The loss of premiums falls on the insurance company. In New York, payment of premiums to a broker is payment to the insurer. The insurer will have to chase the broker to get the money back.

What is Vacant Land?

Most homeowners’ policies include liability coverage for vacant land as part of the policy without any additional premium. The ISO HO form is clear; the definition of insured location includes “Vacant land, other than farm land, owned by or rented to an insured.” But what is vacant land? The working definition used by most insurance authorities is land that has no man-made structures. That definition has tripped up many insureds. It doesn't correspond with what insureds may think. Writing in the Virtual University e-newsletter of the Big “I”, Mike Edwards listed numerous cases where courts have found that easily overlooked items were sufficient to classify land as not being vacant, including: Acreage with a dock on a small pond, Acreage with an abandoned well that was covered by a concrete pad, Acreage with a road that had been constructed by a former owner. The “other than farmland” part of the definition has also caused trouble. Mike cites some cases where the following were held to be “farmland” and therefore not covered by a homeowners’ policy: Land on which the insured had permitted harvesting of the naturally growing alfalfa. Pasture used for grazing cattle. When an insured asks if there's coverage for the vacant land he owns, beware. If possible, refer the question to the insurer; if not, cite the policy definition and point out that even slight man-made improvements or use as farmland can wipe out the coverage. After all, what can you expect for free? [IA]

4 Fabricio Ivan Hernandez Castillo, et al. v Prince Plaza, LLC, et al. NYS Appellate Division: Second Department (Index No. 18660/11) September 28, 2016 5 Kurt Bresswein "QVC Manager From Lehigh Valley Pleads Guilty in $1.8M Scheme", http://www.lehighvalleylive.com/news/index.ssf /2016/09/qvc_manager_from_lehigh_valley.html 6 Zachary R. Dowdy "Jericho Insurance Broker Pleads Guilty To Defrauding Clients", http://www.newsday.com/longisland/nassau/jericho-insurance-broker-pleadsguilty-to-defrauding-clients-prosecutors-say1.10926703 7 Mike Edwards “Insured’s Party Gives Her Insurance Agent Heartburn” Big “I” Virtual University http://www.independentagent.com/Education/ VU/Insurance/PersonalLines/Homeowners/Defi nitions/EdwardsHolidayParty.aspx

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uThe facts and sequence in which they fall are quite simple: Today, traditional companies in the banking and insurance sectors are seriously challenged by internet-era giants like GAFA (Google, Amazon, Facebook, Apple) and disruptive startups in Fintech and IoT. To combat this threat, traditional banks and insurers are turning to data science to leverage specific advantages they have over non-traditional challengers in their industries. Success depends on the speed with which companies respond to these new challengers, both in their skillful exploitation of their competitive assets, and in assembling the right people, data, tools and processes to get the job done. Dataiku, a data science innovator, has detailed how banking and insurance companies can use Data Science to leverage existing advantages and survive in the era of Internet giants and Fintech. Following is a synopsis of their report. Over the course of many centuries, the banking and insurance industries have developed processes, products and infrastructures that have shaped the economic structure of humankind. But now they are being challenged by industry outsiders who appeared on the world stage a few decades ago, and some who emerged just a scant few years ago, but who nonetheless are already rewriting the rules of financial services. These challengers include Internetera giants like Google, Amazon, Facebook, Apple, Baidu and Alibaba; nimble digital startups like Credit Karma, Lending Club, Square, Lemonade, TransferWise and GoFundMe; and even, through the Internet of Things, wholly unlikely competitors like manufacturers of consumer and industrial goods. Ultimately, GAFA has a big data and algorithm advantage. However, banks and insurance companies can fight back by accelerating their digitization path and utilizing their own advantages in big data and data science. Specifically, traditional banks and insurers can leverage existing assets that give unique advantages over non-traditional challengers in their industries, namely: 1. Untapped Reservoirs of Customer Data: With data mining and predictive analytics, the hidden value in the first of these assets—massive stores of day-to-day transactional customer data—can provide a unique advantage in better understanding, predicting and delivering what customers want, while helping to better address risk, fraud and market uncertainties. 2. An Extensive Branch / Office Network: The second asset, physical branch or office networks, can seem like merely a cost overhead, but it can play a vital role in developing meaningful customer relationships as financial services become increasingly digitized. As the online giants are learning, digital-only relationships have their limits: a binding customer experience is built on both physical and digital touchpoints. Traditional banks and insurers are at an advantage here, if they make optimal use of their network to build relationships. Regional managers at companies like Bank of America and M&T Bank are, for example, seeing a real evolution as their physical branches morph into advising centers for customers, with one regional M&T manager noting a swing in service activity underway from 80% transactions and 20% expert advice to 20% transactions and 80% expert advice. 3. Stronger Customer Trust: The existing physical touchpoints for traditional financial services companies can also serve to reinforce an important third asset—trust. While the financial

…insurance companies can fight back by accelerating their digitization path and utilizing their own advantages in big data and data science. crisis did shake consumer confidence, individuals’ trust in traditional financial institutions remains strong. According to an IBM survey, 70% of respondents indicate that they trust traditional banks more than non-bank competitors, and when asked in another survey which institution they trust more to safeguard their personal information and privacy, consumers ranked traditional financial institutions higher by a wide margin over new online providers. 4. People with Quantitative Skills and Industry Expertise: Traditional financial service companies have a further advantage in having long employed professionals with advanced mathematical and statistical skills, providing them with a ready workforce of industry-savvy quantitative experts who can be trained to compete with GAFA and Fintech on what has to date been their primary home field advantage: an adroit use of big data and algorithms to create great customer experiences in the digital, and increasingly the physical, spheres. In other words, banks and insurance companies are well-positioned to master data science. Success depends on the speed with which traditional banks and insurers respond to these new challengers. Equipped with the right people, processes and tools, traditional banks and insurance companies can not only avoid the fate of becoming the backend plumbing for GAFA and Fintech challengers, they can appropriate the advantages of these newcomers and merge them with their own to become the new marketplace innovators of the 21st century. The illustrations on the following pages tell part of the story graphically. The complete white paper detailing how Banking and Insurance companies can use Data Science to leverage existing advantages and survive in the era of Internet giants and Fintech can be requested by going to http://pages.dataiku.com/advancedanalytics-for-banking-and-insurance2-0 . Dataiku develops Dataiku Data Science Studio, the unique data science platform that enables companies to build and deliver their own data products more efficiently. Thanks to a collaborative and team-based user interface for data scientists and beginner analysts, to a unified framework for both development and deployment of data projects, and to immediate access to all the features and tools required to design data products from scratch, users can easily apply machine learning and data science techniques to all types, sizes, and formats of raw data to build and deploy predictive data flows. More than 100 customers in industries ranging from e-commerce, to industrial factories, to finance, to insurance, to healthcare, and pharmaceuticals use DSS on a daily basis to collaboratively build predictive dataflows to detect fraud, reduce churn, optimize internal logistics, predict future maintenance issues, and more. Dataiku, whose headquarters are in New York City, also runs operations out of Chicago, LA, San Francisco, Paris, and London. Dataiku raised a $14M Series A round led by FirstMark Capital in October, 2016. INSURANCE ADVOCATE / Winter 2016 15

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[ IN FOCUS ]

ART SHEA

Lisa Lounsbury to Head 134-year-old IIABNY Lisa Lounsbury succeeds Richard Poppa as head of New York’s Big “I”. Here is her view of the role. What are IIABNY’s greatest focus areas as it plots member services and supports their future? At IIABNY, our mission is to advance the performance and success of independent insurance agencies and brokerages in New York. While a lot has changed in the industry over the years, much has stayed the same. Finding, hiring and training talent and promoting the unique value that independent agencies bring to the table continue to challenge agencies. Our two current strategic goals directly address these struggles and offer solutions by utilizing technology and innovative approaches to move the needle. A quick visit to www.tcstories.com illustrates a unique approach we developed to show consumers the interconnection between an independent agent and their community or customer, and highlight the special qualities of an independent agent. I am proud of the work we are doing in these areas for our members. Will your “way forward” depart from your predecessor? It is an incredible honor to have the opportunity to follow in Dick Poppa’s footsteps to work for the best distribution system for insurance in the country—the independent insurance agents and brokers in New York. I learned a great deal about running a successful trade association from Dick, and thankfully he is leaving IIABNY in a good position. We have a high-quality membership, talented volunteer leaders, engaged local associations, a solid financial position and a remarkable staff. However, I am a different person than Dick—I am a female from a different generation, I have a young, active family and literally grew up in this industry (my dad owned an agency, I started my career on the carrier side and my husband is an agent). My life experiences bring a new perspective to the table. As a big believer in collaboration, you will see us working a great deal with other groups to further advance our shared goals. Through strategy, technology and relationship-building, we will be looking for innovative ways to address or prevent challenges for our members. I like to get things done efficiently and effectively. Agencies are consolidating rapidly and the average age of agency leadership is rising. With that and the increasing competition facing agents, what do you believe is the future of the agency system? When I started my insurance career in 1995, everyone was talking about all of the consolidation in the industry—on both the agency and carrier sides. What happens with all of this consolidation? We call it the barbell effect. At one side of the barbell are a handful of large, mega agencies, and on the other side are the start up agencies or rogue producers that jump ship before or after the consolidations and go out on their own. The middle is made up of mid-sized, traditional independent agencies. This phenomenon is not going to change. Our job at the association is to help our members run better operations, organically grow and provide the same or better service to their clients as the direct writers. Through IIABA’s ACT (Agents Council for Technology), educational events like NYiDAY and introducing our members to new solution providers, we can help our members compete on the technology side—provided that their carrier partners also adopt the industry standard practices and fully support their efforts. Many outsiders that are trying to disrupt the IA channel usually overlook and downplay its biggest strength: great people who are trusted advisors. The guidance that an independent agent provides to their customers cannot be CONTINUED ON PAGE 22

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Lisa K. Lounsbury, CAE, AAI, AIS Lisa Lounsbury is President and CEO of IIABNY. Since joining the association in September 1999, Lisa has strived to achieve IIABNY’s mission of working in the public’s best interest, and to advance the performance and success of independent insurance agencies and brokerages in New York. Previously, Lisa served as President of IAAC, the association’s membership services division, and as senior vice president of IIABNY. Before joining IIABNY, she was employed as a product specialist in the specialty division for Great American Insurance Co. in Cincinnati, Ohio. She started her career at Great American as an agency operations representative for the insurer’s commercial lines division, developing an agency plant in Pittsburgh, PA, and underwriting new business. Lisa then moved back to Great American’s home ofﬁce in Cincinnati and assumed the role of implementation coordinator for the company’s national commercial lines interface initiative. In 2005, Lisa served a one-year term on the Professional Liability Committee for the Independent Insurance Agents & Brokers of America, Inc. She was also a member of several sub-committees for IIABA including: alternative markets subcommittee, loss control working group, CONTINUED ON PAGE 22

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[ IN FOCUS ] “It is an incredible honor to have the opportunity to follow in Dick Poppa’s footsteps to work for the best distribution system for insurance in the country—the independent insurance agents and brokers in New York. I learned a great deal about running a successful trade association from Dick, and thankfully he is leaving IIABNY in a good position. We have a high-quality membership, talented volunteer leaders, engaged local associations, a solid financial position and a remarkable staff.” replicated by any underwriting algorithm, app or glass of lemonade. If independent agents can provide their clients and prospects with the same efficient and digital ways to engage with them and help them manage their risk PLUS be their trusted advisor, the future of the independent agency system is very bright. I hope so, because my tenyear-old son wants to be either an NFL player or “an insurance man” like his grandpa and dad. Reality is that policies are in his future and not footballs! Is a consolidation with PIANY under discussion by IIABNY or jointly? Since I joined IIABNY in 1999, our volunteer leaders have always held the belief that one voice for independent agents would best represent their interests. Our agent leaders have always made it known to any association working to help the IA system or the New York insurance industry that we would welcome the opportunity to work together. For example, we just collaborated with several industry groups, including PIANY, on presenting our common concerns over the proposed Regulation 500 on cyber security regulations.

minimum audit standards committee and authorized markets working group. She currently serves on the board of directors of IIABA’s Big “I” Reinsurance Co. and Agency Administrative Services, Inc. In 2008, she earned the Certiﬁed Association Executive professional designation. A year later, Lisa completed the requirements for the Accredited Adviser in Insurance designation, and also earned the Associate in Insurance Services designation the following year. A native of Erie, PA, she graduated with a bachelor’s degree in ﬁnance from Miami University of Ohio. An avid equestrian, Lisa, her husband, Tucker, and their two children reside in Cazenovia, NY. Previously, she was a volunteer for the Central New York Division of the March of Dimes and was chairperson three times for the organization’s Signature Chefs Auction. Currently, she serves on the Cazenovia Central School District Board of Education and Onondaga-Madison School Boards Association.

About IIABNY

How will IIABNY be meaningful to the increasing number of larger agencies? IIABNY and IIABA are uniquely positioned to support large agencies in a way that no other trade association can on both a state and national level. IIABNY and IIABA are viewed as powerhouses on the legislative and regulatory advocacy front. Legislators respect and trust both our state and federal association staff and lobbying teams. We are proactive and forward-looking on issues that could have significant impact on our members—particularly our largest members. We educate on the issues, advocate on their behalf and get things done. Another unique resource that IIABNY provides to all members is our custom training and innovative new-hire training. We can basically deliver any type of education, on any subject matter, over a variety of mediums—face to face learning, webinars, video streaming, learning management systems or a combination thereof. Many of our largest members hire IIABNY to provide the preponderance of education to their employees in a custom approach to best meet their needs. In our most recent membership survey, IIABNY’s education offerings were ranked one of the most valuable services that IIABNY provides.

Independent Insurance Agents & Brokers of New York, Inc. works to advance the performance and success of independent insurance agencies and brokerages in New York. Commonly known as IIABNY, the organization exists to fulﬁll the educational, political, and business interests of our more than 1,750 agencies and their 13,000-plus employees. Members are independent insurance agents and brokers, which means that they can provide consumers with a choice of products from more than one insurance company and in turn give consumers unrivaled service, and the best auto, homeowner, and business coverage to meet their changing needs.

What are you most excited about in taking on this role? Taking our support for members to the next level! Much of my new focus will be on maintaining and building relationships with industry partners that want to work collaboratively to support the IA system. Each of us will be much more effective if we join forces when it makes sense, to develop and deliver solutions that make the entire IA system more efficient and attractive to the new generation of customers and employees. I believe in this industry. While I want to push it forward, I also value the culture and want to be sure that independent agencies showcase their unique personalities and traditions that have made them successful. That balance is achievable. Agencies that embrace new technology tools into their operations and revamp how they provide 24/7 service to their clients and prospects will be winners—Especially if they showcase the great ways that their agency supports their community and clients.[IA]

Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com

22 Winter 2016 / INSURANCE ADVOCATE

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ADVERTORIAL

Understanding the BOP SMALL BUSINESSES are the mainstay of the United States economy. It is no wonder that the Businessowners Policy (BOP), specifically designed for small businesses, is growing in popularity. The BOP is, in fact, estimated to be the most common form of insurance for small businesses (www.insurancejournal.com). Understanding the value of the BOP, and when to best use it, is another valueadded service of the professional insurance agent. As of 2012, U.S. Census Bureau statistics indicate that there were a total of 28 million small businesses in the United States. A small business is considered one with less than 500 employees. “Nonemployer businesses”—those that have no paid employees but are subject to federal tax, such as sole proprietorships, make up the vast majority of businesses in the United States: 23 million in 2013. “Employer businesses” are those with paid employees. There were 5.73m employer businesses in 2012; 97.9% of all small businesses, including both "employer" and "nonemployer," had less than 20 employees (www.sbecouncil.org). Small businesses are estimated to account for $58 billion in premium, approximately 20% of the total commercial property/casualty insurance market premium written (www.prnewswire.com). An advantage of the BOP is ease of use. This program is a package policy combining property and liability coverages with one set of terms and conditions. In addition to being easier to understand than multiple policies, the BOP can often be more cost effective than purchasing separate policies. Property coverage is available for buildings and personal property owned by the business, as well as property of others in the business’s care, custody and control. Coverage for loss of Business Income is also available. Some programs offer specialized coverage for computer equipment and other inland marine exposures, and crime coverage. Originally designed for small main street type operations such as retail stores and offices, the eligibility and coverages have expanded to encom-

pass higher risk exposures, such as restaurants and pizzerias. The BOP is not intended for the unique or more hazardous risks, which are more properly handled under a commercial property and liability, or commercial package policy. Eligibility for a BOP is generally limited by class of business, property values, square footage of the business, and/or revenue. Examples of eligibility criteria include revenues of less than $5 million in sales and no more than 100 employees, or building size less than 25,000 square feet. In addition, businesses whose operations are mainly off-premises (such as contractors), are generally not insured under a BOP. Property coverage under a BOP is usually offered on either a Named Perils or Open Perils (formerly known as “All Risk”) basis. With Named Perils, only the listed perils are covered causes of loss. With Open Perils, all causes of loss are covered, other than those that are excluded. The essential difference is that with Named Perils, the burden is on the insured to prove that the loss was caused by a “named” peril. Under the Open Perils, the burden shifts to the insurer to prove that the cause of loss was not covered. Due to the nature of the policy, the BOP offers less flexibility than a standalone Commercial Property or Liability policy or Commercial Package (CPP or

CMP). Insurers may offer niche BOP programs, including coverage enhancements targeted to a specific class of business, such as bed & breakfasts, breweries or self-storage operations. Many companies also offer endorsements with expanded coverage or increased limits of liability. Coverages generally not available under the BOP include professional liability, liquor liability, Workers’ Compensation, and Employee Benefits Liability. While automobile liability is not included, some BOPs offer the option for Hired and Nonowned Auto Liability. The BOP is the ideal vehicle for main street type businesses. Similar to the Homeowners in Personal Lines, the BOP was designed to cover classes of businesses that are similar in risk and loss exposures to each other. Agents like the BOP because it is quick and easy to rate. Helping clients understand the value and best use of the Businessowners Policy is another sign of the true insurance professional.

139 Harristown Road Glen Rock, NJ 07452 | Suite 100 (800) 935-6900 | www.msonet.com INSURANCE ADVOCATE / Winter 2016 23

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LICONY

A DV ER TO R I A L

LICONY

Life Insurer Contributions to New York and the Nation The Life Insurance Council of New York, Inc. (LICONY) is the principal voice speaking on behalf of the life insurance industry in New York. Here are a few facts and figures that detail the contributions the industry has made to the economy of New York and the nation: LIFE INSURANCE COMPANIES IN NEW YORK • Currently, there are 171 life insurers licensed to do business in New York. Of that, 85 are companies with their home offices in the state. • The life insurance industry generates approximately 153,000 jobs in New York, including 61,000 direct employees and 92,000 noninsurance jobs. • The 92,000 non-insurance jobs are in fields such as law, accounting, actuarial and consulting firms. LIFE INSURER INVESTMENTS IN THE NEW YORK ECONOMY • Life insurance companies invest approximately $462 billion in the New York economy. • Of that, $378 billion is invested in stocks and bonds that help finance state and municipal infrastructure, utilities, public and private construction, generating thousands of jobs in New York. • Life insurers provide $34 billion in mortgage loans on farm, residential and commercial properties and own $1 billion in real property in New York.

Life insurers provide benefit payments in excess of $544 billion each year in the United States, helping families guarantee long-term financial security— now and in retirement. NEW YORK STATE RESIDENTS COVERED • New York residents own eight million individual life insurance policies, with coverage averaging $195,000 per policyholder. • Individual life insurance coverage purchased totals $127 billion. • New York residents have $2.2 trillion in life insurance. • Group life insurance coverage amounted to $702 billion in New York State. BENEFITS TO NEW YORK POLICYHOLDERS • New Yorkers receive approximately $32 billion from life insurers in the form of death benefits, matured endowments, policy dividends, surrender values, and annuity payments, the second highest of any state in the nation.

INVESTMENTS IN THE COMMUNITY • As responsible corporate citizens, life insurers have proactively invested in low and moderateincome housing in underserved areas and undertake significant investments in direct charitable giving to initiatives throughout New York and the U.S. LIFE INSURANCE IN THE NATION • With $5.8 trillion invested in the U.S. economy, life insurers are one of the largest sources of investment capital in the nation. • Life insurers provide benefit payments in excess of $544 billion each year in the United States, helping families guarantee long-term financial security—now and in retirement. • The life insurance industry’s retirement security and financial protection products cover 75 million American families. How much does the life insurance industry contribute to the economy of New York and the nation?

We are proud to say: It’s a lot.

111 Washington Avenue, Ste. 300, Albany, NY 12210 O: (518) 436-8417 | website: www.licony.org 24 Winter 2016 / INSURANCE ADVOCATE

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American Transit Insurance Company The leading for-hire commercial auto liability carrier in New York State with over 40 years of experience insuring Taxis, Livery, Black Cars, Fleets, and Transportation Network Companies.

One MetroTech Center | Brooklyn, NY 11201 | (212) 857-8200 (800) 683-ATIC (2842) | www.american-transit.com

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[ T H E SO C I A L N OT E B O OK ]

C H R I S PA R A D I S O

Geo-Targeted Email Marketing for the Independent Agent uGeo-targeting is new to some of us in the insurance space, and could be a valuable asset to you and your independent insurance agency, as long as you have the right approach. Geo-targeted data allows us to make use of a targeted demographic that wasn’t always traditionally available. But what is geo-targeting exactly? Geo-targeting is essentially when you collect data about your audience based on their location, and deliver unique content for them that is tailored to their specific location’s interests, needs, or other criteria. Think about it this way–if you were a sporting goods store putting together an email marketing campaign about your upcoming summer sale, wouldn’t it make more sense if only people near the ocean receive advertising material about your beach supplies, surfboards, or other water sporting goods? Or think about this scenario for our industry–what if a new dealership just opened up in a select town or city and you wanted to market your auto insurance to people in that area’s zip code? Well, you can through the data and power that is geo-targeted marketing. While geo-targeted marketing is made simple on social media (because any time you “pay to play,” the social media network will ask what location you’d like to target), I wanted to talk to you today about something a little more out of the ordinary: geotargeted email marketing. Now, you may be wondering about how you could possibly narrow down an email marketing campaign to only a certain location, but it’s actually not all too complicated. At our agency, when our marketing team has an objective or a specific subject that they need to get marketed to our audience in a specific location, we have them search our management system for all leads corresponding to a specific zip code. From there we can export that list, and use all of the corresponding emails in an email marketing campaign, just like that, in a simple two-step process. 26 Winter 2016 / INSURANCE ADVOCATE

Geo-targeting is essentially when you collect data about your audience based on their location, and deliver unique content for them that is tailored to their specific location’s interests, needs, or other criteria. So what is the power behind geo-targeted email marketing? Well, let me give you an example of how my agency made recent use of this creative strategy. We recently hosted a bike giveaway for our local elementary school based on a raffle, and kids who had read 70 or more hours during the school year were entered into our raffle. Once the winners were selected, we went down to the school and made our donations, and it was a great experience for the school, our agency, and our community as a whole. Now, before the event took place, we needed to get it some visibility so that our students would participate in their reading. One piece of our multi-step strategy in achieving this was to make use of an email marketing sendout, but we wanted to make sure it got in front of the right eyes. To do this, we designed an email template that outlined all of the details of our event, and included some bright visuals (because visual content is king in the world of digital marketing!). After that, we chose to only send this email out to those who live within our town, and in turn they could let their kids know about our contest. A similar example I could give is that we also have our Flag Day Barbecue and American Flag giveaway coming up soon as well, and we need to get this event visibility as well. With this campaign, we also chose to only target people within our zip code to get the event as much visibility as

Christopher Paradiso, CPIA , is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community. Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center. In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world. Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.

possible, and then blast out an email that we designed that included all of the event’s information, its landing page on our agency’s website, and all of our social media networks so our customers can stay connected with us and see how the event is going by checking in with us online. I’d like to talk about one other example where this targeting could come in handy for you and your agency as it has with ours. We have a business partner program called Partners of Paradiso Insurance, where we promote our clients’ businesses to encourage our community to shop small or shop local (because we believe in our town, and it’s also a huge part of our agency’s brand). Now, let’s take a look at geo-targeted marketing within our email campaigns from a different perspective. There’s another strategy that you can make use of when it comes to these campaigns, and that’s to include a map within the email of the location of an event, social gathering, or even your agency. Emails that include maps with their calls-to-action receive a much higher click-through, because the customer, client, or prospect can see just how CONTINUED ON PAGE 33

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[ O N M Y R A DA R ]

BA R RY Z A L M A

Holiday and Insurance Fraud [The story that follows is ﬁction, based, in part, on a true case worked on by me. Any similarity to real people is unintentional. It is meant only to educate fraud professionals about how some unscrupulous people use the crime of insurance fraud for fun and proﬁt during the Christmas season.] uRaymond Alexander had no religion. He cared only for himself and the money he could take from good-hearted people. Raymond loved the Christmas season. The marks were in such a kind and giving mood it wasn’t even work to take their money. The Christmas before last, Raymond stumbled on insurance fraud as a lucrative means of making quick, easy money. Raymond made a good living playing bunco schemes about town. He would work the money switch with old folks, the dip, and every possible scam invented to take money from honest people who had a little larceny in their hearts. Because he was good at what he did Raymond lived well. He leased a three-bedroom apartment in the best part of town, drove a BMW convertible when he wasn’t working, and purchased all of his suits from a custom tailor. He ate at gourmet restaurants and collected an eclectic assortment of popular art dishes and Lladro figurines. Raymond, because he loved his collection, insured his home with the best and most expensive insurer he could find. He had his dishes and figurines appraised and scheduled on his policy so there was no dispute if he had to make a claim. Last Christmas burglars entered Raymond’s home and stole two Lladro figurines and one art dish depicting the English Countryside on Spode china. Raymond was upset that a burglar ripped him off. It was his profession to rip off others. Raymond felt he now understood how women who had been raped must feel. Raymond called his insurance agent and reported his claim. To his surprise his insurer telephoned him and asked what was lost. No one came to his home. No one 28 Winter 2016 / INSURANCE ADVOCATE

asked to come to his home to investigate. They merely called on the telephone and asked for the number of the police report so the insurer could obtain a copy. Such unthinking trust deserved to be made a victim of Raymond’s wiles. He, the consummate professional, could not resist the temptation. He told the person on the telephone that he was not sure what was taken and that he had only reported that which was obvious on first inspection to the police. As a bunco artist of the first order what came next was simple—the police officer had left him with a sheet of paper to list any items that he later discovered were missing. Raymond sat at his oak and leather antique partner’s desk and prepared his supplemental police report. On the report he listed one out of every four items on the insurance schedule. Then he added three Armani suits, two pairs of Ecco dress boots, a pair of Bruno Magli sport shoes, two pairs of gold cuff-links, and a simple Omega wrist watch. He was not greedy. He sent the list to the detective and a copy to the adjuster who spoke with him on the telephone. Raymond expected he would need to haggle and would be forced to document each item to the insurance company. Much to his surprise, two weeks later Raymond received a nice letter from his insurer. It advised him that the adjuster had calculated his loss, deducted $500 (his deductible) and could only pay $1,000 for the jewelry that was not scheduled because of a special limitation in the policy. The adjuster expressed her regret in not being able to pay him for everything he lost and hoped the enclosed check for $35,650 would be satisfactory. Since Raymond had only lost $375.50 worth of goods, the check was quite satisfactory and he spent the Christmas season in a comfortable resort in Bermuda. When Raymond returned from Bermuda, he took the things he had reported stolen to high-end swap meets in Long Island, New York. He traded one Lladro for another, one plate for another and bought some new jewelry.

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide. The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http:// shop.americanbar.org/eBus/Store/Pro ductDetails.aspx?productId=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.

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[ ON MY RADAR ] He called his appraiser, who updated the appraisal on his schedule by taking out the items stolen and replacing them with the new items he had acquired and listed all of his jewelry. His policy was renewed and the schedule increased and changed to meet the new items with a value of more than $150,000.00. Raymond Alexander was not a greedy man. He was a successful confidence man because he was not greedy. He did not bleed his marks dry. He just took an adequate sum of money to properly support his accustomed lifestyle. Raymond never took everything the mark had. He wanted the mark to know he was taken and to be too embarrassed to do anything about it. Raymond looked on his insurance company as another mark. He did not want to collect $150,000 from them, only enough to take him through the holiday season that he had not celebrated since he was four years old. It was time to have another loss and claim. A fire was out of the question, too messy. Robbery was dangerous and the person hired to fake a robbery might forget he was not supposed to really rob Raymond. A fake burglary might be worse because the police got testy about false police reports. He might make a mistake and they would learn the burglary was not real. Raymond Alexander was successful at his chosen criminal profession because he paid attention to detail. He read his insurance policy. Part of that policy was a Personal Articles Floater that insured scheduled items for all risks of physical loss. It had very few exclusions. It covered, for instance, the Lladros and the plates against loss (with no explanation) or even breakage from any cause, including an earthquake. Raymond knew he could not cause an earthquake but he had no problem losing his art. He removed from his home two or three items at a time for several weeks. Figurines and plates valued by his appraiser at $51,632.00 were stored at a public storage unit. The number was nice, odd and with no zeros except the cents. On November 15, Raymond telephoned his insurance agent to report that he returned home from a weekend trip to Connecticut to his apartment in Boston and found selected parts of his collection missing. There was no evidence of a break-in to his house and all he could explain to the agent was that the items had disappeared, mysteriously, from his home. The alarm had been set and was operating perfectly. It detected no intruders but the items were gone.

Again, Raymond was contacted by an adjuster by telephone. He learned that she was in Phoenix, Arizona and never left her desk to deal with claims. She asked for, and Raymond gladly gave, a recorded statement concerning the events and the items claimed lost. She kept him on the telephone for almost an hour taking from Raymond as much detail as he could possibly remember about each item. Raymond was distraught. His holiday had been ruined. The adjuster empathized with him and told him she would work hard to complete his claim before Christmas. She did. A check for $49,162.00 arrived in Raymond’s mail box on November 30. They broke a record getting money to him. They did no investigation other than speak to him, and they paid him promptly. Since the loss was his second in two years, the adjuster sent a note to the underwriters about the loss history and they decided not to renew Raymond for a second term. He went to his insurance broker, after he “replaced” all the missing goods and obtained an identical policy from another insurer for a smaller premium. They were willing to take a chance that lightning would not strike the same place three times in a row. Raymond enjoyed his insurance company’s money and did less of his normal scams. It seemed wrong to take an old woman’s savings through a convoluted scheme when he could wrest money from an insurer with such ease. The payments also allowed him to add to his collection with no new spending. Raymond was a happy man. His BMW had become boring to him. The state made him insure it so he had the best insurance money could buy from the New York Auto Insurance Specialists. He drove the vehicle to Boston Harbor where it was shipped to an acquaintance with whom he had done a sting in Hartford who now lived in Belize. For a 15% commission, the BMW was sold to a General in the Belize army for its high Blue Book value. Raymond then reported to the Boston PD and his insurance company that his BMW had been stolen from the street in front of his apartment while he slept. Everything went well, the BMW was valued and the insurer was ready and willing to pay Raymond low blue book value on the car. They did, however, automatically report the theft to the National Insurance Crime Bureau (the “NICB”) who records the vehi-

cle identification number of every vehicle ever shipped out of the United States. The insurer was about to send a check to Raymond when it received a report from NICB that the BMW had been shipped from Boston to Belize three months before. The insurer assigned the investigation to its Special Investigation Unit. Investigator Steve Nazarian went to Raymond’s home to interview him in detail. Raymond lied with alacrity until he was confronted with the shipping documents. The ease with which he had been caught frightened Raymond. He thought he might have to go to jail. He knew there was no way to take back the reported theft. It was a week before Christmas. He pleaded with Nazarian. “Well, Mr. Alexander,” Nazarian responded, “the state of Massachusetts takes insurance fraud very seriously. We are required to report you to the Insurance Fraud Bureau. They make all decisions about crime. Your insurer, on the other hand, is quite upset that you tried to cheat it. What do you think we should do?” “Just forget I made the claim. I will sign any paper you ask to withdraw my claim. Getting me arrested won’t help you,” Raymond suggested. “I just happen to have a release in my briefcase here. Please sign it. I will report you to the IFB but I will also report that we settled with you for no payment, as I am required to do by law. They may have more important criminals to arrest than you.” “Give me the release!” Raymond exclaimed as he grabbed the release out of Steve Nazarian’s hand and signed it. “Now please leave my house.” “Of course, Mr. Alexander, and have a Merry Christmas.” Raymond stayed at home through the Christmas season. He saw no one, did nothing. He ate a frozen turkey dinner alone on Christmas Eve. He decided he would never attempt an insurance fraud again. The Insurance Fraud Bureau had received, along with Nazarian’s report of Raymond’s attempted fraud, eighteen hundred reports of suspected fraud for the month of November. His name was put in their database for future reference but no file was opened. Bigger and more exciting fraud perpetrators took up their attention. No one was hurt. The insurance company paid no money and immediately cancelled all policies it had for Raymond. CONTINUED ON PAGE 34

INSURANCE ADVOCATE / Winter 2016 29

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[ COURTSIDE ]

L AW R E N C E R O G A K

Adding the Word “Proven” to “Loss of Earnings” Does Not Make IME Letters Defective; Master Arbitrator Within His Powers to Reverse Lower Arbitrator Golden Earth Chiropractic & Acupuncture, PLLC v. Global Liberty Ins. Co. of N.Y. Edited by Lawrence N. Rogak This ruling in a No-Fault appeal stands for two propositions, one of which answers a novel question. First, an IME scheduling letter, the wording of which deviates from Regulation 68 by adding the word “proven” to the phrase “loss of earnings” did not render the letters defective; second, that a master arbitrator is within his or her powers to apply or interpret the law differently from the lower arbitrator.

In this case, the master arbitrator reversed the lower arbitrator, who had ruled the IME letters defective because they called for “proven loss of earnings.” The District Court had vacated the master arbitrator’s award for exceeding his powers, but the Appellate Term reversed and reinstated the master arbitrator’s award—thus holding that the master arbitrator acted within his powers.—LNR

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.

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[ COURTSIDE ] Appeal from an order of the District Court of Suffolk County, Sixth District (Linda J. Kevins, J.), dated April 22, 2015. The order, insofar as appealed from as limited by the brief, granted a petition to vacate a master arbitrator’s award, reinstated the arbitrator’s award and confirmed that award, and denied so much of a cross petition as sought to confirm the master arbitrator’s award. ORDERED that the order, insofar as appealed from, is reversed...the petition to vacate the master arbitrator’s award is denied and so much of the cross petition as sought to confirm the master arbitrator’s award is granted. After the provider’s claim for assigned first-party no-fault benefits had been denied by the insurer due to the assignor’s failure to appear at duly scheduled independent medical examinations (IMEs), the provider submitted the claim to arbitration, pursuant to Insurance Law § 5106 (b). The IME scheduling letters that had been sent to the assignor stated that he would be reimbursed for any proven loss of earnings and reasonable transportation expenses incurred in complying with the IME request.[FN1] The arbitrator determined that the IME scheduling letters were defective because they called for “proven” loss of earnings and did not track the language of the regulation, and found that, as a result, proper notice was not effectuated. The arbitrator awarded the provider the principal sum of $520.20. The insurer appealed the adverse decision to a master arbitrator, who vacated the arbitrator’s award in favor of the provider, upon a determination that the award “was not supported by sufficient evidence and was irrational, arbitrary and capricious and incorrect as a matter of law,” thereby, in effect, finding for the insurer. The provider then commenced this proceeding to vacate the master arbitrator’s award, contending that the master arbitrator had exceeded his power, within the meaning of CPLR 7511 (b) (1) (iii), because he had performed an independent review of the evidence, assessed its credibility and made his own factual determinations. The insurer, by cross petition, sought to confirm the master arbitrator’s award. By order dated April 22, 2015, from which the insurer appeals, the District Court granted the provider’s petition and denied so much of the insurer’s cross petition as sought to conCONTINUED ON PAGE 34

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close the event or your agency is to them right from the map. Think about it this way: if your agency is holding an event, such as our Flag Day Barbecue, wouldn’t it make sense to have a map that leads to the event, where your customers can just punch in their home address to receive directions and discover the event is close by? This is where it all comes together. To include a map within your email marketing campaign, first go to Google maps, and then enter your location in the field labeled “choose destination.” After that, you can copy the URL of the map, which will include the address you decided to include, such as an event location or your agency’s physical address, depending on the nature of the email. Then you can use that link to embed into images or text within your email, and your customers and clients can see how close they are with just a click. By geo-targeting your email marketing campaigns, you can use powerful data to capitalize on targeting specific clients in specific locations. I hope you and your agency make the most of this powerful strategy, and over time develop more creative techniques to optimize it even more. As always independent agents and brokers, happy marketing![IA]

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[ COURTSIDE ] CONTINUED FROM PAGE 33

firm the master arbitrator’s award, finding that the master arbitrator had exceeded his authority by reviewing factual issues which had already been decided by the arbitrator and had impermissibly substituted his own factual determination for that of the arbitrator. We reverse. Judicial review of a master arbitrator’s authority to vacate an award under Insurance Law § 5106 derives from CPLR 7511 (b) (1) (iii) and involves the question of whether the master arbitrator has exceeded his or her power (see Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d 207, 210 [1981]; see also Matter of Smith [Firemen’s Ins. Co.], 55 NY2d 224, 231 [1982]). A master arbitrator is empowered to vacate an arbitration award based upon most grounds set forth in CPLR 7511 (see Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d at 210; see also 11 NYCRR 65-4.10 [a] [1]) or based upon the ground that the arbitration award “was incorrect as a matter of law (procedural or factual errors committed in the arbitration below are not encompassed within this ground)” (11 NYCRR 65-4.10 [a] [4]; see Matter of Smith [Firemen’s Ins. Co.], 55 NY2d at 231; Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d at 211). The power of a master arbitrator to review factual and procedural issues (unlike substantive law issues) is limited to “whether the arbitrator acted in a manner that was arbitrary and capricious, irrational or without a plausible basis” (Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d at 211). A master arbitrator “exceeds his statutory power by making his own factual determination, by reviewing factual and procedural errors committed during the course of the arbitration, by weighing the evidence, or by resolving issues such as the credibility of the witnesses” (Matter of Allstate Ins. Co. v Keegan, 201 AD2d 724, 725 [1994]; see also Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d 207). If, however, the master arbitrator vacates the arbitrator’s award based upon an alleged error of a rule of substantive law, the determination of the master arbitrator must be upheld unless it is irrational (see Matter of Smith [Firemen’s Ins. Co.], 55 NY2d at 232; Matter of Liberty Mut. Ins. Co. v Spine Americare Med. P.C., 294 AD2d 574, 576 [2002]). Contrary to the provider’s contention, we find that the master arbitrator did not exceed the scope of his authority, as he did 34 Winter 2016 / INSURANCE ADVOCATE

not weigh or independently evaluate issues of credibility or engage in any factual analysis. Rather, his legal analysis of the arbitrator’s determination was well within the scope of his authority to review and correct an error of law made by the arbitrator (see Matter of Smith [Firemen’s Ins. Co.], 55 NY2d at 231; Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d at 211). Moreover, “applying the law to a given set of facts is well within the province of a master arbitrator, even if his conclusion differs from that of the arbitrator” (Martinez v Metropolitan Property & Liab. Ins. Co., 146 AD2d 610, 611 [1989]). Here, the master arbitrator determined that the use of the word “proven” in the IME scheduling letters did not render such letters ineffective, notwithstanding the fact that the word “proven” does not appear in 11 NYCRR 65-3.5 (e), and that proper notice of the scheduled IMEs was, therefore, effectuated. As the master arbitrator’s determination was not irrational (see Matter of Smith [Firemen’s Ins. Co.], 55 NY2d at 232), the District Court erred in granting the provider’s petition to vacate the master arbitrator’s award and in denying the insurer’s cross petition to confirm the master arbitrator’s award. Accordingly, the order, insofar as appealed from, is reversed, the petition to vacate the master arbitrator’s award is denied and so much of the cross petition as sought to confirm the master arbitrator’s award is granted. We incidentally note that a proceeding to confirm or vacate an arbitration award is a special proceeding brought pursuant to CPLR article 4, and must terminate in a judgment rather than an order (see CPLR 411).[IA] 2016 NY Slip Op 26395 Decided on November 25, 2016 Appellate Term, Second Department

Footnotes FN1: 11 NYCRR 65-3.5 (e) provides: “The insurer shall inform the applicant at the time the examination is scheduled that the applicant will be reimbursed for any loss of earnings and reasonable transportation expenses incurred in complying with the request.”

ON MY RADAR CONTINUED FROM PAGE 29

Raymond went back to his regular work taking money from widows, orphans, the sick and the partially criminal. He continued to live well and never again committed insurance fraud. His Christmas present to the insurance industry was to set his criminal mind to other victims. This is, of course, a Christmas fable. All insurers do not run auto thefts through the NICB or ISO database. Most insurers believe whatever the insured tells them. Most have undertrained, understaffed and overworked claims departments who just send out money. Most insurance criminals, unlike Raymond, know about the lack of staff, how overworked and underpaid adjusters are, and would never sign a release. The insurance criminal would either try to bribe the SIU investigator or sue the insurer for bad faith for having the gall to claim they caught them at their crime. Insurance fraud perpetrators do not give up a chance of easy money just because their scheme did not hold together. They change the scheme and bluster. Insurers, faced with an expensive defense, will pay something. Insurance criminals are not as naive as Raymond, and insurers are not as bright and forceful as his insurer. Steve would never just give Raymond a release, he would need to consult with management (up at least four layers) and a lawyer before he took such a chance to defeat an insurance fraud. Insurance fraud perpetrators, even if they feel they have been caught and will never recover, merely redouble their efforts and perpetrate more frauds so they can make up for the few where they are caught. Raymond Alexander gave a Christmas present to the insurance industry but is still loose to take advantage of the old, the poor, and the weak who are prime candidates for a bunco artist. Insurers, unlike an octogenarian widow, are better able to protect themselves from a bunco scheme. The Christmas present I would like is a state government willing to prosecute every insurance fraud to the limit of the law. I dream of an insurance industry willing to spend the money necessary to fight insurance fraud. Santa, this is what I want as a gift to me and the entire world: Governments and insurers willing to fight insurance fraud and give no quarter to the fraud perpetrator.[IA]

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