Insurancejournal West 2014-02-10 by Insurance Journal

WEST Disclosing Broker Fees to Ensure Compliance Washington Panel’s Dueling Climate Reports Nevada Workers’ Comp Loss Costs Rise

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© 2014 ACE Group. ACE®, ACE logo®, and ACE insured are trademarks of ACE Limited. Insurance is provided by ACE American Insurance Company (Philadelphia, PA) or, in some states, other insurers within the ACE Group of Companies or its allied distribution associates. All products may not be available in all states and surplus lines products can only be offered through licensed surplus lines brokers. Not all applicants are eligible for a policy.

WEST On The Cover

Inside This Issue

Special Report:

Transportation Network Companies, Uber Liability Gap Worry Insurers

February 10, 2014 • Vol. 92 No. 3 • West

NATIONAL COVERAGE

WEST COVERAGE

IDEA EXCHANGE

Court Dismisses Ex-AIG CEO Greenberg’s Bailout Lawsuit Against New York Fed

W1 Small Increase in Nevada Workers’ Comp Loss Costs in 2014

W2 Best Practices: Disclosing Broker Fees to Ensure Full Compliance

Securities Class Actions Up 9% in 2013 but Below Average

W1 Washington Panel Issues Dueling Climate Reports

26 The Competitive Advantage: Chris Burand

W1 Wyoming Traffic Fatalities Dropping

30 Closing Quote: NAIC’s First Step Toward Openness, Transparency

12 Private, Nonprofit D&O: Gallagher’s Norton on Claims, Coverage Expansion and Outlook

W1 Nearly Half of Utah Car Deaths: Seatbelts Off

16 Special Report: Transportation Network Companies, Uber Liability Gap Worry Insurers 18 Special Report: Garage Liability or Garagekeepers? That Is the Question 19 How to Attract the Right Underwriter for Transportation Customers 20 Closer Look: Why Sexual & Physical Abuse Coverage Is Important for Nonprofits 23 Closer Look: Board Director & Officer Risks in Serving a Nonprofit

DEPARTMENTS 10 Declarations 10 Figures W4 People 11 Business Moves 22 MyNewMarkets

24 E&O Insights: How Well Do You Know Your Own E&O Policy? 4 | INSURANCE JOURNAL-WEST February 10, 2014

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Opening Note Terrorism and Political Risk

he world is a risky place for business travelers but it might be a little safer when it comes to terrorism and political violence risk at least in some countries. According to the recently released Aon Risk Solutions 2014 Terrorism and Political Violence Map, 34 countries attained reduced country risk scores. The map is provided as a tool for businesses to assess risk levels of terrorism and political violence across the globe. “The map shows that while the terrorism threat in the West has declined, other regions are witnessing significant increases in terrorist violence and activity,” said Neil Henderson, head of Aon Risk Solutions’ Crisis Management Terrorism team. Overall, the report indicated 80 countries with terrorism perils in 2014, 12 percent fewer than 2013. Aon produced the map in collaboration with Risk Advisory Group plc, a global risk management The report indicated 80 consultancy. Europe saw notable countries with terrorism improvement with 11 counperils in 2014, 12 percent tries having civil commofewer than 2013. tion perils removed. The risk in Latin American countries seems to be declining except in Brazil, which was the only Latin American country to see its risk rating increase from medium to severe due to widespread and large-scale violent anti-government protests throughout 2013. The analysis indicates this unrest will likely continue in 2014, particularly ahead of the FIFA World Cup and the October general elections. In 2013, 52 percent of all terrorist attacks recorded took place in the MENA region, or the “Middle East and North Africa” region, up from 41 percent in 2012. “Despite some improvements in the ratings — eight decreases and just one increase to the 37 country scores that cover Sub-Saharan Africa in 2014, Africa remains a continent of high political violence and terrorism risk, with 22 countries having high to severe risk ratings,” the report said. The Middle East is the region most afflicted by terrorism in the world, with a 28 percent share of all terrorist attacks recorded worldwide in 2013, Aon Risk Solutions noted. The retail and transportation sectors were significantly affected in 2013, with 33 percent of terrorism attacks affecting the retail sector, and 18 percent of attacks taking place on the transportation sector. It’s no surprise that the Winter Olympics in Russia, which will involve significant mass transportation moves, is seen as a potential terrorist target as well. To view the map, visit: http://www.aon. com/terrorismmap/2014-Terrorism-Map.pdf. Andrea Wells

Editor-in-Chief

6 | INSURANCE JOURNAL-NATIONAL February 10, 2014

EDITORIAL Editor-in-Chief Andrea Wells | awells@insurancejournal.com V.P. Content Andrew Simpson | asimpson@insurancejournal.com East Editor Young Ha | yha@insurancejournal.com Southeast Editor Michael Adams | madams@insurancejournal.com South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com West Editor Don Jergler | djergler@insurancejournal.com International Editor Charles E. Boyle | cboyle@insurancejournal.com Senior Editor Susanne Sclafane | ssclafane@insurancejournal.com ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Chris Burand, Curtis Pearsall Contributing Writers Charles Chamness, Randall Hedlund, Bob Lathrop, Kevin O’Connor, Mark Robinson, Bruce Schreiner, John Trefry, Jay Wagoner SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 | jtinney@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 | dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 | mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 | lknapp@insurancejournal.com Southeast Howard Simkin (800) 897-9965 x162 | hsimkin@insurancejournal.com East Dave Molchan (800) 897-9965 x145 | dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classifieds, Jobs, Agencies Wanted/For Sale Ly Nguyen (800) 897-9965 x125 | lnguyen@insurancejournal.com MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns (619) 584-1100 x120 | eburns@insurancejournal.com New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com DESIGN/WEB V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P of Technology Joshua Carlson | jcarlson@insurancejournal.com Marketing Director Derence Walk | dwalk@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com IJ ACADEMY OF INSURANCE Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chairman Mark Wells Chief Executive Officer Mitch Dunford Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com

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NATIONAL COVERAGE

News & Markets Court Dismisses Ex-AIG CEO Greenberg’s Bailout Lawsuit Against New York Fed By Jonathan Stempel

federal appeals court upheld the dismissal of a lawsuit by former American International Group Inc. CEO Maurice “Hank” Greenberg accusing the Federal Reserve Bank of New York of unlawfully bailing out the insurer in the 2008 financial crisis. The 2nd U.S. Circuit Court of Appeals in New York said the New York Fed’s authority to address threats to the economy in “unusual and exigent circumstances” justified the dismissal of state law breach of fiduciary duty claims by Greenberg’s Starr International Co., which once held a 12 percent AIG stake. Writing for a unanimous three-judge panel, Circuit Judge John Walker said letting Greenberg pursue his Delaware state

law claims would have forced the New York Fed to shirk its obligation to act in the public interest. Walker said this would have improperly “compromised” the federal effort “to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times.” The 2nd Circuit did not address whether the New York Fed exceeded its authority in rescuing AIG in a bailout that began on Sept. 16, 2008 and grew to $182.3 billion. The court’s decision upheld a 2012 ruling in Manhattan by U.S. District Judge Paul Engelmayer, who had endorsed broad central bank power to address financial crises. Starr had accused the New York Fed of engineering a “back-door” bailout for Goldman Sachs Group Inc. and other Wall Street banks at the expense of AIG shareholders, by forcing the insurer to unwind bets on mortgage debt through hundreds of billions of dollars of credit default swaps.

Maurice ‘Hank’ Greenburg

The company and Greenberg also have been suing the government in the U.S. Court of Federal Claims in Washington, D.C. AIG is based in New York but incorporated in Delaware. Starr’s lawyer said the 2nd Circuit decision addressed a “narrow issue” of state law preemption and did not affect Starr’s constitutional claims in the Washington court, where a trial is scheduled for Sept. 29. Copyright 2014 Reuters.

Securities Class Actions Up 9% in 2013, But Below Average

laintiffs filed 166 new federal securities class actions in 2013, a 9 percent increase over 2012. However, the 2013 total is 13 percent below the average from 1997 to 2012, despite a second-half surge. The slump in filings may be associated with fewer listed companies for plaintiffs to sue, according to “Securities Class Action Filings - 2013 Year in Review,” a report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. 8 | INSURANCE JOURNAL-NATIONAL February 10, 2014

The report points to the decline in the number of companies listed on the NYSE and NASDAQ as one explanation for filings below the historical average. The number of companies on these exchanges has decreased 46 percent since 1998. The report also analyzes the recent increase in initial public offerings (IPOs) on major U.S. exchanges. The 150 IPOs in 2013 represent the highest number in the past five years. There has been an increase in larger companies undertaking IPOs in recent years, particularly in 2013. “While the almost 50 percent decrease in listed companies has played a part in the recent trend of low numbers of class action filings, the sharp increase in IPOs in 2013 may provide fuel for a new wave of filings in the next few years,” said John Gould, senior vice president of Cornerstone Research. A new analysis of class certification rulings for filings between 2002 and 2010 reveals that class certification was denied

in less than 2 percent of cases due to a decision based on the merits of the motion. During the same period, increasing proportions of cases were dismissed before class certification motions were filed. The report also examines factors that could influence future securities class action filings, specifically Halliburton v. Erica P. John Fund, a closely watched U.S. Supreme Court case scheduled for oral arguments in March. “If Halliburton prevails in its case before the U.S. Supreme Court, then the entire market for class action securities fraud litigation is likely to be disrupted because it will become impossible to certify a large number of Section 10(b) class actions,” said Joseph Grundfest, Stanford Law School Securities Class Action Clearinghouse director. “Large investors with substantial losses in the biggest of the frauds will likely be able to litigate their claims on an individual basis, but small investors will then have to look to Congress to fashion an alternative remedy.” www.insurancejournal.com

Social Services Insurance

The best thing about teamwork is that our team works. Working, playing, helping our community—whatever we do, we do it as a team. At Philadelphia Insurance Companies, we’ve raised money and pledged time for Ronald McDonald House Charities and the American Red Cross. The Children’s Hospital of Philadelphia, Face to Face, and the Challenged Athletes Foundation. Scholarship funds and the arts. We’ve shown these organizations and the nonprofits we insure every day that teamwork works. Because our team works. Learn more. Call 855.411.0797 or visit PHLY.com/socialservice. A.M.Best A++ Rating Ward’s Top 50 2001-2013 97.5% Claims Satisfaction 100+ Niche Industries

Philadelphia Insurance Companies is the marketing name for the property casualty insurance operations of Philadelphia Consolidated Holding Corp., a member of the Tokio Marine Group. All products are written by insurance company subsidiaries of Philadelphia Consolidated Holding Corp. Coverages are subject to actual policy language.

NATIONAL COVERAGE

FIGURES

DECLARATIONS

$52 Million

How much a Montana jury has awarded an office supply manufacturer in its lawsuit against its former bank. Masters Group International Inc. sued Comerica Inc. after the bank reneged on a November 2008 agreement to delay collection of a $10.5 million line of credit while Masters negotiated another credit line that required it not be in default with Comerica.

$3 Million

The Cost

The number of managers at Minnesota’s troubled online health insurance exchange, MNsure, who received bonuses just after its launch, although software problems plagued the website. The collective bonus amount was more than $26,000.

The amount of pollution coverage that Freedom Industries, the company responsible for the chemical spill in West Virginia, says it has.

“You can talk to anyone who’s lost a friend or family member to a drunk driver and they’ll tell you about the cost.”

— Pierce County Prosecutor Mark Lindquist told a Washington state Senate panel that a measure making it a felony charge to drive under the influence when the driver has three prior offenses within 10 years would send a message that the state takes drunk driving seriously.

Pattern

“This repeated pattern of significant rate increases represents an undue financial burden for our homeowners, and this burden has a negative impact on our budget, the regional tourism industry, and local real estate market. These increases are unfair and unreasonable.”

— North Carolina coastal resident Buck Lineberger criticizing a proposed average 25 percent homeowners insurance rate hike.

Captivating Year

“2013 was a terrific year for captives in Vermont.”

$886 Million $702,741

The amount given to the state of Arkansas by the U.S. Labor Department to aid in the recovery from tornadoes and severe storms that hit the state last May and June. The department said the Arkansas Department of Workforce Services can use the grant to hire temporary employees to help the cleanup effort.

The approximate amount of federal Superstorm Sandy aid that has been released to the New York Metropolitan Transit Authority last month. The $886 million is part of the $3.8 billion the Federal Transit Administration had allocated to the MTA for Sandy-related repairs.

— Vermont Gov. Peter Shumlin on his state’s captive insurance industry. Speaking at the Vermont Captive Insurance Association’s legislative meeting on Jan. 16, Shumlin noted that Vermont licensed 29 new captives last year. New licensees in 2013 bring Vermont’s total to 1,013, with 588 active captive insurance companies.

Drive, Don’t Text

“Texting is where you take your hands off the wheel, your eyes off the road, and your mind off your task — the task of driving safely.”

— Nebraska state Sen. John Harms of Scottsbluff, who has sponsored a bill that would allow law enforcement to stop drivers who are seen texting or not wearing a seat belt. Current state law treats the violations as secondary offenses; officers can only ticket motorists after stopping them for another reason.

Regional Data

“They’re obviously selling the data sets by region.” — McAllen, Texas, Police Chief Victor

Rodriguez referring to the arrest in South Texas of two Mexican nationals who had used account information of South Texas residents stolen from Target to purchase tens of thousands of dollars’ worth of merchandise.

10 | INSURANCE JOURNAL-NATIONAL February 10, 2014

www.insurancejournal.com

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News & Markets Small Increase in Nevada Workers’ Comp Loss Costs in 2014

Washington Panel Issues Dueling Climate Reports

any Nevada employers will see a small increase in the premiums they pay for workers’ compensation insurance this year. The average premium increase in the voluntary market will be about 3.2 percent. Nevada employers who purchase their workers’ comp insurance in the assigned-risk market will see an average increase of 3.3 percent. Both increases will take effect on March 1. Scott J. Kipper Insurance Commissioner Scott J. Kipper has approved a filing from the National Council on Compensation Insurance for an average increase of 3.2 percent for Nevada workers’ comp voluntary insurance loss costs. The majority of the increase is due to a revision in NCCI’s trend assumption for the medical component for workers’ comp coverage from -2.0 percent to -1.0 percent, according to Kipper’s office. Another component of the increase arises from changes in the medical fee schedule issued by the Division of Industrial Relations and small increases in the minimum and maximum weekly benefit amounts. Since 2008 there has been a 19.2 percent decrease in loss costs for the voluntary market, and a 20.1 percent decrease in rates for the assigned-risk market. The State of Nevada Division of Insurance is a division of the Nevada Department of Business and Industry.

Wyoming Traffic Fatalities Dropping

Nearly Half of Utah Car Deaths: Seatbelts Off

he Wyoming Highway Patrol says fewer people died in traffic accidents across the state last year than in 2012. The Powell Tribune reported 87 people were killed in the state in 2013, 34 fewer than the year before and the lowest number since 1945. Patrol officials suggest several reasons for the decrease in traffic deaths, including the patrol’s education and awareness efforts, high-visibility traffic enforcement by local and state police during major holidays and highway safety initiatives by several groups. Patrol Sgt. Steven Townsend also notes that the number of crashes involving people who weren’t wearing seat belts dropped 23.8 percent in 2013 over the previous year. The statistics reflect all fatal crashes investigated by city, county, state and federal law enforcement agencies on public roadways.

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bipartisan Washington climate panel has released dueling reports how to reduce the state’s greenhouse gas emissions. The panel posted separate reports online in late January, splitting along party lines. It had missed a December deadline to come up with recommendations on tackling carbon pollution. Two Democratic lawmakers and Gov. Jay Inslee recommended more ambitious policies including capping carbon pollution, reducing the amount of coal-powered electricity utilities in the state useand promote cleaner cars and cleaner fuels. They say the state must take action to meet a state mandate to cut emissions. Meanwhile, the panel’s two Republicans recommended studying nuclear generation, encouraging conservation, providing incentives for hydroelectric power and revisiting the emissions goals set in 2008. They want an additional year to study the impacts of the policies.

tah transportation officials say they counted 219 traffic deaths in Utah in 2013, and almost half of the car crash victims who died hadn’t been wearing seatbelts. The Utah Department of Transportation statistics released in January show two more deaths last year than in 2012. That year brought the lowest number of fatalities since 1959. Officials say that when motorcyclist, bicyclist and pedestrian deaths are taken out, nearly 47 percent of the people who died on roads last year weren’t buckled up. State officials are working toward a goal of zero fatalities, and remind people to buckle up, put down cellphones and other distractions, and never drive drowsy or impaired.

February 10, 2014 INSURANCE JOURNAL-WEST | W1

IDEA EXCHANGE

Best Practices Disclosing Broker Fees to Ensure Full Compliance

n area of intensive scrutiny by the California Department of Insurance surrounds the charging and disclosing of broker fees. The department regularly receives a high volume of customer complaints concerning the failure to disclose broker fees or excessive broker fees. Fortunately for brokers, complying with department regulations in this regard is easy: The producer acting as a broBy Mark B. Robinson ker must simply use the appropriate forms, obtain the customer’s prior consent to the broker fee and be transparent in the fee disclosure. In California, only brokers can charge broker fees. If a producer is acting as an agent for the insurer, the producer cannot charge any fees related to the procurement of insurance that are not part of the insurer’s rate filing. (California Insurance Code § 1861.05.) Broker vs. Agent When contemplating whether to charge a broker fee, first determine whether you are acting as a broker or an agent. An agent transacts insurance on behalf of the insurer, while a broker transacts insurance on behalf of the insured (California Insurance Code § 1621.). It will be presumed that a person is acting as a broker if the person: (i) is licensed as a broker-agent, (ii) maintains a $10,000 broker’s bond and (iii) discloses in a written agreement signed by the customer all of the following: (a) that he/she is transacting insurance on behalf of the customer; (b) a description of the basic services that will be provided to the customer; (c) the amount of the broker fee that will be charged; and (d) that he/she may receive compensation, directly or indirectly, from an insurer resulting from the customer’s purchase of insurance. (California Insurance Code § 1623(a).) The presumption of acting as a broker will be rebutted and the producer will be deemed an agent if the insurer has filed a Notice of Appointment with the departW2 | INSURANCE JOURNAL-WEST February 10, 2014

ment or the producer has written authority to bind coverage, appoint agents or handle claims. (California Insurance Code § 1623(c).) If you’ve determined you’re acting as a broker according to this analysis, you can charge a reasonable negotiated broker fee to the customer for procurement of property/casualty insurance. If you’re acting as an agent of the insurer, you cannot charge a broker fee or any other fee not contained in the insurer’s rate filing. Broker Fee Agreement (Commercial Lines) A broker fee charged with the transaction of a commercial policy must be agreed upon in advance. In light of the presumption established by Section 1623, it’s important that a commercial broker fee agreement be used. The broker fee agreement should clearly disclose the fee and be signed by the customer and broker. Full upfront disclosure and transparency will mitigate confusion and decrease the likelihood of regulatory or civil action. The broker should never combine the broker fee and premium into a down payment, simply mention the broker fee and the premium in a quote or proposal, or merely include a statement such as “the premium includes fees.” Again, the broker fee must be clearly disclosed in a written broker fee agreement. Broker Fee Agreement (Personal Lines) If you seek to charge a broker fee for the transaction of personal lines (automobile or homeowners), you must use the Standard Broker Fee Agreement or a custom agreement containing language that does not conflict with the Standard Broker Fee Agreement. You must also use the Standard Broker Fee Disclosure Form and provide the insured with a copy of the Automobile pamphlet or Homeowners pamphlet found on the department’s website. (California Code

of Regulations § 2189.1 et seq.) I recommend reviewing the Broker Fee Regulations on the department’s website. Beside the complaint that the customer did not agree to the fee in advance, the department routinely alleges in customer complaints that the broker failed to: • Disclose to the customer that a fee may be charged at the time of initial premium quote; • Provide the customer with a broker fee agreement and Broker Fee Disclosure Form printed in English and in any language principally used to advertise, solicit or negotiate the sale and purchase of the insurance; • Provide the customer with a copy of the fully completed and signed broker fee documents; • Refund the broker fee if he or she acted incompetently, resulting in a financial loss to the customer; • Refund the broker fee if his or her conduct resulted in an uprate in premium; • Refund the broker fee if an unlicensed person transacted the insurance policy; • Place the customer with an insurer for which the broker is an appointed agent, solely for the purpose of charging a broker fee. It’s also often alleged that brokers charge or attempt to charge a broker fee for a renewal, endorsement or other service not disclosed in the broker fee agreement. Full and transparent disclosure of broker fees in accordance with the above-referenced statutes and regulations will reduce the likelihood of confusion to your customer and help to avoid regulatory scrutiny. Mark B. Robinson is founding partner at Michelman & Robinson LLP, where he focuses on insurance regulatory and corporate transactions. Phone: (818) 783-5530. E-mail: mrobinson@mrllp.com. www.insurancejournal.com

WEST COVERAGE

People Chris Le was named director of personal lines for Los Angeles, Calif.-based Anderson & Murison Inc. Le will be responsible for the underwriting and processing of all personal lines at the company. He has been with A&M since May 2013 working as a commercial lines underwriter. Prior to Anderson & Murison, Le was with Workmens Auto Insurance Co. Anderson & Murison is a privately owned independent wholesale underwriter and broker.

Chris Le

Cameron Hallows

Cameron Hallows has joined Okerlund, Sorensen & Leavitt in Utah as a producer. Hallows will focus on commercial and agribusiness insurance. Prior to insurance, Hallows worked selling farm equipment for Mason Machinery. He has eight years of experience in both the trucking industry and cattle business. The Leavitt Group insurance agencies account for more than 125 offices in 15 states. Barney & Barney LLC named Chris Williams managing director of its Bay Area offices in Northern California. Williams will lead the firm’s Bay Area team of professionals. Williams succeeds Mike Mirksy, who has been with the firm since 1980. Williams has been with the firm since 1993. He has

more than 25 years of industry experience. Prior to Barney & Barney, Williams worked for The Travelers Insurance Co., where he was regional director in charge of sales. San Diego, Calif.-based Barney & Barney LLC is a risk management and insurance brokerage firm. Victor O. Schinnerer & Company Inc. named Jennifer Honea vice president and sales manager for the Western portion of the U.S. Honea will oversee the development and execution of sales initiatives for the West region. She is based in San Francisco and reports to Brian Hanuschak, head of distribution. Honea most recently was director of marketing for California-based MOC Insurance Services. Prior to that, she was with Equity Risk Partners and Marsh Risk & Insurance Services. Chevy Chase, Md.-based Victor O. Schinnerer is an underwriting manager of professional liability and specialty insurance programs.

Capital Insurance Group named Jeff Batozech as the regional field executive of Northern California. CIG has combined its North Coast, Bay Area and Sacramento regions into the newly formed Northern California Region and advanced Batozech, the former regional manager of Sacramento, to lead the new field structure. Batozech has more than 10 years of sales and management experience with CIG. He began his career in Chicago as an excess and surplus lines property underwriter. CIG is a property/casualty insurer Risks That We Can Readily Insure Include But Are Not Limited To serving the Western U.S.

Garage Operations are covered at

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Auto Dealers (used car dealers) Auto Parts Stores with Installation (Including Mobile) Auto Repair or Service (Most All Types of Repair or Service) Car Washes Full Service Construction Equipment Sales & Service Farm Equipment

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W4 | INSURANCE JOURNAL-WEST February 10, 2014

1/29/14 9:45 AM

Swett & Crawford named John Fosdick sales leader for Swett & Crawford’s Los Angeles office. Fosdick will continue to be the sales leader for Swett & Crawford’s Irvine, Calif. office as well as broker in the casualty practice group. Fosdick began his career in 1992 as a Lloyds Broker with Alexander Howden in London. Swett & Crawford is part of Atlanta, Ga.-based Swett & Crawford and Cooper Gay.

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NATIONAL COVERAGE

Business Moves Berkshire Hathaway, MyAssist, Insure America Berkshire Hathaway Specialty Insurance has agreed to purchase from Noel Group the assets of MyAssist Inc., a live-agent personal concierge and telematics service-provider, and Insure America LLC, a niche program administrator that provides insurance products to the travel industry. John Noel, founder, chairman and CEO of Noel Group, will head the MyAssist and Insure America operations and focus on growing the businesses globally. Peter Eastwood, president of Berkshire Hathaway Specialty Insurance, said the two firms will help his company extend its brand and create new business opportunities. Eastwood said corporate customers of MyAssist include Ford Motor Co., Mercedes-Benz USA, Verizon Telematics and other prominent travel and insurance companies. MyAssist provides the owners of these vehicles with in-car support. Boston-based Berkshire Hathaway Specialty Insurance provides commercial property, casualty, health care liability, executive and professional lines insurance and programs in the United States. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of companies. In addition to MyAssist and Insure America, Noel Group owns Compass Properties, a real-estate investment company. Noel Group is based in Stevens Point, Wis., and also has operations in Ft. Lauderdale, Fla. Noel sold travel insurer Travel Guard International to American International Group (AIG) in 2006. In 2008, Noel sold MultiNational Underwriters to HCC Insurance Holdings, and it was renamed HCC Medical Insurance Services. Risk Strategies, Singer Nelson Charlmers Risk Strategies Co., a national insurance brokerage and risk management firm based in Boston, has acquired Singer Nelson Charlmers, a Teaneck, N.J.-based insurance brokerage firm providing coverages www.insurancejournal.com

in professional liability, employee benefits and private client personal lines. Terms of the deal were not disclosed. Singer Nelson Charlmers’ CEO David Singer joins Risk Strategies as managing director, and approximately 35 Singer Nelson Charlmers employees will also join the Risk Strategies team to expand business in the Greater New York market. USI, Travers, O’Keefe & Associates USI Insurance Services has closed the acquisition of Travers, O’Keefe & Associates Inc., headquartered in New York. Terms of the transaction were not disclosed. Travers, O’Keefe’s headquarters will be combined with USI’s New York office. USI’s Albany, N.Y., office will be combined with Travers, O’Keefe’s Saratoga Springs, N.Y., office. Travers, O’Keefe was founded in 1986 to serve employer needs associated with the management of all employee benefit programs. Its offerings include benefits consulting, human resources services, and compliance and employee support. USI is headquartered in Valhalla, N.Y., and operates out of more than 100 offices nationwide. Corcoran & Havlin, Sciarratta & Doucette Corcoran & Havlin Insurance Group in Wellesley, Mass., has merged with Needham, Mass.-based Sciarratta & Doucette Insurance Agency. Sciarratta & Doucette customers will now be served out of Corcoran & Havlin’s corporate headquarters in Wellesley, Mass., 4 miles from Sciarratta & Doucette’s former Needham location. The combined agencies will serve more than 14,000 clients. Bloss & Dillard, Agents Insurance Markets Huntington, W.Va.-based managing general agent Bloss & Dillard Inc. has acquired and operates Agents Insurance Markets Inc., a managing general agent

in Richmond, Va. The new acquisition will operate under the Agents Insurance Markets Inc. (AIM) name. Both Bloss & Dillard and AIM offer a variety of specialty and traditional insurance products to independent agents in West Virginia, Ohio, Kentucky, Pennsylvania, North Carolina, Maryland and Virginia. OceanPoint, Raymond Insurance Middletown, R.I.-based OceanPoint Insurance Agency has acquired Raymond Insurance of Coventry, R.I., to expand in the state’s West Bay area. Kim Raymond, principal of Raymond Insurance, is now vice president of West Bay operations for OceanPoint. Higginbotham, Talon Insurance Agency Higginbotham, headquartered in Ft. Worth, Texas, and Talon Insurance Agency have merged their operations. Both are independent insurance firms based in Texas providing commercial and personal insurance, risk management and employee benefit services. Talon Insurance Agency has a 35-person staff at offices in Port Arthur, Tyler and Ft. Worth. Higginbotham has more than 20 branch offices across the state. The combined workforce is 600. February 10, 2014 INSURANCE JOURNAL-NATIONAL | 11

CLOSER LOOK

Nonprofits/Social Services Private, Nonprofit D&O: Gallagher’s Norton on Claims, Coverage Expansion and Outlook

uch has changed in the insurance industry throughout the past 20 years. What hasn’t changed so much is the type of claim to strike the private company and nonprofit directors and officers (D&O) sector. What has changed is the coverage for those claims. Phil Norton, president of the professional liability division for Arthur J. Gallagher & Co., says while the sources of nonprofit D&O claims has remained the same over the last two decades, the difference today, as opposed to 20 years ago, is now those claims are being covered. Coverage is broad, competition is high, markets are plentiful but claim severity is on the rise. In this interview with Insurance Journal’s Andrea Wells at the recent PLUS D&O Symposium in New York City, Norton discusses nonprofit and private company D&O claims trends, the expansion of entity cov-

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erage in this segment, and what he sees on the horizon for the market and his clients. To listen to the full audio interview, or to watch a video with Norton, visit www. InsuranceJournal.tv.

1/27/14 8:57 AM

Insurance Journal: What has changed in the nonprofit D&O world in the last 20 years? Have claims changed or has coverage changed? Phil Norton: That’s a great question. … I used to track these claims for a company I used to work for … I was looking at 700 claims a year. The sources of these (D&O) claims, 20 years ago, are the same as today. The difference is a lot of those claims By and large, I feel 20 years ago were like the frequency not covered, and is pretty stable; the therefore not genissue is severity. erating any claims payment. Now those are covered. They’re generating lots of claims payments. The carriers are saying, “Wait a minute. I’m underwater. I’m paying out more claims than I’m taking in, in a premium.” That’s really the evolution …. the coverage. It started in the late 1990s, when a firm called Executive Risk came out with a form called “Power,” which had this inventive idea of, “Why don’t we add the entity as covered in addition to the individual D’s continued on page 14 www.insurancejournal.com

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CLOSER LOOK

Nonprofits/Social Services continued from page 12 Norton: It’s just a lot of carriers, which is generating a lot of competition. … (Carriers) jump in, and they find that just the fact that they jumped in is changing IJ: Is entity coverage something you results. It drives premiums down and it always want for your clients? Are you turns out that losses have been increasing able to always secure it? steadily for a long time. Norton: So far we’re able to always get it. When I say, “losses increasing steadily,” I What’s happening (now) is that some of the primarily mean the fact that more of these carriers are looking to take it away; they claims are covered, but not exclusively. feel like they’re offering too much coverage. Defense attorneys are charging more per They’re giving you one premium that’s hour, and they’re putting more of their partlower with no entity coverage, and then a ners on each claim. premium that’s much higher, maybe 35 per If you had someone at $300 an hour, and cent higher, that does have entity coverage. now there are two people each at $350, you I’m telling my clients to pay more money haven’t gone up just a little bit. You’ve more and buy the entity coverage, because it’s a than doubled. So we’re seegreat value. Currently, I’m able ing defense costs increasing to get entity coverage for all of Maybe a little bit of an increase in rather dramatically. my clients. Severity is going up. I deductible can like frequency is someIJ: Why is including entity keep the carriers feel what stable. … coverage so valuable? healthier, keep There are some geo Norton: If you look at the your clients more graphic areas, or maybe types of claims that are by market sector, perhaps brought against private comstable, and have panies, and these include the premiums be healthcare, where there is some frequency increase. employment practices liability, if you didn’t have entity cover- more stable in the By and large, I feel like the frequency is pretty staage for EPL, you wouldn’t have future. ble; the issue is severity. almost any of your claims covered at all. The courts have determined that there’s IJ: What are the barriers when trythis “agency” theory. When you do someing to sell D&O coverage to a smaller thing wrong as an employee, you’re doing it private company or nonprofit organias an agent of your corporation. Therefore, zation? What makes it challenging to your corporation is liable, so it is an entity convince them to buy coverage? claim. Norton: I think it’s education most of the Half the claims against private compatime. They think they already have it covnies are EPL. When you start to look at the ered. lesser known claims, like deceptive trade First of all you have to correct them that practices with the competition, or antitrust, these things are not covered by your other those are often about the entity. The entity policies. stole information. The second thing is there is a little bit They don’t necessarily go after an indiof cost. To them this could be significant vidual. Sometimes they name both. I’m depending on the size of the organization, thinking 90-plus percent of these claims so you have to show them that there’s value. have some element of entity in it, and then They’re going to say, “I’ve never had a there’s a big overlap where individual direcclaim. Why do I need coverage?” You might tors and officers are also named. say, “Has your house burned down? Are you going to continue to have house insurance, IJ: How big is the D&O market for nonfire insurance for your house, homeowners?” profit and private companies today? (directors) and O’s (officers),” and it went from there.

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The same thing applies here; in a 10-year period, one-third of all these private companies are going to have at least one claim, and sometimes multiple. It is going to happen, and that’s part of the education process. What they need to realize is they’ve already got the exposures. They have employees. They have the 401(k) plans for their employees. They’re managing a lot of revenues, which is creating some risks for crime. There are these pieces of management liability, in which D&O is the visible name, but there are also employment practices, liability, fiduciary, and crime. They’re all often sold in a package. Some carriers will sell them in a blended package where you can get efficient with your limits to some extent. IJ: What do you see on the horizon for the private company and nonprofit D&O segment? Is there anything that you’re keeping your eye on? Norton: First of all, I want to keep my eye on maintaining coverage. I think that’s critical and I think it’s doable. We want to make sure we have narrow contractual liability exclusions. We want to make sure we have broad definitions of claims. One area that we can barter with, which I think is completely appropriate, is retentions.If they want to raise the deductibles, that actually might not be a bad thing for my clients. Stability over the long-term in terms of paid losses is what keeps the premiums relatively reasonable. If you’re going to have a bunch of small ethereal claims just through bad luck, there’s no rule that someone can’t sue you, even if it is without merit. Maybe a little bit of an increase in deductible can keep the carriers healthier, keep your clients more stable, and have the premiums be more stable in the future. I think retention is an area to work with.

Web Resource: To listen to the full audio interview, or to watch a video with Norton, visit www.InsuranceJournal.tv. www.insurancejournal.com

SPECIAL REPORT

Commerical Auto Transportation Network Companies, Uber Liability Gap Worry Insurers

By Don Jergler

here’s a growing concern over a gap between personal and commercial insurance where ridesharing services like Uber and Lyft are concerned — and slowly states and cities across the country are taking a look at how liability should be handled when a worst-case-scenario plays out. The smart phone apps that enable drivers to act like taxi or limo services and rent out themselves and their vehicles to nearby passengers who are willing to pay for a ride are rising in popularity in metropolitan areas. That popularity, and a recent tragedy, has the industry and would-be regulators asking poignant questions about liability. In Washington, the Seattle City Council on Jan. 30 discussed an ordinance to create a two-year pilot program to these ridesharing services and the drivers. Seattle is believed to be the first U.S. city to come out with such regulations. And bills backed by Uber have been introduced in Arizona and Colorado that are wending their way through legislature. Techno-friendly San Francisco seems to be a hub for all of this, and the city is attracting attention due to the tragedy of a young girl who was killed on New Year’s 16 | INSURANCE JOURNAL-NATIONAL February 10, 2014

Eve by a motorist on contract with Uber. That event has at least one insurance group speaking up even louder to drive home a point they’ve made all along about such services: personal automobile insurance is not intended to cover people who use their vehicles for commercial purposes. Tragedy Highlights Gap in Coverage The 6-year-year-old girl, Sophia Liu, was killed when an SUV driver under an Uber contract struck her in a San Francisco crosswalk. Attorneys for the driver, 57-year-old Syed Muzzafar, say he wasn’t working for Uber when the accident occurred. Uber has said it’s not liable because the driver was not doing a trip on the Uber system, but he was between rides, although he was roughly 45 minutes away from his home. Uber’s commercial insurance does not cover drivers between rides, according to the San Francisco-based company, which has been issuing statements but not speaking much to the media. Uber did not respond to interview requests for this article. A wrongful death lawsuit has been filed against Uber by Liu’s family. Because there was no passenger in the car at the time of the crash, Uber is denying insurance protection to cover Muzzafar and the Liu family.

The Property Casualty Insurers Association of American sees drivers like Muzzafar as providing a livery service, something that’s excluded in almost all personal automobile policies — as long as they are logged into the ridesharing app. PCI, which worked with the California Public Utilities Commission while CPUC was drafting regulations for ridesharing services like Uber, is working to get the word out detailing their concern about a possible gap in coverage between commercial insurance and personal insurance. CPUC in September 2013 decided to regulate transportation network companies (TNC), requiring TNCs to maintain commercial liability insurance policies providing not less than $1 million in coverage for incidents involving vehicles and drivers while they provide TNC services. CPUC continues to hone those regulations. The current regulations state that insurance coverage must be available to cover claims regardless of whether a TNC driver maintains insurance adequate to cover any portion of the claim. But those rules don’t say what happens if a TNC driver who isn’t providing a ride gets into an accident. “That’s something that we’re concerned about, is the gaps that are there,” said www.insurancejournal.com

Robert Passmore, senior director of personal lines policy for PCI. If a taxi driver is off duty and headed home, or is between fares, a commercial policy is in place to cover the driver. That’s not necessarily the case with Uber drivers. “It doesn’t say when they pay,” Passmore said. In PCI’s view, a driver using Uber or Lyft doesn’t need to have a passenger in the car to be considered working. Drivers 20 miles away from their suburban home in a heavily populated area are exposed to more risk than on a drive to the nearby grocery store, and they are likely looking for rides if they are logged into the ridesharing app, Passmore noted. PCI believes the commercial policy should pay whenever a driver is logged into the app. The line should be drawn between personal use of a vehicle and commercial use “whenever you’re logged into the app, whenever you’ve made yourself available for a ride,” Passmore said. “You’re not going to say, ‘I’m going to log into the app to see if I can make some money while I’m going to the grocery store. People who use this app are gone from home for five hours and they go where the people are. That’s how the system works, is that the closest person gets [an] assignment.” However, there are efforts underway to put liability on the other side of that dividing line. Uber-backed bills in Colorado and in Arizona are constructed to clarify that these TNCs are not subject to the same regulations as cab companies, and they define what a TNC is and what it isn’t. In Colorado Senate Bill 125, and in Arizona House Bill 2273, both define the obligations of TNCs, such as background checks, the kinds of vehicles that can be used and certain moving violations and criminal background that would preclude a driver from being under contract. Both bills also mandate that a $1 million commercial liability policy be in place, which differs from cab company requirements in each state. In Colorado, cab service operators are required to have a $1.5 million commercial policy; Arizona www.insurancejournal.com

CPUC spokeswoman Terrie Prosper said more work will be done on the TNC regulations. “Our proceeding has a phase II. Going forward, we will ensure that the Insurance Requirements overarching goals of public safety, equity It’s the insurance requirement where and innovation are being achieved. We will both bills offer an opposing view from that have a public process in the next year to of PCI. consider the performance of this new mode “They identify when that liability policy of transportation and accompanying regulais triggered, and that’s when the driver and tions. This includes a public workshop.” the rider connect,” said Kelly Campbell, Quoting from part of the decision, she vice president of state government relations noted: for PCI, who has been dealing with the “The Commission will convene a workbills in both states. shop one year after the issuance of this deci She added, “We feel that trigger should sion to hear from all stakeholders on the be when the driver logs in.” impacts of this new mode of transportation SB 125 in Colorado was set for a first and accompanying regulations. Workshop hearing in the Senate Business Labor and topics will include, but not necessarily be Technology Committee in February. A limited to, a consideration of safety, compehearing in the Government Committee for tition, innovation, accessibility, congestion, Arizona’s HB 2273 has not yet been set. the California Environmental Quality Act, In Seattle, no decision was made by the and other pollution related issues.” city council, which heard public input on In the meantime, discussion and possibly its TNC program. regulation may be handled at the local level. Highlights of the program include a cap San Francisco Supervisor Jane Kim told on the number of vehicles per TNC and an ABC television station in San Francisco limiting TNC drivers to operating 16 hours she wants the city to take a closer look at per week. Local media reported several citwhat she calls the gray area of izens, many of them drivers, ‘The question is: who is responsible. “We have a showed up at the council meeting to voice concerns. Where is that line new type of business that has only just begun to get regu The Seattle Times reports drawn?’ lated at the state level and no that a number of drivers clear answers about where there’s liability depend on providing the ridesharing serwhen incidents occur,” Kim said. vices as a source of income. Uber has entered more than 60 markets Seattle resident Sarah Cresswell told the and has an international presence in cities Times driving for Lyft has kept her and her such as Berlin and Tokyo. According to 6-year-old daughter off welfare and she will leaked information, Uber is generating $200 be unlikely to drive for the ridesharing sermillion per year in revenue beyond what it vice after the regulations are in place. pays to drivers. “There’s no way any of the companies Passmore said that since the ridesharwould be able to survive with the existing ing apps came into existence, the compalimitations proposed,” Cresswell said. ny has been on PCI’s radar. “We’ve been Passmore believes there is need for the on the lookout for this for a long time,” discussion about the CPUC rules and that he said, adding that San Francisco was PCI plans to further “engage” with CPUC to the tipping point for further discussion. make known the association’s concerns. Passmore said some in the industry may The issue of how a vehicle is being used see this as an opportunity to sell commermust be looked at as well, he said. cial policies to individual drivers, and his “The question is: Where is that line group doesn’t want to stand in the way of drawn?” he said. “That’s what we think technological progress. needs to be worked on.” operators are required to have a $300,000 commercial policy.

February 10, 2014 INSURANCE JOURNAL-NATIONAL | 17

SPECIAL REPORT

Commercial Auto Garage Liability or Garagekeepers? That Is the Question By Kevin O’Connor

he terms garage liability and garagekeepers is an issue not only for clients, but most agents and CSRs also find it just as confusing. This article is intended to enlighten those in the insurance industry that may not have had an understanding of the garage liability/garagekeepers insurance paradox. The basics apply to dealerships, as well as service risks. Before getting into the actual contract, consider the following example: “A customer who purchased a vehicle from you brings it back to the lot with a mechanical issue. Your mechanic takes the vehicle for a test drive to see what’s going on, and in the process, hit’s another vehicle. He totaled the other vehicle and injured its driver. He also totaled the customer’s car he was test-driving. The other vehicle and its driver are covered by the garage liability policy, the customer’s vehicle is covered by the garagekeeepers”. The answer is not that simple. Start with a basic definition of garage liability. The coverage is, in a sense, the equivalent of combining a business auto form with a commercial general liability form including products and completed operations. The “Garage Coverage Form, CA 00 05,” has been revised several times, however, the basic architecture hasn’t changed. Examine Section II (Liability) and Section III (Garagekeepers). Section II – Liability Coverage Section II of the form is broken into two parts: garage operations other than covered autos, and garage operations covered autos. The intent of the policy is to cover bodily injury or property damage caused by an accident arising out of garage operations. The policy defines garage operations as the ownership, maintenance or use of locations for garage business. It also includes the ownership, maintenance or use of the autos. The types of autos covered are defined in 18 | INSURANCE JOURNAL-NATIONAL February 10, 2014

Section I, but for an auto dealer, you typically cover all owned autos, as well as nonowned autos used in the garage business (normally vehicles being worked on or stored). The definition broadens the scope of coverage by adding a “catch-all” phrase. It states: “Garage operations also include all operations necessary or incidental to a garage business.” This wording is often open to interpretation by insuring carriers. Also look at the definition of auto. This definition is simpler but still broad. The policy states, “Auto means a land motor vehicle, trailer or semi-trailer.” Unlike the CGL and business auto forms, there’s no reference to the auto being licensed for use on public roads, no reference to its number of wheels, mobile equipment or anything else. With all this ambiguity and far-reaching language, what could go wrong? Enter the exclusions. Exclusion No. 6 is the care, custody or control exclusion. It excludes property damage involving: (d) Property in the insured’s care, custody or control. Reading that exclusion, it becomes obvious that there is a problem with the customer’s vehicles. Any vehicle left with the garage business for repair, storage or even involved on a simple test drive is not covered based on this exclusion. Keep in mind that third-party claims caused by the customer’s vehicle are covered, the vehicle itself is not. Section III – Garagekeepers Coverage Garagekeepers coverage is an optional line offering protection to the garage business for loss to a customer’s auto left in the insured’s care, custody or control. The policy clarifies that by saying, “while the insured is attending, servicing, repairing, parking or storing

it in your garage operations.” All garagekeepers intends to accomplish is to buy back the coverage lost in the care, custody or control exclusion under the liability portion of the garage form. Garagekeepers coverage offers three options: 1. Legal Liability. This is the most common. The protection applies to a customer’s vehicle damaged due to the insured’s negligence — such as the mechanic wrecked the customer’s car while test driving it or the customer’s vehicle was left unlocked and unattended after hours. 2. Direct Primary. This form covers the customer’s vehicles regardless of liability. In a loss caused by no action of the insured such as a weather loss, or a theft although the vehicle was adequately protected, the direct primary garagekeepers pays. 3. Direct Excess. This is the rarest option, although it’s the best. The form affords protection to an insured for the loss to a customer’s vehicle regardless of liability, just as direct primary does. The difference is in the event of the insured having no liability, the form will only pay in excess of any other collectible insurance. So why the confusion after all these years? It’s all in the wording. O’Connor is the owner of Orlando, Fla.-based Dealers Insurance Services. Phone: 321-2859678. Email: kevin@dealersinsurance.com.

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SPECIAL REPORT

Commercial Auto How to Attract the Right Underwriter for Transportation Clients By Jay Wagoner and Bob Lathrop “There is no such thing on earth as an uninteresting subject; the only thing that can exist is an uninterested person” – G.K. Chesterton

he insurance market for transportation risks is increasingly conservative in what it accepts, coverage offered and in the premiums charged for coverage. In addition the market for transportation accounts is shrinking with carriers leaving the segment or limiting the number of accounts that they will accept. By Jay Wagoner & Underwriters earn their living by being interested in all facets of the accounts that they are being asked to insure. The ability to attract their interest in a conservative insurance marketplace Bob Lathrop will make all of the difference in your securing coverage on favorable terms for your client. When considering the acceptance, terms and price of a commercial transportation account there are a number of subjects that grab an underwriters’ interest beyond the normal submission details. Here are some thoughts on how you can attract

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interest in your customer. How interested is your customer in operating in a safe manner? • Describe actions taken to embed and sustain a safety culture throughout their organization. • Demonstrate an ongoing commitment from the customer to improving their safety culture. • Identify areas that can be improved upon and ask for the carriers assistance in helping them with impactful, productive and cost-effective methods to improve. How does your customer address the financial challenges of operating a profitable business while at the same time investing in their Public records compiled on the FMCSA website can provide safety culture? performance measures of transportation operators. • What comes first — profit or safety? How does management prioritize a safe operating culture against the financial available provides the underwriter with objectives of the business? performance measures that reflect the qual•Are profits reinvested in the business to ity of the operator as well as a comparison improve the quality of their drivers, their to other operators in their industry. In vehicles and their safety measures? many cases the information is often given •What is unique about their business that more weight in an underwriters’ assessallows them to thrive in a competitive, ment than your customers’ loss history crowded and challenging operating envi(although that is important as well). ronment? The areas that are measured include: • What image does your customer project to unsafe driving; hours of service compliance; their customers, vendors and the public? controlled substance and alcohol; driver The condition of your carriers shop, the fitness; and vehicle maintenance. condition of their equipment and their driv You can access this information at ers’ behavior behind the wheel are importthe FMCSA Compliance, Safety and ant areas that underwriters are interested Accountability website (www.csa.fmcsa. in. dot.gov.) Click on the “SMS Results” tab and What many insurance producers and search by USDOT or MC number or use the transportation operators are unaware of is Advance Search by carrier name. that transportation underwriters can gain a The information can highlight cussnapshot of the aforementioned areas withtomers’ strengths as well as identify the in minutes of receiving your submission for improvement opportunities that need to coverage. But the fact is that you can obtain be addressed in order to present transporthis information before you present your tation underwriters with the reasons they customer to the insurance marketplace. need to take an interest in your customer. The information is easily obtained through public records compiled and kept Wagoner is vice president of transportation and current on the Federal Motor Carrier Safety Lathrop is vice president of property/casualty at Administration (FMCSA). The information Hallmark Specialty Underwriters Inc. February 10, 2014 INSURANCE JOURNAL-NATIONAL | 19

CLOSER LOOK

Nonprofits/Social Services Why Sexual & Physical Abuse Coverage Is Important for Nonprofits

his will sound a lot like reminiscing and I just may be, but I was talking with old friends back in my hometown of Boardman, Ohio, at a high school reunion. One of the people in the group brought up the topic of the things we used to do as kids. We all chuckled, laughed and wondered why a lot of us made it as far as we had using By Randall Hedlund what little brain matter we seemed to possess. We talked about being gone with friends all day on our bikes in the park, to swimming in quarries, to sneaking off to concerts in “far away” places, most of which do not seem so far now. Personally, I cannot even recall my parents asking many details about where we were going or had been. Furthermore, as long as we got back to where we were supposed to be when we needed to be there, life rolled along without pause or interruption. Fast forward to today, and we all ask our kids where they are going, who they will be with and advise them what time to be

20 | INSURANCE JOURNAL-NATIONAL February 10, 2014

and physical abuse has risen dramatically. back before we send the police out looking Predators are continually seeking opporfor them. Our kids are tethered to us electunities to exploit victims who may be tronically via cell phones, and we check unable or lack the capability of guarding with them somewhat regularly. We can find themselves from them anytime we these situations. want merely by call- Every organization that ing. I know parents counsels, assists or provides Sometimes the very we that buy cell phone services to youth, seniors or organizations establish to serve tracking software and disabled individuals should individuals that monitor their kids’ need such protecevery move. Some of have abuse insurance. tions become the these “kids” are now breeding ground that fosters the activity. adults, and they are still being monitored. The nonprofit world has brought about It seems to me that in times of old, peogreat positive change and assistance to ple moved around much less. Because everypeople with critical needs. Abused and body knew everyone, your reputation stuck battered children, women, developmentally with you, and people knew who to watch disabled and seniors all can become victims out for. In today’s mobile society with peoof aggressive predators seeking to practice ple moving frequently, two parents working their warped trades. Even those organizaand life in general being more complicated, tions with a strict policy and diligence can much of the art of know who and what to be compromised by a crafty individual. look out for has been lost. Should a situation develop that requires a Scroll forward to today’s headline news, nonprofit to defend itself, the cost of doing and rarely a day goes by that there is not so can be debilitating. It can lead to the some news about sexual abuse, misconduct, nonprofit being forced to compromise its “sexting,” abductions and the like. mission to fight for its own survival. While empirical data points toward the Attorneys’ court fees and other legal world being safer than it may have been costs can mount quickly. They can finanin the past, the awareness level of sexual cially drain even some of the strongest organizations. Internal resources in terms of manpower, financial and operations can be exhausted to the point where continuing the mission of the nonprofit is in jeopardy. A key answer to protecting the organization’s viability for the long term is the purchase of the proper insurance. Coverage for abuse is readily available in the marketplace but should be evaluated carefully because not all coverage forms are alike. Be sure that the policy you select provides for: • Both sexual and physical abuse; • Has adequate limits both in terms of occurrence and aggregate; • Gas an aggregate limit that is at least twice the occurrence limit, if not three times; • Be sure excess coverage provides the same level of coverage as the primary policy; www.insurancejournal.com

• Be sure there are no gaps between limit a few situations is invaluable. What you layers; really need is a guide to take you through • If coverage is claims made, be sure to the maze of forms, limits, retention issues, maintain the retro date on all future policarriers, quality and reputation of claim cies, and do not let coverage lapse because handling. Doing this on your own is at a that will most likely produce a coverage minimum confusing and time-consuming. gap; and The old motto of “don’t risk a lot to save • Look to be certain a little” is a that the policy proone when An experienced, knowledgeable good vides for “client on buying critical agent can assist organizations in insurance that client” coverage. selecting the right coverage. Now that your has wrinkles attention is focused and complicaon the topic of abuse and there are possibly tions. concerns, you might ask, “how do I go about People have asked, “What does insurance selecting the right coverage?” This is where like this cost? Can I afford it?” the value of a really good insurance agent or The short answer is that coverage is not broker comes into play. as expensive as you might think, and in the An agent that has experience, knows event of a claim, it would look downright coverage, the markets and has been through cheap. The moral of the story becomes —

hire a professional to help, weigh the benefits against the drawbacks, and spend a few more dollars to get what you really need versus scrimping and finding out that there are inadequacies. Every organization that mentors, counsels, assists or provides services to youth, seniors or individuals with diminished capacities should have abuse insurance. The future well-being of your organization lies in your hands. Purchasing a quality insurance program is a responsibility that each organization must own-up to. Failure to do so just may be the undoing of all the efforts ever made to help those in need. Hedlund is program director for Care Providers Services, a division of NSM Insurance Group. Phone: 800-761-7072 x. 1310. Email: rhedlund@nsminc.com.

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Condominium Association Package Market Detail: Indemnity Excess and Surplus Agency Inc.’s (www. ies-xs.com) product is for condominium associations. This D&O liability product includes EPLI coverage for up to 10 employees for no additional cost. Coverage can also include general liability, umbrella, hires and non-owned auto, and crime in one policy. Features

Golf Courses Market Detail: Glencar Underwriting Managers Inc. (www. glencarum.com) coverage for golf courses includes: property; inland marine; general liability; package; business owners’ policies; automobile, excess liability/umbrella; fine art (personal lines and commercial lines); and workers’ compensation. Available limits: As needed Carrier: Glencar Underwriting Managers Inc. States: All states except Alaska and Hawaii Contact: Ray Siebert at 630-875-0723. Email: rsiebert@glencarum.com

Resort Hotel Program Market Detail: Distinguished Programs (www.distinguished. com) specializes in a liability insurance program for the resort hotel industry. Coverage includes: general liability; commercial auto; workers’ compensation; and garagekeepers legal liability coverage with first dollar, SIR and deductible options. Includes all major segments and needs of upscale hotels, luxury resorts, boutique hotels, full-service hotels, gaming hotels, select service hotels, all brands and independent non-franchise hotels, plus ownership groups or hotel management companies. Highlights include: broad and flexible coverage; crisis management; claim handling by resort industry specialist; and umbrella/excess options with limits up to $300 million. Available limits: As needed Carriers: Benchmark Insurance Co. States: All states Contact: Customer service at 888-355-4626 22 | INSURANCE JOURNAL-NATIONAL February 10, 2014

include: defense cost outside the limits of liability; full prior acts coverage; unlimited extended reporting for former directors and officers; punitive damages available; breach of contract (where available); duty to defend; full prior acts; and third-party sexual harassment and discrimination coverage. Available limits: Minimum $250,000, maximum $5 million Carrier: United States Liability Insurance Group States: All states except Alaska, Hawaii, and La. Contact: Jim Heisler at 800-487-2442 or e-mail: jimh@ies-xs.com

Triple Net Lease Insurance Market Detail: A.J. Wayne & Associates’ (www.ajwayne.com) coverage is for landlords with triple-net leases that allow the tenant to provide property insurance on the building, as well as pay for utilities and real taxes. The problem is no insurer wants to provide loss of rents coverage on a monoline basis. A.J. Wayne provides “lease enforcement” that reimburses the landlord for legal expenses in the event of a breach of the lease by the tenant. Available limits: As needed Carrier: Unable to disclose States: All states Contact: Al Wayne at 773-305-7680. Email alwayne@ajwayne.com www.insurancejournal.com

CLOSER LOOK

Nonprofits/Social Services Board Director & Officer Risks in Serving a Nonprofit

ccording to a recent Towers Watson Directors & Officers (D&O) Liability Survey, 63 percent of nonprofit organizations reported a D&O claim in the past 10 years. Neglecting to prepare for such claims can lead to financial trouble for an organization and its leadership. Independent agents By John Trefry can help educate nonprofits on these important risks. Nonprofit leaders juggle enormous and varied responsibilities each day — including managing tight budgets, engaging volunteers and contributors, and serving those in need. Individuals often find themselves on nonprofit boards or in executive posi-

tions at these organizations driven by the passion they have for supporting vital community issues, but forget that it is equally as important to first carefully review the “business” of the organization. Because so many nonprofits are singularly focused on their particular cause, organizations often neglect to identify and protect against risks that may leave the nonprofit — and its board members and officers — exposed. One significant risk nonprofits often overlook involves financially exposing board members and officers. Many continued on page 28

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February 10, 2014 INSURANCE JOURNAL-NATIONAL | 23

SPOTLIGHT

Errors & Omissions E&O Insights: How Well Do You Know Your Own E&O Policy?

s many agents know, there are various standards to which they will be held in the event of litigation. There are also standards to which customers will be held. One of those standards involves a duty the customer has to read his or her policy. Yet what if the agent is technically the customer? Does this mean that an insurance agent has a duty and By Curtis M. Pearsall responsibility to read his or her own policy? Yes! When is the last time that you read your own Agents’ E&O policy? Unfortunately, a common response may be “never.” As an insurance agent, it is critical for you to understand your E&O policy — including what it does and doesn’t cover. It also includes key topics such as definitions and professional services covered, plus a host of other issues. If it has been a while since you read your policy, read it from front to back and everywhere in between. Do that today! If you have recently moved your E&O coverage, are you confident that your “new”

24 | INSURANCE JOURNAL-NATIONAL February 10, 2014

sions, so it is crucial to review them to form is superior to the prior one? It is often determine to what degree those exclusions stated that no two E&O policies are the are of concern for your agency. Just because same. Without reading the policy, how comone policy has 20 exclusions and another fortable are you that your policy provides only has five does not necessarily mean one the coverage you think it does? policy is better than the other. In fact, many “Claims made” vs. “claims made would prefer the policy with 20 exclusions and reported.” Not all Agents’ E&O because that carrier is making it very clear policies are “claims made” forms. Some are what it intends to cover. “claims made and reported” forms. In a It is also vital that agents understand any “claims made and reported” form, the agenother issues or conditions contained in the cy must report a claim within the policy policy. For example, are there any ramifiterm or within a specified short period cations if a staff member “admits liability” following the expiration date, usually 30 to a customer? days or less. If an These are the agent receives a claim The decisions regarding E&O types of issues and tries to report it policies are among the most during a subsequent important decisions agents will agents need to understand so policy term, he or she make during the year. the staff can be could find himself or counseled accordingly. herself without coverage. Know your limits and how they work. Who and what is covered? Read and Typically, agents only have one time a year understand what your E&O policy covers to modify their limits — and that’s at covand what is doesn’t. One key area to review erage renewal. What is the “right” limit for is the professional services that are covered. your agency? There is no magical formula. It Is everything that your agency does includis important, too, for agents to realize that ed on that list? If not, it would be approthe size of the agency is not a determinant priate to check with your carrier/broker/ of the potential size of an E&O claim. Big agents’ association, etc., to see about getting agencies can generate big E&O claims. your “activity” covered. Small agencies can generate big E&O In addition, every E&O policy has excluclaims. Many E&O carriers have noted that heavy commercial lines agencies — those whose business is made up of 70 percent or greater commercial lines business — tend to have their share of big E&O claims. In the world of E&O, limits are provided on a per-claim and aggregate basis, so don’t hesitate to ask the underwriter for options. The premium difference between a 2/2 set of limits and a 2/6 may be much less than you think. It is actually best to secure an aggregate limit that is a multiple of the perclaim limit. Understand how the deductible works. Are you only required to pay the deductible if your agency is determined to be liable — or are you responsible for defense costs on claims even where your agency is absolved www.insurancejournal.com

What are the extended reporting period of any wrongdoing? Not sure? Contact your or “tail” options? What are the criteria to be carrier to find out now. Don’t wait for an eligible for this coverage? If you are looking E&O claim to occur. to sell your agency or find yourself getting What if your policy is written with a canceled or non-renewed, this provision in self-insured retention (SIR)? Are you conthe E&O policy will take on an increased fident how this applies in the event of a level of importance. claim? If not, ask. The extended reporting Who is insured under Agents can talk with period (ERP), also known your policy? Do you have their trade association some staff members or E&O carrier to better as a “tail,” provides an additional period after that are not covered? understand coverage. the expiration of the Have you ever “hired” policy for which valid claims will continue a temporary staff member to fill in while to be accepted, provided the wrongful act one of your regular staff members was out? occurred before the end of the policy periWhat about high school or college kids you od. While virtually all claims-made policies hire for the summer — are they covered? contain this provision, this does not mean Is “spousal” coverage included? Read the there is consistency among carriers as to definition of “who is an insured” to ensure the available options. Some policies may that all present and former employees are only allow options of one, two or three covered.

years. Other carriers may provide up to 10 years or even an unlimited period. This is an issue commonly overlooked by agents. E&O is serious business. In many respects, the decisions you make regarding your E&O — carrier, limit, deductible, etc. — are among the most important decisions you will make during the year. These decisions can only be made before the claim. Work with your agents’ association or E&O carrier to ensure you understand your coverage. What you find out may determine how well you sleep at night. Pearsall is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@pearsall associates.com. Blog: www.agentseotips.com.

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February 10, 2014 INSURANCE JOURNAL-NATIONAL | 25

IDEA EXCHANGE

The Competitive Advantage Why Agencies Need to Pay More Attention to Insurer Insolvency

ent, not the agent. cases, writing One issue with which many agents are with a company mistaken is how their E&O policy treats rated an A- might insolvencies. Many agency owners, producnot qualify, and ers and CSRs think that all E&O policies rarely does writing have the same insolvency clause. The insolwith a “B” versus a vency clauses vary significantly from one “B+” qualify using carrier to another. the A.M. Best rat In particular, understand insurance ing scale. company rating requirements. The rating Size requirements are common, too. requirements are often specific to who the So not only might a carrier have a B+ ratrating company must they may also have Many agents are misin- ing, be and the specific to be a size XIII, too. formed about how their Organizational requirerating scale used. Furthermore, the ratE&O policy treats insurer ments may be a requireing is usually specific ment. For example, some insolvencies. down to the plus or governmental entities minus. Too many producers, CSRs and even without ratings may qualify under some agency owners think any “A” or any “B” qualpolicies. ifies, and this is rarely accurate. In some Also understand whether coverage exists for insolvencies. Most of the time it does, but so not take this coverage for granted with all policies. A second very significant issue is that whether or not coverage exists, agencies still have strict responsibilities to notify insureds regarding financial stability, admitted status, how client size affects qualification for the guaranty fund, and lack of carrier ratings. Agents are assuming that if they have coverage under their E&O policy, they do not have to notify clients of these issues. The two really have no connection. The courts are clear on this. In the landmark case Texas case of Higginbotham from 1987 (Higginbotham & Associates Inc. v. Greer, Tex. App. 1987), many agents read what they want to read in the judgment. They read only that agents are not liable for discerning the financial stability of the carrier if the carrier is solvent at the time the policy is procured. However, the case also stated that if the agent knew or should have known the insurer was not a W. R. Berkley Company

myth is sneaking into the industry that insurer insolvency is not as important today. Belief in this myth is important to many entities. A number of companies, agencies and other firms benefit if less attention is paid to insolvency issues. Insurer insolvency is important and barring By Chris Burand complete statutory and case law reversals, will always remain paramount, particularly from an E&O perspective. Because insurance is primarily state regulated, agencies need to know their state-specific law. Each agency would be well-served to study this issue relative to every state in which they do business, rather than the state in which they reside. Insolvency issues generally follow the cli-

1 26 |RIVERPT001.indd INSURANCE JOURNAL-NATIONAL February 10, 2014

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financially stable, they have a responsibility to advise the client appropriately. • The attorney for the IIABA of Wisconsin, Tim Fenner, wrote, “Under Wisconsin law, an insurance agent or broker has a duty to the prospective policyholder to exercise reasonable skill and ordinary diligence in selecting the carrier in question and in ascertaining that the carrier is of good credit and standing.” • The Michigan Association of Insurance Agencies wrote in 2003: “When an agency learns that a company’s rating has dropped or it is involved in some regulatory action because of a financial problem, the clients placed with the company should be advised.” • “Brokers court trouble by placing coverage with insurance companies that A.M. Best or Standard & Poor’s considers vulnerable and, on the other side of the coin, somewhat insulate themselves against liability by placing coverage with insurers that such rating companies deem to be secure.” Wyrick v. Hartfield, 654 N.E.2d 913, 915-16 (Ind. Ct. App. 1995). • “A few courts hold that brokers have a duty to investigate insurers’ financial condition before placing coverage with them. Even these courts, however, recognize that a broker’s duty is only to refrain from placing coverage with an insurer that she knows or reasonably should know to be financially unsound. In jurisdictions that impose a duty to investigate, or that occasionally view the existence of such a duty as a fact issue, a broker’s duty apparently requires him only to check an insurer’s A.M. Best or Standard & Poor’s rating, or to check the insurer’s status with state regulatory bodies.” From Tort Trial & Insurance Practice Law Journal, Fall 2004 (40:1) Insurance Agent & Broker Liability. Notice these cases cite not only A.M. Best but Standard & Poor’s, too. This is important because more than one insurance company is rated at less than investment quality by Standard & Poor’s, but almost no insurance agency checks the S&P ratings. Agents are being told that if the carrier is admitted, they need not worry about the www.insurancejournal.com

cates financial instability or not is beside carrier’s poor rating or lack of a rating. This the point relative to agency exposures. is poppycock. The case law is clear. None of Without a rating, the agent has no third-parthese rulings create this exception. ty verification of the financial stability, and Another important point is the guaranty therefore owes its clients notice. fund is still not a cure-all. State guaranty I am not going to argue with those who funds typically have limitations by client state ratings are too difficult to get, that size. For example, if a client has more ratings are too expensive to acquire, or that than $X in assets, they do not qualify for ratings are not that the guaranty fund. Some of these limits Agents are being told by some important or do are low. Agents highly positioned people that not prove anything. points may need to know these if the carrier is admitted, they Those or may not be corlimitations. rect. The case law, Even if the guar- needn’t worry about ratings. though, is strong anty fund provides This is poppycock. that agents must coverage, these notify insureds if the carrier’s financial stafunds do not always pay claims immedibility, judged by their ratings or lack thereately. Unless you are 100 percent sure the of, is a question. Notification is required state’s guaranty fund can pay all the claims regardless of the guaranty fund or admitted resulting from a large catastrophe, can you status. really promise clients they do not need to Don’t buy into these myths promulgated be concerned about the guaranty fund payby self-interests. Protect yourself, your agening them fully and quickly? cy, your employees and your insureds. A final point is that some carriers are talking agents into thinking the lack of a rating is not important. In some states, Burand is the founder and owner of Burand & some of the largest health carriers have no Associates LLC based in Pueblo, Colo. Phone: 719ratings. Whether the lack of a rating indi485-3868. Email: chris@burand-associates.com.

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CLOSER LOOK

Nonprofits/Social Services continued from page 23 do not realize that these individuals can be held financially responsible for actions taken by, or against, the nonprofit organization, employees and other board members. If a nonprofit becomes the target of a lawsuit and faces high legal bills and other financial burdens, board members could be responsible for footing the bill with their

personal finances. Individuals considering joining a nonprofit board should check if the organization has secured risk management solutions and are properly protecting their leaders’ finances and reputations. For example, one nonprofit has hosted a popular concert series for more than 30 years, which raises more than $500,000 each

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year for the organization’s programs. After ending a relationship with a vendor that supported the concert series, the nonprofit was unexpectedly sued. Due to proactive risk management planning, the organization was prepared for and protected against the lawsuit. With the right D&O insurance coverage, the organization ensured that the $500,000 raised through the concert series was dedicated to enriching visitors’ experience rather than paying legal fees. Before joining a nonprofit board or accepting a role as an officer for an organization, it is important to ask questions and examine the business structure of the non-profit. Some questions include: • What risk management practices does the organization have to prevent or minimize exposure to litigation? • What types/amount of insurance protection does the nonprofit have in the event of a lawsuit or other legal obligation? • Who sits on the organization’s board of directors or table of advisors to provide guidance in good times and bad? • What processes are used to identify quality organizational leaders, reliable employees, volunteers and benefactors of programs? • What role does operations play in the organization’s overall strategy, risk assessment or business planning? While many of these questions can be addressed by the organization’s leadership, consulting the nonprofit’s advisors can provide additional insight. Insurance agents can address most risk-related questions, including whether the organization has adequate insurance to cover unexpected defense costs and address settlements and judgments arising from lawsuits. Addressing these exposures allows nonprofit directors and officers to serve with confidence, allowing them to put their full time and effort into supporting the cause without fear of personal financial risk. Trefry is vice president and directors and officers liability product manager for Travelers Bond & Financial Products.

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ALL OF YOU! Congrats to the Winners of the 2013 Recall & Readership Study! Third-party research firm Signet Research, Inc. has conducted a study on behalf of Insurance Journal magazine, measuring the memorability of all full- and half-page print ads in the November 4, 2013 issue. The top-scoring ads were by Applied Underwriters, Philadelphia Insurance Companies, Texas Mutual Insurance Company, Tejas American General Agency, and Monarch E&S Insurance Services.

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Closing Quote

NAIC’s First Step Toward Openness, Transparency

A By Charles Chamness

s an advocate for a reformed system of state insurance regulation, the National Association of Mutual Insurance Companies (NAMIC) recognizes the key role played by the National Association of Insurance Commissioners (NAIC). Due to the significance of that role, NAMIC believes it is imperative for the NAIC to conduct its business openly, and has therefore repeatedly urged the regulators’ organization to operate in a more transparent fashion. So we commend Louisiana Insurance Commissioner Jim Donelon, Missouri Commissioner John Huff, and others for their leadership in proposing changes to the NAIC’s Policy Statement on Open Meetings that were introduced during the group’s national meeting last fall. We share with the commissioners a strong belief that by adopting a meaningful and effective open meetings policy, the NAIC will engender much-needed confidence among regulated businesses and other policymakers. While NAMIC commends the NAIC for taking up this matter, we believe the policy statement could be improved further and have submitted detailed recommendations to the NAIC for consideration. On the positive side, the elimination of the blanket grant of

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discretion to chairpersons of committees, subcommittees, task forces and working groups to close a meeting or hold a closed meeting represents a significant improvement to the policy statement. But the caveat that the policy does not apply to “roundtable discussions, zone meetings, commissioners’ conferences and other like meetings of the members” undermines the intent of openness and transparency. The open-ended list of excluded meetings contains myriad sessions in which NAIC policy is discussed and developed, and there is no reason why the policy should not apply to all of them absent a credible justification for an exception. We also continue to have strong concerns over the potential exemption of “consultations with NAIC staff members … related to NAIC technical guidance … Annual and Quarterly Statement Blanks and Instruction, the Accounting Practices and Procedures Manual, and similar materials.” While such an exemption to the policy may at first glance seem to be an improvement for not applying to any situation involving consultation with NAIC staff (which could include any and all NAIC activities), we believe that the additional language refers to instances in which open sessions should certainly be required. Because certain NAIC actions affect the substance of state law directly, and the bulk of those ‘NAMIC substantive changes are found in the annual statement and the believes it is various manuals, we believe that imperative discussions involving technical for the NAIC guidance would benefit from to conduct industry involvement. its business Finally, for the policy to be as effective as it needs to be, it openly.’ should be explicit in how the NAIC would deal with noncompliance of any of its provisions. Although the policy statement as revised provides narrower discretion to hold closed meetings, we believe it is still advisable to develop a means of redress for potential abuse of the discretion it provides. NAMIC appreciates that the proposed changes reflect an earnest effort on the part of the NAIC to make the policy statement on open meetings more effective in the pursuit of much-needed transparency. It represents a meaningful first step in the right direction, and we urge regulators to go further to engender a level of stakeholder confidence that befits the NAIC’s role in the regulation of insurance. Chamness is president and CEO of the National Association of Mutual Insurance Companies.

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