Insurance Journal West 2014-09-08 by Insurance Journal

WEST Insureds Rarely Have Home Inventories Widespread Damage from Napa Jolt California’s ‘Informal Economy’

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Inside This Issue

On The Cover

Special Report: High on Marijuana Insurance

September 8, 2014 • Vol. 92 No. 17 • West

W16

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WEST COVERAGE

IDEA EXCHANGE

10 U.S. Loses Bid to Dismiss $25B Lawsuit Over AIG Bailout

W2 Insureds Rarely Have Home Inventories Despite Benefits, Say Claims Pros

44 Engaging Tomorrow’s Workforce, Today

10 A.M. Best Downgrades Tower Group Again 12 Employment Growth Leads to Workers’ Comp Benefit, Cost Uptick 18 Spotlight: The Impact of Prior Work Exclusions and Sunset Provisions in CGL Policies 22 Special Report: State of the Market for Surplus Lines 26 Spotlight: Managing Disasters from an E&O Perspective 28 Closer Look: Near National P/C Insurers Revealed 33 Spotlight: Lloyd’s Syndicates & Coverholders

W6 Settlements Against Uninsured New Mexico Rail Service Reach Nearly $8M W10 Hawaii’s Post-Storm Disaster Request Denied by FEMA W12 Report: 1-in-6 Construction Workers in California Part of ‘Informal Economy’

48 The Competitive Advantage: Chris Burand 52 Insurance Experts: Does It Really Take One to Know One? 62 Closing Quote: Take Time to Minimize Your Exposure to E&O Claims

W16 Widespread Damage from Napa Jolt W18 U.S. Retailers Warned About Hacking Software

DEPARTMENTS W8 People 11 Declarations 11 Figures 14 Business Moves 56 MyNewMarkets

38 Special Report: High on Marijuana Insurance

6 | INSURANCE JOURNAL-WEST September 8, 2014

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Opening Note Young Male vs. Young Female

hen it comes to car crashes there’s a link to one’s gender — at least if you’re young. Gender is often related to what type of severe or fatal crash a young male or young female driver will be involved in, according to a new study by Kansas State University. The study found that young female drivers have more crashes at intersections and collisions with pedestrians than do young male drivers, who have more off-road and nighttime accidents than young female drivers. The university’s Sunanda Dissanayake, professor of civil engineering, and Niranga Amarasingha, doctoral student in civil engineering, looked at the gender differences and similarities of young drivers involved in all motor vehicle crashes in Kansas across five years. Their findings may help reduce the number and severity of these crashes by improving educational material used in young driver education courses. “Age is one of the most important factors of highway safety, and crash data shows that young drivers and older drivers are involved in more crashes than any other age group,” Dissanayake said. Researchers found several differences in the types ‘Age is one of the most of crashes between young important factors of highway men and women, includsafety.’ ing: • Young females are 66 percent more likely to wear a seat belt than young males. • Young females are 28 percent more likely to drive on a restricted license than young males. • Young female drivers have more crashes at intersections and collisions with pedestrians. • Young males have more crashes after sunset than young females. • Young female drivers are more likely to be involved in crashes during weekdays, while young male drivers are more likely to be involved in crashes during the weekend. • Young male drivers have more off-road crashes than young females. “These findings show that gender differences do exist in young drivers when it comes to safety,” Dissanayake said. Dissanayake and Amarasingha recently published their study, “Gender differences of young drivers on injury severity outcome of highway crashes,” in the Journal of Safety Research. It is part of a larger Kansas Department of Transportation, or KDOT, study about improving highway safety of young drivers. The researchers analyzed data collected and included in the state transportation department’s crash database, which contains more than 150 variables about all police-reported motor vehicle crashes in Kansas. They looked at data from 2007-2011 — the most recent years available at the beginning of the study — for Andrea Wells Editor-in-Chief accidents involving drivers 16-24 years old. 8 | INSURANCE JOURNAL-NATIONAL September 8, 2014

Publisher Mark Wells | mwells@wellsmedia.com 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 Contributing Writers David Coons, Andrew Forstenzer, Dwight Kealy, Steven Plitt 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 DESIGN/WEB V.P. of Design Guy Boccia | gboccia@insurancejournal.com V.P of Technology Joshua Carlson | jcarlson@insurancejournal.com Audience Development Elizabeth Duffy | eduffy@wellsmedia.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 Online Training Coordinator Barbara Whiffen | bwhiffen@ijacademy.com ADMINISTRATION Chief Executive Officer Mitch Dunford Chief Financial Officer Mark Wooster | mwooster@wellsmedia.com

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News & Markets U.S. Loses Bid to Dismiss $25B Lawsuit Over AIG Bailout By Jonathan Stempel

federal judge has rejected the United States’ bid to dismiss a more than $25 billion lawsuit filed by Maurice “Hank” Greenberg, the former chief executive of American International Group Inc., over the insurer’s government bailout, clearing the way for a Sept. 29 trial. Judge Thomas Wheeler of the U.S. Court of Federal Claims said the case brought by Greenberg’s Starr International Co. on behalf of itself and other AIG shareholders involves “complex financial and economic issues” that deserve analysis and testimony from qualified expert witnesses. “The complexity of the submissions and the factual disagreements strongly point to the need for a trial,” Wheeler wrote in an order dated Aug. 22. A trial is expected to last six weeks. A U.S. Department of Justice spokeswoman declined to comment. “The decision speaks for itself,” David

Boies, a lawyer for Starr and Greenberg, said in a statement. Starr had been AIG’s largest shareholder, with a 12 percent stake, before the government rescued the New York-based insurer on Sept. 16, 2008, from skyrocketing losses. The government took an initial 79.9 percent stake in AIG and conducted a reverse stock split, diluting existing shareholders. Starr sued in 2011, contending that the $182.3 billion bailout was an illegal taking that violated its due process rights under the Fifth Amendment of the U.S. Constitution. Greenberg’s company had separately sued the Federal Reserve Bank of New York over its role, accusing it of engineering a “backdoor” bailout for Wall Street banks exposed to AIG. But the 2nd U.S. Circuit Court of Appeals in January said the New York Fed had

authority to act in “unusual and exigent circumstances,” including “to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times.” AIG finished repaying the bailout in December 2012, leaving taxpayers with a nearly $23 billion profit. Greenberg, 89, led AIG for nearly four decades before his 2005 ouster. The Court of Federal Claims sits in Washington, D.C., and handles lawsuits seeking money from the government. The case is Starr International Co v. U.S. Copyright 2014 Reuters.

A.M. Best Downgrades Tower Group Again

ower Group International must deal with more ratings downgrades from A.M. Best, spurred by its soaring net losses and uncertainty over whether it can carry its debts through an intended merger with ACP Re. A.M. Best said its revised ratings takes

into consideration the Bermuda insurer and reinsurer’s recent regulatory filing that disclosed nearly $106 million in net losses over the first six months of 2014, plus shareholder’s equity of negative $11 million. The rating downgrades also “reflect the heightened uncertainty around [Tower Group’s] ability to repay its senior debt holders in the event that its pending merger with ACP RE … does not occur on or before Sept. 15, 2014,” A.M. Best said. The rating agency downgraded the financial strength ratings to C (Weak) from C++ (Marginal), and issuer credit ratings to ccc, from b, of the pooled and reinsured members of the Tower US Pool and Tower’s CastlePoint Reinsurance Co., Ltd. At the same time, A.M. Best has downgraded the issuer credit ratings to c from cc, and the debt rating on $150 million of senior unsecured convertible notes due

10 | INSURANCE JOURNAL-NATIONAL September 8, 2014

Sept. 14 for holding company Tower Group Inc. The issuer credit rating for parent Tower Group International faced a similar downgrade. Additionally, A.M. Best said it remains concerned that Tower Group continues to delay reporting its quarterly SEC filings, and questioned “its ability to operate as a going concern.” As of May, A.M. Best had already downgraded Tower’s financial strength ratings for the third time, driven by concerns over its financial liquidity and the worry that it is financially overextended. There’s also Tower’s merger agreement with ACP Re, first announced in January and amended during the year. A.M. Best said the merger is anticipated to close in September 2014, but could be delayed as late as Nov. 15, 2014, which is when the merger agreement would be terminated if it does not happen by then. www.insurancejournal.com

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News & Markets Insureds Rarely Have Home Inventories Despite Benefits, Say Claims Pros By Denise Johnson

espite big storms and wildfires highlighting the need, home inventories are rare, say insurance industry experts. A recent Allstate Insurance survey of Atlanta homeowners found that while than more than 90 percent of homeowners are concerned about protecting their homes, only 41 percent had ever documented or valued their contents. According to Jay Straughan, Enservio’s vice president of claims, almost none of the insureds he encounters have property inventory lists. “It’s very, very rare. In fact, I’m not aware of a claim where a policyholder was able to say, ‘Here’s my pre-loss list, and I’ve checked off the items that were burned up in the fire or that were stolen.’ I’m not aware of a single time where that’s happened,” Straughan said. In addition to making it harder to tackle a loss once it has taken place, not having a property inventory can cause a delay in claim resolution. According to a survey by The Hanover Insurance Group, homeowners receive claim payments faster when they have a home inventory. An Insurance Journal magazine poll, sponsored by the Mass.-based inventory, the value-driving descriptors are insurer, found that nearly 80 percent of lacking, Straughan said. insurance professionals believe homeown “For example, they may say table, or they ers’ insurance claims are processed 50-100 may say chair or they may say desk. For a percent faster when customers have comhigh net worth insured, a desk could be pleted a home inventory in advance. $150 or it could be $150,000, “This survey says ‘This survey says loud depending on what kind of loud and clear that there’s a real value in and clear that there’s a desk it is,” said Straughan. taking the upfront real value in taking the “Is it a museum quality antique, or is it a small time to create a home upfront time to create school sized desk like a inventory,” said Mark a home inventory.’ child might use in classroom Welzenbach, chief or is it a roll top desk. claims officer at The According to the Enservio VP, the value Hanover. drivers in furniture are: Survey respondents said there were • The brand two keys to a good home inventory: item • The materials descriptions and proof of ownership. • The age Even when an insured creates a property W2 | INSURANCE JOURNAL-WEST September 8, 2014

• The condition “If we know those things, then, we can get a real accurate evaluation,” Straughan said. “If we don’t know those things, especially along with some dimensions … you can go pretty far off field in the possible matches to a generic description.” He said that high net worth insureds tend to have more attentive insurers because those risks tend to be large risks. As a result, there is more rigorous underwriting completed. “Sometimes their underwriting people will have visited the home and created a report with the footprint of the property and different notations about loss mitigation, practices that they could institute,” continued on page W14 www.insurancejournal.com

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News & Markets Utah City Argues It’s Not at Fault for Landslide

Utah city says it’s not to blame for a landslide that crushed a home in early August and forced evacuations in a mountainside community. No one was injured when the hillside tumbled on Aug. 5 in a subdivision about 10 miles north of Salt Lake City. North Salt Lake officials approved the sloping development after outside consultants in two separate studies deemed the area safe for homes, according to a statement on the city website. It is unclear which officials drafted the statement. City Manager Barry Edwards, when asked, would not identify the officials to The Associated Press but said the city council had approved it. The notice says officials could not have halted the collapse. “The City does not believe it is responsible,” the statement reads, for the “catastrophic” event. Neighbors disagree, saying in recent weeks that they warned the city of cracks in the slope earlier this summer, and the

city was too slow to fix it. Crews began work on the slope the day before the hillside tumbled after first razing the area about a year beforehand. Although the officials are refusing responsibility, they’re rethinking the permit process, Edwards said. Previously, North Salt Lake officials have approved such proposed new neighborhoods, even when they worried about the potential for landslides or other hazards in the communities, Edwards said. They deferred, he said, to the outside engineering firms.

New Mexico Traffic Deaths Up 20% This Year

government report shows that traffic deaths in New Mexico have increased about 20 percent this year. According to preliminary figures from the Department of Transportation, 204 people have died in traffic accidents from January through July. That’s up from 170 fatalities during the first seven months of last year, but down from 224 in 2012. The department said law enforcement agencies have launched a Labor Day holiday weekend crackdown that will target drunken drivers. State, local and tribal police plan checkpoints and saturation patrols through Sept. 1. W4 | INSURANCE JOURNAL-WEST September 8, 2014

Under Utah law, cities aren’t liable for such damages. Once a contractor or developer gets the license, their own builders or contractors assume liability, Utah attorney Jack Helgesen said. When the 400-foot landslide hit at about dawn Aug. 5, eight people scrambled to safety before gravel collapsed the walls and ripped the roof from their house, said family member David Utrilla, who did not live in the home. The household of extended family members included his parents, siblings, in-laws, nieces and nephews. Copyright 2014 Associated Press.

Hot Weather Takes Toll On Washington Wheat Crop

oo much heat and too little rain this summer are taking a toll on the winter wheat crop in Eastern Washington. Joel Zwainz in late August estimated that his family’s 3,400-acre farm near Reardan will produce 30 to 50 percent less wheat than it did last year. It’s being reported that farmers estimate this year’s crop is down an average of about 30 percent from last year’s yield and slightly below the 10-year average. In addition, the summer’s extreme heat and drought has rendered the crop potentially less tasty to foreign customers who make up as much as 90 percent of the market for Washington wheat. Copyright 2014 Associated Press.

Of this year’s traffic deaths, 86 were in accidents involving alcohol. That compares with 82 fatalities in alcohol-involved crashes during the first seven months of 2013, and 102 in 2012. Copyright 2014 Associated Press. www.insurancejournal.com

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News & Markets Settlements Against Uninsured New Mexico Rail Service Reach Nearly $8M

ew Mexico’s commuter rail service has received a free ride while taxpayers have shelled out nearly $8 million to settle damage claims against the Rail Runner

Express, according to state records. The Rail Runner, until July, didn’t pay premiums for the state’s self-insurance program that provides liability coverage for

settlements of lawsuits against government agencies. The insurance arrangement represented a little-known subsidy for the stateowned passenger train. The taxpayer-financed liability fund has covered about $7.7 million in settlements involving the Rail Runner, including $4.2 million for wrongful death claims for cartrain accidents in Valencia County that killed three people in 2007, according to General Services Department records.

Gov. Susana Martinez’s administration started assessing an annual insurance premium on the Rail Runner in the budget year that began last month. The Rail Runner will pay $2 million to cover liability claims up to $3 million. The Rail Runner buys insurance in the private market for claims over that amount. State agencies typically pay for coverage based on their history of liability losses. But that didn’t happen for Rail Runner when it started in 2006 during former Gov. Bill Richardson’s administration. Because the Rail Runner paid nothing into the insurance fund, the rates for other state agencies ended up being higher, according to Risk Management Director A.J. Forte. He estimates there were uncollected Rail Runner premiums of about $5 million during the past three years. Rail Runner won’t be required to retroactively pay any premiums, but will be charged going forward starting with this budget year. The insurance is for claims such as when the train hits livestock, if a rider is injured and for fatalities. Copyright 2014 Associated Press. ABRAM16730.indd 1

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People Arnold Chatterton

Brian Macy

Wendy Schermerhorn

Kathleen Creedon

Kristina Murphy

Capital Insurance Group, a regional property/ casualty insurer serving the Western U.S., has named L. Arnold Chatterton as president and CEO. The decision by the board of directors and the appointment follows Peter Cazzolla’s announcement that he would be retiring his leadership role after a 21-year tenure with the company. As part of succession program Cazzolla will stay on in an advisory role. During his 30 years in P/C insurance, Chatterton has held frontline agency and underwriting positions, as well as management and senior officer assignments with a Western regional and international insurance company. CIG manages personal, business and agriculture risks underwritten by its affiliate companies: California Capital Insurance Co.; Eagle West Insurance Co.; Nevada Capital Insurance Co.; and Monterey Insurance Co. Brian Macy, Brett Fellows and Wendy Schermerhorn have joined Leavitt Great West Insurance Services in Billings, Mont. Macy will focus on commercial insurance for the oil, gas and hospitality industries. Fellows is an employee benefits advisor specializing in risk management and employee healthcare benefit solutions. Schermerhorn will focus on Medicare products along with exchange and life insurance. Macy has nearly 20 years of experience specializing in commercial insurance for the oil, gas and hospitality industries. Fellows has 20 years of experience in the medical industry, including serving as a sales executive, district sales manager, hospital sales specialist and business owner. Schermerhorn’s first full-time job was in insurance, but she and her husband have also owned an auto body shop and car lot, and currently own Midwest Leather, a motorcycle gear shop. Leavitt Great West Insurance Services, a Leavitt Group agency, was formed when Taylor-Leavitt Insurance Agency, Northern Montana Insurance Services and Mountain West Benefits merged in 2014. Merriwether and Williams Insurance Services in California named Kathleen Creedon director of risk management services. Creedon will focus on the development of Merriwether’s risk management services, including consulting, construction wrap-up services, safety and loss control, and contractual risk management. Creedon has more than 25 years of industry experience. Prior to Merriwether, she was manager of risk consulting solutions with Bickmore Risk Services. She

W8 | INSURANCE JOURNAL-WEST September 8, 2014

was previously the owner of her own wrap-up consulting services firm, Wrap Strategies, as well as vice president and program manager for Aon Risk Services. Merriwether is located in the San Francisco Bay Area, Los Angeles, San Diego and Sacramento. It specializes in providing commercial property/casualty brokerage services as well as a variety of surety and risk management services to California public agencies. Leavitt Great West Insurance Services has named Kristina Murphy as a commercial account manager in the Choteau, Mont., office. Her experience in the industry started with personal insurance, and she has worked in offices in Choteau, Cut Bank, Conrad and Great Falls. Leavitt Great West Insurance Services, a Leavitt Group agency, were formed when Taylor-Leavitt Insurance Agency, Northern Montana Insurance Services and Mountain West Benefits merged in 2014. San Francisco, Calif.-based Woodruff-Sawyer & Co. announced named Casey Soares a vice president and property specialist. Soares will partner with client and prospect teams while serving as an additional resource for market negotiations with insurance and reinsurance carriers. She will be responsible for internal and external communication on market intelligence. Prior to Woodruff-Sawyer, Soares was vice president in reinsurance treaty broking at Guy Carpenter & Co. She also led the Western region of GC’s largest specialty group, global property specialty. Woodruff-Sawyer has offices throughout California, in Portland, Ore. and in Denver, Colo. Tague Alliance has named John McLaren vice president of business development. Tague Alliance is an SIAA master agency, and McLaren’s focus is to expand growth of the SIAA and Tague Alliance brand in the Orange County and Inland Empire areas of Southern California. McLaren will continue in his role as president of McLaren & Associates, an independent insurance agency specializing in commercial insurance for more than 10 years. Prior to operating his independent agency McLaren served as a district manager for Farmers Insurance in Orange County. Tague Alliance has more than 90 independent member insurance agencies located throughout Southern California.

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News & Markets Hawaii’s Post-Storm Disaster Request Denied by FEMA By Jennifer Sinco Kelleher

he Federal Emergency Management Agency in late August denied Hawaii’s request for a major disaster declaration after Tropical Storm Iselle. Iselle made landfall over the Big Island’s isolated and rural Puna region earlier in the month, knocking down trees and power lines. FEMA denied the request because “it has been determined that the damage from this event was not of such severity and magnitude to go beyond the capabilities of the state, affected local governments and voluntary agencies,” the agency wrote to the state. Officials who toured the area about a week after the storm hit identified 28 homes with major damage and 11 that were

destroyed, FEMA spokesman Casey De Shong said. About 20 percent of those homes had insurance, he said. “The two factors combined … really don’t suggest the state of Hawaii was overwhelmed,” De Shong said. “It just didn’t constitute a declaration.” Approving Hawaii’s request would have provided residents with help for uninsured damage such as home-repair funds, low-interest loans and rental assistance. Hawaii County Mayor Billy Kenoi and Gov. Neil Abercrombie said the state and county were working together to gather information to appeal the decision. The

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state is still eligible for a declaration from the Small Business Administration, Kenoi and Abercrombie said in a joint statement. This would make low-interest loans for repairs available for individuals and businesses. The governor has 30 days to appeal. “Storm surge and wind-driven waves flooded homes and moved them off their foundations in Kapoho, Hawaii County,” Abercrombie wrote in his application to FEMA. “High winds downed hundreds of albizia trees, destroying and damaging hundreds of homes and causing extensive damage to the electrical infrastructure.” The storm “impacted the most impoverished district in the state,” he wrote, noting that 27.8 percent of residents live below the poverty rate. The state is disappointed, but it’s still possible FEMA will approve help with public infrastructure damage, said Shelly Kunishige, spokeswoman for State Civil Defense/Hawaii Emergency Management Agency. “It would be nice, but I think there are a lot of volunteer groups on the ground, a lot of grassroots efforts to help the affected people out,” Kunishige said, adding that the denial reinforces the need for the public to make donations to those groups. “It was clear to me during my visit in Puna that assistance is absolutely necessary,” U.S. Rep. Tulsi Gabbard, whose district includes the Big Island, said in a statement. “While this denial is a setback, it should not discourage us from seeking all other options for assisting our friends and neighbors in Puna.” The last time Hawaii received a FEMA major disaster declaration, Kunishige said, was for severe storms and high winds that caused extensive flooding on Oahu in December 2008. Copyright 2014 Associated Press. www.insurancejournal.com

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News & Markets Report: 1-in-6 Construction Workers in California Part of ‘Informal Economy’ By Don Jergler

report by the nonprofit research group Economic Roundtable released over the Labor Day holiday found that one-in-six construction workers in California fell into the state’s “informal economy,” costing the workers’ compensation market $264 million among other hits to the federal and state governments. This informal economy was comprised of 104,100 construction workers who were not reported by their employers and 39,800 who were misclassified as independent contractors in 2011, according to the report, titled “Sinking Underground: The Growing Informal Economy in California Construction.” Construction is a $152 billion industry in California, employing 895,000 workers. Informal employment in California construction has risen 400 percent since 1972, and the ranks of the informal swell with each economic recession, according to the report, which shows that after the most recent recession a larger share of workers have stayed in the informal sector because formal sector jobs have not been recov-

W12 | INSURANCE JOURNAL-WEST September 8, 2014

ered — four years after the end of the last recession the industry has recovered only 66 percent of the jobs lost in the formal sector. “Economic recessions increase the number of informally employed workers, as formal sector workers turn to the underground economy for jobs,” the report states. The Economic Roundtable estimates that the informal tax gap was more than $774 million in 2011. The federal government lost $301 million in taxes and California lost a total of $473 million, including $264 million for workers’ compensation, $146 million for state disability, and $63 million for state unemployment insurance, the report states. “It’s a very big hit,” said Yvonne Yen Liu, one of the report’s authors. She was referring to the workers’ comp loss, which also takes a human toll. When workers are paid cash or are paid off the books, those employer are not paying into public revenues like Social Security, Medicare, unemployment insurance and the government is not receiving taxes, she said. “And the uninsured workers, often times they don’t get adequate healthcare coverage,” she added.

The report cites as an example the case of Valentin Perez, who worked for drywall contractor Drywall Dynamics. Perez suffered a herniated disk injury on a job hanging drywall on a construction site. However the employer refused to submit a claim for Perez under its workers’ comp policy, Liu said. After several weeks of urging by Perez, the employer agreed to add him to its worker’s comp records, and then the employer misreported the date of the injury, she said. The California Department of Insurance later found the owner guilty of insurance fraud, and the owner was also found guilty of wage theft. Liu said there’s a need to make more of an effort to call out bad actors. “There’s a need to really publicize these bad, wrongdoers,” she said. “It’s not just a few bad apples, it’s systemic across the industry.” Construction workers like Perez who are informally employed also tend to earn less than those in the formal sector. For every dollar earned by a construction worker employed in California’s formal sector, an unreported worker makes 52-cents and a misclassified worker 62-cents, according to the report. The report’s recommendations include: collaborative efforts to enforce labor, tax, employment, license and payroll laws; seeking legislative or regulatory reforms; conducting media campaigns to expose violators; establishing a wage floor so informal workers are paid at the same level as those in the formal sector; and expanding policy initiatives that support “high-road” contractors that do not under report or misclassify workers. “A high-road labor index should be created based on the company’s labor practices and compliance with labor law,” the report states. “The rating system could be used by consumers and by public procurement agencies to select contractors who have sustainable employment practices.”

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News & Markets continued from page W2 he said. “For example, in a wildfire area they may be encouraging them to trim back some bushes or some kinds of growth that could promote the spread of wildfire.”

“We’ll go fairly methodically room by room with the policyholder through the home,” Straughan said. “‘OK, we’re going in the garage now. Do you park your car on the left side of the garage ‘We’ll go fairly methodically room by room or the right side of the with the policyholder through the home.’ garage? OK, on the left side. Let’s assume that we’re walking into the garage on the left Enservio has used the reports generatside. Your car is not there. What’s on the ed by high net worth insurers to assist in left wall of the garage? Let’s start at the reconstructing property lost in wildfires. entrance, and let’s work our way back, “We have seen a number of instances and let’s remember anything that during wildfire type situations where those might be hanging on the wall.’ reports have become very integral to the We’ll methodically go through claim investigation because we’re able to each room like that. It’s not access those reports, look at the photograph enough to say that I have a of the living room as we’re reconstructing chest of drawers, but, ‘OK. it. We can sit side by side with the policyHow many drawers were in holder and look at the images of the living there? When did you get it? room and we’re able to say, ‘OK. Had you What was in the drawers?’” added any new items? Was this the way According to Straughan, it was furnished at the time of the loss?’” shows like Antiques Straughan said. Roadshow sometimes make In reconstructing damaged or destroyed insureds think they have property, Enservio employees utilize policysomething of value when they do holder interviews, documentation, photos not. and create diagrams when blueprints aren’t “Sometimes, they are surprised to find available.

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out that the things that they lost in the fire or the things that were stolen from them really weren’t as valuable as they thought they were,” Straughan said. “Just because something is old doesn’t mean it’s valuable.” He said the toughest rooms to reconstruct are basements and attics because they are used for storage of rarely used items. Closets can be bad for that same reason. The change in seasons can complicate reconstruction too. Straughan said it is easy to forget about beach towels and umbrellas if it is snowing outside. According to the Allstate survey, many homeowners forget about home décor, rugs, bedding and bath towels when valuing their items. Listing a home’s contents can be tedious task but technology has helped, said Straughan. He explained that Enservio can conduct inventories with a two person team — one person on site with a headset and another in the office documenting the inventory in real time. “I can remember a particular instance where a person was in the field, in a child’s bedroom. They found a box with a bunch of vials in it, but it wasn’t real clear as to what that box was. There were no markings on the box. They described it to the person they were on the phone with. There was a number on the box. They were able to search the Internet for that number and it brought up a series of chemistry sets,” Straughan said. “We were able to identify with great specificity exactly which chemistry set it was and thereby get an accurate description, whereas the person that was on site wasn’t exactly sure what it was they were looking at without that technology.” Johnson is editor of Claims Journal magazine and claimsjournal.com, a member of the Wells Media Group of industry publications, where this article originally appeared. www.insurancejournal.com

From One Generation to the Next

MJ Hall Celebrates 40 Years Michael J. Hall started M.J. Hall & Company brokering aviation risks for Howard Hughes. With moxie, two employees, and an office dog, Michael grew M.J. Hall into one of the most dependable and experienced surplus lines brokerage firms in the United States. Rupert Hall, inspired and influenced by his father, continues the legacy of exceptional service. Today with offices in Alaska, California, and Nevada, M.J. Hall represents over 75 insurance carriers and offers products to cover the most typical to the most unique risks imaginable. Join us in 2014 as we celebrate 40 years of industry leadership and innovation!

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News & Markets Widespread Damage from Napa Jolt

he magnitude 6.1 earthquake that struck Northern California in the early hours of Aug. 24 may cause up to $4 billion in economic losses by some estimates — although most of that is believed to be uninsured losses.

It was the strongest earthquake to hit the San Francisco Bay area since the 1989 Loma Prieta earthquake, which registered a magnitude 6.9. The latest quake wreaked havoc with the famed, well-traveled downtown Napa

winery area and partially destroyed several structures and homes in and around the area. Photos by Amy O’Connor, Insurance Journal. The photo at the bottom right was taken by Eric Risberg of the Associated Press.

W16 | INSURANCE JOURNAL-WEST September 8, 2014

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News & Markets U.S. Retailers Warned About Hacking Software

ore than 1,000 U.S. retailers could be infected with malicious software lurking in their cash register computers, allowing hackers to steal customer financial data, the Homeland Security Department said recently. The government urged businesses of all sizes to scan their point-of-sale systems for software known as “Backoff,” discovered last October. It previously explained in detail how the software operates and how retailers could find and remove it. Earlier in August, United Parcel Service said it found infected computers in 51 stores. UPS said it was not aware of any fraud that resulted from the infection but said hackers may have taken customers’ names, addresses, email addresses and payment card information. The company apologized to customers and offered free identity protection and credit monitoring services to those who had shopped in those 51 stores. Backoff was discovered in October, but according to the Homeland Security Department the software wasn’t flagged by antivirus programs until this month. Jerome Segura, a senior security researcher at cybersecurity software firm Malware Bytes, said that the way that Backoff works

is not unique. The program gains access to companies’ computers by finding insufficiently protected remote access points and duping computer users to download malware, tricks that have long been in use and are often automated. What has changed, Segura said, is that the hackers deploying it have become increasingly sophisticated about identifying high-value computer systems after they’ve broken into them. “Once the bad guys realized they were able to penetrate larger networks, they saw the opportunity to develop malware that’s specifically for credit cards and can evade antivirus programs,” he said. By using Backoff selectively, rather than distributing it widely on the Internet, the hackers likely managed to escape detection for longer. Following Homeland Security’s warnings in July, however, companies are much better able to probe their own computers for Backoff. The battle between retailers and hackers is an ongoing one. Retail giant Target, based in Minneapolis, was targeted by hackers last year and disclosed in December that a

Hollywood Development Site Not Over Active Fault

state official says there is no active earthquake fault under the site of a proposed development in Hollywood. Geologist Stephen Testa said recently that there’s “a lot of strong evidence” that a fault is not present as indicated by the California Geological Survey’s proposed zoning map. Testa is executive officer of the State Mining and Geology Board. His conclusion supports previous testing W18 | INSURANCE JOURNAL-WEST September 8, 2014

by experts hired by the developer hoping to build a 16-story apartment complex at the former home of KFWB’s radio studio. Testa’s report now goes to state geologist John Parrish, who has final say over how the map is drawn. Parrish says the state geological survey was not given ample access to the developers’ trenches to make its own determination about a fault. Copyright 2014 Associated Press.

data breach compromised 40 million credit and debit card accounts between Nov. 27 and Dec. 15. On Jan. 10, it said hackers stole personal information — including names, phone numbers and email and mailing addresses — from as many as 70 million customers. Target, the third-largest retailer, has been overhauling its security department and systems in the wake of the pre-Christmas data breach, which hurt profits, sales and its reputation among shoppers worried about the security of their personal data. Target is now accelerating its $100 million plan to roll out chip-based credit card technology in all of its nearly 1,800 stores. So-called chip and pin technology would allow for more secure transactions than the magnetic strip cards that most Americans use now. The technology has already been adopted in Europe and elsewhere. Though improving card technology and updating malware detection will help retailers defend themselves, Segura said that the recent profusion of computer breaches should make companies think harder about how they use remote access systems for employees and vendors. By limiting what portions of their systems can be accessed remotely, he said, companies can limit the damage that hackers can do. “This past year and a half has been breach after breach,” he said. “It’s incredible.” Copyright 2014 Associated Press. www.insurancejournal.com

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FIGURES

$5 Million

40%

The approximate percentage of homes and commercial properties in the Detroit suburb of Dearborn, Mich., that were flooded or had sewer backups in their basements when heavy rain hit on Aug. 11. Officials said that more than 75 percent of the city’s roads were flooded and impassible. More than 85 cars were towed out of floodwaters.

DECLARATIONS Uh Oh, Yogi

“The new maps show how Yellowstone has had a relative increase in the hazard.”

How much the Los Angeles City Council voted in late August to pay to the family of an unarmed, disabled man who was killed by police in a shooting captured on live television. The council voted 12-2 in closed session to approve a settlement of a federal civil rights lawsuit filed over the Dec. 13 shooting of Brian Beaird.

The number of high-end bicycles that were stolen from garages in nearly 40 nighttime burglaries in Austin, Texas. The stolen bikes are worth between $350,000 and $400,000. Police say one suspect, whose image was captured on a homeowner’s surveillance camera, is responsible for multiple burglaries. Police are seeking the public’s help in finding the man.

Plan Destroyed

“I was told no hunting along the river. The deer scattered, and they were not in the rec area. The oil spill destroyed our basic plan.”

— Charles Blakeman Jr. of Bellevue, Mich., and his partner in Extreme Adventures are suing Canadian oil company Enbridge over a spill that dumped 800,000 gallons of crude into Talmadge Creek. They say the spill prevented them from guiding deer hunts in Fort Custer Recreation Area and want Enbridge to pay the thousands of dollars they lost.

$800 Million 115

— University of Utah geophysicist Bob Smith said a U.S. Geological Survey report indicates a slightly greater earthquake hazard in Greater Yellowstone than previously thought.

The amount that New York State will get as its share of a national $16.65 billion settlement with Bank of America over its role in the sale of mortgage-backed securities in the run-up to the financial crisis, according to New York Attorney General Eric Schneiderman’s Aug. 21 announcement.

Animal-Vehicle Accidents “VDOT is seeking innovative ways to meet the needs of motorists, increase safety and ... protect wildlife.”

— Virginia Department of Transportation (VDOT) Commissioner Charlie Kilpatrick on his agency’s effort to make roads safer for wildlife and motorists. VDOT is conducting a three-year study on animal travel patterns that is set to be completed in 2015. Officials say the study is a step forward in understanding how, when and where animals are crossing roads and how to adapt accordingly.

2.5% The percent decrease in Florida workers’ compensation insurance rates recommended for next year by the National Council on Compensation Insurance (NCCI). Florida’s Office of Insurance Regulation said it would be the first decrease in four years. NCCI said fewer claims and a lower amount of loss is responsible for the proposed rate decrease.

Preventative Measures

“While the declining number of auto thefts is encouraging, it certainly does not mean we can become lax when it comes to taking preventative measures.”

— Louisiana Insurance Commissioner Jim Donelon comments on data showing the number of auto thefts in Louisiana dropped from 9,113 vehicles stolen in 2011 to 7,881 vehicles stolen in 2012, a decrease of 13.5 percent.

Worth It

“It was different. Never been in a situation where I had to pay to get on the street and then pay to get in a bar, but it was all right. It was worth it.”

— Richard Carnell Allen II, an out-oftown visitor to Memphis’ Beale Street, on the cover charge he had to pay to get past a security checkpoint and onto the street famed for its nightclubs. Beale Street merchants recently started charging visitors to help pay for 23 extra security officers.

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September 8, 2014 INSURANCE JOURNAL-NATIONAL | 11

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News & Markets Employment Growth Leads to Workers’ Comp Benefit, Cost Uptick

data panel and Director orkers’ compensation benefits rose of the Regulatory Services by 1.3 percent to $61.9 billion in 2012, Division and the Center for while employer costs rose by 6.9 percent to Insurance Policy and Research $83.2 billion, according to a report released at the National Association of last month by the National Academy of Insurance Commissioners. Social Insurance (the Academy). Workers’ compensation was “This growth in workers’ compensation the first social insurance prospending reflects rising employment and gram in the United States. In earnings as the economic recovery contin2012, workers’ compensation ues,” said Marjorie Baldwin, chair of the coverage was 100 years old in 15 Academy’s Workers’ Compensation Data states. Workers’ compensation Panel and Professor of Economics in the W. provides medP. Carey School of Business Workers’ comp ical benefits, paid to the at Arizona State University. Despite the uptick in benefits and costs providers of health care for total benefits and costs in per $100 of covered injured workers, and cash paid to workers 2012, workers’ compensapayroll have been benefits, during periods of injury-retion benefits and costs per lower in 2007 to lated work absence. Over $100 of covered payroll have been lower in 2007 to 2012 2012 than at any the last 30 years, medical than at any time over the time over the last benefits have accounted for an increasing share of total last three decades. In 2012, three decades. benefits, from 33 percent benefits were $0.98 per $100 in 1984 to nearly 50 percent of covered payroll while in 2012. Medical benefits were $30.8 billion employer costs were $1.32 per $100 of cov(49.8 percent of the total) and cash benefits ered payroll. were $31.0 billion in 2012. “In comparing trends over time it is The new report shows state-by-state useful to consider benefits and costs as a changes in coverage, benefits, and employer share of covered payroll, which accounts for costs over the last five years. The state-level changes in employment and earnings,” said results show that, between 2010 and 2012: Eric Nordman, a member of the Academy’s

• The number of covered workers and amount of covered wages increased in all jurisdictions (50 states and the District of Columbia). • Benefits per $100 of covered payroll decreased in 39 jurisdictions. • Employers’ costs per $100 of covered payroll increased in 42 jurisdictions. • In 2012, medical benefits exceeded cash benefits in 33 jurisdictions. The Academy’s report, Workers’ Compensation: Benefits, Coverage, and Costs, 2012, is the 17th in an annual series. The report provides the only comprehensive data on workers’ compensation benefits, coverage and employer costs for the nation, the states, the District of Columbia and federal programs.

Workers’ Compensation: Data 2012 Aggregate Amounts

2012

Percent Change 2011-2012

127,904 $6,309 $61.9 $30.8 $31.0 $83.2

1.6 4.3 1.3 0.9 1.8 6.9

Amounts per $100 of Covered Wages

2012

Dollar Change 2011-2012

$0.98 $0.49 $0.49 $1.32

$-0.03 $-0.02 $-0.01 $0.03

Covered workers (thousands) Covered wages (billions) Workers’ compensation benefits paid (billions) Medical benefits (billions) Cash benefits (billions) Employer costs for workers’ compensation (billions)

Benefits paid Medical payments Cash benefits to workers Employers’ costs

Source: National Academy of Social Insurance estimates. 12 | INSURANCE JOURNAL-NATIONAL September 8, 2014

www.insurancejournal.com

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Business Moves a family owned insurance agency providing personal and commercial insurance to customers in South Jersey. Los Angeles-based Select Guard Insurance Services LLC also has joined The Iroquois Group. Select Guard, division of Westwood Group LLC, offers insurance products with a focus on power sports vehicle insurance. The Iroquois Group, which began in 1977, is a network of property/casualty insurance agencies composed of more than 2,000 member agencies in 39 states and more than 75 national, regional and specialty carrier-partners. Its headquarters is in Allegany, N.Y. USI, Willis USI Insurance Services has entered into an agreement with certain subsidiaries of Willis North America Inc., part of Willis Group Holdings, to acquire seven of Willis’ retail insurance brokerage locations across the United States. Terms of the transaction were not disclosed. USI said these locations will expand USI’s footprint into new states, cities and markets where the firm is looking to invest and grow. The transaction is anticipated to close late 2014. Under the agreement, USI will be acquiring the following locations: Wilmington, Del.; Vero Beach, Fla.; Savannah, Ga.; Moline, Ill.; Wichita, Kan.; and Cheyenne and Mills, Wyo. Employees of those Willis offices will be offered employment with USI at the close of the transaction. USI is headquartered in Valhalla, N.Y., and operates out of more than 140 offices across the United States. MJB, Iroquois Group MJB Financial and Insurance Advisors in Drexel Hill, Pa., has joined The Iroquois Group network, according to Michael Brown, agency principal. M.L. Ruberton Agency of Hammonton, N.J., also joined The Iroquois Group. Founded in 1910, M.L. Ruberton Agency is 14 | INSURANCE JOURNAL-NATIONAL September 8, 2014

Garner, Bolton & Co. Pasadena, Calif.-based Bolton & Co. has joined forces with Garner Consulting, an independent insurance agency that provides employee benefits and compliance services. As part of the transaction, Garner Consulting Principal John Garner joins Bolton as chief compliance officer, and he his team will relocate to Bolton’s Pasadena office. Garner specializes in life, health and disability coverages. Bolton is a partner of Assurex Global. Onex Corp., York Risk Services Toronto-based private equity firm Onex Corp. has agreed to acquire York Risk Services Group Inc. in Parsippany, N.J., for $1.33 billion. York is a provider of risk management, claims management and managed care services. The transaction is anticipated to close in the third quarter. York offers customized claims handling, managed care, specialized loss adjusting, risk pool administration, loss control, consulting and other risk management services. York provides these services to a variety of strategic partners including self-insured companies, public entities, insurance carriers, insurance pools, alternative risk groups and intermediaries.

Onex will make an equity investment of approximately $520 million through its Onex Partners III fund, with other partners as co-investors. CNA, Continental, Wilton Re CNA Financial Corp. has sold Continental Assurance Co. to a subsidiary of Wilton Re Holdings. Additionally, Wilton Re Bermuda Ltd. will reinsure the run-off structured settlement annuities reinsured by a Bermuda-based subsidiary of CNA. With the completion of the transaction, CNA has disposed of life and group noncore gross GAAP insurance reserves of $3.5 billion, or 23 percent, representing the majority of its payout annuity business. As a result of the funds withheld basis used in the reinsurance transaction involving CNA’s Bermuda-based structured settlement annuities, CNA will recognize an after-tax charge of approximately $35 million in the third quarter. This represents the difference in market value and book value of the funds withheld assets at the reinsurance contract’s inception. In future periods, CNA will recognize income to the extent the funds withheld assets are sold, or the market value of those assets reduces to the maturity value of the securities. Coverys, ELM Exchange Coverys, a Boston-based medical professional liability insurer, has finalized an agreement to acquire ELM Exchange Inc. in Rockville, Md. ELM provides customized online educational programs to help healthcare providers minimize clinical risk and maximize patient safety and satisfaction. Their programs service more than 95 client organizations representing approximately 1,000 hospitals, office practices and healthcare facilities throughout the country. National Financial Partners National Financial Partners Corp. announced the acquisitions of two independent insurance agencies in New England: Poulos Insurance Inc. and Altus Specialty Group LLC. Terms were not disclosed. continued on page 16 www.insurancejournal.com

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NATIONAL COVERAGE

Business Moves continued from page 14 NFP said the acquisitions would help expand NFP’s property/casualty offerings. Poulos Insurance, with 19 office locations throughout Vermont, New Hampshire and Massachusetts, is an independent property/ casualty agency providing personal and commercial lines coverage in New England. Altus Specialty Group is based in Boston and provides commercial lines, employee benefits and private client risk management services. The firm will enhance NFP’s Boston-based insurance brokerage services to middle-market business clients. NFP, based in New York, is a provider of benefits, insurance and wealth management services. It provides diversified advisory and brokerage services to companies and high-net-worth individuals. In a separate announcement, NFP Corp. acquired Benefit Resources Inc., a Cincinnati-based insurance consulting and brokerage firm that has been a member of NFP’s Benefits Partners organization since 2008. The transaction closed on July 31, 2014. Founded in 1988, Benefit Resources specializes in group benefits, human resources and benefit compliance, benefit administration and individual insurance. The firm will continue to be led by Tim Marcagi, managing director, who will focus on strengthening corporate benefits in the Midwest. Arthur J. Gallagher, Cowles & Connell Arthur J. Gallagher & Co. has acquired Cowles & Connell based in Brewster, N.Y., and Meriden, Conn. Terms of the transaction were not disclosed. Established in 1892, Cowles & Connell is a managing general agent and wholesale insurance broker that provides excess and surplus, property/casualty, professional business liability and other specialty insurance products and services to independent retail insurance broker clients nationwide. Jo Ann Peri and her associates will continue to operate from their locations in Brewster; Meriden; Westampton, N.J.; and Wilbraham, Mass., under the direction of Joel Cavaness, president of Risk Placement Services Inc., a subsidiary of Arthur J. 16 | INSURANCE JOURNAL-NATIONAL September 8, 2014

Gallagher & Co. Headquartered in Itasca, Ill., Arthur J. Gallagher & Co. is an international insurance brokerage and risk management services firm with operations in 27 countries. A.P. Michaud, Nancy Greenwood A.P. Michaud Insurance Agency Inc., an independent insurance agency in Methuen, Mass., acquired Nancy Greenwood Insurance Agency, also based in Methuen. Terms of the transaction were not disclosed. All current clients of Nancy Greenwood Insurance Agency will be moved to A.P. Michaud Insurance Agency. Nancy Greenwood, president of Nancy Greenwood Insurance Agency, will be retiring after 33 years in business. A.P. Michaud Insurance Agency is a third-generation, family owned and operated independent agency serving customers in Massachusetts and New Hampshire. A.P. Michaud Insurance Agency has been in the Merrimack Valley region since 1979 when Armand P. Michaud opened the agency. Trudy (Michaud) Lawler took the agency over from her father, and her daughter, Tricia Sabulis, joined the agency in 2006 to continue the family tradition. The firm offers personal and commercial insurance products including home, auto and business. Linden Group Health, Digital Benefit Advisors Linden Group Health Services has joined Digital Benefit Advisors (DBA), a division of Digital Insurance. Digital acquired the Chicago firm, which specializes in group benefits solutions for small to mid-sized companies, and will open a second DBA office in Chicago, increasing the number of DBA locations across the country to 22. Managing Principals Steve Van Spankeren and John Kann, along with their entire 35-member team, have aligned with DBA to provide clients expanded offerings and enhanced support. Established in 1988, Linden services more than 600 clients and specializes in a variety

of niche industries including fire protection districts, manufacturing, municipalities and housing authorities, nonprofits, professional service firms and schools. Dhandho, Stonetrust Commercial Mutual Insurance Stonetrust Commercial Mutual Insurance Holding Co. has agreed to be acquired by Dhandho Holdings LP and Dhandho Holdings Qualified Purchaser LP, based in Irvine, Calif. Stonetrust is a Louisiana-based mutual insurance holding company and the parent company of Stonetrust Commercial Insurance Co. Stonetrust Commercial Insurance provides workers’ compensation and employers’ liability insurance coverage to more than 5,100 policyholders in Louisiana, Mississippi, Arkansas, Oklahoma and Texas. The $35 million cash acquisition will include Stonetrust Commercial Mutual Insurance Holding Co., Stonetrust Commercial Insurance Co., and Stonetrust Realty LLC, as well as Stonetrust Management Services LLC, the independently owned managing general agent. The Stonetrust companies will become subsidiaries of a new stock holding company created by the Dhandho partnership. Stonetrust operations will remain unchanged and continue to be headquartered in Baton Rouge, La., under President and CEO Tim Dietrich. The transaction will require approval of policyholders and the Louisiana Department of Insurance. Transaction proceeds will be paid to eligible policyholders. Dhandho has further agreed to infuse an additional $30 million capital contribution into Stonetrust Commercial Insurance Co., thereby doubling total surplus to more than $60 million and providing an immediate boost to its premium to surplus ratio. Stonetrust anticipates the additional capital will facilitate its expansion plans and aid the company in achieving its goal of an “A” rating by the global credit rating agency A.M. Best. Stonetrust is currently rated “B++.” www.insurancejournal.com

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SPOTLIGHT

Liability The Impact of Prior Work Exclusions and Sunset Provisions in CGL Policies

he commercial general liability (CGL) occurrence form policy is like a row of briefcases each filled with $1 million. Inscribed on the front of each briefcase is a year representing a specific annual policy period. Each briefcase has a combination lock. If you have the right combination, you can open the briefcase and take as much money as you By Dwight M. Kealy need to pay damages covered by that year’s policy. The above describes a row of CGL insurance policies that each have $1 million occurrence limits and $1 million aggregate limits. The occurrence limit is the most the policy will pay for any one occurrence. The aggregate limit is the total amount the policy will pay, regardless of the number of occurrences. If you have an occurrence that is covered by the policy, you have the right combination to access the policy’s $1 million limits. Once the aggregate limit is paid, the briefcase is empty. The Right Combination What is the right combination? Coverage A of the CGL policy is designed to cover bodily injury or property damage caused by an occurrence during the policy period. If there is an occurrence during a policy period for which the insurance applies that is not excluded by the policy, you have the right combination to open the brief case. Which policy will pay depends on when

2011

the occurrence happens. If your client receives a lawsuit this year that says they caused covered occurrences in each of the last four years, you would have the correct combination to go to the four prior policy/ briefcases. This means that your insured has access to a total of $4 million because they are going to open four different briefcases that each has a maximum of $1 million. Their current policy would not pay unless the occurrence also took place during the current policy period. This is true even though they received the lawsuit (claim) this year. The correct combination is based on when the occurrence took place; not when the claim is made.

no coverage because, although there was an occurrence during the 2014 policy period, the policy/briefcase contains a prior work exclusion. This exclusion excludes any work that you did prior to the 2014 policy. You built the wall in 2013 and so there is no coverage from the 2014 CGL policy with the prior work exclusion even though the occurrence happened in 2014. You then try to open the 2013 policy/ briefcase. Once again you get a letter back apologizing that you do not have the correct combination. The 2013 letter is shorter. It just says that they only pay occurrences that occur during the 2013 policy period and your occurrence took place in 2014.

The Prior Work Exclusion Many CGL policies for contractors contain a prior work exclusion. The prior work exclusion changes the combination on the briefcases so that there is no coverage for any occurrences arising out of work the contractor completed prior to the policy period. If a 2014 policy had a prior work exclusion, it is saying that it will not cover any occurrences arising out of work done prior to 2014. This is true even if the occurrence takes place during 2014. The exclusion creates a wall between the 2014 and 2013 briefcases. Speaking of walls, imagine that you are a mason, and in 2013, you built a wall. In 2014, the wall fell on a person causing bodily injury. You get sued. You go to the 2014 briefcase, enter the combination, and you get a letter back apologizing that you do not have the correct combination. There is

Warning If a 2014 policy has a prior work exclusion, there is no coverage for occurrences that take place during 2014 that arise out of work that the insured did prior to 2014. The 2014 policy will deny coverage because, even though the occurrence took place during 2014, the policy excludes occurrences arising out of prior work. Previous policies will deny coverage because the 2014 occurrence did not take place during their policy periods and they only pay for occurrences during their policy periods. If you are considering a policy with a prior work exclusion for your insured, evaluate the insured’s risk of being sued for any work that they have ever done in the past.

2012

18 | INSURANCE JOURNAL-NATIONAL September 8, 2014

2013

The Sunset Provision Whereas the prior work exclusion is continued on page 20

2014

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SPOTLIGHT

Liability continued from page 18 designed to eliminate exposures from the past, the sunset provision is designed to reduce exposures in the future. Imagine that you are the insurance company that owns that row of briefcases, each filled with $1 million. That is your money. Over the years, maybe you have had to pay some money out of the briefcases for covered occurrences, but hopefully there is still some money in those briefcases. At some point, you would like to put some of that money in your own pocket. You risked money. Now you are looking for your reward. But what if someone sues today for an occurrence that took place four years ago, or 10 years ago? If a policyholder has the right combination to open the briefcase from four or 10 years ago, you need to make sure the money is available for the policyholder. Does the insurance company need to keep the money available in the briefcases forever? The sunset provision changes the briefcase/policy combination so that there is no coverage available if the policyholder does not report a claim within a certain amount of time. A two year sunset will say that there is no coverage unless the policyholder reports a claim within two years of the end of the policy period. A three year sunset requires reporting the claim to the insurance company within three years, and so on. After the designated period of time in the sunset provision has passed, the sun has set on the policyholder’s opportunity to file a claim against the policy. Imagine that the 2012 policy/briefcase has a two-year sunset provision and you are an electrician. You were working on a project in 2012 when a pedestrian was injured on the jobsite. The pedestrian eventually sues the project’s owner, developer, and general contractor. More time passes and then you get added as a defendant in the lawsuit. The 2012 briefcase holds the money to pay damages for 2012 occurrences. If you

notify your 2012 policy within the two year sunset provision (2013, 2014), you have the right combination to open the policy/briefcase. When you celebrate the arrival of 2015, two years will have passed since the end of your 2012 policy. The sun has set on your policy. Not only has the combination been changed on the briefcase, the insurance company owner walked into that room, picked up the 2012 briefcase, and walked out with it. If you are the insurance company, it’s a Happy New Year. You finally get to enjoy whatever money is left in the 2012 briefcase. If you are the policyholder, the sun has set on your opportunity to file a claim against the 2012 policy. Depending on your state and its applicable statutes of limitation, the sunset provision may not be as scary as it sounds. This is because a statute of limitation is essentially a sunset provision imposed by law. Just like the CGL sunset provision required notice of a claim within a certain amount of time, statutes of limitation require people to file their lawsuits within a certain amount of time. For example, California might say that

20 | INSURANCE JOURNAL-NATIONAL September 8, 2014

if you want to sue the contractor who installed the irrigation system on your new house, you need to sue the contractor within one year after the close of escrow. (Cal. Civil Code § 896 (g)(7)). If you decide to sue this contractor after the statute of limitation has passed, you will be barred from recovery. Statutes of limitation vary by state and the type of work performed. If your client always does work that has a statute of limitation shorter than policy’s sunset provision, they may not have a problem with the sunset provision. Just remember that there is no coverage for claims made after the sunset period ends. If you are considering a CGL policy with a sunset provision for an insured, you should evaluate their risk of being sued after the sunset period ends. Kealy is an attorney and licensed insurance broker. He is a Certified Insurance Counselor and faculty member with the National Alliance for Insurance Education & Research where he teaches classes on commercial insurance for the CISR designation program. He is principal of his own law firm in Murrieta, Calif.

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Surplus Lines State of the Market: Surplus Lines Bounces Back By Andrea Wells

he surplus lines industry showed its subpar showing in 2012 was uncharacteristic as it outperformed the overall property/casualty industry once again in 2013. While 2013 was a good year all-round for the P/C industry, it was an even better year for surplus lines writers. Surplus lines insurers posted one of their worst years overall in 2012 as their underwriting performance fell below that of the total property/casualty (P/C) industry for the first time in more than a decade. Superstorm Sandy had a lot to do with that. But 2013 saw those fortunes reversed, according to David Blades, senior financial analyst at A.M. Best Co. and co-author of the annual “U.S. Surplus Lines Market Review.” “2013 definitely was a tremendous bounce-back to more historical or traditional results for the surplus lines market,” Blades said. Indeed, 2013 was “pretty much a bumper year for the leading surplus lines groups,” Blades said. In 2013, surplus lines writers posted a 92.4 combined ratio, while the overall P/C industry’s was a 95.8. Also, the surplus lines industry doubled its net income in 2013 over 2012. According to Blades, while the surplus lines market normally achieves solid increases in net income, the 2013 numbers show just how much of an anomaly 2012 was, albeit an anomaly that the surplus lines industry is born to play out in times of volatility. “Overall there was a definite return to underwriting profitability,” he said.

than 10 percent in 2013. Lloyd’s remained the leading U.S. surplus lines group, with AIG coming in second, according to Blades. Lloyd’s and AIG continue to lead U.S. surplus lines groups. Combining Lloyd’s and AIG is still about 30 percent of the overall direct premium written in the surplus lines market, Blades said. Overall, the top 25 U.S. surplus lines groups produce about 75 percent of the direct premium written. While many of the top leaders in this group remain the same, Blades said there was some movement in 2013. Berkshire Hathaway showed almost 39 percent growth in direct premium written in surplus lines business in 2013, jumping up to 14th from 20th. “That was probably the most market jump that we have seen,” Blades said. Blades said that even within the top 10 U.S. surplus lines groups there was some movement. W.R. Berkley, which has always been a top 10 surplus lines organization, passed Zurich and moved up from fifth to fourth in the A.M. Best top 10. The acquisition of Alterra helped Markel move up from the number eight spot to the number six spot in 2013 based on direct pre-

Double Digits The “2013 U.S. Surplus Lines Market Review” had yet to be published by A.M. Best at press time, but A.M. Best and Blades gave Insurance Journal a preliminary peak into the rankings showing that 19 of the top 25 U.S. surplus lines groups grew by more 22 | INSURANCE JOURNAL-NATIONAL September 8, 2014

mium written, he said. Overall, Blades said a number of surplus lines groups that were already part of the top 25 moved up a little in the ranking for one reason or another. “Whether it’s an acquisition of another surplus lines organization or the acquisition of a team,” premiums moved up, he said. “For the most part because of the growth that you saw in the surplus lines market ‘2013 was a in 2013, most of that tremendous top 10 and that of the bounce-back to top 25 all saw their more historical premiums going up, and a large number of or traditional them actually saw dou- results for the ble-digits percentage surplus lines increase in terms of market.’ their direct premium written in 2013,” Blades said. He said that among the top 10, AIG and QBE were the only two groups that actually had declines in direct premium written in 2013. AIG faced challenges with the loss of some key employees to Berkshire Hathaway, while QBE decided to quit certain lines of business, Blades said. “[QBE] had, in the previous year, used acquisitions to grow, and to move into a more prominent place within the top 10 of the surplus lines groups. But looking at some of that business, they made some decisions to get off certain lines of underperforming business. They actually saw their premium go down by a little over a 20 percent,” Blades said. Rate Moderation The surplus lines rate environment showed improvement in 2013 for at least part of the year, according to Kenneth Monahan, financial analyst for A.M. Best Co., who co-writes the annual state of the market report. “The rate environment continued to continued on page 25 www.insurancejournal.com

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Surplus Lines continued from page 22 improve in 2013, however it started to moderate toward the end of 2013 and through the first half of 2014,” Monahan said. “Rates are getting to the point where changes are going to be incremental, more or less.” Rates climbed after Superstorm Sandy in 2012, but now with some excess capacity in the market, rate increases are moderating, he said. The rate moderation has to do with the capacity in the marketplace, according to Blades. There’s a lot of interest in surplus

Surplus Carriers Search for Growth Never Ends

n 2013, net income more than doubled from the $1.57 billion reported in 2012, according to the “2013 U.S. Surplus Lines Market Review” published by A.M. Best. Not resting on their laurels, surplus lines carriers are continuing to target traditional as well as new product areas where they can grow, from cyber to construction. Jeremy Johnson, president of surplus lines carrier Lexington Insurance, an AIG subsidiary, told Insurance Journal that the diversity in Lexington’s overall portfolio enables it to commit to lines of business even when “the market environment is more challenging than we’d like it to be.” “We grew the portfolios that we wanted to grow and we were very pleased with the results,” he said speaking of his company’s most recent performance. For example, Lexington launched a first-of-its-kind coverage for unmanned aerial systems or unmanned aerial vehicles “that’s getting a huge amount of interest,” Johnson said. Specialty coverages such as historical tax credit and residual value insurance are also performing well, he said. Cyber-related coverage is one area of

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lines and more companies that are headquartered outside of the U.S. are looking to get in and get a piece of the surplus lines market, he said. “That interest has sparked some of the capacity and I think that’s held the rates down to a moderating perspective,” he said. According to Monahan, given the continuing trend of low interest rates, which creates a challenging investment environment for surplus lines insurers, even incremental rate increases will be very important going forward. “There’s no vehicle for

these companies to invest in to get any type of investment returns,” he said. Profitability needs to come from somewhere, he said, and adequate rates are where it needs to be. Blades said that the hallmark of the most successful surplus lines companies has been their commitment to adequate pricing and underwriting integrity. “That’s something that you’re going to continue to see be consistent in surplus lines.” It’s one of the key reasons surplus lines once again outperformed the overall P/C market.

the market ripe with opportunity. According to Hank Haldeman, executive vice president of The Sullivan Group, and incoming president of the National Association of Professional Surplus Lines Offices (NAPSLO), the tech and cyber markets show tremendous opportunity for growth, in particular data breach and privacy exposures. “We are finally seeing some traction across the board in cyber, which is being led by the healthcare industry,” Haldeman said. “But also other industries are waking up to the fact that they have significant cyber-related exposures, as well.” Haldeman said the surplus lines industry has led the way in creating a market to cover cyber-related exposures. “The market is really starting to move with more robust covers coming out from a greater number of insurers,” he said. For Lexington, cyber coverage has been a focus area for some time, Johnson said. “Cyber is a real focus area for our brokers and customers, and for us,” he said. “We think that the U.S. market is approximately $1 billion today and will expand to as much as $5 billion in the relatively short-term. It’s a dynamic and changing area of risk management,” Johnson said. “We certainly see that as a hot area.” The construction segment continues to show promise for Lexington also. “Construction continues to improve as our economy continues to improve and we are certainly seeing that come through in our book,” Johnson said.

For Lexington, transportation is still a good market. “Transportation, which is another bellwether industry, continues to show good growth,” Johnson said. Haldeman’s wholesale brokerage firm has also seen an uptick in its construction business, although it recently has had a less positive experience with transportation, where Haldeman said there has been “an increasing number of carriers really struggling with the transportation business” including commercial auto and long haul trucking. “A number of carriers have changed their appetite or withdrawn from the market entirely,” he said. Haldeman said that rates are going up in the employment practices liability market while the property catastrophe market is undergoing change. “Catastrophe-exposed property is seeing downward pressure coming from the reinsurance market,” Haldeman said. The current surplus lines price environment reminds Johnson of last year’s. “Generally speaking, our rates are not dissimilar from this time a year ago,” Johnson said. “However, some parts of the property market are experiencing intense competition, and I question whether the returns on some insurers’ and reinsurers’ portfolios will be adequate for the long term.” The low interest rate environment is a real challenge for smaller insurers that may be heavily dependent on reinsurance for capacity, Johnson said.

September 8, 2014 INSURANCE JOURNAL-NATIONAL | 25

SPOTLIGHT

Errors & Omissions E&O Insights: Managing Disasters from an E&O Perspective

f your agency is looking to manage disasters and catastrophes from an errors and omissions (E&O) perspective, could performing account reviews for your clients be just the answer? Absolutely. As many agencies discovered, account reviews are a tremendous tool that accomplish many objectives. First and foremost is the customer service/customer care associated with this objective. Performing a review allows the By Curtis M. Pearsall agency to interact with each client to get an update on the client’s exposures. As a client’s exposures change, however, a result can be exposures that are not properly insured. Your agency can help educate the client by discussing changing exposures — and securing coverage before a loss occurs as opposed to after. Put yourself in the shoes of an insurance consumer. As you look at insuring your various exposures, would you rather be a client of an agency that took the time to

make sure there are no surprises at the time of a loss, or would you prefer to be with an agency you rarely, if ever, heard from, that simply renewed your policy year after year? Recent personal lines surveys have indicated that insurance agencies write, on average, around 1.65 policies per account. (Do you know your agency’s number?) When you consider that, at a minimum, the average personal lines account has at least six to eight policy opportunities, this indicates there is some real potential to write business. In all likelihood, agencies that perform an agency audit/review have a much higher average number of policies per account and more business. Offer Annual Reviews For many reasons, including the management of “the unknown disaster of tomorrow,” performing an annual review with each client should be part of your agency’s culture. Offer it to every client and, if a client does not want the review, that should be the client’s decision. This “offer,” whether accepted or not, would be part of the agency’s defense if an E&O claim developed and the customer alleged an uninsured exposure. One of the agencies cited for this best practice actually requires the review be done and will not take on a prospect as a client unless the account agrees to go through the review process. For that agency, it is evident the culture involves establishing and building a relationship with each client. Without a doubt, this “investment” philosophy will result in a higher number of policies per account as well as better-than-average renewal-retention results. Getting It Done There are numerous ways to perform an annual review. The most effective involves physically sitting with the customer for a face-to-face discussion. This can present some logistical issues because of the customer’s work schedule, unless your agency is open on Saturdays. Conducting the

26 | INSURANCE JOURNAL-NATIONAL September 8, 2014

review over the phone is another approach, but once again, this might present some logistical issues because of work schedules. Performing the review could last upwards of an hour, so it may be difficult for the customer during the work week. It is obviously important to clearly explain the purpose of the review, emphasizing it is designed for the customer to understand his or her current coverage and to discuss any uninsured exposures. Citing that many customers were not properly insured due to Superstorm Sandy may help the customer to better understand the overall reason for the agency’s approach. Another approach — and probably a more realistic one — involves sending the customer a form which provides a host of questions for the customer to consider, such as: • Do you have any collectibles, fine arts, stamps, coins, etc.? • Do you have a business in your home? • Have you installed a home fire or security alarm? • Do you have a personal umbrella policy? • Do you have flood/earthquake insurance? While some questions deal with loss control areas that could result in the customer receiving discounts on current coverage, other questions look to uncover exposures where the current policy — for example, a homeowners policy — may not be sufficient to provide the necessary coverage. Many of the various exposure analysis checklists contain these types of questionnaires. Sending them with a cover letter or email is an effective way to handle this. An account review is a great tool to assist your customers in protecting their assets. Your sales will be enhanced and your E&O exposure will be minimized. Sounds like a win-win for everyone. Pearsall is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. Email: curtis@pearsallassociates.com. Blog: www.agentseotips.com.

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CLOSER LOOK

Near National P/C Insurers Near National P/C Carriers Identified for 2014

he original criteria and objective definition for the Near Nationals was established in the Feb. 12, 2007, issue of Insurance Journal. The Demotech Company Classification System categorizes insurers into one of 11 categories based on an analysis of data reported by the companies to the National Association of Insurance Commissioners. The 11 categories that comprise our classification system are National, By Barry J. Koestler II Near National, Super Regional, Regional, State Specialist, Coverage Specialist, Strategic Subsidiary, Risk Retention Group, Surplus Lines Carrier, Reinsurer and companies with less than $1 million in direct premium written. A company can be assigned to only one category in the Demotech Company Classification System. Therefore, a company not designated as a Near National is assigned to another classification, perhaps National, Super Regional, Regional, or State Specialist. To qualify as a Near National, a carrier must meet the following criteria evaluated as of Dec. 31, 2013: • More than $1 million of direct premium written in each of at least 35 states. • Policyholders’ surplus of at least $100 million.

• $100 million or more of direct premium. • $50 million or more of net premium. • No line of business greater or equal to 90 percent of direct premium volume. • No state greater or equal to 90 percent of direct premium volume. • May not be a surplus lines carrier, risk retention group or reinsurer. • Does not qualify as a National (more than $1 million of direct premium written in each of at least 45 states, $250 million or more of surplus, net premium written and direct premium written). To develop our list of Near Nationals, Demotech reviewed 2,676 individual property/casualty insurance companies and assigned them to a category in the Demotech Company Classification System. Only 51 insurers met the criteria to be designated a Near National. During our investigation of the companies classified as Near Nationals for 2014, we noted several interesting observations. Of the 51 individual carriers classified as Near Nationals for 2014, 30 were also identified as Near Nationals for 2013 and 2012, and 14 have been Near Nationals since the introduction of our classification system in 2007. The majority, 44 of the 51 companies, are stock companies. All but one of the Near Nationals are members of a property/casualty insurance group, with six from Travelers Group and three from XL America Group. No other

group has more than two Near Nationals for 2014. By count, the 51 Near Nationals comprised 2 percent of the 2,676 carriers that we reviewed; however, they wrote approximately 7 percent of the 2013 direct premium reported by the P/C insurance industry. The Near Nationals also represented more than 4.5 percent of the P/C industry’s reported policyholders’ surplus at year-end 2013. Clearly, this level of financial presence demonstrates the importance of the Near Nationals. They are critical to the smooth functioning of the P/C insurance market. The Near Nationals facilitate commerce and trade, and are an important component of the total P/C industry. In reviewing the 2013 direct premium written by the Near Nationals, there were only eight states in which all 51 Near Nationals wrote at least $1 million: Arizona, Georgia, Illinois, Indiana, Minnesota, Missouri, Pennsylvania and Virginia. The 2013 direct premium written was distributed relatively evenly between auto, commercial multi-peril/other liability, homeowners/property and workers’ compensation. (See the corresponding chart below for line of business distribution detail.) Near Nationals may be small in number; however, the 51 carriers comprising the Near Nationals for 2014 are substantial insurers, critically important to the P/C insurance industry, as demonstrated by continued on page 30

Near National Line of Business Distribution Line of Business

Near National 2013 Direct Premium Written (000s omitted)

Percentage of Near National Total Direct Premium Written

Auto

8,798,825

23.6%

Commercial Multi-Peril/Other Liability

8,557,152

23.0%

Homeowners/Property

7,577,593

20.3%

Workers Compensation

7,984,898

21.4%

All Other Lines

4,329,553

11.6%

TOTAL

37,248,023

100.0%

28 | INSURANCE JOURNAL-NATIONAL September 8, 2014

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Insurance solutions that are ahead of risk. So you can stay ahead of business. At Lexington Insurance, we’ve spent over forty years finding new and innovative ways to insure what others won’t – so that your clients can take their business to heights their competitors wouldn’t dream of. Whether it’s protecting a company’s bottom line in the event of a global product recall, or helping an entire city recover from the aftermath of an EF5 tornado, as the market leader in surplus lines insurance, we have the strength and flexibility to stay one step ahead of risk. Have a client with an idea nobody else will cover? Call us. To learn more, go to www.lexingtoninsurance.com Lexington Insurance Company, an AIG company, is the leading U.S.-based surplus lines insurer. AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit www.aig.com. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available in every jurisdiction, and insurance coverage is governed by actual policy language. Certain products and services may be provided by independent third parties. Insurance products may be distributed through affiliated or unaffiliated entities. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.

CLOSER LOOK

Near National P/C Insurers

continued from page 28 their significant market share and impressive balance sheets. The coverages that they write permit consumers and businesses to transfer risk and thereby facilitate the placement of insurance products necessary to support the American economy with this

remarkably stable group of carriers capable of honoring meritorious claims.

Koestler II is the chief ratings officer of Demotech Inc., Insurance Journalâ&#x20AC;&#x2122;s official research partner. Demotech is a financial analysis firm specializing in evaluating the financial stability of regional and

specialty insurers. Demotechâ&#x20AC;&#x2122;s philosophy is to review and evaluate insurers based on their area of focus and execution of their business model rather than solely on financial size. This philosophy was the catalyst for the Demotech Company Classification System, developed and published in Insurance Journal. Website: www.demotech.com.

2014 Near National P/C Insurers Company Name Affiliated FM Insurance Co. AIG Property Casualty Co. American National Property and Casualty Co. Amica Mutual Insurance Co. Argonaut Insurance Co. BCS Insurance Co. Berkshire Hathaway Homestate Insurance Co. Brotherhood Mutual Insurance Co. Charter Oak Fire Insurance Co. Darwin National Assurance Co. Employers Insurance Co. of Wausau Employers Mutual Casualty Co. Everest National Insurance Co. Federated Mutual Insurance Co. Federated Service Insurance Co. Great West Casualty Co. Greenwich Insurance Co. GuideOne Mutual Insurance Co. Horace Mann Insurance Co. Hudson Insurance Co. IDS Property Casualty Insurance Co. Indemnity Insurance Co. of North America National Interstate Insurance Co. New York Marine and General Insurance Co. Northland Insurance Co. Occidental Fire and Casualty Co. of North Carolina Pacific Indemnity Co. Pennsylvania Manufacturers' Association Insurance Co. Praetorian Insurance Co. Protective Insurance Co. Sentry Insurance a Mutual Co. Sentry Select Insurance Co. Sompo Japan Insurance Co. of America SPARTA Insurance Co. Star Insurance Co. Stonebridge Casualty Insurance Co. Teachers Insurance Co. Technology Insurance Co., Inc. Tokio Marine America Insurance Co. Travelers Casualty and Surety Co. Travelers Home and Marine Insurance Co. Travelers Indemnity Co. of America Travelers Property Casualty Co. of America Truck Insurance Exchange Twin City Fire Insurance Co. U.S. Specialty Insurance Co. United States Liability Insurance Co. Wesco Insurance Co. Westchester Fire Insurance Co. XL Insurance America Inc. XL Specialty Insurance Co.

2014 Demotech Company Classification Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National Near National

2013 Demotech Company Classification

2012 Demotech Company Classification

National Near National Near National Near National Near National Near National Super Regional Super Regional Near National Near National Near National Near National Near National Near National Super Regional Near National Near National Near National Super Regional Super Regional Near National Strategic Subsidiary Near National Super Regional Near National Near National Near National Near National Near National Super Regional Near National Near National Near National Near National National Near National Near National Super Regional Strategic Subsidiary Near National Near National Near National Near National Near National Near National Near National Near National Near National National Near National Near National

National Near National Near National Near National Near National Near National Strategic Subsidiary Super Regional Near National Super Regional Near National Near National Near National Near National Super Regional Near National Near National Near National Super Regional Super Regional Near National Regional Near National Super Regional Near National Super Regional Near National Super Regional Near National Super Regional Near National Near National Super Regional Near National Near National Regional Near National Super Regional Strategic Subsidiary Near National Near National Near National Near National Near National Near National National Coverage Specialist Regional National Near National Near National

2011 Demotech Company Classification

2010 Demotech Company Classification

Near National Near National Near National Near National Near National Near National Strategic Subsidiary Super Regional Near National Super Regional Near National Near National Near National Near National Super Regional Near National Near National Near National Near National Super Regional Near National Near National Near National Super Regional Near National Super Regional Near National Super Regional Near National Super Regional Near National Near National Super Regional Super Regional Near National Super Regional Near National Super Regional Strategic Subsidiary Near National Strategic Subsidiary Near National Near National Near National Near National National Coverage Specialist Regional Strategic Subsidiary Near National Near National

Near National Super Regional Near National Near National Near National Near National Super Regional Super Regional Near National Super Regional National Near National Near National Near National Super Regional Near National Near National Super Regional Super Regional Super Regional Near National Near National Near National Super Regional Near National Super Regional Near National Super Regional Near National Super Regional Near National Near National Super Regional Super Regional Near National Super Regional Near National Super Regional Strategic Subsidiary Near National Strategic Subsidiary Near National Strategic Subsidiary Near National Near National National Coverage Specialist Regional Strategic Subsidiary Near National Near National

Data Source: The National Association of Insurance Commissioners, Kansas City, Mo., by permission. Information derived from an SNL product. The NAIC and SNL do not endorse any analysis or conclusion based upon the use of its data. 30 | INSURANCE JOURNAL-NATIONAL September 8, 2014

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SPOTLIGHT

Lloyd’s Syndicates & Coverholders Coverholders Playing Greater Role in Lloyd’s Global Expansion By Charles E. Boyle

loyd’s of London began and remains a specialized market (not an insurance company). It accepts risks that are too large, or too complex, or both, that do not lend themselves to coverage through more “normal channels.” Each policy resembles a “bespoke,” i.e. custom made, suit, tailored for the individual client that requires specialized coverage. The Lloyd’s World Placing specialized coverage requires both skill and experience. As Lloyd’s is a broker market, brokers who place coverage with a Lloyd’s syndicate must of necessity possess the needed skills. Historically, brokers waited in line at a syndicate’s box at Lloyd’s in London to present the proposed risk they hoped to place with an underwriter. Once given the opportunity to do so, they would present the risk to the underwriter, who would accept it, reject it, or ask for changes in terms and conditions. To some extent that scenario still exists, but placements at Lloyd’s have become a good deal more complex, and are no longer limited to brokers with slipcases full of papers waiting to physically sit down with underwriters. As Lloyd’s syndicates now do business on a global scale, so do the brokers they deal with. Brokers who act as coverholders are highly important in the placement process,

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as they are not only the agent of record for their clients, but also act on behalf of Lloyd’s syndicate underwriters. In other words they “have the pen,” i.e. they can bind coverage from a syndicate without going to London and waiting to see an underwriter at the syndicate’s box at Lloyd’s. This is extremely important for brokers in the United States, Asia, South America and other areas around the globe where Lloyd’s does business. It has made it possible to write insurance coverage on a global basis. Lloyd’s defines a coverholder, or “des-

ignated authority,” as a “company or partnership authorized by a managing agent to enter into a contract or contracts of insurance to be underwritten by the members of a syndicate managed by it in accordance with the terms of a binding authority.” What was once a rather loose understanding between a broker and a syndicate, has become a far more formal alliance, as Lloyd’s has tightened up on its syndicates underwriting requirements. Since January 2003 managing general continued on page 35

9/11/13 10:52 AM

September 8, 2014 INSURANCE JOURNAL-NATIONAL | 33

Puzzle

By haggis hamburger / Edited by Nessie

9/2014

SPOTLIGHT

Lloyd’s Syndicates & Coverholders

continued from page 33 agents (MGAs) who manage the syndicates “based on a sense of trust,” said Lisa (there are now 95 of them) must present Doherty, the CEO of agent/broker their business plan(s) annually to the Business Risk Partners (BRP) in Performance Management Director. The Windsor, Connecticut. She and her PMD heads a board that was “created to sister, Linda Boborodea, founded maintain a high degree of independence the agency in 2000, and have never and accountability, to consciously reflect looked back. best practice on corporate governance,” BRP focuses on the specialty comaccording to Lloyd’s CEO at the time, Nick mercial liability insurance market. Prettejohn. He added that the “new strucDoherty explained that she saw a ture provides rigorous oversight and clearly need for small and medium sized defined responsibilities.” service businesses (SMEs) to protect Rolf Tolle, the first “franchise perforthemselves through professional mance director,” was succeeded by Tom liability coverage, particularly errors Bolt in 2010. The board has been largely and omissions (E&O) coverage. successful in reducing what Lloyd’s former BRP has expanded its offering CEO Richard Ward described as the “uncerinto a number of related sectors. Its tainty and concern” in the market as to website now states that the agency “what our role should actually be, and how has “underwritten and administered we would work with the market.” policies for 160-plus professions The risks a broker/coverholder wishes to nationally. They’ve partnered with place are therefore part the best specialty of the overall requirecarriers in the Brokers who act as ments imposed by the business. They’ve coverholders are not performance managebranched out into only the agent of record other types of spement board. Brokers for their clients, but are thereby required cialty commercial liabilto make sure that the ity insurance, including also act on behalf of risks they propose to directors and officers Lloyd’s syndicate the underwriters are in liability, employment underwriters. conformity both with practices liability and Lloyd’s overall strictures fiduciary liability. And and with the business plan of the syndicate while BRP initially focused on businesses they are dealing with. with up to $50 million in revenues, today it writes policies for companies of all sizes.” The Coverholders’ Place BRP owes its success to the business Coverholders have an enormous responacumen of its founders. Doherty began her sibility. Being a Lloyd’s coverholder is career in insurance in 1987, and developed

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her skills in the specialty commercial insurance market for a number of major companies. Boborodea honed hers with major financial institutions. Finding a need and filling it is the classic formula for establishing a successful business, and when Doherty realized the need for professional liability coverage for SMEs that’s what she and her sister set out to do. And 14 years later BRP is a well-established agency, operating as a program continued on page 37

9/11/13 10:56 AM

September 8, 2014 INSURANCE JOURNAL-NATIONAL | 35

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SPOTLIGHT

Lloyd’s Syndicates & Coverholders

continued from page 35

administrator, providing companies large underwriters have the ability to create new and small with adequate professional liabilitypes of coverage to address new types of ty coverage. risks. As a coverholder, BRP has arrangements This is a service that’s badly needed. with several Lloyd’s syndicates, notably BRP estimates that 60 percent of small and Aegis, Atrium, Chaucer, Pembroke and, medium sized businesses lack any type of perhaps most imporplan for responding tantly, several units of to or reporting data As Lloyd’s moves Liberty Mutual and breach losses. They are further into the 21st Liberty International usually aware of the Century, the need for Underwriters (LIU). risks, as local newspamore coverholders to “Certain lines have pers and websites regcertain leaders,” Doherty place business with its ularly publish reports explained. As a result syndicates becomes ever of latest data breaches BRP offers a wide range and the headaches more important. of coverages for a variety they cause the busiof people and businesses nesses who get hit. at risk from potential professional liability BRP’s website warns that “whether a claims. In many cases the coverage is placed breach is the result of a hacker accessing through a Lloyd’s syndicate, which means your system, or a simple mistake such as that BRP selects the appropriate syndicate a lost or stolen lap top, any company can for each client’s needs. As an example, be at risk.” But finding the necessary proDoherty pointed out that E&O policies for tection isn’t that obvious. BRP said it “now insurance agencies are different from D&O underwrites privacy policies specifically policies, which in turn aren’t the same as for small to middle market companies. Our A&E (architects and engineers) E&O coverout-of-the-box underwriting offers solutions age. tailored to your client’s needs, including BRP is also involved with the creation first- and third-party coverage options. The of new products by different syndicates, policy also features proactive loss mitigation which broadens the scope of the programs services and an innovative first responder it can present to its clients. Most recently concept which provides a single point of data breach and privacy intrusions have entry to a myriad of services required in the grown exponentially in today’s computevent of a breach.” erized world and new coverage products are required to address their risks that are Lloyd’s and Its Coverholders’ Future now a major problem for businesses. Lloyd’s As Lloyd’s moves further into the underwriting expertise is a primary reason 21st Century, the need for more broker/ why coverage is placed there. Syndicate coverholders to place business with its

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syndicates becomes ever more important. In restating its goals for the program for 2014-16 — Lloyd’s said its strategy outlines “how the corporation will maintain the flexibility and efficiency of the Lloyd’s platform through innovation, to ensure it remains attractive to insurers, brokers and policyholders;” adding that this is “one of its primary goals.” Vincent Vandendael, Lloyd’s director of international markets, including North America, views underwriters as “experts in professional risk selection;” adding that working with coverholders assumes that the risk “is not ordinary business, but bespoke business tailored to the clients’ needs.” He emphasized the necessity of establishing close working relationships between MGAs and coverholders, as “a large part of Lloyd’s business is in the United States and requires underwriting authority.” He acknowledged that MGAs “have to be very careful in deciding who gets that authority,” describing it as a “leap of faith based on trust” — almost the same phrase Lisa Doherty used in describing the relationship. The strategy has served Lloyd’s well, and looks set to continue to do so. By expanding the products offered by the syndicates’ underwriters and taking advantage of the client relationships enjoyed by its broker/ coverholders, Lloyd’s has been able to formalize a plan, Vision 2025, which aims at nothing less than making the London market more easily available on a global scale. Lloyd’s looks to be in a good position to achieve that goal.

9/11/13 10:57 AM

September 8, 2014 INSURANCE JOURNAL-NATIONAL | 37

SPECIAL REPORT

Emerging Risks

By Amy O’Connor

he legal marijuana industry in the United States is experiencing tremendous growth. Legal cannabis markets in the United States are expected to grow 700 percent over the next five years, according to an industry report titled, “The State of Legal Marijuana Markets 2nd Edition,” published by The ArcView Group. The report values the U.S. legal marijuana market, which comprises all states that have active and open sales of cannabis to people legally allowed to possess it under state law, at $1.53 billion. The national market is projected to grow 68 percent to $2.57 billion by the end of 2014. The five-year national market potential is $10.2 billion, according to ArcView. Gains will stem from increased demand in existing state markets, as well as from new state markets coming online within a five-year horizon. As individual states try to determine where they stand on the legalization of medical and recreational marijuana use, insurers are also evaluating this segment and what coverages — if any — they are prepared to offer to the businesses selling and growing medical or recreational cannabis products. Those who specialize in this class say agents and brokers shouldn’t be deterred by the stigma that goes along with it; instead they should learn about the segment’s needs so they can take advantage of growing business opportunities. The legalization of marijuana for recreational use in both Colorado and Washington has led to a slew of new business 38 | INSURANCE JOURNAL-NATIONAL September 8, 2014

www.insurancejournal.com

Marijuana Insurance Industry: How High Can It Go? ventures in both states. The Associated Press reported in December 2013 that the state of Washington received nearly 1,700 business applications between when the license application window opened on Nov. 13, 2013, and mid-December for those looking to grow, process or sell cannabis under the new recreational marijuana law. Marijuana sales in Colorado totaled $15.3 million for the first five months of the year, according to the Colorado Department of Revenue, and the Denver Post reported the state has seen record tourism numbers so far in 2014. Whether they are a grower, dispensary owner, supplier or processor, marijuana entities looking to sell to the public are now businesses that need insurance, says Ed Kuhn, president of Creative Edge Nutrition (CEN) and the newly formed Wellness Medical Protection Group/ Liability Insurance Solutions.

“These business owners need help figuring out issues like: Where can I set up a dispensary? What are the state regulations? What is my workers’ comp liability? And what are the liabilities that other businesses have like theft, fire, business interruption, etc. They have unique issues and those need to be seen and be addressed,” he says. “They have a lot of investment dollars going into this industry and they are concerned about what happens to their investment dollars if they are shut down or don’t obey state regulations.” Insurance coverage requirements can include and are not limited to: workers’ compensation, business interruption, theft,

products liability, cargo insurance, BOP coverage, equipment breakdown, and cyber liability — particularly for those medical marijuana dispensaries that store patients’ personal information. There is also opportunity for agents beyond the marijuana-related businesses themselves because they work with vendors that welcome the expertise an agent that specializes in the marijuana industry can offer, says Mike Aberle, vice president of sales and marketing for Next Wave Insurance Services, the program administrator for the marijuana-focused continued on page 41

Marijuana and Workers’ Comp By Don Jergler

here are some who believe medical marijuana and the workplace are a potent mix just waiting to be stirred as increasingly more states approve the herb and its derivatives for medicinal use. Not only are states approving the use of medical marijuana at an astounding pace, but at least two state supreme courts — in Colorado and in New Mexico — are taking up questions that center on marijuana, the workplace and workers’ compensation. In Colorado, in Coats v. Dish Network LLC, a man who was injured and using medical marijuana off-duty was fired. A judge upheld the termination as lawful because use of marijuana, while legal for both medicinal and non-medicinal uses in Colorado, violates federal law. The Colorado Court of Appeals affirmed the employer’s right to fire the employee, but the Colorado Supreme Court has granted a review of the case. www.insurancejournal.com

In New Mexico, Vialpando v. Ben’s Automotive Services and Redwood Fire & Casualty is believed to be the first case in the nation in which a judge has ordered an insurance carrier to reimburse a workers’ comp claimant for the cost of medical marijuana to treat back pain. That case is being appealed to the New Mexico Supreme Court. According to the National Council on Compensation Insurance (NCCI), insurers are starting to receive requests to pay for medical marijuana. However, there are those who believe that at this stage questions arising around workers’ comp are all talk and no action. “It’s got a lot more hype than what’s happening in the marketplace,” said John Leonard, president and CEO of Maine Employers’ Mutual Insurance Co. The insurer, headquartered in Portland, Maine, is a big player in the workers’ comp market on the East Coast. While Leonard

is watching cases that pertain to medical marijuana and workers’ comp, he’s otherwise unconcerned for now. He said a survey of his claims professionals has so far shown no instances where medical providers have requested marijuana to treat injured workers. “We have no knowledge of any prescriptions involving the use of medical marijuana,” he said, adding that he’s “perplexed” because that experience is contrary to what he’s so often hearing in the press. Still, Leonard has pondered a scenario that entails his company being asked to pay for medical marijuana, and Leonard said the company is prepared to abide by prescriptions that are legal in those states. “If the doctor believes that the use of medical marijuana would be appropriate for a patient and if in fact it was legal in a particular state, we’d go ahead perhaps and authorize that,” he said. “We will do as much due diligence with medical marijuana as we would with any other prescriptions.”

September 8, 2014 INSURANCE JOURNAL-NATIONAL | 39

SPECIAL REPORT

Emerging Risks Marijuana Coverage in the Wild West By Stephanie K. Jones

n Washington — which permits the sale and personal use of cannabis and cannabis-related products through Initiative 502 passed in 2012 — the recreational marijuana industry is regulated by the Washington State Liquor Control Board. Licensees are required to have commercial general liability insurance coverage with a minimum limit of $1 million that names the Liquor Control Board as an additional insured. The coverage must be placed with an insurer rated “A-”or better. Andrew Olive, an agent with Hub International Northwest in Bellingham, Wash., said he works with four or five carriers that are willing to provide coverage for 502 operations. Both CGL and property coverage are available, he said, but pricing is in a state of flux. Olive said the amount and types of coverage the 502 businesses he’s worked with range from the state-required CGL minimum to much more robust coverage. Some of these proprietors own their buildings, some lease, some have different types of operations, Olive said. Some are simply growing the product, and some are growing and processing it. Some are making baked goods and other products. Some carriers, but not all, offer

property coverage for the marijuana product itself and crop insurance is available through the private market for those producers who wish to buy it. From an insurance standpoint, the 502 business is similar to any other type of manufacturing or food products industry. “We have to make sure that there’s product liability for everything that they’re doing,” Olive said. Pricing varies dramatically, he said. Premiums are running anywhere from $5,000 to $50,000 and carriers are rapidly changing their price structures. “They’re becoming very uncompetitive fast I’ve noticed. A lot of them wanted to get in low … and now they’re either non-renewing things or their price has gone up so much that it’s not advantageous to place the business with them,” Olive said. Part of the problem is that a lot of newly licensed operators seek quotes for budgetary purposes to see what the pricing is like. “Then they’re not binding coverage for three to six months after that.

By that time the quote has expired. I just had one that I wrote last week that had gone up significantly, about 30 percent, just based on [the carrier] re-running their numbers and current loss history that they didn’t have before among other similar operations,” Olive said. One coverage area increasingly in demand is directors and officers insurance, he said. Because bank loans for the 502 businesses are virtually non-existent, many of the operations involve multiple investors. “You’ve got five or six, sometimes up to 10 investors all on the board. They’re looking for some D&O coverage, as well, and we have a market for that too,” Olive said. With the exception of the required additional insured coverage for the state LCB, there’s no consistent trend as to whether or not the various 502 companies name their production/supply chain partners as additional insureds. “They could do it,” Olive said. “It’s such a wild west kind of area right now that I think when things shake out a little bit you’ll get more of that.”

Why a Wall Street Model Is Needed

y all accounts, America’s emerging cannabis industry is looking very promising and is shaping up to be the country’s biggest business experiment of the 21st century. But the mushrooming niche sector could quickly prove to be the proverbial bull in a china shop, with contradicting state and federal laws, the resulting apprehension of banks to touch the industry’s abundance of money and the precarious lack of cohesion as dozens of

states continue to rethink their laws on the substance. While many entrepreneurs are eager to put business plans into action if and when legalization occurs in their state, “the patchwork nature of marijuana legalization on the local, state and federal level creates problems for buyers, sellers and users,” says Wall Street Commodities expert Steve Janjic, CEO of Amercanex, the first fully electronic marketplace exchange for the cannabis

40 | INSURANCE JOURNAL-NATIONAL September 8, 2014

industry. “We will soon hit the tipping point at which state after state will legalize cannabis like falling dominos.” What is the best way to ensure a legal, fair and accountable business model for the young industry? The solution is a Wall Street-like model to allow the young industry to participate in exchanges to buy, sell or trade inventories in a fully-disclosed and transparent marketplace, he says. www.insurancejournal.com

SPECIAL REPORT

continued from page 39 entity MMD Insurance. “It is a brilliant marketing campaign. Most of these people also have businesses outside cannabis and they made money before this,” says Aberle. “The agent, by promoting that they do this segment, can also get other policies from those working with the [marijuana entity] but have nothing to do with cannabis except for how they work with the operations.” Aberle says MMD’s core program started with indoor/outdoor cultivators and retailers and has since grown to cover the businesses that work with them like construction, security and supply companies. “These ancillary businesses can help you feed your company based on a single classification, which is cannabis. And if you are an agency that relies on referrals, then hopefully those people will turn around and refer you to other industry business owners too,” he says. Cannarisk, a division of BIM Agency, a Washington-based construction insurance brokerage, is the result of agent Matt Gunther’s figuring that as the marijuana industry became more accepted, the businesses that sell products would need insurance. “I am 36 years old and I felt like insurance was an old man’s game, particularly on the commercial side. I realized as recreational goes legitimate, just like in construction, it will be required to have insurance,” says Gunther. “This is unprecedented and

unchartered territory and nobody knows what the risks are ahead of us. It makes sense for state and local governments to require liability insurance to protect the public.” Cannarisk launched in Washington state in early 2014 around the time producers, growers and retailers were getting licensed. It is focused on serving medical and recreational marijuana-related businesses in the state. Gunther says being located in the

state has proven to be a big advantage. “We are trying to establish ourselves as a local face that understands the business and provides the needed services. We also provide additional value because we can be a wholesale access point for retail agents too,” he says. Gunther says right now they are just targeting the recreational facilities that must carry insurance, not the medical facilities continued on page 42

States that Have Legalized Medical Marijuana

Operational

Not Yet Operational

CBD-Specific * = Colorado and Washington have passed laws allowing for the personal possession and consumption of cannabis by adults.

Operational: States that have passed laws to remove state-level criminal penalties on the use of medical marijuana by patients who are diagnosed with a debilitating illness. The programs in these states are up and running. Not Yet Operational: States that have passed medical marijuana laws, but programs are not yet up and running. CBD-Specific: States that have passed laws allowing for the use of cannabis extracts that are high in the non-psychoactive cannabinoid CBD and low in THC, the psychoactive component of marijuana, to treat severe debilitating epileptic conditions. Source: NORML www.insurancejournal.com

September 8, 2014 INSURANCE JOURNAL-NATIONAL | 41

SPECIAL REPORT

Emerging Risks continued from page 41 because insurance is optional for them. He has found that many medical facilities don’t want to pay the cost even though premiums are low for the medical dispensaries. Recreational growers, however, are required to disclose their growing locations by Washington state law, which Gunther says his agency has been able to use to its advantage. “We can convey to the growers that their locations are public information and people know where you are growing your product. Now you really have an exposure,” he says. Creative Edge Nutrition sees opportunity on the medical side. The health, wellness and alternative treatments company entered into a joint venture with RXNB Inc. in June to offer marijuana liability insurance in North America through The Wellness Medical Protection Group (WMPG). Kuhn heads the new venture, which offers medicinal marijuana coverage for the grow and harvest of product, extracts, facilities, landlords, dispensaries and the medicinal prescriber. Coverage is available through Lloyd’s of London. He says WMPG’s coverage is available through its CANNAPROTECT program for all medical marijuana-related areas, including

anti-aging and aesthetic treatments, cash-based practices, and alternative treatment facilities. WMPG will be mainly focused on medical cannabis practices but will also cover recreational facilities in Washington and Colorado. “We think there will always be two segments of the market — the prescription-quality marijuana that is only available through the medical side, and recreational that isn’t used for ailments,” says Kuhn. Carrier Reaction Not surprisingly, Kuhn says insurance markets are currently more comfortable with covering the medical side because it is a more established industry with more controls in place. He says he has heard from carriers that will not work with recreational facilities at this time. “Carriers are spooked by the lack of a federal position and if they have big limits exposed and something happens in Washington or Colorado, it could be huge for them,” he says. “Markets feel more comfortable with medical marijuana because it is dispensed through a physician.” Cannarisk’s Gunther says he didn’t expect there to be much competition from

other agencies because of the exposures, which has so far turned out to be true. He says the reaction from the rest of the industry toward this segment — particularly carriers — has been skeptical and prudent. He said they are working with a “limited number of carriers,” with three main ones really willing to insure the risk. “There are a few on the outskirts looking continued on page 60

Changes in Washington By Young Ha

roups that favor the legalization of marijuana say they are seeing positive developments at the federal level in Washington. U.S. Attorney General Eric Holder told lawmakers during a House Appropriations Committee hearing in April that the Obama administration is open to working with Congress to reschedule marijuana, which is currently on the list of the federal government’s Schedule I drugs. “Marijuana is currently, according to the federal government, one of the most dangerous drugs in the country and has no medical value. That’s Schedule I, alongside heroin and LSD,” said Kris Hermes, a

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spokesman for Americans for Safe Access, the country’s largest medical marijuana advocacy organization. The federal government needs to reclassify that, said Hermes, and defer to state governments to adopt laws that protect patients and encourage research. “Even though the therapeutic efficacy is well established, there is far more that we can learn and understand about cannabis and its effect on the human body,” he said. The U.S. House of Representatives passed an amendment to the Financial Services appropriations bill in July that prohibits the Treasury Department from appropriating funds to penalize financial institutions that provide banking services to legitimate med-

ical marijuana businesses in states that have enacted medical marijuana laws. The House also passed the HincheyRohrabacher medical marijuana amendment, which prohibits the U.S. Department of Justice and the Drug Enforcement Administration from appropriating funds to raid, arrest or prosecute medical marijuana patients and providers in states that have enacted medical marijuana laws. Both measures are pending in the U.S. Senate. While there has been a big shift in the House, “on the Senate side, I think there still needs to be a champion or two who is willing to take this issue on,” said Tamar Todd, senior staff attorney at the pro-legalization advocacy group, Drug Policy Alliance. www.insurancejournal.com

IDEA EXCHANGE

Human Resources Engaging Tomorrow’s Workforce, Today

n organization’s biggest investment is in its human capital. Employees are the key to any successful business. Properly engaging staff can make a significant difference in a company’s productivity. Given the state of the industry — with nearly half of all insurance professionals expected to retire within 15 years, the Bureau of Labor Statistics (BLS) reporting industry unemployment at 3.5 percent, and the rate of insurance hiring By David E. Coons reaching a recent high of nearly 62 percent according to The Jacobson Group and Ward Group’s SemiAnnual U.S. Insurance Labor Outlook Study — engagement is an issue the industry cannot afford to overlook. Recognizing the growing need for happy, motivated employees, industry experts have put together a number of tips and best practices for engaging employees. Many insurance organizations are successfully implementing these engagement strategies within their business.

But what are the next steps? How can the industry use employee engagement to ensure it is prepared for success in the future?

industry skills gap and are prime candidates for the many internship opportunities that insurance offers. Engaging Millennials through internship positions not only enables the industry to Rethinking Employee Engagement combat out-of-date assumptions that insur To succeed in today’s increasingly diffiance is “boring” and “un-interesting,” but cult recruiting climate, forward-thinking also provides insurance companies with a companies are moving beyond standard potential mouthpiece back to interns’ peers. retention practices and are working toward The younger generation uses its family and engaging individuals friends as the top resource even before they become Engaging just a hand- for information about employees. They are and jobs; so, ful of the Millennial industries using internships and engaging just a handful of population can help to the Millennial population co-ops as a platform to engage and recruit the reach a much broad- through internships and next generation of leader group of potential co-ops enables insurance ers — Millennials. to reach employees through organizations Millennials, born a much broader group word-of-mouth and of potential employees between 1980 and 2000, are expectthrough word-of-mouth endorsements. ed to form 50 perand endorsements. cent of the global workforce by 2020, Insurance organizations should take a according to “Millennials at Work: second look at the internships they offer Reshaping the Workplace,” published by and promote programs that will attract PricewaterhouseCoopers. These young indibright, young talent to their organizations. viduals are the logical source for qualified, Companies can then promote these posibright talent to fill the growing insurance tions on My Path, an industry-wide education platform developed by The Institutes. Through My Path, the younger generation can search through a clearinghouse of industry-specific information, including career opportunities, assessments, simulations, scholarships and internships. Engaging Millennial Professionals Company culture is key to engaging Millennials, both as professionals and as interns. These individuals are looking for many of the same benefits and perks as the other generations in the workforce. They desire a quick climb up the corporate ladder, career development opportunities, high employee morale and a sense of purpose in their work. To attract these potential future employees and industry advocates, organizations must focus on developing and promoting a workplace that fulfills these continued on page 46

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Human Resources continued from page 44 wish lists. Employers should highlight the insight into the inner-workings of insurhot-button incentives and benefits that ance. they offer, including flexible work options, Millennials are looking for companies updated technology, corporate citizenship that are team-oriented, positive and incluand a team-oriented sive. They place high environment. Millennials are looking regard on employee Young professionals Insurance organifor companies that are morale. want to feel like they zations should encourage team-oriented, positive their young employees are contributing to and inclusive. both their teams and to find support from seathe organization as a soned staff, include them whole. Employers should make an effort to in group activities and social events, and provide additional stretch assignments to create opportunities to network with and high-performing employees. These added learn from executive management. These opportunities not only help Millennials — positive interactions will go a long way including interns — feel challenged, but in encouraging and enticing Millennials will also offer an opportunity to showcase toward a career in the industry. the unique job functions and opportunities Finally, the younger generation wants to that can be found within the industry. In make an impact with its work. Millennials addition, organizations can offer lunchdesire a job that is fulfilling and meaningand-learns, job shadowing and training ful. Insurance organizations should generate programs to promote growth and provide positive buzz through volunteer activities

and community service. Organizations should promote their current charitable programs and consider arranging community service projects for their interns and other interested staff. Millennials are likely to take notice of employers that are active in their local community and society at large. Now is the perfect time for the industry to rethink its engagement programs and focus on reaching out to its potential future employees. By engaging young professionals while they are still within their formative years, insurance organizations are building a pipeline for future success in what is destined to be an increasingly challenging hiring market. Coons is senior vice president of The Jacobson Group, a provider of talent to the insurance industry. Phone: 800-466-1578. Email: dcoons@ jacobsononline.com.

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IDEA EXCHANGE

The Competitive Advantage Why Independent Agents Should Take Advantage of a Higher Standard of Care

’ve had many independent agents (IAs) vent, fume, exclaim, yell, scream, curse and express total exasperation at losing an account because a captive or direct writer undercut the price while promising speculative coverage, insuring property at 80 percent (or less), or telling insureds they can save money if they do not purchase such and such coverage By Chris Buand because they really do not need the coverage (although they do). The IAs often ask me, “How can they get away with that?” They can get away with it in many situations because their standard of care is often less than that of an IA. Their standard of care is less because of their own contracts with their carriers or because they work directly for the carrier versus an IA contract. Their contracts generally stipulate they work for the insurance company, not the client. They do not, to oversimplify, owe as much to clients then as an IA does. Depending on the exact situation, they may not owe anything to the client other than to not steal their premium dollars. The best case I know exemplifying their low standard of care is Paul and Julie Leonard v. Nationwide Mutual Insurance Co. This was a federal case from the Southern District of Mississippi. Per the case description, Findings of Fact, the Leonard’s home was approximately 500 feet from the water at an elevation of 12 feet. It was flooded when Hurricane Katrina hit and they did not have flood insurance. The property did qualify for flood and it was clearly in a flood zone. Mr. Leonard asked his Nationwide agent in 1999 whether he needed flood insurance and the agent advised Mr. Leonard he did not need the coverage. This was not a one-off piece of advice. Per the case description, “[The agent] some48 | INSURANCE JOURNAL-NATIONAL September 8, 2014

times discouraged his clients from purchasing flood insurance policies.” “There was no testimony from which I [the judge] can discern the reason [the agent] discouraged some of his clients from purchasing flood insurance policies ...” However, the court found the agent had not violated his standard of care because he was simply offering an opinion, albeit without any reason for his opinion being offered. So he did not misrepresent anything and did not offer a reason for his opinion, and therefore did not breach any standard of care. Factors to Consider I am not an attorney so I do not pretend to know every applicable case or statutory law. My experience has been that every situation is case specific. Easy answers do not always exist, so please keep this in mind if you are involved in an errors and omissions (E&O) claim. Some of the factors are based on a combination of: • The state in which the insured is located, • Type of agency, or • Direct/captive. Brokers – Their duty depends on the situation, their carrier contract, their advertising, and the state relative to whether brokers are even permitted. If a broker is a true broker with a true broker-carrier contract (many agencies have such contracts that benefit carriers without necessarily

knowing it), their duty to the insured may be higher than the duty an IA owes because their duty to the carrier is usually less than that imposed contractually upon an IA. Independent agents – IAs are special because they have a duty to the carrier and a duty to the insured. This is the legal theory of duality whereby someone has duties to two opposing parties but they never have those conflicting duties simultaneously. Therefore, they have a duty to one party one moment and a duty to the second party the next moment, but never does the agent have duties to both parties at the same moment. In and of itself, this scenario seems to make the duties an IA owes more complex than with other distributors of insurance. At this point in most E&O articles and seminars, the writer/instructor will advise how to minimize your E&O exposure by not doing this or that. In other words, because the IAs standard of care is high, do not raise the bar on your standard of care. Such advice is good except those “dos and don’ts” do not generate sales. For example, “do not advertise you are an expert.” That is great advice for not increasing your standard of care, but if you are not an expert than why buy insurance from you? The job of selling insurance as a non-expert has already been taken by computers and direct writers. Keep in mind this entire issue is not just continued on page 50 www.insurancejournal.com

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The Competitive Advantage continued from page 48 one of comparing IAs to direct writers, Chinese saying that when you point your and other similar providers. The difference finger, notice where the other three fingers going forward is your own carriers may are pointing? Part of the frustration is really directly sell the same brand and the same knowing that agents have to improve their forms but with a lower standard of care. So game. They know that the work involved if someone else is selling the same product in improving their game, the challenges with a lower standard of care and you do involved, and the emotional and intellectual not advertise you are an expert or someenergy required can seem overwhelming. thing similar such as a claims advocate, or Subconsciously, this is the genesis of the a risk manager, or some level of expertise, a frustration. Independent agents know why need does not exist for you. other distributors can get away with more, Another example is the standard of care and they know that to compete, they have is elevated not just by advertising claims, to greatly increase their skills and abilities. though those claims are extremely importThat is always easier said than done. ant, but also fees. If an The opportunity agency charges fees, a awaiting those who How can an indepengood case can often be surpass their frustration dent agent turn a lemon is beyond imagination. made the agency owes the insured much more. — a higher standard of I look at the situation Of course, entering into care — into lemonade? like this — if an IA has a a special relationship is Make the most of it. greater standard of care, another great example. then make the most of it. You can’t change this so Surpassing Frustration advertise it. Consider the frustration of other distrib Advertise the difference. Advertise that utors having a lower standard of care and you are paid to give the right advice versus getting away with offering poor advice or the internet provider or the type of agent IJ Professions ad quarter pg.pdf 1 8/14/14 12:58 PM the wrong coverages. Remember the old paid to just make a sale. Advertise that you

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are the expert. The standard largely already exists so accountability already exists, so why not make the most of it? Of course, this strategy goes against the advice of E&O attorneys who advise that you should keep your head down and not advertise anything but a phone number and a name, which likely does decrease your chances of being sued for two reasons. First, you’ve reduced expectations to the lowest possible denominator and second, by reducing expectations, you’ll have less sales. And with fewer clients your chances of being sued are less. Take advantage of those agents that take these experts’ advice. If they are not experts then tell the world you are. More important, fulfill that promise. Some independent agents will hide from all factors possible that create a higher standard of care. Some agents will advertise or have a business model suggesting they have a higher standard of care but they will not fulfill them. Only a few independent agents will have the guts to advertise true expertise and actually fulfill those promises. For those few, the future is unimaginably great. This is how an independent agent can turn a lemon, a higher standard of care, into lemonade, sell it for a much higher price and have much more fun doing so. Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719485-3868. Email: chris@burand-associates.com.

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IDEA EXCHANGE

Legal Insurance Experts: Does It Really Take One to Know One?

hen an insurance agent is sued for professional negligence, a question arises as to whether the breach of the agent’s duty of care requires the testimony of another insurance agent or broker who testifies that the agent breached the professional standard of care, and thereby committed professional negligence. In some cases it is unnecessary for the plaintiff to retain an insurance agent expert because the type of professional conduct By Steven Plitt is within the common knowledge of the jury to assess and determine whether there has been a breach of the insurance agent’s duty. That was the case in Fillinger v. Northwestern Agency Inc. of Great Falls, 283 Mont. 71, 938 P.2d 1347 (1997), where the issue before the court was the standard of care of an insurance agent in procuring insurance coverage that had been specifically requested by the insured. The facts were undisputed that the insureds had requested a specific policy, and that they did not receive that policy from the agent.

In determining whether an expert witness was necessary to establish that the agent breached the professional standard of care, the court observed that “the determination of whether an insurance agent reasonably fulfilled his or her duty and procured the coverage requested, is easily within the common experience and knowledge of lay jurors” and therefore, the testimony of an expert witness on the professional duty of care was not required. However, depending upon the transaction involved, a claimant may be required to proffer an insurance agent or broker as an expert witness to establish a breach of the professional standard of care. Dulaney v. State Farm The issue of whether expert testimony was required to identify the standard of care of an insurance agent in procuring a policy with adequate coverage recently came before the Montana Supreme Court in Dulaney v. State Farm Fire & Cas. Ins. Co., 324 P.3d 1211 (Mont. 2014). In the Dulaney case, the insured, Deborah Dulaney, operated a floral shop from 2001 to 2006. During those years, the floral shop was insured by State Farm through a policy that was issued by

the State Farm insurance agent Shawn Ori. Dulaney reopened her business in 2007 at a new location. Dulaney met with Ori about the purchase of insurance for the new business. According to Dulaney, she told Ori at a meeting that she needed insurance coverage for a new “huge” building that she was renting and the policy would also need to provide $1 million in liability insurance, as requested by her landlord. Dulaney alleged that she told Ori that she had “absolutely no idea” of the value of business property she wanted insured and, therefore, she asked Ori to come out to the business location to see the property for himself. According to Dulaney, she never asked for a specific amount of coverage, nor did she tell Ori to use the same coverage limit that she had for her former business. On the other hand, Ori testified that during their meeting Dulaney had informed Ori that her former business property limit was sufficient for the business. The evidence showed that Dulaney’s 2007 tax return valued her business property at $9,825 although Dulaney asserted that the value of her business greatly exceeded that amount. The evidence also showed that Ori had no knowledge of any valuation or inventory of Dulaney’s business property at the time Dulaney purchased the policy. As a result of the meeting in 2007, an insurance application was prepared indicating on its face, a $20,000 coverage limit for business personal property together with the requested $1 million of liability coverage. The facts did not establish whether Dulaney signed the application or not. Dulaney testified that she had no recall whether she assisted in, or was present, when the application was being filled out. The evidence was undisputed that Ori never inspected the business premises or even agreed to do so. Then, after obtaining the policy, Dulaney made significant purchases for the business including a $10,000 walk-in cooler, a $2,000 espresso machine, and a $7,000 business software system. Ori continued on page 54

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Legal continued from page 52 was not informed of additional purchases. In 2008, Dulaney received a renewal notice from Ori which disclosed the limits of business personal property coverage of $20,000. Dulaney’s floral shop was destroyed by a fire in 2009. State Farm paid the full policy limits on the loss. However, Dulaney maintained that Ori’s professional negligence caused her over $190,000 in uncovered damages. Dulaney then sued Ori alleging that Ori had a professional duty to ascertain or advise her of the adequate amount of coverage for her business and Ori’s failure to do so constituted professional negligence.

court granted summary judgment in the relevant factors that an insurance agent favor of Ori. The summary judgment was should consider. affirmed by the Montana Supreme Court. The court noted that Dulaney, on appeal, The Montana Supreme Court in the asserted that the agent was required to Dulaney case distinguished its prior ruling view the business contents of the store and in Fillinger where the court determine the value of her found no expert testimony business personal property, Do courts need was necessary to present the inventory and supexpert witnesses to business professional negligence claim plies. Dulaney argued that establish insurance the agent should have looked against the agent. In the present case, unlike the facts agent professional at her business property, before the court in Fillinger, standard of care? given her advice on coverage Dulaney’s damages allegedly options, and perhaps looked resulted from Ori’s failure to at depreciation schedules. procure a policy that adequately covered Addressing Dulaney’s allegations, the her business assets, not from an alleged failMontana Supreme Court found that “[t]he ure to procure a specific type of policy that only way for a jury to resolve whether an Insurance Expert Witness the insured indisputably requested, as was insurance agent placing a business policy Dulaney did not retain an insurance the case in Fillinger. had the legal duty to perform the foregoing expert to support her claim against Ori. The question of duty before the Montana tasks [identified by Dulaney] would be to Due to Dulaney’s failure to name an expert Supreme Court therefore went beyond the receive expert testimony on the duties of an witness to establish the standard of care duty articulated in Fillinger and required insurance agent under [those] circumstancapplicable to an insurance agent, the trial testimony of an expert witness to establish es.” The court noted that “[a]mong the questions that would be squarely before the jury are whether it [was] the obligation of the insured or the agent to place a value on an owner’s property and inventory, and whether it [was] incumbent upon the insured or agent to monitor the insured’s ongoing property acquisitions and periodically suggest an upgrade in coverage amounts.” Although the court acknowledged that while not every claim against an insurance agent were to require the testimony of an For Single Entities, Groups & Public Entities expert, because the answers to the questions raised by Dulaney’s allegations would Provided by an A.M. Best “A” (Excellent) IX Rated Carrier not be readily apparent to a lay person, the court concluded that expert testimony on Highlights the nature and extent of an agent’s duties • Installment Schedule Available • Aggregate Coverage Available was required to present the claim. Therefore, the Montana Supreme Court • Minimum Premiums: • SIRs starting at $300,000 in the Dulaney case answered the question • Individual: $50,000 • Claims Management Available of whether it takes one to know one, at • Groups: $100,000 • Risk Management Services Available least in cases where the allegations are that the agent should have made an independent evaluation of the amount of coverage being provided to an insured to adequately protect that insured’s interest.

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8/18/14 7:39 PM

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Emerging Risks continued from page 42 in. They are being very cautious, as they should be, because how do you measure the risk?” he says. “But these [business owners] are professionals. There is a misconception from people in other states that these are all stoners starting a business, and that is not the case at all. These are professionals who are extremely educated and they are opening up with the desire to work with a local broker.” MMD’s Aberle says it is customary for states to start with legalizing medical marijuana before they will look at the recreational side. These frequent changes and unknowns in the industry are a put-off to carriers, he says. Lloyd’s has been the only carrier Aberle has found that will be flexible in adjusting the coverage and limit options on a needed basis. “If I were to request as many changes as I have made in a given year with another carrier, they would have dropped the program. This industry has so many changes and needs all the time that you have to be consistently moving forward,” he says. MMD has also received requests from states, counties, cities, and policy departments for its loss guidelines and has lent its

expertise to answer questions about the role insurance will play in the development of a legitimate marijuana industry. As state government or regulatory agencies set certain insurance standards, Aberle says the industry will play a big part. However, carriers’ leeriness in offering the required limits or coverages can make it difficult for the marijuana industry to move forward. “We will continue to work with these people to help carve out a proper industry. … We have had to do a lot of work in the

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insurance industry and show a lot of data to say this is a viable business and you will be profitable writing,” he says. “We have also had to work with cities and states to show them that certain insurance options are just not available because there is no carrier willing to do it.” Products completed or products liability coverage is an area that makes carriers nervous, says Aberle, and it is also a coverage that is required of all recreational operations in both Washington and Colorado. MMD launched the coverage for recreational facilities on a claims-made form in January, though it always offered the coverage for medicinal facilities on an occurrence form. Aberle says carriers were more comfortable offering the coverage on a claimsmade basis for the marijuana industry. Aberle is encouraged by the movement he’s seen from other carriers that haven’t written this class in the past, but for now they are mostly “window shopping.” “They want to know about it because it sounds cool and the industry loves to talk about it and know more and that’s a great thing,” he says. “For us, it is has gone from ‘can we even mention we are writing it?’ to ‘we love telling everyone about it.’ The carriers still won’t write the business, but they love hearing about it.” Editor’s Note: The marijuana products and facilities in this article were photographed at Top Shelf Cannabis in Bellingham, Wash. www.insurancejournal.com

Being in the insurance industry feels great. But helping to cure cancer feels even better. Tony Markel To learn more about the National Insurance Industry Council, contact Ken Birkett at kenbirkett@coh.org or 866-905-HOPE or visit our group site at www.cityofhope.org/niic

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Advertisers Index

Readers, browse, contact, or do product searches on any of our full page advertisers at: www.insurancejournal.com/adshowcase/ Abram Interstate www.abraminterstate.com W6 Agency Ideas www.agencyideas.com 60 American Reliable www.assurantspecialtyproperty.com 57 Amwins Group, Inc. www.amwins.com 53 Anderson & Murison, Inc. www.andersonmurison.com 50 Applied Underwriters www.applieduw.com 3, 4, 64 ARGO www.argoprous.com 33, 35, 37 Arrowhead General Insurance Agency www.arrowheadgrp.com W13 Atain Specialty Insurance www.atainins.com 3; SC1 Brecht & Associates www.brechtassoc.com SC12 Burnett & Company www.bcoinc.com SC6 Burns & Wilcox Ltd. www.burnsandwilcox.com 9, 32 Catlin US www.catlinus.com 23 Century National www.cnico.com W5 City of Hope www.cityofhope.org 61 CRC Insurance Services www.crcins.com 24 Delta General Agency www.deltains.com SC9 Engle, Martin, & Associates, Inc. www.englemartin.com 27 FEMA www.agents.floodsmart.gov/ij 45 www.insurancejournal.com

FSLSO www.fslso.com FL9 General Star www.generalstar.com W9; SE1; E1; M1 Golden Bear Insurance Company www.goldenbear.com W14 Gorst & Compass Insurance www.gorstcompass.com W20 JM Wilson www.jmwilson.com SE5; M4 Lexington www.lexingtoninsurance.com 29 Liberty Mutual www.libertymutual.com 63 M.J. Hall & Company, Inc. www.mjhallandcompany.com W15 McClelland & Hine www.mhi-tx.com SC11; SE7 Midlands Management Corporation www.midlandsmgmt.com 54 Monarch E & S Insurance Services www.monarchexcess.com W1, W17 NAPSLO www.napslo.org 55 Nautilus Insurance Company www.nautilusinsgroup.com 47 Navigators Management Company, Inc. www.navg.com 43 Oak & Associates www.oakandassociates.com 56 Pacific Gateway Insurance Services www.pgiainsurance.com W7 PersonalUmbrella.Com www.personalumbrella.com 7 RT Specialty www.rtspecialty.com 16, 46 Ryan Specialty Group www.ryansg.com 14

Safeco Insurance Company www.safeco.com W19 Scottish American www.scottishamerican.com 34 Scottsdale Insurance Company www.scottsdaleins.com 2 SIAA www.siaa.net W3; SC5; SE3; E3; M3 South & Western www.southandwestern.com SC3 Specialty Insurance Managers www.simtexas.com SC7 St. James Insurance Group www.stjamesinsurance.com FL10 State Compensation Insurance Fund www.scif.com W11 Tejas American General Agency www.taga1.com 3 The Hartford www.privatecompanyinsurance.com 13 The Institutes www.theinstitutes.org 19 The Sullivan Group www.gjs.com 36 Vertafore www.vertafore.com 51 Western Heritage Insurance Company www.westernheritageins.com 21 Western Security Surplus www.wssib.com W10; SC8 Western World Insurance Group www.westernworld.com 31 Worldwide Facilities, Inc. www.wwfi.com 45

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IDEA EXCHANGE

Closing Quote

Take Time to Minimize Your Exposure to E&O Claims

By Andrew P. Forstenzer

uring my more than 20-year career in the insurance industry, I have spent hours working with my colleagues to prevent hard-earned, front-end revenues from leaking out the back door due to errors and omissions. When a claim is denied, we have all heard the allegations: • What do you mean we’re not covered for … • I said, “ABC Co.” not “XYZ Corp.” • How could you have forgotten to notify the insurance company? • Why would I read the policy — I relied on that certificate you issued. • What invoice? I was waiting to hear from you before I sent in my premiums. As the market continues climbing, with increased activity comes increased workload, and increased opportunity for mistakes. These mistakes are ones that may occur before binding, during the contract phase, or post placement during the issuance of endorsements or certificates, or regarding notice of claims. What can you do to minimize the likelihood of an E&O? Document, Document, Document Historically, business was in person or conducted by

62 | INSURANCE JOURNAL-NATIONAL September 8, 2014

telephone, followed by hard copy writings. While meetings and telephone conversations continue, email and other electronic communications have more often become the norm and, in fact, are often the only source of back-andforth communication. When a claim arises years after placement, details are important in determining who said what, to whom and when. It’s important to document when conversations occur, ensure the accuracy of the documents, and ensure they are easily retrievable even years later. Avoiding the “he said/ she said” courtroom battle will go a long way toward avoiding economic detriment. Emails and other electronic communications should be prepared with proper grammar and avoid troublesome words or concepts that may be difficult to explain years later. How many corporate executives and others have been held to task for email content they wish in retrospect they had never written? Before you hit the “send” button, read and re-read your proposed communication — and then send it only to the party or parties to whom it is intended. Responding to “all” can lead to unintended discussions and can be dangerous in terms of possible future liability exposure. Avoid Differing Assumptions and Miscommunications While it may seem during a conversation (voice or electronic) that all parties are on the same page, it is worth a few minutes afterward to confirm your understanding and Never assume others circulate that understanding walked away with the in writing among all particisame understanding pants to ensure there are no as you. discrepancies. However distasteful it may be to engage in corrective discussions, never assume others walked away with the same understanding as you. Waiting to do this only once a claim arises will be too late. Find an Ending Take a few minutes before you send documents off to storage to review the communication and paper trail. The time to identify and correct discrepancies is before final documentation is concluded. Be satisfied that the file is complete — in order — and, if and when someone cares to review the file years later, you have already taken steps to make the review simpler and more understandable. If you take care to ensure all final documents are accurate and as agreed upon, E&O exposure can be reduced. Forstenzer is Of Counsel to the Wilson Elser law firm. Phone: 917-7978671. Email: andrew.forstenzer@wilsonelser.com.

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