2023 December PIA Vermont by PIA Northeast

December 2023 • Vermont

PAGE 18

Special relationships happen on a case-by-case basis A look at standard-of-care lawsuits

IN THIS ISSUE 4

Emojis could be binding contracts

Premium trust accounts, commissions

Reduce wage-and-hour violations

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DEPARTMENTS December 2023 • Vermont

In brief

Legal

Sales

E&O

Ask PIA

Readers’ service and advertising index

COVER STORY 18 Special relationships happen on a case-by-case basis A look at standard-of-care lawsuits

FEATURE 25 Where the legal risks lurk in human resources Reduce the risk of wage-and-hour violations

Statements of fact and opinion in PIA Magazine are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the Professional Insurance Agents. Participation in PIA events, activities, and/or publications is available on a nondiscriminatory basis and does not reflect PIA endorsement of the products and/or services. President and CEO Jeff Parmenter, CPCU, ARM; Executive Director Kelly K. Norris, CAE; Communications Director Katherine Morra; Editor-In-Chief Jaye Czupryna; Advertising Sales Representative Kordelia Hutans; Senior Magazine Designer Sue Jacobsen; Communications Department contributors: Athena Cancio, David Cayole, Jeana Coleman, Patricia Corlett, Darel Cramer and Matthew McDonough. Postmaster: Send address changes to: Professional Insurance Agents Magazine, 25 Chamberlain St., Glenmont, NY 12077-0997. “Professional Insurance Agents” is published monthly by PIA Management Services Inc., except for a combined July/August issue. Professional Insurance Agents, 25 Chamberlain St., P.O. Box 997, Glenmont, NY 12077-0997; (518) 434-3111 or toll-free (800) 424-4244; email pia@pia.org; World Wide Web address: pia.org. Periodical postage paid at Glenmont, N.Y., and additional mailing offices. ©2023 Professional Insurance Agents. All rights reserved. No material within this publication may be reproduced—in whole or in part—without the express written consent of the publisher.

COVER DESIGN David Cayole

IN BRIEF

FYI

Think twice before you reply with an emoji … By Danielle Caswell, Esq., associate counsel, PIA Northeast

Remember when Gen Z unofficially deemed millennial use of the laughing emoji as “not cool,”1 or dare I say … cheugy?2 Or when almost every older-generation dad got called out for their unintended passive aggressive overuse of the thumbs-up emoji?3 Who knew that using these emojis meant committing such a social faux pas? However, even though most dads are probably just sending the thumbs-up emoji in response to some video their kid sent in the family-group chat, maybe it is time they—and everyone else for that matter—start paying closer attention to the contents of texts and emails emojis are used in, to avoid finding oneself in the middle of an unintended legal battle. That’s right … emojis now carry legal weight. Which means the thumbs-up emoji could potentially result in a legally binding contract between two parties.

A Canadian lawsuit made headlines when a court ruled that a farmer owed $82,000 (Canadian), plus interests and costs for failing to deliver flax per a text agreement that ultimately was ruled approved due to the farmer’s use of the thumbs-up emoji.4 After reviewing all background and conversations leading up to the use of the emoji, as well as the two parties’ history of coming to agreements over text, the court held that “the parties had reached consensus … just like they had done on numerous other occasions.”5 Over here on this side of the border, American courts and litigators are beginning to consider the same issues. Lightstone RE LLC v. Zinntex LLC presented a court in Kings County, N.Y., the question of whether a thumbsup emoji constituted “a signature of executory accord that would both act as an acceptance and satisfy the statute of frauds” on a contract for payment of protective masks arranged via text messaging.6 While the court found that this issue was not appropriate on a motion for summary judgment—since the parties agreed that the defendant owed the plaintiff the money sought—the court granted the plaintiff $1 million.7 Despite the emoji question not being explicitly answered in the case’s holding, the case did highlight some of the common issues that courts will be presented with when analyzing these situations. Mutual assent and intention A major consideration when deciding a contractual dispute is whether there was a “meeting of the minds.” This refers to the mutual assent by all parties to the forma4

tion of a contract, whereby all parties must agree to the same terms, conditions and subject matter of an agreement.8 However, it should be noted that modern contract doctrines sometimes only require objective manifestations of assent.9 Interpreting the meaning and intent behind an emoji, and whether it constitutes an acceptance of an agreement would force courts to perform a factual analysis of various factors. This can be tricky since emojis can have metaphorical meanings that are unique to specific groups of people, depending on their culture, geographical location and community.10 Some cultures view the thumbs-up emoji as rude or obscene, and would not consider its use to manifest assent. Different online communities can assign “covert meanings” to emojis or have their own code.11 This leads to the possibility of significant misinterpretation on what certain emojis mean or what they convey. A survey revealed that Apple’s “Unamused Face” signaled “disappointment,” “depressing,” “unimpressed,” or “suspicious” emotions.12 The same survey indicated that the public disagree on whether many emojis indicate positive or negative emotions.13 If an in-context emoji is capable of having multiple reasonable meanings, senders may be protected from having knowledge of what they were “agreeing” to—and thus may be able to avoid contractual liability.14 Variations in platforms and digital coding also could contribute to cross-platform misunderstandings,15 as there is no standardization and each platform and set of emojis is designed differently. For example, in 2016 Apple changed the “pistol” emoji to a “water pistol” emoji, yet an Apple user still could send a “water pistol” emoji to a different platform, and it may appear as a regular “pistol” emoji—thus manifesting an intent entirely different than that which the sender intended.16 The same emoji may vary in size, color, shape, and level of detail displayed— depending on whether it is viewed on a computer or phone, or if you are using an Android or an Apple device.17 Reliance As part of their analysis, courts most likely will consider whether there was reliance by a party—especially when determining damages. Reliance is the legal concept whereby one party depends upon another’s statements or

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FYI actions, especially when that party acts upon that dependence.18 A party may be liable for damages if another party reasonably relied on their statements or actions to their detriment, otherwise known as promissory estoppel.19 Just as using an emoji may indicate contract formation, using an emoji in text or email conversation also may induce or contribute to such reliance—therefore establishing the basis of a claim for promissory estoppel. A court likely will consider whether parties reasonably relied on an emoji to their detriment when determining contractual liability. Statute of frauds Another important consideration is whether the contract in question falls under and satisfies the statute of frauds. Under the statute of frauds, certain contracts need to be in writing to be considered valid, and many have questioned whether a text or email containing an emoji satisfies the statute’s requirements—especially that of signature.20 Internet guru Professor Eric Goldman has stated that emojis can satisfy the statute of frauds, believing that these communications are governed by the Uniform Electronic Transactions Act and E-sign rules.21 Under the UETA, “an electronic signature can be any electronic sound, symbol, or process that is both attached to or associated with a record or contract and executed or adopted with the intent to sign the record.”22 The Uniform Commercial Code also supports this position, with the definition of “signed” including “using any symbol executed or adopted with present intention to adopt or accept a writing.”23 While not an emoji, the Supreme Court of Mississippi has held that the automatic “Sent from my iPhone” line on the bottom of emails sent from Apple iPhones “‘may satisfy a trier of fact that the user had the requisite intent to adopt the closing as his or her signature for mobile emails.”24 Then, some would argue that an emoji—which is added affirmatively to a conversation by a sender as opposed to being automatically added to every message—is an even greater claim to signature status and thus satisfies statute of frauds requirements.25 The future of emojis in contract law Does this mean that courts will now be spending time and resources trying to decipher what an emoji means? Yes, most likely. With the popularity of not only emoji use, but also text and email as a means of business communication, this topic was bound to find itself in the court system. Once wordless communications are entered into a court record,

the courts must look at all surrounding circumstances of the emoji in conversation to interpret meaning.26 The analysis will include scrutiny of all accompanying messages and whether the use of the emoji “materially alters” the intended meaning of the text sent by the sender.27 There are many factors analyzed in situations such as these, including how the messages were received by the recipients, and a senders’ alleged intent behind their messages—as well as other factors such as the ones mentioned in this article. Emojis are not a universal language, and courts now will be tasked with deciphering meaning amongst “language” that can be interpreted differently to people of various cultures, countries, age groups and users of different platforms. In the meantime, if you want to protect yourself, don’t assume that the casual nature of emojis in digital communications hold no contractual significance. Moving forward, education on the legal significance of emojis will be critical, as will be modifying new and existing contractual language to avoid liability of informal communication bearing any weight on the meaning of contracts.28 Time for dads to get a new emoji. CNN Business, 2021 (tinyurl.com/5n7btpec) The New York Times, 2021 (tinyurl.com/55eh9npu) 3 Vice, 2022 (tinyurl.com/2nkbap9a) 4-5 CNN Business, 2023 (tinyurl.com/5jmhef2k) 6-7 Lightstone RE LLC v. Zinntex LLC, 2022 N.Y. Slip Op. 32931(U) (Kings Cty. 2022) 8-9 Legal Information Institute: Cornell Law School (tinyurl.com/ywmur23b) 10 Bloomberg Law, 2021 (tinyurl.com/yhzbykvk) 11 New York Post, 2022 (tinyurl.com/4ss9y4u7) 12-15 Eric Goldman, Emojis and the Law, 93 Wash. L. Rev. 1227, 1250 (2018) 16 American Bar Association, 2022 (tinyurl.com/mrxmhxnb) 17 Bloomberg Law, 2021 (tinyurl.com/yhzbykvk) 18-19 Legal Information Institute: Cornell Law School (tinyurl.com/292cz24v) 20-22 LexisNexis Practical Guidance Journal, 2023 (tinyurl.com/3kmn8mfh) 23 U.C.C. Section 1-201(b)(37) 24-25 LexisNexis Practical Guidance Journal, 2023 (tinyurl.com/3kmn8mfh) 26-27 American Bar Association, 2022 (tinyurl.com/mrxmhxnb) 28 LexisNexis Practical Guidance Journal, 2023 (tinyurl.com/3kmn8mfh) 1 2

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Agents' primer: Premium trust accounts and commissions On the most basic level, choosing a career as an insurance producer means having the opportunity to sell insurance products to clients. However, deciding to become an insurance producer also means signing up for a heightened level of responsibility, which means acting as a fiduciary for your clients when handling premiums and following stringent commission protocols dictated by legislation. In this article, insurance agents can find an outline of some of the most important things to keep in mind when complying with all legal responsibilities of the profession in connection with premium trust accounts and commissions.

Premium trust accounts Under insurance code, agency owners and producers are required to receive premiums in the capacity of a fiduciary.1 That means that they are not owners of

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the funds, but rather just custodians2 of them. A fiduciary is someone who manages someone’s money and/or property—and his or her responsibility extends, at a minimum, to acting in that person’s best interests, keeping good records, managing the money and/or property carefully, and keeping the person’s money and/ or property separate from that of his or her clients’ money.3

LEGAL

DANIELLE CASWELL, ESQ. Associate counsel, PIA Northeast

The law requires that agency owners and producers maintain separate

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trust bank accounts for these premiums, as well as return these premiums, separate from the agency’s and/or producer’s business operating funds.4 By getting a separate trust bank account for these premium funds, an agency and/ or producer also are protecting them from any agency creditors.5 Laws regulating premium trust accounts may vary from state to state, as may legislation regarding penalties for violations of the laws governing these accounts. Any funds that are deposited into an agency’s and/or producer’s trust bank account become fiduciary funds, which are subject to insurance regulations. They are not allowed to be withdrawn without the proper documentation of the amount of commission that was earned, as well as an audit

trail.6 Premium accounts must be identified as such, and depending on the state, may have other identification requirements. Insurance producers may not use collected premiums to pay for office expenses or employee salaries—even if a producer’s principals expressly have authorized any commingling of funds. If an insurance producer has engaged lawfully in commingling, the only funds that may possibly be utilized by an insurance producer to pay for his or her own expenses are the producer’s own funds that were deposited in that account. It must be stressed that insurance producers are fiduciaries, and as such, with respect to premiums collected, premiums can never be considered the agent’s or broker’s own funds. While falling under some federal legislation—such as Federal Deposit Insurance Corp.’s requirements— premium trust accounts mostly are regulated by state, except in Connecticut. For the state-specific regulations, see New Hampshire: N.H. Code Admin. R. Sections 4301.03-4301.05; New Jersey: N.J. Admin. Code Section 11:17C-2.1 and Section 11:17C-2.3; New York: NY ISC Section 2120 and N.Y. Comp. Codes R. & Regs. Tit. 11 Section 20.3 (b) (Regulation 29); and Vermont: Vt. Code R. 21-020036-X. There may be additional duties in connection with creating and maintaining premium trust accounts (i.e., the duty to maintain federal deposit insurance protection). For example, under this duty as discussed in New York’s OGC Op. No. 07-02-12, since insurance producers are acting as fiduciaries and therefore subject to the prudent rules of investing “consistent with securing the value of the funds,” all premium funds are

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required to be federally insured by the FDIC. This may require multiple fiduciary accounts or that such accounts be opened in more than one appropriate bank to receive full federal insurance protection. New York state also carries a duty to maximize insurance protection.

Legal requirements of insurance producer commissions Another responsibility, and requirement of the profession, is to ensure that insurance producers only accept commissions for the sale, solicitation or negotiation of an insurance policy for which they legally are entitled. In all the states in the PIA Northeast footprint, it is required that an insurance producer be rightfully licensed in each state to sell, solicit or negotiate insurance products. These licensing requirements also extend to the ability of an insurance producer to receive a commission. Receiving a commission is considered a regulated activity and therefore also requires a license to receive such. Therefore, no commission payments can be offered to, or accepted by, an unlicensed person for the sale, solicitation, or negotiation of an insurance policy. Sometimes, to conduct business with an unlicensed individual, licensed insurance producers may feel that they can pay commissions to unlicensed individuals disguised as referral fees. While referral fees paid to nonlicensed parties are legal, a commission fee masked as a referral fee is not. A referral must not include any discussion of specific insurance policy terms and conditions, and

payment of a referral fee should not be dependent upon the purchase of insurance by the referred person. For example, a referral fee that is structured as a percentage of a premium paid by a referred person is not legal, as the payment and amount of the fee is dependent upon the sale of that insurance policy by the referred person. As a licensed insurance producer, it is of utmost importance to avoid paying any type of commission disguised as a referral fee to escape violation of the law and punishment by your state’s regulation agency. And, as an unlicensed individual—especially if you have plans to apply for a license in the future—it also is your responsibility to avoid accepting these types of illegal fees. Each state outlines potential punishment for violation of the law in connection with the illegal collection of commissions. For example, in New York state, the law allows the revocation, suspension or declination of a renewal of a licensee’s license, following a hearing, when the licensee is found to have committed a prohibited activity such as unlawfully collecting a commission.7 This extends liability to businesses that “knowingly accepted insurance business from an individual who is not licensed” as well. The other states in the PIA Northeast footprint all have similar legislation regarding punishment of violations.8 These responsibilities are not optional, and insurance producers must comply. Professional insurance agents can ensure proper compliance with the law in connection with premium trust accounts and commissions by further familiarizing themselves with the regulations of the states in which they sell, solicit and negotiate insurance policies. For more information, PIA Northeast members can contact PIA’s Industry Resource Center. Caswell is PIA Northeast’s government affairs counsel. 1

Insurance Journal, 2012 (tinyurl.com/ptz26kev)

Ibid.

Consumer Financial Protection Bureau, 2023 (tinyurl.com/32fe66kt)

Insurance Journal, 2012 (tinyurl.com/ptz26kev)

Ibid.

NY ISC Section 2110

Ibid.

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How to guarantee success in sales: Hone three key areas Sales success can be broken down to an almost mathematical equation that works every time. When it comes to sales success, there is a direct correlation between work and results. If you do the proper amount of work in three key areas, you pretty much guarantee sales success. If you don’t, you will struggle and may fail completely. Let’s start with the fundamental maxim to sales success which is: Talk to enough of the right people the right way. Who are the right people? They are the ones who want and need your product now, who have the means to invest in it, and who can make a buying decision. And, what is the right way to talk to them? You need to say the right things, which will help you make the sale you need to make. For that to happen, you must put the proper amount of work into three key areas: 1. your number of contacts; 2. your sales skills; and 3. your product and industry knowledge.

Number of contacts If you read my articles with any regularity or you’ve heard me speak, you’ve undoubtedly heard me say 99.9% of the time when people fail in sales, they fail due to a lack of activity; they didn’t make enough contacts to get enough leads, to make enough sales. The other 0.1% of the time people fail in sales, they got hit by a bus. This is something I’ve seen time and time again in my 36 years in sales.

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Another saying of mine is “even a blind pig finds corn.” In other words, if you’re out calling on enough people, you’ll eventually bump into someone who says, “I need what you have” or, “I know someone who needs what you have.” Bottom line: You’ve got to make enough contacts, to get to enough people, to ultimately make enough sales.

Sales skills The reason why a salesperson’s number of contacts is more important than his or her sales skills is because someone may have the greatest sales skills, but if he or she doesn’t have anyone to call, the salesperson could make fewer sales than someone with average or bad sales skills calling on hundreds of people. When it comes to sales skills you have to do enough work so that you know exactly what to say in every sales situation. Then, you must commit all that knowledge to memory so that the responses flow smoothly and easily on sales calls. It’s simple, if a salesperson can get through the gatekeeper to the decision maker, if the salesperson can get and keep the decision maker’s attention, and if he or she can say what needs to be said to set an appointment—the salesperson is halfway there. At the appointment, the salesperson needs to qualify the prospect (i.e., find the person’s wants, needs, desires and problems), and tailor that into an effective presentation and provide a quote. The salesperson also needs to answer any questions, overcome any objections, close the sale, keep the sale closed, and build the long-term relationship with the new customer. Like I said: simple, right? However, if the salesperson can do all this, he or she is going to make some sales.

It's simple, if a salesperson can get through the gatekeeper to the decision maker, if the salesperson can get and keep the decision maker's attention, and if he or she can say what needs to be said to set an appointment—the salesperson is halfway there.

Product and industry knowledge Finally, a salesperson needs to know the industry and the products or services your insurance agency provides. This is the final key area because if you’re not calling on enough people, or when you do you don’t know what to say, all the technical knowledge in the world won’t bail you out of a jam. That said, if you are making enough calls, and you have the necessary sales skills, if you add to that a strong set of technical skills—knowing your industry and product well and specifically why people should absolutely buy your product—you and your agency will be unstoppable.

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Don’t take shortcuts If you are an average salesperson, your sales success will most likely be guaranteed by hard work—if you focus on the three areas mentioned in this article. The biggest mistake I see salespeople make is that they avoid the work necessary to be successful. They look for shortcuts and ways to game the system. While it’s one thing to work smart— and you should do that—the goal of their shortcuts is to avoid exertion, and to avoid any discomfort that comes from rejection and putting themselves out there in the world. Sales is like jiu jitsu, playing hockey or anything else you want to get great at in life—you must do the drills, and put in the hours to get the results. It is only through working hard that you can be successful. Chapin is a motivational sales speaker, coach, and trainer. For his free eBook: 30 Ideas to Double Sales and monthly article, or to have him speak at your next event, go to www.completeselling. com. He has over 36 years of sales experience as a No. 1 sales rep, and he is the author of the 2010 sales book of the year: Sales Encyclopedia (Axiom Book Awards). Reach him at johnchapin@ completeselling.com.

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BRADFORD J. LACHUT, ESQ. Director of government & industry affairs, PIA Northeast

Special relationships happen on a case-by-case basis A look at standard-of-care lawsuits

have written before of my love of the legal lexicon. My dedicated readers know I have some favorite legal words, like champerty and tortfeasor.1 But as every Ying needs a Yang, there are some legal words that I shudder to see— particularly in a legal opinion. My least favorite is rather innocuous when compared with the myriad Latin terms judges love to throw into their opinions. Yet, its placement in a legal opinion almost always leaves me scratching my head. The term is special relationship.

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Why does that term bother me so?2 There are several reasons. First, the term special relationship suggests something seedy or unethical. Overt nepotism or some sort of quid pro quo situation. When in fact, a special relationship—at least in the legal context used in this article—doesn’t have anything to do with that. In the insurance world, a special relationship relates to the relationship that an insurance agent or broker has with a particular client. The presence of a special relationship is a game changer in an insurance producer errors-andomissions case. Which brings up the second reason why I dislike the term: No one has any idea what that means. But, I’m getting ahead of myself. To attempt to understand a special relationship, it’s important to understand the essential elements of proving a claim of negligence, which serves as the basis of any insurance E&O lawsuit. So, a plaintiff must prove three essential legal elements,3 which are: 1. that a legal duty existed; 2. that the duty was breached; and 3. that the breach caused the injury claimed in the lawsuit. While much could—and has been written on each element—it is the first element—the legal duty—in which a special relationship comes into play.

Duty Insurance producers unquestionably owe a duty to their clients. This duty, sometimes referred to as the duty or standard of care, is not found in any compendia of laws and regulations. Instead, a producer’s duty to his or her clients has been established through court cases—which are known as common law. Like laws and regulations, the common law of one state can, and often does, differ from that of another state. For insurance producers who operate in multiple states, this means they need to be aware of the standard for each state in which they do business, as it could determine whether an E&O claim is successful. The good news is that most states’ common laws have a similar definition of what a producer’s standard of care is to his or her client.4 Most of the courts that have considered this question have held that insurance producers owe their clients a duty of reasonable care and diligence. Courts have interpreted that to mean that insurance producers have a duty to obtain the coverage and limits that clients request; or advise them of the coverage’s unavailability. Generally, what is not included in that duty is a reasonability to advise a client continually or proactively as to availability of insurance products or sufficiency of limits. If that was the end of the story on producer standard of care, that would make for a short and straight-forward article. Unfortunately for producers (and readers), that is not the end of the story, and this article persists. There are certain special situations in which a producer may be found to have a heightened duty to a client. One that would require the producer to not only procure requested coverage, but to provide ongoing advice as to the extent and sufficiency of insurance coverage. As I hope you have guessed, that heightened duty exists when there is a special relationship between a producer and a client. And, therein lays the rub. Most states that subscribe to the ordinary negligence standard acknowledge the special relationship. While the way courts have applied a producer’s ordinary standard of care has been consistent, the application of special relationship has been inconsistent. 20

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A nice illustration of the inconsistency and evolution of special relationship can be found in the common law of three states: New Hampshire, New Jersey and New York. Each of these states has almost the same standard of care and in some cases, one state’s common law on this issue has been influenced by another state’s common law.

Once upon a time in New Jersey ... We start our legal journey in the Garden State. The year is 1984. Prince’s When Doves Cry is playing on the radio and the case of Sobotor v. Prudential is being decided in the Superior Court of New Jersey, Appellate Division.5 The plaintiff, Bernard Sobotor, had just moved to New Jersey from New York state and he was referred to an insurance agent, Charles Redmond, for auto insurance. In discussing his auto insurance needs, Sobotor specified that he wanted liability coverage of $100,000/$300,000 and the “best available” package for any remaining coverage.6 In turn, Redmond procured a policy with the requested liability limits, but uninsured motorist coverage in the amount of $15,000/$30,000. Sobotor was involved in an auto accident and, shockingly, he was underinsured. He brought a lawsuit against Redmond alleging that Redmond was negligent in failing to advise Sobotor of the availability of higher amounts of UIM coverage. You may be thinking that an insurance producer has no duty to advise a client—and normally you would be right. But, in this case, the court was asked to find that a special relationship existed between Redmond and Sobotor—and that Sobotor relied on

the special relationship to his detriment. Here we come to our first encounter with the frustrating world of special relationship. In this case, the court applied a standard that will appear frequently in producer E&O cases, and which makes insurance defense attorneys break into a cold sweat. The court states that whether a special relationship exists is a factspecific question, and it depends upon the particular relationship between the parties. In the Sobotor case, the court found that Redmond had held himself out to have special expertise in insurance.7 The court determined that Sobotor relied on Redmond’s expertise. That reliance created a special relationship and a duty for Redmond to advise Sobotor of the need for higher limits.

A long time ago in a New York far away ... Our next stop is in New York state in the year 1997. That is the year the New York Court of Appeals decided the case of Murphy v. Kuhn. The insurance agency of Kuhn, Kuhn & Pedulla, had been providing insurance to Thomas Murphy in one capacity or another since 1973. In 1990, Murphy requested that his son be removed from Murphy’s personal auto policy. Instead, he requested that his son be added to a commercial auto policy that Kuhn also handled. The commercial auto policy had limits of $250,00/$500,000. Murphy at no time requested higher coverage. Murphy’s son was involved in an accident and policy limits were exhausted. Murphy then brought a lawsuit against Kuhn alleging that the agent had failed to advise Murphy of the need for higher insurance limits. The New York court was asked to find that a special relationship existed between Murphy and Kuhn. The New York court first acknowledged that an agent does not have a duty to advise under normal circumstances. However, the court does state that a special relationship could exist that would require an increased duty to advise. The New York court cites other jurisdictions that have recognized a special relationship. Special relationships were found in instances in which agents received compensation for consulting, when there was some interaction regarding a question of coverage and it’s clear that the insured is relying on the expertise of the agent, or when there is a course of dealing over an extended period of time that would make it reasonable to assume that the client is seeking the agent’s expertise.

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Each of these situations could all give rise to a special relationship. While the New York court acknowledges the special relationship and those factors, interestingly it found that in the case of Murphy that a special relationship did not exist and that it was merely the normal client-agent relationship. As such there was no duty to advise of the need for higher coverage.

Something funny happened on the way to the Granite State ... Our final stop is New Hampshire in the year 2002. The Supreme Court of New Hampshire decided the case of Sintros v. Harmon. Like Sobotor and Murphy before it, this case dealt with an auto insurance policy. The plaintiff, Thomas Sintros purchased automobile insurance from Thomas Harmon. Sintros had been a client of Harmon’s for at least seven years and Harmon provided coverage to Sintros’ family as well. Over that time period, the Sintroses communicated with Harmon regarding new vehicles, additional drivers, and other relevant changes. In 1997, Sintros’ son was seriously injured in an automobile accident while riding as a passenger in a friend’s vehicle. The damage exceeded the $100,000 liability limit of the primary policy. Sintros’ own policy only provided a $100,000 UM/UIM liability limit. Making additional coverage unavailable. Sintros brought a lawsuit against Harmon alleging that Hamon breached a duty to advise of the need for higher UM/UIM limits.

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Following in the footsteps of New Jersey and New York, the New Hampshire Supreme Court recognized that normally a producer has no duty to provide ongoing advice to a client. However, a special relationship could exist that would create a duty to advise. To find a special relationship, the court repeats the ill-fated phrase from Sobotor. The particular relationship between the parties is determined on a caseby-case basis. However, the court does provide examples in which a special relationship may exist. They echo similar criteria in New York: instances in which an expressed agreement is in place; a long-established relationship exists; situations in which additional compensation apart from premium payments is paid; and the agent identifying as a highly skilled expert coupled with the reliance of the insured. After articulating these factors, the court applied them to the relationship between Sintros and Hamon. The court found that Sintros had failed to establish that a special relationship existed and that Hamon’s communications with Sintros through their years-long relationship did not amount to anything more than routine communication between a producer and client.

A recap What do these cases all have in common? And more importantly, why do they matter? In each case, a court was asked for the first time to consider whether insurance producers in that state had a duty to advise and when that duty arose. That is important—as it was not necessarily the last time. Since acknowledging that a special relationship could exist in Murphy, the New York Court of Appeals has

never found an instance in which a special relationship existed. That has not been the case in the other states. New Jersey courts have found several instances in which special relationships existed since the Sobotor ruling. None of which have articulated a clear criterion for establishing a special relationship. New Hampshire’s common law recently changed—or at least shifted—with the case of 101 Ocean Blvd. LLC v. Foy Insurance Group. In that case, the court found a special relationship existed between an agent and client despite the client failing to establish the elements of a special relationship spelled out in Sintros.

Hey what about my state? My apologies to readers in Connecticut or Vermont for not highlighting standard-of-care cases in your state. I meant no offense. The cases referenced in this article were chosen because they highlight the evolution of special relationship, as well as how arbitrarily it is applied. Connecticut and Vermont have their own interesting history of standardof-care cases. But each state falls in line with the standards articulated in the cases highlighted in this article. In Vermont,8 producers have an obligation to provide the insurance coverage and limits requested by a client or provide notice to the client of their inability to do so. That duty does not extend to a responsibility to advise on adequacy of limits or future coverage needs, absent a special relationship. While courts in Vermont have at least alluded to the possibility of a special relationship

existing, they have yet found one to exist in an actual case. Vermont falls on the New York end of the spectrum. Connecticut falls closed to the New Jersey side of the spectrum—with conflicting case law as to the standard of care. The seminal case9 on this issue established the ordinary standard discussed earlier in this article, but it took the standard one step further stating that a producer had an obligation not only to procure the insurance coverage requested but explain unknown coverages, as well as the consequences of low limits to the client, particular uninsured/ under insured motorist coverage. However, at least one subsequent case in the Nutmeg State acknowledged that absent a special relationship, a producer has no duty to advise.10

Where do we go from here? The amorphous nature of special relationship, as well as the fact-specific analysis that goes along with it can be frustrating for agents. PIA is working on a long-term solution with stakeholders in multiple states to change the common law to help better protect insurance producers. On the ground level though, individual insurance producers can best protect themselves by developing and maintaining sound recordkeeping methods. It’s mundane, but good recordkeeping is critical. Since special-relationship cases are so fact-specific, proper documentation can demonstrate whether the relationship with a client was that of a normal producer-client or whether there was something that elevated the relationship to the special status. Lachut is PIA Northeast’s director of government & industry affairs. Fun fact: I named my law school intramural basketball team the Harlem Tortfeasors. That was my biggest contribution to the squad.

It bothers me enough to use the phrase: bother me so.

Feel free to read this next part to the tune of Three is The Magic Number.

Thanks, in part, to another great Latin term “Stare decisis”.

Cue Law & Order sound effect

491 A.2d 737, 336

The decision barely touches on what Redmond did to hold himself out as an expert.

Rocque v. Co-Operative Fire Ins. Ass’n, 140 Vt. 321, 438 A.2d 383 (1981).

Dimeo v. Burns, Brooks & McNeil Inc., 6 Conn.App. 241, 504 A.2d 557 (1986)

Preston v. Chartkoff 2004 Ct. Sup. 1093 (Conn. Super. Ct. 2004)

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Where the legal risks lurk in human resources

Reduce the risk of wage-and-hour violations

As an employment lawyer and human resources expert spending my career working with businesses of various sizes, I believe the single most important thing employers can do is make sure they are handling their employees’ wages properly. When people’s livelihoods are affected, they are much more likely to become disgruntled or have other workplace concerns. And, few things matter more to government agencies than wages.

Common wage-and-hour violation traps for employers

The state and federal departments of labor are charged with enforcing regulations that protect employee rights when it comes to wages, and state departments of taxation or finance, and the Internal Revenue Service receive significant payroll taxes from businesses. Therefore, how an employee is paid often will catch their attention.

Calculating overtime and commissions correctly also is incredibly important. Employers should work with HR experts who know the difference between a discretionary and nondiscretionary bonus, and the impact of each on overtime.

How can an employer reduce its risk of wage-and-hour violations? Consistency and compliance are important.

Pay accuracy. Paying employees accurately seems obvious, but mistakes are common. For example, an employer might not realize that the minimum wage has changed or that exemption thresholds have changed for the coming year. January and July tend to be the most common times of year for these changes.

Minimum wage. Employers should work with an HR expert because several states (e.g., Connecticut, New Jersey, New York and Vermont) have higher minimum salary requirements—compared to the federal wage of $7.25, and several states (e.g., California and Nevada) have different standards for what constitutes overtime.

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Vacation payout at separation. When employers offer vacation benefits to employees, they are sometimes surprised to learn that they might be required to have a written policy about whether it will be paid out to employees. For example, if the policy does not specifically state earned vacation will not be paid out, it will be owed at termination in Connecticut and New York. Whereas in California, Massachusetts and Colorado, vacation that is earned and unused, generally must be paid out to employees. Final-pay requirements. Many states have special final-pay requirements. For example, when an employee is being terminated involuntarily in Connecticut, the final paycheck must be delivered the next business day; in New Hampshire

Frequency. Many state laws define how frequently an employee must be paid, and the laws require written advance notice to employees if their pay date is going to change. In addition, many states regulate whether an employer can take nonregulatory deductions from a paycheck. Some states like New York, have different timelines for various employee classes. This is not only incredibly important from a compliance perspective, but employees also rely on being paid on a specific date. For example, the employee may have a mortgage, tuition, or parents’ assisted-living payment due. A frivolous change in frequency or an unexpected deduction can put that all in jeopardy, and it can cause employees to lose confidence in their employer.

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FLSA classification. One of the most well-known analyses under The Fair Labor Standards Act is whether an employee should earn overtime. The FLSA states that unless an employee is exempt under the law, an employer must pay time-and-a-half to employees who work more than 40 hours in the same workweek. A workweek is a static consecutive seven-day period.

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Many employers decide to pay employees a salary because it is easier administratively. However, in most cases, to compliantly earn a salary the employee must be exempt from overtime—meaning, the employee must fit into at least one of the exemptions defined under the law. The most popular exemptions are the administrative, executive, sales and professional exemptions. At its

most basic interpretation, to meet the exemption requirements, a position must satisfy: 1. a job duties test (meaning, it must fit certain criteria) 2. the minimum salary threshold for the relevant jurisdiction. In 2024, the federal minimum exemption threshold is proposed to increase to $55,068/year from the current $35,568/year. Employers should work with an HR expert because some states have higher minimum-salary thresholds for exemptions. For example, New York has higher threshold for executive or administrative exemptions. California has a higher minimum salary for exemptions like executive, administrative, and professional to name a few. Employers may be tempted to pay a set salary to avoid the time-keeping requirements and calculations associated with non-exempt wages, which are typically hourly. However, the FLSA dictates whether a position falls into either of these classifications. To be exempt, an employee must both meet the criteria for job duties illustrated in the exemption, and in most cases, he or she also must earn a minimum threshold of $35,568/year ($684/week). Common exemptions are the: • professional exemption, which is common among CPAs, doctors and attorneys; • sales exemption; • executive exemption; • Highly Compensated Employees (applies federally, but not necessarily in all states), which earn at least $107,432 and have at least one of the duties from any

exemption (a proposed rule from the U.S. Department of Labor would make this threshold $143,988); and • administrative exemption, which is the most heavily litigated because of its broad definition. Again, it is important for employers to work with an HR expert because several states have different requirements than the FLSA to qualify for an exemption and do not recognize the same exemptions as the FLSA. What is at stake with FLSA classification? An employer who misclassifies a non-exempt employee as exempt could end up owing hundreds of hours of backpay for overtime and penalties. Federally, the lookback period is two years, unless the DOL feels that the employee acted in bad faith. If the DOL concludes bad faith, then the damages could be tripled. Some states like New York, New Hampshire and California have a longer lookback period. California even has a different enforcement mechanism for wageand-hour violations, called the Private Attorneys General Act, which deputizes employees to bring private actions on behalf of other aggrieved employees, essentially standing in the place of the attorney general for civil penalties, which are normally only recoverable by the attorney general. Worse, when an employer classifies employees as exempt, it often stops tracking the hours that they work, which makes defending these claims incredibly difficult.

Employee vs. independent contractor In today’s gig economy, an increasingly common wage-and-hour mistake is the misclassification of employees as independent contractors. True independent contractors are not employees; instead, the company that hired the contractor generally is one of its clients. The various independent contractor tests are complex and vary nationwide. The U.S. Supreme Court has said that several factors need to be balanced to decide if a person qualifies as an independent contractor. These include how integral the work is to the business, permanency of the relationship, degree of control by the business and the contractor’s potential for profit/loss, judgment and independent business organization and operation. [EDITOR’S NOTE: For more information, PIA Northeast members can access the resources in HR Info Central (www.pia.org/IRC/hrinfocentral) in the “Labor Law” section.] Working with an employment attorney is key for any employers who are unsure of how to proceed. Independent contractor misclassification is one that has the attention of taxation and labor enforcement agencies nationwide. It also has the attention of plaintiff’s lawyers ready to bring PAGA, wage-andhour collective and class actions.

Equal pay and salary transparency laws While most employers know that equal pay laws require that wages be calculated in a nondiscriminatory manner, not all employers are aware that salary transparency laws have gone into effect in many states and localities. These laws require employers to include salary ranges in job advertisements and sometimes job descriptions.

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December is a time of year when employees might inquire, discuss or complain about their pay and an employer may wish to prohibit such conversations. Beware! Employers that prohibit discussing wages will likely find themselves in the hot seat in front of the National Labor Relations board because discussing pay and working conditions is a protected Section 7 right for private sector employees under the National Labor Relations Act.

Shortcuts can be costly Many employers may try to streamline payments and recordkeeping by using software or electronic transfers. Be sure to incorporate certain practices to avoid running afoul of laws. Mandating direct deposit. Most states require that employees opt into using direct deposit. That is the case for Connecticut, New Hampshire, New Jersey, New York and Vermont. Timekeeping software. Some of these programs will automate deductions for meal breaks or rounding work time, which can lead to incorrect recordkeeping and incorrect wages being paid. Skipping the time clock. Wage-and-hour laws and the FLSA require timekeeping for non-exempt employees, as noted in this article. Advancing pay. Sometimes employers will advance pay or paid time off at the request of an employee, but sometimes employers will find themselves out of that cash if the employee fails to repay it and local laws do not provide a mechanism for recouping it. Charging deductions. Employers often are tempted to charge employees for lost equipment or cash shortages. This practice is a minefield. Most of the time, such deductions will be unlawful.

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Not paying unauthorized overtime. Few things annoy chief financial officers more than individuals working unauthorized overtime and then getting paid

time and a half. An employer without a knowledgeable HR partner might be tempted to not pay this time. However, the correct procedure is to discipline the employees but still pay them for the hours worked. Making everything a discretionary bonus. Employers might wish to avoid blending overtime rates and paying bonuses to departing employees, but the law defines whether a bonus is discretionary or nondiscretionary. Nondiscretionary bonuses need to be blended into regular overtime rates and paid to employees if they are earned. As employers plan compensation strategies, raises, bonuses and their financial budgets for 2024, they should partner with an HR expert who can help ensure their practices, exemptions and classifications are aligned with the roles for the individuals operating in them. Matsis-McCready leads the Engage HR Consultant team, advises internal teams on a wide range of HR compliance matters, and works closely with Engage clients across industries to help them navigate employment law issues. Joining the Engage team in 2014 as an assistant general counsel and HR consultant, she supported Engage clients—primarily in the Northeast—on a variety of complex HR and employment issues. Matsis-McCready earned a Bachelor of Science from Cornell University’s School of Industrial and Labor Relations and a Juris Doctor from Fordham University School of Law.

Are you setting your agency up for a claim? Solid documentation should be your goal—and can determine which way an errors-and-omissions claim goes. Your first step should be to detail your agency’s documentation expectations and ensure they are thorough.

• Creating a list of approved abbreviations, if your agency uses them.

Components of good documentation

• Noting the names of the people with whom agency staff members spoke.

When you are developing, updating or training your new staff members about your agency’s documentation criteria, make sure it includes the following: • Handling it promptly and accurately and emphasize the expectation of promptly. • Being detailed—including in emails—and defining who, what, when, where and why.

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• Having the staff member who had the discussions generate the documentation. This makes the documentation more credible. • Including only facts and being void of emotion. Don’t put

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anything in the notes that a jury could see. Your notes should help you, not hurt you if an E&O matter were to develop. • Stressing the importance of not admitting fault.

When documentation should take place Take notes of any conversations the agency staff member has with clients or with carriers/wholesalers. Common scenarios include the following: Client meetings. In-person or virtually, these meetings occur throughout the sales process. Determine who is responsible for taking meeting notes— which should include who was in the meeting, what was discussed—and any open items. Then, the discussion should be memorialized in writing to the client, recapping the discussion and what was agreed upon. This will help to ensure there are no misunderstandings between the various parties. Without this level of documentation, it could be an issue of “he said, she said” if a problem developed—and such situations are difficult to win. Discussion with carriers/wholesalers, etc. Often, agreements are made between the various parties on a coverage/limits issue. Most agency staff members believe that the carrier/wholesaler will honor those discussions if a problem develops. But what if the person you spoke with is no longer with the carrier? Memorialize these conversations in written communication back to the carrier. Client discussion over the phone. Suppose a client calls to advise the agency, “I’m going to pass on the umbrella proposal you provided.” In addition to documentation in the agency file, send the client a note confirming his or her decision. Without this, there could be a serious question about what the client’s decision was. What-if questions. These fall into the scenario of “Johnny is thinking of taking the car to college. How much would that cost?” You advise the client, and the client says he or she will get back to you. Document these discussions in the file and memorialize them back to the client. These are just some scenarios to include. Meet with agency staff members to discuss this issue and present them with procedures detailing your documentation expectations. Pearsall is president of Pearsall Associates Inc., and special consultant to the Utica National E&O Program.

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Self-storage units, waterdamaged autos and more Insuring time shares Q. My insured has purchased a time share in a condominium and he wants to add this premise to his homeowners policy. The underwriter says no. Could you explain the coverage issues involved considering this refusal? A. First, ask your insured whether this is a deeded time share. If it is, your insured has purchased a fraction of the condominium real estate and acquired title to the property as an owner in common with other time-share purchasers. In this case, Exclusion 4 applies to: “‘Bodily injury’ or ‘property damage’ arising out of a premises: a. Owned by an ‘insured’; … that is not an ‘insured location.’” Note that this exclusion does not apply to the activities of the insured while occupying the premises, only those conditions of the premises itself that could give rise to loss (e.g., injury to a guest or to occupants who have purchased or swapped for the right to occupy the premises during the insured’s stated time). On the other hand, if the time share has been purchased on an undeeded basis there is no owned premises involved—rather, the insured has bought only the right to occupy a unit for a stated time. Exclusion 4 does not apply, because the undeeded unit meets the definition (10.d.) of an ‘insured location’: “Any part of a premises: (1) not owned by the ‘insured’; and (2) where an ‘insured’ is temporarily residing.” This means that, as long as the insured is in residence at the time-share condo, premises liability coverage is afforded under the homeowners policy with respect to the unit. Insureds with an undeeded time share can sell or trade occupancy rights, but they have the responsibility of a tenant only, not that of an owner, for the care and maintenance of the time-share unit. Nevertheless, it still is important to check the insurance coverage purchased by the condo management. Whether the time share is deeded, adequate liability coverage, as well as other necessary coverages (e.g., flood), should exist to protect the value and financial viability of the condo complex and thus protect your insured’s investment.—Dan Corbin, CPCU, CIC, LUTC

Condominium–association bylaws Q. Do I really have to see the insurance requirements in the association bylaws? Can’t I just call and ask a condo association representative?

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A. If the representative appears competent to provide accurate information, this would be OK—as long as you disclose to your client that you are relying on representations made by the association. If you have taken on the responsibility to determine the insurance requirements, I would insist on seeing the condominium instruments (e.g., bylaws, covenants or declarations).—Dan Corbin, CPCU, CIC, LUTC

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Contents in a selfstorage facility Q. Does a Homeowners-3 policy cover personal property stored in a self-storage unit? A. The 2011 edition of the Insurance Services Office Inc.’s HO-3 policy states that the limit of liability for personal property owned or used by an “insured” and located in a selfstorage facility is 10% of the liability limit for Coverage C, or $1,000, whichever is greater. However, this limitation does not apply to personal property, moved from the “residence premise” because it is being repaired, renovated or rebuilt and not fit to live in or store property in or usually located in an “insured’s” residence, other than the “residence premises.”

The 2022 edition of the ISO HO-3 policy changes this threshold limit from $1,000 to $1,500.

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The 2022 edition of the HO-3 policy became effective: Feb. 1, 2022, in Connecticut (but ISO later withdrew the filing); March 1, 2022, in New Hampshire; Nov. 1, 2022, in New York; May 1, 2023, in New Jersey; and Nov. 1, 2023, in Vermont.—Helen K. Horn, CIC, CPIA, CISR

Additional insured–sole negligence Q. Since ISO’s revised additional insured endorsements exclude the sole negligence of the additional insured, is it correct to say that insurance companies now will be looking at whether the named insured was negligent before offering to defend the additional insured?

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A. This is a very discerning question! I suspect that there will be much litigation over this question. In the typical third-party-over action against a general contractor, the employee will not even reference the employer subcontractor in the lawsuit (because a lawsuit against his or her employer is barred), but the employee will attempt to lay 100% blame on the general contractor in order to maximize his or her recovery of damages.

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If the subcontractor’s insurer is permitted to strictly rely upon the precise allegations in the complaint, the insurer may decline to defend the additional insured until comparative fault of the subcontractor has been established.

find and keep good employees.

The outcome may be different in each state because each jurisdiction has its own criteria for enforcing the insurer’s duty to defend. It will be interesting to see how courts address this dilemma.—Dan Corbin, CPCU, CIC, LUTC

Coverage for personal property in a vehicle that was damaged by water Q. Our insureds left their car parked on a street during a period of significant rainfall. Water in the street got so high that it damaged personal contents that they had left in the car. The damage to the car is covered by their auto policy’s comprehensive coverage. In a case like this, how could they get coverage for personal property within the car?

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A. The most likely source of coverage for this loss lies with the Homeowners 5–Comprehensive Form. This form, which covers personal property against all risk of direct physical loss that is not specifically excluded, has an important exception to the Water exclusion. It states, “This [flood] exclusion does not apply to property described in Coverage C that is away from a premises or location owned, rented, occupied or controlled by an ‘insured.’” In my view, a car parked on the street is away from the premises.—Dan Corbin, CPCU, CIC, LUTC

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